Case Detail

HCIA000002A/1967

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

INLAND REVENUE APPEAL NO. 2 OF 1967

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BETWEEN
	TAI SHUN INVESTMENT CO. LTD.	Appellant
	and
	COMMISSIONER OF INLAND REVENEUE	Respondent

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Order 62, Rules 33 and 34: Decision of Taxing Master on Review in respect of the Taxation which took place on the 7th and 14th of August 1968.

Coram: J.R. Oliver, Deputy Registrar

Date of Judgment: 14th December 1968.

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JUDGMENT

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1. The Appellants in this case appealed to the Full Court from the decision of the Board of Review dated the 4th of January 1967: and the Full Court by a judgment dated the 29th of January 1968 allowed the appeal with costs.

2. I taxed the Appellants' bill of costs against the Respondents on the 7th and 14th of August 1968, and I taxed off certain items, in particular all the items concerning the payment of fees to Mr. H.H. Monroe Q.C. and the incidental expenses of bringing him and his clerk to Hong Kong from London.

3. In accordance with the practice laid down in paragraphs (3) and (4) of Rule 33 to Order 62 after the usual Objections and Answers had been filed the solicitors for both parties attended before me on the 21st of October 1969 and I listened to further submissions.

4. I will now deal with each of the objections seriatim :-

Objection No.1

Items No.34 to 54 inclusive and 57 to 60 inclusive.

5. I am now of the opinion that I misdirected myself on these items. No order for costs was made by the Chief Justice when he made the order on the 31st of August 1967 that this case should be heard before the Full Court. It would seem that the solicitors for the Respondent were served with a copy of the summons and they did not ask for the costs of this summons to be disallowed.

6. In the judgment of the Full Court of the 29th of January 1968 the appeal was allowed with costs. Such a direction to my mind covers the Appellants' cost of issuing the summons of the 31st of August 1967 because to do so was a reasonable act to take; it would also cover the incidental costs of the affidavit of the same day, and the drawing up of the Order of the 31st of August 1967. All these charges I now consider to be reasonable.

7. On the other hand I agree with the Respondents that Items 37, 38, 39, 41, 44, 50, 56 and 60 should continue to be disallowed as they are in my opinion neither necessary nor proper (Order 62, rule 28(2)).

Objection No. 2.

Item 76.

8. I will deal with the objection raised to this item with Objection No. 3. I now turn to consider the main objections to my taxation which concern :-

Objection No. 3 and Mr. Litton's fees (Objection No.2): that is to say;

Items 77, 78, 79, 87 and 88, and Item 76.

9. The operative words of Order 62 rule 28(2) under which I am taxing this bill read :- "there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the right of the party whose costs are to be taxed."

10. The Crown Solicitor drew to my attention the well know observations uttered by Vice Chancellor Malins in 1875 in the case of Smith v. Buller (1) :-

......... that "party and party costs are all that are necessary to enable the adverse party to conduct the litigation and no more. Any charges merely for conducting litigation more conveniently may be called 'luxuries' and must be paid by the party incurring them."

11. In my opinion however the last 90 years have resulted in a considerable erosion of this definition. Modern case law permits the Taxing Master to construe these words more liberally in favour of a person who obtains an order for costs.

12. The law on this change is in my opinion conveniently stated at page 57 of "The New Superme Court Costs" by Albery and Essayan.

"It will be noted that the important words are 'necessary or proper,' and that 'proper' may cover matters which, though not absolutely necessary, are nevertheless reasonable in the circumstances. 'It is a rule which is intended to give the successful litigant a full indemnity for all costs reasonably incurred by him in relieve to the action' (per Atkin, L.J., in Pecheries Ostendaises (Soc. Anon.) v. Merchants' Marine Insurance Co. (1928) 1 K.B. 750, at p.762). 'When considering whether or not an item in a bill of costs is 'proper' the correct view point to be adopted by a taxing officer is that of a sensible solicitor sitting in his chair and considering what in the light of his then knowledge is reasonable in the interests of his lay client' (per Sachs, J., in Francis v. Francis and Dickerson (1956) P. 87, at p. 95). In the light of these more modern observations, it is thought that the dictum of Malins, V.C., in Smith v. Buller (1875), L.R. 19 Eq. 473, cited as to the principles of party and party taxation in the Annual Practice, 1960, at pp. 1936 and 1937, puts the matter a little strictly."

13. I will now deal with the point taken by the Appellants Solicitors that I am bound to allow all Counsel's fees in full unless I find them excessive and unreasonable by virtue of the words found in paragraph 2(5) of Part II to the Schedule of Order 62. That is to say:-

Every fee paid to counsel shall be allowed in full on taxation unless the taxing master is satisfied that the same is excessive and unreasonable, in which event the taxing master shall exercise his discretion having regard to all the relevant circumstances and in particular to the matter set out in sub-paragraph (2) of paragraph 1".

14. I dealt with this very point in a Review of Taxation which I heard in O.J. Action No. 936 of 1964 [Pfizer Corporation v. T.W. Wu and Company (H.K.) Ltd.] In that case I said:-

"	However useful the notes contained in Part II of the FIRST SCHEDULE are. and I have not lost sight of any part of Note 1, these notes must take second place to the Rules themselves and to the Scale in Part I of the FIRST SCHEDULE. A clear guide is given to the Taxing Master in the assessment of costs in Rule 28. As this Rule, and in particular sub-rule (2) follows word for word Rule 28 of the English Rules. I have been guided in how I should apply Rule 28(2) of our Rules by the notes which are to be found at page 1999/291 of the 1965 Annual Practice which deal with the principles to be adopted on a party and party taxation.
	On reviewing Counsel's fees, Items 23, 91, 121, and 123. Mr. Turnbull advanced the interesting argument that Counsel were in a very different position to Solicitors because of Note 2(5) of Part II of the FIRST SCHEDULE of the Rules.
	It is interesting to observe that this note and the different scale of costs which appear at Part I of the FIRST SCHEDULE represent the two cardinal points of difference between the Hong Kong Rules of 1965, and the English Rules of 1959.
	As Mr. Turnbull has pointed out by virtue of Rule 32 I have to construe these rules as a whole but in so doing I intepret the notes at Part II of the First Schedule as the servant of the Rules, themselves, at hand to assist in the interpretation of the Rules, but not towering over them so that the Rules stand in the shadow of the Note."

15. I wish now to add a further point. Order 62 applies to all forms of taxation that is to say from the lowest "party and party" type of order to a taxation by a solicitor on a "solicitor and own client" basis.

16. It is for this latter type of taxation that the words of paragraph 2(5) of Part II to the Schedule are directed. This is not a "solicitor and own client taxation" and it is for that reason that the Appellants' solicitors submission on this point fails.

17. I now come to the main question. Was it reasonable for the Appellants to brief London Counsel?

18. I would think that the primary justification for allowing what must undoubtedly be the high fees of bringing counsel to Hong Kong from outside the Colony would be the need to redress any imbalance which might come about by one side giving notice to the other side of its intention to bring into the Colony a specialised counsel, who by reason of his expertise forces the other side to place itself upon level terms by bringing in a counsel of equal standing, once it is accepted that there is no counsel of that standing at the Hong Kong Bar.

19. This was not such a case.

20. I am therefore thrown back to consider the dilemma which faced the solicitor for the appellants when he came to decide when he would brief on the appeal.

21. Placing myself in the hypothetical chair envisaged by Mr. Justice Sachs and having the advantage of reading the decision of the Board of Review, the case stated by the Board of Review, the various instructions to Counsel to advise, the opinions of Mr. C.W. Reece, Mr. H. Litton, and Mr. H.H. Monroe Q.C. and the briefs to Counsel. I am of the opinion that by reason of the facts and the law and by reason of the implication paragraph 1(2) of Part II to the Schedule of Order 62 it would be reason for the appellants' solicitor in the interests of his client to instructed a counsel who specialised more in tax law than would be found in barrister practising at the Hong Kong Bar.

22. In this regard I have no evidence to suggest that counsel could have been obtained in Singapore or Australia or any place other that and I therefore allow in principle the cost of briefing a barrister in practice in England.

23. As I have allowed English Counsel's fees in principle I have now to consider whether these undoubted high fees must be borne by the Respondents within the ambit of the order made by the Full Court.

24. I am of the opinion that the Respondents should not be called upon to pay all of Mr. Monroe's fees although my mind is not free from doubt on this point.

25. A party may choose to indulge in many forms of luxury which he obviously will not be able to recover against the loosing party on a party and party order. Such examples are to be found at Items 79 and 88 in this Bill namely the expensed of providing accommodation in the Mandarin Hotel for Mr. Monroe's Clerk, Mr. Griffin, and his passage by aeroplane from London to Hong Kong and back. These items were disallowed on taxation and in their Objections brought in on review the Appellants' solicitors indicated that the Respondents could not be charged with these costs relating to Mr. Griffin.

26. By a similar argument I am of the opinion that a loosing party faced with an order to pay costs on a party and party basis is only liable for those costs of counsel which can be described as necessary or proper or to put it in another form to pay the reasonable costs of employing counsel of average ability for the work which has been performed. Subject however to the proviso that if a case is of quite exceptional complexity or importance as opposed to average complexity or importance it might in those circumstances be reasonable to employ a counsel right at the summit of his profession. In my opinion whilst this was a complex case it was not really a case of such savage complexity as to justify the employment of any counsel other that one of average standing specialising in tax law.

27. To translate into practice the principles which a Taxing Master should apply to a party and party order so that a reasonable sum for counsel's fees are allowed is not easy.

28. The remarks of Mr. Justice Pennycuick in the case of Simpsons Motor Sales (London), Ltd. v. Hendon Corporation at page 838 have a bearing upon the way a Taxing Master should approach this problem. (1)

" Counsel for the plaintiff company contended that the proper measure for counsel's fees is such a fee as counsel, competent in the field concerned, would be content to take on the brief. Counsel for the defendant corporation contended that the proper measure is such a fee as counsel appropriate to the brief would be content to take on the brief. As used by counsel in argument these expressions come, I think, to much the same thing. In other words, one must envisage an hypothetical counsel capable of conducting the particular case effectively but unable or unwilling to insist on the particularly hgih fee sometimes demanded by counsel of pre-eminent repurtation. Then one must estimate what fee this hypothetical character would be content to take on the brief. I am prenared to apply this measure as a test in the present case, but it is necessary to emphasise that the rule itself uses the words "necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed" and that the same measure may not always be applicable in the infinite variety of cases which can arise. There is, in the nature of things, no precise standard of measurement. The taxing master, employing his knowledge and experience, determines what he considers the right figure. The judge in his turn must, I think, consider whether, on his own knowledge and experience, the figure adopted by the taxing master falls above the upper or below the lower limit of the range within which in his view the proper figure would come. If, and only if, it does fall above or below those Limits, he should substitute his own figure. Counsel for the plaintiff company adumbrated the contention that every leading counsel practising in a particular field should be regarded as competent to conduct a case in that field however heavy and difficult. The contention is, I think, for obvious reasons which it would be invidious to elaborate, untenable, and counsel for the plaintiff company did not seriously seek to maintain it. What he did maintain with force and truth is that in any field there may be, and generally are, a number of counsel outside the best known names who are perfectly competent to conduct a heavy and difficult case in that field."

29. Objection has been taken to Counsel's plane fare, hotel expenses, and tax being separated. In taxations of this kind I consider such a layout in a bill of costs is a sensible plan of arrangement although the practice is different from that which takes place when counsel appears in England at Assizes.

30. Whether these expenses should be allowed is another matter. Mr. Griffin's fare and hotel expenses are not being pursued and I propose to allow Mr. Monroe's fare but only at economy class level and his expenses of staying at the Mandarin Hotel.

Objection No. 2.

Item 76.

31. Mr. Litton conducted the hearing of this case at first instance before the Board of Review, and he was also briefed as junior on the appeal. In all he charged (Item 76) a fee of $13,440.00 for his brief and two refreshers. On taxation I reduced the brief fee to $3000.00 and the refreshers at $1,000.00 each for two days.

32. The standard refresher fee in Hong Kong allowed on taxation on a party and party basis varies between $600.00. and $1,000.00. I incline to the view that for the reasons set out in paragraph 1(2) of Part II of the Schedule to Order 62 measured against the facts, intricacy and responsibilities thrown up by this case a brief fee of $5000.00 should have been allowed to Mr. Litton; and if refreshers of $1000.00 a day are added to this fee the total will therefore amount to $7,000.00.

33. I now turn to consider Mr. Moncoe's fees :-

Item 77.	Brief fee, ...(illegible) and conference	$34,874.50
Item 78.	Mr. Monco ...(illegible) liability	$5,441.00
		-----------------
		$40,315.50

34. For the reasons which I have given I consider that whilst a case did exist for bringing in aspecialist the facts did not call for briefing a leader whose services command fees as high as those charged by Mr. Monroe.

35. I am of the opinion that the Respondents liability for counsel's fees (Items 77 and 78) should and at what an average counsel specialising in tax matters in England would charge for appearing in this case before the Full Court in Hong Kong. I am in the obvious difficulty of having little information of what is the market rate for an average counsel, not necessaril a O.C.

36. This case was set down for three days only and the question of exceptional fees to cover a long hearing does not therefore arise.

37. I incline to the view that if I were to assess the fees of such a counsel at twice those which I have allowed to Mr. Litton this will be the figure which I consider the Respondents should pay under the terms of the Order as necessary or proper : For these reasons I propose to allow for these two items the sum of $14,000.00.

38. I do not propose to allow Item 78, Mr. Monroe's tax liability of $5,441.00.

39. Each party will be responsible for their own costs of this review.

	J.R. Oliver
	Deputy Registrar

14th December 1968.

Representation:

...(illegible)

(1) Smith v. Buller L. R. Eg. P. 457.

(1) Simpsons Motor Sales (London), Ltd. v. Hendon Corporation. 1964. 3 A.E.R. 833.

HCIA000002/1967

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

INLAND REVENUE APPEAL NO.2 OF 1967

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BETWEEN
	Tai Shun Investment Co. Ltd.	Appellant
	AND
	Commissioner of Inland Revenue	Respondent

Coram: Rigby, Briggs & Huggins, J.J.

Date of Judgment: 29 January 1968

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JUDGMENT

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Huggins, J.: This appeal from a decision of the Board of Review comes before the court by order of a single judge. We have, by consent of the parties, had regard not only to the case stated by the Board but also to the signed decision of the Board.

2. The Board of Review confirmed the determination of the Commissioner of Inland Revenue that the appellant company (the tax-payers) did not cease to trade prior to the year of assessment 1965/6 for the purposes of computation of profits tax. The importance of this determination was, of course, that under s.18(5) of the Inland Revenue Ordinance the assessable profits are computed on the amount of profits made during periods which are related to the date of cessation of trade. It is manifest that the tax-payers here deliberately so arranged their affairs that, if their view of the facts and of the law is correct, they would not be required in the computation of tax to bring in the profits made by them during the accounting year October 1962 to September 1963 and they doubtless had good reason for what they did. Rightly or wrongly, depending upon one's particular moral view-point, it is quite lawful to use such loopholes as the tax legislation may offer in order to avoid liability to tax and there are even some who regard the transfer of the burden of paying tax to other shoulders as a wholly meritorous exercise. There being no doubt as to the tax-payers' intention in this case, the Commissioner contends nevertheless that they have taken a wrong turning and that in the result they have not achieved their intention. The argument is of necessity a highly technical one.

3. The facts may be briefly stated. The tax-payers are a limited liability company which was created in order to purchase and develop land. In pursuance of its objects it bought land and then, having resold part of that land, built four blocks of flats on the remainder. Most of the flats were sold but the market having become depressed the company found itself unable to sell 16 of them. Eleven of these flats were the subjects of tenancies. At this stage it was decided by the directors that it would be desirable to wind up the company and an Extraordinary Meeting was called for that purpose. At that meeting it was resolved that the company should be wound up voluntarily and at a later meeting it was resolved that the 16 unsold flats should be distributed in specie to shareholders by ballot. By 31st March, 1965 all except 8 of the flats had been paid for in full, these 8 having been sold on terms which allowed payment by instalments, completion to be effected upon payment of the final instalment. No new rent fell due after 31st March, 1965 but after that date three things were done by the liquidator: (1) he collected some arrears of rent; (2) he collected some arrears of instalments and also some instalments which fell due after that date, together with interest; and (3) he conveyed the legal estates in the 8 flats which had not previously been paid for in full.

4. The question was whether the company ceased to trade on or before 31st March, 1965 (as the tax-payers contend) or at some time after that date. The Commissioner, as I have said, came to the conclusion that the company continued to trade into the new year of assessment and the Board of Review came to the same conclusion. Counsel for the Commissioner submits that the conclusion was correct but that, even if it was not, it was a finding of fact which we cannot properly disturb because, even if we might be disposed to take a different view of the evidence, there was evidence upon which the Commissioner and the Board could find as they did. If, of course, there was no evidence to justify the finding it cannot stand and counsel for the appellants argues, and in my judgment rightly argues, that the so-called "finding" is a decision of mixed law and fact and that if he can show the Board misdirected itself upon the law (and I take him to mean, in particular, upon the meaning of the words "cease to carry on a trade .... or business" in s.18(5) of the Ordinance) that nullifies the finding of fact. He goes on to say that it is questionable whether the Board fully appreciated what its functions were because in paragraph 14 of their written decision they observed that there was evidence before the Commissioner on which he could find as he did, a possible implication being that they regarded themselves as an appellate court rather than as a Board charged with a duty of making its own findings of fact. On a reading of the decision as a whole I am not satisfied that the Board so misconceived its functions.

5. The issue we have to decide is a difficult one. One might expect that it would be a simple matter to say whether a person was trading or not at a particular date but there are decisions which suggest that what the ordinary man may consider to be trading is not to be regarded as such for tax purposes when it is at the same time necessary work for the winding up of the business.

6. It is obvious that a trader cannot by the mere expedient of saying "I hereby cease to trade" escape the consequences of trading if in fact he goes on trading. Thus the resolution passed by the company here is evidence of its intentions but is no evidence to show whether or not its intentions have been carried out. Counsel for the Commissioner relied upon a passage in the judgment of Greer, L.J. in Hillerns & Fowler v. Murray⁽¹⁾ which I will cite in a moment and which appears to suggest that the winding up of a business will almost inevitably involve the carrying on of the business and consequently he draws a distinction between the case where a business of a company or of a partnership is wound up and a case where a personal representative winds up the business of a deceased person: in the latter case, he says, one has to find a separate activity carried on by a stranger who is launching out on his own, while a liquidator is merely the alter ego of the company. The argument of counsel for the tax-payers, as it seems to me, minimizes this distinction and concentrates more on the degree of activity that is found.

7. With these two different approaches in mind I turn to the cases. In Hillerns & Fowler v. Murray⁽¹⁾ a partnership was dissolved by lapse of time. At the date of dissolution there were unfulfilled contracts. The partnership had carried on the business of grain merchants and the outstanding contracts appear to have included contracts to supply grain and contracts to receive stocks of grain with which to fulfil the contracts to supply. The operations, which were on a very large scale, realised profits tax on which was assessed at £5,820 for the year 1927. Rowlatt, J. was of opinion that the partnership was merely working out its books and that this was not "trading". He did not suggest that there was any fundamental difference between winding up the estate of a deceased person and winding up the business of a company in liquidation. The Court of Appeal in reversing his decision held that there was evidence on which the Commissioner could properly have found that a trade was being carried on, it being unnecessary for them to say whether they agreed with the finding or not. Greer, L.J. used words which I think are heavily relied upon by the Commissioner here (at p.89):

"But it is a little difficult for people who are in business to collect the debts which belong to them without carrying on the trade they had been carrying on before the dissolution of partnership ...... the decision as to the quality and effect of the facts established in each particular case that is binding on the court is the decision of the Commissioners."

It is the latter part of this passage which the Solicitor General says is decisive for he says that there was evidence here upon which the Commissioner could find that a trade was being carried on. The first part of the passage he cites as supporting his distinction between the personal representatives of a deceased person and those engaged in the winding up of the business of a company or partnership. The opposing view of this decision can be expressed in this way, that those responsible for winding up the grain business were doing something more than a mere mechanical act of disposing of assets and were interposing their own business acumen. Greer, L.J. said (idem):

"Now it is quite possible that the affairs of a partnership may be so situated that it is possible to wind up the affairs of the partnership and complete the transactions begun, but unfinished at the time of the dissolution, without exercising any operation or doing any acts that can be treated as trading in the course of the winding up. But, on the other hand, it is possible that the situations of the partners and the facts relating to their business position may be such that it is quite impossible to carry out the terms of s.38 (of the Partnership Act, 1890) without performing acts which are acts of trading. The question in every case is whether what is done for the purpose of carrying out the provisions of s.38 has been done by means of transactions that are properly described as trading, or whether it has all been done by transactions to which the term 'trading' has no real application or meaning."

It seems to me that the significant things about Hillerns & Fowler v. Murray⁽¹⁾ were the size and nature of the business. The Master of the Rolls pointed out that there were "certain items which unquestionably would fall to be dealt with after (the material date): the discharging, the lighterage and the storage of the grain, the carriage of the grain, arbitration fees which would arise on questions whether or not delivery had been made not in accordance with the terms of the contract." It was in relation to these matters that winding up went beyond the mere working out of the books. Greer, L.J. distinguished Cohan's Executors v. Commissioners of Inland Revenue⁽²⁾ on the ground that there all that was done was reasonably necessary for the purpose of realising a contract which was in existence for the time being at the decease of the trader". In that case the executors had declined to accept release of the estate from a contract made with a shipbuilder to build a ship and they sold the ship upon its completion. The Court of Appeal did not consider that the refusal to accept release was an act which took the executors within the ambit of trading: they were merely realising an asset in one of two different ways. At page 615 Lord Pollock, M.R. said:

"Of course, it is largely a question of degree as to whether or not a business is being carried on by the executors for their own purposes or not."

...(illegible), L.J. said at p.618:

"I have asked myself in what way did (the executors') conduct differ from the conduct of executors who determined not to carry on the business, and made up their minds not to carry on business; and I find nothing that would differentiate their conduct from that state of things."

...(illegible) me to me that looking at the present case solely upon the basis of these ...(illegible) it cannot be said that the company was "trading" after 31st March, ...(illegible) . All that the liquidators did was to receive moneys which fell due under ...(illegible) made before that date and to execute conveyances which the company ...(illegible) bound to execute by virtue of contracts made before that date. ...(illegible) it is not, I think, open to us to adopt the refreshingly robust ...(illegible) of Rowlatt, J. in Hillerns & Fowler v. Murray⁽¹⁾ I am persuaded that ...(illegible) before us comes nearer to Cohan's Executors v. The Commissioner of ......(illegible) Revenue⁽²⁾ than it does to that case.

8. Is there anything in the other cases which makes that view untenable? In Tryka Ltd. v. Newall⁽³⁾ a company was found by the Commissioners to have discontinued a trade formerly carried on and to have started a new trade. In the High Court it was argued as a new point that in line with a series of bankruptcy decisions so long as debts related to the old business remained undischarged the company must be treated as carrying on that business, but the argument was rejected and Wilberforce, J. (as he then was) reached the conclusion that the Commissioners could properly draw the inference that the trade carried on after the material date was a different kind of trade from that which had previously been carried on. It seems, therefore, that the mere collection of debts is not the continuation of a trade - at least not where there is evidence that the company has started a new trade. In Bennett v. Ogston⁽⁴⁾ the court was concerned with the estate of a deceased moneylender. He left promissory notes upon which instalments were payable partly in liquidation of the principal and partly in payment of interest. The Inland Revenue claimed income tax on that part of each instalment paid after the death which was interest. The estate was held to be rightly taxed because, whatever may have been the position as to payment of income tax on interest falling due before the death, this was interest earned by the capital since the death. Before the death the interest had not been treated as chargeable to income tax qua interest but as part of the receipts of the business. However, the effect of the decision was that interest earned after the death was not to be regarded as part of the receipts of the business on the basis that the business was then being carried on by the administrator. Counsel for the tax-payers before us concedes that any interest "received" after 31st March, 1965 is liable to interest tax but submits that the liquidator was no more carrying on the business than was the administrator in that case. (By "received" I think he clearly meant "earned" and I ought to mention that interest at 1% per mensem was payable on the instalments of the purchase prices of flats which had not been paid for in full by 19th March, 1965, this totalling during the year of assessment 1965/6 $3,405.87). The Solicitor General, of course, relies here upon the broad distinction which he says exists between a liquidator of a company which is still in being and a personal representative of a deceased who is not. Unless on a review of the cases as a whole (and I shall return to this issue at the last) it appear that that distinction is a valid one there is nothing in Bennett v. Ogston⁽⁴⁾ which is inconsistent with the preliminary view I have taken: indeed it begs the question we have to decide for the learned judge presupposes that the trade has stopped - "when a trader or a follower of a profession or vocation dies or goes out of business ......". That presupposition is the very matter which was in issue here. Counsel for the tax-payers merely observes that the fact that the presupposition was made is some indication that the mere receipt of the interest was not a continuation of the trade.

9. Parker v. Batty⁽⁵⁾ bears a superficial affinity to the present ...(illegible) requires a careful analysis. This was a case where a dealer in musical ...(illegible) ments traded on hire-purchase terms. He sold the business to a limited liabilites company but under the agreement with the company he was to retain his rights to existing debts and to sums which would subsequently fall due under existing hire-purchase agreements. These moneys were to be collected on his behalf by the company and in the event, during the course of collection, the company repossessed and sold on his behalf some of the instruments which were the subject matters of the hire-purchase agreements. The Special Commissioners found that the dealer had started what was in its nature a trading activity - and a new trading activity because it was not carried on in the same way as the business he had been carrying on before, but was carried on through the agency of the new company. It was held that the decision was correct. As in Tryka Ltd. v. Newall⁽³⁾ it will be seen that the question became not so much the simple one, whether there had been a cessation of trade, as whether there had been a change from one trade to another a distinction which makes these cases less helpful to us than they might otherwise have been. Nevertheless I think it may be assumed that if the arrangement had been that the dealer would himself collect the outstanding debts and further instalments Lawrence, J. would still have held that this was a trading activity but that it was the old activity, that is to say that it was a continuation of the former business. The important thing to ask is, what made it a trading activity? The judge clearly had no difficulty in deciding that it was a trading activity and the reason is that the nature of the activity was unchanged save that it was carried on through the agency of the new company. Previously the business was the business of hiring out pianos on hire-purchase and although no new contracts were to be entered into that is what the business substantially remained. What must not be overlooked is that, as in Bennett v. Ogston⁽⁴⁾, the moneys which were payable after the material date were payable in respect of the use of the "capital" after the material date and that is a very different thing from collecting moneys which were themselves instalments of capital or else were payable in respect of the use of the capital before the material date. Moreover, the repossession and sale of some of the instruments (or the possibility that such repossession and sales might take place) would be an important factor in concluding that a trading activity was being carried on. In our case there were not rentings with options to purchase at the end of the terms, but binding contracts of sale which in equity passed the ownership of the land. Thus the only evidence which could, as it seems to me, point to the existence of any trading activity was that of the receipt of the $3,405.87 interest. Counsel for the company argues, as did counsel in Parker v. Batty⁽⁵⁾, that the former business must have ceased because the substance of that business was entirely different from what has gone on since the material date. In Parker v. Batty⁽⁵⁾ it was held that the substance of the business had not changed, since it was throughout a hiring out on hire-purchase terms and not a business of selling pianos, although the agency made it a new business. Here it is said that the substance of the business was the development of land and the sale of flats and that that business ceased before the material date: what has gone on since is merely a "tidying up" or, if the receipt of interest is a "trading activity" at all (and the submission is that it is not), it is an entirely different trading activity.

10. This brings me to Henry Briggs & Co. Ltd. v. The Commissioner of Inland Revenue⁽⁶⁾ which arose out of the nationalisation of the coal industry. The appellant company was a parent company and by far the largest item of receipts in its profit and loss accounts were dividends from a colliery company. Moreover the two companies had 5 common directors, all being persons skilled in mining, and their activities were closely integrated. However, some years before it had carried on in addition activities which were clearly trading activities. Two points were discussed in the case but we are concerned with only one of them. Did the dividends received from the colliery company after the date on which the assets of the colliery company were transferred to the National Coal Board arise from any trade or business carried on by the parent company after that date? That in turn depended upon whether before the transfer the parent company was a company whose functions consisted "wholly or mainly in the holding of investments or other property". The Commissioners found that it was a holding company and the holding was thus under the statute deemed to be a business. The judge held that there was evidence upon which they could reach that conclusion and that they had not been shown to have misdirected themselves as to the meaning of the word "functions" in the statute. It is really that part of the judgments in the High Court and the Court of Appeal dealing with the word "functions" which are of interest to us. Upjohn, J. said at p.423:

"Nevertheless, on ceasing to trade as a colliery company, a company might do one of several things. It might decide to engage in some other trading activity, in which case, in my judgment, it would remain a trading company: it might decide to become an investment trust company, in which case it seems clear to me that it would engage in a new business of holding property. If it does neither, but receives to wind up, it does not seem to me to gain any new character in the sense of carrying on an activity of holding property as being appropriate to its business. It really has no business. It seems to me it is carrying on a residual function as a colliery company. It can no longer trade as such: it can only receive its compensation and die."

In our case the Solicitor General contends that unlike the colliery company, which could not under the statute carry on its former colliery business after the material date and was therefore left with only the three alternatives mentioned by Upjohn, J., the appellant company was able to continue its former business and in fact did so, although it chose not to enter into any fresh development projects. He does not accept, as counsel for the appellants ...(illegible) I think if necessary be content to accept, that there was a new business ...(illegible) might be called (if not too happily) an investment trust business, which earned interest on its investments. There is little assistance to be gleaned from the judgments to help one to decide whether there is a change of business as distinct from deciding what is the new business (if any), given that the old business has ceased. On the other hand, if one accepts here (as I do) the argument that whatever else happened afterwards the business of land development and the selling of flats did come to an end there is no difficulty in holding that the third of Upjohn, J's alternatives was the only right one to adopt here.

11. In Commissioner of Inland Revenue v. South Behar Railway Co. Ltd.⁽⁷⁾, the question was whether the company, which at the material time did nothing more than receive an annuity from the Secretary of State for India, was or was not carrying on any trade or business. The Court of Appeal reversed the single judge and held that it was. The House of Lords agreed with the Court of Appeal. Lord Sumner's opinion is largely summed up in the sentence "It is obvious that the company's objects have by no means been accomplished". Here it is submitted, and I agree, that the company's objects had been substantially if not entirely accomplished when the last flat was disposed of. In the Court of Appeal Lord Pollock, M.R. said at p.412:

"Its business may be quiescent, and to a large extent, a matter of routine. Its receipts may be derived, if not wholly, at least almost entirely from the annual payments made to it by the Secretary of State; but it remains a company alive, and still requiring, if only in smaller details, the direction of its directors and the duties carried out by its secretary. It is still concerned in the business of disposing of and dividing the profits which it has become entitled to by reason of its greater activity in the past, and that activity, as well as possibly others, may be awakened and quickened in the future."

It is clear that the closing sentence has no application to a company which is in liquidation because such a company remains a company alive. The direction, although no longer in the hands of the directors, is vested in the liquidator. With what is he concerned? He is to dispose of and divide up the assets and this must include whatever profits remain to be collected. When all this is said it seems to me that it is very much a matter of general impression whether what is being done can fairly be described as carrying on a business and if any form of analysis is to be adopted I think the only test is that which counsel for the appellants asks us to adopt, whether what is being done goes beyond what can reasonably be regarded as necessary for the winding up of the company. I deliberately do not say "necessary for the beneficial winding up of the company", for the Companies Ordinance allows a liquidator to carry on the trade or business so far as may be necessary for a beneficial winding up. The power conferred by the exception in s.231 of that Ordinance on a liquidator clearly implies that he may be able to wind up the business without carrying on the trade and I do not think it would have been thought necessary to insert such an exception merely to enable the liquidator to collect outstanding debts. If he does nothing more that did the executors in Cohan's Executors v. Commissioner of Inland Revenue⁽²⁾ it seems to me that he cannot fairly be said to carry on the trade. The liquidator would be neglecting his duties if he failed to draw in all the moneys due to the company at the date of his appointment or falling due thereafter if they became due by virtue of contracts made before his appointment, subject always to this limitation, that his duty is to wind up company and that to delay the winding up by not disposing of a part of the assets merely in order to take advantage of a prior contract to pay interest at an advantageous rate would certainly result in his being found to have stepped from the dais of the liquidator into the arena of the trader or businessman. This aspect of the matter was succinctly expressed by Maloney, C.J. in J & R O'Kane Co. v. Commissioner of Inland Revenue⁽⁸⁾. That was an excess profits duty case where the Court of King's Bench of the High Court of Justice of Ireland reverted the Commissioners' finding that the sums in question were chargeable as profits of the business. The Chief Justice said at p.322:

"...... the case stated by the Commissioners proceeds upon the basis that the appellants honestly and bona fide desired to retire from business, but that by means of the method which they have adopted the realisation was unduly prolonged. The mere fact, however, that the realisation extended over a long period does not make the appellants liable.".

It is the word "unduly" which I emphasise and which in my view supports the submission of the appellants that it is not "trading" to do only what is reasonably necessary for the winding up. The judgment of the King's Bench was reversed in the Court of Appeal and the reversal was sustained in the House of Lords but on the ground that there was evidence upon which the Commissioners could find that the sums were profits of the business. At page 350 Lord Parmoor said:

"Now if that conclusion had been warranted, .... that the sales in question were realisation sales and were capital transactions incidental to the winding up of the business, personally I should have come to the conclusion that the excess profits duty could not have been charged in respect of a transaction of that character."

In our case it seems to me that it would be an abuse of language to say that the evidence of receipt of interest on the outstanding instalments was evidence of "trading" as distinct from "winding up". What reasonable course was open to the liquidator other than to collect the instalments and interest as they fell due over a period of just over 9 months? I do not say the position would necessarily have been the same if the instalments had been payable over, say, a period of 5 years.

12. In Baker v. Cook⁽⁹⁾ the company in liquidation retained the benefit of contracts made or to be made for exhibiting films on hand at the date of the liquidation. Arrangements for such exhibition were to be made on behalf of the company by a new company which was to receive a commission and thereafter pay the balance of the moneys received to the liquidator. Not surprisingly it was held that a trade was being carried on and that it was being carried on by the new company as agents for the liquidator. In that case, it seems to me, the new company was doing in relation to the films "on hand" precisely what the old company had been doing with its films prior to going into liquidation. This involved entering into contracts with exhibitors and exercising judgment in all those matters which are generally understood to constitute the running of a business. I do not think the case assists us here: as the Solicitor General said, it was well over the border line.

13. There is, however, a passage in the judgment of Lawrence, J. in Wilson Box (Foreign Rights) Ltd. v. Brice⁽¹⁰⁾ which is significant for our purposes:

"I can see no way in which (the liquidator) could have realised these assets more expeditiously or more as a matter of mere liquidation of the assets of the company than he did. It is, I think, clear, and was accepted by the Solicitor General in his argument, that the liquidator of a company may realise the assets of the company without carrying on the business of the company in such a way as to attract income-tax, and, on the other hand, the liquidator of a company may realise the assets of the company in such a way as to involve the carrying on of a trade, the profits of which are assessable to income-tax. But in this case, in my opinion, there is no evidence that the liquidator did carry on the trade of this company in such a way as to attract income-tax."

I stop there because what the learned judge went on to say was questioned by Romer, L.J. in the Court of Appeal, but the passage I have cited was in effect approved by that court and Slesser, L.J. said at p.747:

"I ask myself in the present case: what reason is there to suppose that the winding up in this case was done for any other purpose than the normal carrying out of the duties of the liquidator which are stated by Atkin, L.J. in Commissioners of Inland Revenue v. Borrell 9 T.C. 27 at p.42: 'The liquidator's duty is to realise it, to pay off the liabilities and distribute the remaining assets amongst the shareholders subject to the rights given under the Articles?'"

The facts of the case were, of course, very different from those here, since the Court of Appeal held that there was no evidence that the company carried on any trade even before it went into liquidation, but I think the question which the learned judges put to themselves is the question which we should put to ourselves. In my view there is no fundamental difference between the position of a liquidator and that of an executor and the conclusion which I have reached on a careful reading of the Case is that there was no evidence upon which it could reasonably be found that the liquidator here did carry on any trade or business after the 31st March, 1965.

14. I would attach no importance to the fact that the accounts were drawn up on the basis of accounts receivable. At best that could be only very slight indication that the company had ceased to trade and I doubt whether it is even that.

15. I would answer the question put to us in the negative and would allow the appeal with costs.

Alan Huggins

29 JAN 1968

Representation:

H.H. Monroe, Q.C. & H. Litton (Deacons) for Appellant.

Sneath, S.G., Q.C. & Sheratte, C.C. for Respondent.

(1) (1932) 17 Tax Cases 77.

(2) (1924) 12 T.C. 602.

(3) (1963) 41 T.C. 146.

(4) (1930) 15 T.C. 374.

(5) (1941) 23 T.C. 739.

(6) (1960) 39 T.C. 410.

(7) (1924) 1 K.B. 390 and (1925) A.C. 476.

(8) (1920) 12 T.C. 303.

(9) (1937) 21 T.C. 337.

(10) (1936) 20 T.C. 736, 741.

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

INLAND REVENUE APPEAL NO. 2 OF 1967

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BETWEEN:
	Tai Shun Investment Co., Ltd.	Appellant
	AND
	Commissioner of Inland Revenue	Respondent

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Coram: Rigby, Briggs & Huggins, JJ

Date of Judgment: 29 January 1968

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JUDGMENT

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President: I have had the advantage of reading the judgment of Huggins, J. in this appeal. I agree with the conclusions reached by him and, for the reasons he has given, I also would answer in the negative the question put to us, and would allow this appeal with costs.

	(Ivo Rigby),
	President.

29th January, 1968.

TAI SHUN INVESTMENT CO LTD v. COMMISSIONER OF INLAND REVENEUE

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