Coxon and Passport Financial Inc. and Others v The Minister of Finance and Grosvenor Trust Company Ltd and Others

• Jurisdiction: Bermuda
• Judgment Date: 04 July 2007
• Date: 04 July 2007
• Docket Number: Civil Appeal 2007 No. 5
• Court: Court of Appeal (Bermuda)

In The Court of Appeal for Bermuda

Zacca, P; Nazareth, JA; Ward, JA

Civil Appeal 2007 No. 5

BETWEEN:

Terry Coxon

First Appellant

and

Passport Finance Inc.

Second Appellant

and

Passport Financial (Cayman) Ltd.

Third Appellant

and

The Minister of Finance

First Respondent

and

Grosvenor Trust Company Limited

Second Respondent

and

Bermuda Commercial Bank Ltd.

Third Respondent

The following cases were referred to in the judgment:

Lewis and Ness v Minister of FinanceBDLR [2004] Bda LR 66

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

Minister of Finance v Braswell and othersBDLR [2002] Bda LR 51

US tax investigation — Whether ulterior motive to gain shopping list of tax evaders — Unworkability of request

JUDGMENT of Nazareth, JA

1. On 25^th June 2007, we gave our decision dismissing this Appeal, with costs to the first respondent, (‘the Minister’). We now give our reasons.

2. By Article 5 of the U.S.A.—Bermuda Tax Convention 1966 (‘The Convention’) the two countries undertook to provide mutual assistance in tax matters. The Convention was given legal effect in Bermuda by the enactment of the U.S.A.—Bermuda Tax Convention Act 1986 (‘the Act’), in which the text of the Convention is set out as the First Schedule.

3. The US Government by a request (‘the Request’) sought information under the second sentence of Article 5 of the Convention from the Minister, which information was said to be in Bermuda, and that it might be or have been in the possession, custody or control of the second and third respondents. The information required was said to relate to the appellants. The Minister accordingly issued Notices pursuant to sections 4 and 5 of the Act to the second and third respondents for production of the information to him. The text of the Notice to the second respondent incorporating the pertinent facts is attached as an Annex to these Reasons as part of them. The Notice to the third respondent is in virtually identical terms save that the documents required are specified as follows:

‘From The Bermuda Commercial Bank Limited, all documents including but not limited to opening account contracts and signature cards, monthly bank statements, cancelled checks (front and back), deposit items, withdrawal items wire transfers and wire transfer instructions and correspondence (including electronic) for account number 068 01 026040 for the period beginning 1^st January 1996 through 31^st December 2004’.

4. The appellants by originating summons sought orders of certiorari to quash the Minister's Notices. The proceedings came before Wade-Miller Acting Chief Justice. In a detailed judgment comprehensively addressing the submissions she rejected those made on behalf of the appellants and for the reasons she gave, accepted those of Mr. Kessaram, counsel for the first respondent. Accordingly she refused the appellant's application. The appellants then appealed to this Court. Their grounds of appeal are somewhat tersely set out in their Notice of Appeal, but amplified in their written submissions and their supplemental written submissions. It is convenient to approach them in the way adopted in Mr. Kessaram's written submissions.

The Appellant's Case

5. Approached in that way the appeal can be said to be based upon 3 broad propositions—

(i) THE ARTICLE 5 PRECONDITION

That the second sentence of Article 5 is not an enabling section giving the U.S. Inland Revenue (‘U.S. IRS’) jurisdiction to issue the Requests. Before the US Government can make a request, a precondition of consultations between the US Government and the Bermuda Government must have taken place leading to agreement on appropriate conditions, methods, and techniques for providing assistance. There is no evidence that this process has been carried out. Any notice issued by the Minister pursuant to a request under the second sentence of Article 5 is therefore void as having been made without jurisdiction

(ii) VITIATING EFFECT OF INCORRECT FACTS

That a notice under the USA-Bermuda Tax Convention Act 1986

(‘The Act’) can be set aside in judicial review proceedings if it can be shown that the facts relied upon by the Minister in deciding to issue a notice are incorrect;

(iii) EFFECT OF ULTERIOR MOTIVE AND UNWORKABLE REQUEST

That a notice can be set aside in judicial review proceedings if it can be shown (a) that the request goes beyond the scope of the investigation by the US authorities and/or is made with an ulterior motive; or (b) is unworkable. It is submitted that in such circumstances, the Minister's decision would be so unreasonable as to amount to an error of law.

Minister's Response

6. The Minister contends that the Notices are not liable to be set aside for the following reasons:

• i. The Minister's power to issue a notice stems from the Act. So long as the Minister has complied with the requirements of the Act, the issuance of a notice will be valid. Under the Act as read with the Convention the Minister clearly had the power to issue the Notices pursuant to the Request under the second sentence of Article 5. In any event the burden is on the Appellants to show the lack of statutory authority to issue the Notices in this case. They have failed to do so.

• ii. The Notices are not liable to be set aside on the basis of allegations that certain facts stated in the Requests are untrue. The Minister is entitled to rely on the certification by the appropriate US authority as to the facts required to be stated in a request and on their relevance to the investigation. The Minister does not have a separate statutory obligation to investigate the facts stated in a request to determine either their accuracy or their relevance.

• iii. The documents sought by the Notices are...