Moulin Global Eyecare Trading Ltd (in Liquidation) v. The Commissioner of Inland Revenue and Another

CACV 64/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 64 OF 2011

(ON APPEAL FROM HCAL NO. 29 OF 2010)

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BETWEEN

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J U D G M E N T

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Hon Kwan JA (giving the Judgment of the Court) :

1.On 21 March 2012, we allowed the appeal of the Commissioner of Inland Revenue against the judgment of Reyes J ([2011] 3 HKLRD 216) in an application for judicial review brought by the liquidators of Moulin Global Eyecare Trading Limited (“MGET”). We set aside the judge’s orders quashing the decisions of the Commissioner and the consequential directions that the applications of MGET under sections 64 and 70A of the Inland Revenue Ordinance, Cap 112 be remitted to the Commissioner for consideration.

2.MGET seeks leave to appeal against our judgment ([2012] 2 HKLRD 911) to the Court of Final Appeal pursuant to section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance, Cap 484, on the ground that its intended appeal raises issues of great general or public importance, or issues which otherwise ought to be the subject of determination by the Court of Final Appeal.

3.The only matter for our consideration in the present leave application is whether the questions of law to be raised on appeal are reasonably arguable.  There is no suggestion by Mr Bleach, SC that the questions raised are not of great general or public importance and we are satisfied they are.  There is no need to consider the “or otherwise” limb as no exceptional circumstances are made out.

4.Mr Burns, SC submitted we have erred in holding that knowledge should be attributed by the primary rules of attribution.  We have considered the arguments to the contrary of Mr Bleach, who sought to persuade us that the conclusion we reached on the primary rules of attribution was correct and that the arguments of Mr Burns are not reasonably arguable.

5.Whilst we see the force of Mr Bleach’s submissions, we are inclined to accept that the arguments of Mr Burns in the intended appeal are reasonably arguable.  In view of the general importance of these questions of law, we think it beneficial to have the legal position authoritatively stated by the Court of Final Appeal and it would be appropriate to grant leave to appeal.

6.As for the arguments on the special rules of attribution, they were not dealt with in the judgment of the court below.  It is not necessary to rehearse the public policy arguments on both sides.  We think Mr Burns has overcome the hurdle of satisfying us there are reasonable arguments.

7.On the special rules of attribution, Mr Burns has advanced two new arguments regarding the construction of the Inland Revenue Ordinance.  Firstly, he contended that on a proper construction of section 64, the focus should be on capacity rather than knowledge so there is no need to have recourse to the principles of attribution.  Secondly, he argued that section 70A should be interpreted consistently with the underlying policy objective of the Inland Revenue in collecting only the correct amount of tax on the basis of the true facts.  It is not necessary for us to express a view on these new legal arguments.  Once leave is granted, it is for MGET to satisfy the Court of Final Appeal they should be allowed to raise these new legal arguments on appeal.

8.We have not mentioned the ten questions to be raised on appeal as set out in the Notice of Motion so far, as we do not find them helpful in focussing our minds on what really matters in this leave application.

9.We propose to re-formulate the questions broadly to address the issues that are to be raised on appeal in this manner:

(1) Whether the primary rules of attribution should apply to attribute knowledge of the fraudulent directors to MGET?

(2) If not, whether the special rules of attribution should apply to attribute knowledge of the fraudulent directors to MGET?

10.We would grant leave to appeal on those two broad questions.  The liquidators of MGET are to provide security of $400,000 within 28 days hereof.

11.We order the costs of this application to be in the cause of the appeal, with the qualification that we would disallow the costs incurred by MGET in the preparation of a lengthy skeleton argument which we returned to the solicitors as wholly inappropriate.

Mr Ashley Burns, SC instructed by Lipman Karas, for the applicant (respondent)

Mr John Bleach, SC and Mr Roger Beresford, instructed by the Department of Justice, for the 1^st respondent (appellant)

Please refer to FACV5/2013 for the relevant appeal(s) to the Court of Final Appeal.