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United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Allen, R v.  UKHL 45 (11th October, 2001)
Cite as:  1 Cr App Rep 18
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Lord Bingham of Cornhill Lord Nicholls of Birkenhead Lord Steyn Lord Hutton Lord Scott of Foscote
(ON APPEAL FROM THE COURT OF APPEAL
ON 11 OCTOBER 2001
 UKHL 45
LORD BINGHAM OF CORNHILL
1. I have had the benefit of reading in draft the opinion of my noble and learned friend Lord Hutton, with which I am in full agreement. For the reasons he gives I would dismiss this appeal.
LORD NICHOLLS OF BIRKENHEAD
2. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hutton. For the reasons he gives I too would dismiss this appeal.
3. I have read the opinion of my noble and learned friend Lord Hutton. For the reasons he gives I would also dismiss the appeal.
4. The appellant, Brian Roger Allen, was charged before His Honour Judge Hordern and a jury in the Crown Court at Knightsbridge on 13 counts of cheating the public revenue of income tax and corporation tax. He was convicted on 19 February 1998 on all counts and on 20 February he was sentenced to 13 concurrent terms of seven years' imprisonment. A confiscation order was made against him pursuant to section 71 of the Criminal Justice Act 1988 in the sum of £3,137,165 with a consecutive term of seven years' imprisonment in default.
5. Each of the first seven counts charged the same offence of cheating the public revenue of corporation tax by concealing and/or otherwise failing to disclose the existence of profits made by an offshore company, which was managed and controlled by the appellant in the United Kingdom. Count 1 was as follows:
Counts 2 to 7 charged the same offence in relation to six different offshore companies.
6. Counts 8, 9, 10, 12 and 13 charged the same offence of cheating the public revenue of income tax by delivering and/or causing to be delivered a tax return for a particular year showing income which was false, misleading and deceptive in that it omitted to declare all the income and benefits which the appellant received during that period.
Count 8 was as follows:
Count 9 related to the year 1990/1991, count 10 related to the year 1991/1992, count 12 related to the year 1992/1993 and count 13 related to the year 1994/1995. Counts 9 and 10 related to the omission of income and benefits received from (i) Peche D'Or Investments Ltd and (ii) Meldrette Investments Ltd. Count 12 related to the omission of income and benefits received from (i) Peche D'Or Investments Ltd, (ii) Meldrette Investments Ltd and (iii) Berkshire Investments Ltd. Count 13 related to the omission of income and benefits received from Peche D'Or Investments Ltd.
7. The Crown case against the appellant on counts 1 to 7 was that he had dishonestly concealed the fact that he managed and controlled in the United Kingdom the businesses of the respective companies specified in those counts in order to give the false impression that the companies were not resident in the United Kingdom so as to avoid corporation tax being charged against those companies.
The Crown case against the appellant on counts 8 to 10 and 12 to 13 was that the appellant concealed the provision of living accommodation and benefits received from the offshore companies for which he was liable to income tax as a shadow director.
Count 11 was as follows:
8. The appellant appealed against his convictions to the Court of Appeal on a number of grounds, and his appeal was dismissed and the convictions affirmed  QB 744. One ground of appeal advanced before the Court of Appeal and rejected by it was that under section 739(2) of the Income and Corporation Taxes Act 1988 the income of the offshore companies was deemed to be the income of the appellant and that the income was also deemed not to be the income of those companies. In consequence none of the companies was liable to any corporation tax as the income was not their income and therefore the appellant's dishonesty could not have caused any loss to the revenue and he could not be guilty of the offence of cheating the revenue.
9. In respect of this issue the Court of Appeal certified the following point of law:
10. The appellant's appeal was heard together with the appeal of Dermot Jeremy Dimsey who had administered on behalf of the appellant the offshore companies (and their bank accounts) specified in the indictment against the appellant and who had been convicted of the offence of conspiracy to cheat the public revenue. On the appellant's appeal before this House his counsel, Mr Newman QC, adopted the argument of counsel for Dimsey, Mr Venables QC, on the section 739(2) point. For the reasons given in the speech of my noble and learned friend Lord Scott of Foscote in the case of Dimsey, with which I am in full agreement, I would reject the appellant's ground of appeal in relation to section 739(2).
The shadow director point
11. Another ground of appeal advanced before the Court of Appeal and rejected by it was that as a shadow director the appellant was not liable to tax in respect of the provision of living accommodation and benefits in kind. In respect of this issue the Court of Appeal certified the following point of law:
12. Under the provisions of Chapters I and II of Part V of the Income and Corporation Taxes Act 1988 (the ICTA) where, by reason of his employment, a person is provided with living accommodation or he or members of his family or household are provided with benefits in kind, the value of the accommodation or the cash equivalent of the benefits is to be treated as emoluments of his employment for the purposes of Schedule E.
13. Section 145(1) in Chapter I provides in relation to the provision of living accommodation:
Section 145(8) provides:
Section 154(1) in Chapter II provides in relation to benefits in kind:
Section 167(1) sets out the employment to which Chapter II relates:
Section 168 provides:
Schedule E set out in section 19 in Part I of ICTA provides in paras 1 and 5:
14. The argument of the Crown can be briefly summarised as follows. A director of a company is treated by sections 167(1) and 168(2) as being in "employment" for the purposes of Chapter II of Part V, even if he is not actually employed by the company. Therefore the effect of section 167(1)(a) is that the Chapter applies to a director who has no actual employment. The effect of the concluding part of section 168(8) is that for the purposes of the Chapter and in particular for the purposes of section 168(2) a shadow director is treated as holding the office of director. Accordingly the appellant as a shadow director was chargeable under Schedule E in respect of the value of the living accommodation and benefits in kind received from the companies.
15. Mr Kessler, junior counsel for the appellant, advanced two main arguments. The first argument was that in Edwards v Clinch  AC 845, 861 Lord Wilberforce stated that the word "office" must "connote a post to which a person can be appointed, which he can vacate and to which a successor can be appointed". Therefore a shadow director does not hold an office. Section 168(8) states that a "director" includes a shadow director, but it should not be read as deeming a shadow director to hold an office. The purpose of section 168(8) was to avoid the repetition of the words "director or deemed director" when the word "director" is used numerous times in Chapter II. The purpose was not to extend the meaning of other words such as "office".
16. The second argument was that even if the effect of the concluding part of section 168(8) is that a shadow director has an "office", he does not have "employment" within the meaning of section 168(2) because he does not have an office "the emoluments of which fall to be assessed under Schedule E". Two reasons were advanced in support of this argument. The first was that in respect of the deemed office of a director, it is not one the emoluments of which fall to be assessed under Schedule E. On this point the Crown's argument was circular because it assumed this requirement to be satisfied in order that the emoluments can be regarded as falling to be assessed under Schedule E. The second reason was that the charge which the Crown seeks to impose is one to which paragraph 5 of Schedule E relates and that paragraph does not impose a territorial limitation. In consequence the Crown's argument would result in a charge to tax without territorial limitations so that shadow directors throughout the world provided with living accommodation or benefits would be caught, which cannot have been the legislative intention. Mr Kessler relied on the acceptance of this argument by a Special Commissioner, Dr John Avery Jones, who, in respect of the equivalent section in the Finance Act 1977 to section 145, stated in In re Taxpayer FI (SC 3099/93):
17. Mr Kessler supported his two arguments on the construction of the statutory provisions by a third argument of a more general nature relating to the undesirable and anomalous consequences of the construction contended for by the Crown. He submitted that it is a world-wide practice to use companies as a vehicle to hold wealth. It is normal practice for persons resident but not domiciled in the United Kingdom to hold assets situated in the United Kingdom via an offshore company for the object of mitigating inheritance tax. In order to make the disposal of a foreign home easier, it is also normal practice for persons resident and domiciled in the United Kingdom to hold that home via an offshore company. The judgment of Morritt LJ in Secretary of State for Trade and Industry v Deverell  2 WLR 907 gives a wide meaning to the words in section 22(4) of the Company Directors Disqualification Act 1986 which are very similar to the concluding words of section 168(8) so that a person is regarded as a shadow director if the properly appointed directors surrender their discretion and give effect to directions or instructions from that person.
18. In consequence on the Crown's argument the scope of the living accommodation and benefit in kind provisions would be very wide. Mr Kessler further submitted that in many cases the link between the services rendered to the company by the alleged shadow director and the provision of living accommodation or benefits alleged to be emoluments would be tenuous or non-existent. There is a valid distinction between taxing benefits flowing from the holding of a real office or employment subject to charge under Schedule E and taxing a benefit which is not in reality attributable to an office or employment but is attributable to a person's direct or indirect ownership of a company.
19. My Lords, I am unable to accept this argument. It is clear that it was the intention of Parliament that living accommodation and benefits in kind provided by a company for a director should be taxed as emoluments received by him from his office. Whilst in some cases the link between the services provided by a shadow director and the accommodation or benefits which he receives from the company may be tenuous, there will be many cases where the services of a shadow director are as valuable as those of an actual director and there would be no valid distinction between the services provided by a director and those provided by a shadow director. If the appellant's arguments were correct it would be simple for a person who is a director in all but name to avoid the charge to tax under sections 145 and 154. In my opinion it was the intention of Parliament in enacting the concluding part of section 168(8) that accommodation and benefits in kind received by a shadow director should be taxed in the same way as those received by a director, and I consider that the statutory provisions relied upon by the Crown are effective to achieve that purpose.
20. I am unable to accept Mr Kessler's first argument on the construction of the provisions. Under the concluding part of section 168(8) a shadow director is taken to be a director and therefore under section 167(1)(a) and section 168(2) he is employed in the office of a director if the emoluments of that office can be regarded as falling to be assessed under Schedule E. Taking account of the intention of Parliament in enacting the concluding part of section 168(8) that a distinction should not be drawn between directors and shadow directors I consider that Mr Kessler's circularity argument does not enable a shadow director to escape the charge to tax. In my opinion Mr Milne QC for the Crown was correct in submitting that there is a statutory circularity built into the provisions, so that as a shadow director is to be regarded as a director it follows that living accommodation and benefits received by him should be treated as emoluments falling to be assessed under Schedule E.
21. I am also unable to accept Mr Kessler's second argument in relation to territorial limitations. He submitted that the tax imposed by sections 145(1) and 154(1) was charged under paragraph 5 of Schedule E, which did not contain a territorial limitation, and not under one of the three Cases set out in paragraph 1. However paragraph 5 relates to other provisions of the Tax Acts directing tax to be charged "under this Schedule". The concluding words of paragraph 1 state: "tax shall not be chargeable in respect of emoluments of an office or employment under any other paragraph of this Schedule." Therefore when another provision of a Tax Act directs that benefits are to be charged to tax as emoluments under Schedule E, I consider that those emoluments will fall within paragraph 1 and are not to be regarded as falling within paragraph 5. A territorial limitation is contained within each of the three Cases in paragraph 1, and accordingly a territorial limitation is present in respect of the tax imposed by section 145(1) and section 154(1). Accordingly I would hold that the appellant was rightly convicted as a shadow director and that the convictions on counts 8, 9, 10, 12 and 13 are safe.
22. The Crown case against the appellant on count 11 was that in a schedule of assets provided by him to the Revenue during the course of a Hansard investigation into his affairs he omitted to list his beneficial interest in shares issued by offshore companies. Before the Court of Appeal as a ground of appeal the appellant criticised part of the judge's summing up on the issue whether certain trust deeds were a sham. This ground of appeal was rejected by the Court of Appeal and the ground has not been renewed before this House.
23. However, with the leave of the House, the appellant was permitted to argue a new point relating to article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms ("the Convention"). This argument consisted of two parts and can be briefly summarised as follows. First, under section 20(1) of the Taxes Management Act 1970 the Revenue requested the appellant to provide certain information, and then under the Hansard procedure the Revenue both threatened and induced the appellant to produce the schedule of assets to which count 11 related. In consequence the appellant's right to a fair trial under article 6 was violated because his right not to incriminate himself was breached. Secondly, although the trial and conviction of the appellant took place before the relevant sections of the Human Rights Act 1998 came into force on 2 October 2000 the appellant was entitled, pursuant to section 7(1)(b) and 22(4) of the Act to rely in an appeal heard after 2 October 2000 on rights conferred by the Convention and incorporated into English law by the Act. The House heard the submissions of the parties before the House gave judgment on 5 July 2001 R v Lambert  3 WLR 206. In Lambert's case the House held that the 1998 Act did not operate retrospectively to make unsafe by reason of a breach of article 6 a conviction prior to 2 October 2000 which was safe under English law at the time the conviction took place. Therefore, on that ground the appellant's argument in respect of his conviction on count 11 must fail. However as the issue whether there was a violation of the appellant's rights under article 6 was fully argued and as the point is one of general importance I propose to express my opinion on it.
24. As I have stated, the Crown case against the appellant on count 11 related to the schedule of assets referred to in that count in which the appellant omitted to specify his very substantial interests in offshore companies. Section 20 of the Taxes Management Act 1970 provides:
Section 98(1) of the 1970 Act provides:
25. On 9 May 1991 the appellant was served with a notice pursuant to section 20(1) of the 1970 Act. The notice required a variety of information, including requirement 6, which stated:
The appellant failed to comply with the notice and he received a summons dated 13 August 1991 to appear before the General Commissioners:
This summons was signed by two of the Commissioners for the general purposes of the income tax for the Division.
26. The appellant still failed to comply with the section 20(1) notice and at a meeting between the appellant and his accountant and officials of the Revenue the officials adopted what is termed "the Hansard procedure" whereby one of the officials formally read out to the appellant the reply of the Chancellor of the Exchequer to a Parliamentary Question on 18 October 1990 which was in the following terms:
At this meeting further questions relating to his financial affairs were also put to the appellant. Subsequently the appellant provided answers to the various questions put to him, and in compliance with requirement 6 of the section 20(1) notice he delivered to the revenue the schedule of assets referred to in count 11.
27. Mr Newman QC, on behalf of the appellant, submitted that in obtaining from the appellant the schedule of assets upon which the prosecution case was based the revenue had breached his right to a fair trial under article 6 because the appellant had been compelled under threat of penalty to incriminate himself by providing the schedule of assets. Mr Newman also submitted that the appellant had been subjected to an inducement to provide the schedule by the assurance implicit in the Hansard statement that if the taxpayer makes a full confession criminal proceedings would not be instituted against him.
28. In support of his submission relating to self-incrimination Mr Newman relied on the judgment of the European Court of Human Rights in Funke v France (1993) 16 EHRR 297, 326, para 44 in which it was held that the right to a fair trial given by article 6(1) includes the right "to remain silent and not to contribute himself to incriminating itself." Mr Newman also relied strongly on the judgment of the European Court in Saunders v United Kingdom (1996) 23 EHRR 313. In that case the Secretary of State for Trade and Industry appointed inspectors to investigate the affairs of Guinness Plc pursuant to sections 432 and 442 of the Companies Act 1985. During the course of that investigation Mr Saunders made statements to the inspectors in reply to questions from them. Mr Saunders was subject to legal compulsion to give evidence to the inspectors. He was obliged under sections 434 and 436 of the 1985 Act to answer the questions put to him by the inspectors in the course of the interviews which they conducted with him. A refusal by him to answer the questions put to him could have led to a finding of contempt of court and the imposition of a fine or committal to prison for up to two years, and it was no defence to proceedings consequent on a refusal that the questions were of an incriminating nature. In the course of the subsequent criminal trial in which he was charged with offences relating to an illegal share support operation the transcripts of Mr Saunders' answers to the inspectors, whether directly self-incriminating or not, were used against him by the prosecution in a manner which sought to incriminate him. Mr Saunders lodged an application with the European Commission of Human Rights complaining that the use at his trial of statements made by him to the inspectors under their compulsory powers deprived him of a fair hearing in violation of article 6(1) of the Convention. Both the European Commission and the European Court upheld Mr Saunders' complaint. In its judgments the European Court stated, pp 337-340, paras 68-74:
29. My Lords, the present case is one which relates to the obligation of a citizen to pay taxes and to his duty not to cheat the Revenue. It is self-evident that the payment of taxes, fixed by the legislature, is essential for the functioning of any democratic State. It is also self-evident that to ensure the due payment of taxes the State must have power to require its citizens to inform it of the amount of their annual income, and to have sanctions available to enforce the provision of that information. In the United Kingdom this power is contained in the provisions of the Taxes Management Act 1970. Section 8(1) provides:
Section 93 provides:
Further subsections make provision for additional penalties if the taxpayer still fails to make a return.
30. The Tax Return for the year ended 5 April 2001 sent to every individual taxpayer contains the following notice on its first page:
It is clearly permissible for a State to enact such provisions and there could be no substance in an argument that there is a violation of article 6(1) if the revenue prosecuted a citizen for cheating the revenue by furnishing a standard tax return containing false information. Similarly in the present case, viewed against the background that the State, for the purpose of collecting tax, is entitled to require a citizen to inform it of his income and to enforce penalties for failure to do so, the section 20(1) notice requiring information cannot constitute a violation of the right against self-incrimination. The present case is therefore clearly distinguishable from Saunders on that ground. As Lord Bingham of Cornhill stated in Brown v Stott (Procurator Fiscal, Dunfermline)  2 WLR 817, 836:
31. In respect of his argument that there had been a breach of article 6(1) because the delivery of the schedule of assets had been "involuntary" having been induced by a promise implicit in the Hansard statement that the appellant would not be prosecuted if he furnished the required information, Mr Newman QC relied on the decision of the Court of Appeal in R v Barker  2 KB 381. In that case at an interview a revenue official read an earlier version of the Hansard statement to the taxpayer and his accountant, the appellant Barker. This statement differed from the later statement made in October 1990 because it stated that where the taxpayer voluntarily disclosed the fact of his past frauds and furnished full information to the revenue "the board will not institute criminal proceedings, but will accept the pecuniary settlement" (see p 382). After the statement had been read to them, the appellant and the taxpayer produced to the revenue official two ledgers which had been fraudulently prepared to induce the revenue authorities to believe that the irregularities amounted to £7,000 in all. At a later interview two further ledgers and working papers were produced which showed that the earlier ledgers were incomplete and had been brought into existence to deceive the revenue. Subsequently a letter was written which made it clear that the full amount of the irregularities was about £10,400. The appellant and the taxpayer were prosecuted and convicted of the offences of conspiring the cheat the revenue and of having delivered false statements of account with intent to defraud.
32. Before the Court of Appeal counsel for the appellant argued that the statement read from Hansard was partly a promise or an inducement, and the appellant had produced the books or documents as a result of the promise, inducement or threat. Consequently his action was not free and voluntary and the books or documents should not have been admitted in evidence. This argument was accepted by the Court of Appeal and Tucker J stated, at pp 384 - 385:
The effect of this decision was reversed by section 105 of the Taxes Management Act 1970 (which replaced an earlier and similar provision) and which provides:
33. Section 76(4) of the Police and Criminal Evidence Act 1984 provides:
Cross and Tapper on Evidence, 8th ed (1995), p 535 footnote 4 comment unfavourably on R v Barker and say:
34. My Lords, I am unable to accept Mr Newman's submission and to follow the reasoning of the Court of Appeal in R v Barker. In that case the court stated, at p 385: "Those documents stand on precisely the same footing as an oral or a written confession which is brought into existence as a result of such a promise, inducement or threat". In my respectful opinion this is not so. When the Crown relies on an oral or written confession made by the accused and puts it in evidence it does so because it considers that the confession is true. When the courts have excluded a confession because it was involuntary having been obtained by an inducement they have done so on the ground that it was unsafe to rely on the confession as being true. As Lord Sumner explained in Ibrahim v R  AC 599, 610-611:
35. However in Barker and in this case the respective accused did not give information contained in the documents and the schedule respectively which the Crown claimed was true, both accused gave false information and were prosecuted for giving that false information. To the extent that there was an inducement contained in the Hansard statement, the inducement was to give true and accurate information to the revenue, but the accused in both cases did not respond to that inducement and instead of giving true and accurate information gave false information. Therefore, in my opinion, the appellant's argument in this case that he was induced by hope of non-institution of criminal proceedings held out by the revenue to provide the schedule and that its provision was therefore involuntary is invalid. If, in response to the Hansard statement, the appellant had given true and accurate information which disclosed that he had earlier cheated the revenue and had then been prosecuted for that earlier dishonesty, he would have had a strong argument that the criminal proceedings were unfair and an even stronger argument that the Crown should not rely on evidence of his admission, but that is the reverse of what actually occurred.
36. Accordingly, I would dismiss the appellant's appeal.
LORD SCOTT OF FOSCOTE
37. One of the grounds of appeal argued on behalf of the appellant was that under section 739(2) of the Income and Corporation Taxes Act 1988 the income of the off-shore companies (referred to in the judgment of the Court of Appeal  3 WLR 273 at 282) was deemed to be the income of the appellant and that the income must therefore be deemed not to be the income of the companies (see paragraph 5 of my noble and learned friend Lord Hutton's opinion).
38. As Lord Hutton has explained in paragraph 7 of his opinion, counsel for the appellant, Mr Newman QC, dealt with the section 739(2) point before your Lordships by adopting the argument on that point advanced before your Lordships by counsel for Dimsey. In a separate opinion which I have prepared for the purposes of Dimsey's appeal, I have set out my reasons for rejecting his ground of appeal based on section 739(2). For the same reasons I would reject Allen's section 739(2) ground of appeal.
39. Accordingly, for those reasons and for the reasons given by my noble and learned friend, with which I am in full agreement, I too would dismiss this appeal.