R v Inland Revenue Commissioners, ex parte Lorimer




[2000] STC 751, 73 Tax Cas 276


HEARING-DATES:  26, 27, 31 July 2000


31 July 2000



Judicial review — Information — Power to require information — Production of documents — Inspector applying to commissioner for consent to issue notices to banks to produce documents relevant to taxpayer's tax liability — Commissioner consenting — Whether duty on inspector to disclose all material relevant to application to commissioner — Whether on material non-disclosure notices to be automatically quashed — Taxes Management Act 1970, s 20(3), (7).

Judicial review — Information — Power to require information — Production of documents — Notices issued to banks requiring them to produce documents relevant to taxpayer's tax liability — Taxpayer a solicitor — Taxpayer claiming that documents including details of his clients' affairs — Whether taxpayer entitled to claim legal professional privilege in respect of documents sought by notices — Taxes Management Act 1970, s 20(3). 



L was a solicitor.  The Revenue sought to issue two notices under s 20(3) of the Taxes Management Act 1970 (the 1970 Act) for the purpose of inquiring into L's personal tax liability.  In accordance with s 20(7) of the 1970 Act an inspector of taxes applied for the consent of a General Commissioner to the issue of the notices.  Consent was granted.  The notices were addressed to two banks and required, inter alia, documents containing information about accounts to which L was an authorised signatory.  L brought an application for judicial review of the notices on the ground that the documents related to the affairs of his clients, where he might have had signatory rights with the banks, or powers of attorney, or powers of management or control, and there was no Revenue investigation into the affairs of his clients.  L contended: (i) that the summary submitted by the inspector to the commissioner contained material non-disclosures and misdisclosures of matters which would have influenced the commissioner against consenting to the notices and that the notices should therefore be quashed; and (ii) that legal professional privilege applied to some of the documents sought.

Held -- (1) There was an unquestionable duty on tax inspectors to disclose on an application to the commissioner for consent to a s 20(3) notice all the material relevant to that application.  That duty extended to the disclosure of matters which could have properly influenced the commissioner against granting consent.  Non-disclosure or incorrect disclosure of a factor which might have weighed in the balance against the Revenue was material.  However, in the event of material non-disclosure or misdisclosure it did not automatically follow that the notices should be quashed.  The court was entitled to consider whether, if the full facts had been disclosed, consent would still have been granted (the no difference test).  The correct approach was for the court first to decide whether there had been non-disclosure or misdisclosure at all, then whether that non-disclosure or misdisclosure had been material, then the nature and extent of that non-disclosure or misdisclosure and then whether the no difference test could apply.  On the facts of the instant case the non-disclosure or misdisclosure had not been material and, even if it had, it would have made no difference as consent would still have been given to the issuing of the notices.  R v IRC, ex p T C Coombs & Co [1991] STC 97 considered.

(2) There was no preservation of legal professional privilege where a notice related to a lawyer in his capacity as a taxpayer.  His clients' ordinary right to legal professional privilege, binding in the ordinary way on a legal adviser, did not entitle a legal adviser as a taxpayer to refuse disclosure.  Accordingly, in the instant case L could not assert such privilege.  Dicta of Bingham LJ in R v IRC, ex p Taylor (No 2) [1990] STC 379 at 384 applied.

The application would therefore be dismissed. 



For the power to call for documents from third parties, see Simon's Direct Tax Service A3.152.

For privileged documents, see ibid, A3.153.

For the Taxes Management Act 1970, s 20(3), (7), see ibid, Part G2. 



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Mark Basil Andrew Lorimer (L), a solicitor, applied with permission of Burton J for judicial review of two notices issued by the Revenue under s 20(3) of the Taxes Management Act 1970 on two banks for the purposes of inquiring into L's tax liability.  L sought orders of certiorari on the ground that the notices required information relating to his clients' affairs and a declaration of the position of the recipient of a notice under s 20(3) who held documents covered in whole or in part by legal professional privilege.  The facts and grounds of the application are set out in the judgment. 



David Ewart for L; Timothy Brennan for the Crown. 



Cur adv vult 31 July.  The following judgment was delivered. 







BURTON J: Mr Lorimer (the applicant) is a solicitor and brings an application by way of judicial review of two notices issued by the Revenue under s 20(3) of the Taxes Management Act 1970 (the 1970 Act), on 13 August 1999, against two banks, Bank Julius Baer & Co Ltd and the Bank of Scotland.

The notice against Bank Julius Baer reads as follows, addressed to the manager:

'I, the undersigned [who is Ms Lorna McPherson, the relevant inspector] being one of Her Majesty's Inspectors of Taxes authorised for the purposes of s 20 of the Taxes Management Act 1970, For the purpose of enquiring into the tax liability of Mr MBA Lorimer [with his address] Hereby require you under subsection (3) of that Section not later than 30/9/99 to deliver to me at the above office or, if you so elect, make available for inspection by Ms LL McPherson of Inland Revenue Special Compliance Office, Manchester all such documents in your possession or power as are specified or described in the Schedule below.  Your attention is drawn [and then she refers to an enclosure which contains subsections of the Act] . . .'

The schedule reads as follows:

'1. All correspondence and bank statements detailing the account title, account number and date the account was opened and closed, of all accounts to which Mr Lorimer was or is an authorised signatory or over which he had Power of Attorney.

2. All correspondence and enclosures between the bank and Mr Lorimer.

3. All correspondence, agreements, notes of telephone conversation and internal memoranda relating to the granting of payment under, and assets used to secure guarantees given by or on behalf of Mr Lorimer, whether solely or jointly with others.

4. Loan applications made by Mr Lorimer, whether in his name or the name of another person or persons together with the loan agreements which resulted from those applications.

5. Internal notes and memoranda relating to any discussion between the bank and Mr Lorimer.

6. Record of credit cards to which Mr Lorimer is or was an authorised signatory.'

There was a similar notice in respect of the Bank of Scotland, to which there was a schedule which read as follows:

'Schedule in respect of Mr MBA Lorimer:

1. Records of bank accounts.

2. Records of accounts at other branches or banks.

3. Records of the transfer of funds to or from the United Kingdom.

4. The bank's customer record cards or other similar records and all other internal management records, including notes of interviews or discussions.

5. The bank's correspondence file.

6. Any other documents relating to Mr Lorimer's financial position and assets.

The items listed above relate to all accounts and transactions in respect of Mr MBA Lorimer or to which he has been a party held at your branches at West End, 141 Princess Street, Edinburgh and/or 32a Chamber Street, Edinburgh.'

The most relevant subsections of the 1970 Act to which reference has been made in the course of this application are as follows:

1. Notice directed against a taxpayer by the inspector or by the Board.

Section 20(1) and (2) provide:

'Subject to this section, an inspector may by notice in writing require a person --

(a) to deliver to him such documents as are in the person's possession or power and as (in the inspector's reasonable opinion) contain, or may contain, information relevant to --

(i) any tax liability to which the person is or may be subject, or

(ii) the amount of any such liability . . .

(2) Subject to this section, the Board may by notice in writing require a person --

(a) to deliver to a named officer of the Board such documents as are in the person's possession or power and as (in the Board's reasonable opinion) contain, or may contain, information relevant to --

(i) any tax liability to which the person is or may be subject, or

(ii) the amount of any such liability . . .'

2. Notice directed against a third party.

Section 20(3) provides:

'Subject to this section, an inspector may, for the purpose of enquiring into the tax liability of any person ("the taxpayer"), by notice in writing require any other person to deliver to the inspector or, if the person to whom the notice is given so elects, to make available for inspection by a named officer of the Board, such documents as are in his possession or power and as (in the inspector's reasonable opinion) contain, or may contain, information relevant to any tax liability to which the taxpayer is or may be, or may have been, subject, or to the amount of any such liability . . .'

3. Precautions to be taken prior to issue of notices by the inspector.

Section 20(7) provides:

'Notices under subsection (1) or (3) above are not to be given by an inspector unless he is authorised by the Board for its purposes; and --

(a) a notice is not to be given by him except with the consent of a General or Special Commissioner; and

(b) the Commissioner is to give his consent only on being satisfied that in all the circumstances the inspector is justified in proceeding under this section.'

4. Identity of the taxpayer.

Section 20(8) provides: 'Subject to subsection (8A) below, a notice under subsection (3) above shall name the taxpayer with whose liability the inspector . . . is concerned.'

5. Protection for documents relating to a pending appeal.

Section 20B(2) provides:

'A notice under section 20(1) does not oblige a person to deliver documents . . . relating to the conduct of any pending appeal by him; a notice under section 20(3) . . . does not oblige a person to deliver or make available documents relating to the conduct of a pending appeal by the taxpayer . . .'

6. Protection for six-year-old documents.

Section 20B(5) provides:

'A notice under section 20(3), does not oblige a person to deliver or make available any document the whole of which originates more than 6 years before the date of the notice.'

7. Where the third party is a lawyer.

Section 20B(3) provides:

'An inspector cannot under section 20(1) or (3) . . . give notice to a barrister, advocate or solicitor, but the notice must in any such case be given (if at all) by the Board; and accordingly in relation to a barrister, advocate or solicitor for references in section 20(3) . . . to the inspector there are substituted references to the Board.'

Section 20B(8) provides:

'A notice under section 20(3) . . . does not oblige a barrister, advocate or solicitor to deliver or make available, without his client's consent, any document with respect to which a claim to professional privilege could be maintained.'

There is an equivalent power in relation to entry with a warrant to obtain documents in s 20C(4).

8. There is a similar though less complete protection in respect of tax advisers.

Section 20B(9) and (10) provide:

'Subject to subsections (11) and (12) below, a notice under section 20(3) . . . --

(a) does not oblige a person who has been appointed as an auditor for the purposes of any enactment to deliver or make available documents which are his property and were created by him or on his behalf for or in connection with the performance of his functions under that enactment, and

(b) does not oblige a tax adviser to deliver or make available documents which are his property and consist of relevant communications.

(10) In subsection (9) above "relevant communications" means communications between the tax adviser and --

(a) a person in relation to whose tax affairs he has been appointed, or

(b) any other tax adviser of such a person,

the purpose of which is the giving or obtaining of advice about any of those tax affairs; and in subsection (9) above and this subsection "tax adviser" means a person appointed to give advice about the tax affairs of another person (whether appointed directly by that other person or by another tax adviser of his).'

Subsections (11), (12) and (13) place material limitations on this restriction.

The applicant made no complaint about documents which related to what he admits to be his own personal affairs and has not challenged a number of other notices.  However, the documents here relate, he asserts, to affairs of his clients, where he may have had signatory rights with banks or powers of attorney or have had powers of management or control, and there is no Revenue investigation into the affairs of those clients.

The Revenue's concern is that the applicant has or may have a beneficial interest in, or may even be the alter ego of, those companies which he claims to be his clients, and particularly a group of companies under the general umbrella of an offshore company called Hudson River Trading Ltd of Liberia (HRT).

I gave permission to apply in December 1999.  The nature of the application has changed fairly substantially.  I gave permission to amend the grounds only at the end of the hearing after hearing full argument and at a stage when the Revenue, and, therefore, I, could be satisfied that no prejudice was caused by the late amendments.

I shall describe the nature of the relief sought both originally and in its final form.

1. Rationality.

The primary case at all times was simply to challenge the issue of the notices on rationality grounds, which grounds were set out at length, the basis of the attack being that, in the light of the evidence available, no reasonable inspector could conclude that there was a sufficiently arguable case that the documents sought from the banks, which would relate to the affairs of HRT and the other companies which the applicant asserts to be clients, and neither his creatures nor his property, 'may contain information relevant to any tax liability to which [he] may be or may have been subject'.

A number of pieces of evidence or information were relied upon by the Revenue in support of its case, and I give only one example at this stage because it was the subject of an application for disclosure by the applicant which came on before me interlocutorily two days before the hearing commenced.

In an internal memo of a bank called NWS Bank plc, a leasing subsidiary of the Bank of Scotland, dated 18 May 1989, which the Revenue obtained, it was recited as follows:

'Mark Lorimer.  A solicitor who was originally a partner with Sinclair Roche & Temperley . . . and specialises in tax law.  He has an estimated worth within companies which he controls of 1.8M (Bank of Scotland has a certificate from his accountant confirming this statement).  In addition he owns premises personally in London valued at 500,000 on which there is a mortgage of 30,000.  These facts are given in order to clarify the worth and standing of the instigator of this scheme, and as a guide to the type of individual that is likely to apply.'

Ms McPherson, when relying on the contents of that memo in her affidavit in opposition to this application (and, by inference as confirmed by Ms McPherson, in the '12-page brief' which she had put before the commissioner pursuant to her obligation in accordance with s 20(7) of the 1970 Act) also disclosed the following, both in such affidavit, and, by inference, which again was confirmed by Ms McPherson, in such brief:

'In response to a Section 20(3) notice served on the Bank of Scotland on 28 April 1995 . . . a bank official (Mr Bullivant) said that he had been unable to locate "the certificate" and that furthermore he believed the note purporting to suggest that Mr Lorimer controlled the offshore companies was incorrect.'

The applicant's interlocutory application for disclosure, which was in two parts, and I shall refer to the second part later, was, as to this first part, compromised, under some pressure from me, by the disclosure, without prejudice to its case, by the Revenue of the relevant part of a minute of a meeting on 23 October 1996, which reads as follows:

'The bank officials were aware of a note held by the NWS Bank Plc to the effect that a certificate was held at the Bank of Scotland around late April/early May 1989 relating to the assets of certain companies.  Bullivant said however he believed the note purporting to suggest that Lorimer controlled such companies was completely incorrect.  Bullivant went on to say that he had been unable to locate any certificate required under the condition precedent to (a) of the Bank of Scotland's letter dated 28 April 1989 addressed to Hudson River Trading Ltd.  He had looked both in documentation relating to Lorimer and also other companies.'

No attempt has been made by the applicant to explore the position further since such disclosure.  Indeed, at the hearing of this application, Mr Ewart, on his behalf, indicated that he did not then propose further to pursue the applicant's challenge on rationality grounds.

I do not, therefore, need to examine further the other grounds set out by the inspector, save to summarise them briefly as follows: (i) Apparent low or no fee charging by the applicant for work done for HRT and its parent and/or in respect of a scheme called the Truck Trustee Scheme carried out for or with them which is relied on as indicating beneficial interest by the applicant, which beneficial interest is denied, and indeed which inference about the fee charging is and was denied; (ii) reference in the scheme prospectus to such companies as being 'associated with' the applicant, again explained by the applicant and any adverse inference being denied; (iii) reference, in a letter from the applicant to the Bank of Scotland making application for loans to HRT, to 'we' in respect of the proposed borrowers, again explained by the applicant; (iv) apparently unexplained means and unexplained expenditure and access to funds, particularly relating to expenditure on certain identified properties, which the applicant has denied indicates offshore sources of income of his own.

Mr Ewart, who has argued the matter persuasively and attractively on behalf of the applicant, has accepted that, but for the ground to which I will turn in due course, which is the subject of his amendment, and which I shall call his Coombs point (see R v IRC, ex p T C Coombs & Co [1991] STC 97, [1991] 2 AC 283), he could not pursue his challenge to the notices, and certainly not on rationality grounds.

2. The six-year period.

This was originally relied on to justify the applicant's case that, and I quote the form 86A:

'The notices on their face require the banks to provide documents which originated more than six years before the date of the notices.  Therefore, the notices are bad on their face and ought to be quashed.  Alternatively, an appropriate declaration ought to be granted.'

This is, it seems to me, just not a good point.  As I have indicated, the notices themselves include an extract from the statute, which extract included s 20B(5), thereby drawing attention to what, in any event, the banks could have seen and been advised on for themselves from the statute; namely, that they were not obliged by the notices to deliver any documents falling within that subsection, whatever may be the general rubric in the notices.  The point was, under some encouragement from me, abandoned by Mr Ewart.  Another point relating to self-assessment was abandoned prior to the hearing.

3. Legal professional privilege.

The relief sought by way of quashing or declaratory relief in so far as the notices sought (which they do not in terms) documents covered by legal professional privilege was altered in the course of the hearing, such that Mr Ewart made clear that what the applicant seeks is, and I quote his supplementary skeleton, 'a declaration of the position of the recipient of a Notice under section 20(3) who holds documents covered in whole or in part by legal professional privilege'.

I shall turn to this later, after considering first whether the notices survive the applicant's challenge at all.

4. The Coombs point.

This was a new case put forward by the applicant, and its provenance, from Mr Ewart's point of view, is described in his supplementary skeleton as follows:

'1. This amendment seeks to challenge the Notices on the ground, that the Inspector failed to put relevant matters before the General Commissioner in seeking consent to issue the notices under TMA 1970 section 20(7).  The Applicant did not have any basis to raise this challenge until he received the affidavit of Ms McPherson sworn on 1 March 2000.  For that reason it was not part of the original Grounds in the Form 86A.  However, the affidavit shows, if taken at its face value, that the Inspector did not place a number of material matters before the General Commissioner . . .

3. The Applicant submits that the true question is that raised in the amendment.  The most important matters not disclosed were explanations put forward by the Applicant.  If the trial judge does not regard those explanations as being material to the key issue which had to be determined by the General Commissioner (i.e. whether the Inspector's opinion was reasonable) then he will inevitably conclude that the Inspector's position was reasonable.  Therefore, if the Applicant were to fail on the unreasonableness issue there would be no purpose in pursuing the unreasonableness issue and the Applicant would not seek to do so . . .

5. The Applicant contends that the principles which govern ex parte application, in the High Court (e.g. for leave to serve out the jurisdiction) apply equally to the Inspector's ex parte application to the General Commissioner for consent to serve.'

The relevant authority, upon which the applicant relies for his starting point in this regard, is the decision of the House of Lords in R v IRC, ex p T C Coombs & Co [1991] STC 97, [1991] 2 AC 283.  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.

However, their Lordships went on to express opinions relevant to this case and with which indeed the Revenue, by Mr Brennan, submits it has complied.

I refer first to the passage in Lord Mackay of Clashfern LC's speech ([1991] STC 97 at 99-100, [1991] 2 AC 283 at 288-289):

'Where an application for judicial review is made in circumstances such as the present, I would regard it as appropriate for the 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.'

Lord Jauncey of Tullichettle stated as follows ([1991] STC 97 at 100, [1991] 2 AC 283 at 289):

'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.'

Lord Lowry delivered the opinion which has the most relevance to the considerations in this case ([1991] STC 97 at 110.0, [1991] 2 AC 283 at 305) --

'. . . I take the opportunity of stating my clear view that, when seeking a commissioner's consent under s 20(7), the Revenue are absolutely bound to make full disclosure to the commissioner of all facts within their knowledge which could properly influence the commissioner against giving his consent to a s 20(3) notice.  I do not by any means wish to imply that the Revenue have heretofore proceeded on any other basis, but it may be worth emphasising that failure to make full disclosure will, if it comes to light, almost inevitably vitiate the consent and nullify the notice given pursuant thereto.  It will be difficult for an applicant for judicial review to demonstrate such a failure if it should occur.  Nevertheless, the principle of full disclosure being made and being seen to be made, so far as those objects can be reconciled with the proper claims of confidentiality, is important and may on appropriate occasions be safeguarded by an application to cross-examine.'

The applicant put forward what he submitted to be a sufficiently arguable case by reference to the affidavits sworn by Ms McPherson, that there had been material non-disclosure or misdisclosure by the inspector to the commissioner, such that he was entitled to disclosure, in the sense of discovery (which expression I shall, with due deference to the new Civil Procedure Rules (CPR) terminology, now use in this context in order to avoid muddling the two concepts), of the 12-page brief which Ms McPherson says was put before the commissioner, in order to substantiate such a case.

This led to the second part of the interlocutory application before me to which I have referred.  Discovery was vigorously resisted by the Revenue on grounds of public interest immunity.  The applicant contended that the House of Lords in Coombs must have intended policing of the duty to disclose which could only be done by discovery, that he accepted that there could only be an order for discovery if it was an arguable case of non-disclosure or misdisclosure, but he contended that such there was, and that indeed further, there may have been a waiver by reference to the degree of the description of the 12-page brief already given.

I took the view on the interlocutory application that a course could be taken which might obviate the actual need for the contested discovery application to be resolved, if the parties summarised their positions, and that is what was done over the full hearing.

One, the applicant set out his list of the six matters which, on the assumption, which he would have sought to establish by the actual discovery, that the contents of Ms McPherson's affidavit seeking to justify the Revenue's position accurately represented what was in fact put before the commissioner, were the subject of non-disclosure or misdisclosure (the six-point summary).

Two, the Revenue set out in a schedule which dealt with all the complaints made by the applicant in his affidavits, not all of which were pursued at the hearing when, in the event the applicant restricted himself to his six points, what would be the Revenue's position by way of justification as to the matters complained of as having not been dealt with or having been dealt with inaccurately, as the applicant alleged, in the 12-page brief, on the assumption (without admission), that the matters as set out in Ms McPherson's affidavit accurately represented what had in fact been put in the 12-page brief.

In the event, as both parties accepted in argument, this course was satisfactory, and the parties and the court effectively acted as if the impugned affidavit of Ms McPherson was indeed the impugned 12-page brief, ie that the 12-page brief suffered from the same alleged defects.

The six points in Mr Ewart's six-point summary were effectively taken without admission by the Revenue as if they were actually contained or not in the 12-page brief, and the argument proceeded on the basis that they either were or were not material non-disclosures or misdisclosures to the commissioner.

Thus, in the event it was agreed by the Revenue that Mr Ewart's late amendment could be allowed unopposed because it had no impact on any need for (contested) discovery and Mr Ewart did not need to pursue his (contested) application for such discovery.

The applicant's challenge to the notices was thus limited to the amended ground, namely, non-disclosure or misdisclosure, on the basis of the six-point summary.

There were, therefore, two issues before me to decide: One, non-disclosure, as I shall call this issue to include misdisclosure; and two, privilege.


The applicant's case in the event was put as follows by way of amended grounds, though as duly limited by the six-point summary:

'In her affidavit of 1 March 2000, Ms McPherson has revealed the matters which she put before the General Commissioner in applying for consent to issue the section 20 Notices.  These matters were stated to be those set out in her affidavit.  The affidavit fails to give a balanced view of the case by failing to state the Applicant's explanation, either properly or at all [in respect of the items in the six-point summary] . . . Since the Inspector failed to disclose all relevant matters to the General Commissioner, his consent is vitiated and the Notices nullified: see R v IRC ex p. TC Coombs [1991] STC 87, 110.0h.'

The six-point summary read as follows:

'(A) Facts which ought to have been placed before the General Commissioner: (i) The explanation for non-charging set out in the letter of 19 May 1995.  (ii) The explanation for incurring improvement expenditure before acquiring a legal interest in Flat 19 Belgravia House set out in the letter of 14 October 1998 at para 1.4.  (iii) The explanation as to how the costs of 16 Chapel Street were financed set out in the letter of 20 August 1996.

(B) Facts which should not have been placed before the General Commissioner: (a) That the Applicant did not raise invoices because of his clients' inability to pay.  This was not what the Applicant said at the meeting of 28 August 1991.  (b) That the Applicant said he could not recall the "similar transactions" mentioned in the letter of 4 March 1994 and the meeting of 22 July 1998.  (c) That the Applicant previously stated he had day to day management responsibility for HRT.'

In practice, as Mr Ewart conceded, points A(i) and B(a) were mirror images of the similar argument, and thus the six points slimmed down to five in the course of argument.

Mr Ewart's submissions were as follows in respect of each of those five points: (i) They each severally, or they all cumulatively, amount to material non-disclosure or misdisclosure.  (ii) Irrespective of whether there were other pieces of evidence, information or argument before the commissioner, these were factors which, if put or if put correctly, could have 'properly influence[d] the commissioner against giving his consent to a s 20(3) notice', in the words of Lord Lowry (see [1991] STC 97 at 110.0, [1991] 2 AC 283 at 305); ie they were material in a similar sense to that addressed in cases of material non-disclosure with regard to ex parte applications in the High Court generally, for example, injunctions, or, in particular, freezing orders (Mareva injunctions as they used to be called) namely, material for the judge to know and necessary to enable him to exercise his discretion properly (see, for example, Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350 at 1356).  (iii) If there is material non-disclosure or misdisclosure, then Mr Ewart submits that proper interpretation of Lord Lowry's words in R v IRC, ex p T C Coombs & Co [1991] STC 97 at 110.0, [1991] 2 AC 283 at 305, that, 'failure to make full disclosure will, if it comes to light, almost inevitably vitiate the consent and nullify the notice given pursuant thereto', means that there is to be application of what Harman J in the Chancery Division used to call the 'golden rule', ie the rule in R v Kensington Income Tax Comrs, ex p Princess de Polignac [1917] 1 KB 486 at 514, namely whereby, on proof of material non-disclosure, the order made ex parte should be discharged automatically, without consideration of the merits.

Hence, on consideration of the six-point summary, I should find material non-disclosure or misdisclosure, and quash the notices, irrespective of whether, had there been full or correct disclosure, the notices would have still been issued.

Mr Brennan, on behalf of the Revenue, who has argued the matter equally cogently and attractively: (i) denies that there was any non-disclosure or misdisclosure; (ii) submits that if there was any such, it was not material (a) in any event, and (b) particularly in the light of the other (unchallenged in the event) reasonably available grounds; submits further that, either because the words of Lord Lowry are obiter or because they were not fully considered, or, in any event, because of his own use of the words 'almost inevitably [emphasis added]', so even if there were material non-disclosure, at least in the absence of serious or deliberate non-disclosure or misdisclosure, there is not automatic quashing of the notices, but the normal practice of the Crown Office should be followed; namely, what is often called the 'no difference' test, whereby if the same notices would have been issued even if proper procedures had been followed, or, in this case, fuller or more accurate disclosure had been given, then the notices should not be quashed for that reason.

As to the law, I conclude as follows:

(i) There is unquestionably the duty to disclose on the ex parte application to the commissioner as elucidated in R v IRC, ex p T C Coombs & Co.  How far that duty can be policed depends upon the degree of conformity by the Revenue with the recommendation of the House of Lords in Coombs.  In this case, there is a very clear picture of the nature of the disclosure, although short of actual discovery of the 12-page brief because in the circumstances I have described the matter was never fully argued.

(ii) I accept that that duty extends to the disclosure of matters which could have properly influenced the commissioner against granting his consent to the notice.  Thus even if there are other grounds, the non-disclosure or the incorrect disclosure of a factor which might have weighed in the balance against the Revenue and in favour of the taxpayer is material.

(iii) I do not, however, consider that in the event of a conclusion of material non-disclosure, then quashing of the notices must follow automatically, for the following reasons.

First, I am not at all sure that there is any close analogy between the grant of these notices and the grant of a freezing order.  The latter has a drastic effect.  It is, as Lord Denning MR described in Bank Mellat v Nikpour [1985] FSR 87, the nuclear weapon of the law, and in that case, had no order been made, the defendant might have removed his only moneys within the jurisdiction out of the jurisdiction, and so the effect of the order was immediate and decisive, and by the discharge of the order, the defendant was given back, and no doubt took, that opportunity.

But a case such as this is not very like a freezing order, at least in the absence of any evidence of imminent disposal of the documents sought.  It seems to me much more like an ex parte application for leave to serve out of the jurisdiction under the old RSC Ord 11, in respect of which it has been concluded by the Court of Appeal, in a case of non-disclosure, that the judge was entitled to consider whether, if the full facts had been before the original ex parte judge, he would still have granted the order, and, if so, was entitled not to discharge that order, even though it was obtained by non-disclosure (see Kuwait Oil Co (KSC) v Idemitsu Tankers KK [1981] 2 Lloyd's Rep 510).

There is, of course, as Mr Ewart has pointed out, a possible time effect if the notices were quashed and reissued, namely that the six-year period in s 20B(5) starts to run again, which might affect some documents, just as there might be a limitation point on a RSC Ord 11 application.  But it does seem to me that the effect of ex parte process in both such procedures is not dissimilar, and the right course is to treat the power to discharge for non-disclosure as a punishment and retain it for serious cases and perhaps for cases where prejudice is shown, but not to adopt any kind of ex p Polignac principle.

Secondly, in any event, in relation to injunctions, and even Mareva injunctions or Anton Pillers as they used to be called, discharge for non-disclosure is no longer automatic, as it would have been in the halcyon days of the golden rule and ex p Polignac.  The principles appear in Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350 at 1356-1357, and were further analysed by Woolf LJ in Behbehani v Salem [1989] 1 WLR 723 at 729, where he said --

'. . . it is most important that the court assesses the degree and extent of the culpability with regard to the non-disclosure, and the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court.'

Of course, it is important to emphasise the duty on the Revenue to disclose as in R v IRC, ex p T C Coombs & Co, but it is in my judgment no more important than the duty of a party of an ex parte application, owed similarly to make full disclosure, to the court, and particularly as I have canvassed above where there can be a dramatic, immediate and far-reaching consequence of the making of such an ex parte order as an Anton Piller or a Mareva very much more so than the slow-moving result of an ex parte order for the granting or consent to the issue of a notice in this case.

Slade LJ in Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350 at 1359 said:

'While in no way discounting the heavy duty of candour and care which falls on persons making ex parte applications, I do not think the application of the principle should be carried to extreme lengths.  In one or two other recent cases coming before this court, I have suspected signs of a growing tendency on the part of some litigants against whom ex parte injunctions have been granted, or of their legal advisers, to rush to the Rex v. Kensington Income Tax Commissioners [1917] 1 K.B. 486 principle as a tabula in naufragio, alleging material non-disclosure on sometimes rather slender grounds, as representing substantially the only hope of obtaining the discharge of injunctions in cases where there is little hope of doing so on the substantial merits of the case or on the balance of convenience.'

This tabula in naufragio would obviously be appropriate for consideration in a case such as that before me in deciding whether to discharge notices for material non-disclosure, when it is accepted that but for the non-disclosure argument, it would not be possible to challenge the notices on rationality grounds.

Thirdly, in any event, Lord Lowry did not say that the discharge should be automatic.  He said 'almost inevitably'.  It does not seem to me that the choice between R v Kensington Income Tax Comrs, ex p Princess de Polignac [1917] 1 KB 486 or Kuwait Oil Co (KSC) v Idemitsu Tankers KK [1981] 2 Lloyd's Rep 510, or indeed the question of any principles in Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350, were considered by him, and if they had been, he might well have defined 'almost inevitably' by reference to the kind of issues of deliberate and/or serious non-disclosure canvassed in Brink's Mat and Behbehani v Salem [1989] 1 WLR 723 and indeed in Lloyds Bowmaker Ltd v Britannia Arrow Holdings plc [1988] 1 WLR 1337, as being relevant to when the sanction of automatic or almost inevitable discharge or quashing is to be appropriate.

I conclude, therefore, that in considering Mr Ewart's five points, I must conclude first whether there has been a non-disclosure or misdisclosure at all; then the question of materiality; and then the nature and the extent of the non-disclosure or misdisclosure; and then whether the no difference test could apply.

If it does, then I would only quash the notices if I concluded that the nature and extent of the non-disclosure is such that the sanction of automatic quashing should follow.

I turn, therefore, to consider the five points.

1. The explanation for non-charging or non-rendering of invoices.

Mr Ewart complains of para 7 of Ms McPherson's affidavit, on the assumption that this was what was put before the commissioner.  It reads in material part as follows:

'In about 1990 or 1991, the Revenue's St Martin's Tax District, which had responsibility for Mr Lorimer's tax affairs at the time, raised enquiries on accounts for his private practice as a solicitor and discovered that of the 30 clients invoiced for the year ended 30/4/1990, 11 were companies incorporated overseas, mainly in Liberia.  Most of these companies owned properties available for letting in the UK.  There were also instances where no invoices had been raised for work carried out for overseas companies.  Mr Lorimer maintained that this was because of his clients' inability to pay.  This could not be verified.  An alternative explanation was thought to be that Mr Lorimer's relationship with the offshore companies was not truly one at arms length.  Mr Lorimer has denied this.  I regret, however, that I am unable to accept his denial.'

This is said to be an incomplete and/or inadequate summary of what in fact the applicant had said, which is recorded elsewhere in the documentation as follows.  A letter from Messrs Hacker Young on the applicant's behalf dated 19 May 1995, said as follows:

'As stated, our client charged 10,000 in respect of the work carried out for Hudson River Trading Limited in connection with the share issue by Trust Trustee PLC . . . Our client anticipated that a substantial amount of money would be made by him in connection with subsequent share issues . . . Unfortunately this did not prove to be the case and our client understands that Hudson River Trading Limited spent approximately 155,000 in respect of the unsuccessful promotion of the Commercial Vehicles Scheme.  The loss of such an amount was clearly a substantial financial blow to Hudson River Trading Limited, and, having assisted in a successful promotion in respect to Truck Trustee PLC, our client felt, in part, responsible for the unsuccessful outcome of the Commercial Vehicles' promotion.  Accordingly, a certain amount of work was carried out, without charge, by our client for Hudson River Trading Limited.'

Then further, according to a note of an interview held on 28 August 1991, at which there were present in addition to Mr Cross, a district inspector, the applicant and a Mr Grozier, there is recorded the following:

'Looking at the accounts for the Lorimer's solicitors practice, Cross said that he was a little concerned about the level of general office expenditure in relation to income.  He suggested that as Lorimer's relationship with some of its clients seemed to be fairly close, he wondered whether there was something other than an arms length relationship, in relation to fee billing.  Lorimer said that he tried to bill his clients as often as he could, but he saw little point in billing, say Hudson River if he was aware that the money was not available.'

I suggested to Mr Ewart that if a schoolboy was set to make a precis of those two passages, he would not be ashamed of himself if he came up with something close to what is set out in para 7 of Ms McPherson's affidavit.

I do not judge that there was either non-disclosure or misdisclosure of the applicant's explanation.  It is not as full as the applicant would have liked, but inability to pay reflects unavailability of funds.

I certainly conclude that any incompleteness or inaccuracy in summation was not material, and if the stage were reached, which in my judgment it is not, I also conclude that any inaccuracy or incompleteness makes 'no difference' in the context of the relevant issue, which is whether there is a reasonably suspected beneficial interest of the applicant in the companies for whom he was acting or not.

2. Explanation for incurring improvement expenditure prior to acquisition of Flat 19, Belgravia House.

Paragraph 24(c) is complained of in Ms McPherson's affidavit, or rather a particular passage within it, which I shall italicise:

'Flat 19 Belgravia House . . . At a meeting on 17/2/1995 Mr Lorimer said that he owned this flat outright and that he had sold it in 1991 to a woman (whom he did not identify).  During the meeting it was pointed out to him that Particulars Delivered (i.e. the Stamp Duty return) held by the Inland Revenue showed that Islay Investments Limited of Liberia-not Mr Lorimer-had sold the property in 1991 to a Miss AV Hudson-Davis.  Mr Lorimer said he did not know the reason for this discrepancy and that he had no interest in that Liberian company.  Hacker Young, Accountants, subsequently wrote-on behalf of Mr Lorimer-that he was in fact the leaseholder of the property having acquired the leasehold interest in March 1988 from Orient Holdings Limited (of Liberia), and that he had spent approximately 132,000 on improvements between late 1987 to mid 1988 before selling the property in November 1990 to Islay Investments Limited (of Liberia) for 570,000.  We are told no documents have been retained pertaining to the transaction.  No satisfactory explanation has been received from Mr Lorimer as to why he would have incurred improvement expenditure in late 1987 prior to acquiring any legal interest in the property in March 1988.  Mr Lorimer's evident confusion over whether the property had been held in his name or the name of a Liberian company adds to the Revenue's concern that the two are beneficially connected and that Mr Lorimer's disclosures as to his financial interests have been less than complete and accurate.'

This is said to be incomplete by virtue of the following.  As contained in a letter from the Revenue to Hacker Young dated 31 October 1996, the following questions were posed:

'1.3 You refer to work being undertaken on 19 Belgravia House from late 1987 1987 . . . Could you . . . please clarify why, if your client had no interest in Belgravia House until March 1988, he incurred substantial personal costs on the improvement of the property prior to that date.

1.4 The Statement, dated October 1987, also shows a guarantee provided by Bank Julius Baer . . . you suggest that that was secured on 19 Belgravia House, but your client apparently did not have an interest in that property at that time.  Please clarify what assets were used to secure the guarantee from Bank Julius Baer until equity was held in 19 Belgravia House.'

The answers to those questions were purportedly set out in a letter dated 14 October 1998 from the applicant to the Revenue as follows:

'1.3 Again, I am unsure of the meaning of the first sentence of the paragraph.  The reason for incurring expense on 19 Belgravia House from late 1987 was to complete flat 19 to a habitable standard at which point the long lease was granted.  This is a very normal arrangement with regard to leasehold property.

1.4 Your colleague appears to have misunderstood the position.  When a property is acquired (whether it is freehold or leasehold) one normally enters into a contract.  I believe that a contract to acquire a leasehold interest in 19 Belgravia House was entered into although I do not have a copy-I would have forwarded a copy to you if I had one.  In the case of the leasehold property such a contract would be an Agreement for Lease which, in the case of 19 Belgravia House, provided for the carrying out of certain construction and conversion works to render the flat complete and habitable as stated above.  It is arguable that as from the date of any such contract, a purchaser has an "interest" in the property in question although if the contract is not completed, obviously such interest will be extinguished.'

Ms McPherson says in para 6 of her second affidavit in this trial:

'The Commissioner was told that no satisfactory explanation had been received to explain why improvement expenditure had been incurred prior to the formal acquisition of the lease, i.e. during a period when the property was owned by Orient Holdings Ltd, another offshore company underlying the trust.  Mr Lorimer's letter of 14 October 1998 provides only a brief explanation that the expense was incurred to bring the property to a habitable standard before the grant of a long lease, and that such arrangements were normal practice.  No documentation has been provided concerning the Belgravia House transaction.'

It is suggested that the inspector's statement as reflected in para 24(c) of Ms McPherson's affidavit was incomplete and/or incorrect in not having referred to the alleged full explanation in para 1.4 which I have quoted.  I am wholly unimpressed by this.  The passage in para 1.4 is very general indeed.  It explains the obvious in relation to what 'one does', and it then further uses either impersonal words or the passive voice.  No explanation is given as to why or on what basis the applicant did what he did.  I consider it perfectly appropriate to say that 'no satisfactory explanation' had been received from the applicant.

There is no non-disclosure or misdisclosure and, in any event, none, if there were any, is material; and again, if necessary, I would conclude that no difference would have been made if there had been some fuller reference to or even full quotation of the contents of para 1.4.

3. The costs of 16 Chapel Street.

The italicised passage in para 24(d) of Ms McPherson's affidavit is complained of:

'Between 1990 and October 1994 Mr Lorimer lived at this property which was registered in his own name.  The property cost 460,000 on 14 November 1990 (deposit 46,000 paid 20 September 1990 and the balance 414,000 paid November 1990).  Mr Lorimer sold the property in October 1994 for 860,000 . . . Research indicates that substantial improvements were undertaken while the property was owned by Mr Lorimer: Construction of a new floor, a conservatory and alterations to the basement.  Despite repeated requests on [and then I correct an erroneous date] 26 February 1996, 31 October 1996, 22 December 1998 and 14 September 1999, Mr Lorimer has not explained how any such costs were financed.  I consider the question to be entirely reasonable given the low income resources shown on Tax Returns over that period.'

The history of the correspondence here is more complicated.

1. By a letter dated 19 May 1995, Hacker Young, on behalf of the applicant, explained that the applicant purchased the leasehold of Flat 19, Belgravia House:

'This expenditure was financed from the sale proceeds of our client's previous property at 11 Granard Road, London SW12, which was sold by him in 1986 for approximately 225,000.  In addition, our client obtained a loan from Bank Julius Baer of 30,000 . . . This property was sold for 570,000 and the proceeds of the sale were used for the acquisition of the property referred to in (ii) below (16 Chapel Street).'

There was no explanation in that letter of whether the loan from Bank Julius Baer had been previously serviced and consequently the amount outstanding was more or less than 30,000 and whether it was paid off out of the proceeds of the sale of Flat 19 or, if not, how it was paid off.

2. By a letter dated 26 February 1996, the Revenue asked:

'16 Chapel Street.  Please advise me of the approximate dates the improvement expenditure was incurred (and the amounts in each period) and how financed: these together with the cost of the property exceed the net proceeds from 19 Belgravia House.'

The reference there to net proceeds assumes that the 30,000 was deducted from the 570,000, I would have thought; but as I have indicated, that was not a question that was ever answered.

3. Hacker Young, by letter of 20 August 1996, responded as follows:

'The improvement expenditure (on 16 Chapel Street) was incurred relatively continuously from the date of acquisition in 1990 until 1992.  You are correct in stating that the improvement expenditure plus the cost of acquisition exceeded the net proceeds from 19 Belgravia House [I note that they too have now adopted the expression "net proceeds", which appears to me, therefore, implicitly to accept that the payment out of the Bank Julius Baer loan had been made].  It was financed from a combination of bank overdrafts (Lloyds, Barclays' and Bank of Scotland as previously advised) and from other funds at Mr Lorimer's disposal.  The source of these funds were both from the original sale proceeds of Granard Road and from the sale of Mr Lorimer's home prior to his moving to Granard Road.'

It is to be noted that Granard Road was previously said to be the source of the purchase moneys of and/or development costs for 19 Belgravia House.

4. In its letter previously referred to of 31 October 1996, the Revenue further requested from Hacker Young the following information:

'With regard to 16 Chapel Street I note your comments regarding the financing of costs of acquisition and improvement.  Please let me have documentary evidence of the date and amount of expenditure on the property and how financed, such as invoices, bank statements, etc.'

5. What might be called a stonewalling response was given by the applicant's letter of 14 October 1998.  I quote it:

'As you know, 16 Chapel Street was my personal residence.  As such, it is exempt from capital gains tax.  In addition, it really does not matter whether I spent 1 or 1 million on the property.  You have been informed of the disposal of 19 Belgravia House on an arms length basis so, with respect, I do not think that your enquiries are necessary or proper.  If the expenditure on this property was not incurred (which is incorrect) it would mean that a larger tax free gain on disposal would have been realised but so what?  If you think that capital gains tax is chargeable on the disposal, then I suggest you issue an assessment and I shall take pleasure in dealing with it and recovering costs.'

6. By letter dated 22 December 1998, the Revenue wrote as follows:

'Given earlier comments about available means, it is not unreasonable for an Inspector of Taxes to ask how you managed to finance the acquisition of property costing 460K on 14/11/90 together with what was, apparently, substantial improvement expenditure thereafter.  The absence of any answer on this point is unhelpful and I cannot rule out the possibility that there is some tax driven motive for avoiding my questions.'

This was, on the Revenue's case, the state of play as of the date on 13 August 1999 when consent was sought and obtained from the commissioner.

7. There is a letter in the bundle dated 7 July 1999 which was, according to the Revenue, not received, and this may be right, because there is a materially identical letter dated 17 August 1999, which was received.  The relevant passage in those two letters is identical, and I quote it:

'As previously explained, the acquisition of 16 Chapel Street was funded from the sale proceeds of 19 Belgravia House.  The excess of the sale proceeds over the acquisition cost helped pay for refurbishment as did overdraft facilities of which you are aware.  The house which I owned prior to 19 Belgravia House (i.e. 11 Granard Road) was sold for a significant sum which also would have helped.'

A further letter was sent by the Revenue on 14 September 1999, to which I do not understand there to have been any subsequent reply, which states as follows:

'The question concerns how you financed the acquisition cost ( 460,000 in November 1990) and subsequent improvement expenditure of "approximately 159,000".  You have referred me broadly to the sale proceeds of 19 Belgravia House and an earlier home at 11 Granard Road (which was sold in 1986).  You have said that the gross sale proceeds from 19 Belgravia House were 570,000 in November 1990 (the purchaser being Islay Investments of Liberia, that company already in possession of the head lease).  Presumably some part of these proceeds were applied in repayment of loans or loans secured on 19 Belgravia? For example, you have earlier said that there was a 30,000 loan from Bank Julius Baer on 19 Belgravia House.  You have also earlier said that the proceeds from Granard Road were used to purchase 19 Belgravia House so that they were not directly available to fund the purchase of 16 Chapel Street.  You have referred, in broad terms, to the availability of overdraft facilities as a source of probable finance for the purchase and improvement of 16 Chapel Street.  You have provided me with end of year overdrawn balances for accounts at Bank of Scotland, Barclays, and Lloyds which show aggregate overdraft facilities ranging from 9,178 at 30 April 1991 to 39,290 at 30 April 1993.  The arithmetic does not add up.  Without your more specific reconciliation, I cannot understand how the acquisition and improvement costs were met.'

It seems to me at least arguable that those comments are fair.  One, was there double counting of the proceeds of Granard Road? Two, what were the net proceeds of 19 Belgravia House? Three, if they were 540,000, or less if the Bank Julius Baer loan was not serviced, then where did the balance of some 79,000 come from?

If the last letter before the application to the commissioner was what I have described as the stonewalling letter followed up by a third inquiry of December 1998 still left unanswered by August 1999, then it is difficult to see what criticism can be made of what was said to the commissioner.

However, even on the basis of taking into account the letter of 7 July/17 August, it seems to me that the best that the applicant could submit would be that the Revenue could or should have said, 'Mr Lorimer has not satisfactorily explained', or 'Mr Lorimer has not given any more than a basic outline in relation to which the arithmetic seemingly does not add up', or perhaps 'there is an as yet unexplained balance of at least 79,000'.  But I do not see that there can be a great deal of complaint about 'Mr Lorimer has not explained how any such costs were financed'.

Mr Ewart submits that, rather than give any such summary, it would have been better to have given the details and let them speak for themselves, but I suspect that, had they spoken for themselves, they would not have spoken any more favourably in favour of the applicant than did the summary.

In relation to what was already a 12-page brief, and with regard to only one of a fairly substantial number of points made, I do not consider that there was any material incompleteness or inadequacy, or certainly any material misrepresentation, and in any event, I do not consider that, particularly taken together with all the other matters, using any of the other possible formulations or summaries, or even setting out the complete narrative as above would have made 'any difference'.

4. Similar transactions.

This arises simply out of paras 22 and 23 of Ms McPherson's affidavit.  This is a reference to the letter, to which I referred earlier, sent by the applicant to the Bank of Scotland in March 1994, obtained pursuant to an earlier s 20(3) notice, where he uses the words 'we'.

The relevant passage in the letter for the purposes of this complaint is:

'We have conducted similar transactions on many occasions and have recently made reasonable returns on transactions which are exactly similar-all of the financing advanced by the bank was fully repaid on time.  We are now seeking to do the same thing again.'

The relevant part of para 23 is as follows:

'The Revenue has asked why he was seeking finance for HRT and what and whose are the "similar transactions" he is referring to in his attempt to persuade Bank of Scotland to provide finance . . . He could not recall what the "similar transactions" referred to in his letter to the Bank were.  I find his explanation implausible, and his claimed lack of recollection regrettable.  I feel that my enquiries into his tax affairs could usefully be advanced in that direction.'

The applicant's case is set out in para 22 of his affidavit in response of 23 June:

'Para 22 & 23 of Ms McPherson's recollection is regrettably inaccurate . . . It is not correct to state that I "could not recall what the 'similar transactions' referred to were".  I could not at that time immediately recall all such transactions but I did recall one involving 7-9 Cranley Gardens (see below).  The questions asked of me were in relation to Hudson River Trading Limited.  This company (Liberian) had for many years an established place of business in the United Kingdom.  As such, I understand that it would be taxable on the profits generated from its trading activities in the United Kingdom and rightly so.  I could not recall at that time whether there were many "similar" transactions in respect of Hudson River Trading Limited.'

Mr Ewart accepted in argument that, as there are no contemporaneous notes either way, this, in so far as it is in any event a material difference, is simply a conflict of recollection and cannot justify the case of material non-disclosure, and I so conclude.

5. Day-to-day management responsibility for HRT.

Finally, I turn again to para 23 of Ms McPherson's affidavit.  She stated there, and, it is to be inferred, in the 12-page brief to the commissioner:

'Mr Lorimer has previously stated that he had day to day management responsibility for HRT but was not its director and had no beneficial interest in the shares.'

The applicant's response in his affidavit was as follows:

'It is also incorrect to state that I had "day to day management responsibility for HRT"-it is true that I have been closely involved with matters related to that company from time to time (such as in connection with the Truck Trust Scheme) but the inference that its affairs were managed by me on a daily basis is incorrect.'

Mr Brennan accepts that the Revenue made a mistake.  The assertion that the applicant in fact made about HRT in a letter to the Revenue dated 10 January 1985 is as follows:

'I can confirm that the custody of the company's affairs in the United Kingdom is vested in myself although there is no formal arrangement to that effect.  This may not continue to be the case indefinitely but it is the case at present.'

It was Mr Grozier, to whom I have referred, in a letter to the Revenue dated 23 March 1993 who used the words 'the day to day management and administration of the company is carried out by myself'.

It is consequently a misstatement or, as I have been putting it, misdisclosure to say that the applicant had stated that he had day-to-day management.  What he had stated was that he had custody of HRT's affairs in the United Kingdom, and the summary he now gives in his affidavit, which he no doubt also gave at one or more of the various meetings with the Revenue, was that he was 'closely involved with matters related to HRT'.

Coupled with this incorrect assertion was the correct record that notwithstanding that assumed admission of day-to-day responsibility for the company, he was stating that he was not its director and had no beneficial interest in its shares.

I have to ask myself whether, in the circumstances, the misstatement was material.  In some respects, if the applicant had been asserting and admitting that he had day-to-day management responsibility, but was nevertheless denying ownership, it could be said to have been some explanation of his involvement, ie qua admitted employee or service provider but not qua owner.

There is not a great difference, in my judgment, between day-to-day management responsibility and 'close involvement' if there is being sought to be inferred some evidence of beneficial ownership.

I conclude 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, he had some interest in the offshore companies.

If I am wrong in my conclusion about the appropriateness of the exercise of looking at 'no difference', ie that there is, contrary to such conclusion, automatic or almost inevitable quashing of the notices if there had been material non-disclosure or misdisclosure in them, or relative to them, to the commissioner, I am, in any event, satisfied, as appears from my summary, that there was here no material non-disclosure or misdisclosure.  If, however, I am right, then I reject the applicant's case on the no difference ground also.

The challenge to the notices, therefore, falls on the amended ground as well as the unamended one, and the only issue that remains is the existence or not of legal professional privilege.


A. Should the point be decided?

The Revenue submits that I should not decide this point for the following reasons.

(i) The applicant has no locus or standing.

These are not notices served upon him personally but are notices served under s 20(3), on a third party, the banks, who themselves make no challenge.

Further, his case is that he is not the customer and, indeed, that if the notices referred to his personal affairs, he would not challenge them.  The documents relate to the affairs of HRT and the other companies, in which he has, on his case, no beneficial interest, and it is such clients alone who have any legal professional privilege, and they are making no application.

Thus the only two parties interested in challenging the notices are the recipient of the notices, the banks, and those entitled to the privilege, namely the clients, and neither of them are making application.  He is on his case only the solicitor of this case, and although he would be entitled to seek to preserve his clients' privilege if the application were against him, he has no locus to seek to take his clients' privilege when the notices are directed to a third party.

The Revenue does not attack the locus to challenge the notices themselves on the ground of irrationality or non-disclosure, because the Revenue's case is that they wish documents which may implicate him, but in so far as he seeks simply to protect his clients' privilege, he has no locus.

(ii) The question is academic.

This is intertwined with the question of no locus, because neither the banks nor the alleged clients have come forward to indicate that there are any documents which are subject to legal professional privilege, and, if so, on what basis.

But leaving aside the question of locus, Mr Brennan submits that the time to decide privilege is not at the time of issue of the notices, at least unless there is an identified document or category of documents in the notices which must, of themselves, be privileged.  He submits that the privilege or its existence should be left over until the notices come to be complied with.  Thus, now that I have rejected the challenges to them, if there are any documents which arguably attract legal professional privilege, at that stage they can be identified, the privilege claimed, and the existence and/or the validity of them decided.

It is tempting to follow that course, but I shall not do so.

1. As to locus, or standing, this is no longer as clear cut as it was at the time of the decision in Gouriet v Union of Post Office Workers [1978] AC 435, upon which Mr Brennan primarily relies.

Mr Brennan submits that, whereas the claim that the applicant made to challenge the issue of the notices was in support of a public right, to establish the existence of legal and professional privilege is or relates to a private right, and one available only to the alleged client whose privilege it is.  The applicant may have sufficient locus to challenge a public right, particularly as he is or may be detrimentally affected by the issue of the notices against the banks (a) if they disclose confidential matter relating to his clients which may damage his commercial standing and reputation and (b) if they may disclose information relating to him, at least without a sufficient cause being made out, as in the event I have been satisfied has been made out, but he is not entitled to enforce someone else's private right.

Mr Ewart refers me to the words of Millett LJ in Re S [1996] Fam 1 at 21. He sets out the passage from Lord Diplock's speech in Gouriet v Union of Post Office Workers [1978] AC 435 at 501 as follows:

'"The only kinds of rights with which courts of justice are concerned are legal rights; and a court of civil jurisdiction is concerned with legal rights only when the aid of the court is invoked by one party claiming a right against another party, to protect or enforce the right or to provide a remedy against that other party for infringement of it, or is invoked by either party to settle a dispute between them as to the existence or nature of the right claimed.  So for the court to have jurisdiction to declare any legal right it must be one which is claimed by one of the parties as enforceable against an adverse party to the litigation, either as a subsisting right or as one which may come into existence in the future conditionally on the happening of an event . . . But the jurisdiction of the court is not to declare the law generally or to give advisory opinions; it is confined to declaring contested legal rights, subsisting or future, of the parties represented in the litigation before it and not of anyone else."'

He then continues as follows ([1996] Fam 1 at 21-22):

'Since that decision the courts have developed the jurisdiction to grant declaratory relief in a number of cases which, though distinguishable from the present, are nevertheless not altogether dissimilar to it.  We have now reached a position where the court is prepared in an appropriate case to fill much of the lacuna left by the disappearance of the parens patriae jurisdiction by granting something approaching an advisory declaration.  In my judgment, the passage which I have cited from Lord Diplock's speech in the Gouriet case [1978] A.C. 435, 501, can no longer be taken to be an exhaustive description of the circumstances in which declaratory relief can be granted today.  It is to be regarded rather as a reminder that the jurisdiction is limited to the resolution of justiciable issues; that the only kind of rights with which the court is concerned are legal rights; and that accordingly there must be a real and present dispute between the parties as to the existence or extent of a legal right.  Provided that the legal right in question is contested by the parties, however, and that each of them would be affected by the determination of the issue, I do not consider that the court should be astute to impose the further requirement that the legal right in question should be claimed by either of the parties to be a right which is vested in itself.'

2. In the light of this more flexible approach, I have also taken into account the following matters: (a) there is no challenge to the applicant's locus in relation to the first issue, which I have now determined, and both issues have been fully argued before me; (b) I conclude that the applicant, in so far as he be the companies' solicitor, does arguably have an interest to protect his clients' privilege if it exists, not only in relation to documents sought while in his own custody, but also, on the facts of this case, when he has passed them over to the banks.

I would be in some doubt if that were the only factor, but there is then the additional factor that in fact he has an interest in asserting his clients' privilege by virtue of the Revenue's assertion of his having a beneficial interest in those clients.

3. The alleged absence of locus is of course part of the argument that the question of privilege is academic.

I now take in the arguments of the possible absence of any arguably privileged documents.  That might be relevant if it really were a question of determination of a claim for privilege.  Mr Ewart accepts that privilege must be claimed by reference to a specified list to be supplied as and when the documents are identified, and this should be done once the notice is being complied with, just as would be the case under the CPR, as under the RSC, where privilege is claimed in the course of producing a list of documents.

The issue however here is whether privilege exists at all.  The Revenue submits that there is no legal professional privilege, where a notice is served under s 20(3) or indeed under s 20(1) or (2), unless it comes within the provisions of s 20B(8) or (9) to (13).  It seems to me that it is appropriate for me to resolve this issue now and that the applicant has a sufficient interest for me to declare it on this application.

B. Existence of privilege.

I turn then to Mr Ewart's submissions.  He submits as follows.

One, legal professional privilege is --

'. . . much more than an ordinary rule of evidence, limited in its application to the facts of a particular case.  It is a fundamental condition on which the administration of justice as a whole rests.'

(See R v Derby Magistrates' Court, ex p B [1996] 1 AC 487 at 507 per Lord Taylor of Gosforth CJ, with which the others of their Lordships agreed.)

It is thus not a question of a privilege being put in the balance to be overridden by the court (see Re L [1997] AC 16 at 27 per Lord Jauncey).

Two, it is also a fundamental right protected by the Convention for the Protection of Human Rights and Fundamental Freedoms 1950 (Rome, 4 November 1950; TS 71 (1953); Cmd 8969).  This is referred to by Lord Taylor in Derby Magistrates ([1996] 1 AC 487 at 507) and suggested by Lord Nicholls of Birkenhead in Re L ([1997] AC 16 at 32), and appears to follow from Campbell v United Kingdom (1993) 15 EHRR 137 at 160, para 46 in the European Court of Human Rights.

Three, that such a fundamental right can only be ousted, as Lord Nicholls put it in Re L ([1997] AC 16 at 30), by 'Clear words . . . or a compelling context'.

Mr Ewart refers to the following authorities: (a) R v Secretary of State for the Home Dept, ex p Leech [1994] QB 198. This related to stopping communications between a prisoner and solicitors allegedly in accordance with the Prison Rules 1964, SI 1964/388 (the 1964 Rules).  Steyn LJ, giving the judgment of the court, stated (at 212):

'It will be a rare case in which it could be held that such a fundamental right was by necessary implication abolished or limited by the statute.  It will, we suggest, be an even rarer case in which it could be held that a statute authorised by necessary implication the abolition of limitation of so fundamental a right by subordinate legislation.'

(b) Lord Steyn, as he had now become, dealt in R v Secretary of State for the Home Dept, ex p Simms [1999] 3 WLR 328 with a slightly different right, which he described (at 340) as --

'. . . a fundamental or basic right, namely the right of a prisoner to seek through oral interviews to persuade a journalist to investigate the safety of the prisoner's conviction and to publicise his findings . . . for the prisoner.'

He concluded (at 340) that rr 37 and 37A of the 1964 Rules, restricting interviews by prisoners with journalists, though not ultra vires, 'left untouched the fundamental and basic rights asserted by the applicants in the present case'.

Lord Hoffmann said (at 341): 'Fundamental rights cannot be overridden by general or ambiguous words.' And he continued (at 342):

'What this case decides is that the principle of legality applies to subordinate legislation as much to Acts of Parliament.  Prison regulations expressed in general language are also presumed to be subject to fundamental human rights.  The presumption enables them to be valid.  But, it also means that properly construed, they do not authorise a blanket restriction which would curtail not merely the prisoner's right of free expression, but its use in a way which could provide him with access to justice.'

(c) Finally, General Mediterranean Holdings SA v Patel [2000] 1 WLR 272, a decision of Toulson J.  His conclusion was that, on its true construction, the Civil Procedure Act 1997 did not intend the abolition or limitation of the right to legal privilege and that a rule of the CPR requiring disclosure of privileged documents to the court in certain circumstances was ultra vires.  He relied upon ex p Leech and ex p Simms and concluded that general authorising words in a statute could not legitimise ousting that privilege by delegated legislation.

Four, there is no express ouster in s 20 of the legal professional privilege, nor is it, he submits, a necessary implication that the legal professional privilege is overridden.

Five, the provision in s 20B(8) preserving the legal professional privilege in the case of a s 20(3) notice against lawyers is for the avoidance of doubt and carries with it no necessary implication that legal professional privilege is otherwise ousted.

He relies on the words of Lord Hoffmann in Walker (Inspector of Taxes) v Centaur Clothes Group Ltd [2000] STC 324 at 330-331, [2000] 1 WLR 799 at 805.  Lord Hoffmann states as follows:

'Mr Warren QC, who appeared for the Revenue, said that the objection to this construction was that it would make s 12(6) [of the Income and Corporation Taxes Act 1988] unnecessary . . . My Lords, I seldom think that an argument from redundancy carries great weight, even in a Finance Act.  It is not unusual for Parliament to say expressly what the courts would have inferred anyway.'

Mr Ewart further refers to words of Dyson J in R v Special Comr of Income Tax, ex p IRC [2000] STC 537, which echo Lord Hoffmann's statement.

That is the framework of Mr Ewart's argument, but he must then accommodate the Court of Appeal authority of R v IRC, ex p Taylor (No 2) [1990] STC 379. This Court of Appeal decision is directly on point, save that it specifically relates to a notice under s 20(2) rather than under s 20(3) on its particular facts.

Bingham LJ delivered the leading judgment, with which both Lord Donaldson MR and the present acting Master of the Rolls, Nourse LJ, agreed.  He construes the relevant provisions of the statute, and nothing he says can justify any distinction between s 20(2) and (3), nor did I understand Mr Ewart to contend for one.

Bingham LJ's conclusion is as follows (at 384):

'It is quite plain that Parliament had the position of professional legal advisers very much in mind.  So much is plain from s 20B(3) and s 20B(8).  Parliament has expressly preserved the client's legal professional privilege where disclosure is sought from a lawyer or tax accountant in his capacity as professional adviser and not taxpayer.  That is the position covered by s 20B(8).  Parliament has, moreover, provided a measure of protection where the notice is given under s 20(1) or s 20(3) concerning documents relating to the conduct of a pending appeal by the client.  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 s 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.'

This decision of the Court of Appeal is, on the face of it, binding upon me.  How does Mr Ewart invite me to say that I need not or should not follow it?  Hansard, both sides accept, whether by reference to the provisions of Pepper (Inspector of Taxes) v Hart [1992] STC 898, [1993] AC 593 or otherwise is of no material assistance.

(i) Mr Ewart submits that the reasoning of Taylor has been overtaken by subsequent authorities.  R v Derby Magistrates' Court, ex p B [1996] 1 AC 487, he says, elevated legal professional privilege to a higher plane than it had previously been.  Parry-Jones v Law Society [1969] 1 Ch 1, to which reference was made in Taylor, albeit another Court of Appeal decision in which Lord Denning and Diplock and Salmon LJJ were parties, and in which Lord Bingham of Cornhill was the successful counsel, is not entirely on all fours, based as it was primarily on the solicitor's duty of confidence.

The general emphasis on legal professional privilege as a fundamental human right has been reinforced by the similar effect of the European Court of Human Rights, now to be established under the Human Rights Act 1998, though not of course until 2 October 2000.

(ii) The doctrine of precedent is, at least prior to the implementation of the Human Rights Act 1998, otherwise now still in full force.  But he submits that I can and should follow the principles, notwithstanding the concept of stare decisis, referred to in Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] 1 Ch 384 at 405 per Oliver J, where he stated as follows:

'The principles so far as relevant to the present case appear to me to be these and I adopt them in my approach to Mr. Harman's submissions.

(1) A decision of the House of Lords resting upon or establishing a general doctrine binds all inferior courts and represents the law of the land until it is altered by legislation or, nowadays, departed from by the House itself . . . (2) A decision of an inferior court may be treated as having been overruled by a decision of a superior court with which it is shown to be inconsistent, although it has not been expressly so stated by those who concur in such a decision.'

I interpolate to say that this is, of course, the principle on which Mr Ewart primarily relies.  Oliver J continued:

'(3) An interpretation of a statute or of a decision of the House of Lords by the Court of Appeal is binding upon that court even if it subsequently regards the interpretation as erroneous . . . A fortiori such interpretation binds an inferior court.'

An example of this process can, Mr Ewart submits, be drawn from the House of Lords itself in Moodie v IRC [1993] STC 188, [1993] 1 WLR 266, where their Lordships concluded that they did not need to operate the Practice Direction (see Practice Statement (Judicial Precedent) [1966] 1 WLR 1234) and overrule IRC v Plummer [1979] STC 793, [1980] AC 896, but would simply disregard it, as inconsistent with the subsequent reasoning in W T Ramsay Ltd v IRC [1981] STC 174, [1982] AC 300 (see Moodie v IRC [1993] STC 188 at 194, [1993] 1 WLR 266 at 273 per Lord Templeman).

I do not, however, consider that the subsequent cases to which I have referred are inconsistent with the decision in R v IRC, ex p Taylor (No 2) [1990] STC 379. It is clear from the analysis of those cases by Mr Ewart, which I have set out above, that Re L [1997] AC 16, R v Secretary of State for the Home Dept, ex p Leech [1994] QB 198 and R v Secretary of State for the Home Dept, ex p Simms [1999] 3 WLR 328 all allow for the ousting of a fundamental human right by statute, and that necessary implication is included in the concept of ouster, which is not restricted to express ouster.

The structure of the 1970 Act as amended, which Bingham LJ considered in Taylor involves:

1. A drastic investigatory power with only limited restrictions with the protection of the backup of consent of a General or Special Commissioner.  That accords with the recent consideration of this structure by Lightman J in R v IRC, ex p Banque Internationale a Luxembourg SA [2000] STC 708.

2. Specific protection provided for what might be loosely described as litigation privilege in s 20B(2).

3. Specific protection for legal professional privilege where the notices are directed under s 20(3) straight to lawyers or tax advisers.

Bingham LJ considered that the implication for ouster of legal professional privilege otherwise was clear, and the rest of the Court of Appeal agreed with him.  That decision is binding upon me, and I have no reason to believe that, given the clear decision by the courts that legal professional privilege can be ousted, a court not bound by the Court of Appeal would decide differently, or would disagree with the reasoning of Bingham LJ.

Accordingly, I dismiss this application and I decline to make the declaration sought. 



Order accordingly. 



Child & Child; Solicitor of Inland Revenue.