HM Revenue & Customs v Ariel

This is an appeal from an order of Registrar Derrett dated 21^st October 2015 which followed from the delivery of a judgment on 15^th October 2015 (reported in [2015] BPIR 375). In it she gave directions to Mr Ariel, the trustee in bankruptcy of Simon Halabi, as to compliance with statutory notices intended to be served by HMRC. HMRC appeals on the footing that she had no power to give those directions, or all but one of them, and that the application to her should not have been made. The case is said to raise the question of the interaction between the powers of HMRC and the First Tier Tribunal under Schedule 36 of the Finance Act 2008 and the power to give directions under the Insolvency Act 1986 section 303. It is said to be significant because this is apparently the first time that HMRC have sought to invoke the relevant statutory power against a trustee in bankruptcy, and this case is said to demonstrate the problems that can arise when that happens.

Schedule 36 of the Finance Act 2008 provides certain information gathering techniques to HMRC by way of the service of notices requiring the provision of documents and/or information. In paragraph 1 power is given to serve a notice on the taxpayer. That is not relevant for present purposes. Paragraph 2 gives power to serve a notice on a third party and provides:

The notice or deemed notice that is relevant to the present case was one which related to the tax affairs of Mr Halabi, and it is common ground that his trustee in bankruptcy falls to be treated as a third party, and not the taxpayer, for the purposes of these provisions. The “tribunal” referred to is the First Tier Tribunal – I shall use the same abbreviation of “FTT” for the purposes of this judgment where convenient.

Paragraph 3 has the effect that a third party notice should not be given unless it is given with the agreement of the taxpayer or the approval of the tribunal, and contains further amplification of the application to be made to the tribunal:

For present purposes it is important to note that the application may be made without notice and that the statute does not seem to provide any mechanism for the intended recipient to have any direct input into the process of deciding whether a notice should be approved. The right of a third party seems to be confined to being given an opportunity to make representations to the Revenue which are then to be summarised by the Revenue for the purposes of the tribunal application.

Appeal routes are dealt with much later in the Schedule. Paragraph 29 starts a part of the Schedule which deals with appeals and other challenges. Paragraph 29 gives the taxpayer a right of appeal against a notice served on him, or any requirement in the notice, but not if the tribunal approved the giving of the notice. The same is true with an additional qualification in relation to a third party:

That is a limit to the relevant appeals where are a third party notice is concerned. The effect of it is that, save in cases where the taxpayer has consented to the third party notice, there can never be any appeal from a decision to approve the notice because, by definition, that approval must have been given by the tribunal and sub-paragraph (3) will then operate to prevent the appeal.

Paragraph 6(4) provides for the finality of the tribunal’s decision:

Paragraphs 7 and 8 set out what, in practical terms, has to be done to comply with a third party notice. Paragraph 7 provides that a person served with a notice must provide the document or information within such period and at such time, by such means and in such form as is reasonably specified or described in the notice.

Part 4 (paragraphs 18 and following) imposes certain restrictions on the production which is to take place under a notice served under the Schedule. Thus it does not apply to tax appeal material, journalistic material, privileged material (paragraph 23), auditors’ material and tax advisers’ material, amongst other things.

Part 7 provides for penalties for non-compliance, including a daily penalty.

A bankruptcy order was made against the bankrupt on 30^th March 2010 on the petition of a financial institution. A trustee in bankruptcy was appointed on 9^th April 2010 and the present trustee replaced that trustee on 30^th April 2013. By then the bankrupt had been automatically discharged for some two years. The present trustee has carried out extensive investigations, and has also been appointed liquidator of 25 insolvent companies registered in Jersey which were beneficially owned by the trust belonging to the bankrupt’s family trusts. In the course of his investigations the trustee has obtained a number of documents from third parties, including the petitioner, other financial institutions, a bank in Jersey and bank statements from a bank in Switzerland (pursuant to a signed authority from the bankrupt). The bankruptcy has been recognised in Jersey and in Switzerland and various documents obtained pursuant to that recognition. It is all those sorts of documents which have given rise to part of the problem which is said to underlie the third party notice in this case.

The original proof of debt of HMRC was £390,000. Unsecured creditors amounted to about £88m and the trustee originally estimated that approximately £100,000 would be available for distribution to unsecured creditors. On 25^th April 2014 HMRC submitted a revised proof in the sum of about £85m.

On 5^th April 2014 Mr Fellows of HMRC wrote to the trustee stating that he would very shortly be approaching the FTT for permission to issue the trustee with a third party notice under Schedule 36 “in relation to all of the documents you hold in relation to Mr Halabi’s financial affairs”. In the correspondence which followed the trustee was mindful of the fact that some of the documents he held were documents produced under compulsion, the sheer volume of material which would have to be investigated and, perhaps, produced and of the cost of complying with the notice. He indicated that if a notice was issued, the trustee would need to seek directions from the bankruptcy court in relation to compliance with the notice.

On 5^th June 2014 Mr Fellows told the trustee that he hoped that he would shortly be in a position to approach the tribunal for permission to issue a third party notice and he proposed a wording for the documents to be produced. The wording was very wide, covering all of the bankrupt’s personal and financial interests. He indicated a willingness to consider an alternative wording. The trustee responded on 26^th June 2014 indicating categories of documents that the trustee had and indicating that it would not be appropriate for the third party notice to extend to documents held in his capacity as liquidator, his firm’s working papers and documents relating to the liquidation of another company. It was proposed that the large quantity of documents be produced to the Revenue at the trustee’s offices and that photocopying facilities be made available. It also proposed a proviso that the trustee should be under no obligation to produce any documents which the trustee was prohibited by law or court order or undertaking from producing.

Mr Fellows responded on 30^th of June in a short email which did not really comment on the points raised by the trustee, and indicating that the process of obtaining a notice could be started that day.

The written application was in fact made on 19^th August 2014. It set out a description of what was known of the bankrupt’s affairs and the “veil of secrecy” surrounding his involvement in various transactions. The application notice went on to indicate that HMRC wished firmly to establish the bankrupt’s resident status and the amount of his UK tax liabilities. It stated that the trustee was aware of the Revenue’s extension and it enclosed an email exchange which set out the trustee’s position and concerns in the manner which I have referred to in the preceding paragraphs. Having referred to the documents which caused concern to the trustee, the application said:

The application sought a without notice hearing which was, in addition, to be held in private. It also appended a draft notice which set out the documents which were to be sought from the trustee in bankruptcy:

In an email of 13^th November 2014 the Revenue expressly said that since the application was “ex-parte” it was not required to notify the trustee, as third party, of the date of the hearing. However, given the cooperation that had existed, the email said that the hearing was scheduled for 24^th November. It went on to say that the Revenue was prepared to disclose the trustee’s intention to make an application to the bankruptcy court for directions as to which documents should be disclosed and it would agree an extension of the time for compliance to 90 days from 30 days. The email went on to say:

Despite the fact that the application was without notice, and that the trustee was not given a formal opportunity to attend, the trustee was able, somewhat hastily, to submit written submissions of Counsel which were placed before the FTT. Those submissions objected to the hearing before the tribunal being without notice, objected to the issue of a third party notice to the trustee and objected to the scope and content of the notice. It contained a clear application for the matter to be heard on notice. At paragraph 18 the submissions asserted the intention of the trustee to seek directions from the court under section 303(2) of the Insolvency Act 1986 and went on to aver that it would not be appropriate for the tribunal to approve the notice until that application had been determined.

Paragraph 21 invited a deferment of consideration of whether or not to approve the notice until such time as the bankruptcy court had issued its direction.

The Revenue opposed such an adjournment at the hearing but one was granted. The decision of the tribunal on the application to approve the notice was given on 25^th November 2014, and the tribunal decided to adjourn consideration pending an application to the bankruptcy court. So far as relevant the directions read (having recorded that the trustee’s counsel’s submissions were read):

For the sake of completeness I record that a draft revised notice was prepared by the Revenue, which contained greater particularisation of the documents which were sought, but it was not served and it does not fall to be considered in this appeal.

The application for directions was issued on 19^th December 2014. It sought the following:

I shall return to the appropriateness of such a formulation in due course. Registrar Derrett heard the matter on 2nd July 2015 and delivered her judgment on 15^th October 2015. The terms of the order which she made have a bearing on the appropriateness of making any order at all, so I have to set out the terms of her order in some detail before dealing with her reasoning. The relevant terms read as follows:

It will be seen from that order that she first determined a question of jurisdiction in favour of a finding that the bankruptcy court had jurisdiction to consider what documents should and should not be produced, and on what terms, pursuant to an information notice in the form placed before the FTT. She then went on to determine that the trustee could properly provide documents (paragraph 2) but that he was entitled to his costs first (paragraph 3). The following paragraphs indicated which documents could and could not be provided with or without certain steps being taken first. Those steps involve giving notice to third parties and, in relation to some documents, an invitation to an extensive number of bodies to make submissions on their production. All in all, the Registrar was proposing very significant restraints on the operation of a third party notice, apparently on the presumption that one was to be approved by the tribunal.

The judgment of the Registrar set out the relevant statutory background and the factual background and turned to the first of the questions in the application. Under the heading “Exclusive jurisdiction” she considered HMRC’s submission that the FTT had exclusive jurisdiction in these matters and the bankruptcy court had none. Various cases were cited as going to this point and she recorded the submissions made. In particular she acknowledged the force of the trustee’s submissions that various of the cases cited dealt with different questions of jurisdiction arising in different circumstances. At paragraph 41 she found, rightly in my view, that it was necessary to pay close attention to the particular statutory provisions in question in the present case, not the different provisions relevant to the cited authorities. However, she went on to say:

She went on:

Then she rejected a submission that the bankruptcy court was being asked to usurp the jurisdiction of the tribunal.

She relied on the fact that, as she considered, the FTT did not accept the exclusive jurisdiction argument mounted by the Revenue:

She rejected the submission that the court would not do anything other than order the trustee to comply with a notice, in these terms:

Having then considered various matters concerning the interaction of the bankruptcy and the third party notice, she concluded that: “To the extent to which the answer to question 1 is the affirmative then I must go on to consider questions 2 and 3 of the Application.” That she did, and the result was that appearing in her order. She was carrying out some sort of balancing act between the interests of HMRC and the interests of the trustee, and perhaps those with an interest in third party documents that the trustee might have to disclose.

These proceedings were, in my view, oddly constituted, and oddly conceived by the trustee. The real question that had to underlie the application to the Registrar, and her decision, was whether the FTT had the only say in whether to issue a third party notice, and its terms, or whether the bankruptcy court also had jurisdiction (under s303) to decide whether and to what extent the terms should be complied with by the trustee in bankruptcy. That was obviously the central point that was debated, and bearing in mind the attitude of HMRC it had to be addressed. For that purpose two things were necessary. First, it was necessary to have a third party notice so that there was a piece of relevant factual background, and second its terms must be known so that (if it was held that the Registrar could intervene) the extent of compliance could be determined. Without those two factors the answers to the questions raised in the application would be very straightforward and utterly unhelpful. They would be “Yes, generally speaking” in relation to question 1, and “It all depends on the terms of the notice and the factual background at the time” in relation to questions 2 and 3.

Neither of those things had happened by the time the section 303 application was made by the trustee. Nor was the application apparently made on the explicit assumption that they had. However, the jurisdiction question, and the matters placed before the Registrar so that she could rule on an appropriate extent of compliance, must have presupposed that a third party notice in the terms sought by the Revenue had been approved by the FTT. Otherwise there is nothing to make the jurisdiction debate make sense, and nothing to make her answers to questions 2 and 3 relevant.

Strictly speaking that probably rendered the debate in front of the Registrar academic and she should have rejected the application when couched in the terms that it was (unless she was prepared to answer question 1 in a way which would help no-one). However, the central points were points which are going to arise anyway, and for my part at least, I am prepared to address them provided the assumptions on which they are to be addressed are made clear. This being the first time that the Revenue have made use of a third party notice against a trustee in bankruptcy (at least so far as the relevant Revenue officers are aware), and since it raises the sort of points that are likely to arise in connection with further notices, some useful guidance can probably be given for the future.

However, Mr Shepherd was curiously reluctant to proceed on the basis of the necessary assumptions when the appeal opened. Persistence in such a course would have deprived his client of the opportunity he wanted to have it determined whether the bankruptcy court could protect him from the consequences of the notice he feared. He eventually accepted that I could proceed on the footing “that the FTT would approve the notice in the [form sought by the Revenue] notwithstanding the fact that the application to the bankruptcy court was made on the footing that the FTT had not yet made an order to that effect”. I have thought it right to record the precise terms of his concession. It does not fully do the trick because of the terms of the second half, but it is enough to enable this court to proceed to decide the issues that arise, and that will inevitably arise in these or other proceedings if I do not deal with them here.

The other odd thing about the application is the terms of question 1, whose answer is, on anyone’s case, obvious, but which answer does not address any relevant question. The real question is one of jurisdiction – whether a Registrar has jurisdiction to adjust compliance with the terms of a third party notice. Again, I shall address it because it needs to be addressed.

I have just identified this point in general terms. However, a closer scrutiny of the way the case was put, and of parts of the Registrar’s decision, reveals that it may have two aspects, albeit they are related. The first is whether the Registrar has any power to give “directions” once a notice has been served which would allow the trustee to behave in a different manner to that which the notice seems to require. The second is whether the Registrar has power to entertain and rule on an application for directions as to compliance with a notice while the FTT still has before it an application approve the notice. That is, after a fashion, what has happened in the present case, though there is little doubt that the Registrar had in mind the former – see e.g. her paragraphs 41, 48 (probably) and 49. Furthermore, her order contains positive provisions which assume that a notice has been approved and which do not, in their terms, otherwise make sense. While her actual decision was in the context of a notice which had not been approved, if there would be no jurisdiction to give any direction contrary to its terms once it had been approved then that is obviously an important indicator as to what can be done before that point. I shall therefore consider the case of a notice that has been served before considering the position in this case, which is one where a notice has not yet been served.

The Registrar had cited to her (and she herself cited) the first instance decision in Derrin Brother Properties Ltd v HMRC [2014] EWHC 1152 (Admin). This was a judicial review case in which there was a challenge to a third party notice by way of judicial review. What was challenged was both the decision to apply for approval of the notices and the subsequent approval by the FTT. After the Registrar’s decision the Court of Appeal gave judgment in an appeal from the first instance decision ([2016] EWCA Civ 15). That later decision gives clear guidance as to the effect and operation of Schedule 36 which is relevant to the present case. The decision upholds the first instance decision of Simler J and contains useful material in considering the jurisdictional questions which arise in this case.

The opening paragraphs consider the history of Schedule 36 and implicitly confirm that there is a “presumption of regularity” in relation to the decisions of the Revenue officer and the FTT (paragraph 12). Paragraph 14 confirms that Article 6 (right to a fair trial) applies to the proceedings for approval before the FTT. That, in my view is an important point in considering the interaction between the FTT’s jurisdiction and section 303. Paragraph 15 refers to the limited rights of appeal (to which I have already drawn attention) and points out that “The only available avenue of challenge by the appellants is judicial review.”

The case concerned, inter alia, the rights of participation of a third party in respect of whom an application for a third party notice was to be made. It was not suggested that that person had a right to appear at the FTT hearing, but it was suggested that the party had a right to make representations which were to be placed before the FTT, and that prior reasons ought to have been given to them to enable that to take place. The Court of Appeal rejected that submission (paragraph 65).

The Court then went on to consider, in detail, the operation of Schedule 36 and the reasons for the mechanism that was adopted in it. Paragraph 68 sets out the background of tax evasion and the scope for delay and obfuscation. Paragraph 69 then explains the mechanisms of the Schedule:

As with other parts of the judgment to which I will come, that expression of purpose is antithetical to the idea that another tribunal would have a further role to play in what ought to be done in relation to a third party notice (other than on judicial review).

Paragraphs 75 and 76 explain why the third party is given notice of the intention to seek approval of the notice.

I am not sure how the reference to the right of appeal on the grounds of onerousness ties in with my remarks about its effective absence when the approval has been given by the FTT, but that does not detract from the justification for the limited participation of the third party in the process.

The intention of Parliament is set out in paragraph 80:

The thrust of those paragraphs, and the intervening paragraphs which I have not quoted, is that the decision to issue a third party notice is one for the Revenue, and the decision to approve it is one for the FTT. The latter provides the control mechanism for the former. Although Article 6 is engaged, it is satisfied by the statutory obligation to give notice to the third party and to convey the third party’s representations to the FTT so that it is aware of them. If it wished to do so the FTT could have an inter parties hearing (the statute provides only that it “may” determine the application without notice) but that is within its discretion. The control mechanism so far as the FTT is concerned is judicial review:

An attack on that proposition was rejected by the Court of Appeal, which also rejected the notion that the procedure was intended to become an adversarial one.

The operation of this can be seen from the facts of the case. The manner in which objections by the third party can operate is apparent from what is said about Lubbock Fine, one of the third parties in that case:

None of that material goes directly to whether the Registrar has some sort of role to play if the third party is a trustee in bankruptcy, but the whole tenor of the description by the Court of Appeal, and its approval of the monitoring system and the key role of the FTT as monitor, is completely inimical to the idea that anyone else should have a role to play in assessing the impact of the sort of factors which the trustee in bankruptcy now seeks to invoke when applying to the Registrar for “directions”. The trustee’s objections in relation to documents obtained from third parties can be described as ones akin to “confidentiality”, and the Court expected those points to be taken before the FTT. Onerousness is plainly a factor for the FTT if raised, and the trustee’s costs points come under that category.

Derrin therefore stands as an apparent authority for the proposition that the job of assessing what a third party notice should require a third party to do is one for the FTT when it considers the notice proposed by the Revenue. There seems no scope in that decision for any other body having a role to play, other than the court in judicial review proceedings. Such a conclusion is strengthened by the express reference to the FTT’s decision being “final” in paragraph 6(4) of the Schedule.

However, it is theoretically possible that another statute could, on its own terms, introduce some further sort of review. The case of the trustee is that section 303 does just that, and the Registrar seems to have agreed. He is “not required” to provide documents “in response to a Third Party Notice unless” certain conditions are fulfilled (order paragraph 5); and see similar wording in paragraphs 6, 7 and 8. Those paragraphs, supported by Mr Shepherd, clearly presuppose that the Registrar has a jurisdiction to decide the practical scope of a third party notice.

Bearing in mind the apparently clear purpose of Schedule 36 it would require clear wording in another statute if it were to displace part of the apparent regime with the discretion of another person, even if that person is an officer of the court like a trustee in bankruptcy. In my view there is nothing in the wording of, or purpose behind, section 303(2) which requires such a displacement. The section itself is intended to allow “General control of trustee by the court”, but that must be in relation to matters within the bankruptcy itself and cannot be taken to allow the court to modify the rights of others who have acquired those rights entirely independently of the bankruptcy. Thus if a trustee commits an act of trespass, whether in relation to land or goods, for which he is liable in damages, section 303(2) would not empower the trustee to apply for an order exonerating him from paying damages. As trustee he is subject to the general law, and section 303 does not empower to the court to disapply it. Its essential purpose is principally to allow those interested in the bankruptcy (including the trustee) to bring bankruptcy-related matters before the court so that the court can make appropriate orders to take the bankruptcy forward. That does not allow the modification of the legal rights of others such as HMRC. The trustee is an officer of the court, but that does not give the court a dispensing power. The bankruptcy court could, for example, authorise the trustee to take judicial review proceedings in relation to a third party notice, but it cannot do what even the judicial review court could not do, which is modify the terms of a notice as a matter of discretion, and it cannot itself quash it when judicial review is (as the Court of Appeal held in Derrin) the only route of challenge to such a notice.

Nor, for the sake of completeness, does section 363 of the 1986 Act (not mentioned before me, and as far as I know not referred to below either) help the trustee. That section provides:

The question of whether to comply with a validly approved notice is not a question “arising in any bankruptcy” for the purposes of the section. If the Finance Act 2008 imposes an obligation, it arises, for these purposes, outside the bankruptcy as part of the general law. I accept that the 2008 Act might create tensions as between the bankruptcy and the third party notice regime (for example, in relation to documents and information obtained from third parties under compulsion) but those are still not matters “arising in [the] bankruptcy” for the purposes of the section. They will have to be sorted out in the course of representations made to the FTT prior to its decision, or on a judicial review application. The trustee in bankruptcy does have the opportunity of getting his or her points over to the FTT for the purposes of the application before a decision is made. Judicial review is, I accept, a cumbersome method of challenge, but Parliament’s intentions in relation to third party notices is clear, as set out in Derrin.

Mr Shepherd’s position on the interaction between the FTT and the bankruptcy court effectively gives the game away on the jurisdiction point. He accepted, in terms, that the FTT had the power to make an order which went contrary to what the Registrar decided should happen. He did not suggest that ultimately the Registrar could exonerate the trustee in bankruptcy from compliance. That concession, which in my view is entirely correct, demonstrates that the FTT has exclusive jurisdiction over the content of, and enforcing compliance with, a third party notice.

I add that at the hearing below the Registrar was shown a number of authorities which determined, in varying situations, that the courts did, or did not (as the case may be) have jurisdiction in matters which the Revenue said were matters for the Revenue itself. None of these cases is of direct assistance on the jurisdiction point which arises in this case because they involve different aspects of the taxation system. I did not find them helpful on this central point, and will not take time and space in this judgment considering them. While they lay down some principles in relation to the areas to which they relate, they are no more than cases illustrative of jurisdictional clashes, and that does not help.

The Registrar’s decision did not quite itself determine in terms that a Registrar had jurisdiction to modify performance with a notice. It did, however, anticipate that a Registrar might actually make an order inconsistent with a notice – see paragraphs 42 and 48, set out above and paragraph 1 of her order. That more than hints at a parallel jurisdiction. In my view that is wrong. A Registrar faced with an application by a trustee for directions as to whether and how to comply with a notice would have to consider the question of jurisdiction. If the Revenue is right in its submission that there is no jurisdiction, then the Registrar should not make an order inconsistent with it. A Registrar cannot make an order that the trustee should not comply with an obligation imposed by another statute. The Insolvency Act provisions are, by and large, provisions which are within the supervisory control of the Registrar so far as applied to the trustee. The taxing statute provisions are not. A Registrar should not make an order which is inconsistent with the taxing acts. Nor can the Registrar properly make an order and leave it to a superior court to sort the matter out (paragraph 48). The Registrar himself, or herself, would have to deal with the jurisdiction point. For the reasons given in this judgment that point would have to be decided against jurisdiction. The only “guidance” the Registrar could then give would be to tell the trustee to do what the third party notice says.

That conclusion assumes that a third party notice has been issued by the Revenue and approved by the tribunal. Mr Shepherd, and the Registrar in her judgment, pointed out that that is not the current state of affairs, because the tribunal has not yet pronounced on the third party notice. Mr Shepherd’s submission was that the FTT decided to adjourn its application because it considered that it would, or might, be assisted by the views or “directions” of the Registrar, and could (in the light of whatever came out of the directions hearing) then make its own determination. The “source” of the Registrar’s order was the decision of the FTT, which was effectively inviting the trustee in bankruptcy to make the application. Underpinning this submission was the unstated proposition that the FTT could somehow ask for guidance from the Registrar in the manner and circumstances of this case. The Registrar herself considered that the circumstances were different from those in which a third party notice had been allowed by the FTT, and that that somehow made a difference (see paragraph 48).

I do not consider that that is correct either. The Registrar has power to give directions or guidance to the trustee. He or she does not have jurisdiction to give “advice” to the FTT as to how it should exercise its powers, or to provide some sort of bankruptcy court perspective on the sort of matters which the trustee might seek to raise in relation to the making of the notice. All those matters are matters which the FTT has to consider, and it will do so on the basis of representations made by the trustee (as a third party) and conveyed to the FTT pursuant to the statutory mechanism. The only thing that the Registrar could theoretically do at that point is to direct the trustee as to whether the trustee should seek to make representations on any particular documents if the trustee was in doubt as to whether to do so, but that is as far as directions could be taken. Once the representations are made it is then for the FTT to perform its function of deciding whether or not to approve the notice. To hold otherwise would undermine the basis on which Parliament has given powers to the Revenue and the FTT.

Accordingly I do not think that the application that was made in this case was an appropriate one; nor was the order appropriate save for the straightforward order that the trustee may comply with a notice (which says nothing useful).

Those conclusions are not affected by the fact that the FTT adjourned its deliberations to allow the application to be made. The FTT cannot extend the jurisdiction of the Registrar, and in any event its decision seemed to acknowledge that it entertained real doubts as to whether it could – “Whilst recognising there is some force in Mr Fellows’ submission to the effect that such matters should be of no concern to the Tribunal…”. In the light of my conclusions about jurisdiction it was probably wrong to grant the adjournment, since it could not serve a useful purpose, but one can perhaps understand the Tribunal’s caution in the circumstances.

Nor are those conclusions, reached as a matter of principle, affected by the other bankruptcy-related matters relied on by the trustee and the Registrar. They were as follows.

In paragraph 49 of her judgment the Registrar acknowledged that Schedule 36 did not exclude a trustee but she nonetheless said that he or she was in a separate category because he or she was an officer of the court and subject to the statutory regime of the 1986 Act, and retained a power to seek guidance. To that extent she was right – the trustee retains the power to seek guidance. But the crucial question is: Guidance as to what? Since the FTT will have decided what the trustee should or should not produce, the scope for guidance becomes rather limited, and his or her status as officer of the court does not enable the trustee to be exempted from compliance or justify the court (which, by definition can have no jurisdiction if the FTT has exclusive jurisdiction) from affording an exception. Accordingly, other than question 1, the other two questions cannot fall within the jurisdiction of the bankruptcy court.

Much was made in argument about the potential position of any trustee, and certainly the actual position of this trustee, as holding documents and information acquired from third parties, often under compulsion (pursuant to the statute) and sometimes under undertakings as to their use (which would not in terms extend to use by the taxing authorities). Mr Shepherd pointed out that a third party notice would potentially be a way of allowing HMRC to gain access to information and documents they would not be able to get themselves because they do not have the trustee’s powers. All that was said to justify a level of control being imposed by the Registrar.

Part of Mr Shepherd’s premise is probably false. In the case of individuals and bodies in this jurisdiction, it is probably not strictly true HMRC could not get the documents or information themselves. They would probably be able to get it via a series of third party notices served on the relevant people, so far as relevant to tax matters. However, that does not apply to documents obtained from abroad and in respect of which undertakings may have been given, and it is true that if HMRC have a free run at all that information then they are getting a free ride on the back of the trustee’s efforts.

Those are points which definitely need to be addressed. The fact that documents held by the recipient of a third party notice have emanated from another person, and particularly where they were obtained under compulsion, and even more particularly where undertakings have been given to a foreign court or other body, is something to which those deciding on further disclosure must be sensitive. It does not follow that the information should not be further disclosed, but the point needs addressing with proper consideration given to the interests of those who disclosed the information to the trustees in the first place. I deal with some procedural matters below. But the real question is who it is who has to address them. Like all matters of scope and compliance they fall within the jurisdiction of the FTT. It will have to take those matters into account as it does all other matters. The bankruptcy court does not have the power to take those decisions for the FTT, or to modify compliance with notices once served.

The possibility of those tensions in the case of a trustee in bankruptcy does not place the trustee in a special position, contrary to the thrust of some of the submissions of the trustee. The trustee is in no different position, as a matter of principle, to any other recipient of a third party notice who has information in his or her hands in respect of which duties of confidentiality (which are analogous) are owed. I would accept that in the case of a trustee in bankruptcy there may well be more such material than in the case of many other recipients (though any other insolvency practitioner holding office may well be in a similar position) but that is a difference of scope, not principle. As the Court of Appeal in Derrin acknowledged, matters relating to confidentiality will have to be placed before the FTT (see paragraph 89, cited above), and taken into account. That does not make a trustee in bankruptcy different; it just makes the considerations potentially more sensitive and wider ranging.

Nor do questions of the cost of compliance mean the trustee in bankruptcy should be in some special place. For many recipients this may not be a significant problem. There is no specific statutory duty on HMRC to pay the costs of compliance, and in many cases a recipient may be expected to perform his or her statutory duty at his or her expense. Especially where a business is involved, that may be part of the cost of business. On the other hand, unreimbursed expense would be an aspect of “onerousness”, which is particularly provided for by Schedule 36 paragraph 30. A taxpayer, or third party who has been directed to provide information without approval by the FTT (which can only be because the taxpayer has consented) can appeal on the grounds of onerousness, and the FTT would have to consider it. It would be within its jurisdiction to require HMRC to pay the reasonable costs of compliance. That is a common requirement in all sorts of other third party disclosure requirements, such as the Norwich Pharmacal jurisdiction. A third party who receives an approved notice has no such right of appeal (because it is excluded by paragraph 30), but that must be because the third party will have had an opportunity to make representations about cost at the representations stage, and the FTT will have had to take that into account. If it did not do so the resulting decision would be judicially reviewable. So costs are dealt with in that way.

On the facts of the present case the costs have become a particularly sensitive matter. The estate is heavily insolvent, and I was told that the funds which have become available will be exhausted, or have been exhausted, by the trustee’s normal costs. If the third party notice exercise has to be carried out it will have to be done at the trustee’s own expense (or more precisely, at his firm’s expense). The wide-ranging nature of the request (which I acknowledge) and the very large number of documents which will have to be gone through to identify those falling within the request mean that the expense will be considerable. It was urged on me that that would be unfair on the trustee. Mr Shepherd went so far as to say that if IPs thought they would or could come under such onerous obligations with no funds to discharge them, so that they would have to fund them themselves, it would decrease the willingness of trustees to take appointments, and the number of people prepared to take them.

Through Miss Anderson, HMRC took a fairly hard line about this. While she did not dispute the power to order that costs be paid as a condition of getting the information under the notice, she said that it was not unfair in cases such as this for the trustee to have to sustain that cost. It was, she submitted, in the public interest, because HMRC was acting for the public purse and in the public interest. It seems that there would be resistance on the part of the Revenue to the idea that reasonable costs of compliance should be paid in this case or similar cases.

This matter does not strictly call for a decision by me in this case, but in case it is helpful, and because this case may be used as guidance in others in the future, I will express some views on it. For my part I can see no reason in principle why the Revenue should not fund the costs of compliance in an appropriate case even if the resultant information would be deployed for the public good. There is no particular reason why the public good should not be funded by the public as opposed to the particular insolvency firm which happened to have the trusteeship at the relevant time. The same would, in my view, apply if there were creditors’ funds in the bankruptcy. It is not apparent to me why they should be significantly reduced, or potentially nullified, by the Revenue’s need for information. Were it to be otherwise, as well as the unfairness of expecting a few people to bear the costs of funding a Revenue information gathering exercise in relation to information in the hands of the trustee, there would be the potentially additional factor that creditors may well have funded the cost of the trustee acquiring some of the information from third parties in the first place. I would not suggest that the Revenue should bear that latter cost; but it would seem to be very unfair that the Revenue should have that double benefit for nothing.

Accordingly it seems to me that when the matter goes before the FTT for a final decision in the present case that tribunal is going to have think very carefully about the funding of compliance with the notice and pay particular attention to the representations of the trustee in that respect. The Revenue have sought to play down the costs implications in this and many other cases by saying that costs can be kept down by the trustee just producing a large volume of largely unsifted documents and letting the Revenue trawl through them to find what it wants. As well as not entirely dealing with the substantial costs point in terms of quantum (there may still be a substantial cost) I am for my part not satisfied that that would be right as a matter of principle. The Revenue have a particular responsibility in framing the terms of the document/information request. If, as in this case, it frames its request in a manner which requires value judgments (as opposed to requiring a category of document such as “bank statements”) then a recipient of the notice may well be entitled, if not obliged, to perform a sifting exercise to identify the candidate documents and not just to hand them over to the Revenue for perusal in a sealed room. If that gives rise to extra cost, then that just demonstrates why it may well be fair for the Revenue to bear them.

I stress that in saying all that I am not actually deciding the point in this, or in any, particular case, though I confess that the point seems clear enough to me. But dealing with the point in that way raises another point about procedure. A third party notice asking a bank for (say) bank statements for a given person is one thing. A wide-ranging request of someone like a trustee in bankruptcy, who may hold a great deal of documentation in respect of which more people than the trustee in bankruptcy and bankrupt may have an interest, is another. It may well be very difficult for a fair presentation of the trustee in bankruptcy’s case to take place by the mechanism anticipated in Schedule 36 in a typical without notice case because of the unusual position of the trustee (reflected in the matters which the Registrar sought to protect in her order). It seems to me that in the more complex (though not necessarily in all) cases the FTT would be much assisted by an inter partes hearing with direct submissions from the trustee. The Schedule only provides that the application may be without notice; it does not have to be. Alternatively, I do not see why the FTT should not give liberty to the trustee to apply. Although not expressly provided for, such a provision is familiar in a judicial context (which in my view an FTT application is) and would be well within the over-riding objective which the Tribunal’s rules provide for. I appreciate that such techniques might be said to depart from the description of the scheme as a non-adversarial one in Derrin (paragraph 30), but in truth they do not do so. They enable the case of trustees (who are particularly likely to be holding information acquired from third parties) to be more safely dealt with, and reduce the chances of a challenge having to be made by judicial review, which is on any footing a cumbersome way of mounting a challenge (albeit the only one which Parliament has left open). They enable the FTT to be properly informed of matters which might not otherwise be grasped.

All these matters are for the FTT when it resumes its deliberations on the points raised in this case. I am, of course, not directing any particular course in this particular case.

It follows from the above that the appeal from the Registrar should be allowed and the directions given by the Registrar, other than the answer to question 1 (if it is worth preserving) fall to be set aside.