HKCFI 330
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
INLAND REVENUE APPEAL NO. 4 OF 2019
||HEATH BRIAN ZARIN
||THE COMMISSIONER OF INLAND REVENUE
Before: Hon Coleman J in Chambers (Open to Public)
Date of Submissions: 10, 17 & 24 January 2020
Date of Judgment: 11 March 2020
J U D G M E N T
1. By my Judgment dated 19 December 2019  HKCFI 3101 (“Leave Judgment”), the appellant (“Taxpayer”) was granted leave to appeal from the decision D11/19 (“Decision”) of the Inland Revenue Board of Review (“Board”) dated 23 August 2019.
2. A full factual background is set out in the Leave Judgment, and reference can be made to that. For the purposes of this appeal, the following matters can be rehearsed.
3. The Taxpayer was employed by HSBC Markets (Asia) Ltd (“Company”) as Managing Director, Head of Direct Principal Investments Asia, by a letter dated 27 May 2010 and countersigned on 31 May 2010 (“Employment Contract”). By letter dated 21 January 2013, the Company terminated the Taxpayer’s employment on the grounds of redundancy. Amongst other things, the letter stated that the Taxpayer would assist the Company and any group company in relation to certain litigation (“Litigation”) regarding the Company’s investment in a particular company, including attendance at court or arbitration hearings outside Hong Kong.
4. The Taxpayer did not accept those terms offered and made alternate suggestions. There then followed negotiations between solicitors appointed on behalf of the Company and the Taxpayer. Ultimately, by letter dated 20 June 2013 from the Company’s solicitors, signed by the Taxpayer on 21 June 2013, revised terms and conditions regarding the taxpayer’s termination of employment were agreed (“Termination Agreement”). The terms of the Termination Agreement included that subject to the Taxpayer providing reasonable assistance, as set out in the Termination Agreement, in respect of the Litigation, he would be compensated for the time he spent, calculated at the rate of $12,692 per day, including four days of time spent between 22 January and 20 June 2013, as well as certain other expenses and reimbursements.
5. The specific terms were in clauses 1.2 and 2.1 of the Termination Agreement. Clause 1.2 provided that:
“Subject to [the Taxpayer] providing reasonable assistance as set out in paragraph 2 below in respect of the [Litigation], the Company agrees to:
(a) compensate [the Taxpayer] for the time he spends in relation to the [Litigation] from 21 January 2013 onwards, including time spent addressing any enquiries raised by or request from the Company’s legal advisers (such as time spent (i) meeting with the Company and/or the Company’s legal advisers; (ii) drafting, reviewing and finalising witness statement; and/or (iii) commenting on any other documents) as well as time spent on travel in relation to the [Litigation], in each case as reasonably requested by the Company and/or the Company’s legal advisers. Such compensation will be calculated at the rate of HK$12,692 per day. For the purposes of this clause, the Parties agree that for the period between 22 January 2013 and the date of this agreement, [the Taxpayer] will be compensated for 4 days of his time spent on this matter, which has as requested by your client, been checked with the legal advisers ... acting on such litigation. Likewise, the Company also reserves the right to have any further time claimed by [the Taxpayer] to have been spent on the [Litigation] to be checked by the legal advisers;
(b) pay reasonable and pre-approved travel and accommodation expenses [the Taxpayer] incurs in providing the assistance in relation to the [Litigation] pursuant to HSBC Group travel policy as at 21 January 2013 (as if [the Taxpayer] was still as an employee based in Hong Kong of the title held by him as at that date, save that if [the Taxpayer] relocates outside Hong Kong, any travel shall be from his primary city of residence rather than from Hong Kong;
(c) provide your client with reasonable security support, which will be managed through the Company’s in-house security team in the relevant location of the litigation ...; and
(d) reimburse reasonable and pre-approved legal expenses for advice obtained by [the Taxpayer] directly connected to defending any retaliatory proceedings commenced against [the Taxpayer] brought by the defendant(s) in the [Litigation], subject to his co-operation with the Company’s reasonable requests in the selection of appropriate legal counsel and for prompt access to advice obtained.”
6. Clause 2.1 was headed “Obligations after termination of employment”, which by the introduction were owed “in consideration of the Company agreeing to the matters above”. Clause 2.1(a) provided that the Taxpayer:
“... will provide the company and the Group with such reasonable assistance in relation to any claim or threatened claim, investigation, administrative or regulatory proceeding as the Company or the Group may reasonably require in relation to any matter with which [the Taxpayer] was dealing during his employment and/or any matter which arises after the termination of [the Taxpayer’s] employment with the Company but in relation to which [the Taxpayer] has relevant knowledge.”
7. Clauses 2.1(b)-(f) dealt in further detail with the obligations amounting to reasonable assistance, including giving evidence to various regulatory authorities and in attendance at court or arbitration hearings in relevant jurisdictions until the conclusion of all evidence required or five years from the date of the agreement, whichever is earlier; the provision of security and the ability for the Taxpayer to decide not to travel to a country if there is a credible threat to safety; the removal by the Company of legal funding if a conflict or a significant risk of conflict subsequently arises between the Company’s interests and those of the Taxpayer; reimbursement to the Company of legal fees, disbursements and other expenses if recovered by the Taxpayer; and that the Taxpayer would not, without the Company’s prior consent, enter into any compromise or settlement of any relevant litigation.
8. The Litigation was a dispute that arose from certain Indian investments of the Company, in the management of which the Taxpayer had been involved whilst he was employed, and with respect to which he had first-hand knowledge. The Taxpayer rendered relevant services, for which his presence was required between 29 July 2013 and 2 August 2013. As noted in clause 1.2, the Taxpayer had already rendered assistance for 4 days in the period from the termination of his employment up to the making of the Termination Agreement.
9. The Company later paid the Taxpayer, in Singapore, the total of $50,768 (“Sum D”) as the agreed compensation in relation to the Litigation. Arithmetically, this amounted to 4 days’ work at the agreed daily rate. Amongst other additional assessments to salaries tax, the Assessor raised additional assessment to salaries tax on Sum D.
10. The Taxpayer objected to the additional assessments, but the assessment was upheld in the Determination dated 29 November 2017 made by the Deputy Commissioner of Inland Revenue. The Taxpayer appealed against the Determination to the Board. The Board dismissed that appeal by its Decision.
11. Leave to appeal from the Decision had actually been sought on three grounds of proposed appeal, but I granted leave to appeal only on the third proposed ground, in relation only to Sum D.
12. The ground of appeal or question identified was whether the Board erred in law in finding that sum was derived from the Taxpayer’s prior employment with the Company or was otherwise a reward for services rendered in employment, notwithstanding that the Taxpayer was, at the time he rendered the services for which Sum D was consideration, not employed by the Company and there was nothing in his Employment Contract requiring him to render such services. The main point made was that where there was no employment at the time of the provision of services for which Sum D was paid, and no prior agreement in the Employment Contract that the Taxpayer should render those services, the only contractual arrangement governing the provision of services was in the Termination Agreement.
13. I gave directions that the appeal be dealt with on paper submissions, which were respectively filed on 10, 17 and 24 January 2020.
14. The representation on the substantive appeal was the same as that before the Board and on the application for leave. Mr Stefano Mariani, of Deacons, appeared for the Taxpayer, and Mr Wilson Leung, of Counsel, instructed by the Department of Justice, appeared for the CIR.
15. A full description of the Decision can be found in the Leave Judgment. For the purposes...