Tax avoiders don’t have human rights – Philippa Whipple QC

R (on the application of Ingenious Media Holdings plc and Patrick McKenna v Her Majesty’s Revenue and Customs [2013] EWHC 3258 (Admin) –  read judgment 

Sales J has rejected an application for judicial review by Ingenious Media Holdings plc and Patrick McKenna, who complained that senior officials in HMRC had identified them in “off the record” briefings.

Ingenious Media is an investment and advisory group which promotes film investment schemes which allow participators to take advantage of certain tax reliefs and exemptions.  HMRC has long been fighting to close down these “film schemes”, with some success (see the Eclipse 35 appeal).

In 2012, the Times began investigating tax avoidance, which led two of its journalists to invite David Hartnett, then the Permanent Secretary for Tax at HMRC, to a meeting.   Mr Hartnett is no stranger to the Administrative Court, having been responsible for the controversial tax settlement with Goldman Sachs, described by the judge in an  earlier judicial review brought by UK Uncut Legal Action Ltd as “not a glorious episode in the history of the Revenue”.

It was agreed that the meeting would be “off the record”, which David Hartnett understood would mean that nothing said during that meeting would be published.  During the briefing, which lasted 75 minutes, the journalists suggested that Mr Hartnett had reached unduly lenient settlements with some taxpayers (a possible reference to Goldman Sachs and other high profile cases); Mr Hartnett denied this vigorously and gave as an example the way HMRC had dealt with certain individuals involved in film schemes.  When one of the journalists suggested that one of these individuals was Mr McKenna, Mr Hartnett confirmed that was correct.  Later in the conversation, Mr Hartnett referred to Mr McKenna in personal terms, noting that he was “a big risk” for HMRC, and went on to describe the film schemes in general as “scams for scumbags”.

The Times published articles  on 21 June 2012 which quoted from the briefing, including these colourful phrases, in contravention of the “off the record” agreement.  The article (behind paywall) has already been considered in some detail by the Courts following the unsuccessful libel suit brought against the Times by another person named in that article: Elton John, [2012] EWHC 2751 (QB) (transcript not on BAILII).  In that case the judge, Tugendhat J, had no difficulty accepting the proposition that an imputation that a person is engaged in tax avoidance is capable of being defamatory.

Judgment

Back to this case: the Judge started his analysis with s 18 Revenue and Customs Act 2005, which provides that HMRC may not disclose any information held by HMRC except if that disclosure is “made for the purposes of a function” of HMRC.  He then referred to s 51 of the 2005 Act which refers to those functions; oddly he does not refer to s 1 of the Taxes Management Act which sets out those functions, being the “collection and management” of the tax.

The Judge concluded that there was a rational connection between HMRC’s function of collecting tax and the disclosures made by Mr Hartnett in the course of the briefing, and his decision to make the “limited revelations” that he did was based on a judgment which fell within lawful parameters [para 39].

Mr Hartnett’s judgment of how to handle the exchange with the journalists was evaluative, and the Court approached its task with deference, taking account of HMRC’s limited resources and the relevance of rebutting “misplaced” suggestions that HMRC might have reached inappropriate deals with certain taxpayers, and that the disclosures made in the event were “very limited” [paras 40-51].

The Judge did accept that there had been an interference under Art 8(1) in the sense that private life includes a right of confidentiality, but justified such interference under Art 8(2) as proportionate; he did not consider that there had been any interference with  Art 8(1) in the sense of any damage to reputation, but if there was interference in that sense it too was justified and proportionate [paras 62-70].

He concluded that there was no breach of Art 1 Protocol 1, that being argued on the basis that the disclosures would deter people from using the lawful services of the Claimants.  He held that any interference with the right to peaceful enjoyment of property or possessions in the form of the Claimants’ business was justified [paras 71-76].

Finally, there was no abuse of power because the Claimants were not deliberately targeted in the course of the discussion [para 77].

The Judge gave permission to appeal to the Court of Appeal.

Comment

It is difficult to understand why, during his conversation with the journalists, Mr Hartnett did not simply adopt the standard HMRC line that HMRC does not comment on the affairs of individual taxpayers.  After all, the discussion about tax avoidance and HMRC’s determination to clamp down on it could perfectly well have been conducted without commenting on the affairs of individuals at all.  Some may find it surprising that the Court was prepared to sanction Mr Hartnett’s departure from standard practice in this way.

The fact that the disclosures were made “off the record” seems to miss the point.  First, disclosure on that basis was not safeguarded in any way at all by HMRC, as is evident from the fact that the journalists simply chose, in the event, to publish and be damned; and anyway, it is not the extent of disclosure but the fact of disclosure which is the issue – in what way, precisely, can it be said that breaching taxpayer confidences to journalists is “for the purpose” of the tax collection function?

At least part of the explanation may lie in the context of the case:  for obvious reasons tax avoiders (suspected or proven) generate little sympathy in the Courts or with HMRC.

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