Chief Justice Ma: 1. I agree with the judgment of Lord Walker of Gestingthorpe NPJ. Mr Justice Ribeiro PJ: 2. I agree with the judgment of Lord Walker of Gestingthorpe NPJ. Mr Justice Tang PJ: 3. The appellant, MGET was the principal operating subsidiary of Moulin Global Eyecare Holdings Ltd (Holdings), a listed company in Hong Kong since 1993, which had a majority of public shareholders. MGET’s case is that its profits had been fraudulently inflated over the tax years 1998/1999 to 2003/2004 by its then management.[1] MGET’s tax returns were prepared based on balance sheets which had included such inflated profits. Assessments were made based on such returns and the tax[2] paid as a result were excessive. Two directors of MGET and other members of its management have been convicted of a number of fraud charges involving false accounting in respect of Holdings accounts. I do not believe it is seriously challenged that some of the directors of MGET were innocent. But it does not matter, because for the present purpose, I shall proceed on the basis that there were innocent directors. 4. MGET was ordered to be wound up on 5 June 2006. This appeal arose out of the liquidators’ applications under s 64(1)(a) and s 70A of the Inland Revenue Ordinance Cap 112. 5. Under s 64(1), a taxpayer has one month after the date of the assessment to give notice of objection to the assessment with the possibility of an extension: “(a) if the Commissioner is satisfied that owing to absence from Hong Kong, sickness or other reasonable cause, the person objecting to the assessment was prevented from giving such notice within such period …” 6. The Liquidators applied under s 64(1)(a) for extensions of time to object to the assessments made during those tax years … on the ground that the fraud of its previous management (which was not discovered until after the provisional liquidators were appointed in June 2005) had prevented MGET from giving notice of objection within the statutory time limit of one month. 7. The application under s 70A, which has a relevant time limit of 6 years, is confined to the tax year 2003/2004. Under s 70A, a taxpayer may obtain repayment “if, upon application made within 6 years after the end of a year of assessment … it is established to the satisfaction of an assessor that the tax charged for that year of assessment is excessive by reason of an error or omission in any return or statement submitted in respect thereof…”. In respect of the tax year 2003/2004, MGET’s case is that the tax[3] paid was excessive by reason of errors in the return or statement submitted in respect thereof, because MGET’s profits had been deliberately and fraudulently inflated by the management of MGET. 8. The Commissioner rejected these applications. On the liquidators’ application for judicial review, on 15 February 2011, Reyes J decided in favour of the liquidators and ordered the Commissioner to reconsider her decisions. On 21 March 2012, the Court of Appeal allowed the Commissioner’s appeal and set aside Reyes J’s orders. Essentially, the Court of Appeal decided that the fraudulent knowledge of MGET’s management that the profits had been inflated should be attributed to MGET such that MGET had not been prevented from giving notice of objection within time nor was there any error within the meaning of s 70A. This court granted leave to appeal so that the law relating to attribution could be considered. 9. I have had the advantage of reading the judgment of Lord Walker of Gestingthorpe in draft. I am grateful to Lord Walker for his analysis of the concept of attribution and the fraud exception. Lord Walker has summarized (at para 106) his conclusion on the general effect of the leading authorities on attribution and the fraud exception. I shall use Lord Walker’s summary as my guide. Section 64(1)(a) 10. I am of the view that MGET’s reliance on s 64(1)(a) is misplaced. Like Lord Walker, I am inclined to accept Mr Brennan’s submission for the Commissioner, that s 64(1)(a) contemplates some temporary impediment of an external and physical nature, rather than something internal and psychological. Thus, if a taxpayer failed to object within the statutory time limit because of wrong advice from his accountants, the taxpayer could not be said to have been prevented from giving timely notice of objection. Nor when the “cause” is said to be the undiscovered fraud of its management. This is so, even when the fraud is not attributed to the corporate taxpayer. For the purpose of s 64(1)(a) I do not think it necessary to decide whether the fraud of MGET’s previous management should be attributed to it. Should it be necessary to do so, I would for the reasons I give below in respect of s 70A, hold that the guilty knowledge of MGET’s management should not be attributed to it. Section 70A 11. So far as the appellant’s application under s 70A is concerned I am also in respectful agreement with Lord Walker that “a deliberate lie cannot be an error for the purpose of s 70A” (para 128). However, with respect, I do not agree that the fraud exception is not applicable. 12. Lord Walker says, and I respectfully agree, questions of attribution are always sensitive to the factual situation in which they arise, and the language and legislative purposes of any relevant statutory provisions. The specific context here is s 70A. An application under s 70A does not fall within the well known categories of liability cases or redress cases. Nor is it truly comparable to cases where redress is sought from an auditor or an insurance company. In Stone and Rolls Ltd v Moore Stephens (HL(E)) [2009] 1AC 1391, in the context of a claim against an allegedly negligent auditor, Lord Walker said where there are innocent shareholders: “… the court would have to inquire quite closely into the facts in order to see (as Saville LJ put it in Group Josi) whether it would be contrary to justice and common sense to treat the company as complicit ...” 13. I believe justice and common sense is the reason for the fraud exception. The robust language of Lords Halsbury and Macnaghten in Gluckstein v Barnes [1900] AC 240 quoted by Lord Walker at para 81 of his judgment reflected their views on the justice and common sense in that case. 14. It may be helpful to consider what are or may be “errors” under s 70A. The scope of s 70A may assist in deciding what justice and common sense require in the present case. 15. In Extramoney Ltd v Commissioner of Inland Revenue [1997] HKLRD 387, Patrick Chan J (as he then was) would regard “something incorrectly done through ignorance or inadvertence; a mistake” as errors for the purpose of s 70A. I respectfully agree. 16. Radio Picture Ltd v Commissioners of Inland Revenue [1937] 22 TC 106, a case mentioned by Patrick Chan J, was concerned with s 24 of the Finance Act 1923, on which s 70A was based. There, the question was whether the taxpayer’s liability under an agreement between it, an English company, and its parent company, an American company, constituted a dollar debt or a sterling debt. It paid tax on the basis that the liability was a sterling debt although it had paid the parent company on the basis that it was a dollar debt. The difference was substantial and against the taxpayer after the United Kingdom went off the gold standard in 1931. How the taxpayer came to pay tax on the less advantageous basis was described by Sir Wilfrid Greene MR in the Court of Appeal at 128: “… But when its balance sheet was being drawn up, the auditor, for some reason which it is difficult to understand, unless it be some misapprehension on his part or some misconstruction of the document, did not in point of fact bring in these outstanding liabilities on a dollar basis, but brought them in on a sterling basis. The result of that was that the English Company was made to appear as having overpaid, and substantially overpaid, the American company, because, as I have said, the payments which it made were on a dollar basis. That mistake was put right when a new auditor took over the business of auditing the Company’s accounts, and this claim was the result; …” 17. Lawrence J at First Instance held that on the proper construction of the agreement that it was a dollar debt, that there was a mistake and allowed the appeal from the Commissioner. The Court of Appeal unanimously upheld his decision. 18. For my purpose, it is sufficient to quote from the judgment of Scott LJ, who said: “… the case made is the simplest possible case for relief under the Act of 1923, namely, that the Company had made a mistake in the method of making its returns and had paid tax during the years following 1931 (when the UK went off the gold standard) upon higher figures than represented its real income in those years.” 19. In Hong Kong, a similar point arose by way of a preliminary issue before a Board of Review. In Tax Case No D6/91, the taxpayer with full knowledge of all the facts had filed a tax return which had been accepted by the assessor and an assessment was issued. Subsequently a new tax adviser took over the affairs of the taxpayer and took a different view and then sought a correction under s 70A. The new tax adviser took the view that the taxpayer was not subject to tax in Hong Kong because it was not carrying on business in Hong Kong or if it was, its profits were not derived from Hong Kong. Although, the board doubted whether a change or difference of opinion could be an error, it said: “If … there is only one true and correct interpretation then it is not a matter of opinion. In the case now before us it would appear to us that whether or not the profits arose in or were derived from Hong Kong and whether or not the Taxpayer was carrying on business in Hong Kong is a matter of fact and legal interpretation which can have one answer only. The answer is clearly yes or no. The Taxpayer has been assessed to tax and paid tax on the basis that the answer is affirmative. If however, having heard the case and all of the evidence, we were to decide that the answer should be negative then clearly an error has been made in the tax return and the matter is capable of being rectified under section 70A of the Inland Revenue Ordinance.” 20. The Board also mentioned an earlier decision, namely, Exxon Chemical International Supply SA v CIR 3 HKTC 57. In Exxon the taxpayer had for some years been assessed to and paid profits tax on profits from the resale of group products. On 10 March 1987, “with the advice of a different tax adviser whose view was accepted by the Assessor in respect of its 1985/86 Profits Tax Return”[4], it applied under s 70A to correct Profits Tax assessments for the years of assessment 1980/81 to 1984/85, claiming the profits from sales to affiliate companies had been included as assessable income by error and were not properly subject to profits tax, because the profits were sourced offshore. The taxpayer failed before the Board of Review. The Board held that the profits were sourced within Hong Kong. That was upheld on appeal by Godfrey J who concluded that “the profits … arose in, or is derived from, Hong Kong” at 100. What is relevant for the present purpose is that, there, the Commissioner conceded that, if the Board decided that the profits should not be taxed because the profits were not sourced in Hong Kong, a mistake had been made for the purpose of s 70A. I should mention that counsel for the Commissioner took care to say that the concession should not be taken as a precedent. It is against such background that the Board said in Tax Case No D6/91 : “in (Exxon) the Commissioner submitted that if the Board were to find in favour of the taxpayer, then he considered that an error had been made and should be rectified under section 70A. In that case the Board placed a caveat upon the matter because arguments had not been made before the Board and the point was conceded by the Commissioner. We can see little difference between the case before us today and the Exxon case. Had we taken a different view of the appeal now before us we would find it difficult to rationalize our decision in the light of the fact that the Commissioner had considered in the Exxon case that such cases are appropriate for section 70A. Section 70A does not give the Commissioner any discretion to decide whether or not section 70A can or cannot be used.” 21. These decisions show that a genuine mistake made by an auditor could be an error for the purpose of s 70A. I see no difference in principle between a mistake by an auditor and a mistake by the management of a taxpayer. Nor between an individual and a corporation. The history of s 24 of the Finance Act 1923 was discussed in the article “Error Mistake Relief” by David Stopforth in 1989 [BTR] 151. The discussion showed that s 24 was enacted to enable a taxpayer who had made a bona fide mistake in a return so that he had paid income tax on more income than he had received to be repaid. 22. I turn to the legislative history of s 70A. Section 70A was added by amendment in 1956. Before s 70A was enacted, s 79 enabled tax paid in excess to be refunded. s 79 provided, where relevant: “(1) if it is proved to the satisfaction of the Commissioner by claim duly made in writing within 6 years of the end of a year of assessment or within 6 months after the date on which the relevant notice of assessment was served, whichever is the later, that any person has paid tax in excess of the amount with which he was properly chargeable for the year, such person shall be entitled to have refunded the amount so paid in excess:” It is clear from the language used that the purpose of s 79 was to ensure that only tax properly chargeable should be paid and any excess should be refunded.[5] 23. However, because when an assessment had become final and conclusive under s 70 (for example, if no notice of objection had been given against an assessment within one month under s 64(1) and no extension of time obtained under s64(1)(a)), s 79 would not be available, further legislation was considered necessary. That led to the enactment of s 70A. The 1954 Report explained : “95. Section 70 is so universal in its prohibitions that even an obvious error cannot be adjusted after the statutory period for appeal has passed if the adjustment will reduce the income or profits assessed. We do not consider that this somewhat harsh interpretation was intended by the Legislature as, in our view, section 79(1) admits to the possibility of errors and envisages the necessity for provisions to correct them. WE RECOMMEND that provision be made whereby, despite section 70, an assessor may amend an assessment if it is proved to his satisfaction, within the time limit set forth in section 79, that the assessment is incorrect by reason of an error or mistake in any return or statement submitted or in the calculation of the assessed income or profits or of the tax charged thereon.” 24. Section 70 cast a wide net. It provided: “Where no valid objection or appeal has been lodged within the time limited by this Part against an assessment as regards the amount of the assessable income or profits or net assessable value assessed thereby, or where an appeal against an assessment has been withdrawn under section 68(1A)(a) or dismissed under subsection (2B) of that section, or where the amount of the assessable income or profits or net assessable value has been agreed to under section 64(3), or where the amount of such assessable income or profits or net assessable value has been determined on objection or appeal, the assessment as made or agreed to or determined on objection or appeal, as the case may be, shall be final and conclusive for all purposes of this Ordinance as regards the amount of such assessable income or profits or net assessable value: Provided that nothing in this Part shall prevent an assessor from making an assessment or additional assessment for any year of assessment which does not involve re-opening any matter which has been determined on objection or appeal for the year.” 25. It is clear that s 70A was enacted so that, despite the many and various ways in which an assessment could become final and conclusive under s70, a taxpayer may obtain a refund if he could show that “the tax charged … is excessive by reason of an error”. 26. Given the legislative history of s 70A and its language, I believe, like s 79, it was enacted to relieve the hardship and injustice to a taxpayer who had paid more tax than was properly chargeable. Both s 70A and s 79 have the same time limit. Section 79 does not in terms require any error or omission, but mistakes or omissions would be the obvious reasons for the invocation of s 79. 27. Lord Walker says: “The important policy consideration is the balance between promptness and finality, on the one hand, and avoiding hardship and injustice, on the other hand.” (para 116) And: “Annual taxes should be levied so as to ensure prompt payment and so as to achieve finality within a reasonably short time.” (para 119) 28. I respectfully agree. Promptness and finality are provided for in the time limit. The requirement for a genuine error may contribute to finality. I would not read more into these policy considerations. They must not be allowed to undermine the clear object of s 70A, indeed, the object of the Inland Revenue Ordinance, namely, that a taxpayer should pay what is properly chargeable and no more. No doubt payment should be prompt but any genuine mistake could be sorted out within a generous time limit. Since the amount of tax which may have to be refunded under s 70A in any year must be insignificant compared to the annual tax revenue,[6] and the legislature has allowed 6 years, I do not believe the fact that taxes are annual an important consideration. Fraud Exception Applied 29. I turn to consider the facts of the present case. Although it has yet to be established, I proceed on the basis of that tax has been overpaid as a result of the fraud of MGET’s management.[7] In other words, more tax than properly chargeable had been paid. This results in hardship and is unjust. Precisely, the object and purpose of s 70A to relieve. Of course, whether there was an error depends on whether the fraudulent knowledge of MGET’s management should be attributed to MGET. In this context I note that if profits had been overstated due to the negligence or ineptitude of its management or its auditors, s 70A would apply. Looked at with common sense, it is difficult to see why a company whose management was negligent or inept should be better off than one where innocent shareholders had suffered at the hands of fraudulent management. Negligence and ineptitude are more common than fraud and would probably have a greater impact on revenue. If one compares the situation of the taxpayers in Radio Pictures and Tax Case No D6/91 with MGET, it is difficult to conclude that those taxpayers are more deserving. 30. Suppose, a fraudulent management had inflated profit to obtain a higher bonus and the only victims were its innocent shareholders, it is difficult to see why justice and common sense require attribution of the fraud so that s 70A should not apply. Here, MGET was a direct victim of the fraud. It was not the only victim. The main victims were presumably the creditors of MGET and Holdings. Success under s 70A should benefit these creditors. It has not been suggested the fact that MGET was not the only victim makes any difference. 31. The liability of the Commissioner is statutory and depends on the language of s 70A. I have said this is not a liability or redress claim. The issue is not whether MGET is liable to the Commissioner for the dishonesty of MGET’s management. The Commissioner is innocent and we are not concerned with any claim for redress. We are concerned with a statutory scheme under which tax paid in excess of what is properly chargeable may be refunded. The Commissioner is concerned with the proper administration of the scheme. He bears the primary responsibility to decide whether an application satisfies the requirement of the scheme. It is in this very unusual context that the court has to consider the application of the fraud exception. I believe the plain object and purpose of s 70A supply the answer. Has MGET paid more tax than was properly chargeable? If the liquidators could prove that the profits had indeed been inflated, the answer must be yes. Do justice and common sense tell one that they should not have a refund? No, given the purpose of s 70A, I believe justice and common sense require the application of the fraud exception. Subject to the 6 years time limit, the Commissioner has no good policy reason to wish to keep tax paid in excess of what was properly chargeable. 32. Accordingly, I would restore the order of Reyes J in respect the application under s 70 A, and remit the matter to the Commissioner for further consideration. Mr Justice Bokhary NPJ: 33. I should, in fairness to the argument of Mr Robin Dicker QC for the taxpayer and to Mr Justice Tang PJ’s dissent, indicate that I had at one stage leaned in favour of the view that the taxpayer’s application under s 70A ought to succeed. Ultimately, however, I find myself in agreement with Lord Walker of Gestingthorpe NPJ’s judgment by which the taxpayer appeal is dismissed in its entirety. Lord Walker of Gestingthorpe NPJ: Introduction 34. This appeal is the final stage in one phase of complex litigation, comprising criminal, public law and civil proceedings, arising out of the collapse of a group of companies known as the Moulin group. The group’s principal activity was the manufacture, distribution and retail sale of spectacles. Its ultimate holding company was Moulin Global Eyecare Holdings Limited (“Holdings”), a company which was incorporated in Bermuda but registered in Hong Kong. From 1993 the shares of Holdings were listed on the Hong Kong Stock Exchange. A large minority holding (decreasing from about 40 per cent to about 30 per cent during the relevant period) was held by Ma Bo Kee (the founder of the business and chairman of Holdings) and members of his family. The principal trading subsidiary was Moulin Global Eyecare Trading Limited (“MGET”), which was held through intermediate subsidiaries. It was incorporated in Hong Kong in 1980 under the name of Moulin Optical Manufactory Limited. Provisional liquidators were appointed for both companies on 23 June 2005, and winding-up orders were made in respect of both companies on 5 June 2006. The provisional liquidators, Mr Roderick Sutton and Mr Desmond Chung, were appointed as the liquidators. 35. The criminal phase of the matter was the prosecution of Ma Bo Kee, his son Cary Ma (the group chief executive officer) and Ma Bo Kee’s sister-in-law Michelle Lam (the group treasurer) on various charges involving fraud. They were charged in February 2009. Cary Ma and Michelle Lam pleaded guilty on arraignment in September 2010 and Ma Bo Kee was convicted at the conclusion of the trial. Ma Bo Kee was sentenced to 12 years’ imprisonment, Cary Ma to 10 years and Michelle Lam to 9½ years (reduced on appeal to 8½ years). In sentencing them the trial judge, Line J, described their conduct as “commercial crime of the worst kind”. The group's creditor banks were owed about $2.7 bn and investors stood to lose about $1.75 bn. 36. The civil proceedings included a claim for damages for breach of duty brought by MGET's liquidators against KPMG, who were its auditors for the first part of the relevant period, that is from the 1998-99 year of assessment until 2000-01. The liquidators of other group companies made similar claims (see Moulin Global Eyecare Holdings Limited v KPMG HCA 118/2007, in which Barma J gave an interlocutory judgment on 10 February 2010). The Court was told that these claims have now been compromised, and that proposed claims by the liquidators against Ernst & Young (“EY”), the firm that took over the audit in 2001-02, have also been compromised. 37. These criminal and civil proceedings are part of the background to the issues in this appeal. Closer to the issues, but nevertheless distinct as a set of proceedings, has been the dispute between MGET’s liquidators and the Commissioner of Inland Revenue (“the Commissioner”) as to a proof of debt lodged by the Commissioner in respect of unpaid profits tax together with surcharges for late payment. In proceedings in the insolvent winding-up of MGET Kwan JA held on 17 December 2009 that the debt should be admitted to proof: Re Moulin Global Eyecare Trading Limited (Proof of Debt: Tax Assessments) [2010] 4 HKLRD 283. This decision was largely procedural, being based on the general principle that the Inland Revenue Ordinance, Cap 112 (“the IRO”) provides an exclusive code for the determination of tax liabilities. The decision leaves the substantive question of the liabilities covered by the proof to be determined. That question is not formally an issue in this appeal, but the issues of law raised in the appeal may in practical terms be determinative of it. 38. What is central to this appeal is the claim by MGET's liquidators, made by way of judicial review, that the Commissioner has erred in law in refusing to reopen assessments to profits tax, and surcharges for unpaid profits tax, for a succession of years of assessment starting with 1998-99. The liquidators’ case, in very brief summary, is that MGET did not make any taxable profits in any of those years, and that its reported profits were false and non-existent as the result of various frauds perpetrated by Ma Bo Kee, Cary Ma and Michelle Lam. These three individuals were referred to in the first-instance judgment of Reyes J as “the Ma family directors” but it should be mentioned at once that they were not all, at any time, directors of MGET. In her judgment in the Court of Appeal (para 58) Kwan JA recorded that for the year ended 31 March 1999 the directors of MGET were Ma Bo Kee, Ma Bo Fung and Ma Bo Lung, and that the balance sheet for that year was approved and signed by all three directors. Cary Ma was appointed as an additional director in October 2000 and the accounts for subsequent years were likewise approved and signed by all the directors. There is little in the documentary evidence about Ma Bo Fung and Ma Bo Lung but it appears (as Mr Dicker QC told the Court without objection from Mr Brennan QC) that they are brothers of Ma Bo Kee; they managed factories in mainland China and rarely visited Hong Kong; and neither of them was charged with any criminal offence. 39. The sums at stake are large. MGET paid a total of almost $89m in profits tax in respect of the 1998-99 to 2003-04 years of assessment, all of which was, on the liquidators’ case, wrongly paid. The Commissioner resists any repayment and, in the proof of debt already mentioned claims a further sum of over $10m. The details are set out in the next section of this judgment. 40. On 15 February 2011, Reyes J decided in favour of the liquidators and directed the Commissioner to reconsider her decisions ([2011] 3 HKLRD 216). On 21 March 2012 the Court of Appeal allowed the Commissioner’s appeal ([2012] 2 HKLRD 911). The Court gave leave for a further appeal limited to “two broad questions”: “(i) Whether the primary rules of attribution should apply to attribute knowledge of the fraudulent directors to MGET? (ii) If not, whether the special rules of attribution should apply to attribute knowledge of the fraudulent directors to MGET?” The terminology of primary and special rules of attribution is of course derived from the seminal judgment of Lord Hoffmann, giving the advice of the Judicial Committee of the Privy Council, in Meridian Global Funds Management Asia Limited v Securities Commission [1995] 2 AC 500 (“Meridian”), discussed in paras 76 to 79 below. These questions also raise an issue of law as to what is sometimes called the fraud (or fraudulent agent) exception, the discussion of which begins at para 80 below. 41. The appellants, the liquidators of MGET, have applied for leave to rely on wider grounds of appeal. The court did not find it necessary to make a formal ruling on that application. On any view it is necessary to set out the known facts in some detail, and to pay close attention, as Kwan JA did, to the general structure and particular language of the IRO in relation to the assessment of profits tax. One of the fundamental points to be taken from Meridian is the importance of context (including, as in this case, statutory context) in any problem of attribution. Although I differ from Kwan JA’s judgment on some important points, it is, if I may respectfully say so, one of the strengths of her judgment that she recognised this in the full citations from Meridian in paras 21 and 22 of the judgment, and in para 30, introducing the detailed discussion of the relevant provisions of the IRO. The facts 42. There is unchallenged evidence as to the manner in which returns, assessments and surcharges in respect of MGET’s liability to profits tax were made for the 1998-99 year of assessment and later years of assessment. Returns of profits were prepared by reference to MGET’s audited accounts for the basis period (which coincided with the year of assessment). These accounts had been approved and signed by all MGET’s directors, as mentioned in para 38 above. The return, including a declaration that its contents were true, correct and complete to the best of the signatory’s knowledge and belief, was signed by the company secretary or a manager employed by MGET, as follows: 43. The amounts of profits returned, the profits tax assessed and any surcharges paid were as follows: 44. On 29 August 2005, about two months after the appointment of the provisional liquidators, the Commissioner served notice of (i) additional assessments and demands for profits tax for the 1999-00, 2001-02 and 2002-03 years of assessment, (ii) revised assessment and refund of tax for the 2000-01 year of assessment, and (iii) an estimated assessment for the 2004-05 year of assessment. The overall effect of these notices and one further notice was to claim a further net sum of $10,363,532 in unpaid profits tax (that sum being the amount of the Commissioner's disputed proof of debt). 45. None of the assessments summarised in paras 43 and 44 above was called into question by a claim under section 64 or section 70A of the IRO until after the commencement of the winding-up on 5 June 2006. By a letter dated 29 March 2007 to the Commissioner the liquidators stated that that letter, and an earlier letter dated 30 November 2005, should “for the avoidance of doubt” be treated as applications under those two sections. 46. The provisional liquidators’ letter of 30 November 2005 to the Commissioner was the beginning of a protracted correspondence which culminated in the liquidators commencing judicial review proceedings on 10 March 2010. As already mentioned, Reyes J granted such relief in a judgment dated 15 February 2011, quashing the Commissioner's decisions and remitting the matter to her for reconsideration. 47. The protracted and, at times, unfocused nature of the correspondence made it uncertain which document or documents contained the relevant decisions, and the judge gave leave for an amendment to cover this point. His judgment contains a full summary of the correspondence (paras 18 to 40), with a detailed discussion of its legal effect at paras 50 to 80. There is a much shorter summary in the judgment of Kwan JA in the Court of Appeal at paras 9 to 16. There was no appeal on this point and so she did not need to go into it in detail. The correspondence can therefore be taken shortly. Two letters from the Commissioner dated 20 December 2005 and 16 April 2007 amounted, as Reyes J held, to no more than the Commissioner’s statement and repetition of her preliminary view, expressed in the absence of any application under section 64 or section 70A of the IRO. Her reviewable decisions were to be found in her letters of 4 December 2009 and 4 February 2010, taken together. The first of these letters stated, among other things, that section 70A did not apply to the assessment for the 2003-04 year of assessment as there was no error or omission in the return (this assessment was the only relevant assessment not caught by the six-year time limit in section 70A). The operative part of the letter of 4 February 2010 was as follows: “We are instructed that so far the fraud alleged has not yet been proved and that, even if it is proved, it was, as you alleged, perpetrated by the former directors of MGET and as such the tax returns allegedly tainted by fraud would be regarded as being filed with knowledge of MGET of the alleged fraud and MGET cannot now argue that it was prevented from lodging an objection within time under s 64(1)(a) of Cap 112. In the above circumstances, our client is not satisfied that there is a reasonable cause which prevents MGET from lodging an objection within time and therefore cannot accept your request for an extension of time for lodging an objection.” These reasons reflect the central issue on which leave to appeal to this Court has been granted. 48. Throughout the correspondence the liquidators’ stance was that as they tried to investigate the financial affairs of MGET and Holdings they found increasingly strong evidence that their accounts had been prepared fraudulently and did not give a true and fair picture of their profits and net assets. The liquidators stated that because of falsification and destruction of records, it was not possible to reconstruct the financial statements so as to show the true position with any accuracy; but that a “static” accountancy model used by the liquidators indicated that MGET probably made no profits at all during the period from the 1998-99 year of assessment. Three principal forms of falsification were identified: (i) the crediting of proceeds of fictitious sales to customers in North America; (ii) the crediting of interest on fictitious loans shown as made by MGET; and (iii) the anticipation of fictitious profits from a scheme referred to as “Frame Board Space Agreements”. The principal purpose of the frauds seems to have been to persuade the Moulin group’s numerous bank creditors to increase their lending. The liquidators had great difficulty in obtaining documents and information from EY, who were MGET’s auditors until their resignation with effect from 30 December 2004. EY were briefly replaced by Deloittes, whose resignation with effect from 18 April 2005 heralded the Moulin group’s collapse. 49. The Commissioner’s attitude throughout the correspondence was very sceptical, even after Ma Bo Kee and his co-conspirators had been charged with serious offences. As appears above, even at the end of 2009 her attitude was that fraud had not been established. She also took the view that it was not enough for the liquidators to rely on a simulated model to establish the absence of profits; only detailed computations based on actual transactions would suffice. The IRO 50. If and so far as there are any special rules of attribution applicable to this case, they must be derived from the legislative scheme of the IRO, and consistent with its detailed procedural provisions, purposefully construed. Kwan JA discussed the IRO at some length, at paras 31 to 55 of her judgment, and the account that follows owes much to her analysis. As to the general approach to statutory construction she referred to the well-known passage in the judgment of Li CJ in HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568, para 12: “The modern approach is to adopt a purposive interpretation. The statutory language is construed, having regard to its context and purpose. Words are given their natural and ordinary meaning unless the context or purpose points to a different meaning. Context and purpose are considered when interpreting the words used and not only when an ambiguity may be thought to arise.” 51. Part 4 of the IRO (sections 14 to 26G) contains the substantive provisions charging profits tax. It is an annual tax imposed on the profits derived from a trade or business carried on by the taxpayer, computed in accordance with some special statutory rules (for instance, as to allowance for depreciation) but otherwise in accordance with generally accepted accountancy principles. Profits for a year of assessment (commencing on 1 April) are generally computed on the basis of the preceding year’s trading. 52. The statutory scheme for returns of taxable income, assessment of tax and objections and appeals are set out in Parts 9, 10 and 11 respectively. Section 51(1) in Part 9 provides that the taxpayer may be required by notice to make a return of taxable income. Section 51(5) provides as follows: “A return, statement or form purporting to be furnished under this Ordinance by or on behalf of any person shall for all purposes be deemed to have been furnished by that person or by his authority, as the case may be, unless the contrary is proved, and any person signing any such return, statement, or form shall be deemed to be cognizant of all matters therein.” 53. Under sections 59 and 62 in Part 10, the Commissioner has the duty of assessing and giving notice of assessment of the tax payable on taxable income. This is carried out primarily on the basis of taxpayers’ returns. If a taxpayer makes a return and it is satisfactory to the officials of the lnland Revenue, an assessment based on the figures in the return is likely to follow and to be accepted by the taxpayer as a matter of course. If however the taxpayer fails to make a return, or a return is regarded as unsatisfactory, or if the accounts of the taxpayer’s trade or business have not been kept properly, the Inland Revenue will make an estimated assessment under section 59 (2), (3) or (4). There is also the possibility that, without any bad faith on the part of the taxpayer, a dispute will arise as to one or more items in the taxpayer’s profit and loss account (for instance, whether some item of expenditure claimed as a deduction on income account ought to be regarded as capital expenditure). In any of these situations the taxpayer is likely to wish to contest the assessment, and may do so by giving notice under section 64 (in Part 11 of the IRO). 54. Section 64 (1) and proviso (a) are as follows: “(1) Any person aggrieved by an assessment made under this Ordinance may, by notice in writing to the Commissioner, object to the assessment; but no such notice shall be valid unless it states precisely the grounds of objection to the assessment and is received by the Commissioner within 1 month after the date of the notice of assessment: Provided that- (a) if the Commissioner is satisfied that owing to absence from Hong Kong, sickness or other reasonable cause, the person objecting to the assessment was prevented from giving such notice within such period, the Commissioner shall extend the period as may be reasonable in the circumstances;” There are two further provisos that are not material. Subsection (2) requires the Commissioner to consider any valid objection and within a reasonable time to confirm, reduce, increase or annul the assessment objected to, making any necessary adjustment under subsection (3). Subsection (4) provides for an appeal, if the matter is not resolved, to the Board of Review under section 66, with a further possible appeal, on a question of law, to the Court of First Instance under section 69 or, exceptionally, direct to the Court of Appeal under section 69A. 55. Proviso (a) to section 64(1) was considered by the Court of Appeal in Chow Kwong Fai v Commissioner of Inland Revenue [2005] 4 HKLRD 687. Woo V-P stated at para 20 that “prevented” should be best understood (by reference to the Chinese language version of the IRO) as “unable to”: “On the other hand, ‘unable to’ imposes a higher threshold than a mere excuse and would appear to give proper effect to the rigour of time limit imposed by a taxation statute. The rationale for the stringent time limit for raising tax objections and appeals was described in Case U175 87 ATC 1007. Tang J had in the judgment under appeal cited quite extensively from that case. I will thus refer only to one short passage: It seems that the need for taxation revenue to flow in predictable amounts according to projections as to cash flow have considered to be such that dispute as to the claims made by the community upon individuals for payment of tax have been treated as quite unlike any other classes of dispute within the community.” 56. Section 70, in Part 11, provides that where no valid objection to an assessment, and no appeal against an assessment, has been made within the time limited by Part 11, the assessment is to be final and conclusive for all the purposes of the IRO as regards the amount of the taxpayer's assessable profits. This general rule, which is aimed at achieving finality as between the Commissioner and the taxpayer, is subject to a limited exception in section 70A. The section, so far as now material, provides as follows: “(1) Notwithstanding the provisions of section 70, if, upon application made within 6 years after the end of a year of assessment or within 6 months after the date on which the relative notice of assessment was served, whichever is the later, it is established to the satisfaction of an assessor that the tax charged for that year of assessment is excessive by reason of an error or omission in any return or statement submitted in respect thereof, ... the assessor shall correct such assessment: ... [There is a proviso excluding correction of a return or statement made “on the basis of or in accordance with the practice generally prevailing at the time”] (2) Where an assessor refuses to correct an assessment in accordance with an application under this section he shall give notice thereof in writing to the person who made such application and such person shall thereupon have the same rights of objection and appeal under this Part as if such notice of refusal were a notice of assessment.” 57. Because section 70A has its own time limit (normally six years from the end of the relevant year of assessment) it can be relevant in this appeal only as regards the 2003-04 year of assessment. In relation to the 2003-04 year of assessment the liquidators rely on it as a fallback argument, if they do not succeed on their primary argument under proviso (a) to section 64(1). 58. Section 70A, which was introduced into the IRO in 1964, is similar to a provision based on “error or mistake” in section 33 of the United Kingdom Taxes Management Act 1970, which was originally enacted in 1923 and has recently been replaced by more elaborate provisions. There is surprisingly little United Kingdom authority on section 33. In Carrimore Six Wheelers Ltd v CIR (1944) 26 Tax Cases 301 an issue was raised as to the meaning of “error or mistake”, but the appeal was dismissed on a preliminary point as to jurisdiction. The judgment of Lord Greene MR is in terms suggesting that he may have agreed with the Special Commissioners that a return containing a deliberately wrong entry, made with full knowledge that it was wrong, is not an error or mistake within the terms of the section but he refrained from expressing any definite view. 59. Section 70A was considered by Patrick Chan J, as he then was, in Extramoney Ltd v Commissioner of Inland Revenue [1997] HKLRD 387 (“Extramoney”). The facts had some resemblance to those of the present appeal. Extramoney was a trading company within the group headed by Carrian Holdings Limited. Carrian went into liquidation in 1983. In January 1982 Extramoney made a profits tax return reporting profits of over $132m for the 1980-81 year of assessment on which profits tax of over $21m was assessed. This tax was paid by Carrian, with a surcharge, in April 1982. In 1987 Extramoney and the liquidators of Carrian applied for relief under section 70A of the IRO. The application was refused, and appeals to be Board of Review and the High Court was dismissed. 60. In the High Court Chan J made some general observations about the meaning of section 70A (at pp 395-396): “I think it would be unwise to attempt to give a comprehensive definition of what is or is not an error or omission which can cater for all situations. It would be easier to identify cases in which it is not. In my view, for the purpose of s.70A, the meaning of ‘error’ given in the Oxford English Dictionary (p. 277) would be appropriate, that is, ‘something incorrectly done through ignorance or inadvertence; a mistake’. I do not think that a deliberate act in the sense of a conscientious choice of one out of two or more courses which subsequently turns out to be less than advantageous or which does not give the desired effect as previously hoped for can be regarded as an error within s.70A. It is even worse if the deliberate act is motivated by fraud or dishonesty. But the question of fraud or dishonesty need not arise.” The principal difference between that case and the present appeal is that in Extramoney there was evidence that the disputed profits had been made, although probably not by Extramoney. But Chan J’s conclusion (at p 396) was expressed in general terms: “Where a taxpayer has deliberately and consciously made a decision to attribute a certain item, be it an item of profit or expenditure, in the tax return to be submitted to the assessor for assessment, if he subsequently changes his mind, that certainly cannot be an error within the meaning of s.70A of the Ordinance. In my view, the Board of Review had adopted the correct principles.” Attribution: the older authorities 61. Attribution means, in this context, the process of legal reasoning by which the conduct or state of mind of one or more natural persons (that is, human beings) is treated as that of a non-natural person (that is, a company) for the purpose of determining the company’s legal liability or rights in civil proceedings (in particular, its liability or rights in contract, in tort or for unjust enrichment) or its criminal liability. In approaching the topic of attribution it is necessary to recognize that there is a problem of terminology in the word “agent”. A natural person may choose whether or not to appoint an agent to act in the management of his property or the conduct of his business affairs. In principle it is his choice, although there are of course some activities calling for special professional skills in which the appointment of an agent is strongly advisable, or even mandatory. A company, on the other hand, never has a choice. As English company law developed during the nineteenth century, eminent judges repeatedly emphasised that a company, as a persona ficta, a legal construct with no real personality, can act only by its agents. 62. Professor Peter Watts QC of Auckland University, a leading scholar in this field, has referred in a recent note (Audit Contracts and Turpitude, (2010) 126 LQR 14, 17) to the “old wisdom” of these judges: “One might be tempted to think that the 19th century judges who routinely voiced the view that companies act solely by agents had an incomplete conception of company law, only made good by the 20th century developments in Lennard's Carrying Company Limited vAsiatic Petroleum Company Limited [1915] AC 705 [“Lennard”] and Tesco Supermarkets Limited v Nattrass [1972] AC 153 [“Tesco”]. It is not, however, the company law of Lord Cranworth LC, Lord Cairns and Lord Lindley that is deficient.” The first citation referred to is of Lord Cranworth LC in Aberdeen Railway Company v Blaikie Brothers (1854) 1 Macq 461, 471: “The directors are a body to whom is delegated the duty of managing the general affairs of the company. A corporate body can act only by agents.” The second citation is of Cairns LJ in Ferguson v Wilson (1866) LR 2 Ch App 77, 89: “What is the position of directors of a public company? They are merely agents of a company. The company itself cannot act in its own person, for it has no person; it can only act through directors, and the case is, as regards those directors, merely the ordinary case of principal and agent.” The third citation is of Lord Lindley in Citizen's Life Assurance Company Limited v Brown [1904] AC 423, 426: “If it is once granted that corporations are for civil purposes to be regarded as persons, ie as principals acting by agents and servants, it is difficult to see why the ordinary doctrines of agency and of master and servant are not to be applied to corporations as well as to ordinary individuals.” 63. It is certainly right to respect the wisdom of these great judges. But as issues of attribution grew more complex, especially with the proliferation of regulatory legislation (sometimes backed by criminal sanctions), it became apparent that it was sometimes necessary to distinguish between cases in which a company should be treated as directly liable for the conduct of its agents, and those in which it was vicariously liable. Whereas Cairns LJ spoke in 1866 of the directors of a company being "merely agents" of the company, Lord Reid in Tesco [1972] AC 153, 170 put it rather differently: “It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company’s servant or agent.” Here the emphasis of “merely” is markedly different. 64. An employee who holds a position of responsibility (for instance, the manager of a large supermarket which is part of a nationwide chain) may have power to bind his corporate employer, but his authority to do so is derived (expressly, impliedly, or ostensibly) from the corporate employer’s board of directors. The directors alone are in the special position of deriving their authority, not from other natural persons, but from the company’s written constitution, that is its memorandum and articles of association. This point was made by Hoffmann LJ in El Ajou v Dollar Land Holdings Ltd [1994] 2 All ER 685, 705, (“El Ajou”), a case which can be seen as a precursor to Meridian. In discussing Viscount Haldane’s speech in Lennard [1915] AC 705, he observed: “It is well known that Viscount Haldane LC derived the concept of the ‘directing mind’ from German Law (see Gower, Principles of Modern Company Law, (5th ed, (1992) p194 n36) which distinguished between the agents and organs of the company. A German company with limited liability (GmbH) is required by law to appoint one or more directors (Geschӓftsführer). They are the company’s organs and for legal purposes represent the company. The knowledge of any one director, however obtained, is the knowledge of the company.” Hoffmann LJ commented that English law does not go as far as that, but it does regard a company’s board of directors, as a body, as the company’s vital organ. That is the basis of the primary rule of attribution which he expounded, soon afterwards, in Meridian. The corresponding passage in the current edition of Gower, 9th ed (2012) para 7-44 footnote 138, states, “Lord Haldane’s dictum was probably influenced by the clear distinction drawn between agents and organs in German company law, Haldane having studied in his youth in Germany”. 65. Lennard [1915] AC 705 is an early example of the problems that began to arise in applying regulatory statutes to trading companies. Under section 502 of the Merchant Shipping Act 1894 a shipowner was not liable for the accidental loss of cargo if it occurred “without his actual fault or privity”. A steamship owned by the Lennard company had gone aground off the Dutch coast. The grounding damaged the ship. Some of its cargo of benzine escaped, and there was an explosion resulting in the loss of the ship and cargo. The grounding occurred because the engines had broken down. The breakdown was the result of negligent management in failing to repair heavily-salted boilers. The cargo-owners’ claim succeeded at first instance and in the Court of Appeal. Mr John Lennard, the company’s general manager, who was in overall charge of the shipping operations, did not give evidence, an omission of which the House of Lords was very critical. 66. That was the factual context in which Viscount Haldane LC spoke of the need to identify a company’s “directing mind and will”. But it would be wrong to suppose that the same person or persons (not being the full board of directors) must perform this function for each and every one of a company’s activities. Lord Hoffmann made this clear in Meridian [1995] 2 AC 500, 509: “Because [the Lennard company] does not seem to have done anything except own ships, there was no need to distinguish between the person who fulfilled the function of running the company’s business in general and the person whose functions corresponded, in relation to the cause of the casualty, to those of an individual owner of a ship. They were one and the same person. It was this coincidence which left Viscount Haldane LC’s speech open to the interpretation that he was expounding a general metaphysic of companies.” This point was also made clear in El Ajou (paras 73 to 75 below). 67. The rather belated recognition of this important qualification of the “directing mind and will” concept considerably reduces its apparent force. Except in the case of very small companies with very simple activities, there will not be a single individual in a company who satisfies the test for all purposes. After Meridian some legal scholars conjectured that the concept might disappear from company law, and it might be better if it had disappeared, as it tends to obscure the underlying importance of the basic principles of agency. To refer instead to “the relevant responsible director or employee”, or some such expression, would be less arresting but a good deal more accurate, especially in view of cases such as Tesco No 2 mentioned in para 72 below, where the responsible employee was a till attendant. The importance of the basic principles of agency seems to be the main thrust of Professor Watts’s invocation of the wisdom of the 19th century judges, and the same concerns have been expressed in his article Corrupt Company Controllers, their Companies and their Companies’ Creditors: Dealing with Plens of Ex Turpi Causa [2014] JBL 161, at p 166, comments in his article “Corrupt Company Controllers, their companies and their companies’ creditors: Dealing with pleas of Ex Turpi Causa” [2014] JBL 161, at pp 166, on the recent case of Bilta (UK) Ltd v Nazir [2014] 1 All ER 168 (para 103 below): “The beauty of this analysis [that even in cases of direct liability, the company is only deemed a wrongdoer because of the actions of its agents] is that it does not in fact involve treating companies any differently from humans. Exactly the same analysis applies to the individual owner of a business who has nothing to do with running it, but lives a life of total ignorance about what his or her employees do. If those employees, including managers, engage in illegal conduct, we impute that conduct to the absentee owner even though he or she was personally innocent of the wrongdoing. An absentee owner should not be able to use that absence to disown the conduct of his or her managers. Companies, therefore, are like human owners of businesses who, to use the metaphor of Staughton L.J. in PCW Syndicates v PCW Reinsurers, spend their days on the grouse moors of Yorkshire, or who while away their days in the south of France, to use the analogy of Lord Hoffmann in Standard Chartered Bank v Pakistan Shipping Corp. It is no more necessary to conceive of companies as having personal guilt than it is in relation to the absentee human owner.” 68. In Tesco [1972] AC 153 the House of Lords considered a more complicated issue of attribution that arose under the Trade Descriptions Act 1968. Section 11(2) of that Act made it an offence for a retailer to offer a misleading “money-off” bargain. A branch of Tesco in Northwich, Cheshire (one of several hundred branches then existing in the United Kingdom) had run out of stocks of “money-off” packs of washing powder but continued to display a “money-off” advertisement while selling packs at the full price. Section 20 made clear that both a corporate retailer and a manager employed by it might be liable. But section 24(1) provided a defence to any person who proved that he “took all reasonable precautions and exercised due diligence” and that the offence was due to “the act or default of another person”. Both Tesco and the store manager were prosecuted and convicted. On appeal Tesco contended that it had exercised due diligence and that its branch manager (on whom the top management seemed willing to put the blame) was “another person”. 69. The issue for the House of Lords was not therefore a straightforward issue of attribution. The issue was the correct construction of the words “another person” in this particular context. The House of Lords allowed the appeal, holding that “another person” was capable of including an employee, and even a branch manager, so long as that person’s acts were not to be treated as acts of the company. That test, if it stood alone, would merely beg the question: what acts of an employee are to be treated as acts of the company? Lord Reid answered that question at pp 174-175: “I have said that a board of directors can delegate part of their functions of management so as to make their delegate an embodiment of the company within the sphere of the delegation. But here the board never delegated any part of their functions. They set up a chain of command through regional and district supervisors, but they remained in control. The shop managers had to obey their general directions and also take orders from their superiors. The acts or omissions of shop managers were not acts of the company itself. The explanations given by the other Law Lords were similar. In the passage from Lord Reid’s speech the phrase “within the sphere of delegation” is important, and its importance comes out even more clearly in El Ajou and Meridian. 70. Lord Reid (at p 171), Viscount Dilhorne (at p 187) and Lord Diplock (at p 200) referred in rather guarded terms to a passage in the judgment of Denning LJ in Bolton (Engineering) Co Ltd v Graham & Sons Ltd [1957] 1 QB 159, 172: “A company may in many ways be likened to a human body. It has a brain and nerve centre which control what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors or managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such.” Lord Diplock said that this “vivid metaphor” is “not authority for extending the class of persons whose acts are to be regarded in law as the personal acts of the company itself, beyond those who by, or by action taken under, its articles of association are entitled to exercise the powers of the company”. 71. Lord Hoffmann gave a further warning in Meridian [1995] 2 AC 500, 509G against being beguiled by Denning LJ’s imagery in Bolton Engineering: “But this anthropomorphism, by the very power of the image, distracts attention from the purpose for which Viscount Haldane LC said [in Lennard], at p713, he was using the notion of directing mind and will, namely to apply the attribution derived from section 502 to the particular defendant in the case.” This is an area of law in which some element of metaphor is almost unavoidable, since the law is concerned with attributing human characteristics (such as knowledge or intention) to an abstraction which is devoid of any such characteristics. Even “organs” (the term which Lord Hoffmann favoured in EI Ajou) has connotations of body parts (though the original meaning of “organon” in ancient Greek was simply “tool” or “instrument”). But although some element of metaphor is unavoidable it must not be forgotten (see Meridian at p 511C) that “the question is one of construction rather than metaphysics”. 72. The decision of the House of Lords in Tesco has received some criticism both from legal scholars and in later authorities (notably Odyssey Re (London) Ltd v OIC Run-off Ltd mentioned in para 95 below). It must be seen as a decision on the construction of a particular penal statute. It may be contrasted with Tesco Stores Ltd v Brent LBC [1993] 1 WLR 1037 (“Tesco No 2”), in which another Tesco company was convicted of selling to a boy aged 14 a video with an “18” classification, an offence under section 11 of the Video Recordings Act 1984. The sale was made by a till attendant with no managerial status. She was the individual whose mental state was relevant for the purposes of the limited defence set out in section 11(2). Staughton LJ said at pp 1042-1043: “It is the employee that sells the film at the checkout point who will have knowledge or reasonable grounds for belief. It is her knowledge or reasonable grounds that are relevant. Were it otherwise, the statute would be wholly ineffective in the case of a large company, unless by the merest chance a youthful purchaser were known to the board of directors. Yet Parliament contemplated that a company might commit the offence: see section 16. By contrast, the single-handed shopkeeper would be less readily able to rely on the defence section, although he would fare better if he had an assistant serving at the counter while he was in the back of the shop. I cannot believe that Parliament intended the large company to be acquitted but the single-handed shopkeeper convicted.” Attribution: El Ajou and Meridian 73. In El Ajou [1994] 2 All ER 685 the claimant, a wealthy Saudi businessman, was attempting to recover funds which had been misappropriated in a massive share fraud carried out by three Canadian fraudsters. After various money-laundering operations they invested part of their ill-gotten gains in a large-scale property development in London. As an investment vehicle they used a Panamanian company, Yulara Realty Ltd (“Yulara”) to enter into a joint venture with Dollar Land Holdings plc (“DLH”), an English public company. There were several hotly-disputed issues in the case but the only relevant issue, for present purposes, was whether DLH should be treated as having knowledge, in order to establish equitable liability for knowing receipt of trust property, that the Yulara investment represented the proceeds of fraud. The claimant sought to establish this by attributing to DLH the guilty knowledge of Mr Ferdman, a Swiss fiduciary agent who acted for associates of the Canadian fraudsters, and was closely involved in the Yulara transaction. 74. Mr Ferdman was the chairman and a non-executive director of DLH, but in those capacities he generally acted as a nominee for the investors behind DLH. For the Court of Appeal (differing from the trial judge, Millett J) the decisive fact was that Mr Ferdman was centrally involved in the receipt of the tainted funds by means of transactions between Yulara and DLH. All three members of the Court of Appeal emphasised that the “directing mind and will” issue must be determined, not at a single, general level but by reference to the particular circumstances with which the court is concerned. This appears from the judgments of Nourse LJ at p 696a (“It is necessary to identify the natural person or persons having management and control in relation to the act or omission in point”); Rose LJ at p 699h (… “a company’s directing mind and will may be found in different persons for different activities of the company”); and Hoffmann LJ at p 706d (“The authorities show clearly that different persons may for different purposes satisfy the requirements of being the company’s directing mind and will”). The Court of Appeal held that the evidence was sufficient to justify Mr Ferdman being treated, for the purposes of the Yulara transaction, as DHL’s directing mind and will. 75. It is appropriate to add a brief footnote to El Ajou as a marker for the discussion of the fraud exception later in this judgment. In El Ajou the claimant relied unsuccessfully on an alternative argument for DLH being treated as having had Mr Ferdman’s guilty knowledge. This was based on principles of agency law (the fact that agency was regarded as an alternative argument underlines the point made at para 67 above). In discussing the cases on this point Hoffmann LJ observed (at p 702j): “Or there may be something about a transaction by which the principal is ‘put on inquiry’. If the principal employs an agent to discharge such a duty, the knowledge of the agent will be imputed to him. (There is an exception, the scope of which it is unnecessary to discuss, in cases in which the agent commits a fraud against the principal.)” By his acts Mr Ferdman exposed DLH to a heavy liability for equitable compensation and costs. But Hoffmann LJ seems not to have regarded that as engaging the fraud exception. 76. Meridian was an appeal to the Judicial Committee of the Privy Council from the Court of Appeal of New Zealand ([1994] 2 NZLR 291), which had upheld the first-instance decision of Heron J. The proceedings concerned a dishonest scheme to obtain control of a listed New Zealand company called Euro-National Corporation Limited (“ENC”). The individuals involved in the scheme included two senior employees of Meridian, a fund management company based in Hong Kong: Koo, who was Meridian’s chief investment officer, and Ng, who was a senior portfolio manager. The scheme failed. Its details are not relevant, except for the fact that at one stage Meridian, as a result of action by Koo which was unauthorised but was within his ostensible authority, purchased a large holding of ENC shares, and so Meridian became a “substantial security holder” within the meaning of a New Zealand regulatory statute, the Securities Amendment Act 1988. Section 20 required any person who becomes a substantial security holder to notify that fact to the Securities Commission of New Zealand, and supply prescribed particulars “as soon as the person knows, or ought to know” of it. The Securities Commission commenced proceedings against Meridian. That was the factual and statutory context in which Meridian argued (unsuccessfully at every stage, though with some variation in judicial reasoning) that it was not liable for the irregular conduct of Koo and Ng. The case was argued and decided on the issue of “knows” rather than “ought to know”. 77. Meridian is now rightly regarded as the leading case on the topic of attribution in company law. By 1995 earlier authorities, including those already mentioned, had made clear that the “directing mind and will” test in Lennard had to be applied to the particular circumstances of the case before the court, including the language and purpose of any relevant statutory provision. Meridian added further emphasis to this point, but its most important contribution to company law is perhaps the clarity of Lord Hoffmann’s tripartite classification of (i) (at p 506C) primary rules of attribution, derived from company law statutes and the articles of association of the company concerned; (ii) (at p 506G): “general rules of attribution which are equally available to natural persons, namely, the principles of agency”; and (iii) (at p 507B) exceptional cases “… when a rule of law, either expressly or impliedly, excludes attribution on the basis of the general principles of agency or vicarious liability.” 78. The third category is sometimes referred to as special rules of attribution, which may give the impression that they are to be found in specific statutory provisions. Any such impression would be misleading. The way in which Lord Hoffmann himself put it (at p 507E) was that “In such a case, the court must fashion a special rule of attribution for the particular substantive rule.” Often the legislature will not have spelled out any rule of attribution in clear terms, and in those cases it is the court’s task to determine the intention of the legislature from the statutory language, purpose and context. Similarly the court has had to fashion a special rule where it is dealing, not with some statutory provision, but with the general maxim ex turpi causa non oritur actio as in Stone & Rolls Limited v Moore Stephens [2009] 1 AC 1391 (“Stone & Rolls”) and Safeway Stores Ltd v Twigger [2011] 2 All ER 841 (“Safeway”). Lord Hoffmann explained this in a passage (at p 507 E-F) immediately following his observations about fashioning a special rule: “This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.” 79. The actual decision in Meridian it to be found at p 511D. After referring to the New Zealand regulatory statute Lord Hoffmann asked himself: “In the case of a corporate security holder, what rule should be implied as to the person whose knowledge for this purpose is to count as the knowledge of the company? Surely the person who, with the authority of the company, acquired the relevant interest. Otherwise the policy of the Act would be defeated.” That person was Koo. It is worth noting, in connection with the fraud exception, that Lord Hoffmann added (at p 511F): “The fact that Koo did the deal for a corrupt purpose and did not give such notice because he did not want his employers to find out cannot in their Lordships’ view affect the attribution of knowledge and the consequent duty to notify.” Since Meridian there have been further relevant authorities, but it will be better to refer to them as part of the discussion of the fraud exception. The fraud exception: the principle and the early cases 80. The existence of the fraud exception is not in doubt, but there has been a good deal of debate (both in decided cases and among legal scholars) as to its proper scope and limits. The situation to which it most squarely applies (and some would say, the only situation to which it should properly be applied) is where a director or senior employee of a company seeks to rely on his own knowledge of his own fraud against the company as a defence to a claim by the company against him (or accomplices of his) for compensation for the loss inflicted by his fraud. The injustice and absurdity of such a defence is obvious, and for more than a century judges have had no hesitation in rejecting it. 81. An early example is the decision of the House of Lords in Gluckstein v Barnes [1900] AC 240. In 1893 a syndicate of four businessmen acquired the Olympia exhibition premises in London. They formed a company, of which they were the only directors, to purchase the property, and issued shares from which they raised sufficient money to pay themselves £171,000, together with fully-paid shares in the amount of £9,000. They disclosed that the property had cost the syndicate £140,000, but not that they were making a further secret profit of over £20,000. The company went into liquidation and in 1897 the official liquidator issued a summons against one of the syndicate, Mr Gluckstein. He relied on various arguments, including the contention that the syndicate’s knowledge of the secret profit amounted to the company’s knowledge, and that the company must be taken to have approved it. The Earl of Halsbury LC dealt with this argument with characteristic robustness (at p 247): “My Lords, I decline to discuss the question of disclosure to the company. It is too absurd to suggest that a disclosure to the parties to this transaction is a disclosure to the company of which these directors were the proper guardians and trustees.” Similarly Lord Macnaghten, at p 249, referred to the argument as “absurd” and “mere farce”. 82. The principles underlying these robust judicial observations have been analysed in leading textbooks, including Gower and Davies, Principles of Modern Company Law, 9th ed (2012), and Bowstead on Agency, 19th ed (2010). The editors of Gower and Davies, Professor Paul Davies QC and Professor Sarah Worthington QC, comment at para 7-39 (footnotes omitted): “A potential obstacle to such a claim by the company is the common law doctrine that knowledge of an agent is attributed to the principal, which, if applied to the fraudulent agent, would defeat the company's claim against its agent. Sensibly, however, the courts have generally refused to apply the attribution of knowledge rule to the fraudulent agent. Although this is sometimes said to be inconsistent with the rule that a company is liable to third parties for the fraud of the agent, it is submitted that this is not so, either doctrinally or in principle. It is entirely proper to use different rules to govern the liability of the company to the third party, on the one hand, and of the agent or employee to the company, on the other. There is no reason why rules developed to protect third parties against losses caused by fraudulent agents should also operate to protect those same fraudulent agents against the company.” 83. The editors of Bowstead, Professor Peter Watts QC and Professor Francis Reynolds QC, reach the same conclusion but go rather further in regarding the case, not so much as an exception to a rule of imputation, but as a situation in which imputation is simply irrelevant (para 8-213, footnotes omitted): “But the existence of any general fraud exception is open to question. It can be said first that the deployment of the exception as a defence to property-based or restitutionary claims is not supported by the weight of authority, nor is it consistent in that context with the principles of vicarious liability. Secondly, it is not surprising that the use of such an exception has been deployed to protect claimants against a defendant’s arguments (for example, when sued for knowing assistance to the fraud of the claimant's agent) that the claimant is deemed to know of the fraud of its own agents, and on that account can be assumed to have condoned the wrong (by estoppel or ratification). Such arguments by defendants, though hazarded from time to time, are plainly without merit. However, in such situations imputation has no reason to operate. The rules of imputation do not exist in a state of nature, such that some reason has to be found to disapply them. Whether knowledge is imputed in law turns on the question to be addressed. Hence, a fraud exception is superfluous in these situations. Indeed, the irrelevance of imputation to cases where a principal is pursuing an agent, and implicated third parties, as a result of breach of duty by the agent to the principal is not confined to fraudulent breaches of duty. Were the principal deemed to possess the agent’s knowledge of his own breaches of duty, and thereby to have condoned them, the principal could never successfully vindicate his rights.” 84. The exception is sometimes referred to as the principle or rule in Re Hampshire Land Company [1896] 2 Ch 743 (“Hampshire Land”). That was a case in which the same individual was the secretary of two companies, one of which made an irregular loan to the other. Some legal scholars consider the case to have been rightly decided, but that the true ground of decision should be seen as related to the officer’s dual capacity. The case was however referred to as an authority for the fraud exception by Viscount Dunedin in Houghton and Co v Nothard, Lowe and Wills Limited [1928] AC 1, 14, (“Houghton”) which concerned conflict of interests and breach of fiduciary duty in relation to a joint venture company: “But what if the knowledge of the director is the knowledge of a director who is himself particeps criminis, that is, if the knowledge of an infringement of the right of the company is only brought home to the man who himself was the artificer of such infringement? Common sense suggests the answer, but authority is not wanting.” Viscount Dunedin then referred to Hampshire Land, as did Viscount Sumner at p 19. 85. One of the issues in this appeal is whether the fraud exception can apply in circumstances where the primary rules of attribution are in play. On that point counsel for the liquidators rely on Belmont Finance Corporation Limited v Williams Furniture Limited [1979] Ch 250 (“Belmont”). It was cited to the Court of Appeal but not referred to in the judgments. It may be regarded as the first important case in the modern history of the fraud exception, and it calls for consideration in some detail. It was a curious case in that it was a successful appeal against the decision of the trial judge, Foster J, to dismiss the claim of Belmont at the close of its case on the ground that there was no case to answer. As Buckley LJ put it (at p 255): “On account of the way in which the case went, the judge has heard the evidence of the plaintiff company’s side only; he has heard no evidence of, or on behalf of, any defendant. He made no findings of fact; in view of his judgment it was unnecessary for him to do so. He dealt with the case upon the plaintiff company’s pleading, and on that alone he held that since the agreement is alleged to have formed part of the alleged conspiracy, and since the plaintiff company was a party to the agreement, the plaintiff company was a conspirator. So he held that the claim in conspiracy failed in limine on the ground that one party to a conspiracy to do an unlawful act cannot sue a co-conspirator in relation to that act.” It was a surprising outcome, especially as Belmont was in compulsory liquidation and the action was brought by a receiver at the direction of the Companies Court. Even more surprisingly, there was a second successful appeal, Belmont Finance Corporation Limited v Williams Furniture Limited (No 2) [1980] 1 All ER 393 (“Belmont No 2”), from the same judge’s dismissal of the action after a retrial. The fuller statement of the facts in Belmont No 2 assists in the understanding of the earlier decision. 86. The complicated series of transactions by which the sum of £500,000 was extracted from Belmont, in exchange for a dubious investment in a property company called Maximum, is described in detail in Belmont No 2 at pp397-399. In very brief summary, there were two groups of businessmen, one group consisting of Mr James and his associates, who controlled Williams Furniture Ltd (“Williams”), City Industrial Finance Ltd (“City”) and Belmont. City was a wholly-owned subsidiary of Williams and Belmont was a wholly-owned subsidiary of City. Belmont provided hire-purchase facilities for the group, and its creditors included numerous depositors, for whose benefit the proceedings were taken. The other group consisted of Mr Grosscurth and his associates, who controlled several companies, including Maximum. As Waller LJ put it in Belmont No 2 at p 414, at the end of the transactions: “From the point of view of the two groups it was easy to see that the situation was satisfactory. The Grosscurth group had acquired Belmont at no cost to themselves and the James group had sold Belmont for £489,000 … But the question with which we are concerned is Belmont. Had Belmont benefited from a transaction in which the company had paid £500,000 for Maximum even if Maximum was worth £500,000? ” On the evidence, Maximum was worth very much less than that Belmont had approved the transaction at meetings of its board of directors, two of whom were defendants in the action. The other defendants included Williams, City and Mr Grosscurth. 87. At the time of the first appeal these detailed findings lay in the future, but in Belmont Buckley LJ stated and applied the fraud exception on the basis of the assumed facts (at pp 261-262): “…if the allegations in the statement of claim are made good, the directors of [Belmont] must then have known that the transaction was an illegal transaction. But in my view such knowledge should not be imputed to the company, for the essence of the arrangement was to deprive the company improperly of a large part of its assets. As I have said, the company was a victim of the conspiracy. I think it would be irrational to treat the directors, who were allegedly parties to the conspiracy, notionally as having transmitted this knowledge to the company; and indeed it is a well-recognised exception from the general rule that a principal is affected by notice received by his agent that, if the agent is acting in fraud of his principal and the matter of which he has notice is relevant to the fraud, that knowledge is not to be imputed the principal.” In view of the Court of Appeal’s conclusion about the primary rules of attribution it should be noted that the sealing and the completion of the relevant written agreement were the subject of resolutions at formal board meetings of Belmont (see Belmont No 2 at p 398g-h). Nevertheless the fraud exception applied in relation to Belmont’s claim for redress. Belmont No 2 also illustrates the guilty knowledge of directors in Mr James’s group being attributed to Williams and City so as to make those companies conspirators (at p 404e) and again to City so as to make it liable on the ground of knowing receipt of trust funds (at p 405f). 88. This Court has accepted that the principle applied in Belmont is correct: China Everbright – IHD Pacific Limited v Ch’ng Poh (2002) 5 HKCFAR 630 at paras 49 and 52. The fraud exception : more recent cases: primary and secondary victims 89. The general principle underlying the fraud exception has been discussed and refined in numerous more recent authorities in different jurisdictions. Out of the large number of cases which counsel’s industry has brought to the Court’s attention, the most important cases are those mentioned below, in chronological order. It is the most recent case, Bilta (UK) Ltd v Nazir [2014] 1 All ER 168 (“Bilta”) that is the most illuminating. 90. The decision of the Federal Court of Australian in Beach Petroleum NL v Johnson (1993) 43 FCR 1 (“Beach”) was concerned with the acquisition by Beach, a South Australian company, of Mazeley, a Liberian company with oil fields in Oklahoma. The acquisition was at a grossly inflated price, a fact that was known to three directors and one deemed director of Beach, all of whom had conflicting interests. The lengthy judgment of Von Doussa J contains, at paras 22.20 to 22.34, a careful review of the authorities from Hampshire Land to Belmont. He summarised Belmont as follows (at para 22-30): “What insulated [Belmont], but not [Williams and City] from having the knowledge of those officers imputed to them was the fact that only [Belmont] was treated as a victim. [Williams and City] were parties who benefited by reason of the transaction.” 91. He also referred to the decision of the Supreme Court of Canada in Canadian Dredge and Dock Co Ltd v The Queen (1985) 19 DLR (4th) 314. The Supreme Court of Canada adopted a rather different test involving the notion of an act being “totally in fraud of the corporate employer and where the act is intended to and does result in benefit exclusively to the employee-manager.” That test has had some influence in Australia but has not been adopted in England or Hong Kong. 92. PCW Syndicates v PCW Reinsurers [1996] 1 WLR 1136 (“PCW”) and Group Josi Re v Walbrook Insurance Co Ltd [1996] 1 WLR 1152 (“Group Josi”) were heard together in the English Court of Appeal, but separate judgments were given at different dates since the latter appeal raised some special issues of its own. Both appeals were concerned with corporate knowledge in the context of the statutory obligations of an assured under sections 18 and 19 of the Marine Insurance Act 1906. For present purposes it is sufficient to observe that these cases illustrate and reinforce the importance, in this area, of awareness and understanding of the context in which an issue of imputation or attribution arises (see especially Staughton LJ in PCW at pp 1145F-1146B). 93. Duke Group Limited v Pilmer (1999) 73 SASR 64 (“Duke”) was a decision of the Court of Appeal of South Australia on another claim based on a corporate acquisition at an inflated price. It began as a claim against accountants who had prepared a report for the shareholders of Duke (formerly called Kia-Ora) in relation to its acquisition of Western Union. Later the directors of Duke were added to the proceedings, first as third parties and then as defendants. There was an issue as to whether, in the unusual circumstance of the case, the accountants owed fiduciary duties, as well as a duty of care, to Duke. Part of the very lengthy judgment (paras 616 to 652) discussed the fraud exception, including its application to the accountants’ pleading of contributory negligence by Duke. It considered and approved the approach of Von Doussa J in Beach. It concluded that Duke could recover against the accountants, despite breaches of fiduciary duty on the part of its directors, but that their conduct should be treated as fault for the purposes of the issue of contributory negligence (paras 639 and 649). 94. Arab Bank plc v Zurich Insurance Co [1999] 1 Lloyd’s LR 262 (“Arab Bank”) was a decision on unusual facts. A leading firm of estate agents and valuers (“JDW”) held a professional indemnity policy issued by Zurich Insurance. It contained a term covering any dishonest or fraudulent act of a director, with an exception for “any person knowingly committing, making or condoning such act,” and other general conditions relating to fraud and non-disclosure. The form of the policy was supposed to be tailor-made for firms of estate agents and valuers, but had been drafted at a time when such firms were almost always unincorporated partnerships rather than companies. Mr Browne, the managing director of JDW, made several fraudulent valuations in the name of JDW. Arab Bank and its co-plaintiff obtained judgements against JDW and (on its going into liquidation), sought to enforce the judgments directly against the insurers. The judgment is a decision on ten preliminary points, several of which related to the construction of the policy. After referring to the authorities, including PCW and Group Josi, Rix J stated (at p 282): “In the present case, fraud is also assumed, but the primary victim of the fraud has been the lending institution [Arab Bank] which has relied on the valuation. I would accept, however, the plaintiffs’ submission that JDW was also a victim, even if only a secondary victim, of the assumed fraud. One consequence of that assumed fraud has been JDW’s liability to the plaintiffs, albeit in negligence.” This may be the first, or one of the first references in the reported cases to primary and secondary victims. Rix J held (at p 283) that the knowledge of Mr Browne and Mr Pitts (another director complicit the fraud) should not be attributed to JDW, but the decision turned more on the construction of the policy than on Hampshire Land. 95. In Odyssey Re (London) Ltd v OIC Run-off Ltd [2001] Lloyd’s LR (Ins and Reins) 1 (“Odyssey”) an issue of attribution arose in the very unusual context of an application to set aside a judgment, given after a long trial, on the ground that it had been obtained by perjury. The issue was whether the perjury of Mr Sage, who had given evidence for Orion Insurance Co plc, should be attributed to that company. Nourse LJ (at p 12) saw the issue, in that context, as one of status, rather than authority. Brooke LJ stated (at p 64, after a reference to Tesco): “In principle, I would be anxious if the natural development of the civil law in accordance with the thinking of leading judges in this specialist field on the way in which responsibility should be attributed to corporate bodies today had to be cribbed, cabinned and confined by decisions of the House of Lords in the criminal law arena.” A little later (also at p. 64) he added: “When one comes to look at the criminal cases, one very rapidly identifies a shoal of artificial features that have little to do with the civil law issues with which we are concerned. For a variety of reasons, the identification of the principles on which criminal liability should be attributed to corporate bodies took a long time to mature in this country, and when they did come of age, the birthday party was overshadowed by the judges' reluctance to attribute absolute liability to a corporation for a criminal offence (subject only to any statutory defences that might be available to it).” 96. In McNicholas Construction Co Ltd v Customs and Excise Commissioners [2000] STC 553 (“McNicholas”) the relevant issue, for present purposes, was whether McNicholas, an engineering contractor, had within the meaning of section 60 of the Value Added Tax Act 1994 engaged in conduct involving dishonesty for the purpose of evading VAT. This raised an issue of attribution. Much of McNicholas’ work consisted of digging trenches for cable ducts, and most of that work was done by sub-contractors. Some sub-contractors were registered for VAT purposes but others were not registered. Site managers employed by McNicholas conspired with registered sub-contractors to accept and pay VAT invoices from registered sub-contractors for work actually done by unregistered sub-contractors. This would have been financially neutral for McNicholas if it could lawfully deduct the VAT from its own output tax; as it was, the dishonest scheme exposed it to penalties. McNicholas argued that the dishonest intentions of its site managers should not be attributed to it, because of the fraud exception. Dyson J rejected that argument (para 55): “In my judgment, the tribunal correctly concluded that there should be attribution in the present case, since the company could not sensibly be regarded as a victim of the fraud. They were right to hold that the fraud was 'neutral' from the company's point of view. The circumstances in which the exception to the general rule of attribution will apply are where the person whose acts it is sought to impute to the company knows or believes that his acts are detrimental to the interests of the company in a material respect. This explains, for example, the reference by Viscount Sumner in J C Houghton & Co v Nothard Lowe and Wills Ltd [1928] AC 1 at 19 to making 'a clean breast of their delinquency'. It follows that, in judging whether a company is to be regarded as the victim of the acts of a person, one should consider the effect of the acts themselves, and not what the position would be if those acts eventually prove to be ineffective.” 97. Re Bank of Credit and Commerce International SA (No 15), Morris v Bank of India [2005] 2 BCLC 328 (“Morris”) was, as its title suggests, one of numerous sets of proceedings arising out of the fraudulent activities and massive insolvency of BCCI. Mr Samant, the general manager of Bank of India’s London branch, approached a senior employee of BCCI suggesting that BCCI should place deposits with Bank of India, and several large deposits were made between 1981 and 1983. The deposits were made on unusual terms and were part of a dishonest plan contrived by BCCI’s central treasury department to conceal heavy losses which it had incurred. The trial judge, Patten J, found that Mr Samant had “blind-eye” knowledge of the fraud (that is, that he suspected fraud and deliberately decided to avoid confirmation of his suspicion). He also held that this knowledge should be attributed to Bank of India, and rejected an argument based on the fraud exception. In upholding that decision the Court of Appeal placed importance on the language and purpose of section 213 of the Insolvency Act 1986, under which the liquidators of BCCI were proceeding. The Court cited McNicholas with approval (para 118): “As in McNicholas, the acts of Mr Samant were not in fact targeted at BOI. He was acting for, and in what he apparently believed to be the interests of, BOI in seeking to gross up the balance sheet for the purposes of the year end accounts. The potential liability of BOI under s 213 is irrelevant in deciding whether BOI was a victim of Mr Samant and whether his knowledge should be attributed to it for the purposes of s 213.” The Court also distinguished Arab Bank (para 124): “In our judgment, the facts and the contractual context make Arab Bank a different case. It did not lay down a general principle of attribution of knowledge which governs this case of statutory liability to make compensation to victims of fraudulent trading. Arab Bank is not, as Mr Moss contended, authority for the proposition that knowledge of fraud can only be attributed to a company if the individual with the relevant knowledge was a director or directing mind of the company, or where it can be inferred from all the circumstances that the individual transferred his knowledge to the company or to its directing mind and will; nor is it authority for the proposition that there can be no attribution of knowledge where the company is a ‘secondary victim’ of the individual’s wrongdoing or breach of duty.” 98. MAN Nutzfahrzeuge AG v Freightliner Ltd [2005] EWHC 2347 (Comm) (“MAN”) was an unusual case in which Mr Ellis, the financial controller of ERF, a manufacturer of heavy vehicles, persistently falsified its accounts, and defrauded Customs and Excise of VAT, throughout a period when ownership and control of ERF changed twice. The eventual purchaser and ERF sued the intermediate purchaser, which joined ERF’s auditors as a third party. That was the complex situation considered in the monumental judgement of Moore-Bick LJ. It is unnecessary to go into all the complexities, but it is worth noting that the auditors seem to have made no attempt to rely on the fraud exemption as a reason for avoiding liability. They were cleared of liability, but on other grounds. 99. It is also worth noting that in para 154 the judge pointed out that in this area there are three distinct sets of rules. The first set governs vicarious liability, which does not depend on the attribution to an employer of an employee’s state of mind. The second set does involve such attribution. The third set “governs the attribution of the acts and omissions of natural persons to juridical persons” (emphasis supplied) regardless of the state of mind of those natural persons. So for example the decision of the board of Belmont to acquire Maximum (paras 85 to 87 above) was attributed to Belmont, but the guilty knowledge of the members of the board was not attributed to Belmont. This point is implicit in many of the cases, but has not often been so clearly spelled out. 100. The decision of the House of Lords in Stone & Rolls [2009] 1 AC 1391, to which I was a party, has been the subject of a good deal of academic commentary, mostly critical (see for instance Professor Eilis Ferran, Corporate Attribution and the Directing Mind and Will (2011) 127 LQR 239; and the article by Professor Peter Watts mentioned in para 62 above). The issue of attribution arose in the context of a defence of ex turpi causa pleaded by auditors sued for breach of duty. The Law Lords were split three-two, and it is difficult to extract a clear ratio from the speeches of the majority. But it is not necessary or appropriate to discuss the case at any length, since it was on any view an extreme case on its facts. The claimant company had been formed and run exclusively for the purpose of fraud. It never had any legitimate business or assets. In this it resembled the company called Scadlynn Ltd in Brink’s-MAT Ltd v Noye [1991] 1 Bank LR 68, a company formed and used exclusively for the criminal purpose of smelting, recasting and selling stolen gold bullion. In that case the Court of Appeal treated Scadlynn as a victim (see Mustill LJ at p 72 and Nicholls LJ at p 73). I agree with the comment of Lord Phillips of Worth Matravers, in Stone & Rolls at para 5 that “if a person starts with nothing and never legitimately acquires anything he cannot realistically be said to have suffered any loss.” 101. Although lengthy discussion of Stone & Rolls is unnecessary and inappropriate, I should state clearly that I now see that I was wrong, in para 145, to regard the fraud exception as being of general application, regardless of the nature of the proceedings (Lord Mance, dissenting, dealt with this point at para 234). The recent Bilta decision (para 103 below), and the fuller citation and exposition of academic material put before this Court, demonstrate the limited scope of the exception. 102. The defence of ex turpi causa was revisited in Safeway [2011] 2 All ER 841. Safeway, a large supermarket chain, had exchanged commercially sensitive information with other supermarkets and food processors, resulting in increases in the price of milk. This anti-competitive conduct infringed section 2 of the Competition Act 1998 and exposed Safeway and other group companies to penalties. They brought proceedings against Mr Twigger and ten other defendants, all directors or senior employees of Safeway Group companies, seeking an indemnity. The defendants succeeded in striking out the proceedings by reliance on the ex turpi causa principle. The Safeway companies were “personally” at fault in the sense that their liability was not vicarious. They were, under the statute, the only persons liable to a penalty: see the judgment of Longmore LJ at paras 19 to 29. At para 29 he observed: “Once it is appreciated that the claimant companies are (personally and not vicariously) liable to pay the penalties exigible under the 1998 Act, those companies cannot invoke the Re Hampshire Land principle to say that they were not 'truly' liable. The principle gives them no defence to the OFT's claim for the penalties; they are personally liable to pay those penalties and it would be inconsistent with that liability for them to be able to recover those penalties in the civil courts from the defendants. The statutory scheme has attributed responsibility to the claimant companies and the Re Hampshire Land exception to the ordinary rule of attribution can have no import on the application of the ex turpi maxim.” 103. The most recent case is the decision of the Court of Appeal in Bilta [2014] 1 All ER 168. The Court consisted of Lord Dyson MR (who had at first instance decided McNicholas), Rimer LJ (who gave the leading judgment in the Court of Appeal in Stone & Rolls) and Patten LJ (whose first-instance judgment in Morris was upheld by the Court of Appeal.) Bilta had two directors, one of whom owned all its issued shares. It participated in a conspiracy in the form of a VAT “carousel” fraud on a massive scale. The details of the fraud (set out at paras 9 to 13) are technical and complex, but the end result was that Bilta sold carbon credits on terms that the proceeds were transmitted to a Swiss company, Jetivia, controlled by Mr Brunschweiler, leaving Bilta with no assets and a liability of over £38m to the British revenue authorities. Bilta and its liquidators took proceedings against its directors and several other defendants, including Jetivia and Mr Brunschweiler, who applied to have the claims struck out on the ex turpi causa principle. 104. Patten LJ noted that at first instance there had been argument as to whether the conspiracy had Bilta, or the revenue authorities (HM Revenue and Customs), as its intended victim. In his view that question was immaterial. The issue depended (paras 26 to 27) on whether Bilta was a co-conspirator. This was an issue of attribution. El Ajou, Meridian, McNicholas and Morris were all examples of civil liability to a third party being imposed on a company because of the dishonest conduct of its employees. In McNicholas and Morris it was argued that the dishonest conduct also harmed the corporate employer and made it “at least a secondary victim”. That, it was argued, should exclude the company’s liability to the third party. But that argument was rejected. After citing the judgment of Mummery LJ in Morris (para 114) Patten LJ made some observations that merit full quotation (paras 34 and 35): “[34] The point being made in this passage is that attribution of the conduct of an agent so as to create a personal liability on the part of the company depends very much on the context in which the issue arises. In what I propose to refer to as the liability cases like El Ajou v Dollar Land Holdings plc, Royal Brunei Airlines Sdn Bhd v Tan, McNicholas Construction Co Ltd v Customs and Excise Comm and Morris v Bank of India, reliance on the consequences to the company of attributing to it the conduct of its managers or directors is not enough to prevent attribution because, as Mummery LJ pointed out, it would prevent liability ever being imposed. As between the company and the defrauded third party, the former is not to be treated as a victim of the wrongdoing on which the third party sues but one of the perpetrators. The consequences of liability are therefore insufficient to prevent the actions of the agent being treated as those of the company. The interests of the third party who is the intended victim of the unlawful conduct take priority over the loss which the company will suffer through the actions of its own directors. [35] But, in a different context, the position of the company as victim ought to be paramount. Although the loss caused to the company by its director's conduct will be no answer to the claim against the company by the injured third party, it will and ought to have very different consequences when the company seeks to recover from the director the loss which it has suffered through his actions. In such cases the company will itself be seeking compensation by an award of damages or equitable compensation for a breach of the fiduciary duty which the director or agent owes to the company. As between it and the director, it is the victim of a legal wrong. To allow the defendant to defeat that claim by seeking to attribute to the company the unlawful conduct for which he is responsible so as to make it the company's own conduct as well would be to allow the defaulting director to rely upon his own breach of duty to defeat the operation of the provisions of ss 172 and 239 of the 2006 Act whose very purpose is to protect the company against unlawful breaches of duty of this kind. For this purpose and (it should be stressed) in this context, it ought therefore not to matter whether the loss which the company seeks to recover arises out of the fraudulent conduct of its directors towards a third party (as in the McNicholas case and [Morris]) or out of fraudulent conduct directed at the company itself which Sir Andrew Morritt C accepted was what is alleged in the present case. There is a breach of fiduciary duty towards the company in both cases.” 105. Patten LJ then subjected Stone & Rolls to a detailed analysis, especially in relation to “one-man” companies, an issue that does not arise in this appeal. But his observations on the duty owed by an insolvent or failing company’s directors to the company’s creditors carry great weight. He concluded (para 77) that Bilta’s position would have been the same: “…even if the true object of the conspiracy had been HMRC. In the context of a claim against the directors and the appellants [who were conspirators with the directors] for breach of fiduciary duty, the company is the victim regardless of whether its loss was consequential on that to a third party.” Lord Dyson MR and Rimer LJ agreed with his judgment. Attribution and the fraud exception: conclusions 106. The decision of the Court of Appeal in Bilta has achieved a welcome clarification of the law in this area. The general effect of the authorities discussed above can in my view be summarized in some short propositions. (1) Questions of attribution are always sensitive to the factual situation in which they arise, and the language and legislative purpose of any relevant statutory provisions: Tesco at pp 169-170, 194-195, 203; Meridian at pp 507, 511-512; Tesco No 2 at pp 1042-1043; PCW at p 1145; Group Josi at p 1169; Duke at para 615; McNicholas at paras 48-50; Morris at paras 116-124; Safeway at paras 29, 44-46; Bilta at paras 33-35, 45. (2) The “directing mind and will” concept in Lennard, although still often referred to in judgments, has been greatly attenuated by recognition of the importance of the factual and legislative context: El Ajou at pp 151, 154, 159; Meridian at pp 507-509 and 511; and numerous later cases. It might be better if it were to fade away as a general concept. (3) In some cases acts of directors and employees will be attributed to the corporate employer without their state of mind being so attributed: Duke at para 625, 641; MAN at para 154, illustrated by eg Belmont No 2 at p 398 in juxtaposition with Belmont at pp 261-262. (4) The underlying rationale of the fraud exception is to avoid the injustice and absurdity of directors or employees relying on their own awareness of their own wrongdoing as a defence to a claim against them by their own corporate employer: Gluckstein v Barnes at pp 247 and 249; Houghton at pp 14 and 19; Belmont at pp 261-262; Beach at para 22.30; Duke at paras 619 to 622; McNicholas at para 56; Morris at para 114; Bilta at paras 36 to 45. (5) The exception applies even if the wrongdoing consists of a transaction formally approved by the whole board of directors, and completed under the company seal: Belmont No 2 at p 398. In other words the exception can apply even when the primary rules of attribution are in play. (6) But the exception does not apply to protect a company where the issue is whether the company is liable to a third party for the dishonest conduct of a director or employee: El Ajou at p 702 (see para 75 above); Meridian at p 511 (see para 79 above); Duke at para 629; Morris at para 114; Bilta at para 34. (7) The supposed distinction between primary and secondary victims, although sometimes a useful analytical tool, is ultimately much less important than the distinction between third party claims against a company for loss to the third party caused by the misconduct of a director or employee, and claims by a company against its director or employee (or an accomplice) for loss to the company caused by the misconduct of that director or employee: Bilta at paras 45 and 77. (8) In cases concerned with insurance the terms of the policy are likely to be decisive, especially where a company has obtained cover against the risk of breach of duty, including fraud, by directors or employees: Arab Bank at p 283, and the comments on that case in Morris at paras 122-124. Internal fraud was the “very thing” from which the insurance cover was intended to protect the company. (9) The fraud exception does not appear to have been even raised as a defence, still less successfully relied on, in a claim by a company against its auditors for failure to detect internal fraud (as in Duke and MAN) with the sole exception of the extreme “one-man” company case of Stone & Rolls (see that case at paras 175 and 176). Again, internal fraud was the “very thing” from which the auditors had a duty to protect the company. (10) Criminal law cases are of little assistance in determining issues of attribution in civil law cases, because of the reluctance of the court, especially in the earlier cases, to treat offences as carrying strict liability: Odyssey at p 64; Tesco is an example, but Tesco No 2 and Safeway show the more modern approach. The judgments below 107. In paras 44 to 49 of his judgment Reyes J set out five issues that were before him. Those issues have narrowed as there has been no appeal against his conclusions on (i) the identification of the Commissioner’s decisions amenable to judicial review and (ii) her first ground of decision (prematurity of any conclusion about fraud). Moreover no more needs to be said about the proof of debt issue. The relevant part of the judgment of Reyes J is therefore paras 91 to 156, dealing with sections 64 and 70A of the IRO, and with issues of attribution so far as pertinent to the application of those sections. 108. Reyes J went at once to the issue of attribution, which is discussed at paras 94 to 134 of his judgment. He concluded that the Hampshire Land principle applied, and was not ousted by anything in Stone & Rolls, since MGET could not be described as a one-man company (para 133). He concluded that the Commissioner “wrongly attributed the Ma family directors’ mindset to MGET” (para 134). In reaching this conclusion he did not have the benefit (nor did the Court of Appeal have the benefit) of the illuminating judgment of Patten LJ in Bilta. 109. Reyes J treated his conclusion on attribution as decisive, without the need for further discussion, of the issue under section 64. He did not set out his views on the place of section 64 in legislative scheme of the IRO, or on the meaning of “prevented” and “reasonable cause”. That may have been because the amended notice of application referred rather loosely to the issue as being whether “MGET had reasonable cause to object out of time under s 64.” 110. On the view that he took as to section 64, it was not strictly necessary to decide the issue under section 70A, but he expressed his view at paras 144 to 156. Again he treated his conclusion on attribution as decisive of the issue under section 70A. He held that the making of the relevant false returns was an “error” and not (in the words of Chan J in Extramoney [1997] HKLRD 387, 396) “a deliberate act in the sense of a conscientious choice”. He referred to Chan J’s observation (also at p 396): “I accept that in some cases where it can be proved that the profits stated in the accounts of a taxpayer had in fact not been made, this may be sufficient to show that there has been an error justifying a correction in the assessment.” 111. In the Court of Appeal the leading judgment was given by Kwan JA. Fok JA and Lam J gave short concurring judgments. Lam J, in his concurring judgment, expressed doubt as to whether an objection could be made under section 64 to “an assessment based entirely on the calculation set out in a tax return”. Some reference has already been made (paras 38, 41 and 50 above) to the judgment of Kwan JA. After her preliminary exposition of Meridian and the scheme of the IRO she discussed the “key question” of attribution of knowledge at paras 57 to 77, stating her conclusions on sections 64 and 70A at paras 78 to 80 respectively. 112. Kwan JA first addressed the primary rules of attribution. MGET’s articles of association adopted Table A. Its business and affairs were therefore, as usual, to be managed by the directors, and the directors were required to prepare financial statements in accordance with the Companies Ordinance, Cap 32, and lay them before the company in general meeting. She referred to the approval of the accounts by the individuals who were directors of MGET for the year ended 31 March 1999 and subsequent years. She then summarized the competing arguments as to whether the Hampshire Land principle could operate to oust the primary rules of attribution. She held (paras 62 to 64) that it could not operate in that way. She relied for this conclusion on El Ajou, MAN, Safeway and Moore v Bresler Ltd [1944] 2 All ER 515. She did not refer to Belmont, although it had been cited in argument. 113. In my view the authorities which Kwan JA relied on do not establish the conclusion that she reached, and Belmont is decisively against that conclusion. Like Reyes J she did not have the benefit of Bilta. That case has clearly demonstrated that the crucial matter of context includes not only the factual and statutory background, but also the nature of the proceedings in which the question arises. In what Patten LJ called a “liability” case the fraud exception has no part to play, because the company must take responsibility for the fraudulent conduct of its director or employee even if the company is in some sense a victim: see eg McNicholas and Morris. El Ajou was a liability case, since the claimant was making a claim against DLH on the ground of knowing receipt of the proceeds of a fraud on the claimant. At the same time it was also, as it happens, what might be called a “redress” case, but the claimant was an individual and there was no question of Mr Ferdman’s guilty knowledge being attributed to Mr El Ajou. It was rightly attributed to DLH. Nourse LJ made a passing reference (at p 153) to Hampshire Land but as an authority on dual capacity. I have already referred (at para 75 above) to the observations of Hoffmann LJ on this point. 114. The passage in MAN (para 154, referred to in para 99 above) seems to me to lead to a different conclusion from that which Kwan JA arrived at, as Belmont demonstrates. Legal transactions resolved on and formally recorded at a board meeting (in that case, the acquisition of the shares of Maximum) were valid under the primary rules of attribution, but without the dishonest intentions of some or all of the members of the board being attributed to Belmont when its receivers, acting under the direction of the Companies Court, sought redress from two of its directors and their co-conspirators. They were finally successful in Belmont No 2. Safeway and Moore v Bresler Ltd were decisions on criminal liability which do not give much assistance on this point. The Court of Appeal was wrong to conclude that the fraud exception can never apply to decisions taken, with all due formality, by a board of directors. 115. In paras 68 to 70 of her judgment Kwan JA discussed primary and secondary victims. In view of Bilta, it is not necessary to go into this point at any length. Reyes J (paras 128 to 130) had been sceptical about the distinction and Kwan JA was inclined to agree with him that MGET could be regarded, along with numerous banks, as a primary victim of the fraudulent conduct of the Ma family directors. But in the light of Bilta that cannot be determinative of the issue as to the fraud exception. 116. Kwan JA then considered the possible application of some special rule of attribution. She asked herself, correctly, “whether the attribution of knowledge is required to promote the policy of the substantive rule, or (to put it negatively) whether, if attribution is denied, that policy will be frustrated” (para 72, with a reference to McNicholas, para 44). The legislative policy behind sections 64 and 70A is to strike a balance between finality and avoidance of delay, on the one hand, and the need to avoid hardship, on the other hand. Kwan JA considered that if a company was not fixed with knowledge of its conduct by the primary rules of attribution, denial of attribution would not promote, but would frustrate the legislative policy. She added some further points on policy which Mr Dicker has criticised, and these criticisms carry weight. The important policy consideration is the balance between promptness and finality, on the one hand, and avoiding hardship and injustice, on the other hand. A secondary consideration is that individual businessmen and corporate businesses should, so far as possible, be taxed by the same rules. 117. As to section 64 Kwan JA concluded (para 78): “I hold that by the special rules of attribution, the knowledge of the Ma Directors in causing the falsified accounts to be prepared should be attributed to MGET. As the company is primarily liable for its conduct, it cannot be said to have been acting reasonably or to have been “prevented” from giving notice of objection within time by its own fraud.” 118. As to section 70A, she followed Extramoney. The submission of incorrect tax returns must be treated as a deliberate act of MGET and could not be an error within the meaning of section 70A. The scheme and policy of the IRO 119. For any government, faced with ever-increasing financial responsibilities and obligations, it is of the highest importance to have a fair and efficient tax system which can be expected, year on year, to produce public revenue to a more or less predictable level. Annual taxes should be levied so as to ensure prompt payment and so as to achieve finality within a reasonably short time. As Arden LJ observed in Monro v HMRC [2009] Ch 69, para 32, “The state has a legitimate interest in ensuring finality in fiscal transactions”; see also the citation from Chow Kwong Fai v CIR in para 55 above. Those are the policy aims of Parts 9 (Returns, etc), 10 (Assessments), 11 (Objections and Appeals), 12 (Payment and Recovery of Tax) 13 (Repayment) and 14 (Penalties and Offences) of the IRO. They apply for the purposes of property tax, salaries tax and profits tax, all annual taxes. 120. Section 51(5) in Part 9 (set out at para 52 above) might appear to contain one rebuttable and one irrebuttable presumption. Mr Brennan submitted that that is indeed its correct construction. But that is a submission which would lead to extraordinary results, which the legislature cannot have intended. In The Queen v Ng Wing Keung [1997] HKLRD 142 the Court of Appeal, in a judgment delivered by Bokhary JA, rejected the argument that the second presumption is irrebuttable (at p 146): “The word ‘and’ immediately preceding the second deeming provision ties the same to what goes before. It does that so as to incorporate, albeit not in the most felicitous language, the allowance of proof to the contrary.” The case was a criminal case but the decision on statutory construction is of general application. The effect of section 51(5) is therefore limited, in this case, to a presumption (not in dispute) that the company secretary or manager who signed the tax returns did so with the authority of MGET’s board of directors, and was aware of the contents of the returns. 121. Section 64 is the first section in Part 11, relating to objections and appeals. A notice of objection under section 64(1) is in effect the first step in the appeal process, in that it leads to a reconsideration by the Commissioner under subsection (2), at which the Commissioner may ask for books and papers and examine witnesses. If the reconsideration does not lead to agreement, the way is open for the taxpayer to appeal to the Board of Review under section 66, with the possibility of further appeals. 122. Section 70A has a six-year time limit for any “error or omission” application which would otherwise be barred by the stringent terms of section 70. Mr Dicker drew attention to the absence of any such overall time limit in the proviso to section 64(1). The only time limit, he said, was in the indefinite requirement that any extension of the one-month period should be “reasonable in the circumstances.” Mr Dicker relied on this as a point in his favour but I would draw the opposite conclusion. The more likely explanation is that the legislature regarded it as inconceivable that a reasonable extension of the short period of one month could ever amount to years, rather than a few weeks or (at most) a few months. The Court of Appeal seems to have taken a similar view in Lam Ying Bor Investment Co [1979] 1 HKLR 571. In that case the taxpayer company had three directors, only one of whom was active in its affairs. When he was taken ill with cardiac trouble the other two directors failed to take charge of company’s business for a period of just under three months. Huggins JA described this as “negligence…of a very high order.” The result of the delay was that a notice of objection to an additional assessment was lodged about seven weeks out of time, and the Court of Appeal followed the Full Bench in upholding the Commissioner’s refusal to grant an extension. 123. Mr Dicker submitted the ejusdem generis rule of construction does not apply to the proviso to section 64(1) because the words “absence from Hong Kong, sickness” do not establish a genus (that is, a category of related items) capable of limiting the meaning of “other reasonable cause”. In this submission he has the support of the notes to the Annotated Ordinances of Hong Kong (2013 Reissue, p 830), although no authority is cited. Mr Brennan submitted that the rule does apply, although he realistically recognised that it is not a particularly clear or compelling instance of it. 124. It is not a clear or compelling instance, but the language used, coupled with the context of a short time limit for a step that is potentially the start of an appeal process, inclines me to accept Mr Brennan’s submission that the proviso contemplates some temporary impediment of an external and physical nature, rather than something internal and psychological. If for instance a taxpayer received an assessment and thought that it was excessive, but refrained from lodging an objection because that would involve too much trouble and expense, and made an application for an extension of time only when it was explained to him that a large amount of tax was at stake, it is difficult to say that he had been prevented from acting sooner (and still less that he had been prevented by a reasonable cause). There must be a clear causal connection between the reasonable cause and the prevention. 125. Even in the absence of attribution to MGET of the guilty knowledge of Ma Bo Kee and Cary Ma, there is a difficulty about Mr Dicker’s invitation to the Court to regard the real MGET as having been “hijacked” by these fraudulent directors so as to be prevented from putting in proper returns of profits. Apart from the point made in the previous paragraph, there is the difficulty that this approach involves not merely metaphor (“hijacking”) but also metaphysics (“the real MGET”). As Lord Hoffmann put it in Meridian (at p 507), displaying his knowledge of the German philosopher Immanuel Kant: “There is in fact no such thing as the company as such, no ding an sich, only the applicable rules.” The difficulty becomes insuperable if the rules point to attribution to MGET of the directors’ guilty knowledge. 126. Section 70A raises different, but not wholly dissimilar considerations. The section was introduced in 1956, following a recommendation of Inland Revenue Ordinance Committee, to alleviate the draconian effect of section 70. Its scope is restricted by the need for an error in a return or an accompanying statement, by the proviso for an error which was nevertheless “the practice generally prevailing at the time”, and by the six-year time limit, which is a reasonably generous one. These restrictions represent the legislature’s striking of the balance between finality and fairness. 127. Even if the guilty knowledge of the fraudulent directors is not attributed to MGET, there is some difficulty in viewing the proposed substitution of an entirely new return and set of statements (which could not, it seems, include audited accounts). It would not be the correction of one specific error (such as excluding a bad debt, or a duplicated credit of a single receipt). Everything would have to be rewritten. 128. Again, this difficulty becomes insuperable if the guilty knowledge of the fraudulent directors is attributed to MGET. A deliberate lie cannot be an error for the purpose of section 70A. It is therefore necessary to revisit the issue of attribution. Conclusions on attribution 129. The most important authorities on the topic of attribution, and the views of some legal scholars with a special interest in this topic, having already been considered at some length (paras 61 to 105 above) and I have summarised my conclusions at para 106. These conclusions owe much to the decision of the English Court of Appeal in Bilta. It has resolved several difficulties which the decision of the House of Lords in Stone & Rolls regrettably failed to resolve. I can therefore state my conclusions quite briefly. 130. Although the Court of Appeal was wrong to think that application of the primary rules of attribution must automatically trump and exclude the fraud exception, much of the Court’s analysis was correct. The profits tax returns were signed and submitted by an official of MGET with the authority of MGET’s board of directors. The returns were based on MGET’s audited accounts, which were included in the statements submitted with the returns. Ma Bo Kee was a director for all six years during the relevant period, and Cary Ma was a director for five of those years. All the available evidence indicates that it was they who were the active perpetrators of the frauds, and in particular the preparation of false accounts (it is immaterial whether or not Michelle Lam was also involved). No one suggests that Ma Bo Fung or Ma Bo Lung, who seem to have attended board meetings and signed the accounts on the occasions of their infrequent visits from the mainland, played any active part in the preparation of the false accounts. Ma Bo Kee and Cary Ma were, both under the primary rules and by the Lennard test as explained in later cases, the obvious persons whose knowledge should be attributed to MGET, unless the fraud exception applies to exclude such attribution. 131. In the light of Bilta, which goes a long way (but not the whole way) to confirming the views of Professor Watts, the true purpose and limits of the fraud exception have become much clearer. The gradual accretion of learning about primary and secondary victims, with or without additional refinements such as “targeting” or “vehicle of fraud”, can be seen as having missed the point. The crucial distinction depends on the nature of the proceedings in which the issue of attribution arises. On one side there are what Patten LJ (in Bilta, para 34) called the liability cases, such as El Ajou, Meridian, McNicholas and Morris. In them a company is being sued by a third party (which may be an official body) because the company is responsible for dishonest conduct on the part of one or more of its directors or employees. Here the fraud exception does not apply, even if the company is in some sense a victim. On the other side are what may be called the redress cases, such as Gluckstein v Barnes, Belmont, Beach and Bilta itself. In cases of this sort a company is seeking to make its own delinquent director or employee (probably by then an ex-director or ex-employee), or an accomplice of such a person, accountable for the loss that the company has suffered. That is the situation in which the fraud exception applies, because it would be absurd and unjust to permit a fraudulent director or employee to be able to use his own serious breach of duty to his corporate employer as a defence. 132. Mr Dicker has argued that the present case should be recognized as a redress case, in which the liquidators of MGET are trying to recover profits tax which ought not to have been paid, and would not have been paid but for the fraudulent directors’ serious breaches of their duty to MGET. Mr Brennan has disputed that, likening the position of the Commissioner to someone who has acquired title in good faith and without notice (he did not, as I recollect, add “for value”). 133. The authorities cited to the Court include some cases which do not fit comfortably into either of the “liability” and “redress” categories. These are cases of a claim under a fidelity policy covering an employee’s fraud (Arab Bank) and claims against auditors who have failed to uncover fraud (Duke and MAN, with Stone & Rolls as the controversial exception): see para 106(8) and (9) above. In those situations the claim is not for redress from a fraudster or his accomplice. It is against insurers or auditors who have, for value, undertaken to provide protection against the risk of internal fraud, or to use reasonable professional skill to uncover internal fraud. Such insurers and auditors must be supposed to have had ample opportunity to acquaint themselves with the relevant business before undertaking these obligations. There is no reason for the law to apply the fraud exception so as to absolve the contractual obligations of the insurers or the auditors (except, as the House of Lords held, in the extreme and exceptional circumstances of Stone & Rolls). 134. The liquidators’ claim against the Commissioner fits even less comfortably into either of the “liability” and “redress” categories. The Commissioner is not the accomplice of a fraudster. The Commissioner’s position has a faint resemblance to that of insurers or auditors in that they are all third parties from whom a corporate employer hopes to recoup, indirectly, part of a loss that it has suffered as the result of a director’s or employee’s misconduct. But there are obvious differences. The Commissioner, unlike insurers or auditors, cannot be expected to make inquiries about a taxpayer’s business in such a way as to become well acquainted with it. Furthermore, the Commissioner’s functions, powers and obligations are to be found wholly in the sphere of public law, and in particular in the IRO. An essential part of the scheme of the IRO is that the Commissioner should be able to make assessments on the basis of the taxpayer’s returns. It would frustrate this statutory purpose if the fraud exception were to intrude into this scheme. The fraud exception must be limited to its proper, limited role, that is of barring an unmeritorious defence in claims by corporate employers against dishonest directors or employees, or accomplices who have conspired with them. 135. The liquidators cannot therefore rely on the proviso to section 64(1) of the IRO, because MGET was not prevented from lodging an objection within time; it chose not to do so. Nor can the liquidators rely on section 70A, because MGET must be taken as having known that its returns were false, and (to summarize Extramoney), a deliberate lie is not an “error” for the purposes of that section. 136. The Commissioner’s decision was not flawed. I would dismiss the appeal with an order nisi for costs against the appellant, such costs to be taxed if not agreed. Any contrary submissions as to costs should be in writing, and should be served on the other party and lodged with the Court within 14 days of the handing down of this judgment, with liberty for the other party to serve and lodge submissions within 14 days thereafter. In the absence of such written submissions, the order nisi will stand absolute at the expiry of the time limited for those submissions. Chief Justice Ma: 137. For the above reasons, by a majority (given the dissenting judgment of Mr Justice Tang PJ as to a part of the appeal), the appeal is dismissed. The Court also makes the further orders as set out in para 136 above. Mr Robin Dicker QC, Mr Ashley Burns SC, instructed by Lipman Karas, and Mr Jason Karas of Lipman Karas, for the Appellant Mr Timothy Brennan QC and Mr Roger Beresford, instructed by the Department of Justice, for the Respondent [1] All references to the management of MGET are to the management during these tax years. [2] $88,972,757 [3] $21,503,428 [4] At p 79. [5] The Inland Revenue Ordinance Committee 1954 considered the time limit of 3 years in s 79(1) as originally enacted too short and recommended that it be extended to 6 years. Section 79(1) was amended by Ordinance 49 of 1956 and the time limit extended to 6 years. Para 104 of the Report of the first Inland Revenue Ordinance Committee 1954. (1954 Report) [6] The total tax revenue HKSAR Government for the financial year 2012-13 was $242.2 billion (Press release of the HKSAR government 2 May 2013). [7] Whether, and how that might be established is not the subject of this appeal.