Commissioner of Inland Revenue v. Tai Hing Cotton Mill (Development) Ltd

FACV No. 2 of 2007

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 2 OF 2007 (CIVIL)

(ON APPEAL FROM CACV NO. 343 OF 2005)

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Court : Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ, Mr Justice Litton NPJ and Lord Hoffmann NPJ

Date of Judgment : 13 March 2008

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JUDGMENT ON COSTS

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Mr Justice Ribeiro PJ :

1.This is the Court’s judgment on costs.

2.By its judgment published on 4 December 2007, the Court allowed the Commissioner’s appeal, confirmed the assessment and made an order nisi awarding the Commissioner her costs here and in the courts below.  Written submissions have now been received on the question of costs.

3.The respondent submits that the Commissioner should be deprived of 40% of her costs in the courts below on the ground that the costs in the proceedings before the Court of First Instance and the Court of Appeal were significantly increased by reason of her seeking to contend that no deduction under section 16 of the Ordinance was permissible.  

4.That argument was accepted at first instance but rejected by the Court of Appeal.  It was not pursued in this Court where the Commissioner successfully relied on the general anti-avoidance provisions in section 61A on the premise that the tax benefit conferred by the impugned transaction was section 16 deductibility.  The respondent therefore contends that the section 16 issue had unnecessarily been raised below and was a waste of time and costs.

5.Both parties rely on Re Elgindata Ltd (No 2),[1] where Nourse LJ stated:

“(iii)  The general rule [that costs follow the event] does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs.”

6.The Commissioner had put forward alternative arguments on the same evidence, namely, that the payments were not deductible, but that if they were deductible, the deduction was a tax benefit caught by section 61A.  That was a legitimate argument and did not, in our view, so significantly increase the length or cost of the proceedings as to justify a departure from the general rule.

7.Accordingly, the order that the Commissioner is to have her costs here and in the courts below is made absolute.

Mr David Goldberg, QC and Mr Eugene Fung (instructed by the Department of Justice) for the appellant

Mr Michael Flesch, QC and Mr Clifford Smith, SC (instructed by Messrs JSM) for the respondent

[1]     [1992] 1 WLR 1207 at 1214B.