LEE SAP PAT v. COMMISSIONER OF INLAND REVENUE AND ANOTHER

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J U D G M E N T

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Fuad, V.-P.:

1. On 8th October 1991, Jones, J. refused the applicant, Madam Lee Sap Pat, leave to apply for judicial review. She now appeals to this Court in the exercise of her rights given by R.S.C. O.53, r.3(4).

2. The history of the matter begins on 28th October 1990 when a police party stopped a goods vehicle near Ah Kung Kok fisherman's village in the New Territories. The applicant was one of the four persons who had been travelling in the vehicle. The police found $1 million in notes in the bag she had with her.

3. On 4th March 1991 Madam Lee appeared in the magistrate's court, Sha Tin, before Mr. L.J. D'Almada Remedios charged with possessing $1 million which was reasonably suspected of having been stolen or unlawfully obtained, contrary to s.30 of the Summary Offences Ordinance, Cap. 228. At the close of the case for the prosecution, a submission of no case to answer was successful and thus Madam Lee was acquitted. In respect of the $1 million, the magistrate made the following order:

"Money to be retained by the police for 14 days and if there is no appeal within that time, money to be returned to the defendant. If appeal lodged within that time money to be retained pending outcome of appeal."

4. The Crown applied to the magistrate to review his decision and on 17th April 1991 the magistrate refused to alter his decision acquitting Madam Lee. He also declined to vary his order regarding the disposal of the $1 million. He had been invited to order that the money be returned to Madam Lee "subject to clearance from the Commissioner of Inland Revenue." No appeal was instituted against the magistrates's decision.

5. Meanwhile, on 13th March 1991, the Commissioner of Inland Revenue issued a notice of assessment and demand for profits tax against "Madam Lee Sap Pat trading as Lee Sap Pat" in respect of the year of assessment 1984/1985. The notice stated that the net assessable profits for that year were $6 million, making the tax due, at 17 per cent, $1,020,000. The due date for payment was stated to be 13th March. Reference was made to the proviso to s.59(1) of the Inland Revenue Ordinance, Cap. 112 and to s.59(3). Subsections (1) and (3) of that section are in the following terms -

"59.(1)    Every person who is in the opinion of an assessor chargeable with tax under this Ordinance shall be assessed by him as soon as may be after the expiration of the time limited by the notice requiring him to furnish a return under section 51(1):

    Provided that the assessor may assess any person at any time if he is of opinion that such person is about to leave Hong Kong, or that for any other reason it is expedient to do so.

    (3)    Where a person has not furnished a return and the assessor is of the opinion that such person is chargeable with tax, he may estimate the sum in respect of which such person is chargeable to tax and make an assessment accordingly, but such assessment shall not affect the liability of such person to a penalty by reason of his failure or neglect to deliver a return."

6. Also on 13th March 1991, Madam Lee was sent a Profits Tax Return to fill in in respect of the 1984/1985 year of assessment.

7. The third document dated 13th march 1991 which was sent to Madam Lee was a copy of a Notice for Recovery of Tax issued by the Commissioner of Inland Revenue under s.76(1) of the Ordinance, and directed to the Commissioner of Police requiring him to pay over a sum not exceeding $1,020,000. For reasons which are at present unclear, notices under s.76(1) addressed to the Commissioner of Police and copied to Madam Lee, in identical terms to the notice dated 13th March, were issued by the Commissioner of Inland Revenue on 16th April and 20th May.

8. Section 76 of the Ordinance provides -

"76.(1)    Where tax payable by a person is in default, or a person charged to tax has quitted Hong Kong or in the opinion of the Commissioner is likely to quit Hong Kong without paying all the tax charged to him, and it appears to the Commissioner to be probable that any other person (hereinafter in this subsection referred to as 'the third party') -

(a)    owes or is about to pay money to such person (hereinafter in this subsection referred to as 'the taxpayer'); or

(b)    holds money for or on account of the taxpayer; or

(c)    holds money on account of some other person for payment to the taxpayer; or

(d)    has authority from some other person to pay money to the taxpayer,

the Commissioner may give the third party notice in writing (a copy of which shall be sent by post to the taxpayer) requiring him to pay such moneys not exceeding the amount of tax in default or charged, as the case may be, to the officer named in the notice. The notice shall apply to all such moneys which are in the third party's hands or due from him or about to be paid by him at the date of receipt of such notice or which come into his hands or become due from him or about to be paid by him at any time within a period of 30 days thereafter.

    (2)    Any person who has made any payment in pursuance of this section shall be deemed to have acted under the authority of the person by whom the tax was payable or on whom it was charged and of all other persons concerned, and is hereby indemnified in respect of such payment against all proceedings civil or criminal notwithstanding the provisions of any written law, contract or agreement.

    (3)    Any person to whom notice has been given under subsection (1) who is unable to comply therewith shall within 14 days of the expiration of the period of 30 days from the date of receipt of such notice give notice in writing to the Commissioner acquainting him with the facts.

    (4)    Any person to whom a notice has been given under subsection (1) who could have complied therewith but failed to do so within 14 days after the expiration of the period referred to in subsection (1), shall be personally liable for the whole of the tax which he was required to pay, and such tax may be recovered from him by all means provided in this Ordinance for the recovery of tax from a person who has made default in payment."

9. On 10th April 1991, Madam Lee declared on the Profits Tax Return she had been sent for the tax year 1984/1985 that she was not carrying on a trade, profession or business. On the same day she sent a notice of objection to the assessment to the Commissioner of Inland Revenue, as was her right under s.64(1) of the Ordinance. By the notice she denied having traded as Lee Sap Pat during the year 1984/1985; she said she was not liable to tax because she had not carried on any kind of business during that year and she claimed that her only source of income had been the $7,000 wages she had earned when, during the months April - August 1984, she had worked at an electronics factory which she named.

10. By letter dated 4th May 1991 Madam Lee's solicitors were told by the police that they were unable to return the money because they were obliged to pay it to the Commissioner of Inland Revenue under s.76(1) of the Ordinance. Further correspondence initiated by the solicitors showed that by the 16th May 1991 the Commissioner of Inland Revenue had not received the money. The Assessor who wrote the letter suggested that if they wanted to know the present position regarding the funds, they should contact the Commissioner of Police. Eventually, by letter dated 11th June 1991, the police informed the solicitors that they had paid the $1 million over to the Commissioner of Police on 7th June, and a copy of the relevant receipt was enclosed.

11. Madam Lee issued the notice of her application for leave to apply for judicial review on 26th June 1991. In the statement accompanying the application, the relief sought and the grounds upon which it was sought appeared as follows -

                "Grounds on which Relief Is Sought

12.    The obvious combined effort by Police officers and officers of the Inland Revenue to thwart the order of the Shatin Magistrate to return the money to the applicant is without good faith and is an abuse of process.

13.    The fact that the assessor responsible has decided to go back six years to 1984/85 (apparently under Section 60(1) of the Inland Revenue Ordinance) for the Assessment and Demand is evidence of bad faith. The effect is to cause delay and make it as difficult as possible for the applicant to resolve her efforts to recover her money. She has challenged the assessment and this commences the often long statutory appeal procedure under Part X1 of the Inland Revenue Ordinance. Whilst Section 64(2) requires the Commissioner of Inland Revenue to consider valid Notice of objections within a reasonable time, in fact delays are common and there is authority for showing delays can run to years. See Nina T.H. Wang and Commissioner of Inland Revenue Miscellaneous Proceedings No. 3753 of 1990, Mr. Justice Barnett 22nd May 1991. After the 1984/85 Assessment objection has been processed it is not unreasonable to expect that another Assessment/Demand for 1985/86 will be issued and so on until 1990/91. Thus it appears that the Commissioner of Inland Revenue through his agents are deliberately delaying the matter and preventing, for as long as possible, the recovery of the money by the applicant. The resolution of the matter is thus not in sight and the seizure of the money by Police and its subsequent payment to the Inland Revenue (if that has in fact taken place) has the appearance, especially after the applicants no case to answer at Shatin Magistracy, of an extra-judicial punishment.

14.    The assessor lacked the jurisdiction to estimate the assessment under Section 59(1) and 59(3) of the Inland Revenue Ordinance. There are strict provisions regarding the issuing and filing of returns under Section 51. These are not followed. Section 59(1) covers the situation where the taxpayer is about the leave Hong Kong or it is otherwise expedient to urgently raise an assessment. That was not the case with the applicant. Section 59(3) applies when a tax payer has failed to file the tax return sent to him. That does not apply in this case as the applicant never got the return until the 13th March, 1991, the date of the assessment and Demand.

15.    The applicant was never told why, in the opinion of the assessor, Sections 59(1) and 59(3) applied, in particular why was it expedient to assess the applicant without a tax return. No assets betterment statement was provided to the applicant or anything else to explain the demand.

16.    The assessment was thus arbitrary has the appearance of vindictiveness and is unreasonable in the Wednesbury sense).

17.    The Police in failing to return to money to the applicant on the 18th March 1991 or soon after as was practicable, as ordered by the Shatin Magistrate were in contempt of Court.

18.    The applicant has been deprived of the use of her money since the 28th October 1990.

19.    The servants of the Commissioner of Police and the Commissioner of Inland Revenue have acted in an arbitrary, oppressive and unconstitutional manner as using their positions to punish the applicant when the Judicial arm of Government quite rightly failed to do so.

Relief Sought

12. The relief sought in this matter is as follows:-

1.    A declaration that the Notice of Assessment and Demand For Profit Tax - Year of Assessment 1984/85 is invalid.

2.    A Declaration that the Notices For Recovery of Tax Under Section 76(1) of the Inland Revenue Ordinance to the Commissioner of Police were invalid.

3.    A declaration that in all the circumstances the actions of the Commissioner Police is not returning the money to the applicant as ordered by the Shatin Magistrate was unlawful and in contempt of Court.

4.    An order that the Applicants money be returned to her in accordance with the order of the Shatin Magistrate on the 4th March, 1991.

5.    Damages.

6.    Interest

7.    Costs.

8.    That all necessary and consequential Direction be given."

13. The application for leave came for hearing before Jones, J. on 8th October 1991 and his judgment of that date begins by noting that Kaplan, J. had ordered it to be heard inter partes. The Commissioners respectively of Inland Revenue and of Police were the respondents. It is clearly accepted practice (although there is no express rule on the point) that the court may adjourn an ex parte application for the respondent to be represented (see e.g. R. v. I.R.C., ex parte National Federation of Self-Employed and Small Businesses [1982] AC, 617, at p.642, per Lord Diplock.)

14. After relating the background of the matter, the learned judge concluded his judgment in these words -

    "Mr. Tolliday-wright, counsel for the applicant, contended that the Commissioner of Inland Revenue had failed to comply with s.51 of the Ordinance, for the applicant had not been supplied with a tax return for completion, but there is in fact no obligation on the part of the Commissioner to do so. He then went on to submit that the Commissioner was not entitled to make an assessment under s.59. However, the provisions quite clearly enable an assessment to be made if it is expedient to do so, and if a return has not been furnished, may make an estimate of the sum in respect of which the person is to be chargeable for tax. No ground has been advanced to show that the Commissioner has exceeded his jurisdiction or that he has acted illegally.

    Essentially the applicant's complaint is that the Commissioner has acted unfairly, although this is inconsistent with the steps that she has taken by objecting to the assessment. I do not agree, in any event, that the Commissioner can, in any way, be criticised on these grounds for I consider that it was perfectly reasonable in the circumstances of this case to make such an assessment. Whether the assessment is reasonable or not rests for determination by the Commissioner after representations have been made by the applicant. If the assessment is upheld, an appeal lies to the Board of Review and thereafter to the High Court on a point of law by way of case stated. The argument that this procedure will take a long time is irrelevant. Further, no criticism can be directed at the Commissioner of Police who was obliged to transfer the monies to the Commissioner of Inland Revenue in accordance with s.76 of the Ordinance.

    The present application was wholly misconceived and doomed to failure and is dismissed with costs to the Crown."

15. No issue, of course, arose in the present case as to whether Madam Lee had a "sufficient interest" in the matter for the purposes of O.53, r.3(7). There was no suggestion that she had been guilty of undue delay in applying for relief. Therefore the task of the judge was to consider whether or not he was satisfied that Madam Lee had demonstrated that she had an arguable case for review.

16. I think it is helpful here to cite from the first authority referred to in para.53/1-14/31 of the Supreme Court Practice, 1991 at p.833. In R. v. Secretary of State for the Home Department, ex parte Rukshanda Begum [1990] COD 10, which were cases which reached the Court of Appeal after an inter partes leave hearing, at p.108, Lord Donaldson, M.R., is reported to have said -

".... a judge who is confronted with an application for leave to apply for judicial review should grant it if he is clear that there is a point fit for further investigation on a full inter partes basis with all such evidence as is necessary on the facts and all such argument as is necessary on the law. If he is satisfied that there is no arguable case he should dismiss it. But there is an intermediate category of cases in which the judge, on looking at the papers which support the application, can very reasonably come to the conclusion that he really does not know whether there is or is not an arguable case, either because the facts are not clear or because he has not received sufficient assistance with the law to enable him to be satisfied as to precisely what the relevant law is. That is not necessarily a criticism of counsel supporting the application: it may well be inherent in the problem.

    In those circumstances, where he is in doubt, the right course, in my view, is always to invite the putative respondent to attend and to make representation as to whether leave should or should not be granted. This is not to say that the subsequent inter partes hearing should become anything remotely like the hearing which would ensue if leave were granted. It is analogous to the approach which was considered by Lord Diplock in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191 at 207 in a quite different context, that of arbitration; if, taking account of a brief argument on either side, the judge is satisfied that there is a case fit for further consideration, then he should give leave. Adjournment for an inter partes hearing will at least enable the judge to have a bird's eye view of the contentions on both sides and any doubts or difficulties are likely to be resolved one way or the other; that is to say either in favour of granting leave or in favour of refusing leave, or resolved in the sense that it is obviously very difficult and needs further thought, which of course amounts to a requirement for leave to be granted."

17. Mr. Robert Andrews, who represents the two Commissioners, as he did at the inter partes leave hearing, seeks to uphold the decision of the judge. He argues, according to his helpful "skeleton", that the proviso to s.59(1) of the Ordinance operates independently of the main body of the subsection. While he conceded that in terms of the subsection the assessor did have to have a reason for expediency (a reason which was not capricious, in bad faith or amounting to an abuse of power) the "person" mentioned in the proviso did not have to be a "person who is in the opinion of an assessor chargeable with tax". He argued that on the basis of what Madam Lee had admitted in her affirmation, there was good reason for the assessor to consider it expedient to assess her to tax. The circumstances of her detention by the police on the 28th October were such, in his submission, as to raise an overwhelming inference that she was carrying on a trade or business in Hong Kong in respect of which there were assessable profits. Her possession of $1 million was itself evidence of profits of a trade or business. Moreover the fact that the money was in the possession of the police was another reason for it to be expedient for the assessor to assess her without first requiring the appellant to furnish a return.

18. Mr. Andrews contended that by making the assessment under the proviso, the assessor was protecting the possible loss of a substantial amount of public revenue as was the Commissioner of Inland Revenue in issuing the notice pursuant to s.62 of the Ordinance. He argued that for the assessor to have power to estimate a sum in respect of which a person is chargeable to tax, it was enough that a return had not been furnished, and the estimate had been genuinely based upon the information available to the assessor at the time.

19. Counsel further submitted that there was no provision in the subsection for an estimate to be "genuine". He went on to argue that the assessor's powers under s.59 were exercisable in circumstances quite independently of the provisions of s.51 which give the power to an assessor to require a person to furnish a return.

20. Mr. Andrews also pointed out that Madam Lee had an alternative remedy available, for both the Commissioner in determining an objection to an assessment, and the Board of Review in determining an appeal, had power to confirm, reduce, increase or annul an assessment under ss.64(2) and 68(8)(a) of the Ordinance.

21. Mr. Andrews also submits that the Commissioner's powers under s.76 could lawfully be exercised where tax payable by a person is in default and since the tax charged had not been paid on the due date, it was in default.

22. It was also contended that the Commissioner of Police, who was charged by the Police Ordinance with the duty of "assisting in the carrying out of any revenue .... laws" was entitled to accept the notice issued by the Commissioner of inland Revenue under s.76 as a legal requirement, and to act upon it.

23. As to the effect of the magistrate's order regarding the disposal of the $1 million at the conclusion of the hearing before him, Mr. Andrews pointed out that the Commissioner of Inland Revenue had not been a party to the proceedings and suggested that it was wrong to presume that the magistrate had intended to letter the Commissioner of Inland Revenue's lawful and statutory duty of assessing and collecting revenue.

24. Counsel also contended that if it could rightly be said that the Commissioner of Police was in contempt of the magistrate's order, that was not a matter for the court but a matter between the magistrate and the Commissioner. For that reason, he suggested, the third declaration sought would not be an appropriate one for the court to make.

25. In view of the way I have resolved that this appeal should be decided (and my Lords have indicated that they are minded to agree with me) I do not think that I should say too much about the merits of the grounds put forward on Madam Lee's behalf for the relief she seeks, and of those argued in opposition. However, I feel bound to say, with very great respect to the learned judge who so firmly took a different view, that I cannot agree that it has been shown on the material before the court, that Madam Lee's application for judicial review was wholly misconceived and doomed to failure.

26. It seems to me that the learned judge concentrated on the undoubted powers given by the legislature to the Commissioner of inland Revenue by the Ordinance. In the absence, so far, of any affidavit evidence filed on behalf of the Commissioner of Inland Revenue to explain and justify what was done in his name, for my part I entertain no doubt that on the material put before the court by Madam Lee, matters were indeed raised which were fit for further investigation and consideration. To put the matter broadly, the court will surely be entitled, and indeed bound, to go into the question whether the powers given by the Inland Revenue Ordinance, particularly to go back for six years, were exercised for the purposes of and in the manner contemplated by the statute and not in an arbitrary or irrational manner so as to amount to an abuse of the powers conferred. When all the evidence is in and after full argument, it may, I do not know, turn out that all that was done was wholly proper and in accordance with the law, but at this stage, in the somewhat unusual circumstances which arise in this case, I do not feel that it is sufficient simply to point to the relevant statutory powers.

27. In my judgment, another matter which will need to be gone into in view of the unusual facts of the instant case, is whether it was good administration or lawful for the Commissioner of Inland Revenue to issue and for the Commissioner of Police to obey, a notice issued under s.78 of the Ordinance while an order of a court which directs that specific bank notes be disposed of in a certain way still stands despite an unsuccessful attempt to get the magistrate concerned to vary his order.

For these reasons I would allow the appeal and grant Madam Lee leave to apply for judicial review, directing for the purposes of O.53, r.5(1), that the application be made by originating motion to a judge in open court, to be filed within 14 days.

Yang, C.J.:

28. I agree.

Clough, J.A.:

29. I also agree.