HMRC has won a case at judicial review concerning the use of confidential information freely disclosed by an informant, who got in contact to provide details of a tax avoidance scheme called Goldfinger, with the judge deciding that there had been no inducement by HMRC to create a breach of confidence
The case was brought on behalf of Dr Simon Emblin who was one of around 630 claimants who had invested in two tax schemes known as Goldfinger and Volatility. [The Queen on the application of Dr Simon Emblin and others and Commissioners for HM Revenue and Customs  EWHC 626 (Admin)].
Dr Emblin was also a director of Redbox Tax Associates which had promoted the schemes. Redbox had engaged Paul Hunt, an independent financial advisor (IFA), to advise prospective investors in the schemes.
Hunt had access to documents held by Redbox in connection with its business. Hunt was also an investor in Volatility and had been a member of a ‘fighting fund’ set up to defend the arrangements if they were challenged by HMRC, but had been thrown out of this.
He went on to disclose various documents and information belonging to Redbox to HMRC on three separate occasions without the authority of Redbox, having initially got in touch with HMRC to say he had details of the operation of the Goldfinger scheme which had been cited in a public accounts committee evidence session and felt it was ‘exactly the sort of thing that Mr Harra (then director-general for business tax) was interested in.
When Redbox found out about the disclosures, they complained to HMRC, on the basis that the information disclosed was confidential to Redbox and its clients and HMRC had no right to receive it or retain it.
The claimants applied for judicial review, claiming that HMRC had induced Hunt to make the disclosures in breach of the duty of confidence he owed to them, in exchange for Hunt’s own tax affairs being resolved in a manner which was advantageous to him. This, it was said, amounted to unlawful conduct by HMRC.
The remedy sought was a declaration that HMRC had acted unlawfully, together with an order requiring HMRC to return the documents disclosed and a prohibition on HMRC using any of the information disclosed or work product derived from the disclosures.
The claimants also submitted that HMRC had two tax advice letters which were subject to legal professional privilege (LPP).
The High Court considered each of Hunt’s disclosures, which included showing HMRC officers’ information on his computer at home, and found that none of the disclosures was induced by HMRC. Hunt was a willing informant who was not pressurised, incentivised or encouraged to provide the disclosures.
Hunt’s initial contact with HMRC was unprompted and while he may have hoped and asked for something to be done about his own tax enquiry and had been put in touch with a senior HMRC officer that did not amount to persuasion or enticement.
In relation to what the High Court described as ‘loose threads on the evidence’, it noted that Hunt may have made the disclosures for no personal gain to exact retribution on Reid, a director of Redbox who he had fallen out with on the grounds of comments made to his partner. As a result Hunt had been excluded from the fighting fund set up to defend Volatility and found himself unrepresented and facing an HMRC enquiry into his own tax affairs.
The High Court rejected HMRC’s submission that the material was not confidential because it was iniquitous or would have become known in due course. It also rejected the claimants’ argument that HMRC should have issued an information notice.
The High Court also found that the two tax letters were not subject to LPP. The first letter was tax advice given by accountants and therefore not covered by LPP. The second letter was from a firm of tax advisors and while the authors may have modelled their advice on advice previously given by Counsel and referred to this in the letter this did not mean that their own advice or correspondence was covered by LPP, and in this instance, it was not.
In conclusion, the High Court found that none of Hunt’s disclosures was induced by HMRC. He was a willing informant who was not pressurised, incentivised or encouraged to provide the disclosures. In any event, FA 2004, s. 316B applied and HMRC were permitted to receive the disclosures, and to make use of them in any future investigations.
Meg Wilson, Croner-i tax writer said: ‘The claimants submitted that HMRC had acted unlawfully in receiving confidential information about tax schemes that they had participated in. They claimed that the information had been given in return for the informant being offered preferential treatment in respect of his own tax affairs.
‘The High Court found this not to be the case. Instead it found that the informant may have made the disclosures as an act of retribution after falling out with an old friend. HMRC were therefore entitled to keep and use the disclosed information (subject to a further potential challenge).’
Report by Pat Sweet