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

JurisdictionEngland & Wales
Judgment Date26 May 1989
Date26 May 1989
CourtCourt of Appeal (Civil Division)

Court of Appeal.

Parker, Bingham and Taylor L.JJ.

R
and
Inland Revenue Commissioners, ex parte T.C. Coombs & Co
R
and
H.M. Inspector of Taxes, ex parte T.C. Coombs & Co

Mr. David Goldberg Q.C. and Mr. Edward Bailey (instructed by Edwin Coe & Calder Woods) for the applicants.

Mr. Philip Vallance (instructed by the Solicitor of Inland Revenue) for the Crown.

The following cases were referred to in the judgments:

Alfred Crompton Amusement Machines Ltd v. C. & E. Commrs. (No. 2) ELR[1974] A.C. 405

Conway v. Rimmer & Anor. ELR[1968] A.C. 910

D. v. NSPCC ELR[1978] A.C. 171

Home Office v. Harman ELR[1983] 1 A.C. 280

I.R. Commrs. & Anor. v. Rossminster Ltd. & Ors. ELR[1980] A.C. 952

Liversidge v. Sir John Anderson & Anor. ELR[1942] A.C. 206

Marks v. Beyfus ELR[1980] 25 Q.B.D. 494

Neilson v. Laugharne ELR[1981] Q.B. 736

Padfield & Ors. v. Minister of Agriculture Fisheries and Food & Ors. ELR[1968] A.C. 997

Income tax - Notice requiring delivery by stockbrokers to tax inspector of documents relating to clients' affairs - Inspector did not give reasons for belief that clients were connected with taxpayer whose tax liability was under investigation - Whether Revenue entitled to issue notice - Taxes Management Act 1970 section 20 subsec-or-para (3)Taxes Management Act 1970, sec. 20(3).

This was an appeal against a decision of Schiemann J. ([1988] BTC 357) dismissing an application for judicial review by a firm of stockbrokers ("the applicants") seeking an order quashing a notice issued to them under the Taxes Management Act 1970, Taxes Management Act 1970 section 20 subsec-or-para (3)sec. 20(3)requiring the production of documents relating to certain of their clients; an order prohibiting proceedings against them by the Revenue for non-compliance with the notice; and a declaration that they had complied with the notice in part.

The tax affairs of R ("the taxpayer"), who had been employed by the applicants from 1979 to 1984 on a commission basis dealing for his own clients, were being investigated by the Revenue. On 1 April 1987 the inspector conducting the investigation issued a notice to the applicants under the Taxes Management Act 1970 section 20 subsec-or-para (3)Taxes Management Act 1970, sec. 20(3) requiring the applicants to deliver to him all the documents in their possession concerning the affairs of the taxpayer and 12 foreign companies alleged to be clients of theirs. Later, on 6 January 1988 that notice was withdrawn and replaced by a notice in similar terms but specifying only six of the companies, the applicants having complied with the first notice to some extent while not admitting their obligation to do so. Although the applicants had, with the consent of the taxpayer, produced documents concerning the taxpayer himself and a company ("Hereford") which he controlled, the second notice demanded further documents. Both notices were authorised by the Board of Inland Revenue and issued with the consent of an Appeal Commissioner as required by Taxes Management Act 1970 section 20 subsec-or-para (7)sec. 20(7).

The applicants produced affidavits sworn by directors and managers of the six companies, which were not challenged by the Revenue, stating that they knew who the beneficial owners of the companies were; that the taxpayer was not one of them; and that the taxpayer had no connection with the companies.

The applicants contended that, from their knowledge of their clients' affairs, there was no connection between the taxpayer and the companies, and that there had been no material available to the inspector on which he could reasonably form the opinion that the documents in question contained or might contain material relevant to the taxpayer's tax liability.

The Revenue submitted that they would be in breach of their duty of confidentiality to the taxpayer if they disclosed the information in their possession and, in the public interest they could not reveal the sources of their information, one of which had provided information on the express understanding that his identity would not be revealed. No adverse inference might be drawn from refusal to disclose the evidence on which the inspector's decision was based and the judge had been right to refuse the application.

Held, , granting the relief sought:

1. The court must assume that the decision was within the power of the Revenue unless it was displaced by evidence which could not be reconciled with there having been reasonable cause for the inspector's belief that the documents contained or might contain material relevant to the investigation of the taxpayer's affairs. If there was such evidence, the onus would be on the Revenue to rebut it. In the present case the applicants' unchallenged evidence could not be reconciled with there having been the required reasonable opinion on the part of the inspector. (Dictum of Lord Diplock in I.R. Commrs. & Anor. v. Rossminster Ltd. & Ors. ELR[1980] A.C. 952 at p. 1013 followed.)

2. (Per Bingham L.J. dissenting in relation to the six companies) The Revenue had not indicated whether their enquiries related to matters within Taxes Management Act 1970 section 20 subsec-or-para (4) section 20 subsec-or-para (4)sec. 20(4)(a) or Taxes Management Act 1970 section 20 subsec-or-para (4)(b). If they relied on (b) the affidavits of the taxpayer and the representatives of the companies, being unanswered, could not be reconciled with a reasonable belief that the documents contained, or might have contained, information relevant to the taxpayer.

3. Although the Revenue were entitled to protect the identity of their sources it did not follow that all information from all sources was confidential. If the public interest in the administration of justice were to override all other considerations to prevent the court from looking at the evidence on which the inspector formed his belief, the court would not be able to exercise its function to see whether the inspector's belief was reasonable and the remedy of judicial review would be rendered illusory.

GROUNDS OF APPEAL

By notice of appeal dated 5 August 1988 the applicants appealed against the judgment of Schiemann J. given on 8 July 1988. The grounds of the appeal were:

1. The judge erred in holding that the applicants must satisfy the court that on the material before the inspector at the time that he took the decision to issue a notice under the Taxes Management Act 1970 section 20 subsec-or-para (3)Taxes Management Act 1970, sec. 20(3) he could not reasonably have come to the conclusion to which he asserted that he came.

2. The judge failed to have due regard to the fact that the Revenue failed in their evidence to the court to give any or any satisfactory explanation as to the matters on which the inspector relied in forming his opinion for the purposes of Taxes Management Act 1970 section 20 subsec-or-para (3)sec. 20(3).

3. The judge failed to have due regard to the fact that the power of the Revenue to issue a notice under Taxes Management Act 1970 section 20 subsec-or-para (3)sec. 20(3) was a power which was susceptible to judicial review and failed to approach the matters raised by the applicants in a manner which would, practicably, permit of judicial review of the exercise of the power.

JUDGMENT

Parker L.J.: On 1 April 1987 one of Her Majesty's Inspectors of Taxes, authorised for the purposes of Taxes Management Act 1970 section 20sec. 20 of the Taxes Management Act 1970 and for the purpose of enquiring into the tax liability of one T.P. Ramsden ("the taxpayer"), gave notice to the appellants, T.C. Coombs & Co., requiring them, under Taxes Management Act 1970 section 20 subsec-or-para (3)sec. 20(3), to deliver to him at his office or, if they so elected, make available to Mr. M.C. Allcock, certain documents therein described. The notice was endorsed as follows by one of the General Commissioners:

I give my consent to this notice under Taxes Management Act 1970 section 20 subsec-or-para (7)sec. 20(7) of the Taxes Management Act 1970.

The documents were described as follows:

All client account files operated by the above named 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:

Rosary Holdings Ltd.

Gantillion (Hong Kong) Ltd. (All accounts).

Logica (Overseas) S.A.

Danville Management & Properties S.A.

Hereford Securities Account 99.

Hereford Securities & Management S.A. (All accounts).

Van Nuys Investors S.A.

Topanga S.A.

Privatbank & Trust Co. Zurich A.G. (All accounts).

Eversholt Finance Securities S.A.

Inshala Foundation.

D.F. Gaggiari & Co.

In addition:

All Correspondence Files.

All commission statements.

All contract notes.

Notification forms to the Mutual Reference Society.

The appellants are stockbrokers and the taxpayer was employed by them 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. It appears that the taxpayer had a financial interest in at least some of his clients and that to that extent he traded on his own behalf.

Of the 12 companies named in the above notice form, Gantillion (Hong Kong) Ltd., Hereford Securities Account 99, Privatbank & Trust Co. Zurich A.G. and D. F. Gaggiari & Co. were clients of the taxpayer, and of the appellants. Inshala Foundation was not a client of the appellants and was unknown to them. Hereford Securities & Management S.A. was a company which acted on behalf of undisclosed principals. Shortly before he left the appellants the taxpayer became a principal in respect of Account...

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