XYZ v HM Revenue & Customs & Anor

This is an application by the liquidator of ABC Limited (“ABC”) under section 236 of the Insolvency Act 1986 for the disclosure by H.M. Revenue &

The Secretary of State for the Home Department was joined in the proceedings as an additional respondent by an order of the Court made on 31^st July 2009.

ABC was a company which traded in mobile telephones and computer equipment and was party to a major VAT fraud. The applicant in these proceedings was appointed as provisional liquidator on the application of HMRC on 27^th April 2005. A winding-up order was made on 17^th June 2005, and the applicant was appointed as liquidator. HMRC is the only creditor of ABC, and will receive any money recovered in it. HMRC has in substance financed the costs of the liquidation and has throughout given this applicant instructions as to how it wishes the liquidation to proceed.

The Dutch criminal prosecution authorities have obtained information relating to a bank operating out of the Netherlands Antilles, and are prosecuting (amongst others) its owner on various money laundering and other charges. In the course of their investigations, they obtained information from that bank including its computer server which, it is believed, includes data that would also be relevant in connection with the VAT fraud committed by ABC and might well assist in maximising recoveries from those who were responsible for it. The liquidator only seeks data which are relevant to that fraud.

Accordingly on 17^th December 2007, the Revenue and Customs Prosecuting Office (“RCPO”) sought copies of the documents pursuant to section 7 of the Crime (International Co-operation) Act 2003 (“the 2003 Act”) and various

Section 9(2) of the 2003 Act re-enacts section 3(7) of the Criminal Justice (International Co-operation Act) 1990 (“the 1990 Act”) and provides that evidence obtained in this manner “may not without the consent of the appropriate overseas authority be used for any purpose other than that specified in the request”.

Consistently with the wording of that provision, RCPO’s covering letter to the Dutch Ministry of Justice, accompanying the formal Letter of Request (“the LoR”) stated:-

This was repeated in the body of the LoR under the heading Consent to

The language of the request for consent for civil use substantially mirrors the language of article 41 of EC Regulation 1798/2003, which provides for the mutual exchange of information between member state tax authorities within the EC (inter alia) for the purpose of combating VAT fraud, even though that Regulation was not, or may not have been, engaged on the facts of this particular case.

Consent was duly given, and the applicant contends that the language of the consent covers the disclosure of the information by HMRC to him in circumstances in which he is conducting the liquidation for the benefit of HMRC alone, and in accordance (subject to his professional obligations) with its instructions. A representative of the Dutch prosecution authorities was initially joined in the application but he was removed because of objections taken on state immunity grounds. Nevertheless, the Dutch prosecution authorities made it clear in correspondence that they objected to the disclosure, in particular because the proposed use of the material was to be by a third party, the liquidator, and not by HMRC itself. They initially took the view that, whilst they had consented to the use of material by HMRC for certain civil purposes, they had not consented to the use of the material by the liquidator, and they referred to certain possible difficulties under Dutch law to which such use might give rise.

The response of the applicant and of HMRC was that, in cases in which HMRC is the only creditor of the company, the liquidation is properly to be regarded as being conducted on its behalf. Its strategy for recovery in this case is to put the company into the liquidation and to use the liquidation as a means of obtaining information and of maximising its recovery of unpaid tax. In such cases, HMRC finances the liquidation, and the liquidation is carried out in accordance with its wishes, subject of course to the liquidator’s professional obligations.

In the course of the hearing on 30^th July 2009, I was referred to legal authorities indicating that in this country, and at least in some other Continental jurisdictions, a liquidator in such circumstances, who is pursuing claims for the sole benefit of a foreign state, with no other interest involved, is to be regarded as the nominee of the foreign state. These authorities are summarised in the decision of the Court of Appeal in QRS1 ApS and another v. Frandsen [1999] 1 W.L.R. 2169, especially in the passage in the judgment of Simon Brown L.J. between 2174F and 2177D.

I was also referred to the decision of Peter Smith J. in Silversafe Limitedand another v. Hood [2007] STC 871, a case involving Regulation 1798/2003, inwhich he held that claims by a liquidator in circumstances similar to the present case against parties allegedly involved in a VAT fraud could not sensibly be regarded as private claims: the reality was that these were claims on behalf of HMRC for the unpaid VAT: see in particular paragraphs 42-48 of the judgment.

In relation to section 9 of the 2003 Act, I was referred to the decision of the Court of Appeal (Mummery and Kay L.JJ.) in BOC Limited v. InstrumentTechnology Limited [2002] Q.B. 537. That was a fraud case involving privatelitigants only, in which the defendants sought to invoke section 3(7) of the 1990 Act (the statutory precursor of section (2) of the 2003 Act) to prevent the claimants using documents in the proceedings without the consent of the Swiss prosecution authorities, from whom the documents had been obtained. The Court of Appeal held that the prohibition in section 3(7) was implicitly restricted to the use of the information by the prosecution or the defence in criminal investigations and proceedings. It had no application to civil proceedings, and the claimants were therefore entitled to use the documents.

It was accepted by all parties in this case that this decision was binding on me. It follows that the assurance given in the covering letter and in the LoR itself was wrong in law, except as regards criminal matters, and that I was not precluded by section 9 of the 2003 Act from exercising my discretion under section 236 of the Insolvency Act 1986 in favour of the applicant, whether or not the consent given by the Dutch authorities covered the proposal use by the applicant.

However, Mr. Perry Q.C. made it clear that the Secretary of State considered that BOC was wrongly decided, and that he would so contend on appeal, if necessary to the Supreme Court. In any event, he submitted, the fact that an assurance had been given in such terms, leading the Dutch authorities to believe that the document would not be used for any purpose to which they had not consented, would be a powerful reason for a court to refuse to sanction any such proposed use.

The position at the hearing on 30^th July 2009 was therefore as follows:-

The applicant had clearly established that it was desirable and appropriate (subject to the position of the Dutch authorities) that the documents should be provided to him to combat VAT fraud in the interests of HMRC.

There was an issue as to whether the terms of the consent given by the Dutch authorities, on its proper construction, covered the proposed disclosure to, and use of the documents by the applicant.

Even if the applicant was right in saying that the consent did cover the proposed disclosure and use, it appeared that the Dutch authorities had not so understood it, and did not believe that it did; there being no reason why they should not withdraw their consent to something which had not yet happened, it was at least a matter for consideration whether the Court should regard the correspondence as tantamount to such withdrawal.

Generally, there was obviously great force in the detailed submissions of the Secretary of State to the effect (without doing full justice to them) that it was essential in the interest of international co-operation in criminal matters to have regard to the views of the foreign authorities which provide the relevant information, and to the difficulties to which such authorities may be subject under their own national law in consenting to what might appear here to be an appropriate use of their documents.

In those circumstances, I considered that the best course was to seek further clarification from the Dutch authorities. I did so by way of an interim ruling in which I made it clear that I would be happy to take into account their views in whatever form they were expressed, perhaps most conveniently by a further letter addressed to HMRC. The particular matters on which I asked for further assistance were as follows:-

The precise juridical nature of their objections to the disclosure of the information by HMRC to the applicant, explained as fully as possible with reference to relevant Dutch law.

Whether these objections were maintained, given that this was a case in which the liquidation was being conducted for the sole benefit of HMRC, with no other creditors.

Whether, in the event that the information were to be disclosed to the applicant, there would be a real risk of endangering prosecutions brought or to be brought by them, and if so how.

The Minister of Justice responded to this by a letter dated 4^th November 2009 written by the Head of the Department of International Legal Assistance in criminal matters on his behalf. This referred to the assurance which had been

In view of this, at a further hearing on 5^th February 2010, I accepted an undertaking by the applicant, limiting his use of the documents to the specified purposes “save as otherwise ordered by the Court or consented to in writing by each of HMRC, RCPO (or any successor thereto with responsibility in relation to the Letter of Request) and the Secretary of State for the Home Department”. On that basis an order was issued requiring HMRC to produce copies of the relevant documents to the applicant, and I understand that this has been done.

I have since then considered whether, in view of the terms of the saving set out above, the order adequately meets the legitimate concern of the Dutch authorities that the documents should not be used for any other purpose to which they have not consented. Theoretically, with the consent of HMRC, RCPO and the Secretary of State, this could happen without the matter being brought back before the Court. Nevertheless, I am persuaded that, in practice, the Secretary of State, whose forceful submissions have been directed at protecting the position of foreign authorities which provide information for the purpose of criminal investigations, would not permit this, at least without referring back to the Dutch authorities. I am therefore content to leave the order as it stands, but I direct that a copy of this judgment should be sent to the Dutch Minister of Justice and that, if within 28 days he or his representative expresses a wish that the Court should reconsider the terms of the saving, the matter should be referred back to the Court.

This matter having been resolved in effect by agreement, subject to the last point, it would not ordinarily have been necessary for me to write a detailed judgment, but I am doing so because of the doubts expressed on behalf of the Secretary of State about the correctness of the decision in BOC. Neither the Secretary of State nor any other public body was invited to make representations in that case, and the Court of Appeal decided that the apparently clear terms of the statute were subject to an implicit restriction, the effect of which was to permit the use of the documents for the purposes of civil proceedings.

The Secretary of State’s argument (again without doing full justice to it) is that there was no justification for the implication drawn by the Court of Appeal. The wording of the sub-section is clear and unequivocal. Its obvious purpose is to ensure that foreign prosecution authorities, which might otherwise have been willing and anxious to provide documents and information to assist in the fight against crime, should not be deterred by any risk that such documents or information might be used for other purposes. The concerns expressed in the correspondence in this case demonstrate that there might well be legal issues under national laws (for example relating to obligations of confidence) which would prevent the disclosure of documents and information for the purposes of a criminal investigation, if they might then be used for other purposes, including civil litigation. It is important that the authorities here should be in a position to give an assurance that this could not happen.

The Court of Appeal based its conclusion mainly on the simple point that the 1990 Act was concerned with criminal proceedings only, not with civil proceedings; therefore it cannot have been intended to affect civil proceedings (see per Mummery L.J. at §32). It does not appear from the judgment that the arguments summarised briefly above were advanced by the defendants, or considered by the Court of Appeal.