Feng Hongyan v. The Collector of Stamp Revenue of the Government of Hong Kong Sar

HCAL 165/2017

[2018] HKCFI 1079

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 165 OF 2017

___________________________

___________________________

________________

J U D G M E N T

________________

1.This is an application for judicial review in respect of 3 decisions of the Respondent set out in his letters dated 29 August 2016, 28 November 2016 and 3 April 2017 refusing the Applicant’s application made on 22 June 2016 for a partial refund of the ad valorem stamp duty (AVD) paid for the sale and purchase agreement dated 13 August 2015 for Flat A on the 51st Floor of the Residential Tower of Cadogan, 37A Cadogan Street, Hong Kong (Flat 51A and 51A Agreement).

Background

2.On 3 July 2015, the Applicant entered into a preliminary agreement to purchase Flat D on the 40th Floor of the Residential Tower of Cadogan, 37A Cadogan Street, Hong Kong (Flat 40D).  A formal sale and purchase agreement for Flat 40D was entered into on 10 July 2015 (40D Agreement). The Applicant paid a total sum of HK$1,204,500 as the initial and further deposits (Deposits) for the transaction.

3.On 6 August 2015, the Applicant entered into a preliminary agreement for the purchase of Flat 51A.  The 51A Agreement was entered into on 13 August 2015.  The ADV chargeable for the 51A Agreement, which was paid by the Applicant, was HK$3,185,970.

4.On 4 September 2015, the Applicant and the vendor of Flat 40D (the developer) entered into a cancellation agreement (Cancellation Agreement) whereby the parties agreed to cancel the 40D Agreement and for the vendor to forfeit the Deposits.  Flat 40D was subsequently resold by the vendor.  

5.On 5 October 2015, Flat 51A was assigned to the Applicant.

6.On 4 December 2015, the Applicant applied for refund of the AVD paid for the 40D Agreement under s.29C(5B) of the Stamp Duty Ordinance, Cap 117 (Ordinance).  The stated reason for cancellation of the 40D Agreement was that the Applicant could not successfully apply for a mortgage loan to pay off the balance of purchase price.  On 12 February 2016, the AVD paid for the 40D Agreement was refunded to the Applicant.

7.On 22 June 2016, the Applicant applied for a partial refund of the AVD paid for the 51A Agreement in the sum of HK$1,592,285 pursuant to s.29DF of the Ordinance, on the basis that within 6 months after her acquisition of Flat 51A, she had disposed of Flat 40D.

8.After the first decision of the Respondent refusing the application for partial refund by way of a letter dated 29 August 2016 (1^st Decision), on 15 November 2016 the Applicant’s solicitors wrote to the Respondent inviting him to reconsider the decision.  By way of a letter dated 28 November 2016, the Respondent maintained the 1^st Decision (2^nd Decision). 

9.On 21 March 2017, new solicitors acting for the Applicant wrote to the Respondent asking for another reconsideration of her application based purportedly on new grounds.  On 3 April 2017, the Respondent again maintained his decision (3^rd Decision). 

10.A Notice of Application for Leave to apply for Judicial Review was filed with a supporting affirmation by the Applicant on 28 April 2017.  Leave to apply for judicial review, without prejudice to any argument on delay, was granted by the court on 18 August 2017.

Issues

11.I agree with Mr Chang, who appeared for the Respondent, that this judicial review turns on a narrow ambit, namely, whether on a true and proper interpretation of s.29DF of the Ordinance, the Applicant is entitled to a partial refund of the AVD paid for the 51A Agreement.  In particular, whether the Cancellation Agreement constituted a “conveyance on sale” within the meaning of the Ordinance.

12.In resolving that legal issue, this court will have to deal with the arguments of the Applicant concerning the legislative intent and purpose of the relevant provisions of the Ordinance. 

13.There is also the issue of delay in making the leave application.

Relevant statutory provisions

14.The relevant statutory provisions were part of the amendments introduced into the Ordinance for the purpose of cooling the overheated real property market.  The following is a thumb nail sketch of the scheme introduced by the amendments insofar as they are relevant for the present purpose. 

15.For the purpose of cooling the property market, higher AVD was imposed to deter, eg, speculation.  An exception was made in respect of Hong Kong residents who did not own any real property, and for those who did, they might be able to apply for a refund of the increased AVD paid for the purchase of the second property if they disposed of their first property in a manner which satisfied the requirements under the Ordinance.

16.The relevant provisions for this application are s.29DF(2), (3), (4) and (5) (of the applicable version) :

“(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 original property been disposed of before the subject property was acquired, the applicable instrument would have been chargeable with stamp duty under Scale 2 of head 1(1), or Scale 2 of head 1(1A), in the First Schedule.

(3) 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 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, or not later than 2 months after the date of the conveyance on sale under which the original property is transferred or divested, whichever is the later.

(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, or not later than 2 months after the date of the conveyance on sale under which the original property is transferred or divested, whichever is the later.

(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.”

Conveyance on sale

17.This is a term which many people in Hong Kong would have little difficulty in understanding. Moreover, under the interpretation section (s.2) of the Ordinance, both “conveyance” and “conveyance on sale” were defined :

“Conveyance … means every instrument (including a surrender) and every decree or order of any court whereby any immovable property is transferred to or vested in any person;

  Conveyance on sale … means every conveyance whereby any immovable property, upon the sale thereof, is transferred to or vested in a purchaser or any other person on his behalf or by his direction, and includes a foreclosure order;”

18.The definition of conveyance on sale confirms the plain meaning of those words.

19.With respect to Mr Chan, who appeared with Mr Ngai for the Applicant, in order to overcome this plain meaning this court was taken by him to a number of other definitions, including “instrument” under s.2(1) of the Ordinance; “immovable property” under s.3 of the Interpretation and General Clauses Ordinance, Cap 1 (Cap 1); “sell” under Cap 1; and “purchaser” under s.29A of the Ordinance. 

20.Despite the ingenuity of the submissions, I do not believe that those additional definitions detract from the plain meaning of conveyance on sale.

21.I agree with Mr Chang that the Cancellation Agreement was not a conveyance on sale for 3 reasons.  Firstly, it was not a conveyance.  The effect of that Agreement was to annul or terminate the 40D Agreement and to release the parties from their obligations thereunder.  There was no transfer or vesting of any immovable property or interest therein by anyone.  In particular, there was no such transfer by the Cancellation Agreement. 

22.Mr Chan submitted that, based on the legal fiction (or a principle of equity[1]) that upon the sale of an immovable property equity regarded as done what is to be done and therefore the equitable interest in the property would pass to the purchaser before the completion of the sale, the Cancellation Agreement had the effect of re-vesting (or passing back) the equitable interest in Flat 40D to the vendor.  The case of Lau Kwok Cheong and Anr v Tse Ming Chiu [2001] 2 HKLRD 500 is relied upon by Mr Chan.  The following dicta can be found in §18 :

“I do not consider the dicta of Barnett J in Tang Yiu Tin & Another v Ma Ka Chun & Another (unrep., HCMP No 2890 of 1993) assists the plaintiff. His dicta should be understood in context. There, the developer of the property had entered into a sale and purchase agreement and a subsequent cancellation agreement with a Madam Teng. The cancellation agreement was signed by Madam Teng’s attorney. The developer then sold the property to another person. Eventually, the defendant acquired the property. His purchaser required as proof of title the production of the cancellation agreement and the power of attorney. The request was refused. Counsel for the defendant argued that the agreements between the developer and Madam Teng were not documents going to proof of title. Consequently, their production and the production of the power of attorney was unnecessary. In rejecting the argument, the learned judge made the observation quoted above. He then held that those agreements were documents of title. They, together with the power of attorney, must be produced. It is obvious that those agreements were documents of title because they passed an interest in the suit property. By virtue of the sale and purchase agreement, the equitable interest in the suit property was passed onto Madam Teng. The cancellation agreement then passed the equitable interest back to the developer. No doubt in those circumstances, the power of attorney had to be produced.” [emphasis added]

23.Here, one needs to look a little closer at the relevant principle of equity.  Mr Chang referred this court to Tang Yiu Tin (cited above), at pg 7 where Barnett J quoted from Central Trust and Safe Deposit Company v Harvey Snider (1916) AC 266 :

“… If for some reason equity would not enforce specific performance, or it (sic) the right to specific performance has been lost by the subsequent conduct of the party in whose favour specific performance might originally have been granted, the vendor or covenantor either never was, or has ceased to be, a trustee in any sense at all. Their Lordships had to consider this point in the case of Howard v Miller [1915] AC 318 in connection with the law as to the registration of titles in the province of British Columbia, and came to the conclusion that, though the purchaser of real estate might before conveyance have an equitable interest capable of registration, such interest was in every case commensurate only with what would be decreed to him by a Court of Equity in specifically performing the contract, and could only be defined by reference to the relief which the Court would give by way of specific performance.

If, therefore, the defendant Mable Carleton has any interest in the property it can only be because an action would lie for specific performance of the testator’s contract to settle the property in her favour.”

24.Based on Central Trust, Mr Chang submitted that the cancellation of the 40D Agreement meant that there was no right to any specific performance on the part of the Applicant and the intervention by equity to protect her right would come to an end, ie, the vendor would no longer be holding the beneficial interest in the property for the purchaser.

25.In my view, this analysis is to be preferred over one where the court has to invent another fiction (passing the beneficial interest back to the vendor) to put an end to the one of vesting of the beneficial interest in the purchaser. 

26.With respect, Lau Kwok Cheong should be read in the context of a dispute over the proof of title.  The court was not concerned with the issue whether a cancellation agreement falls within the meaning of conveyance.  Paragraph 18 of that judgment analysed the case of Tang Yiu Tin, it does not appear that the later judgment was meant to cast any principle of law on how the equitable interest of a purchaser would come to an end.

27.Mr Chang’s analysis is consistent with s.29AC which defined the meaning of beneficial owner in relation to a residential property, which included “a purchaser under an agreement for sale of the property that is subsisting”.  Such an agreement was subsisting if it was “not one that is cancelled, annulled or rescinded”.

28.Further support can be found in the terms of the Cancellation Agreement in that they had nothing to do with any transfer of immovable property.

29.The second reason for rejection the suggestion that the Cancellation Agreement was a conveyance on sale is that there was no sale.  With respect, the point is too obvious to require elaboration.  Indeed, the Cancellation Agreement was the antithesis of a sale.

30.Thirdly, there was no sale to a purchaser (see definition of conveyance on sale above).  “Purchaser” was defined under s.29A(1) of the Ordinance as follows :

“purchaser (購買人) includes any person who, under an agreement for sale or an unwritten sale agreement, —

(a) contracts to purchase immovable property;

(b) acquires—

(i) immovable property;

(ii) an option or a right to purchase immovable property or a right of pre-emption in respect of immovable property, other than a specified option or right;

(iii) a power or authority to sell or otherwise dispose of any interest in immovable property;

(iv) any right or benefit in respect of immovable property of a purchaser under an agreement for sale or an unwritten sale agreement;

(v) a power to transfer any such right or benefit;

(vi) an authority to take a conveyance of immovable property that is subject to an agreement for sale or an unwritten sale agreement; or

(c) is named as a person in whose favour another person is authorized to execute a conveyance of immovable property;”

31.The vendor under the Cancellation Agreement did not fall into the above definition.

32.Turning to Mr Chan’s submissions about the legislative intent over the relevant provisions.  The underlying point is that to exclude the Cancellation Agreement from a disposal of an existing property for the purpose of qualifying for refund of the enhanced ADV would not be consistent with the intention of the legislature to exempt certain Hong Kong resident from the measures to cool the property market.

33.However, Mr Chan accepted that the law on statutory interpretation does not permit the court from construing a statute in a manner which is contrary the clear words used therein.  Whilst the court may consider the context and purpose of the statue in an interpretative exercise, its task remains that of ascertaining the intention of the legislature “as expressed in the language of the statute”, and not “the legislative intent on its own”: see Ho Kwok Tai v Collector of Stamp Revenue [2016] 5 HKLRD 713, §22.

34.Mr Chang had also referred the court to Cape Brandy Syndicate v IRC [1921] 1 KB 64 at 71 where it was held that: “… in a taxing Act one has to look merely at what is clearly said.  There is no room for any intendment.  There is no equity about a tax.  There is no presumption as to tax.  Nothing is to be read in, nothing is to be implied.  One can only look fairly at the language used.”. 

35.With respect, I agree that there is no room for the court to look behind the clear words of a statute and try to construe them in such a way to achieve what it perceives to be a fair or fairer result.  That is a matter within the exclusive province of the legislature.  

36.In the premises, the Respondent had correctly applied the law in rejecting the refund application of the Applicant and the basis of this judicial review falls away. 

Delay

37.I can deal with the arguments here swiftly.  It is agreed that there was delay in making the leave application for judicial review in respect of the 1^st and 2^nd Decisions in terms of, respectively, 5 months and 2 months.  Whilst the leave application was made within 3 months of the 3^rd Decision, Mr Chang contends that time started to run for the leave application in respect of that Decision from the date of the 1^st Decision.

38.Order 53, r.4(1) provided that: “An application for leave to apply for judicial review shall be made promptly and in any event within 3 months from the date when the grounds for the application first arose …”.  I agree with Mr Chang that the grounds for the leave application in respect of the 3^rd Decision arose on the date of the 1^st Decision. Such requirement was “not overcome by writing a fresh letter to the decision maker and thereby obtaining a reply which was then sought to be characterized as a fresh decision”: see R v Commissioner of Local Administration, ex p Field [2000] C.O.D. 58 at 60; also E.T. Investment Ltd v Director of Health [2016] 1 HKLRD 1389, §18 and Judicial Remedies in Public Law by Lewis, 5^th edn, rubric 9-021. 

39.I should add that the purported new grounds set out in the letter which resulted in the 3^rd Decision did not feature in Mr Chan’s arguments, and I can see little merit in them.  An attempt to generate a fresh decision to springboard a judicial review will not delay the running of time.  I am not prepared to accept that the 3^rd Decision was within time. 

40.The considerations for the court in cases of delay were set out in AW v Director of Immigration [2016] 2 HKC 393, §§27-28, namely, (i) length of the delay; (ii) explanation for the delay; (iii) merits of the substantive application; (iv) prejudice; and (v) questions of general public importance.

41.Given the lack of merits in this application, there is no reason to grant any extension of time.  If there were merits in this application, despite the lack of good explanation for the delay (the Applicant relies on her ignorance about the time limit for leave application), I would have granted an extension of time in favour of the Applicant by reason of the fact that the delay is not unduly excessive and there is public interest in having some clarification on the refund provisions under the Ordinance. Further, the prejudice to the Respondent (prompt payment of tax with finality) is limited in the present circumstances.

Conclusions

42.For the above reasons, this application is dismissed with an order nisi that the costs be borne by the Applicant, to be taxed if not agreed.

43.I am grateful to counsel for their assistance.

Mr Kenneth C L Chan and Mr Matthew Ngai, instructed by Simon C W Yung & Co, for the Applicant

Mr Jonathan Chang, instructed by Department of Justice, for the Respondent