The Commissioner of Inland Revenue v. The Hong Kong and Shanghai Banking Corporation and Another

Case No.HCMP 229/1979

Court

High Court CFI

Date23 Oct 1979

Judge—

Case Document

100%Judiciary

HCMP000229/1979

IN THE HIGH COURT	1979, No. 229
MISCELLANEOUS PROCEEDINGS

IN THE MATTER of the Rules of the Supreme Court

and

IN THE MATTER of the claims of the Commissioner of Inland Revenue and the Hong Kong and Shanghai Banking Corporation in respect of a Time Deposit of Fyrnetics Asia Limited with American Express Finance Limited Account No. AEFL 2298

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BETWEEN
	The Commissioner of Inland Revenue	Plaintiff
	AND
	The Hong Kong and Shanghai Banking Corporation	1st Defendant
	Fyrnetics Asia Limited (in liquidation)	2nd Defendant

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Coram: Zimmern, J.

Date of Judgment: 23 October 1979

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JUDGMENT

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1. This is an interpleader summons in which the Commissioner of Inland Revenue (Plaintiff) and the Hong Kong & Shanghai Banking Corporation (Defendant) are the claimants of a sum of $1,574,613.21 in Fyrnetics Asia Limited's ("the Company") time deposit account No. AEFL 2298 with American Express Finance Limited (the Stakeholder) and it falls upon me to determine which of the two claimants is entitled to the sum of money with interests accruing.

2. The Company was in default of tax payable in a sum exceeding $5,000,000 and the Commissioner sought to recoup at least partially by serving on the 4th April 1979 a notice under section 76(1) of the Inland Revenue Ordinance on the Stakeholder reading in part as follows:

" I hereby give you notice, under the authority of Section 76(1) of the Inland Revenue Ordinance, requiring you to pay to the Commissioner of Inland Revenue any money, not exceeding the sum of $5,472,786.00 which you:-

	(a)	owe or are about to pay to the above named;
	(b)	hold for or on account of the above named;
	(c)	hold on account of some other person for payment to the above named; or
	(d)	have authority from some other person to pay to the above named.

2. This applies only to moneys which are in your hands or due from you or about to be paid by you at the date on which this notice is received, or moneys which come into your hands or which become due from you or about to be paid by you at any time during a period of 30 days after that date. Immediate payment is requested, if you already held sufficient funds, on behalf of the above-named."

The Commissioner's claim is based on that notice.

3. Section 76(1) is nothing as draconian as learned counsel for the Commissioner makes it out to be. It empowers the Commissioner by notice to require a third party in certain circumstances to pay the tax of a defaulter and the circumstances are as set out in the notice. It then specifically provides that "the notice shall apply to all such moneys which are in the third party's hands or due from him or about to be paid by him at the date of the notice or which come into his hands or become due from him or about to be paid by him at any time within a period of 30 days thereafter".

4. It is clear that the notice only applies to three money situations of which the 1st and 3rd are simple.

1st	"Such moneys which are in the third party's hands". Moneys in the hands of would include besides actual cash in hand moneys with bankers withdrawable on demand on any working day.
3rd	"Such moneys about to be paid by the third party" does not require elucidation. The words speak for themselves.
2nd	"All such moneys due from the third party" requires some consideration as to the meaning to be given to the word "due".

In Ex parte Kemp. In re Fastnedge⁽¹⁾ Mellish L.J. said:

"Now, the words 'debts due to him' are certainly words which are capable of a wide or a narrow construction. I think that prima facie, and if there be nothing in the context to give them a different construction, they would include all sums certain which any person is legally liable to pay, whether such sums had become actually payable or not. On the other hand, there can be no doubt that the word 'due' is constantly used in the sense of 'payable,' and if it is used in that sense, then no debts which had not actually become payable when the act of bankruptcy was committed would be included. Lastly, the expression 'debts due' is sometimes used in bankruptcy proceedings to include all demands which can be proved against a bankrupt's estate, although some of them may not be strictly debts at all."

He then goes through various sections of the act containing the word "due" and finds that in some the word bears the narrow meaning and others the wide. Much the same was said in - The Stockton Malleable Iron Company⁽²⁾; Mitchell's case⁽³⁾; Tapp v. Jones⁽⁴⁾ and it all amounts to this; the word "due" in its ordinary meaning means "payable" but it could mean where the context so requires to include "payable in futuro". In the context of section 76(1) the words "the notice shall apply to all such moneys due from him" relates back to the earlier part empowering the Commissioner to demand payment from a third party who owes money to a tax defaulter. In this context I have no doubt and so I hold that the words "all such moneys due" mean "all such moneys payable" and do not catch a payable in futuro situation for two reasons. Firstly what I have called the 2nd money situation comes in between the 1st and the 3rd both of which are ready money situations. First is cash in hand and third is moneys about to be paid. If the legislature had intended the 2nd to be out on a limb of its own there would be no ambiguity. In my view its intention is clear; that is to permit the Commissioner to demand payment from a third party to the extent of the tax payable by a defaulter who has an immediate right to demand payment from and to be paid by that third party on the date of the receipt of the notice and thirty days thereafter. Secondly if the word "due" were to include a solvendum in futuro situation there could then be a flagrant invasion of private rights. For example a mortgagor for a term is not in default under the mortgage deed but the mortgagee is in default of his tax does it mean the Commissioner is empowered to serve notice on the mortgagor and demand payment forthwith when there was no obligation on the mortgagor to repay the mortgagee at that time. I find it impossible to put such a construction on the section unless I am so obliged by clear words and nothing in the section imposes such an obligation on me. Having dealt with the rights of the Commissioner I now turn to the subject matter of the claim and the claim of the Bank.

5. The subject matter of the claim is, as sworn to in an affidavit filed on behalf of the Stakeholder, a deposit account No. AEFL 2298 maintained by the Company with the Stakeholder in the sum of $1,574,613.21 for a term of 3 months from 24th January 1979 maturing 24th April 1979 with interest at 10¼% per annum. The section 76(1) notice was served on 4th April 1979 and it has a statutory application for 30 days thereafter. With the date of maturity falling within the 30 days prima facie the Commissioner is entitled to be paid the full sum on deposit with interests thereon subject to the Defendant's claim which has now to be examined. By an instrument in writing dated 7th September 1977 the Company charged its deposit account with the Stakeholder to the Defendant as a security and I sot out the instrument in full.

	"In consideration of your making or continuing advances to us or otherwise giving credit or affording banking facilities (including inter alia the issue of guarantees by you and your acceptance of guarantees by us in favour of third parties) to us We hereby charge by way of continuing security all monies whether now or hereafter standing to the credit of our deposit account/s (TD No. 1169 & TD No. 1165) with American Express Finance Limited in respect of all liabilities to you whether absolute or contingent at any time outstanding and we hereby authorise American Express Finance Limited without further notice to us to apply such monies in accordance with your instructions as you may think fit in satisfaction of the said liabilities.
	Dated this 7th day of September 1977
	FYRNETICS ASIA LTD.
	We hereby acknowledge receipt of notice of the above Charge and unless and until advised in writing to the contrary by The Hongkong and Shanghai Banking Corporation irrevocably undertake to hold all monies whether now or hereafter standing to the credit of deposit account/s with us in the name of Fyrnetics Asia Limited to the order of The Hongkong and Shanghai Banking Corporation.
	AMERICAN EXPRESS FINANCE LTD."

6. The Defendant says the charge was at the date of the notice and has remained and remains a fixed charge to which the notice has no application. Counsel for the Commissioner says if the charge subsisted at the date of the notice, which it did not, it was only a floating charge. If he were right in either of these contentions the Commissioner must succeed. First it is said that the charge only applied to the two deposits written on the instrument name T.D. 1169 and T.D. 1165 which where exhausted long ago which in turn exhausted the charge. This contention does not bear scrutiny. If the charge were confined to two time deposits then in existence why was it necessary for both the Company and the Stakeholder to use the words "all monies whether now or hereafter standing to the credit of (the Company's) deposit accounts with the Stakeholder". The language of the instrument cannot bear the construction contended. Second it is argued that the charge comes within the 3 characteristics of a floating charge enunciated by Romer L.J. in Houldsworth v. Yorkshire Woolcombers Association Ltd.⁽⁵⁾, namely

	(a)	if it is a charge on all of a class of assets of the company present and future,
	(b)	if those assets are of a class which, in the ordinary course of the business would be changing from time to time,
	(c)	if it appears that it is contemplated by the charge that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way so far as concerns the particulars class of assets.

I have doubt whether under (a) deposit accounts standing alone ever form all of a class of assets for the purpose of a floating charge but I have no doubt that under (c) that it was never contemplated between the parties that the Company could utilize the deposits in the ordinary course of its business. The deposit account though in the name of the Company was held to the order of the Defendant and so acknowledged by the Stakeholder. Of course a chargee may allow securities to shift and change from time to time but this can only be done by the order of the chargee and not the charger. In my view and so I hold the charge was not a floating charge but a fixed charge at the date of the notice and accordingly the notice has no application to the deposit moneys and interests thereon. There will be an order that the Stakeholder do pay the Defendant the sum of $1,574,613.21 with all interests accumulated thereon from 24th January to date of payment less the Stakeholder's costs herein and a further order that the Plaintiff do pay to the Defendant its and the Stakeholder's costs herein. Certificate for counsel.

Representation:

T.H. Tristram & Winston Leung for Plaintiff

R. Faulkner (Johnson, Stokes & Master) for 1st Defendant

J. Allen for Official Receiver

(1) 9 L.R. Ch. App. 383 @ 387

(2) 2 Ch. D. 101

(3) 5 L.R. Ch. App. 400 @ 403

(4) 10 L.R. Q.B. 591

(5) [1903] 2 Ch. 284