Samsung Sdi (Hong Kong) Ltd v. Commissioner of Inland Revenue

HCIA 7/2022

[2023] HKCFI 2976

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INLAND REVENUE APPEAL NO 7 OF 2022

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BETWEEN

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REASONS FOR DECISION

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1.By Summons of 26 August 2022, the Applicant pursuant to section 69 of the Inland Revenue Ordinance, Cap 112 (“IRO”) seeks leave to appeal against the Decision of the Inland Revenue Board of Review dated 28 July 2022 (the “Board”, and the “Decision”). I directed that there be an oral hearing. The oral hearing took place on 27 October 2023. Mr Eugene Fung SC leading Ms Kay Seto appeared for the Applicant. Ms Elizabeth Cheung appeared for the Commissioner of Inland Revenue (“CIR”). At the end of the hearing, and for reasons to be handed down, I granted the Applicant leave to appeal. Below are my reasons.

2.The Applicant’s Statement in Support of Application for Leave to Appeal was first filed on 26 August 2022.  It was amended on 29 June 2023 (the “A/AS”). The scope of the Applicant’s proposed appeal has been substantially reduced thereby, covering as it does now only the sources of 2 of the 4 disputed sum (i.e. the Factory Profits and the Sales Profits, and collectively the “Disputed Profits”).  CIR on 27 July 2023 amended his Statement (“CIR/AS”). Leave is resisted.

3.I have considered the A/AS and CIR/AS.  I have considered the respective written submissions of Mr Fung and Ms Cheung.  I have also considered their oral submissions.  

4.The appeal before the Board related to the Determination of the Deputy Commissioner of Inland Revenue dated 18 May 2012 rejecting the Applicant’s objection to a number of specific profits tax assessments.  On 18 June 2012, the Applicant appealed against that determination.  The appeal took place before the Board in May 2014.  It lasted 9 days.  On 28 July 2022, 8 years 2 months after the hearing, the Board handed down its Decision.  Part of the Applicant’s appeal was allowed.  But the part of the Deputy Commissioner’s determination in respect of the source of the Disputed Profits was confirmed.

5.Section 69(3)(e) of the IRO provides that:

“leave to appeal must not be granted unless the Court of First Instance is satisfied—

(i) that a question of law is involved in the proposed appeal; and

(ii) that—

(A) the proposed appeal has a reasonable prospect of success; or

(B) there is some other reason in the interests of justice why the proposed appeal should be heard”.

6.A proposed appeal has a reasonable prospect of success if it is reasonably arguable, not that it will probably succeed: China Mobile Hong Kong Co Ltd v CIR [2018] 2 HKLRD 146, per Chow J (as he then was) at §16.

7.The question of law which the Applicant says is involved is set out in §13 of the A/AS (the “Question Framed”), in the following terms:

“Whether, upon the evidence before the Board and in all the circumstances of the case, the Board erred in law in failing to have regard to the unchallenged evidence (both documentary and otherwise) adduced by the Appellant on the Disputed Profits whilst at the same time adopting a wrong approach to ascertain the ‘full picture’ of the Appellant’s operations and making unjustified criticisms of the Appellant’s witness testimony.”

8.Mr Fung summarized the gist of the complaint raised by the Question Framed as follows[1]:

“the Board made errors of law by (1) disregarding unchallenged evidence and contemporaneous documents and (2) wrongly seeking a ‘full picture’ of the Company’s operations on the Disputed Profits and (3) making unjustified criticisms of the Company’s witnesses.”

9.Mr Fung relied on Kwong Mile Services Ltd v CIR (2004) 7 HKCFAR 275 at §§31-32 (Bokhary PJ) in support of his submissions that the Question Framed, albeit involving fact-finding, is a proper question of law.

10.In both his written and oral submissions, Mr Fung referred this Court to some of the contemporaneous documentary evidence, and certain evidence which he submitted the CIR did not challenge.  With reference to those materials, Mr Fung took me through the Decision (in particular §§70.2, 70.3, and 179 to 238) and submitted that in reaching the Decision, the Board had failed to make reference or consider those materials.  Mr Fung had in addition gone into some details as to how the Board in his submission attempted to ascertain the “Full Picture” (with reference in particular to §§70.2 and 70.3 of the Decision), and how the Board in his further submission made unjustified criticisms of the Applicant’s witnesses.  Mr Fung submitted that the Question Framed had also to be considered in the context of (1) the fact that the Board did not make positive findings in relation to the source of the Dispute Profits, but dismissed the related part of the appeal on onus of proof; and (2) the delay involved in the case, both in terms of time gap between the occurrence of the material events and the time when the witnesses were required to give evidence, and the delay in the handing down of the Decision.  Mr Fung submitted that the Question Framed is reasonably arguable.

11.The Question Framed, despite involving fact-finding, remains in so far as I can see a focused and measured one.

12.The question of delay is specifically highlighted in §14 of the A/AS, under the heading of “SOME OTHER REASON IN THE INTERESTS OF JUSTICE TO HEAR THE PROPOSED APPEAL”.  §14 of the A/AS reads as follows:

“In the light of the errors of law as identified above, coupled with the disturbingly inordinate delay of some 8 years and 2 months which ensued between the conclusion of the hearing and the Decision, it is fair to say that the Board failed to stand back and to duly consider the totality of the evidence, and as a result, has created omissions, errors, misunderstandings and inconsistencies within the Decision which are probably or possibly attributable to the delay. In the circumstances, it is open to the Court to find that it would be unsafe and unfair to allow the Decision to stand: see Mak Kang Hai v Ho Yuk Wah (2007) 10 HKCFAR 552, §58, per Mortimer NPJ; CIR v Li & Fung (Trading) Ltd [2012] 3 HKLRD 8, §42, per Tang VP (as he then was).”

13.While the “some other reason” limb under section 69(3)(e)(ii)(B) of the IRO is alternative to the “reasonable arguability” limb under section 69(3)(e)(ii)(A), Mr Fung made his position clear that the Applicant’s principal case is based upon the “reasonable arguability” limb, which is supported by the delay involved (in both senses as described above).  He relied on Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439, per Rogers VP at §7 and Stock JA §135, and Mak Kang Hoi v Ho Yuk Wah (2007) 10 HKCFAR 552, per Mortimer NPJ at §§56, 58 and 60.  

14.In opposition, Ms Cheung submitted, in gist, that the only proposed question of law is a challenge on the factual finding made by the Board which she submitted is plainly unarguable.  She submitted that what the Applicant is seeking to do is to, under the guise of the Question Framed, try to reargue and resubmit factual matters in the hope that this court would reach a different conclusion.  In the course of the hearing, Ms Cheung took this Court through the Decision, and in particular §§227 to 240 thereof.  She submitted that the Board had considered the evidence.  Part of the appeal was in fact allowed. The Board was not obliged to accept unchallenged evidence.  The Board was aware of the guidance of Mortimer J (as he then was) in All Best Wishes Ltd v CIR (1992) 3 HKTC 750 at 773.  The Board did not feel comfortable in making certain findings because proper witnesses with personal knowledge of the matters sought to be proved through them were not called.  She submitted further that the interests of justice do not require the proposed appeal be heard, as the Appellant had failed to identify any errors that were probably or even possibly attributed to the alleged delay.

15.On the materials before me, I was of the view that the Question Framed is a point of law.  I was further of the view that it is reasonably arguable.  That being my view, there is no need for me to consider the “some other reason” limb under section 69(3)(e)(ii)(B) of the IRO.

16.I have not in this Reasons for Decision gone into any detail of counsel’s submissions.  That is not out of any disrespect.  As I am granting the Applicant leave, and so as not to affect the fairness of the substantive appeal, I should confine myself to the provision of the brief reasons above.

17.I granted the Applicant leave to appeal on the Question Framed as set out in §13 of the A/AS.  I see the need to repeat this for the avoidance of doubt.  I did not deal with the “some other reason” limb as I was granting leave on the “reasonable arguability” limb.  That does not mean that the issue of delay (both pre-hearing and post-hearing) is not relevant.  It is.  As submitted and clarified by Mr Fung, the delay and any implication arising, are encapsulated as part of the Question Framed.

18.I directed that the appeal be set down to be heard on a date to be fixed in consultation with counsel’s diaries, with 2 days reserved.

19.Cost of this application for leave is to be in the cause of the substantive appeal, with certificate for 2 counsel for the Applicant.

Mr Eugene Fung SC leading Ms Kay Seto, instructed by Clifford Chance, for the Applicant/Appellant

Ms Elizabeth Cheung, instructed by Department of Justice, for the Respondent