Braswell and Others v Minister of Finance

• Jurisdiction: Bermuda
• Judgment Date: 28 November 2002
• Date: 28 November 2002
• Docket Number: Civil Appeal No. 9 of 2001
• Court: Court of Appeal (Bermuda)

Bermuda, Court of Appeal.

(Sir James Astwood P; Sir Derek Cons and Clough JJA)

Minister of Finance

and

Braswell and Others1

Relationship of international law and municipal law — Treaties — Effect in municipal law — Statute designed to give effect to treaty — Principles of interpretation — Whether court entitled to refer to subsequent international agreement not given effect in municipal law — Justiciability — Comity — Whether authorities of one State required to inquire into propriety of conduct of authorities of another State in territory of other State — Mutual assistance in tax matters — Whether authorities of requesting State owing duty of full and frank disclosure

Treaties — Interpretation — Vienna Convention on the Law of Treaties, 1969, Article 30(3)(a) — Subsequent agreement between the parties — Relevance as aid to interpretation of earlier agreement

Human rights — Due process — Legal professional privilege — Fruit of the poisonous tree — Limits on application of doctrine — The law of Bermuda

Summary: The facts:— In 1986 the United States of America and Bermuda, an overseas territory of the United Kingdom, concluded the USA-Bermuda Tax Convention (‘the Convention’), which was given effect, together with an accompanying exchange of Diplomatic Notes, in the law of Bermuda by the USA-Bermuda Tax Convention Act 1986 (‘the Act’). Part of the Convention dealt with mutual assistance in tax matters. That part was implemented by a Tax Information Exchange Agreement (‘the TIEA’) between Bermuda and the United States. The TIEA was not incorporated into the law of Bermuda. The United States Internal Revenue Service (‘the IRS’) conducted an investigation into the affairs of Mr Braswell, a United States citizen, and two companies controlled by him. As part of that investigation, the IRS requested the Minister of Finance of Bermuda, pursuant to Article 5 of the Convention,2 to obtain certain records held by three financial institutions in Bermuda. The Minister issued notices under the Act requiring the production of the documents in question. The respondents, Mr Braswell and his companies, challenged the validity of the notices on the ground that the IRS had been led to request

the documents by disclosures allegedly made to it in the United States by two former employees of the respondents said to have been acting in breach of legal professional privilege. It was agreed that the Court would determine as a preliminary issue whether the challenge would succeed if the facts were as alleged.3 Meerabux J found in favour of the respondents and the Minister appealed.

Held (unanimously): — The appeal was allowed.

(1) Legal professional privilege was a fundamental human right protected by the Constitution of Bermuda. Section 3(2) of the Act4 provided that in performing his functions under the Act, the Minister was not restricted by any rule of law relating to confidentiality except as expressly provided in the Convention and the Notes. Paragraph 5(i) of the Notes5 provided that Bermuda's obligation to provide assistance in tax matters would not be limited by any confidentiality restrictions of Bermudan law other than those relating to solicitor-client privilege. The intention was that these provisions were not to have extraterritorial effect but merely to prevent the Minister from ordering the disclosure of information which was itself protected, within Bermuda, by legal professional privilege. The protection of legal professional privilege in the United States was to be a matter for the courts of the United States (paras. 44–50).

(2) If there had been any ambiguity in the provisions of the Act, it would have been resolved by reference to the TIEA. Since the Act had been enacted in order to implement the Convention and the Notes, it was appropriate to have regard to them in order to interpret the Act. As they were international law instruments, their interpretation was a matter for the principles of international law as laid down in the Vienna Convention on the Law of Treaties, 1969, not the normal rules of statutory construction. Article 31(3) (a) of the Vienna Convention directed the Court to take into account ‘any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions’. In the case of the Convention, the TIEA was such a subsequent agreement and, though not part of the law of Bermuda, had to be considered in order to interpret the Convention and Notes which had been given effect in the law of Bermuda (paras. 51–4).

(3) Sections 5(2) and (3) of the Act had to be interpreted as implementing the intentions of the two Governments manifested in the international agreements. The United States could not be required to discharge an obligation which it had not undertaken by treaty (paras. 55–9).

(4) It would be contrary to considerations of comity to interpret the Act in such a way as to require the authorities in Bermuda to investigate the propriety of the acts of United States authorities in the United States (paras. 60–70).

(5) There was no duty on the United States to make full and frank disclosure to the Minister when requesting assistance under the Convention. The situation was not analogous to that of a litigant requesting relief from a court.

On the contrary, the request was made by one sovereign government to another on the plane of international law (paras. 71–4).

(6) The respondents had no right under the Constitution of Bermuda to prevent disclosure of the information sought. The doctrine of the ‘fruit of the poisonous tree’ was not part of the law of Bermuda and had no application there (paras. 75–9).

The following is the text of the judgment of the Court of Appeal, delivered by Clough JA:

INTRODUCTION

1. This is an appeal by the Minister of Finance against the decision of Meerabux J on 18 May 2001 on a preliminary issue in proceedings brought against the Minister by the respondents Almon Glen Braswell (Braswell), Gero Vita International Inc. (GVI) and GB Data Systems Inc. (GBDS) by way of judicial review for (1) an order of certiorari quashing three notices issued by the Minister under the USA-Bermuda Tax Convention Act 1986 (the Act) and (2) a declaration that the notices did not comply with the provisions of the Act. The Notices were served on Hemisphere Management Limited (Hemisphere), the Bank of N. T. Butterfield Limited (Butterfield Bank) and the Bank of Bermuda Limited (the Bank of Bermuda) under section 5 of the Act pursuant to a request in that behalf to the Minister from the Government of the United States of America (the US Government) for the information specified in the notices.

2. The notices required the recipients to deliver to the Minister information relating to Braswell, GVI, GBDS and associated companies alleged in the request to be apparently owned and controlled by Braswell. The request, made to the Minister under Article 5 of the 1986 USA-Bermuda Convention (the Convention) and under the 1988 Tax Information Exchange Agreement (the TIEA) which implements the Mutual Assistance in Tax Matters provisions of the Convention, was expressed to request information and documents in Bermuda regarding the respondents in connection with a criminal investigation of their income tax affairs by the Internal Revenue Service (IRS) and Department of Justice of the US Government.

3. In the judicial review proceedings the respondents seek to challenge the notices on four grounds. The preliminary issue relates to only one of those grounds, namely that the accounts and other documents which are the subject of the request, and of the notices issued by the Minister pursuant to that request, have been requested by the IRS on the basis of information that was illegally obtained in the USA from two former employees of GBDS in breach of confidence and of legal professional privilege. No effective issue arose below concerning the alleged breach of confidence and no such issue arises on appeal. The Minister has made no concessions regarding that alleged breach but contends in the judicial review proceedings, and in this appeal, that even if such a breach can be established it does not affect the validity of the three notices.

4. In order to obtain the decision of the court in favour of that contention and to avoid the burden of a trial to decide whether or not, on the evidence adduced, the alleged breach of privilege did occur, the Minister obtained an order for the determination of the preliminary issue on the basis of assumed facts, including the assumed fact that the IRS investigation into the respondents' tax affairs and the request were based on information illegally obtained by the IRS in breach of the legal professional privilege of GBDS and/or Braswell.

5. On appeal it was accepted by leading counsel for the Minister that the assumed facts also included the assumed fact that the IRS knew at all material times that the information upon which the request was based was obtained in breach of legal professional privilege. However it was agreed that it was not to be assumed that, at the time he issued the notices, the Minister was aware that the request was based on information obtained in breach of that privilege. The terms of the preliminary issue (set out in the judgment of Storr AJ but not in any perfected order) were as follows:

6. Meerabux J decided this issue in the affirmative. The Minister's appeal against this decision raises the following important issues:

• (1) Questions of interpretation concerning the provisions of the Act, the Convention and the TIEA relating generally to the powers and duties of the Minister concerning his compliance or otherwise with a request from the US Government for assistance in the form of information in Bermuda under the Convention and the TIEA. In particular the issue arises as to the extent to which the Minister is required, when considering such a request in

• relation to a person who is not resident...