The Commissioner of Inland Revenue, Hong Kong v. Cheng Chi-yui

DCCJ004687/1976

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

ACTION NO. 4687 OF 1976

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Coram: Judge Hooper, D.J. in Court.

Date of Judgment: 19th November 1976

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RULING

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1. This is an application on the part of the plaintiff for an order that the defence and counterclaim of the defendant be struck out under the Rules of the Supreme Court, Order 18, Rule 19, and under the inherent jurisdiction of the Court on the ground that:-

The plaintiff also asks that he be at liberty to enter judgment against the defendant for $1,360,000.00 H-K, the amount claimed in this action less $80,000.00 H-K already paid to the plaintiff by the defendant. He also asks for costs of this application

2. The particulars of the plaintiff's claim against the defendant show that the amount claimed in respect of tax in default is $1,440,000.00 H-K.

3. The defence and counterclaim of the defendant is in the following terms:-

"1. The defendant was assessed to tax under the Inland Revenue Ordinance, Cap.112, as follows:-

2. Notice of such assessment and demand for such tax was made by the plaintiff to the defendant by a letter in Form. I.R. 72D dated June 30, 1976.

3. By a letter dated July 26, 1976, the defendant applied to the plaintiff to pay the said tax by a down-payment of $38,633.00 and 36 monthly instalments of $40,000.00 each.

4. On or about July 28, 1976, the defendant sent the plaintiff a cheque dated July 28, 1976, for $38,633.00 in respect of the said down-payment.

5. By a letter dated July 30, 1976, a representative of the plaintiff informed the defendant that the said cheque (which was enclosed) was being returned because the words and figures thereon differed and asked the defendant to make the necessary amendments and return the cheque to her at his earliest convenience.

6. Accordingly, on August 5, 1976, the defendant presented the plaintiff with a cheque dated the same day for $38,633.00.

7. This second cheque was duly cleared, the defendant's account was debited by its value and the plaintiff benefited by it to the extent of its value.

8. The plaintiff issued a receipt in Form. I.R. 70A to the defendant for the value of the said second cheque to acknowledge that $38,633.00 was paid by defendant to the plaintiff on August 5, 1976, in respect of the said tax.

9. On August 26, 1976, by a letter of the same date, the defendant sent the plaintiff a cheque dated August 27, 1976 for $40,000.00 in respect of the first of the said instalments.

10. This third cheque was duly cleared, the defendant's account was debited by its value and the plaintiff benefited by it to the extent of its value.

11. In the premises:-

12. Throughout, the plaintiff and his representatives were acting within the scope of their employment as servants or agents of the Crown, and the Crown's rights as against the defendant concerning the said tax is subject to the estoppel in pais and/or promisory estoppel pleaded above. The defendant is willing and able to pay the said tax by the said method.

13. bave as hereinbefore expressly admitted each and every allegation in the Particulars of Claim are denied as if hereinafter set out and traversed seriatim; it is denied that the plaintiff is entitled to relief as claimed or at all.

COUNTERCLAIM

14. The defence is repeated by way of counterclaim.

AHD the defendant counterclaims:-

4. Mr. Somerville who appears for the Commissioner of Inland kevenue submits that this defence and counterclaim discloses no reasonable defence or cause of action. He points out that it is founded on an alleged estoppel which is pleaded in paragraph 11(a) and (b) of the above pleadings. He submits that even if the ingredients of estoppel have been made out to exist in this case (which he denies) it cannot avail the defendant, because of the established principle that estoppel cannot operate to prevent or hinder the performance of a positive statutory duty or the exercise of a statutory discretion. In this connection he refers to Vol. 16 of the 4th Edition of Halsbury's Laws of England paras. 1515 and 1596.

5. In addition he argues in relation to the counterclaim that in any event estoppel cannot operate as a sword but only as a shield and further that the Court has no jurisdiction to make a declaration in the circumstances having regard to the value of the subject matter in this action.

6. He also advances an argument based upon affidavit evidence that in the circumstances of this case the defence and counterclaim are vexations and frivolous and an abuse of the process of the Court.

7. It is unncessary for me to set out the facts deposed to in the affidavit because I think this application may be disposed of on the pleadings.

8. Mr. Bokhary has pointed out that his client should not be ruled out of Court simply because he has a weak case. It is only in plain and obvious cases that recourse should be had to the summary process under this rule. This summary remedy should only be applied in plain and obvious cases where the action is one which cannot succeed or is in some way an abuse of the process or the case unarguable. It cannot be exercised by a minute and protracted examination of the documents and facts of the case, in order to see whether the plaintiff really has a cause of action. If there is a point of law which requires serious discussion, an objection should be taken on the pleadings and the points set down for argument. (See 1976 Supreme Court Practice page 307 Note 18/19/3.) He argues that it is intra vires the Commissioner's powers to accept instalments. He submits there is nothing to prevent estoppel regulating the way in which a Government department behaves provided it is intra vires. So far as the discretionary powers of a Government department under a statute are concerned he submits that no Government department can be robbed of its discretionary powers entirely, but where a Government department purports to exercise its discretion as a proper exercise of that discretion, then estoppel will bind the Government department. In this connection he relies upon passages in the case of Robertson v. Minister of Pensions (1949) 1 K.B. 227 the judgment of Mr. Justice Denning (as he then was) at page 231, and also the Attorney General to His Royal Highness the Prince of Wales v. Collom (1916) 2 K.B. page 193 the judgment of Mr. Justice Atkins at page 204.

9. As far as the counterclaim is concerned he submits that the counterclaim is merely to establish the right which is the defence. It is hoped that if judgment is given in favour of the defendant, the declaration will be a particularly clear statement of the grounds on which they have succeeded. So far as the excess of jurisdiction argument is concerned, he submits that the Inland Revenue Ordinance confers jurisdiction on the District Court notwithstanding that the subject matter is above the usual limit. In the application of that power the Court can deal with both sides of the question, and he argues that it is clearly but an adjunct to the powers conferred by statute and would be odd if the Court could not so declare to make matters clear. He argues that the Courts should interpret the law to protect themselves from some anomaly unless bound hand and foot.

10. In my view Mr. Somerville is clearly right in his submission on this application. The authorities relied upon by Mr. Bokhary certainly establish that the Crown may be bound by estoppel. This is conceded by Mr. Somerville. But that is not the point; the point is that the Commissioner is charged with the carrying out of a positive statutory duty to collect tax lawfully payable as and when it falls due and he has also a discretion to allow the tax-payer to pay by instalments which discretion should be exercised with the interests of the public in mind. No estoppel can be raised against him to prevent him carrying out his duties or to inhibit him in the exercise of his discretion.

11. Section 71(1) of the Inland Revenue Ordinance provides as follows:-

"Tax charged under the provisions of this Ordinance shall be paid in the manner directed in the notice of assessment on or before the date specified in such notice. Any tax not so paid shall be deemed to be in default, and the person by whom such tax is payable, or where any tax is payable by more than one person or by a partnership then each of such persons or each partner in the partnership, shall be deemed to be in defaulter for the purposes of this Ordinance."

The Commissioner is given certain powers to grant indulgences under section 71 and in particular sub-section (6) which provides as follows:-

"Notwithstanding anything contained in the previous sub-sections of this section the Commissioner may agree to accept payment of tax by instalments."

12. This section shows quite clearly that he has a positive statutory duty to collect tax on a particular date and that he also has a discretion to allow the tax-payers to pay by instalments.

13. In the case of Maritime Electric Company Limited and General Dairies Limited [1937] A.C. 610 it was held by the Privy Council on an appeal from the Supreme Court of Canada that where a statute imposed on the appellants a duty to charge, and on the respondents to pay, at scheduled rates, for all the electric current supplied by the one and used by the other, this duty could not be defeated or avoided by a mere mistake in the computation of accounts. The relevant sections of the Act were enacted for the benefit of a section of the public, and in such a case where the statute imposed a duty of a positive kind it was not open to the respondents to set up an estoppel to prevent it.

14. Their Lordships were of the opinion that the correct approach to such a problem was that the Court should first of all determine the nature of the obligation imposed by the statute, and then consider whether the admission of an estoppel would nullify the statutory provision (at page 620 per Lord Maugham).

15. In the case of Customs & Excise v. Hebson, Ltd; Same v. Blaiber & Co. Ltd. [1953] Vol. 2 Lloyd's List Law Reports at page 396 Mr. Justice Pearson cast further light on this matter.

"an officer having a public duty cannot be deprived of his duties and powers, or cannot be prevented by any estoppel from performing those duties and powers which he has a statutory or other public obligation to exercise in the general public interest. It may well be that the Customs Officers were not under an obligation to seize, necessarily; they would have some discretion in the manner: but, if so, they must keep their discretion and exercise it in the general public interest, and they could not by estoppel become prevented or precluded from duly exercising their statutory powers."

16. In the case of Society of Medical Officers of Health v. Hope (Valuation Officer) [1960] A.C. 551 Lord Keith of Avonholm giving the majority judgment of the House of Lords after pointing out the public duties performed by Valuation Officers went on to say at page 568:-

"I emphasise these aspects of the functions of a valuation officer under the statute, for they lead to what I regard as the true answer to the submission for the appellants, which is that a public officer in the position of the respondent cannot be estopped from carrying out his duties under the statute. The case is, I think, a fortiori of the judgment of a Board of the Privy Council in Maritime Electric Co. Ltd. v. General Dairies Ltd., where it was held, in the circumstances of that case, that a public utility company could not be estopped from carrying out its duty under a statute. It has been said on other occasions that there is no estoppel against a statute. Lord Parker of Waddington applied this ratio in Inland Revenue Commissioners v. Brooks with reference to an assessment to income tax which was claimed to be final against the Commissioners for the Special Purposes of Income Tax in an assessment for super-tax. 'I do not dispute,' he said, 'these general principles [of law governing estoppels], 'but it seems to me that where there is a statutory provision requiring an estimate to be made for a statutory purpose and by a statutory authority, the principle of estoppel cannot be invoked to render the provision nugatory in cases where such principle might otherwise have applied ....... He may in my opinion seek to rectify the result of mistakes in fact or errors of law."

17. In Southend-On-Sea Corporation v. Hodgson (Wickford), Ltd. [1962] 2 Q.B. 416 Lord Parker C.J. giving the judgment of the Court of Appeal quoted from the judgment of Lord Maugham in the Maritime Electric Co. Ltd. v. General Dairies Ltd. case referred to above and went on to say at page 423:-

"As I have said, I can see no logical distinction between a case, such as that, of an estoppel being sought to be raised to prevent the performance of a statutory duty and one where it is sought to be raised to hinder the exercise of a statutory discretion. After all, in a case of discretion there is a duty under the statute to exercise a free and unhindered discretion. There is a long line of cases to which we have not been specifically referred which lay down that a public authority cannot by contract fetter the exercise of its discretion. Similarly, as it seems to me, an estoppel cannot be raised to prevent or hinder the exercise of the discretion."

18. This case gives a clear indication that the Commissioner should not be inhibited at all in the exercise of his discretion to decide whether or not to allow the tax to be paid by instalments. It seems clear from the above judgment that even if the Commissioner had agreed to allow the tax-payer to pay by instalments, he would still not be inhibited from cancelling such agreement and demanding payment by the due date.

19. In the case of Essex County Council v. Ministry of Housing & Local Government (18 P. & C.R. Ch.D) page 531 a defendant asked under Order 18 Rule 19 of the Rules of the Supreme Court that the writ and statement of claim be struck out on the ground that they disclosed no reasonable cause of action, were frivolous and vexatious and an abuse of the process of the Court. It was held on this application that the Minister of Housing and Local Government could not, as a matter of law, deprive himself or be deprived of his power to exercise his statutory discretion unhindered by any fetter. The dictum of Lord Parker C.J. in Southend-On-Sea Corporation v. Hodgson (Wickford) Ltd. was applied, and the writ and statement of claim was struck out under this rule. This was regarded as a plain and obvious case.

20. I think the above cases sufficiently establish the proposition put forward by Mr. Somerville on that part of his submission which was common to the defence and counterclaim and support the general statements in paras. 1515 and 1596 of Halsbury (supra).

21. With regard to his two points on the counterclaim, it is really now academic. However, it appears that there have been some cases where estoppel has been used as a sword, particularly in the field of proprietory estoppel. In the case of Crabb v. Arun District Council [1975] 3 All E.R. page 65 the Court of Appeal (Lord Denning M.R., Lawton and Scarman L.J.J.) held that the Council were estopped from denying that Mr. Crabb had a right of way to cross their land and then went on to grant a declaration that Mr. Crabb had a legal easement of that right of way.

22. The argument that the counterclaim was in excess of the jurisdiction conferred in section 52 of the District Court Ordinance, would not seem sufficient ground for striking out the counterclaim, when this section is read also with section 38 of the District Court Ordinance.

23. However as I said before these matters are academic and I make no ruling on them. I am satisfied that this is a plain and obvious case for striking out both the defence and counterclaim, and I so order. The plaintiff is entitled to the costs of this application after taxation on the upper scale unless otherwise agreed. On the strength of the certificate under section 75(3) of the Inland Revenue Ordinance Cap. 112 dated the 15th October 1976 signed by Mr. D.J. Richie, Assistant Commissioner of Inland Revenue, I enter judgment for the plaintiff in the sum of $1,360,000.00 H-K.

Representation:

Mr. Somerville, counsel for the Crown, for plaintiff.

Mr. Bokhary of K.K. CHU & Co. for defendant.