R v Commissioners of Inland Revenue, ex parte T.C. Coombs & Company

I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Lowry. For the reasons he has given, I would allow the appeal and award to the Revenue the costs of the second judicial review proceedings, both here and below, but allow the cost of the first judicial review proceedings to the applicants in these proceedings, the respondents here.

On two matters dealt with by my noble and learned friend, I wish to add my own comment. First, Mr. Vallance, for the Revenue, submitted that the receipient of a notice had the same task whether he was seeking judicial review or challenging, on the same grounds, the validity of the notice by way of defence to penalty proceedings. This question was not argued before your Lordships and, therefore, like my noble and learned friend I would be most reluctant to come to a definite conclusion upon it.

A second issue to which I wish to turn is of great general importance. My noble and learned friend Lord Lowry has quoted the terms of section 20(7) in which it is provided that consent of a General or Special Commissioner is required to the giving of a notice by an inspector under section 20 and that the Commissioner is to give his consent only on being satisfied that in all the circumstances, and I emphasise "all the circumstances", the Inspector is justified in proceeding under this section. Section 20B(1), which my noble and learned friend has also quoted, requires that the person who is to receive the notice must, before the notice is given, have been given a reasonable opportunity to deliver or make available, the documents in question and the Inspector must not apply to the Commissioner for consent until the person had been given that opportunity. It follows that one of the circumstances into which the Commissioner must enquire, when an application is made to him, is whether such a reasonable opportunity has been given and any correspondence that passes in that connection between the Inspector and the person to whom he wishes to give notice should be placed before the Commissioner. The obligation on the Commissioner to consider all the circumstances implies a duty on the officer of the Inland Revenue who appears before the Commissioner to lay before the Commissioner all the information he has about the relevant circumstances including any which might be unfavourable to the giving of the notice.

Where an application for judicial review is made in circumstances such as the present, I would regard it as appropriate for the Inland Revenue affidavit to include a statement of the way in which the sitting before the Commissioner was conducted, with as much detail of the subject matter placed before him as is possible. For example, I cannot see any reason why it should not be stated that all correspondence passing between the Revenue and the person to whom the notice is proposed to be given relating to the notice was placed before the Commissioner if that had taken place.

In enacting these provisions Parliament obviously placed great weight on the position of the independent Commissioner and the need for the Commissioner's consent. It is important that this be given full effect. I do not wish to suggest in any way that the Revenue practice hitherto has not been consistent with this view but the affidavit in the present case relating to the proceedings before the Commissioner could have dealt more explicitly than it did with some of the matters that have been in issue. It would be a great benefit to the Court in any similar proceedings for judicial review in the future to have a full affidavit on this aspect of the matter.

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Lowry. I agree with it and would allow the appeal for the reasons which he has given.

For the reasons given in the speech to be delivered by my noble and learned friend, Lord Lowry, I would allow the appeal.

I have had the advantage of reading in draft the speech of my noble and learned friend Lord Lowry. I agree with it and for the reasons which he gives therein I would allow the appeal. I wish only to add a few words of my own on two matters.

Section 20B of the Taxes Management Act 1970 (as amended) provides that before a notice is served on a person under sub-sections 1 or 3 of this section the person must be given a reasonable opportunity to deliver or make available the documents in question. It follows that when an inspector seeks to obtain the consent of a Commissioner under sub-section 7 the attitude of the person to the Revenue's request for documents is likely to be known to the inspector. It is, in my view, essential that at this stage the inspector places before the Commissioner all the material which is relevant to the application for consent including any observations made or documents delivered by that person. Only when all such material is before the Commissioner can he properly exercise his statutory function.

The Revenue have a heavy responsibility when seeking to exercise their powers under section 20 of the Act of 1970 and they must only hide behind a cloak of confidence when this is absolutely necessary and not as a matter of course. If a person to whom a request for documents has been made asks reasonable questions or raises reasonable objections the Revenue should deal with these matters unless there are compelling reasons for adopting a wall of silence. In the case of Hereford the applicants maintained that they had handed over all the documents which they possessed. By letter of 27 January 1988 to the applicants' solicitors the Revenue stated that they did not accept they had received all documents relating to Hereford. When the solicitors asked the Revenue what documents they thought had not been delivered the Revenue on 16 February 1988 gave the following singularly unhelpful reply:-

"With regard to the second notice, it is for your clients to decide to what extent they have complied with their obligations in regard to Hereford Securities & Management SA (all accounts) and T P Ramsden and with respect the Revenue are entitled to receive their response under a Notice the scope of which, is not so far as I am aware challenged on grounds of construction."

Counsel for the Revenue agreed that in the event of the Revenue initiating penalty proceedings in relation to the Hereford documents it would be necessary to establish that there were such documents in the possession of the applicants which had not been produced. In these circumstances it is very difficult to justify the unhelpful attitude adopted by the Revenue in their letter of 16 February 1988. Indeed I understood their Counsel to accept that his clients were unreasonable to answer in this manner. While my observations on this matter do not affect the result of this appeal it is important that the Revenue should bear these observations in mind when exercising their section 20 powers on other occasions.

This appeal arises out of the service by an inspector of taxes on behalf of the Commissioners of Inland Revenue ("the Revenue") upon a firm of stockbrokers, T.C. Coombs & Co. ("the applicants") of two notices under section 20 of the Taxes Management Act 1970 ("the Act") respectively dated 1 April 1987 ("the first notice") and 6 January 1988 ("the second notice") and requiring the applicants to deliver or to make available for inspection such documents as were in their possession or power and as "(in the inspector's reasonable opinion)", contained or might contain information relevant to the tax liability of a businessman ("the taxpayer") who was employed by the applicants on a commission basis as a trader from 12 November 1979 until June 1984 on the terms that he would trade for certain specified clients only and would be paid 20 per cent. of the net income generated by him through those clients.

The first notice required the applicants to deliver or make available:

"All client account files operated by [the taxpayer] to include all books of account and accounting records and all other documents or records whatsoever relating to any business operated covering the period 6 April 1980 to 5 April 1986 inclusive or which may contain entries within the period 6 April 1980 to 5 April 1986 inclusive and in particular for the period specified all client account statements in account with [12 named companies] and in addition all correspondence files, all commission statements, all contract notes, notification forms to the Mutual Reference Society."

Of the 12 companies, four, Gantillion (Hong Kong) Ltd., Hereford Securities Account 99, Privatbank & Trust Co. Zurich AG and DF Gaggiari & Co., were clients of the taxpayer and of the applicants and shortly before he left the applicants the taxpayer became a principal in respect of Account 99. Another company, Inshala Foundation, was not a client of the applicants and, they stated, was unknown to them. A sixth company, Hereford Securities & Management SA, acted on behalf of undisclosed principals. The remaining six companies were clients of the applicants but, according to the applicants, had no connection with the taxpayer.

In response to the first notice the applicants supplied what are taken to be all the documents in their possession or power relating to the four companies which were clients of the taxpayer. They also supplied documents relating to Hereford Securities & Management...