England and Wales High Court (Administrative Court) Decisions

QUEEN v. A SPECIAL COMMISSIONER EX PARTE MORGAN GRENFELL and CO LTD [2000] EWHC Admin 415 (8th November, 2000)

Case no: CO/4481/2000
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT
ROYAL COURTS OF JUSTICE
STRAND, LONDON, WC2A 2LL
Wednesday 8 November 2000

MICHAEL BELOFF QC and MR GILES GOODFELLOW (instructed by Messers Slaughter and May) for the applicants
MR TIMOTHY BRENNAN and MISS INGRID SIMLER (instructed by the Solicitor to the Inland Revenue) for the Respondents

1. These proceedings arise in the context of a tax-related scheme called Sale With Tax Enhanced Leasing Arbitrage [STELA] devised and operated by Morgan Grenfell & Co Ltd [MG], the well-known merchant bank. The scheme was commended to clients by MG as enabling them to secure extremely low cost term funding through a tax arbitrage based on property.
2. It will be necessary to describe STELA in somewhat more detail at a later stage of this judgment. Its essence, however, was that (to quote MG's documentation promoting the scheme) the client (in the example at which these proceedings are directed, Tesco plc)
grants a long leasehold interest in property that it already owns to [MG] and then leases it back under a sub-lease in a highly tax efficient manner........The lump sum obtained from the grant of the property interest is amortised through rental payments made by Tesco under the sub-lease. Tesco receives the sale proceeds tax free (or sheltered from tax) and obtains a tax deduction for the rental payments which repay both the principal and the interest.
3. That is the tax advantage obtained by Tesco. The substantial premium paid by MG for the granting of the leasehold interest, seen by Tesco as the proceeds of the sale of the lease, would not be expected to attract tax as a capital receipt in the hands of Tesco, because it would be subject to some form of relief; most usually, a set-off against capital losses. For the scheme to be attractive to MG, however, it also had to obtain protection from tax charges that would otherwise accrue in respect of the transactions comprising the scheme. That was achieved, or sought to be achieved, by treating the premium paid by MG not as a capital item, which was the status that it held once it was in the hands of Tesco, but as a trading payment or expense. It would therefore be treated as a charge reducing MG's trading profit, rather than as capital expenditure.
4. MG emphasise that they have throughout been open with the Inspector of Taxes: there is no suggestion here of tax evasion, and, as MG contended, no question of tax avoidance either. However, on the scheme being discussed with him the Inspector expressed concern about the element crucial to MG's position, the treatment of the premium in MG's hands. He questioned whether the assumption that justified that treatment, that the transactions of which the Tesco arrangement was part fell within MG's normal trading as a merchant bank, was in fact correct. An alternative analysis, in the Inspector's view, was that the leases had been acquired as capital items, and should be taxed as would be any other leasing transaction: with a consequent and significant adverse effect on MG's tax position.
5. In order to investigate the transaction further, the Inspector sought to make use of his statutory powers of investigation contained in the Taxes Management Act 1970 [the 1970 Act]. We therefore next set out the essential provisions of the 1970 Act; though it will be necessary to look at much more of that Act as the parties' arguments are reviewed.
The 1970 Act and the issues
6. The central provisions of the 1970 Act with which we are concerned are section 20(1) and section 20(7). Section 20(1) provides that
An inspector may by notice in writing require a person
(a) to deliver to him such documents as are in the persons possession or power and as (in the inspector's reasonable opinion) contain, or may contain, information relevant to
(i) any tax liability to which the person is or may be subject, or
(ii) the amount of any such liability
Section 20(7) provides that notices under section 20(1) are not to be given by an inspector unless he is authorised by the Board of Inland Revenue; and
(a) a notice is not to be given by him except with the consent of a General or Special Commissioner; and
(b) the Commissioner is to give his consent only on being satisfied that in all the circumstances the inspector is justified in proceeding under this section.
7. In the present case, the Inspector sought, amongst other documents, the instructions to and advice received from counsel in relation to the Tesco transaction: documents that MG contended were subject to the protection of legal professional privilege [LPP]. However, when the Inspector applied for consent under section 20(7) to the Special Commissioner, His Honour Stephen Oliver QC, Mr Oliver consented to the issuing by the Inspector of the notice, including the calling for the production of the LPP documents. Further, although he was prepared to receive, and did receive, substantial written submissions from MG as to whether he should give his consent, he held that he had no jurisdiction under section 20(7) or otherwise to grant MG the oral inter partes hearing that it sought.
8. MG objects, as a matter of principle, to disclosure of its LPP material. It also complains of Mr Oliver's view of his jurisdiction; and, in more particular relation to the circumstances of the present case, contends that Mr Oliver should not in any event have granted consent to the issuance of the notice that the Inspector sought. Various relief is sought in pursuit of those contentions, but the case before us proceeded on the basis of a number of issues or questions, which can be stated as follows:
I. Does section 20(1) of the 1970 Act authorise an Inspector to issue a notice requiring disclosure by a taxpayer of LPP material?
II. Does a Commissioner hearing an application by an Inspector under section 20(7) of the 1970 Act have jurisdiction to permit the intended recipient of the Inspector's notice to attend the hearing and make representations?
III. In the present case, could the Inspector have held the reasonable opinion that the LPP material contained or might contain information relevant to MG's tax liability, as section 20(1) of the 1970 Act requires?
IV. To the extent that it is a separate issue from III, did the Commissioner err in law in consenting to the issue of the notice in relation to the LPP material?
9. Of these questions, that of by far the most general importance, and which occupied by far the greatest time in argument, is question I. We will therefore address that first, dealing separately with each of the steps in the argument.
Legal professional privilege: the general rule
10. The books are replete with strong statements stressing the importance of the protection of LPP: not merely litigation privilege, which relates to documents produced, not necessarily by a lawyer, for use in or the promotion of litigation; but also legal advice privilege, extending to all communications between client and legal adviser for the purpose of obtaining advice, whether in contemplation of litigation or otherwise. The distinction between the two species of LPP is expounded by Lord Denning MR in Buttes v Hammer (No 3) [1981] QB 223 at pp 243-244, and Bingham LJ in Ventouris v Mountain [1991] 1 WLR at p 618. In our case we are concerned with legal advice privilege. In the words of Lord Taylor of Gosforth in R v Derby Magistrates Court ex p B [1996] AC 487 at p 507D:
The client must be sure that what he tells his lawyer in confidence will never be revealed without his consent. Legal professional privilege is thus much more than an ordinary rule of evidence, limited in its application to the facts of a particular case. It is a fundamental condition on which the administration of justice as a whole rests.
The strength of this principle is underlined by the singular circumstances in which it was applied in the Derby Magistrates case. It has more recently been further illuminated by the very full and careful judgment of Toulson J in General Mediterranean Holdings SA v Patel [1999] 3 All ER 673. The general principle was common ground between the parties before us.
The principle of legality
11. The rule of LPP is not only important in itself, but important also because it is, or at least was accepted before us as being, one of the fundamental, virtually constitutional, rules that are protected by what has recently come to be referred to as the principle of legality. That principle places limitations on the power of Parliament to legislate to abrogate or undermine those fundamental rules. True to the doctrine of Parliamentary sovereignty the principle remains a rule of construction, and not itself a fundamental constitutional rule, but it is a rule of construction of striking force. The position was expressed by Lord Hoffman in R v Secretary of State for the Home Department ex p Simms [1999] 3 WLR 328 at p341F
Parliamentary sovereignty means that Parliament can, if it chooses, legislate contrary to fundamental principles of human rights. The Human Rights Act 1998 will not detract from this power. The constraints upon its exercise by Parliament are ultimately political, not legal. But the principle of legality means that Parliament must squarely confront what it is doing and accept the political cost. Fundamental rights cannot be overriden 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. In this way, the courts of the United Kingdom, though acknowledging the sovereignty of Parliament, apply principles of constitutionality little different from those which exist in countries where the power of the legislature is expressly limited by a constitutional document.
12. There is no express language in section 20(1) or elsewhere in the 1970 Act abrogating the rule of LPP that unless effectively removed by statute prevents the Inspector's access to LPP material. What then of necessary implication?
Necessary implication
13. Neither of the parties offered a definition of what is meant by necessary implication. Mr Beloff QC however argued that we were assisted in that regard by the speeches in their Lordships' House in B(a minor) v DPP [2000] 2 WLR 452.
14. That case concerned the much debated issue of the universality of application of the mens rea principle in the criminal law, and in particular with relation to sexual offences. In a speech the conclusions of which were specifically approved by Lord Irvine of Lairg LC and Lord Mackay of Clashfern, Lord Nicholls of Birkenhead said, at p458C, that
"Necessary implication" connotes an implication that is compellingly clear. Such an implication may be found in the language used, the nature of the offence, the mischief sought to be prevented and other circumstances which may assist in determining what intention is properly to be attributed to Parliament when creating the offence.
A similar analysis, cited with approval in B v DPP by Lord Hutton at p 472C, was adopted by Lord Scarman in Gammon (Hong Kong) Ltd v A-G of Hong Kong [1985] AC 1 at 14, in particular in Lord Scarman's numbered paragraphs (4)-(5).
Bearing in mind what he described, at p 455D, as Lord Reid's magisterial statement in the leading case of Sweet v Parsley [1970] AC 132, 148-149 that
it is firmly established by a host of authorities that mens rea is an essential ingredient of every offence unless some reason can be found for holding that that is not necessary
Lord Nicholls had little difficulty in finding that none of the grounds that he had adumbrated for potentially excluding that fundamental rule by necessary implication were met in the case before him: see p 459E.
15. Necessary implication can, however, arise not only from the nature and circumstances of the statutory provision under review, but also from rules governing that provision that are to be deduced from other related provisions. Such implication is implication in its true sense, of logical necessity, rather than, as in the examples cited in paragraph 14 above, of assumption from the surrounding circumstances of what the policy intentions must have been. In B v DPP it was an implication by logical deduction from other statutory provisions that was relied on by the Crown as displacing the normal rule of mens rea. In particular, under sections 14 and 15 of the Sexual Offences Act 1956 offences of indecent assault were committed even though the defendant was ignorant of, or in error as to, the age of the girl who was his victim. The Crown argued that it thus followed that the legislative scheme, looked at overall, recognised a rule that the defendant's belief as to the victim's age was irrelevant to his guilt. Since the Indecency With Children Act 1960 was part of that scheme, it must follow, as an exercise in logical deduction or inference, that the instant offence, of inciting a child aged under 14 to commit an act of gross indecency, contrary to section 1(1) of the 1960 Act, was committed even though the defendant held an honest belief that the child was over the age of 14.
16. This mode of argument was regarded by the House as a valid and serious approach to statutory construction, and a clear example of the way in which necessary implication could be used to displace even a general rule as strong as that stated in Sweet v Parsley. The argument however failed because the legislative provisions relied on did not reveal any sufficiently clear general rule. Lord Mackay of Clashfern summarised that conclusion by saying at p 454D that
there is no sufficiently detailed legislative policy manifested by the Sexual Offences Act 1956 to which the Act of 1960 is an appendix to provide a basis for the necessary implication in respect of what was in 1960 a new offence.
Expanding on that point, both Lord Nicholls of Birkenhead at p 460A and Lord Hutton at p 474F-G emphasised the chaotic and unprincipled nature of the previous legislation, including the Offences Against the Person Act 1861 as well as the Sexual Offences Act 1956. As Lord Steyn put it, dealing with the argument advanced by the Crown that the Acts of 1960 and 1956 were a code,
If the Act of 1956 is to impress a particular meaning on the Act of 1960 it must be on the basis that its concrete terms provide a consistency of theme: [2000] 2 WLR at p 466F.
In the House's view, the statutory provisions relied on before it to establish the premise from which the implication followed did not satisfy Lord Steyn's test.
Necessary implication from the terms of the 1970 Act
17. The Revenue however argued that the present case was different. Applying the approach adopted in B v DPP to the circumstances of this case, it was possible to extrapolate from the terms of the 1970 Act a general principle or premise that material subject to LPP was not protected from the investigatory provisions of that Act unless it was specifically excluded by the terms of the Act itself. This argument involved, first, consideration of the general structure and nature of the 1970 Act; and, second, analysis of various of its particular provisions. Although they stand as part of the 1970 Act, sections 20-20D thereof were introduced as a new and much more extensive scheme for obtaining information as to a taxpayer's affairs by schedule 6 to the Finance Act 1976. To the extent that the scheme has been amended or added to, that has been achieved by amendment of the provisions of sections 20-20D as they stand in the 1970 Act, rather than by the creation of other Acts of Parliament. In our judgement, therefore, the relevant provisions of the 1970 Act do pass the first requirement set out in B v DPP, in that they can properly be regarded as a single code, legislated by Parliament in that form, and intended to serve as such. We turn therefore to the indications to be found in the terms of the code as to a general rule with regard to LPP.
18. The Revenue relied on five provisions of the Code as demonstrating a general principle that where LPP was protected a specific provision was included to that effect: with the corollary that there was a general premise that otherwise LPP was not protected. Of these, section 20B(2), exempting a person from delivering documents relating to the conduct of any pending appeal, does not carry the matter further, since as was pointed out appeals may be conducted by persons other than lawyers, and the documents in question may therefore go beyond those subject to LPP. The other examples need more detailed scrutiny.
19. By section 20(3) the Inspector may give notice to third parties to deliver documents that contain information about the taxpayer's liability, even in certain circumstances if he does not know the identity of the taxpayer. By section 20A he may require any "tax accountant" who has been convicted of an offence in relation to tax to deliver documents relevant to the tax liability of any client of his. However, by section 20B(3) such notices cannot be given to a barrister, advocate or solicitor by the Inspector, but only by the Board; and by section 20B(8)
A notice under section 20(3) or 8A or section 20A(1) does not oblige a barrister, advocate or a solicitor to deliver or make available, without his client's consent, any document with respect to which a claim to professional privilege could be maintained.
20. The Revenue argued that this provision would be otiose if there were a general rule that LPP material was protected. If Parliament had intended to incorporate the principle in Derby Magistrates into the code, the LPP material would by the application of that principle be protected in the lawyer's hands. The ability of the client, whose privilege it is, to waive the protection was similarly established as an integral part of the general doctrine of LPP, and as such not needing any specific legislative protection.
21. The force of these contentions is illustrated by a New Zealand case that was shown to us, Commissioner of Inland Revenue v West-Walker [1954] NZLR 191. The Commissioner of Taxes acting under statutory powers served a notice on a solicitor requiring him to produce correspondence and documents relating to the affairs of a named client. The statute made no reference to LPP material. The Court of Appeal of New Zealand held that such a statute, and such an order, could not be read as extending to material subject to the common law legal advice privilege. Such being the common law rule, its repetition in section 20B(8) was otiose unless the scheme of the 1970 Act was to exclude the LPP rule unless expressly otherwise stated.
22. If section 20B(8) were the only example in the 1970 Act code of a reference to LPP, it might be difficult to conclude that one can deduce from it a consistency of theme in the terms sought by Lord Steyn in B v DPP (see paragraph 16 above). But it is not the only such provision. Section 20C of the 1970 Act gives power to enter premises and seize documents where there are reasonable grounds for suspecting that they are connected with an offence involving serious fraud. Section 20C(4) originally provided that the provisions did not authorise
the seizure and removal of documents in the possession of a barrister, advocate or solicitor with respect to which a claim to professional privilege could be maintained.
That provision was, by section 150 of the Finance Act 2000, widened so that it now excludes from the operation of section 20C any "seisure and removal of items subject to legal privilege".
23. Section 20BA provides for orders for the delivery of documents in cases where there is reasonable ground for suspecting the existence of an offence involving serious fraud. Paragraph 5 of Schedule 1AA to the 1970 Act provides that the provisions of section 20BA do not apply to "items subject to legal privilege". Paragraph 5 then proceeds to define the latter concept in some detail but, so far as we could see, entirely consistently with the common law definitions of LPP.
24. We find it difficult or impossible to understand why these specific provisions were included in the code unless the code itself does not recognise the common law rule of LPP. In particular, it is very difficult to rationalise the successive versions of section 20C(4), set out in paragraph 22 above, if, as MG contended, references in the code to LPP are merely confirmatory of a general rule to which the code is necessarily subject. It is a necessary element in that argument that the exclusion of LPP material in the hands of legal advisers was merely a specifically stated instance of a general, though unexpressed, protection of LPP. But, if that were so, and the terms of the statute were originally thought sufficient to address every incidence of LPP, why was it changed to make specific reference to LPP as a whole?
25. Mr Beloff sounded two warnings in respect of this line of argument. First, he pointed to sections 20BA and 20C as both being concerned with the investigation of serious fraud. It was to be expected that the general rule as to LPP would be specifically reinforced in such a case. We see no reason why that follows. If it were thought necessary to give a special reminder of the importance of LPP in some particular case or cases, that might be thought more appropriate in a case such as the present, arising under section 20(1) of the 1970 Act, where no fraud is alleged or suspected.
26. Second, Mr Beloff characterised the Revenue's argument as an argument from redundancy, and reminded us of the view expressed by Lord Hoffman in Walker v Centaur Clothes Ltd [2000] 1 WLR at p 805D that such arguments carried little weight, since it is not unusual for Parliament to say expressly what the courts would have inferred anyway. The present enquiry however is wider than a consideration of the implications of the redundancy of a single provision in a statute, of the type that Lord Hoffman was addressing in Walker v Centaur Clothes. The enquiry in this case is into whether there can fairly be deduced from the terms of the 1970 Act code taken as a whole a consistency of theme that requires, within that code, specific provision to be made for the recognition of LPP. To hold that the cases that we have reviewed do not demonstrate that, but are merely examples of Parliament saying expressly what the courts would infer anyway, would be to say that, within a lengthy series of related provisions, addressing a wide range of different though related situations, Parliament has expressly referred to the rule of LPP in some, though not all, of those situations, the cases for express reminder not being selected on any obviously coherent basis.
27. We are therefore driven to conclude that the provisions of the 1970 Act taken as a whole do demonstrate a premise that the rule of LPP is excluded from them save where it is expressly incorporated. Applying then the approach in B v DPP referred to in paragraph 16 above, it is a necessary implication from that premise that arguments based on LPP cannot be used to resist an application for disclosure under section 20(1) of the 1970 Act.


R v IRC ex p Taylor (No 2)
28. The Revenue argued that we were in any event bound to reach that conclusion because the Court of Appeal had decided in R v IRC ex p Taylor (No 2) [1990] STC 379, in a judgment delivered by Bingham LJ that was concurred in in full by Lord Donaldson of Lymington MR, that the 1970 Act code did indeed exclude the protection of LPP.
29. In Taylor the Board of Inland Revenue, acting under its powers under section 20(2) of the 1970 Act, required a solicitor to deliver to it documents relating to the solicitor's own tax liability. He objected that some of the material sought included or might include LPP material which his clients had a right to have protected, arguing that Parliament could not, by section 20(2), have intended to override the client's right to LPP in respect of documents in the hands of a legal adviser. Bingham LJ rejected that argument. He pointed to Parliament's having had the position of professional legal advisers clearly in mind, as evidenced by section 20B(8). He continued, at [1990] STC p 384c:
But there is no preservation of legal privilege and no limited protection where the notice relates to a lawyer in his capacity as a taxpayer who is served with a notice under s 20(2). The clear inference is, in my judgment, that a client's ordinary right to legal professional privilege, binding in the ordinary way on a legal adviser, does not entitle such legal adviser as a taxpayer to refuse disclosure. That is not, to my mind a surprising intention to attribute to Parliament. In different circumstances the Court of Appeal has held that the Law Society is entitled to override a client's right to legal professional privilege when investigating a solictor's accounts (see Parry-Jones v Law Society [1969] 1 Ch 1). It is, I think, altogether appropriate that the Revenue, being charged with the duty of collecting the public revenue, should enjoy a similar power.
30. Our conclusions in respect of the relevance of Taylor to the present case are as follows. First, we accept that, because the specific issue addressed in Taylor was the ability of a solicitor to hide behind his client's LPP, the case did not decide as a matter of ratio, narrowly understood, that LPP is excluded by the whole of the 1970 Act code. Second, we see the force of Mr Beloff's observation that Bingham LJ did not address the case in the manner required by more recent pronouncements in relation to the principle of legality, treating LPP as an overriding value only to be displaced by clear implication to the contrary; but, rather, applied more limited rules of construction, that excluded the unstated rule of LPP unless an inference to the contrary could be established. That said, however, two further things are striking about the case. First, the Court of Appeal cannot have been ignorant of the significance of the rule of LPP. Although Derby Magistrates was decided some years after Taylor, and is a very striking application of the rule of LPP, in its statement of the importance of the principle itself it made, and purported to make, no new law. Second, it is not possible to reconcile the outcome of Taylor with the position contended for by MG in our case. If LPP is indeed an overriding value, which is not excluded by any necessary implication from the terms of the 1970 Act code, then in the absence of waiver by the client his LPP documents were protected in the hands of his solicitor, whatever the purpose for which those documents were sought.
31. In the event, therefore, while we are unable to act on Taylor in the terms urged on us by the Revenue, the approach and conclusions of the Court of Appeal in that case are wholly consistent with the conclusion as to the construction of the 1970 Act that we have reached on other grounds.
The European Convention on Human Rights
32. At the stage of construing the notice, no question arises under Article 6. MG however argued that it was at least materially assisted by the provisions as to private life contained in Article 8. Invasion of confidential material, such as a lawyer's advice, was a breach of the client's article 8.1 rights, and therefore had to be justified under article 8.2: which could not be achieved in the present case. In support of that argument MG cited the judgment of the European Court of Human Rights in Niemietz v Germany (1992) 16 EHRR 97, where a search of a lawyer's office was held to involve a breach of article 8.1. However, two things stand out from the report of that case. First, the privacy that engaged the court was that of the lawyer, not of the client. Second, although the court made reference to the confidential nature of the lawyer's relations with his client, it is clear from paragraph 28 of the judgment that it regarded that as but one element, amongst potentially many, in the private life of a practising lawyer. Nothing in the case suggested that what in English terms would be called LPP was given the overriding status that it enjoys in English law, and we were shown no other authority to that effect.
33. Accordingly, while we accept that in principle interference by the state with LPP material potentially engages article 8, we see nothing either in authority or in principle to lead us to think that the Convention jurisprudence would forbid that interference when it was exercised for the reasons and on the legal grounds that exist in the present case; in particular bearing in mind that the material is subject to such stringent protection in national law. We do not think that the Convention jurisprudence even arguably provides in this case greater protection than is provided by domestic law.
34. Mr Beloff also claimed to gain some assistance from the law of the European Union, in that in his Opinion in Case 155/79, AM&S Europe Ltd v Commission [1983] 1 QB 878, Advocate-General Sir Gordon Slynn, at p 913F, considered that the rule of protection of legal advice, whether under the common law rule of LPP, or under the civil law rule of secret professionnel, applied equally whether the advice were in the hands of the lawyer or of the client. Absurdity would otherwise result: an absurdity that Mr Beloff suggested would be reproduced in English domestic law if section 20B(8) protected LPP material in the hands of the lawyer, but the general rule of the common law did not operate to protect it in the hands of the client. However, the Advocate-General in Case 155/79 was addressing the extent of the general principle, rather than its application in particular cases; and in relation to the 1970 Act there are clear reasons, unconnected with the general principles applying to LPP material, why a lawyer should not be required to breach his client's LPP. And, more generally, the law of the European Union is an uncertain guide in this field, since it is clear from the judgment of the Court of Justice in Case 155/79, at paragraph 21, that the privilege there recognised is to protect the rights of defence of the client in the particular Community proceedings that he faces: that is to say, a restricted version of what in English terms would be litigation privilege, rather than the wider category, in issue in our case, of legal advice privilege.
Conclusion as to issue I
35. For the reasons indicated above, we conclude that section 20(1) of the 1970 Act authorises an Inspector to issue a notice requiring disclosure by a taxpayer of LPP material.
Issue II: The jurisdiction of the Commissioner under section 20(7) of the 1970 Act
36. As we have seen, Mr Oliver concluded that he had no jurisdiction to afford MG an inter partes hearing. The Revenue, in support of that conclusion, urged on structural grounds that the Commissioner's decision was an administrative or preliminary decision, not apposite for a contested hearing; and on policy grounds that the Inspector, in order to convince the Commissioner, might need to relate information of which the taxpayer was unaware, including potentially the names and state of knowledge of informers, which it was wrong for the taxpayer to know at that stage of the proceedings, or possibly at all. MG, while acknowledging the force of the latter considerations, said that it nonetheless did not follow that there must be a blanket rule prohibiting a hearing in all cases, and much less that Parliament had so decided. The effect of the Commissioner's decision was to apply to the present case considerations, and reasons for refusing a hearing, that were more appropriate to a case of suspected fraud or dishonesty: which this was not.
37. The Revenue presented a detailed argument based on comparison with other parts of the 1970 Act code, where it was contended that an oral hearing would clearly be inappropriate, for instance where a warrant was sought to permit a raid under section 20C; so, it was argued, oral hearings must be excluded by the code as a whole. That argument, however, cut both ways. A section 20(1) notice must be preceded by a "precursor notice" under section 20B(1), giving the taxpayer reasonable opportunity to deliver the sought documents voluntarily; so the considerations of secrecy, important in suspected fraud cases, cannot apply. Rather, the issue is whether there should be implied into section 20(7) a discretion, and MG emphasised that it argued for no more than a discretion, to afford an inter partes hearing.
38. MG said that the answer was straightforward. The Commissioner stood between the taxpayer and an over-zealous authority. He decided a matter that could be of substantial importance and concern to the taxpayer, as the present case demonstrated. General principle required the application of the rule of audi alteram partem, including an oral hearing, as well as the opportunity to put forward written submissions that MG had indeed been afforded. As to authority, what appeared to be the assumption of the House of Lords in R v IRC ex p TC Coombs & Co [1991] STC 97 that applications under section 20(7) would take place in the absence of the taxpayer was not a matter of decision nor specifically raised in the case; and even though the House of Lords had in Wiseman v Borneman [1971] AC 297 not insisted on the taxpayer seeing the Revenue's submissions to the special tribunal involved in that case, it had been emphasised that considerations of natural justice should generally be imported unless to do so would frustrate the purpose of the legislation (per Lord Reid at p 308C), and that in any event the tribunal should not be prevented from seeking further information from the taxpayer if it thought that necessary (ibid., at p 308G).
39. Two considerations have determined our approach to this question. First, although, as we have said, the Commissioner's decision is taken in circumstances different from some other decisions as to methods of investigation that are provided for in the code, it is still a decision controlling a step in the investigation, rather than anything determining the final rights of the parties. We have not overlooked what was said in Wiseman v Borneman about the need for the principles of natural justice to apply to all decisions, and not just to those that are final. But those principles are in their application not a uniform and rule-bound code, but vary according to the demands of fairness in the particular situation to which they are applied. We find it difficult to see cogent reasons demanding an inter partes hearing, as opposed to a reasonable opportunity to make representations, at the section 20(7) stage.
40. Second, as Lord Reid said, such principles as are introduced should not frustrate the intention of the legislation. We explored with Mr Beloff how MG considered the Commissioner should exercise his discretion if he had one; and how he should explain to the taxpayer any decision not to permit an inter partes hearing. In the first category, so far as access to LPP material was concerned, the Commissioner was seen as obliged to give substantial weight to the importance of the issue urged by the taxpayer; so it would be difficult for him to refuse a hearing in any such case. In the second category it rapidly became apparent that in sensitive cases, such as those involving informers, it would be impossible for the Commissioner to give acceptable reasons for not exercising his discretion without effectively giving the game away. And in the modern climate of public law a refusal to give any reasons at all would hardly pass unchallenged.
41. We are therefore not persuaded that there are cogent reasons why the requirements of natural justice entail the reading into section 20(7) of a jurisdiction to order an oral hearing, as opposed to giving the taxpayer opportunity to make ex parte submissions.
42. We mention two further points. First, some weight was placed on the observation of Lord Reid in Wiseman v Borneman (see paragraph 40 above) that the tribunal was not precluded from affording the taxpayer opportunity to make representations if it thought that any point needed elucidation; but his Lordship clearly did not have in mind inter partes representations, as opposed to submissions direct to the tribunal.
43. Second, when the inspector, having obtained consent from the Commissioner, serves his notice, he is obliged by section 20(8E) to give the taxpayer notice of his reasons for applying for that consent. However, by section 20(8G) he can omit from the notice anything related to an informer, or any matter that the Commissioner has ruled may be omitted. These provisions do not sit well with a system that would provide that consent can or may be sought inter partes. They underline the difficulties that we have referred to in paragraph 40 above; and they clearly demonstrate that Parliament did not intend the taxpayer to have a right to know, at the consent stage, everything that was then being relied on by the Inspector.
44. Substantial reliance was placed in MG's skeleton on the provisions of the Convention, but we understood Mr Beloff to agree in argument that a decision under section 20(7) did not in itself engage article 6, since it was not a decision on MG's civil rights. Rather, the requirements of article 6 were introduced in the present case by the fact that what was under threat was MG's civil right to its LPP material, that was protected under article 8.
45. Since this argument is particular to the present case it involves different considerations from those just reviewed. It will also be noted that if the argument is well founded it obliges, and does not merely give the Commissioner a discretion, to grant an oral hearing. We have not found it easy to follow all of the elements of the argument, but we would venture the following comments.
46. First, to the extent that the argument depends on MG possessing an assertable right under article 8, as opposed to a right to LPP in English domestic law, it fails for the reasons indicated in paragraph 33 above. Second, the article 6 right to an oral hearing is usually thought to be associated with and to flow from a right to a public hearing: see for instance the analysis in Grosz et al, Human Rights (2000), paragraph C6-77. But the concept of the public hearing of a section 20(7) application seems completely inept, not to mention its being far from what would be desired by most taxpayers. Third, the test under article 6 is always whether the procedure taken as a whole was fair. We are wholly unpersuaded that for the Commissioner, making the particular type of decision facing him, to confine MG to (extensive) written submissions was unfair so as to call for intervention under article 6.
47. We conclude, therefore, that MG had no right to require an oral hearing that was engaged by a decision such as the present. On the more general question raised by issue II we conclude that the Commissioner has no jurisdiction to afford the intended recipient of the notice an inter partes hearing in respect of an application for consent under section 20(7).
48. If we are wrong on either of those points, that does not affect the actual consent granted by the Commissioner. Whatever hearing he did or did not grant to MG, he would have been bound in law, for the reasons given in the first part of this judgment, not to withhold consent on the ground urged by MG, that the notice extended to LPP material.
Issues III and IV: the Inspector's reasonable opinion, and the Commissioner's consent
49. It is convenient to take these two issues together, since unless MG can demonstrate that the condition precedent to the Commissioner's decision (that the Inspector held the reasonable opinion that the LPP material contained or might contain information relevant to MG's tax affairs) was not fulfilled, then there is no ground on which the Commissioner's decision can be sensibly challenged in public law.
50. The test for determining the existence of that condition precedent is not whether the Inspector was right in his opinion; but whether no reasonable Inspector could have entertained that opinion; it being noticeable that the state of mind that the Inspector has to entertain is an opinion, not a judgement or finding. The Revenue said that it was plainly open to the Inspector to hold the opinion that the perception of the STELA transactions as revealed by MG's discussion of them with their legal advisers might cast light on whether the transactions were regarded as part of MG's regular trade as bankers.
51. MG countered this contention with a detailed argument that set out the circumstances and terms of the STELA transactions as they were apparent from the documents already held by the Inspector. MG submitted that it was plain from that that the transaction was a banking loan, albeit of an unusual sort, not a capital investment, and thus on the same level as the rest of MG's trade.
52. We trust that we will be forgiven for not going into that material in detail, because it did not seem to us to illuminate the question that we had to answer. The arguments will no doubt be very apposite when the substantive issue comes to be determined. But the question for us is whether the Inspector was unreasonable in thinking that he might obtain assistance from the LPP material. The transaction was unusual. It involved a merchant bank with no obvious interest in property transactions and no obvious expertise in that area becoming involved in a series of leasing arrangements of what appear to be, as supermarkets and the like, very substantial properties. When the question, as here, is not what the nature of those transactions is in themselves, but whether they are part of the bank's trading, then it seems to us that knowledge of how the transactions were presented to the bank's advisers in that very context must be potentially germane to the Inspector's enquiries. It may of course well be that such information will fully vindicate MG's claims; but that would equally demonstrate that it was information relevant to MG's tax liability.
53. MG's real complaint, indeed, was not that the information was not potentially relevant to MG's tax liability, but that in the circumstances of the disclosed information it was unreasonable, excessive or disproportionate for the Inspector to seek it and for the Commissioner to give consent to its being sought. For the reasons that we have indicated, none of those contentions can be sustained. The decisions are for the Inspector and the Commissioner, and this court will only intervene if they have erred in public law. There are sufficient features of this transaction to attract the notice of the Inspector to make it impossible to argue, simply on the basis of the disclosed information, that it is unreasonable to investigate further.
Conclusion
We would answer questions I and III set out in paragraph 8 above Yes and questions II and IV No; with the result that we dismiss this application in its entirety.