TAK WING INVESTMENT CO. LTD. v. THE COMMISSIONER OF INLAND REVENUE

HCAL 189/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NO. 189 OF 2001

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J U D G M E N T

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1. This is an application for leave to apply for judicial review by way of certiorari and/or prohibition. It concerns proceedings brought in the District Court by the Commissioner of Inland Revenue to recover assessments of profit tax from the Applicants in respect of the years 1994/95 and 1995/96.

2. The Revenue had originally made nil assessments for these two years but following an inquiry letter in November 1996 the Applicants' solicitors provided some information requested in June 1997. In June 1999 the Commissioner issued a revised assessment in respect of alleged gains for the year 1995/96 and in March 2000 issued a revised assessment in respect of alleged gains for the year 1994/95. Surcharges have been made in respect of the default in payment. Objections to the assessment have been lodged with the Commissioner and these have not finally been determined.

3. The Revenue in reliance upon the powers given by section 75 of the Inland Revenue Ordinance (Cap. 112) commenced proceedings by Writ in the District Court on the 11 August 2000, now five months ago. The timetable of these proceedings is worth stating shortly.

4. The Writ was served on the 25 August. On 7 September and 9 October the Defendants made successive applications for extensions of time within which to file their Defence. It was in fact filed on 8 November. It raises estoppel and a denial of liability to tax relying upon the initial 'nil' assessments. It is not necessary for me to go into the details or merits of the Defence.

5. On 24 November the Revenue took out a summons to strike out the Defence under Order 18 rule 19 and seeking judgment for the tax assessed. It was returnable on 8 December 2000 but adjourned to 7 February 2001 (tomorrow). On 31 January the Defendants in the action (the Applicants) took out a summons, also under Order 18 rule 19, to strike out the Plaintiff's action, returnable on 7 February 2001.

6. This application for leave was taken out on 2 February 2001. It is not difficult to see that it is designed to prevent the District Court considering these summonses and in particular to prevent an order being made in the terms of the Revenue's summons.

7. Mr Robert Kotewall SC readily concedes that the application before me has not, in relation to the proceedings in the District Court, been taken out promptly, and that it is outside the three months limit provided for by Order 53 rule 4. That three month period runs from "the date when the grounds for the application first arose". The grounds arose first with the service of the writ, over five months ago. Mr Kotewall has argued that since the application seeks a prohibition in respect of the Revenue's summons to strike out the Defence under Order 18 rule 19, he is within the three month period. Since it is the process in the District Court which the applicants seek to review I have concluded that the operative date must be 25 August 2000 at the latest.

8. The Court nonetheless has power to extend the three month period if it considers that "there is good reason for extending" it. Mr Kotewall has fairly conceded that the matter was overlooked until advice was recently given. I doubt whether I could properly regard this as a good reason, and in any event it seems to me from the text of the argument, that the applicants wanted the internal avenues of objection, consideration, assessment, objection, appeal etc. to be exhausted before any court proceedings. Accordingly objection should be taken to the enforcement proceedings in the District Court (for that it what they are) promptly following service of the Writ. In my judgment the applicants fail at their first hurdle under Order 53 rule 4(1).

9. Nevertheless I move on to consider whether judicial review in fact lies in respect of the matter complained of.

10. The District Court is of course a court of competent jurisdiction and the Revenue has the right to commence proceedings to secure payment of tax due and payable under section 75(2) of the Inland Revenue Ordinance. I note the words of Lord Diplock in I.R.C. v. National Federation of Self-Employed and Small Businesses Ltd. 1982 AC 617 (at page 637E):

"... Judicial review is available only as a remedy for conduct of a public officer or authority which is ultra vires or unlawful, but not for acts done lawfully in the exercise of an administrative discretion which are complained of only as being unfair or unwise ..."

11. This was a passage cited with approval by Lord Scarman in Re-Preston 1985 AC p.835 (at page 851H-852A).

12. The act done is the commencement of proceedings to collect assessed tax under the power endowed specifically by the Ordinance. S.75(4) goes on to indicate that the proceedings are not to be thwarted by a contention that the tax is, inter alia, subject to objection or appeal. The District Court judge has clear powers under Order 18 rule 19. He can also order the amount claimed to be paid into court pending the determination of any other matters between the parties. The Revenue's power under the Ordinance is clearly designed to protect its, or rather the government's, position in respect of assessed tax.

13. Miss Nancy Kwok who appeared on behalf of the Inland Revenue (through the Department of Justice) gave an undertaking on behalf of the Commissioner that he will follow the normal procedure, notwithstanding the proceedings in the District Court, and consider the objections raised by the taxpayer. There are, as Miss Kwok outlined, two parallel procedures available to the Revenue - what I call the internal or domestic system of objection, determination ending with the Board of Review (and appeal to the High Court), and the statutory power under sections 71 and 75 enabling the recovery of tax, even if only on an interim basis, regardless of the internal appeal process.

14. The Court of Appeal was asked to consider a similar situation in Ng Chun Kwan v. the C.I.R. H.K.L.R. 1976 p.94. The jurisdiction of the District Court under section 75 is limited. "The ... Ordinance distinguishes carefully between assessment and tax. It provides an elaborate method of appealing against the assessment of tax." That is still available to the applicants. Briggs CJ went on:

"The question whether an assessment is a nullity or not can be raised by way of an objection in an appeal under the provisions of that Part of the Ordinance. There is no question of shutting out the appellant from the Court. There are specific provisions which include an appeal to a Board of Review and from the Board an appeal lies to the High Court."

15. In C.I.R. v. Choy San Kam and Chan Yu-Hong Kong Tax Cases 10 (C.A.), Barker JA (at page 15) said:

"The ouster of the Court's jurisdiction by virtue of section 75(4) to entertain a plea that the tax is incorrect does not mean that the taxpayer has no means of redress. He has the procedure laid down by sections 64, 68 and 69, wherely he can raise all the matters which he would have wished to raise by way of Defence."

16. Judicial Review does not lie as a remedy for the Applicants in these circumstances. They cannot oust the District Court's jurisdiction in this respect and in this way. It is inappropriate. They have the remedies with the internal procedure laid down in the Ordinance. Miss Kwok will no doubt repeat the undertaking, which is a re-statement of the Applicants' entitlement under the aforesaid sections of the Ordinance, to the learned District Judge on the hearing tomorrow.

17. The application is therefore dismissed. I have made no order for costs but this matter is left open for argument if necessary. It started off as an 'ex parte' application but notice was given to the Revenue resulting in Miss Kwok's appearance before me.