Commissioner of Inland Revenue v. Hit Finance Ltd

FACV Nos 8 and 16 of 2007

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION 

FINAL APPEAL NOS 8 AND 16 OF 2007 (CIVIL)

(ON APPEAL FROM HCIA NO. 14 OF 2005)

(Heard together with FACV Nos 9 and 17 of 2007)

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FACV Nos 9 and 17 of 2007

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION 

FINAL APPEAL NOS 9 AND 17 OF 2007 (CIVIL)

(ON APPEAL FROM HCIA NO. 15 OF 2005)

(Heard together with FACV Nos 8 and 16 of 2007)

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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 : 26 June 2008

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JUDGMENT ON COSTS

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Mr Justice Bokhary PJ:

1.This is the judgment of the Court on the issue of costs.  It is to be read together with our two earlier judgments in these appeals and cross-appeals, one handed down on 4 December 2007 (“the Judgment”) and the other on 19 May 2008 (“the Further Judgment”).

2.By the Judgment, we allowed the Commissioner’s appeal against HITL and confirmed the assessments on HITL.  There then arose an issue as to whether the proper assessments on HITL were, as HITL contended, the assessments made by the Commissioner in her Determination or, as the Commissioner contended, the assessments as increased by the Board of Review.  Deciding that issue on written submissions, we held, by the Further Judgment, that the Commissioner was correct on that issue.

3.For ease of reference, we recite here the orders set out in the Further Judgment, namely :-

“(1)  The Commissioner’s appeal against HITL in FACV No 9 of 2007 be allowed and the assessments on HITL as increased by the Board of Review under section 68(8)(a) of the Inland Revenue Ordinance (Cap 112) be confirmed.

(2)    The Commissioner’s appeal against Finance in FACV No 8 of 2007 be dismissed.

(3)    The following profits tax assessments on Finance be annulled:  

Year of assessment	Charge No
1994/95	1-5053025-95-7
1995/96	1-3148225-96-A
1996/97	1-1147626-97-7
1997/98	1-2896198-98-7
1999/00	1-1043202-00-3
2000/01	1-1082365-01-5

(4)    The profits tax assessment on Finance for the year of assessment 1998/99 under charge no 1-1081904-99-0 be reduced to chargeable profits of HK$20,000,414 and with tax payable thereon of HK$3,200,066.

(5)    The cross appeal by Finance against the Commissioner in FACV No 16 of 2007 be allowed.

(6)    The cross appeal by HITL against the Commissioner in FACV No 17 of 2007 be dismissed.

(7)    The Orders of the Court of Appeal dated 13 February 2007 and 22 June 2007 be set aside.

(8)    Costs be dealt with by the Court on written submissions by the parties as to which the parties should seek procedural directions from the Registrar.”

4.On 6 June 2008 the parties lodged written submissions on the issue of costs (in which the Taxpayer which we have referred to as “Finance” is referred to as “HIT Finance”).  Then on the 20th each side lodged written submissions by way of reply to what the other side had lodged on the 6th.  In her written submission on costs, the Commissioner asks for

“an order that she has the costs of and incidental to the appeals in FACV Nos 8 and 9 of 2007 and of the cross-appeals in FACV Nos 16 and 17 of 2007, and of and incidental to the appeals in HCIA Nos 14 and 15 of 2005 (including the costs of and incidental to the applications by way of Notices of Motion dated 5 March 2007 made by HIT Finance and HITL to the Court of Appeal, and costs of and incidental to the clarification of the effect of the Judgment leading to the Further Judgment).”

Turning to the orders as to costs sought by Finance and HITL, they submit in their written submissions on costs that

“(1)  the Commissioner should pay to HIT Finance the costs of her appeal in FACV No 8 of 2007 and HIT Finance’s cross appeal in FACV No 16 of 2007 before the Court of Final Appeal and HIT Finance’s appeal before the Court of Appeal, including the costs of the applications to the Court of Appeal for leave to appeal to be taxed if not agreed; and

(2)    HITL should pay to the Commissioner half of the costs of her appeal in FACV No 9 of 2007 and HITL’s cross appeal in FACV No 17 of 2007 before the Court of Final Appeal and HITL's appeal before the Court of Appeal, including the costs of the applications to the Court of Appeal for leave to appeal to be taxed if not agreed.”

5.We have considered the rival arguments put forward in the written submissions on costs.  It is not necessary to recite those arguments.  Suffice it to say this.  Upon a realistic view, these appeals and cross-appeals related to a single matter, and the Commissioner won on it, she having been successful in upholding the assessments on HITL as increased by the Board of Review.  In dealing with the assessments on Finance as we did, we proceeded on the basis that once the tax benefit has been counteracted by the confirmation of those increased assessments on HITL, any disallowance of deductions by Finance as well would go further than counteracting the tax benefit and would not be appropriate.

6.So the Commissioner is the real winner.  The general rule is that costs follow the event – in other words, go to the real winner – except if and when it appears to the court that in all the circumstances some other order as to costs should be made.  We heard argument on sections 16, 17, 61 and 61A of the Inland Revenue Ordinance, Cap.112.  Having done so, we decided in the Commissioner’s favour under s.61A.  We rejected her arguments under sections 16 and 17, and did not rule on s.61.  Not every point taken by the Commissioner proved to be a winning one.  But there is nothing exceptional about a case being won on only some of the winner’s points.

7.There is a discretion in the court to deprive a successful party of the whole or part of his costs because he had caused a significant increase in the length or costs of the proceedings by raising issues on which he did not succeed.  That can be done even if it was not unreasonable to have raised those issues.  Whether or not it should be done depends on all the circumstances.  This discretion exists for the purpose of avoiding the rigour of too inflexible an application of the rule that costs generally follow the event.  It is to be approached with due circumspection so as not to undermine the utility of that general rule.  In the circumstances of the present case, after weighing the rival arguments on costs, we do not consider it appropriate to deprive the Commissioner of any of her costs.  We have set out, in paragraph 4 above, the order as to costs for which the Commissioner asks.  In our view, it is appropriate to make that order as to costs, and we do so. 

8.Having arrived at the end of this case, we thank all counsel involved for their assistance throughout.

Mr David Goldberg QC and Mr Stewart KM Wong (instructed by the Department of Justice) for the appellant (respondent on cross-appeal)

Mr John Gardiner QC, Mr Ambrose Ho SC and Mr Kenny Lin (instructed by Messrs Woo, Kwan, Lee & Lo) for the respondents (appellants on cross-appeal)