The Hong Kong and Shanghai Banking Corporation v. Attorney General

HCMP000226/1981

Section 76 Inland Revenue Ordinance - no ambiguity in section liability of bank to joint account holder is joint and several unless otherwise agreed - recovery notice directed to bank applies to debt owed to taxpayer who is joint account holder.

IN THE SUPREME COURT OF HONG KONG

MISCELLANEOUS PROCEEDINGS

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Coram: Bewley, J.

Date of Judgment: 24 July 1981

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JUDGMENT

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1. In this summons the Court is asked to pronounce upon a question that involves a very small sum of money but an important point of principle, particularly so far as the Inland Revenue and the Exchange Banks Association are concerned. It is the interpretation of section 76 of the Inland Revenue Ordinance Cap. 112, which provides:-

2. In January, 1980, the plaintiff received a recovery notice under s.s.(1) in respect of tax payable by Mr. Yen Ah Chun. Mr. Yen and Miss Yiu Keng Yuet maintain a joint savings account with the plaintiff. At the time when the plaintiff received the recovery notice, there was a credit balance of $96 in this account. After seeking legal advice, the plaintiff replied to the Commissioner in April, 1980, stating that it was unable to comply with the notice without specific authorisation from Mr. Yen.

3. Further correspondence ensued until, on 16th February, 1981, the plaintiff issued this summons, in which the court is asked to make declarations that the recovery notice is invalid and that the plaintiff is not obliged to pay any moneys to the Crown pursuant to the notice, and, in particular, the credit balance in the joint account.

4. Prior to the enactment, in 1979, of section 28 of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23, the common law rule that a promise could not be made to 2 persons both jointly and severally applied in Hong Kong. This was made clear in Stevenson & anr. v. Chartered Bank⁽¹⁾. The law was changed in England, so far as contracts under seal were concerned, by section 60 of the Conveyancing Act, 1881, now section 81 of the Law of Property Act, 1925.

5. Section 28 of the Hong Kong Ordinance, which is not restricted to deeds and which also has slightly different wording to the English section, provides:

6. Thus it is possible for the parties to a contract to take themselves outside the section, if they so wish, but, if they fail to do so, the promise is deemed to have been made both jointly and severally.

7. The contract between the plaintiff and the 2 joint account holders, is contained in a form of mandate, which was signed by Mr. Yen and Miss Yiu and chopped by the bank. It specifically provides that any liability owed by the bank to the joint account holders was to be joint and several. It is not in dispute that section 28 applies to this contract. The significance of this is that either Mr. Yen or Miss Yiu could, if they wished, sue the bank separately in respect of their account.

8. The nature of the contract is one of debtor and creditor. The bank owes to the account holders the sum standing to their credit in the account. There are in fact 3 promises to pay: to the account holders jointly and to each one severally.

9. Turning again to section 76, it is the plaintiff's contention that, in these circumstances, it does not owe money to, or hold it for the taxpayer, by virtue of their contract, it does so for the taxpayer and also for Miss Yiu. Mr. Li, for the plaintiff, submits that to hold otherwise would involve truncating 3 promises to one promise. Alternatively, he submits, the section is ambiguous and should be interpreted in favour of the taxpayer. In either event, the plaintiff owes no obligation under the section and is entitled to the declarations sought.

10. Section 76 appears to be unique to Hong Kong. There is, at any rate, no equivalent provision in England. Counsel have taken me through the law as it stood before 1979, but it is agreed that the cases they have cited are now of historical interest only.

11. The interpretation urged by the plaintiff seems, on the face of it, to be illogical. If my wife and I receive as a present a box of chocolates, or a bottle of wine, can it be said that I have not received chocolates or wine? Likewise in the case of a monetary gift.

12. Mr. Li points to the consequences of any other interpretation and submits this could not have been the intention of the legislature.

13. He points to the other provisions of this part of the Ordinance, which deal with the payment and recovery of tax, that is to sections 71-77, which refer to the liability of the taxpayer alone and set out the remedies of the Crown. One would not, however, expect to see in the other sections of this part, a reference to liability on the part of someone who is not a taxpayer, nor, since section 76 is the only section dealing with this situation, to money owed to a non-taxpayer.

14. The section is widely drawn. Tax may not yet be due, yet if the Commissioner thinks it likely that the taxpayer may leave the Colony, he may issue a notice. He does not have to send a copy to other persons that may have an interest in the money. Even if it is only probable that money is owed to the taxpayer, the section may be invoked. These matters, however, have nothing to do with the question at issue. In a place like Hong Kong, which is easy to leave quickly and unobtrusively and where there is no PAYE, stringent tax enforcement laws are logical and necessary.

15. The plaintiff complains that, if the Crown's interpretation is correct, there will be such hardship for the bank that it could not have been in the contemplation of the legislature. I think this is an exaggeration. True, a careful watch must be kept on the taxpayer's account for a period of 30 days after receipt of the notice, but this is something that banks have to do in the ordinary course of business. I agree that the consequences of negligence are harsh - personal liability for the tax - but tax legislation seldom leaves loopholes that may result in the loss of tax.

16. It is submitted that, if the Crown is wrong and there is, in fact, no liability in respect of money in a joint account, subsection 2 gives the bank no protection, which can scarcely have been intended. There is indemnity only where payment is made in pursuance of the section. Mr. Li says that payment is not in pursuance of the section, where there is no liability in the first place.

17. I am unable to find a judicial definition of the word 'pursuance'; the dictionary meaning is 'in accordance with'. The argument is, therefore, a fair one. Should one read in the word 'purported'? I do not think it is necessary to do so. The subsection is clearly intended to protect banks, employers and others, who are a source of, or conduit for, taxable income and who conscientiously comply with the terms of the notice. But they are only entitled to the statutory shield if they do so comply. Other payments are not, and should not be, indemnified. If the Commissioner was wrong in law in giving the notice, payment in compliance would, I agree, not be pursuant to the section, but this begs the question. If the contention of the Crown is right and money owing to a joint account holder is owed "to such person", then payment under the notice is necessarily in pursuance of the section. If it is wrong, then the Commissioner himself is not acting in pursuance of the section, which cannot have been the intention of the legislature.

18. Mr. Li contrasts the harshness of this section with the safeguards attached to garnishee proceedings, with which, at first blush, it has an affinity. I do not propose to examine all these safeguards - the Court's discretion, the right to be heard, preserved rights of the garnishee and 3rd parties etc. - because there is no doubt that they exist.

19. There is also no doubt in my mind that it is not possible to equate garnishee proceedings with a recovery notice under section 76. The former is an equitable remedy available to a judgment creditor following a civil action. The statutory obligation to pay tax is inescapable and non-negotiable. There is no room for the flexibility that is a necessary and desirable attribute of civil execution. On the other hand, the obligation arises only if funds are available. The power, though wide, is contingent.

20. Similar considerations apply to Mr. Li's final plea that the other joint account holder is likely to be prejudiced. It is beyond dispute that his right of action against the taxpayer is a poor remedy and little solace for the loss of the funds in the account. But no one is allowed to escape the net of the Inland Revenue, and if innocent bystanders suffer loss in the tax-gathering process, that is a consequence of the system of government under which we live. It takes priority over the joint and several liability of the bank to the joint account holders.

21. I have dealt as best as I can with the points raised by Mr. Li. I find they do not carry sufficient weight to cause me to change my original opinion that the interpretation for which he contends cannot be right.

22. I see no ambiguity in the section. The plaintiff owes money to the taxpayer. The fact that it also owes money, or rather the same money, to Miss Yiu, cannot affect the issue. One cannot get away from the joint and several nature of the contract. The money is owed to each account holder, who, since 1979 may sue for it without joining the other as co-plaintiff. Under the mandate only one signature is required to operate the account.

23. Having found no ambiguity, it is not necessary to deal with, or apply, the relevant canons of construction so eloquently set out by Mr. Li.

24. If I am right, it means more work and responsibility for the plaintiff and for those who find themselves under similar liability. As counsel for the defendant has observed, it is not always possible to calculate the consequences of legislation. If the banks do not wish to be severally liable, it is open to them to contract out of section 28.

25. For these reasons there will be judgment for the defendant with costs.

Representation:

Mr. Andrew Li (J.S.M.) for Plaintiff.

Mr. Ingham, S.C.C., for Defendant.

(1) [1977] HKLR 566.