Braswell and Others v Minister of Finance

• Jurisdiction: Bermuda
• Judgment Date: 16 July 2003
• Date: 16 July 2003
• Docket Number: Civil Jurisdiction 2000 No. 59,In the Court of Appeal for Bermuda Civil Appeal 2001: No. 59
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Mello, Acting J

Civil Jurisdiction 2000 No. 59

BETWEEN:

Almon Glenn Braswell

Gero Vita International Inc.

G.B. Data Systems Inc

Applicants

and

Minister of Finance

Respondent

Mr. J Elkinson for the Applicants

Mr. D. Kessaram and Mr. P. Perinchief for the Respondent

The following cases were referred to in the judgment:

Allingham v Minister of AgricultureUNK [1948] 1 All ER 780

Bermuda Trust Company v Minister of FinanceBDLR [1996] Bda LR 45

Chapman v EarlUNK [1968] 2 All ER 1214

In re J L Young ManufacturingELR [1900] 2 Ch 753

R v Secretary of State for the Home Department ex parte JeyeanthanWLR [2000] 1 WLR 354

USA—Bermuda Tax Convention Act 1986

Application for order of certiorari and order of prohibition — Validity of notices — Procedure to be followed — Role of the Court

JUDGMENT of Mello, Acting J.

Introduction

The Originating Summons taken out by Almon Glenn Braswell (‘Braswell’), Gero Vita International Inc. (‘Gero Vita’) and G.B. Data Systems Inc. (‘GBDS’) (together referred to herein as ‘the Applicants’) seeks an order of certiorari to set aside the Notices dated 6^th January, 2000 (‘the Notices’) served by the Minister of Finance (‘the Minister’) upon Hemisphere Management Limited (‘Hemisphere’), the Bank of N.T. Butterfield Limited (‘the Bank of Butterfield’) and the Bank of Bermuda Limited (‘the Bank of Bermuda’) and a declaration that the Notices do not comply with the provisions of the USA-Bermuda Tax Convention Act 1986 (‘the Act’). The grounds upon which relief is sought are set out in the Statement of Facts attached to the Originating Summons.

The Originating Summons was subsequently amended during the course of an appeal against the Judgment of Mr. Justice Meerabux (on a preliminary issue) to include a claim for further relief, namely an order of prohibition restraining the Minister from transmitting any material already received by him under the Notices to any person, particularly the Internal Revenue Service of the United States of America (‘the IRS’):

There were four grounds set out in the Statement of Facts attached to the Originating Summons on which the Applicants sought to rely to set aside the Notices. One of those grounds was that the accounts and other documents, which are the subject of the Request and of the Notices issued by the Minister pursuant to the Request, had 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. That issue was tried before Mr. Justice Meerabux who found in favour of the Applicants. The Minister successfully appealed to the Court of Appeal against this decision (Civil Appeal No. 9 of 2001; date of Judgment 28^th November 2002). Leave to appeal to the Privy Council was sought from and refused by the Court of Appeal. The Applicants petitioned the Privy Council for leave to appeal and were turned down. Accordingly this Court is no longer concerned with this ground and proceeded to hear the three remaining grounds.

The remaining three grounds of complaint concern the validity of the Notices and are to be found in Paragraphs 5 to 15 of the Statement of Facts and may be summarized as follows:

• 1. That there is no correlation between the scope of the investigation which, as stated in the Notices, relates to Braswell only and the demands made in paragraph 2 of the Notices—paragraphs 6 and 14 of the Statement of Facts;

• 2. The Notices fail to comply with section 4 of the Act in that they fail to particularize the pertinent facts relating to any investigation as against the two corporate taxpayers, Gero Vita and GBDS—paragraph 15 of the Statement of Facts; and

• 3. The Request was not signed by the designated official as required by section 4(2) of the Act and in consequence, the requirements of section 4 of the Act not having been fulfilled, the Minister does not have the power to require production of the information and should not have issued the Notices—paragraphs 16 and 17 of the Statement of Facts.

In addition, the affidavit of Michael Cossel sworn on the 15^th February, 2000 (the only evidence the Applicants have produced in support of the relief claimed in the Originating Summons) makes certain other allegations of deficiencies in the Notices which overlap those contained in the Statement of Facts.

The factual background

The Court of Appeal in their judgment dated 28^th November 2002 on the preliminary issue set out the factual background in this case (see: pages 4, 5 & 6 of their judgment). I adopt the Court of Appeal's factual background for the purposes of this judgment, as follows.

The Request directed to the Minister by the IRS was dated the 22^nd September 1999 and signed by Frederick Dulas an IRS officer purporting to be designated to do so on behalf of John T. Lyons, the Assistant Commissioner (International). It stated that the years under criminal investigation were—

… for Almon Glen Braswell … the calendar years 1994 through 1998; for Gero Vita International, Inc., the fiscal years beginning October 1, 1994 through September 30, 1998; for G.B. Data Systems Inc., the fiscal years beginning February 1, 1994 through January 30, 1998.’

The request was made under the first sentence of Article 5 of the Convention, which is set out in the First Schedule to the Act (‘the Convention’) and the Tax Information Exchange Agreement (‘TIEA’). The pertinent information relating to the request (which explains the alleged roles of Braswell and his companies) was as follows:

‘Almon Glenn Braswell (BRASWELL) is the owner of a health supplements corporation, Gero Vita International Inc. (GVI), and affiliated companies, including G.B. Data Systems Inc., (GBDS). GVI is a mail order retailer of health products and supplements. GBDS provides administrative services to GVI and other corporations owned or controlled by BRASWELL. BRASWELL is the President, Secretary, Treasurer and sole owner and director of GVI and the President and sole owner of GBDS. BRASWELL, GVI, and GBDS were using Deleon Global Trading Ltd. (DELEON), a Bermuda company allegedly owned and controlled by BRASWELL, to falsely mark up the costs of products that GVI purchased from outside, unrelated vendors in order for GVI to report inflated costs of goods sold on its U.S. Corporate Federal Income Tax Returns. BRASWELL directed millions of dollars of GVI funds to bank accounts in Bermuda and elsewhere in the names of various entities controlled by BRASWELL, some of which are identified in this request’.

‘GVI, in reality, never acquired products from DELEON. GVI had already acquired the products from third party vendors and the transactions created by Hemisphere Management Limited between DELEON and GVI were fictitious. DELEON merely re-invoiced the products at cost ranging from two to ten times GVI's actual cost. DELEON had no employees, no manufacturing facility, no distribution facilities in Bermuda, or elsewhere, and was a paper company with the apparent sole purpose of moving funds offshore. Hemisphere Management Limited performed the management and administrative function in Bermuda for BRASWELL and his entities, and at the direction of BRASWELL, prepared false purchase orders, wrote DELEON checks to pay GVI's suppliers and facilitated the money transfers from GVI to DELEON and possibly other entities and bank accounts in Bermuda and elsewhere. GVI's payments to BRASWELL enabled BRASWELL to send millions of dollars outside the United States for his benefit. A client trust account was also set up for him at Frantz, Sanders and Gratton, Attorneys at Law, to transfer funds between DELEON, BRASWELL, and other entities. Former senior officials of GVI informed the United States investigators that in addition to DELEON, BRASWELL controlled a number of other entities, including Sonoran Investment Ltd., and Ryan Investments Ltd., that may have accounts outside the United States. The United States investigators were advised that Sonoran Investments Ltd., is managed by Hemisphere Management Ltd.’

The persons in Bermuda identified in the Request as having the information sought by it in their possession, custody or control were the Bank of Butterfield, the Bank of Bermuda and Hemisphere. The residence of Braswell, GVI (incorporated in Florida) and GBDS (incorporated in California) is stated to be in the U.S.A., that of Deleon Global Trading Ltd. (‘Deleon’) to be Bermuda and that of Sonoran Investments Ltd. (‘Sonoran’) and Ryan Investments Ltd. (‘Ryan’) is believed to be outside both the U.S.A. and Bermuda.

The information sought by the Request was—

• 1. In the case of both the Bank of Butterfield and the Bank of Bermuda: the records of all accounts from the 1^st January 1994 to ‘the present’ held in the name of or for the benefit of Braswell, Deleon, Sonoran, Ryan and other entities managed by Hemisphere for the benefit of Braswell or GBDS.

• 2. In the case of Hemisphere:

  • a. All records of Hemisphere pertaining to Deleon, GBDS, GVI, Sonoran, Ryan and any other entities managed by Hemisphere for the benefit of the Applicants for the period from the 1^st January 1994 to ‘the present’.

  • b. All records of Deleon (located at Hemisphere's address in Bermuda) pertaining to Braswell, GBDS, GVI, Sonoran, Ryan and any other entities managed by Deleon for the benefit of the Applicants for the same period as in (i) above.

  • c. The corporate minutes, articles of incorporation, listings of corporate officers and directors, and schedule of shareholders for Hemisphere and Deleon.

The Minister complied with the Request by issuing the Notices respectively addressed to each of the banks and to Hemisphere. Each of the Notices required the recipient to deliver to the Minister, within 28 days of service, the information specified in paragraph 2 of each of the Notices. The information required...