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You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Derrin Brother Properties Ltd, R (on the application of) v HM Revenue and Customs & Ors [2014] EWHC 1152 (Admin) (15 April 2014)
URL: http://www.bailii.org/ew/cases/EWHC/Admin/2014/1152.html
Cite as: [2014] EWHC 1152 (Admin)

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Neutral Citation Number: [2014] EWHC 1152 (Admin)
Case No: CO/3091/2013

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

Royal Courts of Justice
Strand, London, WC2A 2LL
15th April 2014

B e f o r e :

MRS JUSTICE SIMLER DBE
____________________

Between:
THE QUEEN
On the Application of
DERRIN BROTHER PROPERTIES LIMITED
Claimant

and


THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS
And
HSBC BANK PLC
LUBBOCK FINE LLP
Defendant


Interested Parties

____________________

Miss Hui Ling McCarthy (instructed by Kingsley Napley Solicitors) for the Claimant
Miss Julie Anderson (instructed by Solicitor and General Counsel to the Commissioners for Her Majesty's Revenue and Customs) for the Defendant
Hearing dates: 27 March 2013

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    MRS JUSTICE SIMLER DBE :

    Introduction

  1. This challenge concerns the use by Her Majesty's Commissioners of Revenue and Customs ("HMRC") of investigatory powers requiring disclosure of documents by notice by a number of Banks and a firm of Accountants relating to their clients' affairs, following a request made by the Australian Tax Office ("ATO") for assistance in accordance with the exchange of information procedure under Article 27 of the Double Tax Convention between Australia and the UK. The ATO was investigating a series of complex arrangements involving companies and other entities in foreign jurisdictions (including the UK) beneficially owned by Australian residents and used by those residents to avoid tax otherwise payable in Australia. The ATO investigations indicated that Lubbock Fine LLP (a UK firm of Accountants) was providing nominee directors and shareholders to the UK incorporated companies involved in the arrangements. The Australian resident taxpayers had failed to provide documents under formal request to establish the beneficial ownership and residence status of those companies and entities, accordingly the ATO wished to obtain that information from third parties in the UK. The tax at stake was said to be tax on income of AUD 230m
  2. The Claimants are 24 of the companies whose documents (held by Lubbock Fine LLP and the Banks) are sought by HMRC for the purposes of that investigation. All but three are not the "taxpayer" being investigated; nor are any of them the recipients of the document requests or notices. Consequently, if lawful the notices in their present form require the handing over of business records and confidential documents belonging to them currently in the possession of third parties, to investigate the tax position of other taxpayers, in circumstances where at least 21 of them have not received any reasons for HMRC's intended seizure and have had no opportunity to submit written representations objecting to disclosure. They contend that this result cannot be lawful.
  3. HMRC sought approval of the First-tier Tribunal (Tax Chamber) (the "Tribunal") to the giving of certain third party information and document notices under para. 2 of Schedule 36 to the Finance Act 2008 ("FA 2008") following the ATO's request. At ex-parte hearings on 23 November 2012 (and 9 January 2013), Judge Berner sitting as a judge of the Tribunal approved the giving of a number of notices, subsequently given on 27 November 2012 and 14 January 2013 respectively ("the Notices"). The statutory scheme provided by Schedule 36 does not provide for any appeal against the giving of a notice in the circumstances of this case. Accordingly, the Claimants have pursued the only avenue of challenge available, namely judicial review. Permission was given by Sales J on 8 October 2013.
  4. Challenge is made both to the HMRC officer's decision to seek approval for giving the Notices and to the Judge's approval. The grounds of challenge raise the following broad issues for this court:
  5. (a) Whether on a proper interpretation of the provisions in Sch. 36 there was any breach of the requirements of Sch. 36 FA 2008 so as to invalidate the giving of the Notices by HMRC; and/or

    (b) Whether the Tribunal acted in breach of article 6 of the European Convention of Human Rights ("ECHR") (right to a fair hearing) when taken in conjunction with article 8 (right to respect for private and family life) and/or article 1 to the First Protocol (protection of property) ("A1P1") as given effect by the Human Rights Act 1998 ("HRA 1998").

    The applicable legal principles

  6. It is helpful first to set out Article 27 of the UK/Australia Double Tax Convention 2003 (the "DTC") which sets out the obligations of the UK and Australia relating to the exchange of information and provides (so far as is relevant):
  7. "Exchange of information
    1 The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant to the administration or enforcement of the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes to which this Convention applies insofar as the taxation under those laws is not contrary to this Convention. The exchange of information is not restricted by Article 1 of this Convention. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic law of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes to which this Convention applies. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.
    2 If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall obtain that information in the same manner and to the same extent as if the tax of the first-mentioned State were the tax of that other State and were being imposed by that other State, notwithstanding that the other State may not, at that time, need such information for the purposes of its own tax.
    3 In no case shall the provisions of paragraphs 1 or 2 of this Article be construed so as to impose on a Contracting State the obligation:
    (a) to carry out administrative measures at variance with the laws or the administrative practice of that or of the other Contracting State;
    (b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; …"
  8. Two points can be noted. First, there is a restriction on the use of information obtained under the DTC in Article 27(1): if information is obtained by HMRC and subsequently provided to the ATO, the DTC restricts the ATO's use of that information to collection, enforcement etc of taxes to which the Convention applies (albeit that information obtained about person A is not restricted to use in relation to person A, just as it would not be domestically). Secondly, the UK is only obliged to supply information to the ATO obtainable under UK law. In other words, the DTC does not extend the scope of the UK's domestic information powers; nor could it.
  9. The UK's domestic information powers are those given to HMRC by Parliament under Sch. 36 FA 2008 to call for information and documents. The legislation gives HMRC powers of varying degrees of intrusiveness appropriate to different situations. The power to issue third party notices, though not at the top of the scale, is nevertheless intrusive. It is provided by Sch.36 paragraphs 2 and 3 and entitles an officer of HMRC, by notice in writing to require a third party to provide information and documents which are
  10. "reasonably required by the officer for the purpose of checking the tax position of another person whose identity is known to the officer ("the taxpayer")" (para. 2(1)).

    The notice can be enforced only in respect of documents in the possession or power of the recipient of the notice (para. 18).

  11. 'Checking' in this context "includes carrying out an investigation or enquiry of any kind" (Sch.36 para. 58) and, "tax position" includes a person's position as regards "past, present and future liability to pay any tax" (paras. 63 and 64) where "tax" includes "relevant foreign tax" (para.63(1)(m)) which for these purposes includes Australian tax. Importantly, a third party notice must name the taxpayer to whom it relates unless this requirement is disapplied (para. 2(2)). This requirement was not disapplied in this case.
  12. Absent agreement of the taxpayer, exercise of this power requires the approval of the Tribunal (para.3 (1)(b)). Since none of the Claimants agreed, the third party notices required the Tribunal's approval. An application for approval may be made without notice (para.3 (2A)). So far as approval of the Tribunal is concerned, given the intrusive nature of this power and the fact that penalties for non-compliance with a notice can be sought, the statutory scheme provides a number of statutory safeguards against oppressive or abusive use of these powers, particularly at para.3(3) which provides:
  13. "(3) The tribunal may not approve the giving of a… third party notice unless –
    (a) an application for approval is made by, or with the agreement of an authorised officer of Revenue and Customs,
    (b) the tribunal is satisfied that, in the circumstances, the officer giving the notice is justified in doing so,
    (c) the person to whom the notice is to be addressed has been told that the information or documents referred to in the notice are required and given a reasonable opportunity to make representations to an officer of Revenue and Customs,
    (d) the tribunal has been given a summary of any representations made by that person, and
    (e) in the case of a third party notice, the taxpayer has been given a summary of the reasons why an officer of Revenue and Customs requires the information and documents."
  14. An "authorised officer" for these purposes is "an officer of Revenue and Customs who is, or is a member of a class of officers who are, authorised by the Commissioners for the purpose of that provision" (para.59). Paragraphs 3(3)(c) to (e) may be disapplied in certain circumstances but were not disapplied here. Unless disapplied, an officer who gives a third party notice must give a copy to the taxpayer to whom it relates: para.4 (1) of Sch.36. Again, this requirement was not disapplied here.
  15. Unlike the predecessor scheme (s. 20 of the Taxes Management Act 1970 ("TMA 1970")), Sch.36 does not require the exclusion of the taxpayer or recipient of the notice from the Tribunal asked to approve the giving of a notice. Paragraph 2A provides that such an application may be made without notice (save to the extent that the obligations identified at para.3 (3) require such notice), but does not require it.
  16. There are limited rights of appeal for recipients and taxpayers affected by third party notices, none of which apply to the circumstances of the present case. Part 7 of Sch.36 contains penalties for non-compliance with an information request or for inaccuracies in the information or documentation produced.
  17. Notably, the statutory scheme treats the person to whom the notice is directed and the taxpayer in question differently. The third party recipient is only required to be told in the notice the name of the taxpayer being investigated, but must be given advance warning that the documents identified are required, with a reasonable opportunity to make representations which must be summarised for the Tribunal. On this basis the third party must produce the documents required at risk of penalties for non-compliance; and must do so even where this means producing documents which may reveal details of his own or his clients affairs in circumstances where he may have strong reasons why his clients would prefer him not to do so. The taxpayer, on the other hand, is not required to be given advance warning, nor an opportunity to make representations that must be given to the Tribunal; but is simply entitled to a summary of the reasons why an officer requires the information and documents before the Tribunal can give its approval, and a copy of the notice.
  18. Further, although the question whether documents or information are reasonably required for the purpose of checking a taxpayer's position depends on the conclusion of the officer, which must be justified in the circumstances, there are also matters of fact that must be established before approval can be given, and do not depend on the conclusion of the officer. Importantly, the notice will not be capable of approval if the recipient has not received advance warning and an opportunity to make representations the substance of which has been given to the Tribunal; and the taxpayer to whom it relates has not been given a summary of reasons why the documents are required. It follows that the Tribunal must be satisfied not merely that the officer holds the relevant opinion that the documents are reasonably required for checking the tax position of the taxpayer and is justified in so concluding, but also that as a matter of fact, the factual matters identified in Sch.36 para.3(3) are satisfied.
  19. A number of further matters in relation to third party notices of this kind are well established by reference to the predecessor s. 20 TMA 1970 scheme and apply with equal force to Sch.36 notices, as the parties agreed. First, and significantly, as held in R v Commissioners of Inland Revenue ex parte T C Coombs & Company [1991] 2 AC 283, 300C-F, 302E-F (Lord Lowry) the Tribunal is the independent person designated by Parliament with the duty of supervising the exercise of HMRC's intrusive powers. Parliament designated the officer as the decision-maker and the Tribunal as the monitor of the decision. A presumption of regularity applies to both, and is strong in relation to the Tribunal in particular.
  20. Accordingly, in challenging a third party notice, what must be proved are facts which are inconsistent or irreconcilable with the authorised officer's conclusion that documents are reasonably required for checking the taxpayer's tax position and the Tribunal being satisfied that the officer is justified in the circumstances in giving that notice. The resolution of this question will usually depend on confidential information or evidence which is not before the court on judicial review. The Tribunal, able to receive such confidential information or evidence in an ex parte hearing, is therefore in a much better position to make a proper appraisal of it than this court on judicial review. The fact that the Tribunal, having heard an application, approved the giving of the notice is therefore evidence which the court should take account of in this respect, not least since the Tribunal's approval is the real and intended safeguard in the statutory scheme.
  21. Secondly, there is no statutory appeal against notices such as those presently in issue. The only available avenue of challenge generally open is judicial review. However, these are investigative powers and Parliament has in effect decided that once the officer and, on application to it, the Tribunal, is satisfied that use of Sch.36 para.3(3) as a tool of the investigation is appropriate, it is not appropriate to provide an avenue of appeal about how the investigation should proceed. The courts should therefore be careful to avoid giving by the avenue of judicial review what is, in reality, an appeal against the Tribunal's decision. It is only exceptionally or for clearly identifiable reasons that the court will interfere to set aside a notice.
  22. Thirdly, the officer making the ex parte application to the Tribunal has a duty to make full disclosure to the Tribunal of all the facts within his knowledge including any information which could properly influence the Tribunal against giving approval to a notice: TC Coombs (Lord Mackay LC at 288F-G).
  23. Fourthly, (and contrary to Ms McCarthy's submission) there is nothing in the language of Sch.36 which expressly or impliedly suggests that the power under paras.2 and 3 ceases to be exercisable once an appeal to the First-tier Tribunal is in progress. Rather the fact that there is a saving for documents relevant to the conduct of a pending appeal suggests the reverse is the case.
  24. Finally, HMRC may not use their Sch.36 powers for a fishing expedition – whether for their own or the purposes of another revenue authority. A broadly-drafted request will not be valid if in reality HMRC are saying "can we have all available documents because they form so large a class of documents that we are bound to find something useful". What is required is that the request is genuinely directed to the purpose for which the notice may be given, namely to secure the production of documents reasonably required for carrying out an investigation or enquiry of any kind into another taxpayer's tax position. It is no objection however, to the issue of a third party notice that it seeks disclosure of 'conjectural' documents; in other words documents that might not exist: R v Commissioners of Inland Revenue ex parte Ulster Bank Ltd [1997] STC 832, 841f-h (Morritt LJ).
  25. The Facts

  26. Christopher Orchard is the HMRC officer with responsibility for exchanging information under treaty with other member countries. He describes the importance of international exchange and knowledge sharing in the context of tax systems where tax revenue is at risk. He also explains that the exercise of Sch.36 powers is not taken lightly and care is taken to ensure that notices comply with all requisite safeguards introduced into the statutory scheme by Parliament as a way of striking the balance between the public interest in the collection of tax and any competing individual interests, including appropriate judicial scrutiny by an expert independent body.
  27. He states that a formal information request was made by the ATO under Article 27 of the UK/Australia DTC in this case; and that on 23 November 2011, Mr Pandolfo, employed as an HMRC officer in the Specialist Investigations Section (and authorised for the purposes of giving third party notices), was provided with a copy of the formal request together with a large body of supporting evidence and information. Unsurprisingly in the context of this tax investigation, neither the request, nor the supporting information have been disclosed in these proceedings.
  28. In his first witness statement, Mr Pandolfo gives the following explanation of the request at paragraphs 6 and 7:
  29. "6. The ATO request indicated that official investigations were being conducted into Mr Vanda Russell Gould (VRG), his associates and his clients and that those investigations had revealed that a UK resident firm of accountants, Lubbock Fine LLP of City Road, London, were providing nominee directors and shareholders to UK incorporated companies that were beneficially owned by relevant Australian residents. The supporting documents suggested that by way of a series of complex arrangements involving these companies and other entities and persons in other jurisdictions, the Australian residents had avoided substantial amounts of tax which would have been otherwise payable and had failed to provide documents under formal request that were required for the purposes of establishing beneficial ownership and/or company residence in Australia. Specifically the concerns of the ATO were:
    (a) That some or all of the UK registered companies may be considered to be tax resident in Australia as their effective management and control rests with Australian resident taxpayers,
    (b) that interest payments claimed as deductions against profits by various Australian resident taxpayers who are associated either with VRG and/or John Leaver or with clients of theirs may not be properly allowable,
    (c) that income properly payable to Australian resident taxpayers and declarable for tax purposes has not been so declared,
    (d) that schemes of arrangement have been set up by which substantial sums have been artificially diverted from the accounts of Australian resident taxpayers and, in some cases, loaded back via offshore companies controlled by VRG and/or Lubbock Fine leading to a substantial loss of tax,
    (e) that sums remitted from offshore companies controlled by VRG and/or Lubbock Fine represent the taxable income of VRG and clients and associates,
    (f) that sums remitted from offshore companies controlled by VRG and/or Lubbock Fine and paid direct to travel agents and to educational institutions represent taxable emoluments in respect of VRG and clients and associates,
    (g) that clients of VRG have engaged in activities by which "back to back" loan facilities were arranged to disguise the taxable nature of substantial remittances which arose from offshore companies controlled by VRG and/or Lubbock Fine and
    (h) that several of these companies are trading in shares listed on the Australian Securities Exchange and by falsely claiming non-resident statue they avail themselves of concessions to exempt the profits derived from being subject to capital gains tax in certain circumstances.
    The ATO provided an analysis that showed estimated tax at risk on about AUD230m of income.
    7. In addition, the ATO request sought information held by the UK resident banks, HSBC Bank plc, Lloyds TSB Bank plc and Barclays Bank plc. The request indicated that the documents were reasonably required from the banks and from Lubbock Fine LLP for reasons that included the following:
    (a) the determination of the beneficial ownership of identified entities and the sources of funds used to conduct transactions including those mentioned above,
    (b) the establishment of any false claims to interest relief,
    (c) the determination of residence of various entities; and
    (d) the identification of any undeclared income."
  30. By letters dated 16 May 2012, HMRC sent precursor letters to all proposed recipients of third party notices, including Lubbock Fine LLP and HSBC. The letters are all headed "Proposed Notice to you as a third party to provide information and produce documents, under Schedule 36 of the FA 2008" and though their terms differ slightly, all offered the opportunity to give voluntary disclosure and/or to make representations against approval of such notices. The letter to Lubbock Fine LLP stated that, in response to a formal request from the ATO for an exchange of information, Mr Pandolfo needed information and documents listed in an enclosed schedule. It explained that he would make a legal request for the documents to the First-tier Tribunal unless the documents were provided voluntarily; and that the addressee could make representations stating why they should not have to give him what he was asking for by way of proposed notice. He explained that a summary of such representations would be given to the Tribunal.
  31. The schedule of documents identified a list of 40 corporate entities in total (each precursor listed a smaller number relevant to that third party, and included UK entities and entities of the BVI, Bahamas, Cayman Islands, Gibraltar and Samoa) and sought all documents (widely described as including emails, letters, memoranda and records held on computer whether in hard or soft drives, and general ledgers, financial statements, cashbooks and other books of account) relating to services provided by Lubbock Fine LLP to or in respect of these entities, including "accounting, managerial, tax advice, company formation, invoicing and expense recording and banking and financial services". Specific periods in relation to each entity were identified; and exclusions were provided so that for example, Lubbock Fine are not required to provide certain documents in connection with their performance as auditors and tax advisers in relation to the entities. Paragraph 6 of the schedule stated "the persons to whom the request for documents relates to (sic) includes Vanda Russell Gould and John Scott Leaver." Although not expressly stated, it is clear on a fair reading of the schedule that these are the taxpayers who are the immediate focus of the investigation and to whom the document request relates; whilst the 40 corporate entities are not the taxpayers being investigated but are relevant to the investigation nonetheless.
  32. Mr Pandolfo states that he made a specific request to the ATO to be provided with the names and addresses of the parties he considered to be "taxpayers" for the purposes of Sch.36 para.2. By letters dated 30 July 2012, Mr Pandolfo wrote to the following "taxpayers" providing a summary of reasons for seeking third party notices: Mr Vanda Russell Gould; Mr Thomas Hale; Mr Robert Hale; Malackey Holdings Pty Ltd & ATF Malackey Trust; Ms Lucille Ross; Mr John Scott Leaver; Gough Ralph Property Ltd Australia; Furnishings Accessories Pty Ltd and Mr D and Mrs H Gage; Education Corporation of Australia Ltd & ATF Education Gold Trust; Dr J Ross. Although not identical, the letters are in similar terms. By way of example, the letter to Mr Vanda Russell Gould states that Mr Pandolfo is making enquiries into aspects of his tax and financial affairs and those of companies or entities believed to be associated with him. It states that an application to the First-tier Tribunal will be made seeking approval of notices to HSBC, Barclays, Lloyds Bank, and to Lubbock Fine and InTrust Ltd; and that before doing so, a summary of reasons why the information and documents are required must be given to him Mr Pandolfo then explained:
  33. "It is my belief that the entities noted above may hold information that is directly relevant to your tax and financial affairs and that, in particular albeit without prejudice to the general nature of the ATO enquiries that:

    (a) sums remitted from companies controlled by or on behalf of yourself may represent taxable income,
    (b) that sums remitted from companies controlled by or on behalf of yourself and paid directly to other parties and institutions may represent taxable emoluments and
    (c) that companies controlled by or on your behalf may properly be resident in Australia for tax purposes."
  34. By application also dated 30 July 2012, Mr Pandolfo sought approval from the Tribunal to the giving of the third party notices, including those addressed to Lubbock Fine LLP and HSBC; and a direction that the hearing should be ex-parte. He stated in the application that if it were heard in public the case might be prejudiced (no doubt because his ability to put information before the Tribunal would be hampered and because of the possibility of unwittingly disclosing information or material that was confidential or might reveal the hand of the ATO and thereby prejudice the investigation).
  35. Of the recipients of precursor letters, only Lubbock Fine LLP made representations in response to the letter. They did so initially by letter dated 11 June 2012 enclosing a copy of an Australian judicial review application and inviting HMRC to await the outcome of those proceedings in Australia challenging the exercise by the ATO of powers under Article 27 of the DTC by a number of the companies mentioned in the schedule to the precursor notices, namely Derrin Brothers Properties Ltd ("Derrin Brothers"), Chemical Trustee Ltd ("CT Ltd") (who subsequently became two of the "Three Claimants" as described below), and Hua Wang Bank Berhad, Bywater Investments Ltd and Southgate Investment Funds Ltd. The letter was followed by a letter from Henry Davis York (solicitors instructed on behalf of the same five companies in the Australian litigation) dated 2 July 2012 raising serious concerns about the legitimacy of the ATO request on their behalves and inviting HMRC to take no further steps to act on the ATO request. This letter indicates that as early as 2 July 2012 at least five entities knew that notices were being sought and broadly why this was being done. Five were sufficiently concerned to instruct lawyers to object.
  36. Mr Pandolfo replied to Henry Davis York by letter dated 31 July 2012 stating that he had decided it was appropriate to proceed to an approval hearing before the Tribunal, but making it clear that he would put a copy of the letter and any other representations before the Tribunal.
  37. By letter dated 18 September 2012 Bishop & Sewell LLP (now instructed on behalf of Derrin Brothers, CT Ltd and Indo Suez Investments, referred to collectively as "the Three Claimants") enclosed written representations for forwarding in full to the Tribunal at the approval hearing. Relevantly, the document defined and described the Three Claimants as "Taxpayers". It argued that HMRC's information powers did not extend to Australian taxes; that the application was premature because of the ongoing litigation in Australia; and that the Taxpayers had not been given a summary of reasons, and the ex-parte procedure would breach their rights under the Human Rights Act 1998 and the Convention.
  38. Also on 18 September 2012, Lubbock Fine made representations on a number of specific points related to the 28 entities listed in the documents schedule to their proposed notice. Importantly, they identified two entities that were not clients of Lubbock Fine LLP. So far as a third entity was concerned (Barleigh Wells Ltd) they stated that this company acts for over 50 clients, and a review had indicated that there is only one trust for which Barleigh Wells Ltd acted as trustee which had dealings with some of the entities mentioned in the schedule. Accordingly, they suggested that the scope of the notice in connection with Barleigh Wells Ltd should be restricted to dealings with other entities mentioned in the schedule. There was no suggestion that this point also applied or might apply to any other listed entity; nor was there any challenge to the potential relevance of documents related to other listed entities. More generally, they stated that parties affected by the application would have wished to make representations orally to the Tribunal and had been denied this right in breach of Article 6. No representations that the proposed notices were unduly onerous or too broad in scope were made.
  39. On 19 September 2012, HMRC's application was to be heard by the Tribunal, but was adjourned at Mr Pandolfo's request so that the Three Claimants' representations and those of Lubbock Fine LLP could be considered. By an Order released on 28 September 2012, the Tribunal directed that the approval hearing which had been re-listed for 23 November 2012 should be held in private.
  40. At paragraph 19b of his first statement, Mr Pandolfo states that as a consequence of the Three Claimants' representations in relation to the failure to provide them with summary reasons despite the fact that they must have been "taxpayers" for the purposes of Sch. 36,
  41. "to avoid unnecessary, time-consuming disputes after receipt of a further communication from the ATO that provided further specific information on the identity of the taxpayers, I issued further letters to each of the parties noted …"

    In other words, he treated them as "taxpayers" for the purposes of Sch.36 paras.2 and 3.

  42. This explanation was challenged by the Claimants during the hearing. They maintained in argument (though no evidence to support this has been provided to the court) that there is no difference between the Three Claimants and the other remaining Claimant entities identified in the schedule; and that the fact that they, rather than all Claimants, made representations was entirely random, and had to do with which entity was available to give instructions, but nothing more. In response, Ms Anderson rejected this: she explained on behalf of Mr Pandolfo that he considered whether there was something special about the Three Claimants, identifying that they had common ownership with one Lubbock Fine entity that owned them all, and their beneficial ownership was directly linked to Vanda Russell Gould, the promoter of the scheme being investigated. By contrast, the remaining Claimant entities are owned by clients of Vanda Russell Gould who have taken up the scheme. Mr Pandolfo considered this difference and was satisfied that the Three Claimants are likely to be "taxpayers" for para.2 purposes because of their direct connection and decided on a precautionary basis to regard them as "taxpayers". Ms Anderson stated that Mr Pandolfo did not go back to the ATO, but reacted to what he had been told and the information already available. In reply, Ms McCarthy suggested that this latter statement was directly contradicted by Mr Pandolfo's written statement as recorded above. To avoid unfairness in the circumstances, I invited Ms Anderson to obtain a further short witness statement from Mr Pandolfo dealing with this point.
  43. In his second statement (signed and dated 1 April 2014) Mr Pandolfo explains that following receipt of the letter dated 18 September 2012 from Bishop & Sewell, he raised the question whether the Three Claimants should be treated as taxpayers for the purposes of Sch. 36 para.3 (3) (e) in a telephone conference with representatives of the ATO on 28 September 2012. In that telephone call he explained the submissions that had been made but did not require the ATO to indicate if it considered any particular company to be a taxpayer because he took the view that this was a matter for HMRC to decide in accordance with UK legislation. Subsequently, he states, that in October 2012 he received further information from the ATO concerning all of the companies about whom information was being considered as part of the enquiries into taxpayers whose tax affairs were under investigation. He took account of this additional information together with the material previously supplied by the ATO and decided that it was appropriate to treat the Three Claimants as taxpayers pursuant to Sch. 36 para.3(3)(e) In particular, he states:
  44. "Important to my reasoning in this regard was the fact that the evidence held by me suggested that the three companies were beneficially owned by Mr Vanda Russell Gould who was the principal focus of the ATO enquiries in that it was believed he had benefited personally from arrangements entered into as well as promoting such arrangements to certain clients of his. I was therefore able to draw a distinction between these three companies and other companies about whom the ATO had requested information. These three were beneficially owned by Mr Gould, whereas the other companies were beneficially owned by clients of Mr Gould and/or Mr Leaver (who was also considered to be involved in promoting the scheme). I duly issued reasons letters to the [Three Claimants] on 16 November 2012."
  45. In written submissions in response to this second statement, Ms McCarthy complains that HMRC has disregarded the duty of candour in defending this judicial review challenge. I disagree. A number of serious allegations were made by Ms McCarthy during oral submissions (including an allegation that Mr Pandolfo misled the Tribunal unintentionally) and it was inevitable that these would have to be answered, if necessary by reference to additional material that would not otherwise have been put before the court. Moreover, so far as the identity of relevant taxpayers is concerned, she criticises the failure to require the ATO to indicate if it considered a particular company to be a "taxpayer" for these purposes. In light of the exercise conducted by Mr Pandolfo, and the substantial information and documentation he received, this criticism has no weight. Mr Pandolfo was in (at least) as good a position to determine this question as the ATO in the circumstances. I am also satisfied (having regard to the itemised list of documents sent to the Tribunal and the fact that the ATO were separately represented at the hearing) that these matters were sufficiently drawn to the attention of the Tribunal.
  46. The consequence of their treatment as "taxpayers" for para.3(3)(e) purposes, was that by letters dated 16 November 2012, Mr Pandolfo provided a summary of reasons to the Three Claimants in more or less identical terms as to why the information and documents are required. He stated that he was making enquiries into aspects of their tax and financial affairs in response to a request from the ATO and was intending to seek approval from the Tribunal to issue a formal notice to persons requiring them to provide information and documents. He explained: "It is my belief that the persons referred to may hold information that is directly relevant to your tax and financial affairs and that, in particular albeit without prejudice to the general nature of the ATO enquiries, that you may be liable to tax in respect of buying and selling shares, interest payments and underwriting fees." These letters were sent by post, four clear days before the hearing. It is common ground that copies were not then sent to the Three Claimants' representatives – that happened later.
  47. By email dated 19 November 2012 at 3.37pm Mr Pandolfo (quite properly) informed Mr Rahman of Bishop & Sewell that the hearing of the application would take place on 23 November; that the full submission of 18 September 2012 would be placed before the Tribunal; and that Mr Pandolfo had sent summary reasons letters to the Three Claimants as "taxpayers" within para.3(3)(e). Mr Rahman responded requesting copies of all such letters, and Mr Pandolfo replied (email dated 20 November at 3.32pm) requiring an assurance that he would accept responsibility on behalf of his clients in lieu of a formal authority to act form being completed. By the following afternoon Mr Rahman had managed to take his clients' instructions and confirmed agreement to that email. He sent a chasing email to Mr Pandolfo at 6pm that afternoon, complaining that the summary reasons letters had not been sent to him, and that he and his clients had had insufficient time to make representations. The email exchanges in the hearing bundle stopped there and on that basis, Ms McCarthy submitted that despite knowing legal representatives were instructed, and despite the express requests referred to and HMRC's promise, HMRC failed to provide copies of the summary reasons letters to Mr Rahman thereby invalidating the Notices.
  48. This is incorrect as a matter of fact. In his second witness statement, Mr Pandolfo attaches further emails in this chain (previously omitted in error) showing that he responded to the email of 21 November 6pm on 22 November 2012 at 10.08 am enclosing the three summary reasons letters and explaining that whilst earlier notice might have been preferred it was his view that the Three Claimants had had sufficient time to raise any further issues and given that they had no legal right to be heard in the proceedings, he did not regard any further delay as appropriate. He stated that if Mr Rahman or the Three Claimants wished to raise any issues regarded as sufficiently important to place before the Tribunal they could do so. (He also pointed out that the action in Australia being taken against the ATO had been discontinued.)
  49. As a further consequence of the representations received, Mr Pandolfo reduced the number of entities referred to in the schedule to the proposed Lubbock Fine LLP notices reflecting the representations made by them in relation to entities that were not clients etc.
  50. At a hearing on 23 November 2012, attended by Mr Pandolfo, Mr Orchard and Mr Brad Edwards, a representative of the ATO, Judge Roger Berner dealt with the application for approval of the giving of notices. A short note of the hearing has been produced by Mr Pandolfo; together with (albeit late in the day) an itemised list of documents sent to the Tribunal in advance of the hearing – 22 items are listed including (i) substantial background information including diagrammatical and other information provided by the ATO; (ii) ATO analysis of perceived arrangements and tax consequences; (iii) proof that PP is an authorised officer; (iv) letters and representations from all representatives and Lubbock Fine; (v) ATO response to procedural issues raised by HDY; and (vi) further communication from ATO relating to "taxpayers". It is also clear from his note (and the extract from the briefing document) that he expressly raised the specific challenges and objections he had received to the giving of the notices (including the objection raised by Lubbock Fine to the request for "old" documents, contrary to Ms McCarthy's submission). The Judge approved the giving of the Notices on being satisfied that all the relevant conditions were satisfied in this particular case (see paragraph 6 of his decision) and issued an anonymised decision ("the Decision") dealing with some of the issues raised in representations where his Decision would be of general interest, but expressly not with his reasons for approving the Notices.
  51. Ms McCarthy submits that Judge Berner made a finding of fact at paragraph 2 of the Decision that the Three Claimants were "taxpayers" for Sch.36 purposes (and therefore entitled to summary reasons) from the outset of this process, and not just following Mr Pandolfo's reconsideration. She submits that the Judge had clearly in mind the difference between taxpayers generally and "taxpayers" for Sch.36 purposes, as demonstrated by paragraphs 36 and 37 of the Decision, and that he did not identify them as taxpayers by accident. Paragraph 2 of the Decision states as follows:
  52. "The application originally came before me on 19 September 2012. The day before that, HMRC received certain representations from solicitors acting for a number of taxpayers whose affairs are the subject of the relevant enquiries. Those representations were settled by UK tax counsel. HMRC provided a copy of the representations to the Tribunal, and sought an adjournment of the application so that they could be fully considered by HMRC."

    This paragraph appears in the introductory section of the Decision, and sets out the immediate chronology leading to the hearing before the Judge. It does not purport to make findings of fact and I cannot accept that this is a fair reading of it. Indeed the Judge expressly states (at paragraph 6) that the Decision does not record his reasons for finding that the relevant conditions were satisfied. Moreover, Bishop & Sewell's written representations to the Tribunal (of 18 September 2012) defined the Three Claimants as "the Taxpayers" and described their representations as "Taxpayers' Summary of Representations". It is not surprising that the Judge described them as such at paragraph 2 in the circumstances. This was not in any sense a finding of fact as Ms McCarthy submitted.

  53. It was also suggested that Judge Berner did not know what had happened to the Three Claimants who were Sch.36 taxpayers; and did not consider the position of the 21 Claimants. So far as the Three Claimants are concerned, the Judge made clear at paragraph 25 of the Decision that he was satisfied that the Sch.36 taxpayers had been given a summary of reasons why HMRC required the information or documents as required by para.3(3)(e). Further, he made clear that he could not have approved the Notices if there had been a failure by HMRC to comply with any of the statutory conditions including the requirement to give summary reasons to the Sch.36 taxpayers.
  54. By letters dated 27 November 2012 HMRC sent the third party Notices to Lubbock Fine, HSBC Bank plc ("HSBC"), Lloyds TSB Bank plc ("Lloyds") and Barclays Bank plc ("Barclays") as a consequence of the first approval; together with copies to each "taxpayer". These Notices included within them requests for documents relating to the Claimants as summarised above.
  55. Due to an oversight by HMRC, certain proposed notices were not signed by the Judge on 23 November 2012, so a further hearing was listed simply to enable the notices to be signed. There is no suggestion that any other issue was canvassed or addressed at this further hearing. After signature on 9 January 2013, the further Notices were served by letters dated 14 January 2013, and copied to the "taxpayers" including the Three Claimants.
  56. By letter dated 18 December 2012, the Claimants requested of HMRC a number of documents including HMRC's submissions to the Tribunal, a copy of their note of the hearing and the reasons given by the Tribunal for approving the First Notices. By letter of the same date, HMRC provided a copy of the Decision but refused the remainder of the request.
  57. Against this factual background, I turn to consider the relevant issues raised by the grounds.
  58. The Issues

    Ground 1: On a proper interpretation of Sch.36 FA 2008, the Notices have not been validly issued by HMRC.

  59. The Claimants contend that the approvals (and therefore the Notices) are invalid because there has been a failure to give any reasons to the 21 Claimants who were not treated as "taxpayers" for Sch.36 paras.2 and 3 purposes; and the reasons given to the Three Claimants are inadequate and were not given in sufficient time to allow them to make representations.
  60. So far as the 21 Claimants are concerned, Ms McCarthy submitted that Sch. 36 para.2 (2) provides that a third party notice must name the taxpayer "to whom it relates" and that accordingly, persons to whom third party notices are said to relate are taxpayers (as defined). That being the case, the precursor letter to Lubbock Fine clearly identifies the entities listed at Schedule 5 as "taxpayers" for the purposes of Sch.36 because: At [1], there is an express request for "All documents relating to services provided by Lubbock Fine LLP to or in respect of the entities described in the schedule at [5] below…" and those entities are then referred to as "the parties to whom this request relates"; and Schedule 5 is headed "Schedule of entities to which this proposed notice relates". Critically she submits, this wording is repeated in the Notices themselves. The 21 Claimants named therein (being the persons to whom the third party notices relate – i.e. "taxpayers" for the purposes of Sch.36) were accordingly entitled to a summary of reasons from HMRC as to why documents and information relating to them were required.
  61. I cannot accept this argument. The legislation does not provide that any entity or person identified in a third party notice is a "taxpayer" for para.2 and 3 purposes merely because mentioned there or because the notice in some way 'relates' to them. Rather, the legislation requires that the taxpayer who is the immediate focus of the notice (in the sense that the notice requires information or documents the purpose of which is to check his or her tax affairs) is identified and entitled to summary reasons (para.2 (1)). Only if he is the taxpayer the checking of whose tax affairs is the purpose of the notice is he entitled to be provided with reasons why the information and documents are required. It is not open to a taxpayer to object to a notice on the ground that the information or documents might be relevant to the tax affairs of some other person who is not the immediate focus of the notice and has not been given summary reasons. That person is not a taxpayer for para.2 and 3 purposes, unless the purpose of the requirement for the information and documents includes the checking of that person's tax position.
  62. Accordingly the mere fact that the information and documents required might be relevant to the tax affairs of the 21 Claimants, or that they are listed at schedule 5 of the Notices as "parties" or "entities to which the proposed notice relates" does not entail that they are "taxpayers" for third party notice purposes. To be such "taxpayers" they would have to be the immediate focus of the Notices in the sense that the Notices' purpose includes the checking of their tax position.
  63. It follows that unless the 21 Claimants were as a matter of fact, the taxpayers the checking of whose tax affairs is the purpose of the notice or notices, they are not taxpayers required to be identified as such and entitled to summary reasons.
  64. Ms McCarthy submits that the limited evidence before the court plainly demonstrates that the ATO investigations concern the tax positions of the 21 Claimants and that there is nothing to distinguish the 21 Claimants from the Three Claimants (and they were not differently identified in the precursor letters). She submits (though there is no evidence from Adam Chapman, Lubbock Fine or Henry Davis York to this effect) that the Three Claimants were identified randomly because they were the only ones from whom instructions could be obtained in time. Bearing in mind the sequence of events, and the fact that of the 24 entities in total, only the three in respect of whom submissions were made turned out to be "taxpayers", she submits this is a remarkable coincidence and cannot credibly be sustained. Further, she submits by reference to the concerns of the ATO identified by Mr Pandolfo (at paragraph 6 of his first statement) in particular that "some or all of the UK registered companies" may be considered tax resident in Australia, and that "several of these companies" are trading in shares listed on the Australian Securities Exchange and by falsely claiming non-resident status avoiding capital gains tax, that it is not credible to suggest that the tax position of the 21 Claimants is not also being checked. To the contrary she submits, they are plainly taxpayers entitled to summary reasons.
  65. For the following reasons I cannot accept that the 21 Claimants have been shown plainly and obviously to be taxpayers for the purposes of para.3(3)(e):
  66. (a) The sequence of events described above in which the Three Claimants came to be regarded by Mr Pandolfo as "taxpayers" does not in my judgment support any inference that they are a randomly selected group, nor is it a coincidence that only these three objected. These companies were two out of only five claimants in connected proceedings challenging the ATO in Australia. Lubbock Fine wrote to HMRC about all five by letter dated 11 June 2012; and Henry Davis York were acting for three entities included in the 21 Claimant group and had been able to take instructions from them in time to make representations to HMRC by letter dated 2 July 2012. That only three subsequently complained is consistent with those three being the particular entities with a justifiable case that they were in fact taxpayers whose tax positions were being checked. There was nothing to stop the other 21 doing so, but they did not.

    (b) Moreover, Mr Pandolfo makes clear that there is a factual distinction between the Three Claimants and the 21 Claimants, because unlike the rest, the Three Claimant companies were beneficially owned by Mr Gould who was the principal focus of the ATO enquiries, believed to have benefited personally from arrangements entered into, as well as promoting such arrangements to his clients who were the beneficial owners of the remaining companies. This direct connection with the main target of the ATO investigation plainly distinguishes the Three from the 21.

    (c) Nor does the mere fact that information or documents might be relevant to the tax affairs of the 21 Claimants (because their residence status forms part of the broader investigation) mean that they are the immediate focus of the information notice. The immediate focus of the notices, and therefore the persons whose tax positions were being checked, were Gould, Leaver and companies or persons directly connected with them.

    (d) Judge Berner, who had significantly more information available to him both from the ATO and from HMRC, was satisfied that in this case the taxpayers had been given summary reasons in compliance with the statutory condition at para.3(3)(e). Nothing in the evidence or submissions is irreconcilable with this conclusion or demonstrates that he was wrong so to conclude.
  67. It follows that there was no requirement to provide a summary of reasons to the 21 Claimants who were not named as taxpayers in paragraph 1 of the Notices (as the person whose tax position was being checked and in relation to whom the documents were required).
  68. On this basis, the Claimants advance an alternative argument that if the 21 Claimants are not "taxpayers" the Notices which included those companies are invalid because too broadly drafted. They contend that a blanket request for all documents relating to each entity will inevitably include documents that have nothing at all to do with the named taxpayers' tax positions. The difficulty with this submission is that there is no evidence to support it. I am unable simply to assume that it is inevitable that each entity will have documents that have nothing whatever to do with the named taxpayers in the circumstances of this case where it is suggested there was a scheme involving these entities and it is common ground that the Claimants are linked to the taxpayers under investigation. For example, the schedule to the Notices indicates that aside from entities 2, 14, 19 and 21-24 they all share the same addresses as the taxpayers under investigation and HMRC understand that their directors include individuals who are directors or employees of Lubbock Fine LLP. Further, whereas in relation to Barleigh Wells Ltd, Lubbock Fine expressly raised the fact that this entity was owned by Lubbock Fine Ltd and acted as trustee for the general class of Lubbock Fine clients rather than just for and on behalf of parties whom the ATO were interested in, it made no such representations in relation to any other listed entity, nor has any such clearly identifiable basis been advanced before me by Lubbock Fine or any of the 21 Claimants. In the case of Barleigh Wells Ltd, Mr Pandolfo restricted the request to those entities known to have transacted with the company and identified by ATO as being connected with the persons the subject of the ATO enquiries; but there is no evidence whatever to demonstrate that this is a course he should have taken in relation to the 21 Claimants.
  69. Moreover this submission ignores the presumption of regularity which applies both to Mr Pandolfo's conclusion that the documents were reasonably required for checking the named taxpayers' tax positions; and to the Tribunal Judge's conclusion that he was satisfied in the circumstances that the officer giving the notice was justified in doing so. What is required is material to justify rebutting the presumption of regularity here, rather than simply seeking to use the avenue of judicial review as a means to second guess the Tribunal's approval.
  70. Although it is common ground that the Three Claimants were provided with para. 3(3)(e) letters giving a summary of reasons why HMRC required the documents, the Claimants contend that the letters of 16 November 2012 are an inadequate summary of reasons because they fail to identify which documents are being sought, and do not provide sufficient information to enable the taxpayers to make representations objecting to the proposed notices. Moreover, they had less than 4 clear days to consider the notices before the 23 November 2012 hearing which was "manifestly insufficient".
  71. In support of this submission Ms McCarthy refers to R v IRC, ex p Continental Shipping [1996] STC 813 (Tucker J) and R v MacDonald and IRC, ex parte Hutchinson & Co Ltd and others [1998] STC 680 (Carnwarth J) (both concerning the predecessor s. 20 TMA 1970 scheme but applying equally so far as relevant to the Sch. 36 scheme).
  72. In Continental Shipping, third party notices were sought from National Westminster Bank relating to information about Panamanian companies (the judicial review applicants) which the inspector believed could be relevant to the tax affairs of two individuals (the Kollakis brothers) he was investigating. No summary reasons were given to the taxpayers (as required by s. 20(8E)) on the basis that "to provide other than a mere bland statement which would not in effect provide my reasons…" would have led to the identification of his sources of information. Tucker J observed that the requirement to provide summary reasons to the taxpayer (but notably not to the applicant companies) is mandatory and must relate to the inspector's reasons for applying to the commissioners. He emphasised the responsibility HMRC have when seeking to exercise these powers, stating that they must "only hide behind a cloak of confidence when this is absolutely necessary and not as a matter of course"; even if there are legitimate reasons for not giving full disclosure, this does not obviate the requirement for HMRC to give summary reasons, but may properly limit the information contained in the summary. Nevertheless, he accepted that a bland statement of reasons could have been provided in this particular case, consistently with the statutory scheme, and that if provided, it would not have been open to the applicants to go behind it. The failure to provide mandatorily required reasons here did not invalidate the notices in the circumstances.
  73. Hutchinson concerned taxpayer, rather than third party notices (i.e. s. 20(1) not s. 20(3)). The importance of the procedural safeguards was again emphasised and a failure to comply with the summary reasons requirement in the case of a taxpayer who would be at risk of penalties for non-compliance with a notice (without being given reasons for it), was held normally to be grounds for setting aside the notice. Here, Carnwath J held that the short reasons given to the taxpayers were inadequate where (i) fuller reasons for requiring the documents by notice were given in earlier correspondence, so could have been repeated; and (ii) the burden of compliance had been raised as a real issue in response to precursor notices but was not expressly drawn to the attention of the commissioner or dealt with in the reasons.
  74. Ms McCarthy relied on Hutchinson in particular as authority for the proposition that summary reasons must as a minimum (i) identify the documents required and the reasons why those documents are required; and (ii) address any objections raised. I do not read the holding in Hutchinson as a general statement to either effect - Carnwath J was dealing with what was required on the facts of that particular case. Here, we are concerned with third party (not taxpayer) notices, where the penalty of non-compliance falls on the third party recipients of the notices (not the taxpayers). The third parties in the present case were entitled to and did receive precursor letters identifying the documents required; they were entitled to and made representations where appropriate; they had the right to have those representations (or a summary of them) given to the Tribunal so that their objections to the Notices could be drawn to the attention of the Tribunal and considered by it. The main objections were addressed comprehensively in the published Decision which they received subsequently. The "taxpayers" in this case are in a different position: they are not required to comply with potentially onerous notices at risk of penalties for non-compliance; not entitled to precursor notices; and not entitled to make representations to the Tribunal.
  75. The nature of the reasons to be provided inevitably varies with the context in which they are required. Schedule 36 para.3 does not provide the taxpayer in a third party notice with any statutory right to make representations nor to have such representations given to the Tribunal. (The fact that as a matter of policy, HMRC generally provides any representations made by taxpayers to the Tribunal does not affect or alter this position; nor is there any basis for concluding that HMRC would not have followed this policy here had further representations been made). Moreover, there is no right of appeal by the taxpayer from a Tribunal's approval. Accordingly, the purpose of providing summary reasons is not to put the taxpayer in a position to assess whether the requirement for documents is reasonable so that he can object; nor to enable him to advance any appeal. Rather, as Ms Anderson submitted, the provision of summary reasons is an important part of the discipline imposed by para. 3(3)(e) which acts as a further safeguard requiring the officer to formulate why he requires the information and documents, and make this known to the taxpayer. For the same reasons, there is no statutory requirement on HMRC to provide a summary of reasons within a particular time of the approval hearing.
  76. Against that statutory background, I am quite satisfied that the summary reasons letters dated 30 July 2012 provided to Mr Gould, Mr Leaver and their direct associates were entirely adequate to explain why the officer required the information and documents held by third parties. The reasons letters provided to the Three Claimants dated 16 November 2012 are less full. Nevertheless they provide the following information:
  77. (a) that HMRC had received a request from the ATO and that under the provisions of the Double Tax Agreement, HMRC is making enquiries into aspects of the taxpayer's tax affairs;
    (b) that third parties are to be given formal notices requiring of information and documents subject to approval by the Tribunal;
    (c) that the officer believed that the third parties may hold information that is directly relevant to the taxpayer's affairs and in particular that the taxpayer may be liable to tax;
    (d) that liability to tax in the case of Derrin Brothers was in respect of buying and selling shares and interest and that you may be resident in Australia for tax purposes;
    (e) that liability to tax in the case of Indo-Suez Investments Ltd was in respect of buying and selling shares, interest payments and underwriting fees;
    (f) that liability to tax in the case of CT Ltd was in relation to profits derived from buying and selling shares.
  78. These letters are in my judgment an adequate summary of reasons given the factual context, and were provided in adequate time for their purpose. They explain the nature of the investigation or enquiry Mr Pandolfo is engaged in; that it concerns each taxpayer's liability to pay tax, including a relevant foreign tax; and that information or documents held by third parties is believed by him to be directly relevant to the investigation or enquiry. The fact that the reasons could have been fuller does not render them inadequate in the circumstances of this case; nor does the fact that they do not identify the particular documents sought alter this conclusion. Each of the Three Claimants received a copy of the Notices served on the third parties on the date they were served (14 January 2013). These set out in full the documents required and from whom they were required and as a consequence they had the information Ms McCarthy submits was the minimum required. Finally, there was no statutory or other obligation on HMRC to serve the summary reasons on the Claimants' legal representatives; but in any event, they were in fact served on Bishop & Sewell the day before the hearing.
  79. So far as the 21 Claimants are concerned, Ms McCarthy submitted that even if they are not taxpayers, fairness required that they be given precursor or reasons letters; and could see no objection to this. I disagree. HMRC owe duties of confidence to taxpayers. This is not absolute (see Commissioners for Revenue and Customs Act 2005 s.18) but so far as possible HMRC is generally required to reveal as little as possible about another taxpayer's affairs to a third party. It would be highly undesirable in circumstances where it might involve HMRC revealing a taxpayer's affairs to a third party – who may turn out to be unconnected or distantly connected with that taxpayer – for there to be an obligation on HMRC to provide precursor or reasons letters to non-taxpayers and non-third-party-recipients. Fairness does not require this.
  80. Although not pressed orally, the Claimants submitted in writing that given that Sch.36 paragraph 20 provides that an information notice may not require production of documents originating more than 6 years before the date of the notice unless the notice is given by, or with the agreement of, an authorised officer, absent evidence demonstrating that Mr Pandolfo is an "authorised officer", Notices requiring production of 'old' documents are unlawful; and furthermore Lubbock Fine's objection to producing 'old' documents was ignored by both HMRC and the Tribunal. Neither argument is sustainable on the facts; moreover the presumption of regularity applies and would have had to be rebutted for either argument to get off the ground.
  81. Accordingly in my judgment for the reasons given, there was no breach of the requirements of Sch.36 FA 2008 so as to invalidate the giving of the Notices by HMRC in this case.
  82. Ground 2: whether there has been a breach of article 6 ECHR when read in conjunction with article 8 and/or A1P1

  83. Ms McCarthy made clear that this ground is only pursued as necessary for the Claimants if they have lost on Ground 1. Since I have rejected their primary argument that the 21 Claimants were "taxpayers" entitled to a summary of reasons, and rejected the other technical arguments raised in relation to all Claimants, she submits that the factual premise for the challenge under Ground 2 is that the 21 Claimants are at risk of having their documents handed over to HMRC (and the ATO) without (a) any reasons being given to them; (b) any right to make representations and (c) any right to be heard by the Tribunal or any court; and further that all the Claimants were precluded from taking any real part in HMRC's applications and accordingly were unable to challenge the proposed third party notices. On that basis, Ms McCarthy submits that there was a violation of article 6 taken in conjunction with article 8 and/or A1P1 of the Convention.
  84. Neither in the claim itself nor in the Claimants' Skeleton Argument was it submitted that there is any need for the Claimants to demonstrate that the Sch. 36 scheme is relevantly flawed for the purposes of the human rights argument, and nor did they seek to do so. Instead (in reliance on HMRC v Total Technology (Engineering) Ltd [2012] UKUT 418) they argued that the application of the regime to them results in unfairness and an infringement of their human rights. Given my conclusions on Ground 1 and given s6 (2) HRA, this position cannot be maintained. In oral argument therefore, for the first time, Ms McCarthy suggested that words should be read into the statutory scheme to allow for persons identified in third party notices as persons to whom required documents belong, to be treated as persons to whom s. 3(3) (d) and (e) apply, and for both such persons and taxpayers to be afforded a reasonable opportunity to make representations to the HMRC officer. The absence of any claim to this effect in the grounds is sufficient to dispose of this point. However, the argument fails on its merits in any event, for the reasons that follow.
  85. I am in little doubt that the Notices interfere with the privacy and confidentiality rights the Claimants have in respect of their business documents so that article 8 is engaged by these facts. The interference is however at a relatively low level because although confidential, it is not suggested that the material is personal, privileged or commercially sensitive. Further, HMRC (and the ATO) are restricted in their use and disclosure of such documents – HMRC may only use the documents in connection with their statutory tax collection, management and enforcement functions and may not disclose information held in connection with their functions save as expressly provided for by the 2005 Act. Furthermore, if measures are taken against taxpayers by reference to documents so obtained (because they have failed to pay tax in accordance with their obligations to do so), they have the right of legal challenge at that stage.
  86. Moreover article 8 expressly envisages that interference with the right to respect for privacy might be necessary in a democratic society in the interest of the economic well-being of the country, or for the protection of the rights and freedoms of others. So to the extent that Sch.36 notices interfere with rights of privacy, such interference will be justified where the notice is issued according to law, in pursuit of a legitimate aim, and necessary in a democratic society for protecting the taxation system and revenue: see for example Chappell v United Kingdom (1989) 12 EHHR; Funke v France (1993) 16 EHRR 297; and R v IRC, ex parte Banque Internationale a Luxembourg [2000] STC 708 at 723 c-e. In addition to a person's right to maintain privacy and confidentiality of business documents there is a public interest in the prompt, fair and complete collection of tax revenue which falls well within article 8(2) as ample ground on which the right to respect for private correspondence might in a proper case be abrogated. Parliament has recognised these competing interests in the Sch.36 scheme and has in the provision of adequate and effective safeguards against oppressive action by HMRC struck the balance appropriately so that a notice issued in accordance with Sch.36 will be a proportionate interference. Moreover, I am satisfied on the material that has been placed before me that the Notices were issued according to law, in pursuit of a legitimate aim, and were necessary in a democratic society for protecting the taxation system and the revenue.
  87. The position so far as A1P1 rights being engaged here is less clear (given the ability to provide copy documents, and given that physical records could be duplicated), but given that these too are qualified rights and given the low level of interference in pursuit of a legitimate aim and necessary for protecting tax revenue, A1P1 rights add nothing to the analysis if, as I accept, article 8 is engaged in the circumstances indicated.
  88. The question that must then be addressed is whether there has been a violation of the Claimant's article 6 rights (taken in conjunction with article 8) by virtue of their having been precluded from challenging the third-party notices because they have not had reasons given to them, the right to make representations, or the right to be present at the Tribunal hearing.
  89. The Claimants found their argument here (as they did in written representations given to the Tribunal) on the case of Ravon and Others v France (application no.18497/03) where the ECtHR held that article 8 rights amount to "civil rights and obligations" for the purposes of article 6 (see [24]) and that there had been a violation of article 6 in circumstances where the French tax authorities suspecting tax fraud carried out searches and seizures at company premises and a taxpayer's home because the applicants had not had access to an effective remedy in order to challenge the lawfulness of the searches of residential premises and seizures to which they had been subjected.
  90. The absence of involvement by taxpayers or third party recipients of notices in a hearing about the giving of a notice and the advantages of the ex-parte procedure in the context of s. 20 TMA 1970 was accepted by the Court of Appeal (the point not being in issue in the House of Lords) in R v A Special Commissioner ex parte Morgan Grenfell & Co Ltd 74 TC 511 where it was accepted that the self-evident risk of compromising the investigation by accidental disclosure of material to which the taxpayer (or a third party) was not entitled and the disclosure of which would run counter to Parliament's purpose, excluded the possibility of an oral (or inter-partes) procedure. Morgan Grenfell involved a taxpayer rather than a third party notice, but the point applies with even more force in a third party notice case. +
  91. Nor in my judgment does Ravon lead to a different conclusion. Judge Berner dealt in his Decision expressly with the objection raised by the Three Claimants to the ex-parte procedure in this case, and I agree with his reasoning and conclusion. At paragraphs 32 to 35 he held as follows:
  92. "32 … [Ravon] was concerned with the question whether there was any effective right of judicial review Judicial review must be available in respect of both the law and facts on the lawfulness of the decision authorising searches and seizures and any effective action is taken In Ravon, the decision to authorise the search and seizure had been taken by tribunal following an ex parte application by the French tax administration. That decision was appealable before the Cour de Cassation (the French Supreme Court) on a point of law but no other judicial remedy was available. In particular, there was no available challenge to the factual basis of the decision.
    33 In two judgements in the field of competition law (Primagaz v France (2961/08) and Groupe Canal Plus and Sport Plus v France (29408/08)) the European Court of Human Rights applied Ravon. A process whereby an authorisation order could be appealed, in both law and fact, to the Court of Appeal in France was accepted as valid. It was the transitional arrangements from the former procedure, which resembled that in Ravon, that contravened article 6(1).
    34 In the case of approvals of notices under FA 2008, Sch.36, there is only a limited right of appeal against a third party notice, and it is in favour of the third party and not the taxpayer (Sch.36, para.30). It applies only where the ground of appeal is that the notice would be unduly onerous, and it does not apply to a taxpayer's statutory records.
    35 However a taxpayer in respect of whose tax affairs an information notice is approved is not without a remedy. He can seek judicial review. That review is not in the nature of an appeal on a point of law; it can consider both the law and the underlying facts. The position is thus very different from the limited rights that were available to the French taxpayer in Ravon. Even if I were not bound by higher authority in the UK courts, I would conclude that the Sch.36 procedure does not deprive the taxpayer of an effective remedy. "
  93. Against the background of a limited (and likely proportionate) interference with their civil rights, the Claimants have been able to pursue this application for judicial review challenging that interference, and in my judgment they have been afforded an adequate and effective remedy in consequence:
  94. (a) They have been provided with a copy of the Decision which addresses three significant points of objection to the proposed notices made in written representations prior to the approval hearing by the Three Claimants.
    (b) They have had disclosure of the Notices and other documents relevant to their approval, together with witness statements from Mr Pandolfo and Mr Orchard. Whilst this does not amount, entirely understandably in the circumstances already described, to full disclosure of all material relevant to the investigation, it is sufficient to enable them to know what is sought and from whom and the reason it is said to be required.
    (c) In the circumstances, since they must know what documents of theirs are held in the possession of Lubbock Fine LLP (and others), and how and in what way they are admittedly connected with the taxpayers whose tax position is the immediate focus of the investigation, they are well placed to know what factual basis there might be for opposing these Notices.

    (d) Consequently, whilst they have not had the opportunity to make written representations to the Tribunal as to why their Convention rights should not be interfered with or to participate in the Tribunal hearing (again for entirely understandable and amply justifiable reasons as discussed above), they have had those opportunities on judicial review in this court.
    (e) Moreover, they will not be subject to any measure taken against them arising out of or in consequence of the document notices or documents obtained by HMRC or the ATO without the legal right of challenge under article 6 compliant procedures.
  95. In all these circumstances, although the Notices request the handing over of documents belonging to the Claimants currently in the possession of third parties to check the tax position of other persons, and they have had no opportunity to submit written representations to or be heard by the Tribunal, in my judgment there has been no violation of their article 6 rights (taken in conjunction with article 8).
  96. For all these reasons, despite the admirable and forceful arguments advanced by Ms McCarthy on behalf of the Claimants, this application for judicial review fails and is dismissed.


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URL: http://www.bailii.org/ew/cases/EWHC/Admin/2014/1152.html