Rhian Lewis and Michael Ness v the Minister of Finance

• Jurisdiction: Bermuda
• Judgment Date: 25 November 2004
• Date: 25 November 2004
• Docket Number: Civil Appeal 2004 No. 10
• Court: Court of Appeal (Bermuda)

In The Court of Appeal for Bermuda

Nazareth, JA; Evans, JA; Ward, JA

Civil Appeal 2004 No. 10

BETWEEN:

Rhian Lewis & Michael Ness

Appellants

and

Minister of Finance

Respondent

Mr G Elkinson for the Appellants

Mr H Kessaram for the Respondent

The following cases were referred to in the judgment:

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

Minister of Finance v BraswellBDLR [2003] Bda LR 24

Raymond v HoneyELR [1983] 1 AC 1

R v Secretary of State, ex parte LeechELR [1994] QB 198

Edwards v United Kingdom ECHR 22 July 2003

R v Secretary of State for the Home Representative ex parte the Kingdom of Belgium (QB iv. 20 Ct. co/236/2000, 15 February 2000)

Bermuda International Securities Ltd v KPMGUNK [2001] EWCA Civ 269

Evans and Lord v the Inspectors of the Serious Fraud Office [2002] EWHC 2304

USA—Bermuda Tax Convention Act 1986

USA—Bermuda Tax Convention (Section 10) Regulations 1986

Judicial review — Request for examination under USA — Bermuda Tax Convention Act — Conduct of examination — Who may question the witnesses

JUDGMENT of Evans, JA

1. Article 5 of the U.S.A.-Bermuda Tax Convention 1986 (‘The Convention’) engaged the two countries to provide mutual assistance in tax matters. It reads—

‘Art. 5

Mutual Assistance in Tax Matters

The competent authorities of [both countries] shall provide assistance as appropriate in carrying out the laws of the respective [countries] relating to the prevention of tax fraud and the evasion of taxes. In addition, the competent authorities shall, through consultations, develop appropriate conditions, methods and techniques for providing, and shall thereafter provide, assistance as appropriate in carrying out the fiscal laws of the respective [countries] other than those relating to tax fraud and the evasion of taxes’.

2. The two sentences of Article 5 are concerned with different subject-matters. The first sentence refers to ‘laws …. relating to the prevention of tax fraud and the evasion of taxes’. The second sentence refers to ‘fiscal laws …. other than those relating to tax fraud and the evasion of taxes’.

3. Art. 6 of the Convention is headed ‘Confidentiality’. It provides that ‘Any matters subject to assistance under Article 5 should be treated as confidential in the same manner as such matters or items would be under the domestic laws of the [Country] requesting the assistance ….’, with further provisions which will be considered below.

4. Pursuant to the Convention, Bermuda enacted the U.S.A.-Bermuda Tax Convention Act, 1986 (‘The Act’) in order ‘to make provision authorizing the enforcement of certain obligations in Bermuda under the Convention’. Section 5 of the Act requires the Minister of Finance, upon receiving a formal request from a senior official of the U.S. Government seeking ‘information identified in the request’ (section 4 (3) (a)), to serve notice on the person identified in the request, directing him ‘to deliver to the Minister the information’ in question.

5. By Notices dated 16 May 2003 issued under section 5, the two Appellants, Rhian Lewis and Michael Ness, were required to appear before an Examiner, Roderick Attride-Stirling, designated by the Minister under the Act, so that they could ‘provide and give’ depositions and produce documents relating to the accounts and financial systems of Trafalgar Tours International Ltd., (‘the Company’) and of ‘other companies controlled [by] or associated with Tollman family’, including ‘money transfers to and on behalf of the Tollmans’. Both Appellants are employed by the Company, Michael Ness as its Chief Executive Officer and Rhian Lewis as a Group Accountant.

6. The Tollman Family members named in the Notice are Stanley S. Tollman, Beatrice N. Tollman and Brett Tollman. They are said to be United States tax payers whose tax affairs are being investigated by the United States Government ‘for possible violations of federal law, which include tax evasion and submitting false and fraudulent tax returns for the calendar years 1994–1998 inclusive’. The request therefore is made under the first sentence of Article 5 of the Convention.

7. The first issue in this Appeal arises in this way. On 27 May 2003 solicitors acting for the Appellants wrote to the Minister asking for a copy of the request referred to in the Notices, and they repeated this in a letter dated 4 June 2003. The Ministry replied on 24 June 2003 as follows—

‘Based on confidentiality considerations pertaining to correspondence between [the competent authorities], the Minister regrets that he is unable to provide you with a copy of the requests’.

8. The Appellants' solicitor wrote again on 25 June 2003 and spoke by telephone to the Attorney General's Chambers on Friday 27 June. The matter was urgent because the Examination of Rhian Lewis was arranged for the following Tuesday, 1 July 2003. The Examination of Michael Ness was adjourned because he was overseas. Late in the afternoon on 27 June, Mr. Elkinson for the solicitors sent an email to the Solicitor General stating—

‘Further to our discussion, I would be prepared to receive a copy of the Requests redacted if necessary in respect of any detail or to background concerning the investigation. I hope this assists’.

This led to the Solicitor General sending a fax letter to Mr. Elkinson on the Monday afternoon, stating that the Minister ‘is bound by the rules of international comity to keep all information received from the requesting competent authority confidential except as provided for in the Convention’. However, he continued that as this was the first occasion when persons were to be deposed before an examiner, pursuant to the Act, he enclosed summaries of the Requests ‘to be made available to the individuals being deposed with the understanding that this information may not be shared with third parties’.

9. On the same afternoon, 30 June, the Appellants' Solicitors sought leave to issue an Originating Summons seeking (1) An order of Mandamus requiring the Minister of Finance to provide copies of the requests referred to in the Examination Order, (2) a Declaration to the same effect, and (3) that the examination meanwhile be stayed. The application for leave, however, could not be heard by the Court until 10 July 2003.

10. Whilst the application was pending, Rhian Lewis and the Appellants' solicitor appeared before the Examiner at the time appointed for the Examination on 1 July 2003. Also present were Mr. Kessaram of Bermuda, and Mr. Peter Nieman, an Assistant United States Attorney of New York City, both representing the Internal Revenue Services (IRS), a department of the government of the United States. The Examiner began by reading a prepared draft setting out the procedure which he intended to follow. He stated—

‘…. I believe that I should adopt a procedure which Bermuda law will recognize, and that will be familiar also to foreign courts. I refer to the procedure used under Order 39 of the rules of the Supreme Court 1985, and in letters requesting applications’.

He then asked for the consent ‘of all the parties’ that he should proceed along this line. Mr. Elkinson submitted that the Act requires that the examination shall be ‘conducted by’ the examiner, and that it does not permit the examiner to delegate the function of asking questions to any other person, and specifically not to the representatives of the United States tax authorities who were present at the examination. Mr. Elkinson indicated that this issue would be included in the pending application to the Court.

11. It was then agreed that the examination would proceed, with questions being asked by Mr. Nieman on behalf of the I.R.S., but that the depositions, that is to say, the transcript of the proceedings, would be kept by the Minister and not released by him, pending the Court's ruling and subject to any order made by the Court.

12. The second issue, therefore arises out of the Appellants' application—

‘for a Determination as to the powers and function of the examiner, in particular whether the examiner is permitted to delegate his function under [the regulations made under the Act]’.

13. Leave to make both applications was granted by the Chief Justice on 10 July 2003. They give rise to what we shall call the ‘Request’ and the ‘Examination’ issues.

14. The applications were heard by Charles-Etta Simmons PJ. She refused both, for reasons given in her judgment dated 12 July 2004. The Court has been greatly assisted by her clear and careful judgment which will be referred to further below.

15. The Court has also been assisted by the judgments in the Bermuda Trust Company Ltd. case (also called the Eastern Flatbush caseENR) (Ground J., Nos. 31 and 81 of 1995) and in Minister of Finance v Braswell (Civil Appeal No. 9 of 2001, and Mello A.J. [2003] Bda. L.R. 24) where the scheme of the Act and of the Convention has been discussed.

The Scheme of the Act

16. It should be noted that the Convention itself does not create any machinery to implement the two countries' undertakings to provide ‘mutual assistance’ in respect of the matters identified in Article 5. That was left to the legislators of both countries, and as Ground J. pointed out in Bermuda Trust the Bermudian Act was passed on 29 August 1986 before the Convention was ratified on 2 December 1988, so that the contents of the Act were known to both parties before ratification took place.

17. The Act provides in section 4 for the form of the request, and in section 5 for the Order which is to be made pursuant to a Request which conforms with section 4. Section 4 is headed ‘Procedure in respect of a request’, but the request is made by the competent authority in one country (for the purposes of the Act, this means a request made from the U.S.A.) and addressed to the other (here, the Government of Bermuda). The United States Government is not bound by the Act as regards the...