JUDGMENT
R (on the application of Ingenious Media Holdings
plc and another) (Appellants) v Commissioners for
Her Majesty’s Revenue and Customs (Respondent)
before
Lady Hale, Deputy President
Lord Mance
Lord Kerr
Lord Reed
Lord Toulson
JUDGMENT GIVEN ON
19 October 2016
Heard on 4 July 2016
Appellants Respondent
Hugh Tomlinson QC James Eadie QC
Jessica Simor QC David Pievsky
(Instructed by Olswang
LLP
)
(Instructed by HMRC
Solicitors Office
)
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LORD TOULSON: (with whom Lady Hale, Lord Mance, Lord Kerr and
Lord Reed agree)
1. This appeal concerns the scope of the duty of confidentiality owed by Her
Majesty’s Revenue and Customs (“HMRC”) in respect of the affairs of tax payers.
The duty is now in statutory form.
Commissioners for Revenue and Customs Act 2005
2. Section 18 of the Act is headed “Confidentiality”. It provides (with emphasis
added by me to highlight the important words):
“(1) Revenue and Customs officials may not disclose
information which is held by the Revenue and Customs in
connection with a function of the Revenue and Customs.
(2) But subsection (1) does not apply to a disclosure –
(a) which –
(i) is made for the purposes of a function of
the Revenue and Customs, and
(ii) does not contravene any restriction
imposed by the Commissioners,
(b) which is made in accordance with section 20 or
21,
(c) which is made for the purposes of civil
proceedings (whether or not within the United
Kingdom) relating to a matter in respect of which the
Revenue and Customs have functions,
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(d) which is made for the purposes of a criminal
investigation or criminal proceedings (whether or not
within the United Kingdom) relating to a matter in
respect of which the Revenue and Customs have
functions,
(e) which is made in pursuance of an order of a court,
(f) which is made to Her Majesty’s Inspectors of
Constabulary, the Scottish inspectors or the Northern
Ireland inspectors for the purpose of an inspection by
virtue of section 27,
(g) which is made to the Independent Police
Complaints Commission, or a person acting on its
behalf, for the purpose of the exercise of a function by
virtue of section 28, …
(h) which is made with the consent of each person to
whom the information relates, …
(3) Subsection (1) is subject to any other enactment
permitting disclosure.
(4) In this section –
(a) a reference to Revenue and Customs officials is
a reference to any person who is or was –
(i) a Commissioner,
(ii) an officer of Revenue and Customs,
(iii) a person acting on behalf of the
Commissioners or an officer of Revenue and
Customs, or
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(iv) a member of a committee established by
the Commissioners,
(b) a reference to the Revenue and Customs has the
same meaning as in section 17,
(c) a reference to a function of the Revenue and
Customs is a reference to a function of –
(i) the Commissioners, or
(ii) an officer of Revenue and Customs,
…”
3. Sections 20 and 21, which are referred to in section 18(2)(b), cover various
situations where disclosure is authorised on public interest grounds, such as
disclosure to another public body for the purposes of the prevention, detection or
prosecution of crime.
4. Section 5 is headed “Commissioners’ initial functions”. It provides:
“(1) The Commissioners shall be responsible for –
(a) the collection and management of revenue for
which the Commissioners of Inland Revenue were
responsible before the commencement of this section,
[and]
(b) the collection and management of revenue for
which the Commissioners of Customs and Excise were
responsible before the commencement of this section,
…”
5. Section 9 is headed “Ancillary powers”. It provides:
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“(1) The Commissioners may do anything which they think
–
(a) necessary or expedient in connection with the
exercise of their functions, or
(b) incidental or conducive to the exercise of their
functions.”
6. Section 51 (headed “Interpretation”) defines “function” as meaning “any
power or duty (including a power or duty that is ancillary to another power or duty)”.
7. Section 19 makes it a criminal offence for a person to contravene section
18(1) by disclosing revenue and customs information relating to a person whose
identity is specified in or can be deduced from the disclosure, subject to a statutory
defence if the defendant shows that he reasonably believed that the disclosure was
lawful or that the information had already been lawfully made available to the
public.
Facts
8. Mr Patrick McKenna is a former senior partner of a global firm of chartered
accountants. He is the founder and chief executive officer of Ingenious Media
Holdings plc. The company and its subsidiaries (collectively “Ingenious Media”)
are an investment and advisory group specialising in the media and entertainment
industries. Among other things they have promoted film investment schemes
involving film production partnerships. The schemes were devised by Mr McKenna
and utilised certain tax relief which was then available. The marketing of the
schemes stopped when the tax relief ceased to be available.
9. On 14 June 2012 the Permanent Secretary for Tax in HMRC, Mr David
Hartnett, gave an interview to two financial journalists from The Times. They had
requested the meeting to discuss tax avoidance. The meeting was recorded and was
agreed to be “off the record”.
10. On 21 June 2012 The Times published two articles on the subject of film
schemes and tax avoidance. They informed readers that:
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“Patrick McKenna … and … [X] … are the two main providers
of film investments schemes in the UK.
…
To the Revenue the two men represent a threat. HM Revenue
and Customs believes that film schemes have enabled investors
to avoid at least £5 billion in tax. Much of that sum, the
Revenue says, is attached to schemes created by [X] or Mr
McKenna.
…
Mr McKenna, 56, founder of Ingenious Media, is also involved
in a long-running Revenue inquiry into three of his
partnerships.
…
‘He’s never left my radar,’ a senior Revenue official said of Mr
McKenna. ‘He’s an urbane man, …, he’s a clever guy, he’s
made a fortune, he’s a banker, but actually he’s a big risk for
us so we would like to recover lots of the tax relief he’s
generated for himself and other people. Are we winning? I
would say, beginning to. I think we’ll clean up on film schemes
over the next few years.’”
11. The “senior Revenue official” was Mr Hartnett. The words attributed to him
are a direct quotation from the transcript of the interview, and Mr Hartnett was the
source of the reference to £5 billion (although in the interview Mr Hartnett gave the
figure “utterly off the record”). Mr Hartnett said other things which were not for
quotation (and were not quoted), including a description of the film schemes as
“scams for scumbags”. At the time of the interview, HMRC had not reached a formal
decision whether to challenge their validity.
12. There is no dispute that Mr Hartnett imparted information to The Times
regarding the tax activities of Mr McKenna and Ingenious Media, and HMRC’s
attitude towards them, derived from information held by HMRC about them.
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Mr Hartnett’s reasons for disclosure
13. The reasons given by Mr Hartnett for what he said to the journalists about Mr
McKenna and Ingenious were that it was generally in HMRC’s interests to try to
establish good relations with the financial press; that they provided a way of
emphasising to the general public HMRC’s views on elaborate tax avoidance
schemes; and that Mr Hartnett thought that the journalists might have information
of significant value to HMRC, which they might reveal as the dialogue continued,
such as details of tax avoidance arrangements which the journalists had uncovered
but were unknown to HMRC. Mr Hartnett emphasised that the interview was agreed
to be off the record, and that he did not anticipate that his comments about Mr
McKenna and Ingenious Media would be published.
The claim
14. The claim by Ingenious Media and Mr McKenna was brought by way of an
application for judicial review, although in substance it was a straightforward claim
for breach of a duty of confidentiality. The form in which the claim was brought
appears to have influenced its perception by the courts below. At first instance, Sales
J held that it was not appropriate for the court to approach Mr Hartnett’s decision to
say what he said as if the court were the primary decision-maker: [2013] EWHC
3258 (Admin), para 40. The court, he held, could only intervene if satisfied that Mr
Hartnett could not rationally take the view that speaking to the journalists as he did
would assist HMRC in the exercise of its tax collection functions. Sales J
emphasised, at para 50, that the rationality standard is a flexible one, which varies
in the width of discretion allowed to a decision-maker according to the strength of
the public interest and the strength of the interests of any individual affected by the
decision to be taken. He laid stress on the fact that the disclosures made were limited
and that the interview was agreed to be off the record. The disclosures made were,
in his judgment, not irrational, were made for a legitimate purpose and were
proportionate. In short, he approached the matter as a review on public law
principles of an administrative act, and he dismissed the claim.
15. Sales J’s judgment was upheld by the Court of Appeal in a judgment given
by Sir Robin Jacob, with which Moore-Bick and Tomlinson LJJ agreed: [2015] 1
WLR 3183. Sir Robin rejected the claimants’ arguments that the disclosures made
were not “in connection with a function” of HMRC, properly construed, and that the
judge had adopted the wrong standard of review. As to the first argument, he held
that a wide meaning should be given to section 18(2)(a)(i) (“… subsection (1) does
not apply to a disclosure which is made for the purposes of a function of the Revenue
and Customs”). As to the second argument, Sir Robin echoed Sales J’s holding that
it was not for the court to “review all the facts de novo as though it were the primary
decision maker” (para 46).
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Analysis
16. From the judgments below and the arguments in this court, three main issues
emerge: what is the proper construction of the section 18(2)(a)(i) read with the other
provisions of the Act; what is the proper approach of the court in judging the conduct
of Mr Hartnett; and what is the significance of his understanding that his interview
with the journalists was to be off the record?
The interpretation of section 18
17. Unfortunately the courts below were not referred (or were only scarcely
referred) to the common law of confidentiality. The duty of confidentiality owed by
HMRC to individual taxpayers is not something which sprang fresh from the mind
of the legislative drafter. It is a well established principle of the law of confidentiality
that where information of a personal or confidential nature is obtained or received
in the exercise of a legal power or in furtherance of a public duty, the recipient will
in general owe a duty to the person from whom it was received or to whom it relates
not to use it for other purposes. The principle is sometimes referred to as the Marcel
principle, after Marcel v Commissioner of Police of the Metropolis [1992] Ch 225.
In relation to taxpayers, HMRC’s entitlement to receive and hold confidential
information about a person or a company’s financial affairs is for the purpose of
enabling it to assess and collect (or pay) what is properly due from (or to) the tax
payer. In R v Inland Revenue Comrs, Ex p National Federation of Self-Employed
and Small Businesses Ltd [1982] AC 617, 633, Lord Wilberforce said that “the
whole system … involves that … matters relating to income tax are between the
commissioners and the taxpayer concerned”, and that the “total confidentiality of
assessments and of negotiations between individuals and the revenue is a vital
element in the working of the system”. See also Conway v Rimmer [1968] AC 910,
946 (Lord Reid); and R v Inland Revenue Comrs, Ex p Preston [1985] AC 835, 864F
(Lord Templeman).
18. The Marcel principle may be overridden by explicit statutory provisions. In
In re Arrows Ltd (No 4) [1995] 2 AC 75, 102, Lord Browne-Wilkinson said:
“In my view, where information has been obtained under
statutory powers the duty of confidence owed on the Marcel
principle cannot operate so as to prevent the person obtaining
the information from disclosing it to those persons to whom the
statutory provisions either require or authorise him to make
disclosure.”
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19. Subsections (2)(b) et seq of section 18 contain specific provisions permitting
the disclosure of taxpayer information for various purposes other than HMRC’s
primary function of revenue collection and management. What then is the proper
interpretation of the far broader words of subsection (2)(a)(i) “disclosure … made
for the purposes of a function” of HMRC? On HMRC’s interpretation, it would be
hard to conceive a wider expression. By taking sections 5, 9 and 51(2) in
combination, it is said to include anything which in the view of HMRC is necessary
or expedient or incidental or conducive to or in connection with the exercise of the
functions of the collection and management of revenue. If that is the right
interpretation of subsection (2)(a)(i), it means that a number of the subsequently
listed specific exceptions are otiose, including (c) and (d), which deal with
disclosure for the purposes of civil or criminal proceedings relating to matters
connected with customs and excise. Secondly, and more fundamentally, it means
that the protection which would otherwise have been provided to the taxpayer by
HMRC’s duty of confidentiality will have been very significantly eroded by words
of the utmost vagueness. So to construe the words would run counter to the principle
of construction known as the principle of legality, after Lord Hoffmann’s use of the
term in R v Secretary of State for the Home Office, Ex p Simms [2000] 2 AC 115,
131. He explained the principle as follows:
“Fundamental rights cannot be overridden by general or
ambiguous words. This is because there is too great a risk that
the full implications of their unqualified meaning may have
passed unnoticed in the democratic process. In the absence of
express language or necessary implication to the contrary, the
courts therefore presume that even the most general words were
intended to be subject to the basic rights of the individual.”
20. Lord Hoffmann said that this presumption will apply “even” to the most
general words, but I would say further that the more general the words, the harder it
is likely to be to rebut the presumption.
21. A similar principle can be seen in the courts’ approach to the interpretation
of powers delegated under a so-called Henry VIII clause. In R (Public Law Project)
v Lord Chancellor [2016] 3 WLR 387, para 26, Lord Neuberger of Abbotsbury PSC,
with the agreement of the other members of the court, cited with approval the
following passage in Craies on Legislation, 10th ed (2012), edited by Daniel
Greenberg, at para 1.3.11:
“as with all delegated powers the only rule for construction is
to test each proposed exercise by reference to whether or not it
is within the class of action that Parliament must have
contemplated when delegating. Although Henry VIII powers
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are often cast in very wide terms, the more general the words
used by Parliament to delegate a power, the more likely it is
that an exercise within the literal meaning of the words will
nevertheless be outside the legislature’s contemplation.”
(Emphasis added)
22. To take the present case, the general principle of HMRC’s duty of
confidentiality regarding individual tax payers’ affairs is long established. (In 2011
Mr Hartnett articulated it when refusing to give any information to the House of
Commons Public Accounts Committee about tax payers with whom HMRC had
reached settlements.) In passing the 2005 Act, Parliament cannot be supposed to
have envisaged that by section 18(2)(a)(i) it was authorising HMRC officials to
discuss its views of individual taxpayers in off the record discussions, whenever
officials thought that this would be expedient for some collateral purpose connected
with its functions, such as developing HMRC’s relations with the press. If
Parliament really intended to delegate to officials such a wide discretion, limited
only by a rationality test, in place of the ordinary principles of confidentiality
applicable to public bodies in respect of confidential or private information obtained
under statutory powers or for a statutory purpose, it would have significantly
emasculated the primary duty of confidentiality recognised in section 18(1).
23. For those reasons section 18(2)(a)(i) requires to be interpreted more
narrowly. I take section 18(1) to be intended to reflect the ordinary principle of
taxpayer confidentiality referred to in para 17, to which section 18(2)(a)(i) creates
an exception by permitting disclosure to the extent reasonably necessary for HMRC
to fulfil its primary function.
24. It was argued by HMRC that despite being headed “Confidentiality”, section
18 is not confined to information which is in any real sense confidential, but is far
wider in its scope. Therefore, it was argued, the exception contained in subsection
(2)(a)(i) must be given a similarly expansive interpretation in order to avoid
absurdity. In support of this argument HMRC relied on the wording of section 19,
which makes it a criminal offence for an official to disclose revenue or customs
information relating to an identifiable person, but provides a defence if the person
charged proves that he reasonably believed that “the information had already and
lawfully been made available to the public”. The creation of this defence showed, in
HMRC’s submission, that section 18 was not essentially or only about protecting
confidentiality, because it self-evidently extended to the disclosure of information
which was already in the public domain.
25. This argument found favour with the Court of Appeal, but I do not consider
that it bears the weight which HMRC seeks to put on it. The argument is too subtle,
and it is open to other objections. It is well settled that information may be available
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to the public and yet not sufficiently widely known for all confidentiality in it to be
destroyed. As Eady J put it in McKennitt v Ash [2006] EMLR 10, para 81, where
information has been obtained in circumstances giving rise to a duty of
confidentiality, “the protection of the law will not be withdrawn unless and until it
is clear that a stage has been reached where there is no longer anything left to be
protected”. Whether that stage has been reached may be a hard question on which
reasonable people may disagree. It is a fallacy to suppose that because a defence to
a criminal charge under section 19 is available to a person who reasonably believed
the information to be available to the public, it must follow that Parliament intended
section 18 to prohibit the disclosure of information of the most ordinary kind about
which there could be no possible confidentiality. Moreover, even if section 18(1)
has the wide scope suggested by HMRC (which it is not necessary to decide in this
case), it does not follow that Parliament must be taken to have intended by
subsection (2)(a)(i) to confer on officials a wide ranging discretion to disclose
confidential information about the affairs of individual taxpayers.
The court’s approach to review of HMRC’s conduct
26. Ordinarily it is a matter for the court to decide the question whether there has
been a breach of a duty of confidentiality, applying established principles of law to
its own judgment of the facts. Among other authorities, the point is well illustrated
by the decision of the Court of Appeal in W v Egdell [1990] 1 Ch 359. The plaintiff
was detained in a secure mental hospital, under a hospital order coupled with a
restriction order, after pleading guilty to manslaughter on the grounds of diminished
responsibility. The defendant, a consultant psychiatrist, was engaged on his behalf
to prepare a report in connection with an intended application to a mental health
review tribunal for his discharge. The defendant’s report presented a disturbing
picture and it led to the withdrawal of the application. The defendant was
nevertheless so concerned that matters in his report ought to be known to those
responsible for the plaintiff’s care and discharge that he sent a copy of it to the
medical director at the hospital, with a view to its onward transmission to the Home
Office. The plaintiff sued the defendant for breach of his contractual duty of
confidence. Dismissing the action, the trial judge held that the doctor’s duty of
confidentiality did not bar him from disclosing the report to the hospital if the doctor
judged the report to be relevant to his care, nor from disclosing it to the Home
Secretary if the doctor judged the report to be relevant to the exercise of the Home
Secretary’s discretionary powers. The Court of Appeal upheld the judge’s decision
but not his approach. Bingham LJ said, at p 422, that the answer to the question
whether the doctor’s disclosure was justified “must turn not on what the doctor
thinks but on what the court rules”. He added that it did not follow that the doctor’s
conclusion was irrelevant; in making its ruling the court would give such weight to
the doctor’s considered judgment as seemed in all the circumstances to be
appropriate.
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27. The same principle applies whether or not the duty of confidentiality is
contractual. It applies equally where the person or body owing a duty of
confidentiality holds a public office or is a public body or is performing a public
function, subject to any contrary statutory provision.
28. It is a cardinal error to suppose that the public law remedies and principles
associated with judicial review of the exercise of administrative power, developed
by the common law from the ancient prerogative writs, occupy the entire field
whenever the party whose conduct is under challenge holds a public position. It is
important to emphasise that public bodies are not immune from the ordinary
application of the common law, including in this case the law of confidentiality. The
common law is multi-faceted and remains the bedrock of the English legal system.
29. Having rejected the view that section 18(2)(a)(i) should be interpreted as
making the disclosure of information about individual taxpayers a matter for the
discretion of HMRC officials, subject only to a rationality control, I disagree with
the view of the lower courts that it was not for them to approach the disclosures
made by Mr Hartnett as if they were primary decision makers. In accordance with
ordinary principles, the question of breach of confidentiality is one for the court’s
judgment.
“Off the record”
30. “Off the record” is an idiom and like many idioms can bear different shades
of meaning. It may, for example, be intended to mean “strictly confidential” or it
may be intended to mean “not to be directly quoted or attributed”. The judge found
that Mr Hartnett understood it to mean that the interview was to be a “background
briefing”, intended to influence the journalists’ views and what they wrote about
matters affecting HMRC but not to be published. There has been no appeal against
that finding, but nothing in my view turns on what precisely Mr Hartnett intended.
31. As a matter of principle, a disclosure of confidential information may
sometimes be permissible on a restricted basis. (In the case of W v Egdell, previously
cited, the doctor was lawfully justified in passing on his report to those who had
responsibility for the plaintiff’s care, whereas it would not have been lawful to pass
it to someone who had no such responsibility.) But an impermissible disclosure of
confidential information is no less impermissible just because the information is
passed on in confidence; every schoolchild knows that this is how secrets get passed
on. The references by the courts below to the nature of the interview leave me in
some doubt whether they had a clear regard for the distinction.
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Conclusion
32. The information supplied by Mr Hartnett to the journalists about Mr
McKenna and Ingenious Media was information of a confidential nature, in respect
of which HMRC owed a duty of confidentiality to them under section 18(1). It was
limited in scope, but it was not insignificant, as is evident from the use made of it in
the articles which followed the interview.
33. At the time of the interview the tax consequences of the film schemes
discussed in it were under consideration by HMRC. The schemes themselves were
things of the past. It is not suggested that the disclosures made by Mr Hartnett were
reasonably necessary for the purpose of HMRC’s investigations into the schemes.
34. As to the justifications put forward by HMRC, a general desire to foster good
relations with the media or to publicise HMRC’s views about elaborate tax
avoidance schemes cannot possibly justify a senior or any other official of HMRC
discussing the affairs of individual tax payers with journalists. The further
suggestion that the conversation might have led to the journalists telling Mr Hartnett
about other tax avoidance schemes, of which HMRC knew nothing, appears to have
been no more than speculation, and is far too tenuous to justify giving confidential
information to them.
35. The fact that Mr Hartnett did not anticipate his comments being reported is
in itself no justification for making them. The whole idea of HMRC officials
supplying confidential information about individuals to the media on a nonattributable basis is, or should be, a matter of serious concern. I would not seek to
lay down a rule that it can never be justified, because “never say never” is a generally
sound maxim. It is possible, for example, to imagine a case where HMRC officials
might be engaged in an anti-smuggling operation which might be in danger of being
wrecked by journalistic investigations and where for operational reasons HMRC
might judge it necessary to take the press into its confidence, but such cases should
be exceptional.
36. I would reject the argument that the disclosure was justified under section
18(2)(a), allow the appeal and invite the parties’ written submissions as to the
appropriate form of order.
