Commissioner of Inland Revenue v. Nam Tai Trading Co Ltd

DCTC4250/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4250 OF 2008

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Before:    H H  Judge Ng in Chambers (Open to the public)

Date of Hearing: 22 April 2009

Date of Decision:   22 April 2009

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D E C I S I O N

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1.On 3 February 2009, I handed down my judgment and ordered that the defendant’s defence be struck out for disclosing no reasonable defence and that judgment be entered against the defendant.  Reasons for that decision have been set out in the earlier judgment. 

2.This is the defendant’s application for leave to appeal to the Court of Appeal against the judgment.

3.Section 63 of the District Court Ordinance (“DCO”) provides that an appeal can with the leave of a District Judge or the Court of Appeal be made to the Court of Appeal from every judgment, order or decision of a District Judge in any civil cause or matter. 

Legal principles on leave to appeal

4.Section 63A of DCO provides as follows:

1. Leave to appeal granted under section 63 may be granted –

(a) in respect of a particular issue arising out of the judgment, order or decision; and

(b) subject to such conditions as the judge …… hearing the application for leave considers necessary in order to secure the just, expeditious and economical disposal of the appeal.

2. Leave to appeal shall not be granted unless the judge …… hearing the application for leave is satisfied that –

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.

5.Miss Tsui, counsel for the plaintiff, argued that in order to meet the threshold for granting leave to appeal it is not only necessary to have an arguable case but also one with reasonable chance of success. 

6.Sir John Swaine SC submitted that all that was required was for the defendant to demonstrate that the appeal was arguable, see Tam Wai Chun v Choi Siu Kwong DCPI 2647/2007, H H Deputy District Judge Frederick Chan (unreported, 6 February 2009).

7.Prior to the 2008 legislative amendments to the DCO, in considering whether to grant leave to appeal to the Court of Appeal, pursuant to section 63 of the DCO, the intended appellant needed to satisfy the court that the intended appeal has a realistic prospect of success in the sense that it at least has an arguable case in respect of the intended appeal (see Ma Bik Yung v Ko Chuen HCMP 4303/1999 (unreported, 8 September 1999) which adopted and approved Smith v Cosworth Casting Processes Limited [1997] 1 WLR 1538). 

8.In Smith, Lord Woolf MR, in giving general guidance on the threshold test for granting leave to appeal, said as follows at page 1538:

The court will only refuse leave if satisfied that the applicant has no realistic prospect of succeeding on the appeal.  This test is not meant to be any different from that which is sometimes used, which is that the applicant has no arguable case.  Why, however, this court has decided to adopt the former phrase is because the use of the word ‘realistic’ makes it clear that a fanciful prospect or an unrealistic argument is not sufficient.

9.But Leung JA in Ma Bik Yung said that it was for the applicant to show that he had “an arguable case with reasonable chances of success on appeal”, and he cited Smith for such proposition.

10.Has there been any change with the introduction of section 63A of the DCO?  In my view, section 63A(2) merely codifies the pre-existing threshold test of realistic or reasonable prospect of success adopted by the local courts when considering whether to grant leave to appeal, and I see no reason to read such provision differently from the helpful guidance by Smith considered in Ma Bik Yung.  

11.I refer to the discussion in the Final Report on Civil Justice Reform (2004), paragraphs 655-656 at pages 351-352 as follows:

655. Proposal 44 canvasses the test requiring the court to be satisfied that the appeal would have a ‘real prospect of success’.

656.     In the Working Party’s view, the test should not be more stringent than merely to show that the appeal is arguable and ‘not fanciful’ but considerably less stringent than having to show a ‘probability’ of success.  Although similar problems could arise with the parties’ attributing meanings to the phrase chosen, the working party considers it desirable to adopt as the test for granting leave a requirement ‘that the appeal has reasonable prospects of success’.  It is hoped that this would convey the notion that the prospects of succeeding in their appeal must be ‘reasonable’ and therefore more than ‘not fanciful’, without having to be ‘probable’. 

As pointed out in the Interim Report, this was the sense attributed to the phrase ‘reasonable prospects of success’ in the Court of Appeal cases discussing the differences, if any, between the test for refusing summary judgment and for setting aside a default judgment. 

12.In the circumstances, I do not agree that a reasonable chance of success is something more than what is contended for as an arguable case in Ma Bik Yung.  To do so will be to elevate the requirement of “reasonable chance of success” to “probable success” or something akin to it, and that is not what section 63A(2) of the DCO called for.  I accept the guidance in the aforesaid cases and find that all that the defendant needs to show is that there is a good arguable case in respect of the intended appeal that has a reasonable and not a fanciful prospect. 

13.I also bear in mind that a decision to strike out is an exercise of the court’s discretion. According to the Hong Kong Civil Procedure 2009, Volume 1, paragraph 59/1/49 at pages 902 to 903, an appellate court is generally slow to interfere in the exercise of discretion by the court below unless it can be shown that the lower court has clearly wrongly exercised the discretion, such as under a mistake of law or in disregard of principle or misapprehension as to the facts or taking into account irrelevant matters.

Background

14.The background facts leading to the present claim have been set out in the earlier judgment so I do not propose to repeat them here.  For convenience and because I adopt the abbreviations used in the earlier judgment, this decision should be read together with the earlier judgment.

Defendant’s case

15.Coming to the defendant’s case, Sir John Swaine SC leading Mr Swaine for the defendant lodged written skeleton submissions on 20 April 2009.  By those written submissions, Sir John Swaine SC advanced the following broad grounds in respect of the intended appeal:

(a) there was not before me a sufficient basis upon which I could conclude, as I did, that the defence was unarguable, so the decision to strike out the defence was inappropriate in what was, in truth, a complex and difficult case;

(b)     on a proper analysis, the defence was arguable and one which deserved (and deserves) ultimately to succeed.

16.In respect of the first broad ground of the intended appeal, it was said that I failed to pay heed to the admonitions in Hong Kong Civil Procedure 2009, Volume 1, paragraph 18/19/4 at pages 350 to 351, and underestimated the difficulty and complexity of the points that arose from the pleadings. 

17.Additionally, Sir John Swaine SC submitted that I made a false assumption that I could rule, as I did, that the Board was a “specialist tribunal” when there was no such evidence before the court.  It was said that neither the fact that the work of the Board was of a special nature, nor dicta from other courts in respect of other tax tribunals in other jurisdictions lent support for such assumption.  Since the CIR did not adduce evidence to prove that the members of the Board, most of whom were not required to have legal training or experience, were tax specialists or to prove the number of times they sat on the Board in order to develop experience and expertise in the area of tax law, I was, at best, dealing with the Board as an abstraction; hence, my conclusion that the Board was a specialised fact-finding tribunal could not be supported. 

18.Sir John Swaine SC argued that even if the Bryan principle were applicable, it was wrong for me in a striking-out application to attempt a ruling in the abstract without evidence that such principle was satisfied.  After all, Alconbury Developments Limited required the court to consider all the circumstances.

19.In respect of the second broad ground of the intended appeal, although Sir John Swaine SC acknowledged that I was bound by precedent to hold that the Ultra Vires Defence was unavailable unless the Constitutionality Defence was successful, the Ultra Vires Defence would be at large on appeal to the Court of Appeal because the defendant intended to argue on appeal that the law ought to be revisited and the Ultra Vires Defence be upheld regardless of the constitutional challenge. 

20.Further, Sir John Swaine SC submitted that I erred in ruling, as I did, on some 20 matters in the earlier judgment.  I do not propose to set out each and every of those matters, save to say that the overall effect of such submission is that the defendant essentially sought to re-argue all the contentions and submissions made at the hearing of the Application and canvassed in the earlier judgment.

21.Sir John Swaine SC further contended that the commencement of the present proceedings by the CIR, of itself, amounted to an act of the executive authority so that it was in the District Court and not at the Board that the defendant as a Hong Kong resident had an opportunity to challenge that act by defending the proceedings.  He claimed that there was no reason to separate recovery of tax from assessment of tax, and to uphold section 75(4) was effectively to deny the defendant an opportunity to challenge, which basic right was guaranteed by Art 35, BL.  Sir John Swaine SC further submitted that it was unjustified to say that any consideration of the propriety of a tax recovery action was not a matter for the court seized with such recovery action.

Plaintiff’s opposition

22.Miss Tsui, on the other hand, in her written submissions dated 21 April 2009, argued that in tax recovery proceedings under section 75(4) the District Court did not have jurisdiction to entertain challenges of incorrect or excessive assessments.  Since I have in the earlier judgment carefully considered the following matters:

(a) Order 18, rule 19(2) of the RDC;

(b) the legal principles for striking out;

(c) the issue of complexity and the approach in relation to such issue;

(d) the various defences raised by the defendant

and correctly interpreted the Bryan and Fayed principles, the intended appeal had no merit at all.

Discussion

23.As Miss Tsui rightly acknowledged, the focus of the defendant’s intended appeal is on the Constitutionality Defence, i.e., whether the statutory tax regime under the IRO for appealing to the Board and then to the courts is constitutionally compliant, and as part of such defence, the defendant further challenges the constitution of the Board and the case-stated procedure.  The defendant relies on such contention on both procedural basis, namely, that such defence renders the case unfit for a striking-out application; and substantive basis, namely, that such defence is a good arguable defence that will ultimately succeed.

24.Neither counsel cited Lam Siu Po v Commissioner of Police FACV 9/2008 (unreported, 26 March 2009) which was handed down by the Court of Final Appeal about two months after my earlier judgment in this case.  I referred counsel to this authority shortly before the hearing today. 

25.The issue in Lam Siu Po before the Court of Final Appeal was whether a statutory provision, by which legal representation was barred at police disciplinary hearings, infringed Art 10, BORO.  In their judgments, Bokhary PJ and Ribeiro PJ discussed in detail the interpretation and application of Art 10, BORO.

26.Bokhary PJ discussed the enactment history of the BORO, which was drawn from the ICCPR, and the approach to the interpretation of the BORO (see paragraphs 15-17).  My discussions in the earlier judgment on such matters (see paragraphs 57-63 and 69-72) are in line with the views of the learned judge. 

27.I also note that Ribeiro PJ acknowledged the relevance of Strasbourg jurisprudence for the interpretation of the BORO (see paragraph 62), which view I also endorsed in the earlier judgment (see paragraph 76).

28.Ribeiro PJ in paragraph 67 of Lam Siu Po referred to section 7, BORO and the cases of Runa Begum and Golder to explain the scope of Art 10, BORO as follows:

Article 10 gives effect to the rule of law.  When it is engaged, it enables the individual faced with a determination by the government or public authority which may affect his civil rights and obligations to say: “I am entitled to the protections of Article 10, including the right to a fair and public hearing by a competent, independent and impartial tribunal established by law.”

29.Given that Sir John Swaine SC accepted at the hearing of the Application that Art 35 First Limb and Art 10, BORO guarantee the same constitutional right of “access to the courts”, which stance he did not resile from even at the hearing today for leave to appeal, I do not see any reasonable prospect of success in the intended appeal that the Court of Appeal will hold that the constitutional right embodied in Art 35 Second Limb goes beyond what has been provided in Art 10, BORO and/or Art 35 First Limb, or that the Art 35 Second Limb is more stringent than Art 10, BORO and/or the Art 35 First Limb.  Whether Art 10, BORO and the Art 35 First Limb extend to inter-citizen disputes is irrelevant to the present discussion.

30.Ribeiro PJ in Lam Siu Po also held that the Bryan principle is applicable to Art 10, BORO (see paragraphs 109-115) and that “a court of full jurisdiction” does not necessarily have to conduct afresh any fact-finding exercise underlying the impugned decision (see paragraphs 116-133).  In this respect, the learned judge drew assistance from the discussions in Albert and Le Compte, Bryan, Alconbury Developments Limited and Runa Begum, which authorities have also been canvassed and adopted in my earlier judgment.  However, it is fair to say that the discussion by Ribeiro PJ was made in the context of Art 10, BORO.

31.But that said and despite Ms Tsui’s persuasion, looking at the above grounds in the round, I am nevertheless satisfied that the intended appeal discloses an arguable case of success as to the first broad ground.  In respect of the second broad ground, I cannot say that it is unarguable or there is no reasonable prospect of success that the Court of Appeal may come to a different view as to the meaning and effect of section 75(4) and as to whether the Bryan principle as discussed in my earlier judgment and in Lam Siu Po is applicable to Art 35, BL, and, if so, whether the local statutory tax regime satisfies such principle in light of the opinion that fell from the Court of Final Appeal.

32.I therefore conclude that leave should be granted for the defendant to appeal against my earlier judgment.  I remind myself that having come to such a conclusion, I should give general leave to appeal and not restrict the grounds of the intended appeal (see King Royal Limited v Lam Kwan Yuk [2005] 3 HKLRD 488).  In such circumstances, I will not further express my views on the merits of the detailed reasons put forward by Sir John Swaine SC and the arguments in opposition by Miss Tsui. 

33.There is also no need for me to consider Miss Tsui’s submissions in relation to the developments in Lee Yee Shing HCAL 40/2008. I understand that in a judgment handed down on Monday, 20 April 2008, Cheung J extended time for the applicants in that case for leave to apply for judicial review.  Although the substantive merits of the proposed challenge by the applicants against the case-stated procedure laid down in section 69 was not argued by the CIR before the learned judge, similar points of alleged unconstitutionality have been raised.  The learned judge also directed that the substantive hearing of the judicial review should not be deferred until the outcome of the intended appeal in this case even if I were to grant leave to appeal. 

34.Miss Tsui argued that since the applicants in Lee Yee Shing were given leave to apply for judicial review, it was unnecessary for me to grant leave to appeal in this case in order to consider the same point. 

35.Suffice to say that had it been necessary for me to deal with this point, I would not have been with Miss Tsui. If the present intended appeal has an arguable case with reasonable chance of success on appeal, I see no reason why leave to appeal should be refused.  It cannot be in the interests of justice in such circumstances to refuse leave.  In any event, it is too early to tell how the proposed challenge in Lee Yee Shing will be run, and there is no certainty that the defendant’s proposed grounds of appeal in this case will be thoroughly dealt with in Lee Yee Shing. 

36.It is also unnecessary for me to deal with Sir John Swaine SC’s alternative ground that leave to appeal be granted on the basis of “some other reason in the interests of justice”.  It suffices that I am prepared to grant leave on the basis that the intended appeal has a reasonable prospect of success.

37.For the above reasons, I will allow the application and grant leave to the defendant to appeal to the Court of Appeal against the amended order dated 3 February 2009, and the judgment in favour of the CIR against the defendant made thereunder.

(Submissions on Costs)

38.I further order that costs of the application be costs in the appeal.

Ms Jennifer K W Tsui, instructed by the Department of Justice, for the Plaintiff

Sir John Swaine SC, and Mr John Swaine, both instructed by Messrs Wilkinson & Grist, for the Defendant