HO KWOK TAI v. COLLECTOR OF STAMP REVENUE

HCAL 49/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NO 49 OF 2015

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J U D G M E N T
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INTRODUCTION

1.  Stamp duty is the oldest of the taxes administered by the Inland Revenue Department.  It dates back to 1866 in the reign of Tongzhi.  It is commonly thought of as a tax payable when you buy your home.  But it is not actually a tax on such transactions.  It is instead a tax on the instrument by which such transactions are effected.  It covers not only transactions for the sale of immoveable property, but also transfers of shares and other instruments.  It is a highly effective source of revenue for the Government. In recent years it has regularly accounted for more than 10% of the revenue derived from taxation.  It is governed nowadays by the Stamp Duty Ordinance (Cap 117) (“the SDO”).

2.  Successive governments have used stamp duty to address particular social problems.  For example, in order to curb speculation in the residential property market in 1992, agreements for the sale of residential property became liable for stamp duty.  Previously, stamp duty had only been levied on the assignment or conveyance.  Since 2010, additional duties have been levied to reduce the disposal of property soon after its acquisition, and to discourage foreign investment in residential property.  Finally, on 22 February 2013, the Secretary for Financial Services and the Treasury (“the Financial Secretary”) announced additional measures.  One of them was to double the scale of duty in order to discourage activity in the property market.  That was subject to a number of exceptions, one of which lies at the heart of this case.  You do not have to pay duty at the new rate if you are buying a residential property for the first time or selling one residential property and buying another.  And if you buy your new residential property before selling your old one, you can apply for a refund of the increased duty you had to pay if you went on to sell your existing residential property within a short time. The issue which arises in this case is whether that refund is available if you had more than one residential property (let us say two), both of which you sold within a short time of your purchase of the new property.  The Collector of Stamp Revenue (“the Collector”) took the view that the refund is not available in such circumstances.  The taxpayer, Ho Kwok Tai, argues otherwise.  In this application for judicial review, he contends that the Collector was wrong to have denied him the refund he sought. The facts are not in dispute, and I set them out in such detail as is necessary for present purposes.

THE FACTS

The purchase of the flats in Tsing Yi

3.  Mr Ho married his wife in 1995.  That year they purchased a flat in a development in Tsing Yi.  They were living there in 2006 when Mr Ho’s wife became pregnant. They thought that they would need a larger flat when their baby was born.  So in December 2006 they purchased a larger flat in the same development, and moved into the new flat in 2007.  They did not sell their old flat.  Instead they let Mr Ho’s wife’s brother live these rent‑free.

The agreement to purchase the flat in Ma Wan

4.  In March 2013, Mr Ho’s wife gave birth to their second child.  They decided to move to a larger flat to accommodate their growing family.  Mr Ho was under the impression that if he and his wife disposed of their two flats in Tsing Yi within six months of acquiring the new flat, he would be eligible for half of the stamp duty which he had to pay on his purchase of his new flat to be refunded to him.  I shall return later to what it was which caused him to think that, but on 12 June 2013 Mr Ho entered into a provisional agreement for the purchase of a flat in Ma Wan.  Since he was financing this purchase from the proceeds of sale of the two flats in Tsing Yi, the agreement provided that the purchase would be completed by 12 December 2013, ie six months later, by which time Mr Ho confidently expected to have sold the two flats in Tsing Yi.  A formal agreement for the purchase of the flat in Ma Wan was concluded on 25 June 2013.

The sale of the two flats in Tsing Yi and the purchase of the flat in Ma Wan

5.  In the meantime, Mr Ho and his wife had put the two flats in Tsing Yi on the market.  The larger of the two flats was the first to attract a buyer, and on 15 June 2013 Mr Ho and his wife entered into a provisional agreement for its sale.  The smaller of the two flats was the second to attract a buyer, and on 8 August 2013 Mr Ho and his wife entered into a provisional agreement for its sale. Both agreements provided for the sale to be completed by dates which were well before the date for the completion of Mr Ho’s purchase of the flat in Ma Wan.  That was in part, of course, because he needed the proceeds of sale of the two flats in Tsing Yi to fund his purchase of the flat in Ma Wan, but also because he thought that he needed to dispose of them within six months of 12 June 2013 if he was to be refunded half of the stamp duty he had to pay.  The completion of the sale of the two flats in Tsing Yi took place on 15 August 2013 and 23 September 2013 respectively, and the completion of Mr Ho’s purchase of the flat in Ma Wan took place on 7 October 2013.  That was when the flat in Ma Wan was conveyed to him.

The payment of stamp duty

6.  The formal agreement for the purchase of the flat in Ma Wan was the instrument on which stamp duty was levied.  The duty amounted to $273,750.  It was paid by Mr Ho on 28 June 2013.  By then, the Government had announced that the duty payable on agreements for the sale of immoveable property executed on or after 23 February 2013 would be increased, though that additional duty would not be collected until after the enactment of the ordinance giving effect to the new rate of duty.  The ordinance giving effect to the new rate was the Stamp Duty (No 2) Ordinance 2014 (“the 2014 Ordinance”).  It was enacted on 25 July 2014, and Mr Ho paid the additional duty due under it, which amounted to $273,750, on 20 August 2014.

The application for a refund

7.  Mr Ho believed that he was entitled to have the additional duty of $273,750 refunded to him.  Accordingly, through his solicitors he applied to the Collector for the refund of that amount.  That was on 6 November 2014.  The application was refused by the Collector on 15 January 2015.  That is the decision challenged on this application for judicial review.  The Collector’s decision was made on the basis that Mr Ho would only have been eligible for a refund if the property he had disposed of had been his only residential property.  Since he had disposed of two residential properties, the particular provision on which he relied did not apply to him.  The proper construction of that provision is at the heart of this case.

THE RELEVANT LEGISLATION

8.  The 2014 Ordinance did not simply introduce a new rate of stamp duty.  Among the other things which it did was to provide for exemptions from the new rate, and to identify the circumstances when either the old rate would apply or people would be entitled to apply for a refund of the additional duty they had already paid.  Sections 29AJ and 29BB, which were added to the SDO by the 2014 Ordinance, contained an important exemption for present purposes.  For reasons which will become apparent shortly, I propose to set out section 29BB first.  It provides, so far as is material:

“(1) An agreement for sale is chargeable with stamp duty under [the old rate] if—

(a) the property concerned is residential property; and

(b) it is shown to the satisfaction of the Collector that subsection (2) or (3) applies to the agreement.

(2) This subsection applies to the agreement if, on the date of the acquisition of the property—

(a) the purchaser, or each of the purchasers, under the agreement is a Hong Kong permanent resident acting on his or her own behalf; and

(b) that purchaser, or each of those purchasers, is not a beneficial owner of any other residential property in Hong Kong.”

Section 29BB(3) is similar to section 29BB(2), save that it applies when there is more than one purchaser under the agreement, of whom at least one is a Hong Kong permanent resident.  Section 29AJ is in similar terms to section 29BB.  The only material difference between the two relates to the nature of the instrument which is chargeable to duty. The instrument chargeable to duty in section 29BB is the agreement for sale, whereas the instrument chargeable to duty in section 29AJ is the conveyance on sale.  I have set out section 29BB rather than section 29AJ because the instrument on which duty was charged in this case was an agreement for sale, but what lies behind both sections is clear enough.  Hong Kong permanent residents who purchase a new residential property will not have to pay duty at the new rate if their new property is going to be their only residential property.

9.  But what happens if you purchase your new residential property before you have sold your old one?  In that event, there would be a time, perhaps only a short time, when your new property was not going to be your only residential property in Hong Kong.  That eventuality was catered for by section 29DF of the SDO, which was also added to the SDO by the 2014 Ordinance. Section 29DF is headed “Partial refund of … stamp duty on disposal of residential property in certain circumstances”, and provides, so far as is material for present purposes, as follows:

“(1) In this section—

applicable instrument means an instrument—

(a) under which a residential property … is acquired; and

(b) on which stamp duty has been paid according to Scale 1 … ;

original property, in relation to a person who acquires a subject property under an applicable instrument, means another residential property … of which the person is a beneficial owner on the date of that acquisition; …

subject property means the residential property … acquired under an applicable instrument.

(2) The Collector may, on an application made by a person (applicant) who had paid stamp duty on an applicable instrument, refund to the applicant the specified amount if—

(a) subsection (3) or (4) applies to the disposal of an original property of the applicant; and

(b) had the property been disposed of before the subject property was acquired, the applicable instrument would have been chargeable with stamp duty under Scale 2 …

(3) This subsection applies to the disposal of an original property of an applicant if—

(a) it is shown to the satisfaction of the Collector that the original property is disposed of by the applicant under an agreement for sale that is made within the period specified in subsection (5);

(b) it is shown to the satisfaction of the Collector that the original property is transferred or divested from the applicant under a conveyance on sale executed in conformity with that agreement; and

(c) the application for refund is made by the applicant not later than 2 years after the date of the applicable instrument …

(4) This subsection applies to the disposal of an original property of the applicant if—

(a) it is shown to the satisfaction of the Collector that the original property is transferred or divested from the applicant under a conveyance on sale within the period specified in subsection (5); and

(b) the application for refund is made by the applicant not later than 2 years after the date of the applicable instrument …

(5) For subsections (3)(a) and (4)(a), the following period is specified—

(a) if the applicable instrument is a conveyance on sale — 6 months after the date of that instrument; or

(b) if the applicable instrument is an agreement for sale — 6 months after the date of the conveyance on sale executed in conformity with the agreement for sale.”

In this case, there was not just one “original property”.  There were two original properties, and they were the two flats in Tsing Yi.  The “subject property” was the flat in Ma Wan.  The “appropriate instrument” was the formal agreement for the purchase of the flat in Ma Wan.  “Stamp duty under Scale 1” was the new rate of stamp duty.  “Stamp duty under Scale 2” was the old rate of stamp duty.  The “specified amount” was the difference between the old rate of stamp duty and the new rate.

10.  Some parts of section 29DF were drafted, as was acknowledged by Mr Eugene Fung SC for the Collector in his exceptionally comprehensive and lucid written submissions, in language which is not entirely straightforward, but the purpose of the section is clear enough.  It provides a mechanism for people who buy their new residential property before selling their existing residential property to obtain a refund of part of the duty they have paid.  They have to pay the duty at the new rate when they acquire their new residential property, but they will be entitled to a refund of part of that duty if they can show that their previous residential property was sold within six months of the completion of the purchase of their new residential property.  That accords with what was said in the Explanatory Memorandum of the Bill which became the 2014 Ordinance.  Paragraph 12(b) of the Memorandum said that section 29DF:

“ … provides for partial refund of … stamp duty on the disposal of a previously owned residential property within a specified period after the acquisition of another residential property in certain circumstances …”

11.  The core part of section 29DF is section 29DF(2).  That is the subsection which entitled Mr Ho to apply for a refund of the additional stamp duty of $273,750 he had paid on 20 August 2014 if the conditions for a refund had been met.  There is an argument for saying that there was no obligation on the Collector to refund that duty to Mr Ho even if those conditions had been met.  That could well be the effect of the word “may” in section 29DF(2).  However, Mr Fung told me that the Collector would have refunded the relevant part of the duty to Mr Ho had Mr Ho met the conditions for such a refund.  The only question, therefore, is whether he met those conditions.

DID MR HO MEET THE CONDITIONS?

The conditions Mr Ho undoubtedly met

12.  There is no doubt — indeed the Collector accepts — that Mr Ho met most of those conditions.  He was a beneficial owner of the two flats in Tsing Yi at the time he entered the formal agreement for the purchase of the flat in Ma Wan (so that each of the two flats in Tsing Yi, if considered separately, would have amounted to an “original property”).  He paid stamp duty at the new rate on that agreement (so that that agreement amounted to an “applicable instrument”).  And Mr Ho applied for a refund of the difference between the old rate of duty and the new rate well before two years had elapsed since he had entered the formal agreement for the purchase of the flat in Ma Wan (thereby meeting the conditions in sections 29DF(3)(c) and 29DF(4)(b)).

The condition in section 29DF(2)(a)

13.  Mr Fung told me at the hearing that the Collector also accepted that Mr Ho had met the condition in section 29DF(2)(a).  In the course of writing this judgment, I became sceptical about whether that concession had been rightly made.  My concern was this.  Since the applicable instrument was the formal agreement for the purchase of the flat in Ma Wan dated 25 June 2013, the relevant period of the two periods specified in section 29DF(5) was the period specified in section 29DF(5)(b).  Since the flat in Ma Wan was conveyed to Mr Ho on 7 October 2013, it looked to me as if the specified period was 7 October 2013 to 7 April 2014.  Therefore, if section 29DF(3) was to apply to the disposal of the two flats in Tsing Yi, they had to have been disposed of under agreements for sale made within the period between 7 October 2013 and 7 April 2014, if Mr Ho was to be entitled to a refund.  In fact, they were disposed of before then, namely under provisional agreements for sale dated 15 June 2013 and 8 August 2013.  Similarly, if section 29DF(4) was to apply to the disposal of the two flats in Tsing Yi, they had to have been conveyed by Mr Ho between 7 October 2013 and 7 April 2014, if Mr Ho was to be entitled to a refund.  In fact, they were conveyed before then, namely on 15 August 2013 and 23 September 2013.  I set this concern out in a note I sent to the parties.

14.  Mr Fung helpfully articulated the basis of the concession in his response to that note.  He agreed that the specified period for the purpose of both sections 29DF(5)(a) and 29DF(5)(b) ended on 7 April 2014, as that was six months after the date on which the flat in Ma Wan had been conveyed to Mr Ho.  However, what the Collector was conceding was that the specified period began, not on 7 October 2013 as I had thought, but on the date of “the applicable instrument”, ie the date of the formal agreement for Mr Ho’s purchase of the flat in Ma Wan, which was 25 June 2013.  I accept that that is a preferable reading of the section — not so much because that is what the language of the section dictates (indeed, I think that a more natural reading of the statutory language is the way I had originally read it) — but rather because it accords with the legislative intention, which as I have said was to exempt buyers from the new rate of duty if they dispose of their original property even after they have agreed to purchase their new one, provided that they do so relatively quickly.

15.  Even then, though, section 29DF(3) would not have applied to the disposal of both the flats in Tsing Yi.  The smaller of the two flats had been disposed of by Mr Ho under an agreement for sale made after the beginning of the specified period on 25 June 2013, namely on 8 August 2013, but the larger of the two flats had been disposed of by Mr Ho under an agreement made before the beginning of the specified period on 25 June 2013, namely on 15 June 2013.  Accordingly, it was not disposed of within either of the periods specified in section 29DF(5).  A different result is reached, though, under section 29DF(4).  On the basis that the specified period started on 25 June 2013, section 29DF(4) did apply to the disposal of the two flats in Tsing Yi.  That is because both flats were transferred or divested from Mr Ho by conveyances dated 15 August 2013 and 23 September 2013 respectively, both those dates being within the specified period starting on 25 June 2013.  Since section 29DF(4) applied to the disposal of the two flats in Tsing Yi, Mr Ho met the condition in section 29DF(2)(a).  The Collector’s case is that it was the condition in section 29DF(2)(b) which Mr Ho did not meet.

Singular for plural

16.  Before considering that contention, one important feature of section 29DF should be noted.  It talks of “an” original property in sections 29DF(2), 29DF(3) and 29DF(4), and the term “original property” is defined by reference to “another residential property”, ie a property other than the property being purchased.  So when section 29DF refers to the purchaser’s original property, it is referring throughout to such a property in the singular.  However, that is not decisive.  Mr Fung acknowledged as much by his reliance only on the contention that Mr Ho did not meet the condition in section 29DF(2)(b). There are two reasons for that.  First, it may be that section 29DF was merely identifying what constitutes an original property for it to be an original property within the meaning of the section.  On that view, its use of the singular was not an attempt to exclude from the ambit of section 29DF purchasers who were selling more than one property to fund the purchase of their new property.  Secondly, section 7(1) of the Interpretation and General Clauses Ordinance (Cap 1) (“the IGCO”) provides that “[w]ords and expressions in the singular [in an ordinance] include the plural …”, so the references in section 29DF to “an” original property should be read as including more than one property, unless, of course, it appears that the contrary was intended (see section 2(1) of the IGCO).  The Collector’s case is that the condition to be met by the purchaser in section 29DF(2)(b) shows that the contrary was intended, and that section 29DF applies only when the purchaser is a beneficial owner of a single residential property on the date of his acquisition of his new residential property.

The condition in section 29DF(2)(b)

17.  That brings me, then, to the condition in section 29DF(2)(b).  It proceeds on the assumption that the condition in section 29DF(2)(a) cannot be met.  The condition in section 29DF(2)(a) can only be met where the purchaser acquired his new property before disposing of his previous one.  On the other hand, the condition in section 29DF(2)(b) proceeds on the assumption that the purchaser acquired his new property after disposing of his previous one.  That assumption is purely hypothetical because it is the opposite of what actually happened if the condition in section 29DF(2)(a) has been met.  So the issue which section 29DF(2)(b) addresses is whether the duty would have been chargeable at the old rate if, contrary to what in fact had occurred, the purchaser had acquired his new property after disposing of his previous one.  To determine that issue, it is necessary to look at the provisions in the SDO which identify when duty is chargeable at the old rate.  For that, we have to go back to sections 29AJ and 29BB. 

18.  The argument advanced by Mr Fung goes like this.  If the purchaser has only one residential property in Hong Kong and disposes of that property before the acquisition of the new property, he would not be “a beneficial owner of any other residential property in Hong Kong” on the date of his acquisition of the new property.  In that event, duty would be chargeable at the old rate on the conveyance on sale under section 29AJ or on the agreement for sale under section 29BB.  That is to be contrasted with what the position would be if the purchaser has more than one residential property in Hong Kong and disposes of only one of those properties before the acquisition of the new property.  He would in that case be “a beneficial owner of [some] other residential property in Hong Kong” on the date of his acquisition of the new property. In that event, duty would not be chargeable at the old rate, but at the new rate.

19.  This distinction is said to show that the premise which underlies the assumption which section 29DF(2)(b) requires to be made — namely that the purchaser had acquired his new residential property after disposing of his previous one — is that the purchaser’s previous residential property was his only residential property at the time.  It is conceded that this cannot be found in the definition of “original property” in section 29DF(1), but the Collector’s case is that it is to be derived from a proper construction of section 29DF(2)(b) when considered in the light of sections 29AJ and 29BB.

20.  I pay tribute to the ingenuity of this argument, but its fallacy lies in Mr Fung’s choice of his second scenario which, together with the first, gives rise to what is said to be the premise which underlies the assumption which section 29DF(2)(b) requires to be made.  In the first scenario, the purchaser has only one residential property which he disposes of before he acquires the new property.  What that has to be compared with is the scenario where the purchaser has more than one residential property (let us say two), and disposes of both of those properties before he acquires the new property.  In that event, he would not be “a beneficial owner of any other property in Hong Kong” on the date of his acquisition of the new property. The sleight of hand at the heart of Mr Fung’s argument was the choice of one particular scenario (in which the owner of two residential properties sold only one of them) whereas his choice of another scenario (in which the owner of two residential properties sold both of them) would have produced an entirely different result.  Mr Fung engineered the result he wanted by the particular scenario he chose.  The fact is that there is no assumption which section 29DF(2)(b) requires to be made about the number of residential properties the purchaser has, provided that he sells them all before acquiring his new residential property.

21.  I return, then, to the issue which section 29DF(2)(b) addresses — namely whether the duty would have been chargeable at the old rate if, contrary to what in fact happened, Mr Ho had acquired the flat in Ma Wan after disposing of the two flats in Tsing Yi.  In this context, “acquired” refers, of course, to his agreement to purchase the flat in Ma Wan because it was that agreement rather than the subsequent conveyance on sale on which duty was chargeable.  The effect of section 29BB is that duty would have been chargeable at the old rate on that scenario because Mr Ho would not on the date of that agreement have been the beneficial owner of any other residential property in Hong Kong.  It follows that an analysis of the statutory provisions shows that the condition in section 29DF(2)(b) had been met by Mr Ho, and subject to two important arguments advanced by Mr Fung, he was entitled to a refund of part of the duty he had paid, being the difference between the old rate of duty and the new rate.

The textbook on stamp duty

22.  The first of those arguments is that the authors of the most authoritative textbook on stamp duty have apparently come to a different conclusion.  Volume 1 of the Encyclopaedia of Hong Kong Taxation deals with stamp duty.  Paragraph 2486 contains the following passage:

“ … section 29DF was enacted to provide an avenue by which a HKPR who disposes of his or her only residential property after acquiring the subject property can apply for a partial refund of … stamp duty …” (Emphasis supplied)

The authors repeated that view at para 2490:

“A partial refund is not available under section 29DF if the applicant (HKPR) owned more than one residential property in Hong Kong at the date the subject property was acquired. In other words, the partial refund regime only applies where a HKPR changed his or her sole residential property in Hong Kong. It would not apply, for instance, where more than one residential property was sold and then replaced by one residential property.”

23.  I said that the authors of the Encyclopaedia had apparently come to a different conclusion because it looks as if they may just have been setting out the view taken by the Stamp Office. Immediately after the passage at para 2486, they went on to quote from para 68 of the Stamp Office Interpretation and Practice Note No 8, which purported to explain the effect of section 29DF as follows:

“Section 29DF of the SDO provides a refund mechanism for HKPRs who change their only residential property. In particular, a HKPR who is acting on his or her own behalf in acquiring a residential property … to replace his or her only residential property … can apply for a partial refund of [the] duty paid.”

And immediately after the passage at para 2490, the authors added that the examples they gave in para 2490 had been taken from the Stamp Office’s Frequently Asked Questions (“the FAQs”) which were on the website of the Inland Revenue Department from the day on which the Financial Secretary announced the new measures.

24.  More significantly, the authors of the Encyclopaedia did not explain the route by which they arrived at their view, bearing in mind, as Mr Fung conceded, that there is nothing in the definition of “original property” which supports it, and he had to resort to what I have found to be a fallacious process of reasoning to justify it. In the circumstances, I cannot be sure that the authors of the Encyclopaedia were expressing their own considered view on the topic, rather than simply going on what the Stamp Office thought the position was.  However, even if they were stating their own considered opinion on the matter, I respectfully disagree with them for the reasons I have given.

The Statement of the Financial Secretary

25.  The second argument relates to the nature of the limit which the Government is said to have wanted to place on the right of people in the position of Mr Ho to obtain a partial refund of the duty.  In moving the second reading of the Bill which became the 2014 Ordinance, the Financial Secretary made the following statement in the Legislative Council on 17 April 2013 (what follows being the official English translation of the original Chinese):

“In the formulation of demand‑side measures, we have also paid special attention to a situation where Hong Kong permanent residents may own more than one residential property after having acquired a new residential property before disposing of their original one due to changing of properties. In order to deal with such circumstances, the Bill proposes to provide for a refund mechanism. For example, if the Hong Kong permanent resident concerned has acquired another residential property before disposing of his original and the only residential property in Hong Kong, he has to pay stamp duty at the new … rates. Under the proposed refund mechanism, the [Inland Revenue Department] will refund, on application by the purchasers who have completed the disposal transaction within two years from the date of the applicable instrument, the stamp duty for the difference between the new and the old … rates on the newly acquired property, on the condition that the agreement to dispose of their old property was entered into within six months from the date of acquiring the new property.” (Emphasis supplied by Mr Fung)

Mr Fung contended that this passage shows that the Government intended to limit the right to a partial refund to those who were disposing of their only residential property.

26.  There are, of course, strict limits on the extent to which ministerial statements in legislative assemblies may be used as an aid to construction. The conditions which have to be met were set out by Lord Browne‑Wilkinson in Pepper v Hart [1993] AC 593 at p 634C‑F.  What he said about those conditions has been adopted without question in Hong Kong in many cases, of which Registrar of Births and Deaths v Hussain (2001) 4 HKCFAR 429 at p 444A‑C (Chan PJ) and Lam Kin Sing v Hong Kong Housing Authority [2005] 3 HKLRD 450 at p 470A‑E (Ma CJHC, as he then was) are just two examples.  Two of those conditions are relevant here.  First, the legislative provision under scrutiny has to be ambiguous or obscure, or its literal meaning has to lead to absurdity.  Secondly, the ministerial statement has to be clear, in the sense that it has to disclose clearly the mischief which the legislative provision is aimed at or the legislative intention behind the ambiguity or obscurity of the statutory language.

27.  Even if the ministerial statement meets these conditions, what may it be used for?  In Pepper v Hart, the House of Lords held that once the conditions for its use had been met, it could be used as an aid to statutory construction.  But to what extent?  In Director of Lands v Yin Shuen Enterprises Ltd (2003) 6 HKCFAR 1, Lord Millett said at p 15F‑G that ministerial statements were:

“… admissible for a limited purpose only, to enable the Court to understand the factual context in which the statute was enacted and the mischief at which it was aimed. This is not the same as treating the statements of the executive about the meaning and effect of the statutory language as reflecting the will of the legislature.”

This was cited with approval by Bokhary PJ in PCCW‑HKT Telephone Ltd v Telecommunications Authority (2005) 8 HKCFAR 337 at p 351H‑J.  Noting that the other members of the court in PCCW‑HKT had agreed with Lord Millett, Bokhary PJ added at pp 351G and 352F that:

“ … to treat ministerial statements about the meaning and effect of proposed legislation as reflecting the will of the legislature would go beyond using such statements to ascertain the mischief against which a statute is aimed … and would give rise to practical, conceptual and constitutional problems.”

The reason in short is that what the promoters of the legislation intended a particular provision to achieve will not necessarily reflect why individual legislators may have voted for the inclusion of that provision in the legislation.  It is noteworthy that the other members of the court agreed with Bokhary PJ.

28.  The passage in the Financial Secretary’s statement in the Legislative Council on which Mr Fung relied shows why section 29DF was enacted and the mischief it was intended to remedy.  The critical sentences are the first two.  Suppose that a Hong Kong permanent resident purchases his new residential property before he has actually sold his existing residential property.  In that event, there will be a short time while he is the owner of more than one residential property.  He would have to pay duty at the new rate.  That was what section 29DF was intended to avoid.  It provided a mechanism for the Hong Kong permanent resident to obtain a refund of the difference between the new rate of duty (which he has to pay) and the old rate of duty (which is what he would have had to pay if he had bought his new residential property after he had disposed of his previous one).

29.  Was it intended that this mechanism should not apply where the purchaser had two residential properties, both of which he was selling, even though he would be ending up with just one residential property, namely the new one he was buying?  Mr Fung contended that the example which the Financial Secretary went on to give in this passage in his statement shows that that was indeed what had been intended.  When explaining when the refund would be available, the Financial Secretary did so by reference to an example in which the residential property which the purchaser was selling was “his only and the only residential property in Hong Kong”.

30.  I am not convinced of that.  I appreciate that allowances have to be made for the fact that things may get lost in translation, but there is something not quite right about the phrase “his only and the only residential property in Hong Kong”.  If the word “the” was not there, there would be no ambiguity about it.  The property which the Hong Kong permanent resident was disposing of had to be his only residential property (apart from the one he was buying) if he was to be entitled to a partial refund.  But with the word “the” there, I cannot discount the possibility that the reference to the Hong Kong permanent resident’s only residential property may have been a reference to his new residential property being his only residential property once he has disposed of his existing residential properties. 

31.  There is something else which supports that possibility.  On 24 February 2013, the Financial Secretary made a statement in Chinese on his blog.  What follows is an agreed translation of part of it:

“In order to take care of Hong Kong users with real housing needs, the Government decided to exempt certain Hong Kong permanent residents — as long as they intend to only own one residential property — regardless of whether it was a first time property or a change of properties — they do not need to pay the ‘Double Stamp Duty’ and they only need to pay the stamp duty at the original rates. As for persons who ‘Buy‑First‑Sell‑Later’, as long as the original property could be sold within 6 months after the acquisition of the new property, they can also apply for refund of extra stamp duty paid.”

For present purposes the important sentence is the first one.  This was not a statement made in the Legislative Council, but if the rationale for permitting ministerial statements in legislative assemblies is to ascertain the mischief which the provision is intended to remedy, there is no reason why the Financial Secretary’s statement in some other forum should not be permitted to explain what he meant in his statement in the Legislative Council.  The first sentence in this passage in his blog rather suggests that when he was referring to the purchaser’s “only residential property” in his statement in the Legislative Council, he was referring to what the purchaser had to end up with, rather than to what the purchaser had to have had in terms of residential property at the start of the process.  So long as he ended up with one residential property at the end of the process, he would only have to pay duty at the old rate.

32.  There is one other matter.  Ms Lorinda Lau for Mr Ho argued that one can envisage situations in which the Collector’s interpretation of section 29DF would produce surprising results.  One of the examples she gave was of a family in which a couple own the property in which they live, and the parents of one of them have their own property.  Suppose the couple then have a child, and it is decided that all three generations should live together in a larger property so that the child’s grandparents can look after the child while the child’s parents are at work.  Given the closeness of Chinese families, that may well not be an uncommon scenario in Hong Kong.  Could it really have been intended, asked Ms Lau, that if the family bought a new residential property for them all to live in before they sold their two existing properties, they should be denied the refund to which they would have been entitled if they had all lived in one residential property before?  Of course, this example presupposed that one of the owners of the new residential property had been a beneficial owner of both the existing properties, something which may well not have been the case.

33.  The real point, though, is this.  I can well understand why the Financial Secretary might want to deny a refund to someone who wants to add another residential property to their existing portfolio of residential properties.  But I have not really understood why he might want to deny a refund to someone who happens to have a second residential property but wishes to sell both of them to finance the purchase of a new residential property.  Mr Fung suggested that a possible rationale for that might be administrative convenience: it would be easier for the Stamp Office when considering an application for a refund under section 29DF to have to check that just one property had been beneficially owned by the applicant for a refund rather than having to check that more than one property had been beneficially owned by him.  That does not sound particularly convincing to me.  The administrative inconvenience would be very modest at best, and in any event, stamp duty is a duty levied on someone’s purchase of a residential property, not on their sale of one.  If denying a refund to someone who wants to add a residential property to an existing portfolio of residential properties makes more sense than denying a refund to someone who wants to sell their existing residential properties in return for a single residential property, does that not suggest that the Financial Secretary might have been referring to the new property having to be the purchaser’s only residential property if the purchaser is to be entitled to a refund?  In the circumstances, I do not believe that what the Financial Secretary said in his statement in the Legislative Council was sufficiently clear for reliance to be placed on it — at any rate for the purpose of ascertaining whether it was intended that the refund would not have been available if the purchaser was selling more than one residential property.

34.  From the question whether the Financial Secretary’s statement in the Legislative Council was sufficiently clear for reliance to be placed on it, I turn to whether section 29DF is so ambiguous or obscure, or its literal meaning so likely to lead to absurdity, that it is permissible to look to the Financial Secretary’s statement in the Legislative Council for guidance. For the reasons I have previously given, I do not think that there is any ambiguity or obscurity in either the definition of “original property” in section 29DF(1) or in the condition to be met in section 29DF(2)(b). The only possible argument here is that the Financial Secretary’s statement (assuming, contrary to what I have found, that it was sufficiently clear for reliance to have been placed on it) shows that the singular was not intended to include the plural, so that since section 29DF referred to the purchaser’s original property in the singular, it was his original property in the singular which was intended.  However, for the singular not to include the plural, the intention for it not to do so has to be apparent either from the IGCO itself or “from the context of any other Ordinance or instrument”.  The Financial Secretary’s statement cannot be said to be an instrument of the kind contemplated by the IGCO.

Conclusion on whether Mr Ho met the conditions

35.  The upshot of all this is that neither the Encyclopaedia nor the statement of the Financial Secretary can be relied upon to support the Collector’s case.  It follows that Mr Ho met the conditions set out in section 29DF(2), and he was indeed entitled to a partial refund of the duty he paid, being the difference between the new rate of duty and the old rate.

36.  In the interests of completeness, I should add that Ms Lau drew my attention to two other sources which might have cast light on whether it had been intended to exclude from the right to a refund those purchasers who sold more than one residential property after acquiring their new residential property.  They were briefing papers on the Bill which became the 2014 Ordinance prepared by the Financial Services and the Treasury Bureau in April 2013 and the Legislative Council Secretariat on 6 May 2013.  However, the basis on which these sources might have been a permissible aid to the construction of section 29DF was never explained to me, and I have respectfully put them to one side.

MR HO’S EXPECTATIONS

37.  In the circumstances, it is unnecessary for me to deal with the alternative argument persuasively advanced by Ms Lau, but since I was addressed on it at some length, and in case a different view is taken elsewhere about whether Mr Ho met the conditions for a refund, I should briefly state my conclusions on it.  The argument is that Mr Ho had a legitimate expectation that he would be entitled to a refund of the difference between the new rate of duty and the old rate if he and his wife sold their two flats in Tsing Yi within six months of Mr Ho’s purchase of the flat in Ma Wan.  Two things are said to have given rise to that expectation.  The first was what the Financial Secretary had said in his blog.  The second was item 25 in the FAQs, which read:

“Q. Will the New [rate] apply where a HKPR acquires a new residential property after disposing of all his existing residential properties?

A. For stamp duty purposes, a person who entered into an agreement for sale and purchase for disposal of a property is regarded as having disposed of the property. Therefore, if a HKPR has disposed of all his existing residential properties before acquiring a new one, the old … rates will apply to the acquisition. However, if the HKPR fails to complete any of the disposal transactions (i.e. where the agreement for sale is cancelled, annulled or rescinded or is otherwise not performed), the difference between the old and new … rates on the newly acquired property will be recouped.”

The case advanced on behalf of Mr Ho is that these statements gave rise to a legitimate expectation on Mr Ho’s part that the fact that he and his wife were selling more than one property would not be treated by the Collector as denying him a refund of part of the duty he would be paying.

38.  The doctrine of legitimate expectation is now well established in Hong Kong.  It received its most articulate expression in the judgment of the majority of the court in Ng Siu Tong v Director of Immigration (2002) 5 HKCFAR 1 at [92]:

“The doctrine recognizes that, in the absence of any overriding reason of law or policy excluding its operation, situations may arise in which persons may have a legitimate expectation of a substantive outcome or benefit, in which event failing to honour the expectation may, in particular circumstances, result in such unfairness to individuals as to amount to an abuse of power justifying intervention by the court. Generally speaking, a legitimate expectation arises as a result of a promise, representation, practice or policy made, adopted or announced by or on behalf of government or a public authority.”

The majority went on to say that whether that expectation was legitimate depended on what the person who sought to rely on the doctrine was entitled to expect, and that depended, in part at least, on whether it was reasonable for what had been said or done by the public authority to have given rise to the expectation relied on.  And in an important passage, the majority added at [104]:

“While we accept that, generally speaking, a representation relied upon to support a legitimate expectation must be clear and unambiguous, we recognize that there will be cases where a representation is reasonably susceptible of competing constructions. In such a case, far from adopting the construction which is most favourable to the person asserting the legitimate expectation, the correct approach is to accept the interpretation applied by the public authority, subject to the application of the Wednesbury unreasonableness test.”

39.  I deal first with what the Financial Secretary said in his blog.  I have already said that in the first sentence the Financial Secretary appeared to be saying that a purchaser would be entitled to pay duty at the old rate if after purchasing a new residential property he ended up with just one residential property.  It is just possible that in the second sentence the Financial Secretary did not intend that entitlement to apply if the purchaser was selling more than one residential property, but he did not say that in his blog.  And when he was dealing with the entitlement to a refund in the case of the purchaser who bought his new residential property before selling the previous one, he did not say that that entitlement would be lost if the purchaser was selling more than one property.  It is true that he talked of the purchaser’s “original property” in the singular, but the original Chinese version did not distinguish between the singular and the plural.

40.  In these circumstances, the impression which a reader of the Financial Secretary’s blog could well have got from the first sentence is that provided the purchaser ended up with just one residential property, he would only have to pay stamp duty at the old rate, even if he was selling more than one residential property.  Moreover, if the purchaser sold his residential properties after buying his new residential property, it may well not have occurred to the reader of the blog that the second sentence meant that the purchaser would be denied his entitlement to a refund simply because he was selling more than one residential property.

41.  Having said that, the position would not have been as clear cut if the reader of the Financial Secretary’s blog had also read the Financial Secretary’s statement to the Legislative Council, which had referred to the entitlement to a refund for the purchaser who had bought his new residential property before disposing of “his original and the only residential property in Hong Kong”.  The message which the reader might have got from that was that if the purchaser had been disposing of more than one residential property, he would not have been entitled to a refund.  There is no reason to suppose that Mr Ho read the Financial Secretary’s statement in the Legislative Council, but as we shall see, that is the message he is likely to have got from the FAQs which he did read.  The fact is that a reader of the Financial Secretary’s blog, the Financial Secretary’s statement in the Legislative Council and the FAQs would have got mixed messages, and an expectation based on one source cannot be treated as a reasonable one for the purpose of the doctrine of legitimate expectation if it is inconsistent with such expectations as may be derived from such other sources as the reader did see.

42.  I turn, then, to the FAQs.  As I have said, item 25 is the one relied on by Ms Lau.  Its significant feature is that the question addresses the purchaser who is selling “all his existing residential properties”.  The answer says that if he sells them all before buying a new one, he will only have to pay duty at the old rate.  The answer also deals with what is to happen if for one reason or another he does not sell one of them.  The difference between the old rate and the new rate will be “recouped”, which I take to mean that he will have to pay the duty at the new rate.  What the answer does not deal with, though, is the situation which arose in the present case, namely what is to happen if the purchaser sells all his residential properties, but only does so after he has purchased his new residential property, ie the particular situation which the question in item 25 asked.  Since (a) the purpose of section 29DF was to put the purchaser of a new residential property who had bought it before disposing of his existing residential property in the same position as the purchaser of a new residential property who had bought it after disposing of his existing residential property, and since (b) the answer in item 25 said that the purchaser of a new residential property would have to pay duty at the old rate even if he sold more than one residential property before buying the new residential property, one might have expected the answer in item 25 to be that that the purchaser of a new residential property who had previously had more than one residential property but who sold them all, admittedly after he had bought his new residential property, would be entitled to a refund.  But the answer in item 25 did not say that.

43.  Moreover, such an answer would not have sat well with item 24.  That reads (so far as is material):

“Q. Will any relief be given to change of residential property cases?

A. A HKPR who is acquiring a residential property A while seeking to dispose of another one Property B (his only other residential property) will be subject to the new [rates] as usual in the first instance, but he may seek a refund of the stamp duty in excess of that computed under the old rates upon proof that Property B has been disposed of within six months from the date when he executed the agreement to acquire Property A …” (Emphasis supplied)

The emphasised words tell the reader that the purchaser will only be entitled to a refund of the difference between the new rate of duty and the old rate if the residential property he disposed of after buying his new residential property was his only residential property. In addition, the FAQs gave a number of examples of how the new rate of duty would be levied.  Example 13 was based on the following facts:

“Mr Wan is a HKPR who owned a residential property (the first property) in Hong Kong. On 1 March 2013, he entered into a [provisional agreement for sale and purchase] to acquire another residential property … On 15 August 2013, he entered into a [provisional agreement for sale and purchase] to dispose of the first property. Can Mr Wan claim for a partial refund of the [duty] paid?”

The answer was that he could.  That is to be contrasted with example 15, which read:

“Same as example 13, but on 1 March 2013, Mr Wan owned more than one residential property in Hong Kong. Can Mr [Wan] claim for a partial refund of the [duty] paid?

In the above situation, no stamp duty will be refundable as Mr Wan owns more than one residential property in Hong Kong at the time of acquisition of the new property.  The proposed concession for ‘change of residential property’ does not apply.”

44.  Mr Ho’s evidence was that he had read item 25.  He did not say whether he had read item 24 or examples 13 or 15.  If he had, he would, or at least should, have realised that a purchaser in the situation in which he eventually found himself was being told that he would not be entitled to a refund of the difference between the new rate of duty and the old rate.  If he had not, it would not have been reasonable for him to rely on item 25 (even if it had answered the question which it posed, which I do not think it did) without looking at the other FAQs and the examples given in case they said something else (which indeed they did).

45.  For these reasons, although Mr Ho may have expected that he would be entitled to a refund of the difference between the new rate of duty and the old one if he and his wife sold their two flats in Tsing Yi within six months of him acquiring the flat in Ma Wan, I do not think that that expectation was a reasonable one.

CONCLUSION

46.  However, for the reasons I have given, although Mr Ho’s expectation was not a legitimate one, he was nevertheless, on a proper construction of section 29DF, entitled to a refund of the difference between the new rate of duty and the old one.  His application for judicial review is allowed.  The decision of the Collector of 15 January 2015 refusing Mr Ho’s application for a refund must be quashed, and the Collector must refund the difference to Mr Ho.  At present, I see no reason why Mr Ho should not be awarded his costs of the application, and the order nisi which I make is that the Collector must pay to Mr Ho his costs of the application, to be taxed if not agreed.

47.  By way of postscript, I should add that I am not unmindful of the irony here.  It is apparent from the Stamp Office Interpretation and Practice Note No 8 and from the FAQs that the Stamp Office thought that someone in Mr Ho’s position was not entitled to a refund.  On the other hand, it looks as if it may not have been the intention of the Government to deny someone in Mr Ho’s position the refund to which he would have been entitled if he had been selling just one residential property. A mismatch between what the Government may have intended and what the Executive thought had been intended is fortunately quite rare, but this may have been one of those very infrequent occasions when that was happened.