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No Nondisclosure or Privilege - The court considers an application for judicial review in R v Commissioners of Inland Revenue ex parte Lorimer.

29 November 2000
Issue: 3785 / Categories:
No Nondisclosure or Privilege
The court considers an application for judicial review in R v Commissioners of Inland Revenue ex parte Lorimer.
No Nondisclosure or Privilege
The court considers an application for judicial review in R v Commissioners of Inland Revenue ex parte Lorimer.
A solicitor who was being investigated personally by Special Compliance Office made application for judicial review in connection with two notices issued under section 20(3), Taxes Management Act 1970 to two banks. The grounds for the application were that there were misstatements and material not disclosed by the Inspector to the General Commissioner when requesting the issue of the notice, and as the documents and information required related to the clients of the solicitor and not his personal affairs, these documents were subject to legal professional privilege. The application before the court failed on both these grounds.
The background and facts
The applicant was a solicitor who was under investigation by the Special Compliance Office in respect of his personal affairs.
As part of the investigation, the Inland Revenue sought to issue two notices under section 20(3), Taxes Management Act 1970 to two banks in connection with accounts to which the applicant was an authorised signatory.
The documents listed in the notices related to the affairs of the clients of the solicitor applicant where the Inland Revenue suspected he might have had signatory rights with the banks, or powers of attorney or powers of management control or control. There was no Inland Revenue investigation into the affairs of the clients.
The Inspector of Taxes applied for the consent of a General Commissioner to the issue of the notices under section 20(7), Taxes Management Act 1970, which consent was granted.
Subsequently the applicant's solicitor applied for judicial review contending (1) that the summary submitted by the Inspector to the General Commissioner contained material nondisclosures and misdisclosures of matters which would have influenced the commissioner against consenting to the notices and that the notices should therefore be quashed; and (2) that legal professional privilege applied to some of the documents sought.
(David Ewart for the applicant; Timothy Brennan for the Crown.)
The Queen's Bench Division judgment
The matter came before Mr Justice Burton who considered the application carefully and gave a judgment which continues for 24 pages in Simon's Tax Cases. Numerous cases, both tax and other, were referred to in the judgment and in the skeleton arguments by the two counsel, and most of these cannot be referred to in detail.
The judge referred to the contents of the two notices which had been submitted to the bank Julius Baer and the Bank of Scotland and then considered the various sections in section 20, Taxes Management Act 1970.
The investigation into the solicitor's affairs concerned to a large extent whether or not he had a beneficial interest in or may even be the alter ego of certain companies which he claimed to be his clients, and in particular a group of companies under the general umbrella of an offshore company called Hudson River Trading Ltd of Liberia.
Other matters which concerned the Inland Revenue were various property transactions which the applicant carried out in the London area. The department's interest concerned how the solicitor obtained the funds for both purchase and improvement of some of the properties, and in one instance why he had spent money on a property which did not appear to be owned by him at the time, but by one of the companies referred to in the investigation.
It is beyond the scope of this report to consider the facts in great detail, but counsel for the applicant had in fact not pursued his challenge to the notices on rationality grounds. Another point that was abandoned was the question of the six-year period set out in section 20B(5), Taxes Management Act 1970 and another point relating to self assessment.
A relevant case that had to be considered was R v Commissioners of Inland Revenue ex parte T C Coombs & Co [1991] STC 97. The decision in that case depended on the fact that there was no evidence that the commissioner's consent was obtained irregularly, notwithstanding the Revenue's silence as to what was put before the commissioner, because of the presumption of regularity applicable both to the issue of the notice and the consent by the commissioner.
The applicant in the current case had put forward what he submitted to be a sufficiently arguable case that there had been material nondisclosure or misdisclosure by the Inspector to the General Commissioner, such that he was entitled to disclosure, in the sense of discovery of the twelve-page brief which the investigating Inspector said was put before the General Commissioner, in order to substantiate his case.
Mr Justice Burton took the view that a course could be taken which might obviate the actual need for the contested discovery application to be resolved if parties summarised their positions, and that is what was done over the full hearing.
This aspect of the case was considered by the judge in some detail, with reference to numerous cases, some of them non-tax cases. In doing so he considered the following five points:
(1) The explanation by the solicitor for non-charging or non-rendering of invoices.
(2) The applicant's explanation for incurring improvement expenditure prior to the acquisition of Flat 19 Belgravia House.
(3) The costs of 16 Chapel Street.
(4) Similar transactions.
(5) Whether the applicant had day-to-day management responsibility for Hudson River Trading Company of Liberia.
On the latter point, the Inland Revenue had misquoted a supposed statement by the solicitor to the General Commissioner. In the event Mr Justice Burton concluded that there was no material misstatement and in any event 'no difference' in relation to the relevant issue, being whether there was some arguable ground, capable of being brought before the commissioner and summarised that, notwithstanding that denial, the applicant had some interest in the offshore companies.
In the view of the judge, the challenge to the notices therefore fell on those grounds and the only issue that remained was the existence or not of legal professional privilege.
This point was then considered by the judge. The Inland Revenue's view was that the applicant had no locus or standing because the notices were not served on him personally but were notices served under section 20(3), Taxes Management Act 1970 on a third party, the banks, who themselves made no challenge. Neither the banks nor the clients involved were involved in making any application to the court either.
In addition, neither the banks nor the alleged clients had come forward to indicate that there were any documents which were subject to legal professional privilege and if so on what basis.
Once again, Mr Justice Burton made reference to numerous decided cases. Perhaps the most well known of these is R v Commissioners of Inland Revenue ex parte Taylor (No 2) [1990] STC 379. The judge quoted from Lord Justice Bingham's conclusion at page 384 of that case as follows:
'But there is no preservation of legal professional privilege and no limited protection where the notice relates to a lawyer in his capacity as taxpayer who is served with a notice under section 20(2). The clear inference is, in my judgment, that a client's ordinary right to legal professional privilege, binding in the ordinary way on a legal adviser, does not entitle such legal adviser as a taxpayer to refuse disclosure. That is not, to my mind, a surprising intention to attribute to Parliament. In different circumstances the Court of Appeal has held that the Law Society is entitled to override a client's right to legal professional privilege when investigating a solicitor's accounts (see Parry-Jones v Law Society [1969] 1 Ch 1). It is, as I think, altogether appropriate that the Revenue, being charged with the duty of collecting the public revenue, should enjoy a similar power.'
The structure of the amended Taxes Management Act 1970, which Lord Justice Bingham considered in the Taylor case involves
(1) a drastic investigatory power with only limited restrictions with the protection of the back up of consent of a General or Special Commissioner. That accords with recent consideration of the structure by Mr Justice Lightman in R v Commissioners of Inland Revenue ex parte Banque Internationale a Luxembourg SA [2000] STC 708;
(2) specific protection provided for what might loosely be described as litigation privilege in section 20B(2), Taxes Management Act 1970;
(3) specific protection for legal professional privilege where the notices are directed under section 20(3), Taxes Management Act 1970 straight to lawyers or tax advisers.
The decision
The application was dismissed and the judge declined to make the declaration sought.
(Reported at [2000] STC 751.)
Commentary by John T Newth FCA, FTII, FIIT, ATT
This was a case which was considered long and carefully by Mr Justice Burton. In the end the case was decided on two issues:
(a) The material not disclosed by the Inspector to the General Commissioner was not significant enough to have altered the decision to issue the notices, or to give the applicant 'discovery' of the notices before issue.
(b) Legal professional privilege did not apply when the lawyer himself was under investigation. The banks to which the notices were sent and the clients to which the notices applied had not claimed privilege. Therefore it did not apply in the current circumstances.
The court considers an application for judicial review in R v Commissioners of Inland Revenue ex parte Lorimer.
A solicitor who was being investigated personally by Special Compliance Office made application for judicial review in connection with two notices issued under section 20(3), Taxes Management Act 1970 to two banks. The grounds for the application were that there were misstatements and material not disclosed by the Inspector to the General Commissioner when requesting the issue of the notice, and as the documents and information required related to the clients of the solicitor and not his personal affairs, these documents were subject to legal professional privilege. The application before the court failed on both these grounds.
The background and facts
The applicant was a solicitor who was under investigation by the Special Compliance Office in respect of his personal affairs.
As part of the investigation, the Inland Revenue sought to issue two notices under section 20(3), Taxes Management Act 1970 to two banks in connection with accounts to which the applicant was an authorised signatory.
The documents listed in the notices related to the affairs of the clients of the solicitor applicant where the Inland Revenue suspected he might have had signatory rights with the banks, or powers of attorney or powers of management control or control. There was no Inland Revenue investigation into the affairs of the clients.
The Inspector of Taxes applied for the consent of a General Commissioner to the issue of the notices under section 20(7), Taxes Management Act 1970, which consent was granted.
Subsequently the applicant's solicitor applied for judicial review contending (1) that the summary submitted by the Inspector to the General Commissioner contained material nondisclosures and misdisclosures of matters which would have influenced the commissioner against consenting to the notices and that the notices should therefore be quashed; and (2) that legal professional privilege applied to some of the documents sought.
(David Ewart for the applicant; Timothy Brennan for the Crown.)
The Queen's Bench Division judgment
The matter came before Mr Justice Burton who considered the application carefully and gave a judgment which continues for 24 pages in Simon's Tax Cases. Numerous cases, both tax and other, were referred to in the judgment and in the skeleton arguments by the two counsel, and most of these cannot be referred to in detail.
The judge referred to the contents of the two notices which had been submitted to the bank Julius Baer and the Bank of Scotland and then considered the various sections in section 20, Taxes Management Act 1970.
The investigation into the solicitor's affairs concerned to a large extent whether or not he had a beneficial interest in or may even be the alter ego of certain companies which he claimed to be his clients, and in particular a group of companies under the general umbrella of an offshore company called Hudson River Trading Ltd of Liberia.
Other matters which concerned the Inland Revenue were various property transactions which the applicant carried out in the London area. The department's interest concerned how the solicitor obtained the funds for both purchase and improvement of some of the properties, and in one instance why he had spent money on a property which did not appear to be owned by him at the time, but by one of the companies referred to in the investigation.
It is beyond the scope of this report to consider the facts in great detail, but counsel for the applicant had in fact not pursued his challenge to the notices on rationality grounds. Another point that was abandoned was the question of the six-year period set out in section 20B(5), Taxes Management Act 1970 and another point relating to self assessment.
A relevant case that had to be considered was R v Commissioners of Inland Revenue ex parte T C Coombs & Co [1991] STC 97. The decision in that case depended on the fact that there was no evidence that the commissioner's consent was obtained irregularly, notwithstanding the Revenue's silence as to what was put before the commissioner, because of the presumption of regularity applicable both to the issue of the notice and the consent by the commissioner.
The applicant in the current case had put forward what he submitted to be a sufficiently arguable case that there had been material nondisclosure or misdisclosure by the Inspector to the General Commissioner, such that he was entitled to disclosure, in the sense of discovery of the twelve-page brief which the investigating Inspector said was put before the General Commissioner, in order to substantiate his case.
Mr Justice Burton took the view that a course could be taken which might obviate the actual need for the contested discovery application to be resolved if parties summarised their positions, and that is what was done over the full hearing.
This aspect of the case was considered by the judge in some detail, with reference to numerous cases, some of them non-tax cases. In doing so he considered the following five points:
(1) The explanation by the solicitor for non-charging or non-rendering of invoices.
(2) The applicant's explanation for incurring improvement expenditure prior to the acquisition of Flat 19 Belgravia House.
(3) The costs of 16 Chapel Street.
(4) Similar transactions.
(5) Whether the applicant had day-to-day management responsibility for Hudson River Trading Company of Liberia.
On the latter point, the Inland Revenue had misquoted a supposed statement by the solicitor to the General Commissioner. In the event Mr Justice Burton concluded that there was no material misstatement and in any event 'no difference' in relation to the relevant issue, being whether there was some arguable ground, capable of being brought before the commissioner and summarised that, notwithstanding that denial, the applicant had some interest in the offshore companies.
In the view of the judge, the challenge to the notices therefore fell on those grounds and the only issue that remained was the existence or not of legal professional privilege.
This point was then considered by the judge. The Inland Revenue's view was that the applicant had no locus or standing because the notices were not served on him personally but were notices served under section 20(3), Taxes Management Act 1970 on a third party, the banks, who themselves made no challenge. Neither the banks nor the clients involved were involved in making any application to the court either.
In addition, neither the banks nor the alleged clients had come forward to indicate that there were any documents which were subject to legal professional privilege and if so on what basis.
Once again, Mr Justice Burton made reference to numerous decided cases. Perhaps the most well known of these is R v Commissioners of Inland Revenue ex parte Taylor (No 2) [1990] STC 379. The judge quoted from Lord Justice Bingham's conclusion at page 384 of that case as follows:
'But there is no preservation of legal professional privilege and no limited protection where the notice relates to a lawyer in his capacity as taxpayer who is served with a notice under section 20(2). The clear inference is, in my judgment, that a client's ordinary right to legal professional privilege, binding in the ordinary way on a legal adviser, does not entitle such legal adviser as a taxpayer to refuse disclosure. That is not, to my mind, a surprising intention to attribute to Parliament. In different circumstances the Court of Appeal has held that the Law Society is entitled to override a client's right to legal professional privilege when investigating a solicitor's accounts (see Parry-Jones v Law Society [1969] 1 Ch 1). It is, as I think, altogether appropriate that the Revenue, being charged with the duty of collecting the public revenue, should enjoy a similar power.'
The structure of the amended Taxes Management Act 1970, which Lord Justice Bingham considered in the Taylor case involves
(1) a drastic investigatory power with only limited restrictions with the protection of the back up of consent of a General or Special Commissioner. That accords with recent consideration of the structure by Mr Justice Lightman in R v Commissioners of Inland Revenue ex parte Banque Internationale a Luxembourg SA [2000] STC 708;
(2) specific protection provided for what might loosely be described as litigation privilege in section 20B(2), Taxes Management Act 1970;
(3) specific protection for legal professional privilege where the notices are directed under section 20(3), Taxes Management Act 1970 straight to lawyers or tax advisers.
The decision
The application was dismissed and the judge declined to make the declaration sought.
(Reported at [2000] STC 751.)
Commentary by John T Newth FCA, FTII, FIIT, ATT
This was a case which was considered long and carefully by Mr Justice Burton. In the end the case was decided on two issues:
(a) The material not disclosed by the Inspector to the General Commissioner was not significant enough to have altered the decision to issue the notices, or to give the applicant 'discovery' of the notices before issue.
(b) Legal professional privilege did not apply when the lawyer himself was under investigation. The banks to which the notices were sent and the clients to which the notices applied had not claimed privilege. Therefore it did not apply in the current circumstances.


Issue: 3785 / Categories:
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