Chan Chun Chuen v. The Commissioner of Inland Revenue
Read the full judgment text of HCAL 76/2010 on BabelCite. This High Court CFI judgment was delivered on 1 June 2011.
1. Mr Chan seeks judicial review of the Commissioner’s refusal to extend the time for him to object to 23 property tax and 2 profits tax assessments.
Cited by 6 cases
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HCAL 76/2010 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO. 76 OF 2010 _____________
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Before: Hon Reyes J in Court Date of Hearing: 25 May 2011 Date of Judgment: 1 June 2011 _________________ J U D G M E N T _________________ I. INTRODUCTION 1.Mr Chan seeks judicial review of the Commissioner’s refusal to extend the time for him to object to 23 property tax and 2 profits tax assessments. BACKGROUND 2.The Commissioner issued the 23 property tax assessments (totalling $631,784) on 22 January 2010. She issued the 2 profits tax assessments (totalling $330.24 million) on 10 February 2010. 3.The property tax assessments were sent to Mr Chan care of Kao Lee & Yip (KLY) (a firm of solicitors) at 17th Floor, Gloucester Tower, The Landmark, Central (the KLY address) by ordinary post. Those assessments have never been returned to the Commissioner as undelivered. 4.The profits tax assessments were sent by recorded delivery. There is a record of the receipt by KLY of the profits tax assessments. 5.The assessments had been sent to the KLY address because in July 2004 Mr Chan had given that as his postal address in his Profits Tax Return for 2003/04. That return was Mr Chan’s last communication with the Inland Revenue prior to the events which are the subject of these proceedings. 6.Mr Chan had previously used KLY as his solicitors for conveyancing matters. But by the time of the events in question here, KLY had long ceased to act substantively for Mr Chan. 7.By a letter dated 11 May 2010 to Mr Chan’s current solicitors, KLY asserted that they “had not received from the Inland Revenue Department the [25 assessments]”. 8.Subsequently, by a letter dated 6 July 2010, KLY clarified the position. 9.In the letter KLY noted that there was an arrangement between KLY and Mr Chan of several years’ standing. By the arrangement, someone from KLY would inform Ms Patty Kam (Mr Chan’s secretary) or Mr Bobby Chan (Mr Chan’s brother) by telephone of the receipt by KLY of any letter marked for Mr Chan’s attention. Ms Kam or Mr Bobby Chan would then arrange for such letter to be picked up from KLY. According to KLY, as the arrangement was only “informal,” KLY neither opened any incoming letters for Mr Chan nor kept any record of the same. 10.KLY further stated:-
11.Ms Kam and Mr Bobby Chan have affirmed that in January and February 2010 (when the assessments were sent out), neither of them had been contacted by KLY to collect correspondence addressed to Mr Chan. 12.Under Inland Revenue Ordinance (Cap.112) (IRO) s.51(8) “[a] person chargeable to tax ... who changes his address shall within 1 month inform the Commissioner in writing of the particulars of the change”. A person who fails to comply with s.51(8) commits an offence and becomes liable to a level 3 fine (IRO s.80(1)(c)). 13.Over the relevant period, Mr Chan did not inform the Commissioner of any change in his address. 14.IRO s.62(1) requires the Commissioner to “give a notice of assessment to each person who has been assessed”. 15.By s.58(2) such notice:-
16.IRO s.58(3) provides that a notice of assessment sent by post “shall be deemed, unless the contrary is shown, to have been served on the day succeeding the day on which it would have been received in the ordinary course of post”. To establish posting of the notice, it “shall be sufficient to prove that the letter containing the notice was duly addressed and posted” (s.58(4)). 17.Having posted the assessments to the KLY address as Mr Chan’s “last known postal address,” it is the Commissioner’s case that notice of the assessments must be deemed to have been served on Mr Chan under s.58(3). 18.By s.64(1) a person must by notice in writing object to an assessment within 1 month. Mr Chan failed to object to the relevant tax assessments within 1 month. Mr Chan’s tax representatives Grant Thornton did not object until 4 June 2010. Accordingly, no objection having been lodged in time, it is the Commissioner’s case that the assessments have become “final and conclusive for all purposes ... as regards the amount of such assessable income or profits or net assessable value” (IRO s.70). 19.However, IRO s.64(1) is subject to a proviso. Where the Commissioner is “satisfied that owing to ... reasonable cause, the person objecting to the assessment was prevented from giving ... notice [of objection]” within the 1 month period, the Commissioner “shall extend the period as may be reasonable in the circumstances”. 20.Mr Chan says that he did not become aware of the assessments until 24 April 2010 when he heard a news report about them over television. At that time the Commissioner was seeking to enforce the assessments (including late payment surcharges) in the District Court. Mr Chan says that he thereafter immediately instructed his lawyers to contact the Inland Revenue. The latter provided Mr Chan with copies of the assessments by letter dated 5 May 2010. 21.Grant Thornton then objected to the assessments as already stated. Mr Chan’s case is simply that, only having heard about the assessments in late April 2010 and not having actually seen the same until early May 2010, he was not in a position to object to them (“prevented from giving ... notice [of objection]”) until the time when Grant Thornton objected on his behalf. 22.By letter dated 22 June 2010 the Commissioner rejected Grant Thornton’s objections because the same had not been received within the 1 month time limit. Nor was the Commissioner satisfied that there any reasonable cause whereby Mr Chan was prevented from objecting in time. The Commissioner stated: “On the basis of the available information and documents, I am not satisfied that the 25 [assessments] were not received by KLY as asserted by them in their letter of 11 May 2010 ...” III. DISCUSSION 23.Mr Philip Dykes SC (appearing for Mr Chan) identifies 4 issues in the present case. They are:-
24.I do not believe that the issues identified by Mr Dykes are precisely the questions which the Court should be determining in this judicial review. But I shall go through Mr Dykes’ issues as they at least provide a convenient starting point for analysis. A. Issue (1): Whether the Commissioner must establish actual receipt of an assessment 25.Mr Dykes argues that, in requiring that the Commissioner “give a notice of assessment,” IRO s.62(1) requires that actual notice of an assessment be given to a taxpayer. Relying on a dictum of Lord Steyn in R (Anufrijeva) v. Home Secretary [2004] 1 AC 604 (at 621B-622D), Mr Dykes submits that fairness demands that a person have actual notice of an assessment before it can adversely affect that person. 26.Mr Dykes says that IRO s.58 simply provides for various modes of service whereby the Commissioner may discharge the duty under s.62(1) to give actual notice of an assessment. But fairness (Mr Dykes suggests) requires that the Commissioner actively consider which mode of service specified in s.58(2) to employ in a given case. According to Mr Dykes, the duty of fairness requires that the Commissioner adopt a mode of service which is best calculated to bring an assessment to the actual notice of a taxpayer. 27.Service by post as permitted under s.58(2) (Mr Dykes says) can trigger the presumption of actual notice in s.58(3). But that would be the case if and only if, upon consideration of a taxpayer’s situation, the chosen mode of service has been deemed by the Commissioner as the most suitable for bringing the taxpayer’s attention to an assessment. 28.Otherwise, the Commissioner’s overriding duty of fairness (Mr Dykes concludes) means that the Commissioner cannot be treated as having discharged the duty of giving actual notice pursuant to s.62(1). In other words, there would be no actual giving of notice, regardless of what s.58(3) provides. 29.I disagree with Mr Dykes. I think that he reads too much into ss.58 and 62. 30.IRO s.62(1) requires the Commissioner to give notice of an assessment to a taxpayer. I accept that, as a matter of principle, the requisite degree of notice must be actual (as opposed to constructive) notice. 31.IRO s.58(2) sets out the ways in which actual notice of assessment might be given. Where the Commissioner employs any of the methods so stipulated, then it will be presumed by reason of s.58(3) that the taxpayer has received actual notice of an assessment. The burden will shift to the taxpayer to show the contrary and rebut the presumption of actual notice. 32.However, on a plain reading of IRO ss.58 and 62, all modes of service listed in IRO s.58(2) are available to the Commissioner. I see nothing in ss.58 or 62 which imports some additional duty or burden on the Commissioner to consider in the case of every given taxpayer which mode of service is the more appropriate. There are millions of taxpayers in Hong Kong. I doubt that the Commissioner could practically undertake the exercise suggested by Mr Dykes in the case of every single taxpayer. Nor do I see anything unfair in a plain reading. 33.Under IRO s.51(8) a taxpayer is under a duty to inform the Commissioner of one’s address whenever that changes. This ensures that, as much as possible, the Commissioner sends an assessment to an operative address. 34.Where (as here) the taxpayer fails to inform the Commissioner of a change of address, the taxpayer can only have one’s self to blame if the Commissioner relies on the taxpayer’s last return and sends an assessment to the postal address specified in that return. It lies ill on the taxpayer to argue that non-compliance with the duty to furnish a proper address means that the Commissioner comes under a heavier duty than she otherwise might have had, to assess which of the addresses specified in s.58(2) would be the most effective. 35.On his reading of ss.58 and 62, Mr Dykes submits that the Commissioner acted ultra vires. This is because (Mr Dykes says) the Commissioner construed the IRO too narrowly. She failed (Mr Dykes complains) to appreciate her duty of fairness. She did not consider whether the last known postal address remained operative. Instead, she mechanically posted assessments to a postal address which was “obviously stale” as numerous documents had been sent to the KLY address but there had never been any reply received from Mr Chan in respect of those documents. 36.The facts, however, do not bear out Mr Dykes’ submission. 37.To begin with, as just discussed, ss.58 and 62 did not impose a duty on the Commissioner to consider which mode of service in s.58(2) was the most appropriate. All modes were open to the Commissioner. 38.In any event, the evidence is that the Commissioner acting through Mr Ng Ping (a Senior Assessor) actually considered whether the KLY address was appropriate. Mr Ng happened to have so considered because Mr Chan was “constantly in the news and a well-known person in Hong Kong”. In particular, when sending the tax assessments in January 2010, Mr Ng noted that as recently as 8 July 2009 someone had paid the property tax due under a notice of assessment sent to Mr Chan and Ms Tam Miu Ching (Mr Chan’s wife) at the KLY address. Mr Ng therefore concluded that the KLY address was “clearly still a valid postal address for [Mr Chan]”. 39.Mr Dykes points out that the July 2009 payment could have come from Mr Chan’s co-owner. That is true. The evidence as to who actually paid is unclear. But the fact of a July 2009 payment by someone in response to an assessment sent to the KLY address could reasonably be treated as an indication, indeed a strong indication, that the KLY address was live. 40.In reality, the thrust of Mr Chan’s own evidence is that, far from being inoperative, the KLY address was an effective postal address. It was not (as Mr Dykes initially described it) a “dud”. This is because there was a system in place at KLY whereby letters received for Mr Chan were forwarded to him. That system may have been informal and hence unreliable. But that was due to Mr Chan having implemented a bad system. He did not take the trouble to put in place something more dependable. The Commissioner can hardly be criticised for that. 41.Mr Dykes also suggests that the Commissioner applied a “blatantly unjust double standard”. This is because, in attempting to serve notice of the District Court action to enforce the assessments, the Commissioner (Mr Dykes points out) appointed 2 process servers who attempted service at 7 addresses and sent Court documents to 3 addresses. If fairness required the Commissioner to do all that to serve notice of the District Court action, fairness (Mr Dykes reasons) must have required the Commissioner to do more at the outset to notify Mr Chan of the assessments than merely serving the same on the KLY address. 42.I am unable to accept Mr Dykes’ contention. It would be wrong to construe the Commissioner’s obligations under IRO ss.58 and 62 by reference to rules of service applicable to District Court actions. The Commissioner may or may not have been required by the District Court Rules to employ all the means of serving process which she did. It cannot logically be inferred from whatever she did to comply with the District Court Rules that she failed to meet the different requirements of ss.58 and 62. 43.In summary, the Commissioner must establish actual notice. But she can do so by relying on the presumption of actual notice in s.58(3). There is no separate obligation on her to consider which of the modes of service listed in s.58(2) is the most appropriate. All modes are equally open and she may choose among them as she sees fit. Once the presumption in s.58(3) comes into play, it falls upon the taxpayer to rebut the presumption and establish the absence of actual notice. In the present case, the Commissioner cannot be faulted in choosing to send the assessments to the KLY address as Mr Chan’s last known postal address. B. Issue (2): Whether the Commissioner required to send assessments to more than one last known address 44.It follows from Section III.A that, to take advantage of the presumption in IRO s.58(3), the Commissioner is only obliged to send an assessment to one of the addresses listed in s.58(2). Having served on the last known postal address, the Commissioner was not obliged to serve the assessments on any other type of address. 45.Here, on the facts, as at January and February 2010, only one postal address had been identified by Mr Chan. That was the KLY address. 46.There was a faint suggestion in Mr Chan’s Notice of Judicial Review that the assessments ought also to have been sent to Ernst & Young Tax Services Ltd. (EYTS) at 17th Floor, Hutchison House, 10 Harcourt Road, Central. This suggestion arose because Mr Chan’s 2003/04 Profits Tax Return named EYTS as his tax representative. But in the same return Mr Chan did not change his postal address to that of EYTS. C. Issue (3): Whether lack of actual knowledge can form the basis of extending the time for objection 47.In my view, the answer to this question must indisputably be “yes”. If one does not have actual knowledge of an assessment, that lack of knowledge could conceivably have prevented one from objecting to an assessment in timely fashion. 48.This does not mean that, by simply asserting that one did not have actual knowledge, a taxpayer automatically becomes entitled to an extension. The lack of knowledge will only form the basis of an application for the extension of time. 49.Consider, for instance, the position where a taxpayer T only becomes aware of an assessment A on date D. T may then have been prevented from objecting to A until D at the earliest. But T will almost certainly need time after learning of A in order to mount a proper objection. Suppose that T does not actually lodge an objection until more than 6 months after D. The Commissioner would have to consider whether to allow an extension of time to cover D + 6 months or whether only some lesser extension is justifiable. In the latter case, T would still be out of time, notwithstanding T’s earlier lack of actual knowledge. 50.Where the presumption of actual knowledge in IRO s.58(3) arises, the burden falls on a taxpayer to show the contrary. The Commissioner is not required to take the taxpayer’s assertions of non-receipt at face value. The terms of s.58(3) (especially the words “unless the contrary is shown”) suggest that a bare assertion by the taxpayer may not be enough to establish non-receipt. 51.The Commissioner must be entitled to scrutinise a taxpayer’s evidence of non-receipt (including any affirmation submitted deposing to non-receipt). She needs to satisfy herself that the taxpayer genuinely failed to receive notice of an assessment and was prevented from lodging an objection in time as a result. 52.By “genuinely” I refer to the bona fides of a taxpayer. A taxpayer, for instance, could not genuinely claim a lack of awareness of an assessment where the taxpayer has deliberately avoided service or even refused to open one’s mail once received. 53.Nonetheless, in assessing whether a taxpayer acting in good faith has or has not had actual notice of an assessment, the Commissioner must bear in mind that it is difficult to prove a negative. The Commissioner’s scrutiny has to be reasonable in all the circumstances of a given case. It may, for example, be unreasonable for the Commissioner to demand more evidence of non-receipt when in all the circumstances no further evidence of the negative can realistically be provided. 54.In the course of the hearing, I discussed with counsel the effect of a taxpayer’s failure to notify the Commissioner of a change of address contrary to the duty by IRO s.51(8). 55.Consider the situation where a taxpayer omits through carelessness (as opposed to deliberate calculation) to provide the Inland Revenue with a new address. Assume that this means that an assessment is sent to the old address and fails to come to the taxpayer’s attention as a result. In such a case, would non-compliance with s.51(8) preclude the taxpayer from applying for an extension of the time in which to object? 56.On this, I think that Mr Dykes correctly submitted that the failure to comply with s.51(8) may be a factor for the Commissioner to take into account when assessing whether a taxpayer has genuinely failed to receive notice of an assessment. But, by itself, non-compliance with s.51(8) should not preclude the Commissioner from considering whether the taxpayer lacked actual knowledge and from exercising her power to extend the time for objection under IRO s.64(1) where appropriate. 57.IRO s.80(1) provides criminal sanctions for non-compliance with s.51(8). Whether there should also be adverse consequences as a matter of civil law for failing to comply with s.51(8) is a separate issue. There is no express automatic bar to an extension of time for objection because of a failure to observe s.51(8). The grant of an extension is something that the Commissioner would need to evaluate on an individual basis in light of all relevant circumstances of a case. D. Issue (4): Whether Mr Chan received notice of the assessments prior to 24 April 2010 58.I do not think that this is an appropriate question for me to determine in these proceedings. The reason is that in a judicial review the Court does not usually make findings of fact. 59.In a judicial review the Court normally only considers whether an officer has come to a decision within his or her statutory powers and (if so) whether the officer has made a reasonable or unreasonable decision in light of the evidence before that officer at the time of the impugned decision. Where an officer has decided unreasonably (in the sense that the officer has come to a decision that no officer could reasonably reach if properly advised), the Court does not usually substitute its own decision for that of the officer. The Court instead quashes the officer’s decision. It then remits the matter back to the officer for reconsideration in light of the Court’s judgment. 60.Let me be more concrete. 61.Even if the Court (say) took the view that Mr Chan did not have actual knowledge of the assessments until 24 April 2010, it would not be enough for Mr Chan to have an extension for objection until 24 April 2010. Mr Chan’s representatives did not object to the assessments until 4 June 2010. There would have to be an extension until at least 4 June 2010. 62.But, under IRO s.64(1), the proper person to evaluate whether there should be an extension up to 4 June 2010 is the Commissioner, not the Court. So that the Commissioner (even if minded to take into account Mr Chan’s lack of awareness until April 2010) would still have to satisfy herself that Mr Chan could not reasonably have objected to the assessments until 4 June 2010 (that is, a month after 5 May 2010 when copies of the assessments had been sent to Mr Chan’s solicitors). 63.The Court should not usurp this function of the Commissioner. 64.The only thing the Court can really do in this judicial review is to determine whether on the evidence before her the Commissioner reasonably rejected Mr Chan’s application for an extension of time. If the Court finds that the Commissioner acted reasonably, that is the end of the story. If the Court finds the Commissioner acted unreasonably, the Court should remit the matter back to the Commissioner for reconsideration. The Commissioner would then have to decide, in light of the Court’s judgment, whether an extension is justified and (if so) to what date. 65.The crux then of this case is a slightly different issue from that posited by Mr Dykes. The question is not whether Mr Chan received notice of the assessments, but whether the Commissioner acted reasonably in deciding by her letter of 22 June 2010 to refuse an extension to Mr Chan. It is this re-formulated question that I will endeavour to answer. 66.By her letter of 22 June 2010 the Commissioner rejected an extension because she was “not satisfied that the 25 Notices of Assessment were not received by [KLY] as asserted by them in their letter of 11 May 2010”. In support of this view, the Commissioner referred to a postal receipt bearing KLY’s chop acknowledging the delivery of the 2 profits tax assessments. She further stated that there was “no record that the 23 Property Tax assessments were undelivered”. 67.The Commissioner, in refusing an extension, thus focused on a narrow consideration, that is, whether KLY had received the assessments. Given the postal receipt and the fact that none of the property assessments had been returned, the Commissioner not unreasonably concluded that KLY must have received the assessments. 68.But the Commissioner’s approach appears to me to have skirted the real issue flagged by Grant Thornton’s letter of 4 June 2010 (to which the Commissioner was replying by her 22 June 2010 letter). 69.In its letter Grant Thornton expressly stated that “Mr Chan never received the assessments when they were apparently first issued” and “[a]fter he became aware ... in late April 2010, he immediately instructed solicitors ... to obtain the relevant notices of assessment”. 70.In the next paragraph, Grant Thornton does mention KLY’s original stance in its 10 May 2010 letter (since qualified by KLY’s letter 6 July 2010 letter) that KLY never received the assessments. But, read in context, Grant Thornton was simply referring to KLY’s apparent non-receipt as an ancillary point in support of Mr Chan’s lack of actual knowledge. 71.The thrust of Grant Thornton’s request for an extension remained that Mr Chan did not actually become aware of the assessments until late April 2010. It was not simply that KLY had apparently not received the assessments. 72.On that basis, the Commissioner’s approach on 22 June 2010 strikes me as having been too narrow. She may have rightly been skeptical of KLY’s claim not to have received the assessments. But the real issues were:-
73.It is unclear whether the Commissioner actually addressed her mind to the questions just articulated. If one takes the 22 June 2010 letter on its face, she did not do so. She appears instead to have stopped at a consideration of whether the assessments were received by KLY. In my view, in the context of Grant Thornton’s letter of 4 June 2010, this was insufficient (and hence a flawed) consideration by the Commissioner. 74.Since 22 June 2010, KLY have clarified the position by its letter of 6 July 2010. KLY simply has no idea whether it received the relevant assessments. It has no record of having received the assessments, much less having forwarded them to Mr Chan’s brother or secretary. No one in KLY can recall having forwarded the assessments. 75.KLY is a reputable and well-known firm of solicitors. There is no reason to believe that what has been stated in its 6 July 2010 letter is other than what KLY believes to be accurate. KLY would not have made up the matters stated in the letter solely to accommodate a former client such as Mr Chan. KLY can be presumed to be acting independently on its own behalf in this matter. 76.Therefore, the 6 July 2010 seems to me independently to corroborate the affirmation evidence of Mr Bobby Chan and Ms Kam to the effect that the relevant assessments were neither received by them nor forwarded by them to Mr Chan. I would have thought that their affirmations coupled with KLY’s letter of 6 July 2010 amounted to cogent evidence that in all likelihood Mr Chan did not actually know of the assessments until 24 April 2010 as he claims. In other words, the evidence here appears to me to consist of more than just bald assertion. 77.Mr Stewart Wong SC (appearing for the Commissioner) argues to the contrary. He submits that the evidence of non-receipt by Mr Chan is far from compelling. He suggests that witnesses from KLY should have been asked to file affirmations on Mr Chan’s behalf. The Court (Mr Wong says) should draw adverse inferences because of the absence of such affirmations. There is nothing here (Mr Wong contends) but bare assertion. 78.For the reasons I have just given, I do not agree. I do not see how affirmations from KLY can materially add to what has been stated in KLY’s letter of 6 July 2010. Mr Chan is in the difficult position of proving a negative, namely, non-receipt. One asks rhetorically: in the circumstances described by him, what further evidence can he reasonably be expected to adduce? KLY know nothing. He knew nothing. Mr Bobby Chan and Ms Kam only know that they received nothing. In the peculiar circumstances on this case, I seriously doubt that one can reasonably require more cogent evidence. The reality is that the key players are all in the dark. Mr Chan has done the best he could. The nature of the beast is that there really is no more evidence that can usefully be produced. 79.I fully appreciate that the 6 July 2010 letter did not materialise until after the Commissioner’s 22 June 2010 letter. 80.But, as I have pointed out, even the Commissioner’s deliberation on the question of extension in June 2010 does not seem to have gone far enough. Her letter did not confront the gravamen of Grant Thornton’s case for an extension, namely, Mr Chan’s lack of actual knowledge regardless of whether anything had been received by KLY. Thereafter, it remained open to the Commissioner to reconsider the position in light of the materials which have become available including the 6 July 2010. She has not done so. 81.On the contrary, as advanced by her counsel, she regards the 6 July 2010 letter as no proper evidence at all. In other words, in my view, she has attached no weight to that letter, when (for the reasons I have discussed) she ought to have placed significant weight. That in itself is unreasonable. It is an error of law to place no weight where weight should be placed and vice versa. 82.Consequently, I would answer the reformulated question thus: The Commissioner acted unreasonably in refusing to grant an extension by her 22 June 2010 letter. IV. CONCLUSION 83.The judicial review succeeds. The Commissioner’s refusal in her letter of 22 June 2010 to grant an extension of the time in which to object is quashed. This matter is to be remitted to the Commissioner for reconsideration in accordance with this Judgment. 84.There will be an Order Nisi as follows:-
85.Mr Chan’s Amended Notice of Application for Leave to Apply for Judicial Review significantly reconstituted Mr Chan’s case. Even then, Mr Chan did not prevail on all of the arguments advanced in his reconstituted case. Consequently, I doubt that Mr Chan should be entitled to 100% of his substantive costs in the judicial review. For this reason, I have proposed that he be limited to 90% of the substantive costs of his judicial review application.
Mr Philip Dykes, SC and Mr Timothy Parker, instructed by Messrs Fred Kan & Co., for the Applicant Mr Stewart K M Wong, SC, instructed by the Department of Justice, for the Respondent Please refer to CACV113/2011 for the relevant appeal(s) to the Court of Appeal. | ||||||||||||||||||||||||||
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