Taxation — enforcement of foreign tax debt — ‘tax bankruptcy’ — assistance in collecting evidence by private examination of individuals — assistance granted — s1 Bankruptcy Act 1988 (Isle of Man) — re State of Norway's Applications [1990] 1 AC 723 followed

This petition was brought by the trustee in bankruptcy of William McCoy. The trustee in bankruptcy had been appointed by the High Court in Northern Ireland at the request of the Inland Revenue of the United Kingdom, which was the only creditor of Mr McCoy.

The High Court in Northern Ireland had issued a letter of request to the isle of Man court seeking, inter aim, its assistance in holding the private examination of three individuals, all employees of banks in the Isle of Man.

The power to provide such assistance was contained in s1 of the Bankruptcy Act 1988 of the Isle of Man. The exercise of the court’s discretion under that section was subject to the rules of private international law.

It was contended that to assist by private examination would be contrary to the rule of private international law that no state would assist directly or indirectly in the enforcement of a tax debt due to another state.

HELD (following Re State of Norway’s Application [1990] 1 AC 723: Seeking assistance to obtain evidence which would be used for the enforcement of a foreign tax debt was not the direct or [*819]  indirect enforcement of that tax debt; it was not an extra-territorial exercise of sovereign authority (see page 826).

IN THE MATTER OF:

1. The Bankruptcy Acts 1892 to 1988
2. The insolvency Act 1986 (an Act of Parliament)
3. The Bankruptcy of William Basil McCoy

CASES REFERRED TO:

Attorney General of New Zealand v. Ortiz [1983] 1 All ER 93, [1984] AC 1
Bember v Revenue Authorities of the Province of Buenos Aires (24 February 1949) Unreported
Re State of Norway’s Applications (Nos 1 and 2) [1990] 1 AC 723
Re Tucker [1987-8] Manx LR

PARTIES

PETITIONER:  John William McLean, trustee in the bankruptcy of William Basil McCoy

RESPONDENTS: 
1. Bank of Ireland IOM Ltd
2. Royal Bank of Scotland International
3. Bank of Canada (No Appearance)   [*820] 

COUNSEL

PETITIONER:  Robert Long

RESPONDENTS:  J L M Quin & J Wright

JUDGMENT

DEEMSTER CORRIN:  This is a petition by John William McLean of Sinclair House, 89 Royal Avenue, Belfast, Northern Ireland Insolvency Practitioner and Trustee in Bankruptcy of the Estate of William Basil McCoy (a bankrupt). The brief facts are that on 25 September 1995, a Bankruptcy Order was made against William Basil McCoy by the high Court of Justice in Northern Ireland. At a meeting of creditors held on 7 December 1995, Mr McLean was appointed trustee of the estate of the bankrupt pursuant to the provisions of the Insolvency (Northern Ireland) Order 1989 and his certificate of appointment was duly filed in the High Court of justice in Northern Ireland on 7 December 1995.

In the course of his enquiries Mr McLean ascertained details which reveal that the bankrupt has bank accounts in the Isle of Man may well remain in full control and beneficial ownership of assets so as to he able to direct their application and enjoy benefit arising from them.

On 25 June 1996, Orders were made in the High Court of justice in Northern Ireland by Master Glass requesting this Court to act in aid of the Northern Irish Court for the purpose of holding and including the private examination of three individuals in the Isle of Man, firstly the Assistant Manager Client Sales Department of the Royal Bank of Canada (IOM) Limited, secondly the Assistant Manager Client Sales Department of the Bank of Ireland (IOM) Limited and thirdly Miss Mellow, Customer Adviser to the Royal Bank of Scotland (IOM) Limited.

The Order of the Northern Irish Court also sought a declaration that all real and personal property of the bankrupt in the Isle of Man should vest in Mr McLean and that a certificate  [*821]  of such vesting he issued by this Court duly registered in accordance with the relevant requirements of the laws of the Isle of Man.

However, in the Petition of Mr McLean before this Court today, items 4 and 5 in the Northern Irish Court, that is the vesting of the real and personal property and the issue of a certificate if, such vesting, have not been sought in the prayer of the petition and so this Court is limited to considering an application for assistance in regard to the holding of private examinations of the three individuals. There is no question of Mr Mclean asking this court to vest the real and personal property of the bankrupt’s assets in the Isle of Man.

It was accepted by Mr Long that the Petition of Bankruptcy in Northern Ireland had been taken solely by the Inland Revenue and that the inland Revenue was the sole creditor of Mr McCoy and therefore his adjudication was what is commonly called ‘a tax bankruptcy’ and that is why the bank are concerned about the present petition. The power of this Court to consider applications of this kind is contained in the Bankruptcy Act 1988, an Act of Tynwald. Section 1 of that Act reads as follows:

‘The High Court shall assist the courts having bankruptcy jurisdiction in any relevant country or territory.

(2) For the purposes of subsection (1), a request made to the High Court by a court in any relevant country or territory shall he authority for the High Court to apply, in relation to any matters specified in the request, the bankruptcy law which is applicable by either court in relation to comparable matters falling within its jurisdiction; and in exercising its discretion under this subsection, the High Court shall have regard in particular to the rules of private international law.’

It will still he seen that under subsection (1) this Court has a mandatory duty to assist the Court having bankruptcy jurisdiction in any relevant country and it is not disputed that for the purposes of this section the United Kingdom is a relevant country. That mandatory subsection however has to he read in  [*822]  conjunction with subsection (2) particularly the final sub-paragraph of subsection (2) which gives the Court a discretion to grant assistance and requires the Court to have regard in particular to the rules of private international law. The particular rule of private international law relevant in this case is rule 3 which is set out in Dicey & Morris — The Conflict of Laws (12th Ed) at p97. Rule 3 reads as follows:

‘English courts have no jurisdiction to entertain an action; (1) for the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign state; or (2) founded upon an Act of state.’

Although the subject of enforcement of foreign revenue claims in the Island has been considered in pre-1988 cases particularly the well-known case of Tucker referred to in the 1987-1989 Manx Law Reports no decision has in fact been made on the question of the granting of assistance for the purpose of holding private examinations of witnesses in the Island. For the purposes of this Petition I am disregarding the Tucker authorities and making my decision entirely on the terms of the 1988 Act and the rules of private international law to which I have just referred. The question before the Court is:— is it a direct or indirect enforcement of a revenue law to order the giving of evidence by witnesses in the Island to assist a foreign court?

Fortunately there is an authority on this point in a case in the House of Lords namely Re State of Norway’s Applications (Nos 1 and 2) reported in [1989] 1 All ER p745. That was a case where a wealthy Norwegian ship owner died in 1982 and the County Tax Committee for that part of Norway in which he had resided decided to raise a retrospective tax assessment against his estate on the ground that he avoided tax during those years by failing to declare a large part of his assets. The estate commenced proceedings in the Court in the first instance in Norway to have the assessment declared null and void and appealed to the National Tax Committee to have it set aside. The Norwegian Court, on the application of the State of Norway supported by the Estate, issued letters of request addressed to the High Court in England requesting the Court, inter alia, to summon two named Merchant Bankers (the witnesses) to attend before an examiner in London to give oral evidence relevant to the issues in  [*823]  the proceedings before the Norwegian Court. It was held that the jurisdiction was not affected by the rule that English Courts would not entertain an action for the enforcement of a foreign revenue law, since that rule did not go to jurisdiction and in any event the letter of request issued by the Norwegian Court did not amount to the attempted enforcement, either directly or indirectly, of Norwegian revenue laws in England but was merely seeking the assistance of the English Court to obtain evidence to enable Norwegian revenue laws to he enforced in Norway.

I refer to the speech of Lord Goff at p761 where he said:

‘It has been suggested that the question can he avoided in the present case because the letters of request have been issued in response to an application by a taxpayer seeking assistance for the purpose of opposing a claim by a foreign state for tax. In agreement with the Court of Appeal in Norway (No 1). I am for my part prepared to accept that submission. I do not see how such letters of request, or their execution, could amount to the enforcement, direct or indirect, of a foreign revenue law; nor do I see how they could constitute an invasion of this country’s sovereignty. Such a conclusion is, in my opinion, acceptable, once it is recognised that the rule does not affect the jurisdiction of the court, but is concerned rather with circumstances in which the court declines to exercise its jurisdiction. In the case of an application by a taxpayer, I do not consider that the rule requires the Court to decline to exercise jurisdiction. It is true that in the present case the request was made by both the state and the estate. But in such a case the English Court could (if necessary) accede to the application of the estate, while rejecting that of the state.

‘However, since the state, as well as the estate, is applying fur the assistance of the English Courts, it is necessary to consider, in relation to the application of the state, the broader question whether the execution of letters of request in relation to foreign, civil proceedings in a fiscal matter should, if the request is made on the application not of the taxpayer but of the taxing authority, he refused by an English court ou this ground. I must confess to having given the most anxious consideration to this question.  [*824]  First, the rule is deeply embedded not only in the common law but also in the law (1f civil law countries. An eloquent account of it in French law is to be found in the exposition by Professor Mazeaud of Bember v Revenue Authorities of the Province of Buenos Aires (24 February 1949, unreported). Second, there appears to exist no case of fiscal proceedings in relation to which letters of request have been executed in any jurisdiction; and it can be argued (as indeed it is argued by Mazeaud) that if a change has to be made by legislation and not by judicial decision.

‘Counsel for the witnesses helpfully placed before Your Lordships a most useful bundle of documents concerned with double taxation conventions, including the text of the OECD Model Agreement, and also the text of the draft OECD Convention on Mutual Administrative Assistance in Tax Matters. This last document serves the useful purpose of demonstrating the range of matters which such a convention might cover, and the safeguards which might properly he embodied in it. It is right to say, however, that the draft convention provides for matters going far beyond simple requests by foreign courts for assistance in obtaining evidence in relation to pending or contemplated proceedings, I return to the rule in the Government of India case. It is of importance to observe that the rule is limited to cases of direct or indirect enforcement in this country of the revenue laws of a foreign stare. It is plain that the present case is not concerned with the direct enforcement of the revenue laws of the State of Norway. Is it concerned with their indirect enforcement? I do not think so. It is stated in Dicey and Morris p103 that indirect enforcement occurs (1) where the foreign state (or its nominee) in form seeks a remedy which in substance is designed to give the foreign law extra-territorial effect or (2) where a private party raises a defence based on the foreign law in order to vindicate or assert the right of the foreign state. I have been unable to discover any case of indirect enforcement which goes beyond these two propositions. Even so, since there is no authority directly in point to guide me, I have  [*825]  to consider whether a case such as the present should nevertheless he held to fall foul of the rule. For my part, I cannot see that it should. I cannot see any extra-territorial exercise of sovereign authority in seeking the assistance of the courts of this Country in obtaining evidence which will be used for the enforcement oldie revenue laws of Norway in Norway itself. Let it be supposed, for example, that in Attorney General of New Zealand v Ortiz [1983] 1 All ER 93, [1984] AC 1 the case was not one of New Zealand seeking to enforce its claim in this country, but (1f seeking the assistance of the English Courts to obtain evidence to enforce its claim in New Zealand. I find it very difficult to imagine that such an application would have been refused. Nor do I consider that refusal of the application of the State of Norway in the present case could easily he reconciled with the power of the Courts of this country to exercise their jurisdiction under the 1975 Act in criminal proceedings, for example, criminal proceedings in Norway in a case of tax evasion.

‘It follows that I am unable to accept the submission of the witnesses on the first two point argued by them before your Lordships’ House.’

I agree and follow the reasoning of Lord Goff, particularly where he states that he cannot see any extra-territorial exercise of sovereign authority in seeking the assistance of the Courts of this country in obtaining evidence which will he used for the enforcement of the revenue laws of Norway in Norway itself.

Applying that to the present case, I cannot see any extra-territorial exercise of sovereign authority in seeking the assistance of the Manx Courts in obtaining evidence which will he used for the enforcement of the revenue laws of Northern Ireland in Northern Ireland itself.

Mr Wright has sought to distinguish that ease on two particular grounds. In the first place he says that it was an application under the Evidence (Proceedings and Jurisdictions) Act 1975 and that is true. However, I do not consider that fact to he relevant in determining the point on private international law and I am satisfied that Lord Goff in the speech to which I have referred was dealing with principles of private international law,  [*826]  irrespective of the particular statute under which the application had been brought. Secondly, Mr Wright quite properly pointed out to me Court that in the Norway case, the application for assistance was both by the taxpayer’s estate and by the State of Norway. However, although that is true, I am satisfied that the speech of Lord Goff to which I have referred is applicable to an application by the State alone and I therefore reject Mr Wright’s submissions and I for my part cannot distinguish the present petition front the principles of law enunciated by Lord Goff in the Norway case. It scents to me that the House of Lords have there considered the principles of the rule of private international law and I follow the reasoning of their Lordships.

Mr Quinn emphasised the importance of public policy in petitions of this kind and I accept that that is a inatte the Court should consider. I lowever, I do not believe that I am assisting in the enforcement in this Island of foreign revenue laws and in those circumstances I do not consider that I would he acting contrary to public policy in granting the present petition. In principle, if the assistance requested from another jurisdiction is for the obtaining of evidence to assist that other jurisdiction in the enforcement of its revenue laws in its own country I ant of opinion that the rule of international law is not being infringed.

I therefore exercise my discretion in this case in favour of the petitioners but, of course, it will he limited to parts 1, 2 and 3 of the Order for Assistance issued by the Northern Ireland Court and there is no question of granting parts 4 and 5 of that Order.

In the circumstances of this case there will be no order as to costs.  [*827] 

ADVOCATES

PETITIONER:  Dickinson, Cruickshank & Co.

RESPONDENTS:  Quinn Kneale; Wright & Co.