Revenue and Customs & Anor v Ben Nevis (Holdings) Ltd & Ors

SARS has no locus to bring or continue these proceedings and thus the claim as brought by it should be dismissed; and/or

HSBCT is not properly joined as a Defendant because it is merely the registered shareholder of Ben Nevis and MTL and thus neither Claimant has any cause of action against it

Leave to serve the IA Claim should not have been granted and/or ought to be set aside on the grounds that:

The Freezing Order ought to be discharged on the grounds that:

In common with many other jurisdictions, English law generally does not permit either the direct or indirect enforcement of foreign revenue laws – see Re Visser [1928] Ch 877 per Tomlin J at 884, Government of India v. Taylor [1955] AC 491; Rossano v. Manufacturers Life Insurance Co. [1963] 2 QB 352 and QRS 1ApS v. Frandson [1999] 1 WLR 2169. It follows that the revenue services of foreign governments are unable to collect or otherwise enforce foreign taxes in England save and except to the extent that the general rule is disapplied by either primary legislation or secondary legislation that is not ultra vires. This rule is known universally as “the Revenue Rule” and is so referred to in this judgment.

Defendants’ Case Concerning the Applicability of Article 25A

Construction – the Applicable principles

In my judgment the applicable principles are those identified by Mummery J, as he then was, in IRC v. Commerzbank AG [1990] STC 285. Although this statement of the relevant principles was derived in part at least from statements of principle set out in the opinions in the earlier decision of the House of Lords in Fothergill v. Monarch Airlines Limited [1981] AC 251 it is unnecessary that I refer to that case in detail because Mummery J’s summary was approved by the Court of Appeal in Memec v IRC[1998] STC 754 as a correct statement of the law. The applicable principles were summarised by Mummery J at pages 297H-298H in the following terms:

“(1)

It is necessary to look first for a clear meaning of the words used in the relevant article of the convention, bearing in mind that consideration of the purpose of an enactment is always a legitimate part of the process of interpretation': per Lord Wilberforce (at 272) and Lord Scarman (at 294). A strictly literal approach to interpretation is not appropriate in construing legislation which gives effect to or incorporates an international treaty: per Lord Fraser (at 285) and Lord Scarman (at 290). A literal interpretation may be obviously inconsistent with the purposes of the particular article or of the treaty as a whole. If the provisions of a particular article are ambiguous, it may be possible to resolve that ambiguity by giving a purposive construction to the convention looking at it as a whole by reference to its language as set out in the relevant United Kingdom legislative instrument: per Lord Diplock (at 279).

(2)

The process of interpretation should take account of the fact that—

‘The language of an international convention has not been chosen by an English parliamentary draftsman. It is neither couched in the conventional English legislative idiom nor designed to be construed exclusively by English judges. It is addressed to a much wider and more varied judicial audience than is an Act of Parliament which deals with purely domestic law. It should be interpreted, as Lord Wilberforce put it in James Buchanan & Co. Ltd v. Babco Forwarding & Shipping (UK) Limited, [1987] AC 141 at 152, "unconstrained by technical rules of English law, or by English legal precedent, but on broad principles of general acceptation': per Lord Diplock (at 281–282) and Lord Scarman (at 293).’

(3)

Among those principles is the general principle of international law, now embodied in article 31(1) of the Vienna Convention on the Law of Treaties, that 'a treaty should be interpreted in good faith and in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose'. A similar principle is expressed in slightly different terms in McNair's The Law of Treaties (1961) p 365, where it is stated that the task of applying or construing or interpreting a treaty is 'the duty of giving effect to the expressed intention of the parties, that is, their intention as expressed in the words used by them in the light of the surrounding circumstances'. It is also stated in that work (p 366) that references to the primary necessity of giving effect to 'the plain terms' of a treaty or construing words according to their 'general and ordinary meaning' or their 'natural signification' are to be a starting point or prima facie guide and 'cannot be allowed to obstruct the essential quest in the application of treaties, namely the search for the real intention of the contracting parties in using the language employed by them'.

(4)

If the adoption of this approach to the article leaves the meaning of the relevant provision unclear or ambiguous or leads to a result which is manifestly absurd or unreasonable recourse may be had to 'supplementary means of interpretation' including travaux préparatoires: per Lord Diplock (at 282) referring to article 32 of the Vienna Convention, which came into force after the conclusion of this double taxation convention, but codified an already existing principle of public international law. See also Lord Fraser (at 287) and Lord Scarman (at 294).

(5)

Subsequent commentaries on a convention or treaty have persuasive value only, depending on the cogency of their reasoning. Similarly, decisions of foreign courts on the interpretation of a convention or treaty text depend for their authority on the reputation and status of the court in question: per Lord Diplock (at 283–284) and per Lord Scarman (at 295).

(6)

Aids to the interpretation of a treaty such as travaux préparatoires, international case law and the writings of jurists are not a substitute for study of the terms of the convention. Their use is discretionary, not mandatory, depending, for example, on the relevance of such material and the weight to be attached to it: per Lord Scarman (at 294).”

Defendants’ Primary Case

The Defendants were disposed to rely if necessary on the fact that the 1968 Convention continued to have some relevance to double tax relief for years of assessment prior to those to which the 2002 Convention applied by operation of Article 27 and thus the fact that there was no amendment to that Convention supported the view that the parties to the 2010 Protocol did not intend Article 25A to have any application other than in relation to tax assessed in the years of assessment to which the 2002 Convention applied. In my judgment this point does not assist in resolving the issue I am now considering. It is a circular argument that assumes as correct the conclusion for which the Defendants contend. The fact that there was no amendment to the earlier convention is at least equally well explained by an intention that Article 25A would apply irrespective of the years of assessment applicable to the tax in respect of which reciprocal collection was sought.

In resisting the Defendants’ case concerning the temporal scope of Article 25A, the Claimants rely on the fact that there is nothing within the terms of Article 25A itself that suggests it was intended that the temporal scope of the article should be qualified in any way. Article 25A(1) provides for the lending of assistance by each contracting state to the other “…in the collection of revenue claims …”. That term is defined in wide terms by Article 25A(2) but without any temporal qualification. In my judgment this point too, of itself, does not assist in the resolution of the issue I am now considering. The fact of silence as to temporal scope is immaterial if the Defendants are correct in their submission that Article 25A is to be construed as governed by Article 27 of the 2002 Convention.

Potentially more important to the issue I am now considering is Article 25A(3). It provides that that one contracting state is entitled to request the assistance of the other in relation to any revenue claim that “… is enforceable under the laws of … [the requesting] State and is owed by a person who, at that time, cannot, under the laws of that State, prevent its collection …”. It is this provision that brings about the qualification I alluded to earlier concerning the effect of the law of limitation (or, in the RSA, Prescription) of the requesting state by rendering uncollectible any sum not enforceable on that ground in the requesting state. This provision provides some support for the Claimants’ position because it contemplates the collectability of revenue claims that have accrued prior to the coming into force of the 2010 Protocol by applying the limitation qualification from the very moment when the Protocol took effect. Again however, this point of itself does not assist in the resolution of the issue I am now considering because if the Defendants are right any revenue claim otherwise collectable applying Article 25A(3) would nonetheless not be collectible if Article 27 has the effect contended for.

Notwithstanding the points I have so far considered, in my judgment the Defendants’ case as to the construction of Article 25A is to be rejected applying the principles of construction to which I have referred above, and when the 2002 Convention and the 2010 Protocol are each read as a whole and together in context. My detailed reasons for reaching that conclusion are as follows.

Paragraph 2 of the 2011 Order states in terms that one of the purposes of the 2010 Protocol was “… for the purpose of assisting international tax enforcement …”. This expression of purpose does not suggest any logical or policy reason for imposing, or an intention to impose, a temporal limitation on the scope of Article 25A of the sort contended for by the Defendants – that is that the Article has retrospective effect but not to tax years arising earlier than the coming into effect of the 2002 Convention. There is nothing in the 2010 Protocol itself that addresses purpose expressly beyond the implication to be derived from the terms of Article 25A itself. The Defendants accept that as a matter of construction Article 25A has retrospective effect at least to the extent provided for by Article 27 but subject to their second, ultra vires, case. The Defendants have not asserted, and the evidence does not establish, any policy or other reason for distinguishing between revenue claims by the RSA for years of account before the coming into effect of the 2002 Convention. This suggests a probable intention that the only relevant qualification to the applicability of Article 25A should be that concerning bars to collectability imposed by the laws of the assessing state.

The effect of Article 27 is not in any event as the Defendants contend. The text of the article is set out above and I do not intend to repeat it here. As is apparent from a perusal of the text, it does not provide that it will have effect in the UK from the date when the Convention enters into force in accordance with its terms. The operative provisions of the Article are Paragraphs (a) and (b). The effect of Article 27(1)(b) is that the Convention is to have effect in the UK in respect of income tax, corporation tax and capital gains tax (that is the taxes of that type levied in the UK) for any year of assessment after the tax year beginning on the 6^th April in the year that follows the entry into force of the Convention. Thus if Article 27 has effect in relation to Article 25A then Article 25A would be of no effect at all since the only force given to the 2002 Convention in relation to the UK is in respect of the identified UK taxes referred to in Article 27(1)(b). Even if that difficulty could be avoided, the effect of Article 27 on Article 25A would be that it would take effect in the UK by reference to the date on which UK, not RSA tax years commence. This is illogical since if there is anything at all in the complaint that mutual assistance for tax years prior to those identified by Article 27 is objectionable it could only be by reference to the position of Ben Nevis as a tax payer in the RSA not by reference to the position it would have been in had it been (hypothetically) a UK tax payer. Indeed it is the illogicality of this position that explains why collectability is defined by reference to limitation in the assessing state – see Article 25A(3) - rather than the collecting state – see Article 25A(5).

None of the textual points I have so far considered creates any difficulty as long as Article 27 is confined in its effect to the provisions within the 2002 Convention as originally drafted (including to the information sharing provisions contained in the original 2002 Convention both because of the nature of that provision and because the earlier Conventions contained information sharing provisions). However it makes no obvious sense when applied to a mutual assistance provision that has been agreed for the first time and is being inserted into an earlier convention by amendment. These points suggest that to construe Article 25A as having effect subject to Article 27 of the 2002 Convention is a construction that gives rise to obvious absurdity or is manifestly unreasonable as well as defeating at least in part the purpose for which Article 25A was agreed in the first place.

In my judgment the true intention of the parties is apparent from Article VI of the 2010 Protocol, a provision which the Defendants’ submission as to the true construction of Article 25A in effect ignores. Although not headed “Entry into Force” this article is an entry into force provision as is apparent from the express words of the second sentence of the Article. The Article provides that the Protocol shall have effect from the date when the last of the two contracting states notifies the other of the completion of the processes required for bringing the Protocol into effect. Once that has happened then sub paragraphs (a) to (c) make separate provision for entry into effect of Articles II, III and IV respectively.

In relation to Article 25A it provides that the Protocol is to have effect “… in relation to revenue claims referred to in Article IV of this Protocol …”. That means that it has effect in relation to any revenue claim as defined in Article 25A(2) that is enforceable under the laws of the state requesting assistance and is owed by a person who cannot prevent collection according to the laws of the requesting state at the date when the request for assistance is made, subject to the proviso that Article IV is of no effect other than in respect of “… requests for assistance made on or after the date of entry into force of this Protocol”. However, the proviso is not material for present purposes since on any view the request for assistance on which HMRC is acting was made after the entry into force of the 2010 Protocol.

In my judgment therefore the true effect of Article 25A when construed in context and in light of its purpose is that once the 2010 Protocol entered into force, Article 25A thereupon applied to all revenue claims as defined subject only to the qualifications referred to within Article 25A itself and subject to the proviso that the request for assistance was made on or after the date when the 2010 Protocol entered into force. Such an approach is consistent with and gives full effect to the purpose of Article 25A – that is mutual bilateral cross frontier tax enforcement - and is consistent with, and gives full effect to, the whole of the 2010 Protocol and in particular Article VI and all the provisions within Article 25A itself. To regard Article 25A as qualified by Article 27 of the 2002 Convention would at least in part defeat the purpose for which Article 25A was agreed between the contracting states because it would exclude at least some revenue claims that would otherwise be included and would do so for no discernible rational or logical reason. That the 1968 Convention was not amended so as to insert Article 25A into that Convention as well is in my judgment entirely consistent with the intention of the parties being as I have described. In those circumstances I conclude that the Defendants’ primary case concerning the effect of Article 25A is to be rejected.

In those circumstances I do not consider it necessary or permissible to refer to the supplementary materials that were canvassed before me. The only exception to this may be the OECD Model Tax Convention on Income and Capital (“the Model Convention”) and the Commentary (“Commentary”) thereon. It is common ground that the Model Convention and the Commentary that goes with it are admissible in relation to construction issues in relation to Conventions based on the Model Convention. If and to the extent that it is necessary or appropriate that I refer to this material my judgment is that it confirms the view that I have come to concerning the true effect of Article 25A.

Article 27 of the Model Convention is the model on which Article 25A is based as a comparison of the language used in the Model with that of Article 25A shows. The key relevant provision for present purposes is Paragraph 14 of the Commentary on Article 27 of the Model Convention which is to following effect:

“Nothing in the convention prevents the application of the provision to revenue claims that arise before the Convention enters into force, as long as assistance with respect to these claims is provided after the treaty has entered into force and the provisions of the Article have become effective.Contracting states may find it useful, however, to clarify the extent to which the provisions of the Article are applicable to such revenue claims, in particular when the provisions concerning the entry into force of their convention provide that the provisions of that convention will have effect with respect to taxes arising or levied from a certain time. States wishing to restrict the application of the Article to claims arising after the convention enters into force are also free to do so in the course of bilateral negotiations. ”

As I have said it is unnecessary that I take up time considering the remaining supplementary materials relied on by the parties. I should however mention albeit briefly the following categories of such material so as to make clear my views concerning the material concerned had it been necessary in principle to have recourse to supplementary material.

The Defendants rely on Article 28 of the VCLT. This approach is mistaken on two accounts. First VCLT is of no application to the Convention for the reasons already set out but even assuming that this is wrong, Article 28 does not assist in resolving the question I am now considering. Article 28 provides for a default position “…unless a different intention appears from the treaty or is otherwise established …”. I have concluded that a different intention has been established for the reasons set out above.

I do not consider that the opinion evidence of either Dr Avery Jones or Professor Grau Ruiz is admissible. Indeed adducing such material has simply increased the costs of, and extended the time necessary to determine, the application. Quite simply this material is not admissible because questions of construction are for the court – see Phipson on Evidence (17^th Ed.) Paragraph 33.83- 33.85. Even in relation to documents that are to be construed in accordance with laws other than the laws of England and Wales expert evidence is admissible only for the limited purpose of identifying the relevant principles of construction not for the purpose of expressing an opinion as to true construction applying those principles – see the authorities summarised by Waller LJ at Paragraphs 66-68 of his judgment in King v. Brandywine Reinsurance Company (UK) Limited [2005] EWCA Civ 235.

Some reliance was placed by the Claimants on the terms of a Memorandum of Understanding (“MoU”) between the Claimants concerning the carrying into effect of Article 25A. There is a dispute between the parties as to whether the Claimants are entitled to rely on the terms of this document. It is not necessary for me to resolve that issue because the terms of the document do not assist. I accept that the document records a qualification on the assistance to be provided in relation to revenue claims that are more than 5 years old at the date of the request for assistance, and thus is consistent with a joint intention on the part of the competent authorities of the States concerned that Article 25A would have some retrospective effect. However the MOU does not assist because it is common ground that Article 25A has some retrospective effect. The issue between the parties is whether as a matter of construction it has retrospective effect beyond the dates referred to in Article 27 of the 2002 Convention. On that issue the MoU does not provide at any rate express assistance.

Defendants’ Secondary Case

It is common ground that absent express wording to the contrary, it is to be presumed that, a statute was not intended by the legislature to have retrospective effect or, where it would appear that some retrospective effect was intended, that such effect was intended to be limited to the minimum necessary to achieve the relevant legislative purpose. However, there are limits to the scope of that presumption. As Mr. Francis Bennion put it in Bennion on Statutory Interpretation (5^th Ed) p.317:

“It is important to grasp the true nature of objectionable retrospectivity, which is that the legal effect of an act or omission is retroactively altered by a later change in the law. However, the mere fact that a change is operative with regard to past events does not mean that it is objectively retrospective. Changes relating to the past are objectionable only if they alter the legal nature of a past act or omission in itself. A change in the law is not objectionable merely because it takes note that a past event has happened and bases new legal consequences upon it. ”

Against that background I turn to the Defendants’ secondary case, which I reject for the following reasons. As I have explained already the Revenue Rule precludes the enforcement in England of taxes assessed by a foreign tax authority. Thus as long as that rule applies, persons in the position of Ben Nevis are entitled to resist any attempt by a foreign tax authority such as SARS to collect tax from it in England. However, an entitlement to resist collection as long as that rule applies does not give rise to an expectation that in relation to such liabilities the law that presently precludes collection in England will never be changed. If the rule is changed then as Mr Richards might have put it, it bites only as to the future enforcement of the existing debt. The fact that the debt was incurred prior to the change in the law is immaterial so long as the taxpayer cannot under the laws of the assessing state prevent its collection. The presumption against retrospectivity would preclude the rearrangement of tax liabilities for prior years of assessment (which is no doubt the, or a, reason why Article 27 is formulated in the terms it was and included in the original of the 2002 Convention) but I see no reason for concluding that it precludes the collection in the future of debts that happen to have fallen due prior to the coming into effect of FA 06. Such a conclusion does not in any relevant sense involve changing “ … the character of past transactions carried on upon the faith of the then existing law …” or the retrospective alteration of the legal effect of an act or omission by a later change in the law.

Defendants’ case Concerning the Impact of A1P1

The Defendants submit that if Article 25A has the effect for which the Claimants contend and is not ultra vires then it is nonetheless to be treated as retrospective for the purposes of A1P1 and is not to be permitted to have effect because it fails to strike a fair balance between the rights of Ben Nevis and the general interest of the community – see James v. UK (1986) 8 EHRR 123, MA v. Finland (2003) 37 EHRR 210 and R(HMRC) v. Huitson [2010] EWHC 97 (Admin) [2011] QB 174 per Kenneth Parker J at Paragraph 75(ii) and (v). I do not accept that Article 25A has retrospective effect in any objectionable sense and thus I do not accept the premise on which this submission is advanced. This is the fundamental distinction between Huitson and this case. That case was concerned with the effect of Section 58 of the Finance Act 2008 which amended previous fiscal legislation with retrospective effect so as to impose on the claimant in that case an obligation to pay UK Income tax on trust income received since 2001. It was not concerned with mutual assistance between states in the collection of tax due in those states. Once it is accepted as I accept that there is no objectionable retrospective element that arises, there is not a tenable basis for challenging the enforceability of Article 25A, by reference to A1P1 particularly when it is remembered that the state enjoys a wide margin of appreciation in framing and implementing policies in the area of taxation.

The Challenge To The Order Permitting Service Out of the Jurisdiction

The Jurisdictional Challenge to the IA Claim

Overview

In so far as is material, IA s.423-425 provide:

“423 Transactions defrauding creditors.

(1)

This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if—

(a)

he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;

(b)

he enters into a transaction with the other in consideration of marriage or the formation of a civil partnership; or

(c)

he enters into a transaction with the other for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by himself.

(2)

Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for—

(a)

restoring the position to what it would have been if the transaction had not been entered into, and

(b)

protecting the interests of persons who are victims of the transaction.

(3)

In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose—

(a)

of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or

(b)

of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.

(4)

In this section “the court” means the High Court or—

(a)

if the person entering into the transaction is an individual, any other court which would have jurisdiction in relation to a bankruptcy petition relating to him;

(b)

if that person is a body capable of being wound up under Part IV or V of this Act, any other court having jurisdiction to wind it up.

(5)

In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as “the debtor”.

424 Those who may apply for an order under s. 423.

(1)

An application for an order under section 423 shall not be made in relation to a transaction except—

(a)

in a case where the debtor has been adjudged bankrupt or is a body corporate which is being wound up or is in administration, by the official receiver, by the trustee of the bankrupt’s estate or the liquidator or adminstrator of the body corporate or (with the leave of the court) by a victim of the transaction;

(b)

in a case where a victim of the transaction is bound by a voluntary arrangement approved under Part I or Part VIII of this Act, by the supervisor of the voluntary arrangement or by any person who (whether or not so bound) is such a victim; or

(c)

in any other case, by a victim of the transaction.

(2)

An application made under any of the paragraphs of subsection (1) is to be treated as made on behalf of every victim of the transaction.

425 Provision which may be made by order under s. 423.

(1)

Without prejudice to the generality of section 423, an order made under that section with respect to a transaction may (subject as follows)—

(a)

require any property transferred as part of the transaction to be vested in any person, either absolutely or for the benefit of all the persons on whose behalf the application for the order is treated as made;

(b)

require any property to be so vested if it represents, in any person’s hands, the application either of the proceeds of sale of property so transferred or of the money so transferred;

(c)

release or discharge (in whole or in part) any security given by the debtor;

(d)

require any person to pay to any other person in respect of benefit received from the debtor such sums as the court may direct;

(e)

provide for any surety or guarantor whose obligations to any person were released or discharged (in whole or in part) under the transaction to be under such new or revived obligations as the court thinks appropriate;

(f)

provide for security to be provided for the discharge of any obligation imposed by or arising under the order, for such an obligation to be charged on any property and for such security or charge to have the same priority as a security or charge released or discharged (in whole or in part) under the transaction.

(2)

An order under section 423 may affect the property of, or impose any obligation on, any person whether or not he is the person with whom the debtor entered into the transaction; but such an order—

(a)

shall not prejudice any interest in property which was acquired from a person other than the debtor and was acquired in good faith, for value and without notice of the relevant circumstances, or prejudice any interest deriving from such an interest, and

(b)

shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction.

(3)

For the purposes of this section the relevant circumstances in relation to a transaction are the circumstances by virtue of which an order under section 423 may be made in respect of the transaction.

(4)

In this section “security” means any mortgage, charge, lien or other security.”

The Claim By SARS

The Claimants dispute that analysis. They submit that Article 25A abrogates the Revenue Rule so that it can no longer be said that there is a public policy that prevents the collection of revenue debts due to SARS as the competent authority for the assessment and collection of tax in RSA. It is submitted that in consequence there is now no reason why a state to whom the tax is due cannot take enforcement action under IA s.423.

In my judgment the suggestion that there is no longer any public policy objection that would preclude SARS from taking action under IA s.423 is misplaced. The Revenue Rule was and is one of the widest scope. It is not suggested that the statement of the rule by McNair J in Rossano (ante) is inaccurate or too wide. As he put it, the well settled principle was that: “… the English court will not recognise or enforce directly or indirectly a foreign revenue law or claim …”. The policy consideration that underpins the Revenue Rule (or one of them at any rate) is that identified by Lord Keith in Government of India v. Taylor (ante) at page 511 namely that “… an assertion of sovereign authority by one state within the territory of another … is (treaty or convention apart) contrary to all concepts of independent sovereignties”. In my judgment it is precisely this consideration which led to the formulation of mutual assistance provisions in the terms that have been adopted in Article 25A. Mutual assistance is provided within each convention State by the relevant organs of the collecting State. Had the convention States intended to proceed as the Claimants submit then there would have been no point whatsoever in drafting Article 25A(3) in the terms that have been adopted. Collection by the competent authority of the collecting state is not a permissive provision. It is the sole basis on which a departure from the Revenue Rule is permitted. The only basis on which SARS would be entitled to rely on IA S.423 as against MTL is if it could persuade a court that it was a “victim” in relation to the transfer to MTL by Ben Nevis of the Bank Deposit – see IA s.424(1)(c). A “victim” is defined for these purposes by IA S.423(5) as being “ … a person who is or is capable of being prejudiced by …” the transaction at an under value – that is in this case the transfer of the Bank Deposit from Ben Nevis to MTL. The only factual basis on which SARS is able to suggest that it has been prejudiced by the transaction is to the extent that it (or HMRC on its behalf) is thereby unable to collect in part the tax due from Ben Nevis in RSA.

There is of course a real potential difficulty not formally grappled with as yet, which is whether HMRC comes within the definition of a “victim” for the purposes of IA s.423(5). Counsel for the Defendants was at pains to point out that he was not seeking to argue that point before me on these applications. I make it clear therefore that nothing in this judgment is to be regarded as relevant to that issue which will be for another court on another day. However, since it was submitted on behalf of the Defendants that I ought to set aside the permission granted to SARS to serve these proceedings on the Defendants and to dismiss this claim, I have given some consideration to whether I ought to take some less drastic action such as perhaps simply staying the claim by SARS against the Defendants. I have not heard argument as yet on this point and will do so at the hand down of this judgment. Provisionally however I think such a course would be inappropriate. Even if a court on another occasion concludes that HMRC is not to be treated as a “victim’ for the purposes of IA s.423, that cannot have any impact on whether SARS is capable of being treated as a “victim”. The other factor that militates against an approach such as that I am now considering is that there may be other methods by which the same outcome can be achieved. On the facts as alleged by HMRC, Ben Nevis would at least arguably be a “victim” and thus may be capable of asserting rights under IA s.423 at the suit of an interim receiver or provisional liquidator.

In those circumstances, I conclude that SARS has no arguable basis for maintaining the IA claim it has brought against any of the Defendants and therefore permission to serve the proceedings out of the jurisdiction granted to SARS must be set aside. I will hear further argument as to whether on that basis the claim by SARS should be dismissed or merely stayed.

The Claim by HMRC Against HSBCT

All the various reasons that are advanced as a basis for maintaining these proceedings as against HSBCT are in my judgment unsustainable. First the fact that HSBCT is the trustee of GIT is neither here nor there. No claim has been brought against GIT nor have the Claimants identified any tenable claim against GIT. These proceedings are or should be concerned exclusively with a claim by HMRC as competent authority against Ben Nevis to recover tax due from that company to SARS as the competent authority for the assessment and collection of tax in RSA. Allied to that HMRC plead an entitlement to maintain a claim against MTL under IA s.423. HSBCT is not a necessary or proper party to either claim whether as registered shareholder or as trustee of GIT. The assertion that joinder can be justified by reason of the fact that its predecessors were directly involved in implementation of the transfer does not assist either at any rate as long as these proceedings are constituted as they are.

The remaining two reasons advanced at the hearing before me as justifying the commencement and continuation of these proceedings against HSBCT were (a) because such is necessary in order to ensure that the orders made against Ben Nevis and /or MTL will be effective and (b) because HSBCT may have documentation regarding the purpose or circumstances surrounding the transfer of the Bank Deposit from Ben Nevis to MTL. Neither of these bases can even arguably give rise to an entitlement to join HSBCT as a defendant to these proceedings as they are presently structured. As to the first of these points, it is to be noted that none of the Defendants has any presence within England and Wales. The sole connection with England and Wales is the presence of the Bank Deposit that is held at a bank in London. On that basis the manner in which any interim relief in relation to the Bank Deposit is to be enforced is by serving the bank or giving the bank notice of the making of the Freezing Order. It might justify an application for the appointment of an interim receiver. What it does not do is justify the commencement of proceedings against a party not in this jurisdiction against whom no tenable cause of action has been pleaded. It is said that IA s.423 does not impose any limit on the persons against whom relief may be granted. The scope of the relief that can be obtained is defined in IA s.425(2). That is relief which if it is to be ordered at all will be ordered against MTL not its shareholders. If MTL’s controlling minds fail to give effect to such an Order then that can be addressed at that stage in the light of the circumstances then prevailing.

As to the second alternative, I do not see any basis on which it could be proper to join a foreign entity to a claim in England against whom no tenable cause of action has been identified simply for the purpose of obtaining disclosure. The only proper basis on which a claim for disclosure could be made is by invoking the Norwich Pharmacal jurisdiction. However that has not been pleaded out in the Particulars of Claim nor was that the basis on which permission to serve proceedings out of the jurisdiction was sought or obtained. I am not saying that permission could not be sought on that basis (the issue was not argued before me) merely that it has not been.

In those circumstances I conclude that HMRC has failed to demonstrate that it has an arguable basis for seeking permission to serve these proceedings out of the jurisdiction on HSBCT. It follows that permission to serve these proceedings on HSBCT out of the jurisdiction must be set aside. I will hear further submissions as to whether in consequence these proceedings should be dismissed as against HSBCT.

The IA Claim by HMRC Against Ben Nevis and MTL – (a) Serious Issue To Be Tried and (b) Forum Conveniens.

There is no doubt that the jurisdiction under IA s.423 is extra territorial in its scope – see Jyske Bank (Gibraltar) Ltd. V. Spjeldnaes [2000] BCC 16, where Evans Lombe J directed the transfer of land in Ireland from one Irish registered company to another. To similar effect is the decision of Tomlinson J (as he then was) in Dornoch Limited v. Westminster International BV [2009] CLC 226 where the transaction that was set aside was the transfer of a ship out of the jurisdiction between two companies each of which was incorporated in a foreign jurisdiction. In deciding that case Tomlinson J said of the jurisdiction:

“I fully recognise the special need for care when exercising an extra territorial discretionary power – see Banco Nacional de Cuba v. Cosmos [2000] BCC 910. In the context of winding up, the subject matter of that case, one is concerned not just with the connection with this jurisdiction of the company which it is sought to wind up, but also with the connection of potential beneficiaries – see per Knox J in Re Real Estate Development Co … what one is concerned to find is a sufficient connection to justify the court setting in motion procedures over a body which prima facie is beyond the limits of territoriality – see again per Knox J …

In re Paramount [1993] Ch 223, 239-240 Sir Donald Nicholls V-C said that the court will need to be satisfied that, in respect of the relief sought against him, the defendant is sufficiently connected with England for it to be just and proper to make the order against him despite the foreign element. He went on, at 240, to discuss how that connection might be shown:

“ … in considering whether there is a sufficient connection with this country the court will look at all the circumstances, including the residence and place of business of the defendant, his connection with the insolvent, the nature and purpose of the transaction being impugned, the nature and locality of the property in question, whether the defendant acted in good faith, and whether under any relevant foreign law, the Defendant acquired an unimpeachable title free from any claims even if the insolvent had been adjudged bankrupt or wound up locally. The importance to be attached to these factors will vary from case to case. By taking into account and weighing these and any other relevant circumstances, the court will ensure that it does not seek to exercise oppressively or unreasonably the very wide jurisdiction conferred by the section.” ”

The Defendants place significant reliance on the judgment of Lightman J in Re Banco Nacional de Cuba [2001] 1 WLR 2039. However, it is important to bear in mind the point made by Sir Donald Nicholls V-C in the extract from his judgment in Paramount set out above: each case is likely to be highly fact sensitive and thus the task in each case will be to consider all the relevant factors in the context of the particular case being considered. That case was concerned with the sale, allegedly at an undervalue, of shares held by the first defendant in a subsidiary bank incorporated in the UK. The vendor of the shares sought a declaration that the court would not grant permission for the service of proceedings under IA s.423 on that party out of the jurisdiction. The declaration was granted but expressly on the basis that there was no evidence that the transaction impugned was for the purpose of prejudicing the position of existing or future claimants in relation to their claims and because in any event any judgment would be fruitless since it would not be enforceable in the UK by operation of s.14 of the State Immunity Act 1978. Thus the conclusion that the only appropriate forum was Cuba so that permission would have been refused even if a triable issue could have been demonstrated was obiter. In relation to this last point, Lightman J noted that the only connection with the UK was the presence in the UK of the shares being shares in a UK company only because the share register was in the UK – see Judgment, Paragraph 14. In paragraph 41, Lightman J described this connection as being “… tenuous and … fortuitous …”. The point that exercised the Judge in that case was that what was being sought on the facts of that case was the exercise of the s.423 jurisdiction in respect of a state entity that was formally a central bank and in relation to Cuba’s sovereign debt which he described as being “… invasive of the sovereign affairs of Cuba …”. In such circumstances, it is hardly surprising that the Judge considered there to be no sufficient connection to justify permission to serve out being granted. It is noteworthy however that the Judge acknowledged that the relevant test to be applied was the fact sensitive sufficient connection test identified in Paramount.

In my judgment on the facts of this case as they are presently known there is a sufficient connection with the English jurisdiction to justify granting permission for the service out of the s.423 proceedings in this case. First, a clear connection has been established between Ben Nevis and MTL. Secondly, the evidence establishes a strong prima facie case that (a) the transfer of the Bank Deposit was for no consideration and (b) the conditions set out in IA s423(3) will be made out. There is no issue between the parties at present at least that HMRC is capable of being a “victim” for the purposes of IA s.423(5). Thirdly, the fund that is or represents the proceeds of the impugned transaction is present in the form of a debt owed by a London based bank to MTL. Fourthly there is undoubted jurisdiction enabling HMRC to pursue Ben Nevis for the taxes, penalties and interest that are due from it to SARS. All this establishes a sufficient connection with this jurisdiction to establish a serious issue to be tried.

Finally it is necessary for the Claimants to establish that England is clearly the most appropriate forum in which to bring the claim – see Spiliada Maritime Corp v. Cansulex Limited [1987] AC 460. On this issue the Defendants submit that Guernsey is both an available and the most appropriate forum. That assertion is largely based on the factors that I have identified above – that is that although Ben Nevis and MTL are incorporated in accordance with the laws of the BVI, the corporate director of each is a Guernsey registered company that is managed from Guernsey and the registered shareholder is likewise registered and managed from Guernsey. The Claimants assert that this is unreal because SARS through HMRC have an undoubted right to enforce Ben Nevis’s tax liabilities through the English courts pursuant to Article 25A of the 2002 Convention as amended that is not challenged on forum conveniens grounds. It is submitted that in such circumstances it is unreal to assert that enforcement procedures available in England in relation to assets located here should be ignored in favour of Guernsey, particularly as there is no cause of action available to the Claimants or either Claimant against MTL in Guernsey. The Defendants now at least implicitly acknowledge this last point. Although Guernsey law recognises a customary law action by which transfers in fraud of creditors can be set aside – as to which see the unreported decision of the Royal Court of Guernsey in Flightlease Holdings Guernsey Limited v. International Lease Finance Corporation - any attempt by either Claimant in these proceedings to rely on that cause of action in the circumstances of this case would fall foul of the Revenue Rule as applied by the Courts of Guernsey.

In my judgment this last point is in the circumstances of this case sufficient to tip the balance in favour of England. This is so either on the basis that because of this factor the courts of Guernsey are not available for the trial of a claim between the Claimants or either Claimant and MTL or on the alternative basis that the Court will refuse a stay notwithstanding the availability of the courts of another jurisdiction where the interests of justice require it. Whilst Lord Goff recognised in Spiliada (ante) that the existence of a legitimate personal or juridical advantage could not be decisive – see his Opinion at 475G and 482B – 484E – there are limits to that point. Lord Goff regarded such issues as ones that ought not to deter the court from staying English proceedings in favour of an otherwise more convenient jurisdiction but that was so only “ … provided that the court was satisfied that substantial justice will be done in the available appropriate forum” (482F). As he explained by reference to a distinction between conscious choice of a forum with a generous limitation period the issue is one of practical justice.

Whilst I accept that practical convenience may arguably be said to point in favour of Guernsey – although the travelling distances are not great and the transmission of documents to London from St Peter Port can hardly be more burdensome than transmitting them from Manchester or Leeds or Plymouth to London, the real connection is with England by reason of the inter-connection between the Tax Recovery Claim and the IA Claim in combination with the presence of the relevant asset in England and that further dealings with it can be controlled with relative ease by the English Court. If that assessment was wrong, it would be necessary next to consider the second question identified by Lord Goff (478C-E) namely whether there are circumstances by reason of which justice requires that a stay should not be granted. In my judgment, the fact that a judgment can be obtained here but its practical value defeated by deciding that any claim to set aside the transfer of the Bank Deposit with a London bank should be heard in Guernsey is a powerful consideration in resolving this second question.

In those circumstances and for those reasons I reject the Defendants’ submission that permission to serve the IA Claim out of the jurisdiction should be set aside other than to the extent indicated earlier in this judgment in relation to the claim by SARS and against HSBCT.

The Freezing Order Challenge

I now turn to the application to discharge the freezing order. A distinction is to be drawn between freezing orders granted in aid of a claimant advancing a personal claim and orders granted in support of proprietary or quasi-proprietary claims. In relation to the former types of order, the applicable principles are well settled, and have been for a number of years. In summary, they are:

The principles set out above all apply with equal force to injunctions granted in aid of proprietary and quasi-proprietary claims save and except that the requirement to demonstrate a risk of dissipation of assets is modified. The Defendants accept this to be so, at least implicitly. The dispute between the parties is as to whether the order made by Mann J and continued by Floyd J can be regarded as such an order. Although the Defendants maintain that this is a point taken by the Claimants after the event for the purpose of avoiding what the Defendants would characterise as a real difficulty concerning the risk of dissipation, in my judgment the point is one of substance which is open to be taken if justified at any stage. The notion that the right to assert that an injunction is in aid of a proprietary or quasi-proprietary claim is lost because it is not articulated or articulated clearly at the initial hearing is in my judgment mistaken.

In my judgment there is a distinction that is or should be drawn between the claims against Ben Nevis on the one hand and MTL on the other. The Tax Recovery Claim is a debt recovery claim and as such is plainly a personal claim. That is emphasised by the fact that the scope of the Injunction sought against Ben Nevis extended to all its assets if any. However, that point is relevant only to that claim and in relation to the Injunction sought and granted against Ben Nevis. The claim against MTL was one that could be and was advanced only by reference to the IA Claim. In relation to that claim, in my judgment the Claimants are correct to assert that different considerations apply – see Gee: Commercial Injunctions (5^th Ed.) pp. 387-8, footnotes 10 and 15 where the following statement appears:

“An injunction limited to the property transferred or its proceeds (see Insolvency Act 1986, s.425(1)(b)) is available under the jurisdiction to grant relief over the subject matter of the proceedings, and is relief quia timet in support of a legal right of the claimant in respect of that property: Re Mouat [1899] 1 Ch 831 at 833; First Industry Corporation v. Goh [2002] WASC 111 … (where Mareva relief against the third party was refused because of a lack of risk of dissipation but an injunction was granted to preserve the property transferred). An injunction can be granted over the asset in the hands of the transferee because if it were to be disposed of to a bona fide purchaser for value without notice the claimant would have no remedy against the asset (Insolvency Act 1986, s.425(2)). If an injunction is sought in respect of assets belonging to the third party which are not the subject of a claim under the statute or their proceeds, then the relief sought is Mareva relief and a real risk of dissipation by the third party must be shown.”

Against that background, I turn to the submissions of the Defendants. They submit that the Freezing Order ought to be discharged on the following grounds:

The Risk of Dissipation

It is no doubt because of considerations such as those I have mentioned that the existence of a Restraint Order has been held not to be a bar to the grant of a Freezing Order – see by way of example Faya Limited (In Liquidation) v. Butt [2010] EWHC 3461 (Ch.) where Mann J rejected a submission that the existence of a Restraint Order precluded it being asserted that there was a continuing risk of dissipation. As Mann J said:

“ It is possible that the criminal Restraint Order will be abandoned. It is for the CPS to decide whether it wishes to maintain it … if it were to go, and there was nothing else in its place, then the claimant would not have any protection … in other words the criminal Restraint Order is in no way geared or intended to protect the interests of the claimant liquidator in the present proceedings. He has his own rights and his own interest in getting his own order which he controls … while as a matter of fact at this very moment in time there is not a risk of dissipation because of the criminal Restraint Order, that position may change. The liquidator is in my view entitled subject to his otherwise being entitled to the order, to his own order which he controls and to bring about a situation which is not vulnerable to a change of mind by a party to other proceedings … for these reasons I do not think that the existence of the criminal Restraint Order means that there is no risk of dissipation in this case.”

Non-Disclosure: Defences to the Tax Recovery Claim

The defences to the Tax Recovery Claim are those that I have considered at some length above. In my judgment there is no substance to them for the reasons identified. However that conclusion does not lead to the conclusion that those defences should not have been identified to Mann J at the without notice hearing if they were known to the Claimants, or ought reasonably to have been known to them as likely to be relied on by Ben Nevis. It is clear that in fact the defences were not disclosed in terms to Mann J – see para. 111 of the Claimants’ skeleton submissions for this hearing. The fact that the materials from which the possible existence of such a defence might be identified are disclosed is not a sufficient compliance with the duty to which I have referred if otherwise it could reasonably be anticipated that the Defendants would rely on those defences. In the circumstances of this case I am not satisfied that the Claimants could reasonably be expected to anticipate the defences that in fact have been relied on, and in any event I am entirely satisfied that had the defences relied on been disclosed it would have made no difference to the outcome of the hearing before Mann J. Mann J would have been bound to conclude that HMRC had demonstrated at least a good arguable case as to the substance of its case on the Tax Recovery Claim. Had I concluded that the Claimants had failed in their duty, I would not have discharged the Freezing Order in any event, applying the principles identified above. There is no evidence that supports the suggestion of a deliberate failure to disclose the points relied on by the Defendants. To discharge the Freezing Order would be manifestly disproportionate in the circumstances, particularly having regard to the likely impact of the matters relied on by the Defendants on the application before Mann J.

Non-Disclosure: Likelihood of Discharge of the Restraint Order

I accept that the Claimants could probably have kept themselves informed as to the progress of the application to discharge the Restraint Order during the 21^st and 22^nd February 2012 and that had they done so, they would have been in a position to inform Mann J that even if the hearing was completed on the 22^nd February, it was not likely that the Judge would be able to deliver a judgment for some time thereafter. However, there was nothing that could have been known to the Claimants that would have eliminated the possibility of an Order being made discharging the Restraint Order at the conclusion of the hearing with reasons to follow although I accept that such an outcome was an unlikely one. Thus I am prepared to accept that a fair presentation to Mann J would have been one that involved informing him that the hearing was running behind schedule, that it was possible that it might not be concluded by the end of the 22^nd February and might in consequence have to be adjourned to a date in the future for completion. It would also have involved drawing Mann J’s attention to the information supplied to the parties to the application to discharge the Restraint Order that the Judge was not likely to be able to deliver a reserved judgment before Easter 2012. However, I consider that it is unlikely that this would have caused the Judge to decline to act as he did.

The decision to hear the application without notice rather than directing that it be heard on notice or short notice was one that involved a balancing exercise in which the following factors were likely to be relevant. First, the Judge would have been concerned that none of the information available about the hearing to discharge the Restraint Order could eliminate the possibility of a decision to discharge being made before an application could be brought before the Court on notice or short notice. Secondly he would have had to balance against the possibility that no practical risk of dissipation could arise as long as the Restraint Order was in place, the fact that in practical terms the grant of the Freezing Order could have no practical prejudicial effect on the Defendants as long as the Restraint Order remained in place, but that to refuse to grant it might expose the Claimants to the risk that the Bank Deposit would be further dealt with so as to make enforcement of a Judgment in the Tax Recovery Claim difficult or impossible. In those circumstances, even if the Judge had been supplied with the information that it is said he should have been supplied with, I do not consider it would have made any material difference to the outcome of the application before him since there remained a risk that if notice was given that might enable the Defendants to take steps that would defeat the purpose of applying for the Freezing Order.

If I am wrong in reaching the conclusions I have reached so far on the issue I am now considering, I would not in any event have considered it appropriate to discharge the Freezing Order by reference to this point. Had the position been that the Court could arguably have reached the conclusion that the Freezing Order should not be granted as long as the Restraint Order remained in place, then to discharge the Injunction by reference to the alleged non-disclosure might have been an appropriate response. However, there was no prospect of it being concluded that a Freezing Order ought not to be granted as long as the Restraint Order remained in place for the reasons outlined above and in Faya Limited (In Liquidation) v. Butt (ante). It is true to say that had the application for freezing relief been argued in full on notice it is unlikely that an Order would have been made against HSBCT but that would have been on the more fundamental basis that neither claimant had a cause of action against HSBCT. In any event, the order actually made as against HSBCT has had no evidenced prejudicial effect on that entity. Even if that is immaterial to the question I am now considering it would not make proportionate the discharge of the orders as against Ben Nevis or MTL. In those circumstances, even if I had concluded that in failing to describe the progress of the application to discharge the Restraint Order in the terms contended for by the Defendants the Claimants had acted in breach of their disclosure duty, I would not have discharged the Injunctions granted by Mann J on this ground.

Conclusions

For the reasons set out above: