Public Interest Immunity and the Tax Tribunal
The Commissioners for HM Revenue and Customs -v- Smart Price Midlands Limited and Anor  UKUT 465 (TCC)
As well as collecting taxes HMRC is also responsible for conducting criminal investigations in respect of a broad spectrum of criminal offences relating to fraud on the tax system. These investigations often involve organised criminal gangs and as a result HMRC are likely to deploy a wide range of intelligence and evidence gathering techniques. The product of such techniques is often sensitive and may even, in the criminal courts, attract Public Interest Immunity (PII), which, in certain circumstances, may mean it does not have to be disclosed. How is such material dealt with in the Tribunal jurisdiction?
In HMRC v Smart Price Midlands Ltd and anor  UKUT 465 (TCC) the Upper Tribunal (Tax and Chancery Chamber) upheld case management decisions by the First-tier Tribunal which required HMRC to disclose all the documents it had considered before refusing applications for registration under the Alcohol Wholesalers Registration Scheme. The rationale for the decision was that the Tribunal would be unable to deal fairly and justly with the appeals unless it was aware of all material that had been before the HMRC officer who had made the decision.
A criminal investigation will not always lead to a criminal prosecution and where it does not HMRC may choose one or more of its statutory powers to take action against a taxpayer. In these circumstances it is possible that the material gathered as part of the criminal investigation will be used or considered as part of decision making process in respect of the civil remedy, which if imposed the taxpayer can appeal to the First-tier Tribunal (Tax Chamber) (FtT). If that material includes “sensitive’ material that in the criminal court might attract a PII ruling, how is it to be dealt with if the FtT has ordered full disclosure?
Traditionally Government departments would have the Minister sign a certificate declaring that the relevant material attracted PII and it would not be disclosed. In order for such a certificate to be granted firstly, there must be a duty to disclose the material i.e. it passes the relevance threshold, secondly, the document must attract PII i.e. its disclosure would cause real harm to the public interest and thirdly, an assessment of the strength of the public interest has to be made, which requires a careful consideration of the competing issues in the case. A decision is then taken either to disclose or grant a certificate. However, since the Scott Report in 1996 Government departments appear to have become much more reluctant to follow this procedure.
In the civil courts an alternative is now found in CPR r31.19, which allows for a party to apply without notice for an order permitting it to withhold disclosure of a document on the ground that disclosure would damage the public interest, but there is no equivalent provision in The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the Rules”).
Rule 5 of the Rules provides the FtT with a broad power to “regulate its own procedure” and therefore in theory it would be able to engage a CPR r31.19 type process which allowed it to consider any “sensitive” material and make a ruling. In a CPR r31.19 type procedure HMRC would apply, without notice, for an ex parte hearing and would place the sensitive material before the Tribunal and invite it to make an order permitting it to withhold disclosure on the grounds that its disclosure would harm the public interest.
There would not appear to be any difficulty in such an application if the material did not contain anything that was helpful or of use to the taxpayer as it would be irrelevant to the issues to be decided. Difficulty would arise if the Tribunal came to the conclusion that the material was of use to the taxpayer in furthering its appeal, but that disclosure would harm the public interest. In such circumstances it might have to consider adopting a closed material procedure of the type envisaged in the Justice and Security Act 2013, Part 2 of which makes provision for closed material applications in civil proceedings in respect of sensitive material the disclosure of which would be damaging to the interests of national security. However, this Act does not apply to proceedings in the FtT, as it is not included in s.6(11) as one of the relevant jurisdictions. Once again the Tribunal might consider using its broad powers to adopt a CPR r82 type closed material procedure. Such a procedure would require the appointment of a Special Advocate by the Attorney General.
When a Special Advocate is appointed, and before he has seen the sensitive material, he first takes instructions from the party from whom disclosure has been withheld. He then has an opportunity to review the sensitive material, but not to take any further instructions due to the risk of revealing the sensitive material, and then to make representations to the court or tribunal on behalf of the party from whom disclosure has been withheld. This process is cumbersome and far from perfect and is usually adopted only in cases where the material is of utmost sensitivity.
Given the UT’s ruling in Smart Price it will be interesting to see how HMRC deals with material that it clearly did not wish to include on its list of documents. Now that it has been ordered to do so it may need to persuade the FtT to adopt a procedure for dealing with it, particularly if the material is sensitive. Taxpayers will no doubt be keen to attack the probity of any such process that HMRC suggests and/or that the Tribunal adopts. Battles in the criminal courts in respect of disclosure, especially in tax cases and particularly in respect of PII, are common place and the adoption of any such new procedure is likely to see similar battles being fought in the FtT, the UT and potentially the Court of Appeal.
Jonathan Kinnear QC is Head of the Tax Team at 2 Hare Court. He has vast experience in tax work across all the jurisdictions – High Court, all Tax Tribunals and Crown Court. He is also appointed by the Attorney General as a Special Advocate.