Commissioner of Inland Revenue v. Waylee Investments Ltd

HCIA000003/1988

Inland Revenue Appeal No. 3/88

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Hon. Barnett J. in Court

Date of hearing: 7 - 10 November 1988

Date of delivery of judgment:  21 November 1988

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DECISION

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1. Anyone who was living in Hong Kong in the middle of the last decade will remember the economic recession and the financial difficulties in which many people found themselves, and in particular the difficulties in which one of Hong Kong's leading hongs, Hutchison International Limited (Hutchison), found itself. In 1975, it was feared that Hutchison was on the verge of collapse. At that time, the Hong Kong and Shanghai Banking Corporation (the Bank) was a major creditor of Hutchison, having made to it loans or advances worth some HK$1 billion. The Bank was concerned that if Hutchison failed, not only would the Bank and its shareholders suffer a substantial loss, but there might be a catastrophic effect upon Hong Kong's economy and reputation. It proposed, therefore, that Hutchison should raise additional capital by way of a rights issue of shares. For reasons into which I need not go, this proposal was abandoned.

2. The Bank formed the view that the real problem underlying Hutchison's difficulties was inadequate management. It felt that the fortunes of Hutchison could be turned round. Accordingly, the Bank offered to take a substantial equity holding in Hutchison. It offered to purchase 150,000,000 shares at par and to make available further facilities if necessary. This offer was conditional upon the Bank having the right to appoint a Chief Executive of Hutchison and pending that appointment, the right to appoint two members to an Executive Committee which would have full executive powers. The Bank would also have the right to nominate two members to join the Board of Hutchison. If that offer was accepted, Hutchison would be provided with free capital to relieve its cash difficulties, and with the Bank and its resources being seen to be behind Hutchison and effectively guaranteeing its debts, Hutchison's credit would be re-established.

3. That offer was made on 7th August 1975. On 20th August 1975, there was incorporated in the New Hebrides a company called Carlingford (NH) Limited. Its two initial directors were officers of the Bank and the Bank held 98 of the 100 issued shares, each of one Australian dollar. The Bank was the ultimate holding company. This company subsequently changed its name to Waylee Investment Limited (Waylee). At the beginning of September, Hutchison accepted the Bank's offer. On 5th September Waylee purchased 150 million Hutchison shares with money provided by the Bank; no interest was payable upon that money by Waylee nor was there any provision for repayment. However, dividends, indeed substantial dividends, subsequently received by Waylee on the Hutchison shares were immediately paid to the Bank.

4. At the time when the Bank's offer was made, the then Chairman, Mr G.M. Sayer, publicly explained the terms of the offer, made it plain that the Bank was not entering into general trading business and stated that the Bank would reduce its shareholding when the affairs of Hutchison improved to a point where support was no longer necessary.

5. The fortunes of Hutchison improved rather more rapidly than anticipated. In December 1977, Hutchison merged with Hong Kong & Whampoa Dock Company Limited to form Hutchison Whampoa Limited. In the course of the merger, Waylee received in exchange for its 150,000,000 shares, 90,000,000 ordinary shares in Hutchison Whampoa and 90,000,000 preference shares.

6. In September 1979, Mr Li Ka Shing of Cheung Kong Holdings Limited approached Mr M.G.R. Sandberg, the then Chairman of the Bank, and offered to purchase the 90,000,000 ordinary shares. Mr Sandberg accepted Mr Li's offer and, hardly surprisingly, Waylee resolved to sell the shares. The proceeds of the subsequent sale were remitted to the Bank. According to its accounts for the year ending 31st December, 1979, Waylee declared that it had derived a profit on part disposal of quoted investment, of $517,595,847. The preference shares were disposed of some years later, again at a profit, but that profit is not the subject of these proceedings.

7. An Assessor of the Inland Revenue Department charged to Profits Tax under Section 14 of the Inland Revenue Ordinance the profit made by Waylee upon the sale of the 90,000,000 shares, and raised an assessment for tax of $87,981,743 for the year 1979/80. Waylee objected to the assessment on two grounds : first, that it had not carried on any trade or business in Hong Kong; secondly, that the shares formed part of its capital assets and the profit on the sale of the shares was a capital profit.

8. The Commissioner of Inland Revenue (The Commissioner) formed the view that Waylee's activities, such as they were, constituted an integral part of the Bank's rescue operation for Hutchison and that that operation was an adventure in the nature of trade. Even if Waylee should be regarded independently, the Commissioner took the view that the activities of Waylee were themselves of a trading nature. Accordingly, the Commissioner confirmed the assessment upon Waylee.

9. Waylee appealed to the Board of Review. The Board ordered that the assessment against Waylee be annulled. In accordance with section 69 of the Inland Revenue Ordinance, the Commissioner applied to the Board requiring them to state a case on a question of law. The Board duly stated a case in which they posed the question whether there was evidence on which they could properly arrive at their decision that the profit accruing to Waylee arose from the sale of a capital asset and was not derived from an adventure or concern in the nature of trade.

10. There is no dispute about the power of this court. On hearing a case stated, the court can set aside the decision of the Board only if it is clear that the Board have misunderstood the law and consequently misdirected themselves; or because their findings are perverse, that is to say, where the only true and reasonable conclusion contradicts the Board's findings, see Edwards v. Bairstow (1956) AC 14. Assuming that the Board did not misdirect themselves in law, the court may not substitute its own opinion on the facts found if the facts found are reasonably capable of supporting the Board's own opinion or determination.

11. The Commissioner contends that the Board misdirected themselves and reached a decision which cannot be supported by the facts. The principal complaints are that the Board failed to discuss the character of an adventure in the nature of trade; failed to consider many relevant facts which appeared in the evidence and which failure is, in itself, a mis-direction; and that if they had properly directed themselves, the only possible conclusion which could have been reached on the facts is that Waylee was involved in an adventure in the nature of trade.

12. There was a number of other complaints of which I think only three to be of any substance. The first is that the Board failed to advert to the fact that on appeal to the Board, the onus is upon the taxpayer. Like Mr Pinson who appeared for Waylee, I think it may safely be assumed that a board which had, as its chairman, a man experienced both in the law and in revenue appeals, and as one of its members, an experienced lawyer and authority upon Hong Kong taxation law, had in mind where the onus lay.

13. Secondly, in setting out the grounds of appeal in its decision, the Board omitted the ground that the transaction and trade did not take place in Hong Kong. The Commissioner submits that that indicates a carelessness on the part of the Board which is compounded when later in its decision the Board said :

"A subsidiary point arises ...... whether or not the profit was a profit which arose from the appellant carrying on a trade or business in Hong Kong .... "

14. The Commissioner argues that this was not a subsidiary point but one of the substantive grounds of the appeal.

15. The Board's approach to this point must be looked at against the background of its complete decision. Very properly in my view, the Board decided to grasp the nettle and determine whether or not Waylee's activities constituted an adventure. Only if they determined that issue in favour of the Commissioner, would it be necessary to go on to consider the further point of whether the profit arose in Hong Kong or not. In the event, it did not become necessary to consider this point, although the Board did say that had it been necessary, they would have found that the profit did arise in Hong Kong. It is not now, I think, contended otherwise. Whilst a more appropriate epithet than "subsidiary" might have been employed, I do not think its use demonstrates any neglect, carelessness or misdirection on the part of the Board.

16. Thirdly, the Commissioner complains that the Board focused upon Waylee's intention. In its decision, the Board said :

"To ascertain whether or not this was a venture in the nature of trade, it is necessary to look" at all of the relevant surrounding circumstances and to ascertain what was the true intention of the Appellant when it acquired the shares in question".

17. It is not disputed that while a person may express an intention to do a certain thing, his acts may constitute a different thing. The Commissioner rightly contended that whilst intention expressed by a person might be relevant, it is necessary to look at everything which is done by a person in order to assess the overall effect of what he has said and done.

18. In my view that is what the Board have done. The Board were, in effect, saying that it is only after looking at all the facts that you can ascertain what the Bank, and through it, Waylee, were really up to. I am reinforced in this view because later in its decision the Board said :

"Accordingly, to decide whether or not the Appellant (Waylee) was engaging in a venture in the nature of trade, it is necessary to look at the intentions, acts, deeds and decisions of Mr Sayer."

19. Leaving aside for the moment whether Waylee is indistinguishable from the Bank, it is quite clear to me that the Board was properly directing itself.

20. Returning to the principal complaints, the first matter to consider is what is an adventure in the nature of trade. Section 14 of the Inland Revenue Ordinance reads:

"Subject to the provisions of this Ordinance, profits tax shall be charged for each year of assessment at the standard rate on every person carrying on a trade, profession or business in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong for that year from such trade, profession or business (excluding profits arising from the sale of capital assets) as ascertained in accordance with this Part :"

21. Trade is defined in Section 2 of the Ordinance as follows:

"'Trade' includes every trade and manufacture, and every adventure and concern in the nature of trade :"

22. Nowhere is there any definition of what is an adventure in the nature of trade. In Edwards v. Bairstow (1956) AC 14 Lord Radcliffe said at page 38:

"There remains the fact which was avowedly the original ground of the commissioners' decision - 'this was an isolated case.' But, as we know, that circumstance does not prevent a transaction which bears the badges of trade from being in truth an adventure in the nature of trade. The true question in such cases is whether the operations constitute an adventure of that kind, not whether they by themselves or they in conjunction with other operations, constitute the operator a person who carries on a trade. Dealing is, I think, essentially a trading adventure, and the respondents' operations were nothing but a deal or deals in plant and machinery."

23. The Commissioner also relied upon a line of Australian and New Zealand authorities. Perhaps the most helpful of those is the Federal Commissioner of Taxation v. Myer Emporium Ltd. (1987) 18 ATR 693. At page 697 the High Court of Australia said :

"The Commissioner submits that again made by a taxpayer as the result of a business deal or a venture in the nature of trade is income of the taxpayer even if the transaction that yields the gain is outside the ordinary course of business. According to the argument, the amount falls within either s 25(1) or the second limb of s 26(a). The taxpayer makes two responses to this argument: (1) that a gain made as the result of a business deal or a venture in the nature of trade is not income unless it is made in the ordinary course of carrying on a business; and (2) that the realisation of a capital asset is capital, not income, the amount received by Myer representing the receipt of a captial asset.

Although it is well settled that a profit or gain made in the ordinary course of carrying on a business constitutes income, it does not follow that a profit or gain made in a transaction entered into otherwise than in the ordinary course of carrying on the taxpayer's business is not income. Because a business is carried on with a view to profit, a gain made in the ordinary course of carrying on the business is invested with the profit-making purpose, thereby stamping the profit with the character of income. But a gain made otherwise than in the ordinary course of carrying on the business which nevertheless arises from a transaction entered into by the taxpayer with the intention or purpose of making a profit or gain may well constitute income. Whether it does depends very much on the circumstances of the case. Generally speaking, however, it may be said that if the circumstances are such as to give rise to the inference that the taxpayer's intention or purpose in entering into the transaction was to make a profit or gain, the profit or gain will be income, notwithstanding that the transaction was extraordinary judged by reference to the ordinary course of the taxpayer's business. Nor does the fact that a profit or gain is made as the result of an isolated venture or a 'one-off' transaction preclude it from being properly characterised as income: FCT v. Whitfords Beach Pty Ltd (1982) 12 ATR 692 at 698-9, 705; 150 CLR 355 at 366-7, 376. The authorities establish that a profit or gain so made will constitute income if the property generating the profit or gain was acquired in a business operation or commercial transaction for the purpose of profit-making by the means giving rise to the profit.

The celebrated decision in Californian Copper Syndicate v. Harris (1904) 5 TC 159 makes the point ....................

The Lord Justice-Clerk (the Right Honourable JHA Macdonald) drew a distinction between a mere realisation or change of investment and' an act done in what is truly the carrying on, or carrying out, of a business.' His Lordship went on to express the distinction in this way (at 166):

'Is the sum of gain that has been made a mere enhancement of value by realising a security, or is it a gain made in an operation of business in carrying out a scheme for profit- making?'

This test was approved by the Privy Council in Comr of Taxes v. Melbourne Trust Ltd [1914] AC 1001 at 1010 and was applied by the House of Lords in Ducker v. Rees Roturbo Development Syndicate[1928] AC 132 at 140."

At p. 698, the High Court continued :

"The important proposition to be derived from Californian Copper and Ducker is that a receipt may constitute income, if it arises from an isolated business operation or commercial transaction entered into otherwise than in the ordinary course of the carrying on of the taxpayer's business, so long as the taxpayer entered into the transaction with the intention or purpose of making a relevant profit or gain from the transaction."

At p. 699 the Court continued :

"The judgments in some of the English decisions naturally reflect the language of the United Kingdom statutory provisions, which have no precise counterpart in this country. However over the years this court, as well as the Privy Council, has accepted that profits derived in a business operation or commercial transaction, carrying out any profit-making scheme are income, whereas the proceeds of a mere realisation or change of investment or from an enhancement of capital are not income : Ruhamah Property Co Ltd v. FCT (1928) 41 CLR 148 at 151-2, 154; McClelland v. FCT (1970) 2 ATR 21 at 27-8; 120 CLR 487 at 495-6; London Australia Investment Co Ltd v. FCT (1977) 7 ATR 757 at 761-2; 138 CLR 106 at 115-16, and see Whitfords Beach.

The proposition that a mere realisation or change of investment is not income requires some elaboration. First, the emphasis is on the adjective 'mere': Whitfords Beach at 383. Secondly, profits made on a realisation or change of investments may constitute income if the investments were initially acquired as part of a business with the intention or purpose that they be realised subsequently in order to capture the profit arising from their expected increase in value : see the discussion by Gibbs J in London Australia (ATR) 762-4; (CLR) at 116-18. It is one thing if the decision to sell an asset is taken after its acquisition, there having been no intention or purpose at the time of acquisition of acquiring for the purpose of profit-making by sale. Then, if the asset be not a revenue asset on other grounds, the profit made is capital because it proceeds from a mere realisation. But it is quite another thing if the decision to sell is taken by way of implementation of an intention or purpose, existing at the time of acquisition, of profit-making by sale, at least in the context of carrying on a business or carrying out a business operation or commercial transaction."

24. Mr Pinson argued that the Australasian cases are not helpful. They are based upon tax legislation which contains specific reference to a profit-making undertaking or scheme. Therefore references to a profit making scheme by the court should be looked at in that particular context and not in a general context of a discussion about what is and is not an adventure in the nature of trade as it appears in the English and Hong Kong tax legislation.

25. Secondly, Mr Pinson pointed out that the Californian Copper case which is cited in Myer does not help because it was decided only in the context of ordinary trading.

26. For his part, Mr Pinson suggested that there are two approaches, either of which may be adopted, in determining what is or is not an adventure in the nature of trade. First, there is the narrow approach which involves considering whether the venture is of the same kind and carried on in the same way as ordinary trading in the line of business in which the venture is made : see Ransom v. Higgs (1974) TC 184. Applying this approach to the Hutchison shares and their acquisition, holding and sale, Mr Pinson said that characteristics of share dealing are wholly absent. With that, I think there can be no dispute.

27. The wider approach is to ask if the so-called "badges of trade" are present. Mr Pinson suggested that there are six matters which might be considered. First, the subject matter, because property which does not give either income or enjoyment is more likely to have been acquired with the object of a deal than property that does: see Martin v. Larry (1927) 11 TC 297.

28. Second, the period of ownership. A sale shortly after purchase may indicate dealing while a holding for a substantial period of time of property that is income producing is consistent with investment.

29. Third, the frequency or number of similar transactions, because trade is characterised by regular buying and selling. In C.I.R. v. Livingston (1926) 11 TC 538, the Lord President said :-

"A single transaction falls as far short of constituting a dealer's trade as the appearance of a single swallow does of making a summer."

30. Fourth, supplementary work on the property :

Livingston.

31. Fifth, the circumstances responsible for realisation. A dealer or trader normally seeks profit. A sale which occurs when the owner is approached by an outsider is inconsistent with trading.

32. Sixth, motive. The hope of profit is common to traders, investors and gamblers. Therefore, something more than simple profit seeking is necessary to establish dealing.

33. Mr Pinson submitted that the badges of trade were conspicuously absent in respect of the Hutchison transaction.

34. Nothwithstanding the difference in Australian Tax Legislation, I am satisfied that Myer contains the approach to be followed. I am comforted by the fact that in C.I.R. v. Sincere Insurance and Investment Co. Ltd. (1973) 1 HKTC 602, Leonard J. accepted that the same principles are applicable in Hong Kong, England and Australia.

35. In my view, however, the Commissioner's and Mr Pinson's submissions are in reality no more than 2 parts of the same argument. As the High Court of Australia said in Myer :

"........ if the circumstances are such as to give rise to the inference that the taxpayer's intention or purpose .......... was to make a profit or gain, the profit or gain will be income ......"

36. The test is whether primarily the taxpayer intended to make a profit and, in applying that test, it will be necessary to carry out an evaluation of the facts taking into account the factors mentioned by Mr Pinson.

37. The Commissioner also placed reliance upon Frasers (Glasgow) Bank Ltd v. C.I.R. (1963) 40 TC 698. In that case a small bank which operated primarily to facilitate transactions within a group of companies, purchased stock in the parent company in order to maintain the market price. For this purpose, the bank had to borrow money from its own bankers. Ten years later, in order to reduce its indebtedness, the bank sold some of the stock at a profit. The Special Commissioners held that the stock was bought and sold in the course of carrying on its trade. This finding was upheld by the House of Lords.

At page 703, the Lord President said:-

"So far as appears from the Case, the only reason for the Company entering into these two transactions was to support the House of Fraser shares in the market, upon the success of which the whole trading operations of the Company depended. This appears to me to point strongly to a trading rather than a capital operation. It was an operation directly related to the Company's position as a unit in the Fraser group of Companies."

At page 711, Lord Reid said :

"The argument for the Company was that the purchases of the stock were in no way connected with its banking business and that the object of maintaining the value of House of Fraser stock in the market was wholly divorced from the normal activities of the Company. I cannot accept that argument. The Company had to use its trading facilities with its bankers to finance the purchases, and the continued prosperity of House of Fraser was a vital interest of the Company as traders because, as I have said, its banking customers were, in the main, companies of the Fraser group and their employees. And then the sale of this stock was made in order to put its trading bank account in better shape.

The question whether particular operations were acts done in carrying on the taxpayer's trade is not one that can be answered by applying any definite rule or criterion. The answer must depend on a consideration and evaluation of all the relevant facts. Here it appears to me that all the facts point in the same direction. When the stock was bought the Company had no funds to invest. The object of the purchase was to support its chief customer in its trade. And the stock was sold because of the requirements of its trade. That appears to me to be amply sufficient to support the decisions of the Commissioners and of the First Division of the Court of Session, and therefore I am of opinion that this appeal should be dismissed with costs."

38. Although the facts are different, the Commissioner said that this case is closest to the instant case. He said that Waylee was not investing capital in Hutchison but only entering a transaction which was part of the Bank's overall rescue scheme and used money borrowed from the Bank for this purpose. The loan from the Bank was just part of Waylee's trading liability. There was no evidence to show that Waylee acquired the shares as a capital investment because it was quite clear that there was an intention to sell the shares when the rescue was complete. Certainly Waylee would not, itself, invest in a business which was virtually bankrupt.

39. It is, of course, the Commissioner's argument that the activities and purpose of Waylee and the Bank cannot be distinguished, so that if the Bank's rescue operation is found to be an adventure in the nature of trade it must necessarily follow that Waylee's acquisition, holding and sale of the Hutchison shares is equally an adventure, as part of that operation. However, if it is found that a distinction should be drawn between the two, then having regard to Fraser, there is no basis for inferring that Waylee decided to acquire the shares as a capital investment.

40. Mr Pinson considered Fraser to be too far from the instant case to be helpful. He pointed out that the bank in Fraser had to borrow money on disadvantageous terms and had to sell stock when pressed for repayment by its bankers. Further, it was supporting, what was in effect, its only customer, whereas the Bank is a major international bank which was simply helping an important customer. Although the size of the debt owed to the Bank was substantial, it was small in relation to the overall size of its operations. There was no evidence that the Bank was itself in jeopardy as was the case of the parent company in Fraser.

41. For my part, I do not find Fraser particularly helpful. It did not, I think, lay down any particular principle. It depended, as Lord Reid said, "on a consideration and evaluation of all the relevant facts".

42. I was referred during argument to Punjab Cooperative Bank v. C.I.T. of Lahore (1940) AC 1055 and a line of authority concerning investments by insurance companies and Banks. Investments by insurance companies are generally held to be trading and giving rise to taxable profits. Mr Feenstra argued that banks fall into the same category and that their investments are essentially revenue producing. The point is not clear on the authorities. He accepted, however, that the Bank's holding of, inter alia, Cathay Pacific shares (like Waylee, in a subsidiary) is a long term investment and a capital item, but tried to distinguish the Waylee holding. I do not find these cases helpful in the circumstances.

43. Before going on to consider the facts, it is necessary to determine whether the Board should simply have considered Waylee's part in isolation, or whether it should have considered the whole of the rescue package and the events leading up to it. It is, I think, tolerably clear that the characteristics of an adventure might he more readily attributable to the Bank's operation rather than to Waylee's smaller part in relation to the shares.

44. The Commissioner submitted that this is a case for looking at the realities of the situation. He referred me to the 4th Edition of Gower on Company Law where at page 128, there is a discussion of lifting the veil in relation to associated companies. I was also referred to the following cases :-

Ruhamah Property Co. Ltd v FCT

(1928) 41 C.L.R. 148

Smith, Stone & Knight Ltd v. Birmingham Corp

(1939) 4, All E..R. 116

re F.G. Films Ltd.

(1953) 1 All E.R. 615

H. Holdsworth Ltd. v Caddies

(1955) 1 All E.R. 725

Bolton Engineering Co. Ltd. v Graham & Sons Ltd.

(1975) 1 Q.B. 159

Firestone Tyre Co. Ltd. v Lewellyn

(1957) 1 All E.R. 561

Littlewoods Mail Order Stores Ltd. v I.R.C.

(1969) 1 W.L.R. 1241; 45 T.C. 519

Elsey Pty Ltd v F.C.T.

(1969) 121 C.L.R. 119

Tesco Supermarkets Ltd v Nattrass

(1972) A.C. 153

D.H.N. Food Distributors Ltd. v Tower Hamlets

(1976) 1 W.L.R. 852

45. Mr Pinson submitted that these cases are not true examples of the corporate veil being lifted. Thus, in Littlewoods, the decision turned on the purpose for which expenditure had been made, while Holdsworth depended upon the construction of a contract. I do not propose to embark upon a detailed examination of these cases. Suffice it to say, in the light of all the evidence which was before the Board, it is quite clear that, to use the word of Lord Denning in the Littlewoods case, Waylee was the puppet of the Bank. Again like Lord Denning, I decline to treat Waylee as a separate and independent entity. I am satisfied that on the authority of these cases, a court may, where the circumstances are right, look at the reality of the situation or, if it is appropriate, lift the corporate veil. I am satisfied that the circumstances were right in this case.

46. It was argued for Waylee that, although it was appropriate to look at the words and deeds of Mr Sayer in order to ascertain the intention of Waylee, Waylee should be treated separately as was done by the Board. To do otherwise would in effect be to treat the Bank as the taxpayer in which case other evidence would have been led and different considerations would apply.

47. If, as I hold, it is proper, on the facts before the Board, not to distinguish between Waylee and the Bank, it is irrelevant that other evidence might have been adduced. The matter falls to be decided on the evidence which was available.

48. It is not clear to me that the Board treated Waylee separately, although referring to it as a separate legal entity - which of course it was. The Board were aware that this was not a straight-forward purchase of shares because, in their decision, they expressly stated that they were reminded by Counsel for the Commissioner that a financial rescue of a customer was involved. Further, the Board did look at the intentions, acts, deeds and decisions of Mr Sayer in deciding whether there was an adventure in the nature of trade.

49. The Board's decision contains the following 2 paragraphs :-

"Evidence was given before the Board as to the underlying circumstances relating to this investment. We accept the evidence of Mr. Sayer which was to the effect that this was not a normal banking transaction or a normal transaction falling within the business of the Bank. It was a most unusual and exceptional case. We also accept the evidence of Mr. Sayer when he said that the Bank drew a clear distinction between its business trading assets and its long term investments. He said that long term investments were held in the names of separate subsidiary companies to distinguish them from the Bank's trading investment. It was pointed out that the Bank had in its own name shares in Hutchison which were trading assets and any profit or loss on the disposal of such shares would be included in the Bank's trading profit."

It was clear from the evidence given by Mr. Sayer that he considered himself to he in overall control of the Bank and its subsidiaries which included the Appellant. We find this to be factually correct and in determining the intention of the Appellant we find it appropriate and correct to look at the intention of Mr. Sayer at that time. Although evidence was laid before us that Mr. Sayer was at no time a director of the Appellant and at all times the decisions of the Board o directors of the Appellant were taken in the New Hebrides we consider this not to be material. The directors in the New Hebrides were doing no more than action on instructions given to them from Hong Kong and these instructions originated and were derived from decisions and instructions given and made by Mr. Sayer. Accordingly to decide whether or not the Appellant was engaging in a venture in the nature of trade it is necessary to look at the intentions, acts, deeds and decisions of Mr. Sayer."

50. It seems to me that the Board were effectively looking at the realities of the situation and treating Waylee and the Bank as one.

51. Turning to the facts, the Commissioner complains that there is no proper assessment of the evidence. Effectively, he said, it is contained in the 2 paragraphs to which I have just referred.

52. Apart from what it omits, the Commissioner argues that the emphasis on the distinction which the Bank itself draws between long term and trading investments is misplaced. Whilst it is a matter which may be taken into consideration, it is by no means the only or most important factor. As I have already indicated, there is no dispute that what a person expresses to be his understanding or intention may be very different from what his acts and deeds may show. I accept, however, as Mr Pinson has submitted, that in the case of a bank, the way in which its investments are treated may be a more powerful factor than the treatment accorded by some small company, which is not a large public institution, governed, as in this case, by the provisions of the Banking Ordinance.

53. What the Board does not mention in its decision is the fact of the substantial debt due to the Bank and that it arose from earlier advances. No mention is made of the likelihood of a profit on the sale of the shares nor of the intention of the Bank as expressed publicly by Mr Sayer before the shares were even acquired that it would sell the shares as soon as that could properly be done. There is no mention of the business aspect of the transaction as far as the Bank was concerned. In order to protect its shareholders, it could not make further loans and, unwillingly, had to take control of Hutchison. There was no reference to the fact that the bank would have its debt secured by the rescue operation and would make a profit if the rescue succeeded.

54. The Commissioner also considered important the fact that Mr Sayer, in cross-examination before the Board, agreed that a bank should try to assist a customer if it seems feasible to do so. This, the Commissioner urged, shows that rescue of a customer is part of normal banking business, albeit in this case the rescue was of an exceptional and abnormal nature.

55. I accept that the Board might have made a more detailed examination of the evidence and the material facts upon which it relied. However, in its decision the Board stated:-

"The facts of the case are found in the determination of the Commissioner, in evidence given before the Board of Review by Mr. Guy Mowbray Sayer, in two Affidavits one by Mr. Peter Edward Hammond and the other by Mr. Michael Graham Ruddock Sanberg and in certain Exhibits produced by the witness who appeared before, the Board of Review."

56. I have no doubt that the Board took into account all the facts which the Commissioner considers relevant.

57. In approaching the evidence, the Board should have had in mind the profit-seeking approach which would have involved considering the 6 factors or badges argued for by Mr Pinson in determining whether or not there was an adventure in the nature of trade.

58. As a matter of law, it is right, in the circumstances of this case, to look at the overall picture and not Waylee's part in the rescue package in isolation.

59. Looking at the evidence in the light of those principles, I am by no means persuaded that the situation is as clear cut as either the Commissioner or Waylee would like to think. On the one hand, it was as Mr Sayer agreed, part of a bank's business to rescue a customer if possible. What took place was undoubtedly a rescue. Undoubtedly, the Bank hoped to make a profit.

60. On the other hand, although there was a rescue, it was a rescue of apparently unprecedented proportion and nature. In mounting the rescue, the Bank's motives were several. Although profit was one, in my view, it was not the most important of them. It was clear that the Bank did not enter a transaction which it anticipated would come to early fruition. Although Mr Sayer publicly stated that the Bank's shareholding would be reduced (and realistically, this could only mean "sold" as the Commissioner would have it) even before the shares had been acquired, I do not think that to be a particularly important factor in the exceptional circumstances of this case.

61. Whilst I may have taken a different view from the Board, I am satisfied that there are facts upon which the Board could properly have reached its decision. In the circumstances, the question posed by the Board is answered in the positive.

Representation:

Mr P.F. Feenstra, Deputy Principal Crown Counsel, for Appellant.

Mr B. Pinson, Q.C. and Mr R.G. Kotewall, instructed by M/s. Johnson, Stokes & Master for Respondent.