Fayed v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 11 May 2004 |
| Date | 11 May 2004 |
| Docket Number | No 1 |
| Court | Court of Session (Outer House) |
OUTER HOUSE
Lord Justice Clerk
Administrative lawJudicial reviewTaxationForward tax agreementWhether ultra viresWhether discretion to abide by ultra vires agreementWhether termination of agreement an abuse of powerLegitimate expectationInland Revenue Regulation Act 1890 (cap 21), secs 1(1), 13(1), 39Taxes Management Act 1970 (cap 9), sec 1(1)European Convention on Human Rights, First Protocol art 11
TaxationForward tax agreementWhether ultra viresInland Revenue Regulation Act 1890 (cap 21), secs 1(1), 13(1), 39Taxes Management Act 1970 (cap 9), sec 1(1)European Convention on Human Rights, First Protocol art 11
Section 1(1) of the Inland Revenue Regulation Act 1890 provides for the appointment of commissioners for the collection and management of inland revenue. Section 13(1) of that Act provides that the commissioners shall collect and cause to be collected every part of inland revenue, and all money under their care and management. Section 39 of that Act defines inland revenue as meaning the revenue of the United Kingdom collected or imposed as stamp duties, taxes, and placed under the care and management of the commissioners, and any part thereof . Section 1(1) of the Taxes Management Act 1970 imports this definition in relation to income tax, corporation tax and capital gains tax, which are put under the care and management of the commissioners.
Article 1 to the First Protocol to the European Convention on Human Rights provides: Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.
The petitioners were brothers. The first petitioner was a United Kingdom taxpayer and was regarded by the respondents for tax purposes as being resident and ordinarily resident in the United Kingdom. Until at least 5 April 2000 he was regarded by the respondents as not being domiciled in the United Kingdom. He was accordingly chargeable to income tax and to capital gains tax on United Kingdom source income and capital gains in the normal way. He was chargeable to income tax and capital gains tax on foreign source income and capital gains on the remittance basis. The second and third petitioners were regarded by the respondents for tax purposes as being neither resident nor ordinarily resident nor domiciled in the United Kingdom, and therefore had only potential liabilities in respect of United Kingdom source income and gains. Individuals chargeable to income tax and capital gains tax on foreign source income and capital gains may avoid a charge to tax on foreign remittances by putting in place appropriate arrangements. Since at least the early 1980s the respondents had dealt with the problem of foreign remittances in several cases by entering into forward tax agreements whereby the individual agrees to pay specified annual sums in
respect of specified future years of assessment. These sums are accepted by the respondents in lieu of any income tax and capital gains tax for which the individual may be liable by reason of his having received foreign remittances in the United Kingdom. In 1985 the parties entered into a forward tax agreement which was acted on in the years up to and including 1990/1991. In 1990 the parties entered into another forward tax agreement in respect of the tax years 1991/1992 to 1996/1997 inclusive, and all payments specified in that agreement were made. By letters dated 22 and 28 April 1997 the parties entered into a further forward tax agreement in respect of the tax years 1997/1998 to 2002/2003. The 1997 agreement was a continuation of the 1990 agreement, with indexation of the 1985 and 1990 figures to take account of inflation. The 1997 agreement also contained several new provisions. The petitioners duly paid the contractual sums for the years 1997/1998 and 1998/1999. In 1999 the respondents began to believe that they did not have a complete picture of the first petitioner's financial affairs and they wished to terminate the 1997 agreement. On 27 January 2000 the petitioners forwarded a cheque representing the payment due under the 1997 agreement for the year 1999/2000. On 7 March 2000 the respondents returned the cheque and advised that the 1997 agreement had been suspended. The petitioners indicated their intention to take legal action in respect of the purported suspension. By two letters dated 2 June 2000 the respondents advised the petitioners that the 1997 agreement was ultra vires, and that they would require to complete tax returns for the years from 6 April 2000 onwards. The petitioners sought judicial review of the decision not to abide by the 1997 agreement. They argued that the 1997 agreement was intra vires. They argued further that if the decision was ultra vires the petition should nevertheless be granted because inter alia the respondents retained a discretion to abide by the agreement, and the decision of 2 June 2000 constituted an abuse of power and infringed the petitioners' rights under art 1 to the First Protocol to the European Convention on Human RightsHeld: (1) that the forward tax agreement could not be characterised as a collection of inland revenue, and the making of a forward tax agreement was not a proper exercise of the respondents' duties of care and management and it was accordingly ultra vires (p 26A, 28BG); (2) that the respondents had a duty to assess persons to tax on the basis of their actual receipts of foreign remittances or constructive remittances in the United Kingdom, unless such persons actually made appropriate arrangements (p 28HG); (3) that the respondents' lack of information was further confirmation that in making the 1997 agreement the respondents were in effect stepping outside the taxation system (p 30EF); (4) that the first petitioner might acquire a domicile of choice during the currency of the agreement which would alter fundamentally the nature of his liability to United Kingdom tax and in that event, given the absence of any mechanism for review of the 1997 agreement upon the occurrence of a material change of circumstances, the respondents would have bound themselves to an agreement which would become contrary to law (p 31D32B); (5) that because the respondents did not fulfil their statutory duties when they entered into the 1997 agreement, those duties remained in force and remained to be implemented and accordingly the respondents had no discretion to abide by the terms of the agreement, nor could the agreement be said to have created on the part of the petitioners any legitimate expectation that the respondents would abide by it (p 32EG); (6) that the termination of the agreement could not be seen as an abuse of power, since it could not be unfair to the petitioners to be deprived of benefits resulting from an ultra vires agreement; the law protects only those expectations which are legitimate, and the question of prejudice to the petitioners was premature (p 32GH, 33C, 33G, 34B); (7) that the alleged wrong occurred prior to the coming into force of the Human Rights Act 1998 and accordingly the provisions of that Act and of the European Convention on Human Rights did not apply (p 34G35A); and petitiondismissed.
Mohamed Abdel Moneim Al Fayed, Ali Al Fayed and Salah Eldin Al Fayed presented a petition under the judicial review procedure in the Court of Session seeking to bring under judicial review a decision intimated to the petitioners by two letters dated 2 June 2000 by the Commissioners not to abide by the terms of an agreement dated 22 and 28 April 1997, between the petitioners and the Commissioners of Inland Revenue and to require the petitioners to complete tax returns for the years of assessment from 6 April 2000 to 5 April 2003 inclusive without reference to that agreement. They sought declarator that the respondents were obliged to abide by the 1997 agreement, reduction of the decision intimated in the letters of 2 June 2000 and declarator that the continuing failure of the respondents to hold themselves bound by the 1997 agreement was incompatible with the petitioners' rights under the European Convention on Human Rights.
The Advocate General for Scotland, representing the Commissioners of Inland Revenue, was called as respondent.
The petition and answers called before the Lord Justice Clerk (Lord Gill) for a first hearing on 19 October 2000. The first hearing was continued. The continued first hearing was heard on 12, 13, 14, 15, 19, 20, 21 and 22 June and 21, 22 and 23 August 2001.
Cases referred to:
Association of General Practitioners v Denmark(Application 12947/87) (1989) 62 DR 226
Balfour v Sharp (1833) 11 S 784
CCSU v Minister for Civil ServiceELR [1985] AC 374
Dunlop v McGowansSC 1980 SC (HL) 73
Gresham Life Ass. Society v AGELR [1916] 1 Ch 228
IRC v BullockWLR [1976] 1 WLR 1178
IRC v NuttallWLR [1990] 1 WLR 631
Pine Valley Developments Ltd v IrelandHRC Series A No 222 (1991); 14 EHRR 319
Pressos Compania Naviera SA v BelgiumHRC Series A No 332 (1995); 21 EHRR 301
R v AG ex p ICI plcTAX [1990] 60 TC 1
R v DPP ex p KebileneELR [2000] 2 AC 326
R v IRC ex p MFK Underwriting Agencies LtdWLR [1990] 1 WLR 1545
R v IRC ex p Matrix Securities LtdWLR [1994] 1 WLR 334
R v IRC ex p National Federation of Self-EmployedELR[1982] AC 617
R v IRC ex p PrestonUNKELR [1983] 2 All ER 300 at first instance, and [1985] AC 835 on appeal
R v IRC ex p Unilever plcUNK [1996] STC 681
R v North and East Devon Health Authority ex p CoughlanELR [2001] QB 213
R v Sampson and Others ex p Lansing Bagnall LtdTAX (1986) 61 TC...
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