I’m at a loss for a metaphor or phrase which aptly captures the tumultuous times we currently live in. For my own part, I’ve spent the last 8 days glued to twitter, finding it almost impossible to get any work done. But the world keeps turning, and the (tortuously clichéd) inevitability of tax remains true. This Monday at 11am, the Supreme Court will host the judicial review hearing of R (Ingenious Media and Patrick McKenna) v HMRC (on which I’ve previously blogged about here and here). For loyal observers, this is exciting-a quick search of bailii.org reveals that in the last 5 years, the Supreme Court has laid down just two judgments on tax cases which concerned matters for judicial review (Gaines-Cooper and Eastenders).
The facts of the case have been very helpfully summarised by the Supreme Court as follows: On 14 June 2012, two journalists from The Times had a background briefing on tax avoidance schemes with Mr David Hartnett, Permanent Secretary for Tax at HMRC. It was explicitly agreed that this meeting was “off the record”, which Mr Hartnett understood to mean that nothing would be published. During this meeting, Mr Hartnett expressed views about film schemes. On 21 June 2012, some of what was said at the briefing was published in a Times article as coming from a “senior Revenue official”. The article included statements that Mr McKenna had “never left my radar”, that “he’s a big risk for us” that “we would like to recover lots of tax relief he’s generated for himself and for other people” and that “we’ll clean up on film schemes over the next few years”. The appellants brought proceedings seeking declarations of illegality as well as damages for HMRC’s breach of its statutory confidentiality obligations, its own policy as well as the appellants’ rights under the ECHR. The High Court (Philip Sales J) and the Court of Appeal (Moore-Bick LJ, Tomlinson LJ and Sir Robin Jacob) held that the disclosures did not breach HMRC’s duty of confidentiality (owed to taxpayers under the Commissioners for Revenue and Customs Act 2005, s. 18) nor did they infringe upon the taxpayers rights under the ECHR.
At a recent conference organised by the Centre for Tax Law at Cambridge University, I expressed my discomfort not at the ultimate conclusion in these hearings on the issue of the duty of confidentiality, but rather at the reasoning underpinning them. To explain my stance, it is first worth recalling that the courts regard themselves as jealous protectors of individual liberties. As Lord Hoffmann has said, “the courts approach the Parliamentary language with a built-in incredulity” where it is purported to “give powers to an official which would enable him to override traditional individual rights” (see from 14.56 here). The courts accordingly strictly review the permissibility of an action by an official or public authority where the action purports to infringe upon an individual’s rights. The courts will seek to assure themselves that the action is strictly and purposefully permitted by the legislation. In brief, my issue with the judgments of the High Court and Court of Appeal in the Ingenious hearings is that the courts did not sufficiently interrogate whether the particular disclosures to the media were permitted by the legislation. What the courts need necessarily do is elaborate upon whether the particular information itself is protected as confidential and why the disclosure of that particular information does not infringe upon HMRC’s duty of confidentiality or the taxpayer’s rights.
Sales J in his decision in the High Court that the duty of confidentiality was not breached stressed two key points. The first was that the engagement with the journalists was in the nature of an evaluative judgment (see paras 40-48) and in doing so very eloquently elucidated the general case for HMRC’s engagement with the media. The second was the limited nature of the disclosure. In para 50, Sales J rightly, in light of the above, recognised that the duty of confidentiality narrowed the scope of the discretion to be allowed to HMRC when disclosing taxpayers’ information. It is para 51 that I struggle with. It was claimed that “Mr Hartnett did not pass to the journalists any information which Ingenious Media and Mr McKenna had provided to HMRC about their affairs”. But that’s not quite correct, particularly when it is recalled that Hartnett disclosed that Patrick McKenna had generated “lots of tax relief… for himself”. Sales J responded that this was information “which was obvious in the context of Mr McKenna’s involvement in film investment schemes about which the journalists were themselves well aware”. Does that make it okay? That journalists already know the confidential information means that HMRC can confirm it for them and thereby not infringe Commissioners for Revenue and Customs Act 2005, s. 18? It certainly seems difficult to square this with the reasoning of the Supreme Court, albeit in a different context, in the recent PJS case. It does not appear that HMRC itself thinks that this is kosher. HMRC’s internal guidance appears to provide that in such circumstances, it should neither “confirm nor deny”. And this is precisely what HMRC does generally (see e.g. the case of Ryanair).
By the way, the answer could well be “yes”. My point is merely that the connection between the release of confidential information and the duty not to release confidential information needs to be fully explained-without that, it is not the jealous protection that the courts are expected to provide.
The Court of Appeal judgment, on the other hand, is far more problematic, as to my mind it misconceived the judgment of Sales J. It held that the disclosure of information was in the nature of an evaluative judgment and that accordingly, the standard of review in the case should not be one of intensive judicial scrutiny, but rather one of rationality. Sales J however was in fact of the view that a narrow scope of review was correct in this case (as stressed above and in line with Lord Hoffmann’s assertion). Moreover, his assessment of evaluative judgments related more generally to the idea of HMRC engaging the media, not HMRC disclosures of taxpayer information. To follow the logic of the Court of Appeal through, the courts should generally defer to HMRC’s judgment any time it has disclosed taxpayer information. That cannot be correct.
The Court of Appeal seemed to imply also that, even if the court were to have applied a stricter standard, such as proportionality, it would still have held that the disclosure was permissible on the basis that it would have been “unreal” for HMRC not to mention McKenna and Ingenious Media:
“There is a sense of unreality here. It seems clear that Mr McKenna and another individual were the two big promoters of film schemes (albeit their schemes were not exactly the same). That The Times already knew. It was in a position to publish their names, the names of their companies and that they were in a big way of business with potentially significant effects on tax collection. If Mr Hartnett had just said HMRC was very concerned about film schemes and expected to be able to clean them up, without any specific mention of Mr McKenna and Ingenious, everyone at the meeting would still have taken it that HMRC must have had them at the forefront of their thinking” (para 39)
To this point, I make the same reply that the connection between the disclosure of confidential information about McKenna himself having used “lots of tax relief” and the duty not to disclose confidential information needs to be reconciled. Is it permissible for HMRC to confirm that which journalists already know?
My hope is for the Supreme Court to iron out this issue. I’ll be in the courtroom from 11am on Monday watching keenly. At the very least, it’s a nice distraction was the current morass of distractions.