Mohmed Abdel Moneim Al Fayed+harrods Limited+harrods (uk) Limited+harrods Holdings Limited+the Ritz Hotel Limited+liberty Publishing And Media Limited+the Liberty Broadcasting Company Limited+punch Limited+brompton Press Limited+f.l. Property Management Limited+fulham Football Club (1978) Limited+fulham Football Club Limited+fulham Football Leisure Limited+fulham Stadium Limited V. The Advocate General For Scotland For And On Behalf Of The Commissioners Of Inland Revenue For Judicial Review
| Jurisdiction | Scotland |
| Judge | Lord Reed |
| Date | 11 May 2004 |
| Docket Number | P1177/01 |
| Court | Court of Session |
| Published date | 11 May 2004 |
| OUTER HOUSE, COURT OF SESSION | |
| P1177/01
| OPINION OF LORD REED in Petition of (FIRST) MOHAMED ABDEL MONEIM AL FAYED, (SECOND) HARRODS LIMITED, (THIRD) HARRODS (UK) LIMITED, (FOURTH) HARRODS HOLDINGS LIMITED, (FIFTH) THE RITZ HOTEL LIMITED, (SIXTH) LIBERTY PUBLISHING & MEDIA LIMITED, (SEVENTH) THE LIBERTY BROADCASTING COMPANY LIMITED, (EIGHTH) PUNCH LIMITED, (NINTH) BROMPTON PRESS LIMITED, (TENTH) F L PROPERTY MANAGEMENT LIMITED, (ELEVENTH) FULHAM FOOTBALL CLUB (1987) LIMITED, (TWELFTH) FULHAM FOOTBALL CLUB LIMITED, (THIRTEENTH) FULHAM FOOTBALL LEISURE LIMITED and (FOURTEENTH) FULHAM STADIUM LIMITED Petitioners; against THE ADVOCATE GENERAL FOR SCOTLAND, for and on behalf of THE COMMISSIONERS OF INLAND REVENUE Respondents: for
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| Judicial Review of a decision by the Commissioners of Inland Revenue to carry out an in-depth review of the Harrods Group of companies and of the Fayed family tax position and that of any individual, companies or organisations connected with them ________________ |
Petitioners: Keen, Q.C., D.E.L. Johnston; Maclay Murray & Spens
Respondents: Hodge, Q.C., Paterson; Solicitor (Scotland), Inland Revenue
11 May 2004
CONTENTS
[1]In view of the length of this Opinion, it may be helpful if I list at the outset the paragraphs in which different topics are covered:
| Paragraph | ||
| 1 | INTRODUCTION AND PROCEDURAL BACKGROUND | 2 |
| 2 | THE FACTS | 14 |
| (1)Events leading to the 1985 forward tax agreement | 15 | |
| (2)Events leading to the 1990 forward tax agreement | 38 | |
| (3)Events leading to the 1997 forward tax agreement | 64 | |
| (4)Events between the 1997 agreement and August 1999 | 120 | |
| (5)Events from August 1999 to the issue of the letters of 31 May and 2 June 2000 | 136 | |
| August 1999 | 136 | |
| October 1999 | 162 | |
| November 1999 | 176 | |
| December 1999 | 187 | |
| January 2000 | 190 | |
| February 2000 | 204 | |
| March 2000 | 250 | |
| April 2000 | 319 | |
| May 2000 | 335 | |
| June 2000 | 400 | |
| (6)Subsequent events | 423 | |
| June 2000 | 424 | |
| July 2000 | 451 | |
| SCO's actions after 13 July 2000 | 468 | |
| LBO's actions after 13 July 2000 | 472 | |
| 3 | REVENUE LAW AND PRACTICE | 530 |
| (1)Statutory provisions | 531 | |
| Collection and assessment in general | 532 | |
| Assessment prior to self-assessment | 540 | |
| Self-assessment | 549 | |
| Collection without assessment | 559 | |
| PAYE | 561 | |
| Information powers | 562 | |
| (2)Revenue Publications | 580 | |
| Code of Practice 8 | 581 | |
| The Investigation Handbook | 607 | |
| The Large Corporates Forum | 625 | |
| (3)The concept of an investigation | 630 | |
| 4 | THE SUBMISSIONS | 642 |
| (1)The petitioners' submissions | 643 | |
| Competency | 643 | |
| Unfairness, unreasonableness and improper purpose | 645 | |
| (a)general principles | 645 | |
| (b)the statutory context | 649 | |
| (c)the SCO investigation | 651 | |
| (d)the LBO review | 675 | |
| Breach of legitimate expectations | 681 | |
| (a)general principles | 681 | |
| (b)the SCO investigation | 683 | |
| (c)the LBO review | 686 | |
| Remedy | 687 | |
| (2)The Revenue's submissions | 688 | |
| Competency | 688 | |
| Unfairness, unreasonableness and improper purpose | 690 | |
| (a)general principles | 690 | |
| (b)the statutory context | 692 | |
| (c)the SCO investigation | 694 | |
| (d)the LBO review | 719 | |
| Breach of legitimate expectations | 722 | |
| (a)general principles | 722 | |
| (b)the SCO investigation | 723 | |
| (c)the LBO review | 724 | |
| Remedy | 725 | |
| 5 | DISCUSSION | 726 |
| (1)General considerations | 727 | |
| (2)Competency | 731 | |
| (3)The grounds of judicial review | 745 | |
| (4)The SCO investigation | 752 | |
| The decision to investigate | 756 | |
| The review | 771 | |
| The scope of the investigation | 785 | |
| Conclusion | 792 | |
| (5)The LBO review | 793 | |
| (6)Conclusion | 796 |
1INTRODUCTION AND PROCEDURAL BACKGROUND
[2]On 31 May 2000 a letter signed by Mr James Williams, a Principal Inspector of Taxes at the Inland Revenue's Large Business Office (LBO) in Glasgow, was sent to Mr David Hadden, the Group Taxation Accountant of the Harrods group of companies. The letter was marked "Urgent", and was in the following terms:
"HARRODS GROUP
As you are aware, the accounts of the group companies are open for the two years to 31 January 1999.
This letter is to inform you that I propose to carry out an in depth review of the group's tax affairs for those years. The review will be carried out on Combined Casework (CCW) lines and will involve other Inland Revenue agencies including the Special Compliance Office. The review will also extent [sic: mistakes in subsequent quotations can be assumed to be reproduced from the original] to related matters such as Cylena SA.
I would like to meet with you before initiating enquiries to discuss the implications and scope of the review. Will you please give me a ring to make the necessary arrangements. I would also be happy to meet with any other senior executives who need to be involved and with the group's professional advisors and you may care to inform all such parties of the content of this letter as a matter of urgency."
[3]On 2 June 2000 a letter signed by Mr Alan Carmichael, an Inspector of Taxes at the Inland Revenue's Special Compliance Office (SCO) in Edinburgh, was handed to Mr Thomas Murray of KPMG, who acted as tax advisers to Mr Mohamed Al Fayed and his brothers Ali Fayed and Salah Fayed. The letter was in the following terms:
"THE AL FAYED FAMILY
I refer to our meeting on 02 June 2000.
I am advised that the letter of agreement dated 28 April 2000 is not enforceable because it is ultra vires. The agreement takes no account of the possibility of there being a false factual basis for the contract. Also it does not allow for any changes in the facts or circumstances for any unexpired years or for changes in future legislation. I should also make it plain the agreement is ultra vires because it does not reflect as it should the performance by the Revenue of its statutory duties and care and management powers to assess and collect tax. Accordingly, the letter dated 7 March 2000 can be disregarded in respect of its reference to the suspension of the agreement. The agreement is not and never has been binding in law.
In view of the history of the arrangements the Inland Revenue do not believe that it would be appropriate to re-open the back years in respect of liability to income tax and capital gains tax on foreign source income and capital gains prior to 5 April 2000. Accordingly, in this connection I would be grateful if you could arrange for your client to forward to me a cheque for £240,000 made payable to Inland Revenue in respect of the year to 5 April 2000.
For the years from 6 April 2000 onwards Tax Returns will have to be completed in accordance with the family's statutory responsibilities, and without reference to the agreement.
The Revenue will also be looking to verify the position as set out in the KPMG benefits report of 1996. This will entail a detailed examination of the mechanism by which all benefits are identified, quantified and recharged. To do this I propose to review in depth the 1999 Tax Returns and appropriate notices of enquiry will be sent by separate letter.
Furthermore, in the light of matters raised in the recent Hamilton libel case, the Revenue does not consider it has a sufficiently full picture of the Fayed Family circumstances and does not consider it would be discharging its duties appropriately unless it sought to satisfy itself concerning any other liabilities. Accordingly there will be a need to review the Fayed Family position and that of any individual, companies or organisations connected with them. To do this I shall need a comprehensive list of Family members including their respective names, addresses and ages and a list of all the companies, charities and trusts associated to them.
This enquiry work will be undertaken by Special Compliance Office under Code of Practice 8, a copy of which is enclosed and should be brought to your clients attention. I also enclose Inland Revenue Leaflet IR 120."
Another letter in similar terms, signed by Mr James McGuigan of SCO Edinburgh, was sent on the same date to Messrs D.J. Freeman, the solicitors acting for the Fayed brothers.
[4]In order to understand these letters, it is necessary to know the circumstances in which they came to be written, and in particular the history of dealings between the Revenue and the Fayed brothers and the companies, including the Harrods group, in which they have an interest. These matters are explained in detail below. In summary, however, it can be seen that the second paragraph of the letter to KPMG dated 2 June 2000 (after the introductory first paragraph) asserts that a certain agreement is ultra vires and therefore not binding. This refers to a "forward tax agreement" dated 28 April 1997 (not 2000, as stated in the letter), entered into between Mohamed Al Fayed, his son Emad (otherwise known as Dodi) Al Fayed (who died in August 1997), Ali Fayed and Salah Fayed, on the one hand, and the Revenue on the other hand, under which it was agreed that the liability of those four individuals to UK income tax and capital gains tax in respect of remittances to the UK from overseas over the following six tax years would be £240,000 per annum. The fifth paragraph of the letter (beginning "The Revenue") gives notice that SCO proposes to examine benefits in kind, in the context of tax returns for 1998/99. The final two paragraphs of the letter give notice that SCO is undertaking a "review", or "enquiry work", under Code of Practice 8, in respect of "the Fayed Family position and that of any individual, companies or organisations connected with them", and request certain information. As explained below, the issue of the letter dated 31 May 2000 was closely related to that of the letters dated 2 June 2000. The former similarly gave notice of a "review", concerning the tax affairs of the Harrods group and extending to related matters, to be...
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