Chan Ngok Tim, The Proving Administrator of the Estate of the Deceased v. The Commissioner of Estate Duty

HCMP 1178/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1178 OF 2004

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BETWEEN

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Before: Hon Chung J in Chambers

Date of Hearing:  16 January 2007

Date of Decision:  16 January 2007

Date of Handing Down Reasons for Decision:  24 January 2007

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REASONS  FOR  DECISION

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Introduction

1.The relevant parts of s. 22(4), Estate Duty Ordinance (Cap. 111) provide:-

“… the Court of First Instance … , if satisfied that it would impose hardship to require the appellant as a condition of the appeal to pay the whole or, as the case may be, any part of the duty claimed by the Commissioner or of such portion of it as is then payable by him, may allow an appeal to be brought on payment of no duty or of such part only of the duty as to the court seems reasonable and on security to the satisfaction of the court being given for the duty or so much of the duty as is not paid …” (emphasis supplied).

2.The two summonses (respectively taken out by the plaintiff and the defendant) which this “Reasons for Decision” deals with arose from the parties’ disagreement over the applicability of s. 22(4) to this action.  I dismissed the plaintiff’s summons and granted the relief sought by the defendant’s summons (with modifications).  The following are the reasons for the decision.

Background

3.The plaintiff’s wife passed away in 1995.  Grant of representation has since been applied for by the plaintiff (but is not yet obtained).  In February 2004, the defendant issued a certificate of assessment pursuant to s. 14(15), Cap. 111 to the effect that the amount of estate duty payable was $468,720.  By the time of the hearing of the summonses, the amount payable (including interest) was no less than $1,099,241.

4.The plaintiff feels aggrieved by the assessment and, relying on s. 22(1), Cap. 111, appeals to the Court of First Instance in May 2004.  However, according to that provision, the plaintiff shall either pay, or provide security for, the amount claimed by the defendant when he appeals (unless the court exercises the power conferred by s. 22(4), or the defendant exercised the power conferred by s. 22(1A)).  Hence, the plaintiff’s summons referred to in para. 2 above (and para. 5 below).

The Two Summonses Relating to S. 22(4), Cap. 111

5.The plaintiff contends that hardship will be imposed upon him (and the deceased’s estate) if he has to pay, or provide security for, the amount assessed by the defendant.  His case is premised essentially on the financial inability on the part of himself and his companies to pay that amount.

6.In short, I find the plaintiff to have failed to establish his claim of hardship.

7.First, one of the assets available to the plaintiff was a real property in Dongguan.  The plaintiff described it in his second affirmation as follows:-

“… it was … used by me to operate a restaurant.  This property comprises the whole of the 3rd floor of that muti-storey [sic] building name 好運廣場 (“the Building”) …

The other upper floors of the Building were also owned by me and I now operate a hotel therefrom … Both the restaurant and the hotel were operating at a loss” (para. 19(a) and (b)).

He then deposed that the property was mortgaged to a mainland bank and continued to say:-

“In the circumstances, the Deceased’s estate is unable to sell or re-finance the Property to raise further fund to pay the alleged duty” (para. 19(d)).

8.This assertion is however not supported by the mortgage documents exhibited to his said affirmation.  According to the exhibit, the mortgagee was a Shenzhen Development Bank (深圳發展銀行).  The mortgage loan granted in January 2003 was RMB24 million.  But the mortgaged properties, described as the 3^rd to 5^th floors of the Building, were valued at over RMB40 million in January 2003.

9.No explanation has been offered (whether in the affirmations or in counsel’s submissions) as to why the mortgaged properties could not be further charged to obtain a sum to pay for the amount assessed by the defendant (or to provide security therefor).

10.As regards the plaintiff’s various businesses (most of which were carried on through corporate vehicles), the plaintiff claimed that all of them have suffered losses.  However, the documents exhibited in support of this claim were almost all dated since 2004.  Little was known of the financial positions of these business between 1995 (the time of the deceased’s death) and 2004.

11.Defence counsel asserted that the plaintiff has used various means to delay the assessment of estate duty and that was why the assessment was only made in February 2004 (about 8 or 9 years after the deceased’s death).  However, no evidence has been filed by the defendant to substantiate this and I therefore do not pay regard to that assertion.

12.That the plaintiff has been selective when disclosing the businesses’ financial positions can be demonstrated by the evidence relating to how dividends were declared by one Hogary Estate Ltd (“Hogary”).  This arose as follows.

13.The defendant criticised the plaintiff for being less than candid with the court.  One example given was the plaintiff’s failure to mention his approximately one-third shareholding in Hogary.  Further, the plaintiff failed to mention Hogary’s financial statements for the year ending 31 December 2002 recorded that he received about HK$ 8.3 million from Hogary, being his share of the dividends.

14.The plaintiff responded that the total amount of dividends declared by Hogary was some HK$23 million (equivalent to about RMB25 million).  But, according to him, that amount was in fact paid by Hogary for the purchase of a mainland company (by the shareholders of Hogary (including the plaintiff)).

15.The plaintiff then asserted:-

“… no asset could … be made out of [his] interests in …”

the mainland company, which business was the development of a project called Good Luck Square (好運廣場) (see para. 18(k), his second affirmation).  The exhibit which purports to support that assertion is merely a document stating that, as at 30 December 2006, the mainland company owed a loan of RMB8.1 million.

16.Hence, in relation to Hogary and the mainland company:-

(a)     the plaintiff has failed to state whether Hogary made any profit before 2004 (although it can be inferred that Hogary must have made some profits in the year ending 31 December 2002 because dividends were declared for that year), and if so, the amount(s) of those profits and what has become of them;

(b)    there is no documentary evidence to support his above assertion that no assets could be made out of his shareholding in the mainland company.

17.The defendant’s summons in effect sought orders consequential upon the dismissal of the plaintiff’s summons, such as the dismissal of the appeal if the plaintiff defaults in paying, or providing security for, the amount assessed by the defendant.

Time Summons

18.The plaintiff also took out a summons on 15 January 2007 seeking an extension of time to 6 January 2007 to file and serve the plaintiff’s second affirmation.

19.The defendant opposed the application on the following grounds.  The plaintiff’s summons referred to in para. 2 above was taken out in May 2004.  The last affirmation filed and served by the defendant was the one dated 20 September 2006 (some 4 months before the hearing).  Despite an order dated 10 September 2004 allowing the plaintiff to file and serve his affirmation within 21 days, he only purported to do so on 6 January 2007 (nearly 2 years and 3 months after the prescribed time period expired).

20.No satisfactory reason has been given for the delay.  Despite that, I indicated to the parties at the hearing the plaintiff’s second affirmation could be referred to de bene esse.

21.Save for the exceptional reason given below, I would have agreed with the defendant and dismissed the time summons.  By virtue of the matters set out in para. 7 to 9 and 12 to 16 above, the plaintiff’s second affirmation in fact strengthens the defendant’s submission that the plaintiff’s claim of hardship should be rejected.

22.For that exceptional reason, I will make an order in terms of the time summons.

23.Costs of the summons are to be paid to the defendant to be taxed if not agreed.

Mr Gary Soo, instructed by Messrs King & Co., for the Plaintiff

Ms Winnie W Y Ho, Government Counsel, Department of Justice, for the Defendant