Canada: Accountability - January 2017

Last Updated: January 16 2017
Article by Jane Howard

Most Read Contributor in Canada, October 2018

Gowling WLG's dedicated professional liability team bring you their regular update on the cases and issues affecting accountants and other financial professionals on a range of liability risk management issues.

  • After the event insurance policy relevant in security for costs application
  • HMRC owes duty of confidentiality in respect of tax payer's affairs
  • Updated guidance on Professional Conduct in Relation to Taxation
  • Draft Guidance for corporate offence of failing to prevent criminal facilitation of tax evasion


In Premier Motorauctions Ltd (In Liquidation) & another v PriceWaterhouseCoopers LLP & another (2016) the court held that an after the event insurance policy was a relevant factor in considering whether to order security for costs on the basis that there was reason to believe that the claimant would be unable to pay costs if ordered to do so.


The first claimant is the parent company of the second claimant and both companies entered into administration on 22 December 2008.  The defendants were accountants instructed to conduct a Business Review of the claimant companies and a bank who provided overdraft facilities to them.

The claimants, by their joint liquidators, alleged that the Defendants had breached various duties to them and conspired to cause them loss by unlawful means. In particular they alleged that the defendants conspired to obtain an internal assessment of the companies affairs - to identify a fictitious need for additional finance to be provided by the bank on terms that gave the bank control over the companies and the means to force them into administration so their business and assets could be sold at an undervalue for the benefit of the bank.

The claimants claim losses in the sum of about £45 million to £54 million.  The defendants say that the allegations made against them are spurious and implausible.  They deny liability and deny the claimants suffered such losses in any event.

The defendants applied for security for their costs pursuant to the Civil Procedure Rules (CPR 25). They contended that as a result of the companies being in liquidation, and the liquidators having communicated to creditors the fact that there were no assets to be realised, they had reason to believe the claimants would be unable to pay their  costs if ordered to do so.  They were entitled to substantial security as a result.

The claimants had after the event (ATE) insurance in place of £5 million and the relevant policies were provided to the defendants.  The defendants argued the ATE insurance was not enough; the policies might be avoided, rescinded or cancelled and two of the ATE insurers were based in Gibraltar and were not accepted as being credit worthy.


The court should start by considering whether the jurisdictional threshold for ordering security for costs was met.  Was there reason to believe that the claimants would be unable to pay the defendants' costs if ordered to do so? 

The fact that a company was in liquidation or administration was not evidence on its own that it would be unable to pay cost orders made against it.  Even insolvent companies can have substantial assets - and any adverse costs order made against the company in litigation would rank for payment in the insolvency ahead of the claims of other creditors.  Insurance under an ATE policy gives the company contractual rights which it could enforce if an adverse costs order was made - the policy should therefore be taken into account alongside  the other assets of the company.

The judge confirmed that the important question is whether there is reason to believe that the ATE policy will not respond to enable the defendant's costs to be paid when taking into consideration:

  • the terms of the ATE policy in question
  • the nature of the allegations in the case; and
  • all other circumstances

There was a public interest in permitting ATE policies on appropriate terms to provide access to justice for insolvent companies under the control of responsible office holders.

On the facts, the court found there was no reason to believe the ATE policies would fail to respond to cover the defendant's costs if the claimant was ordered to meet them.  While there may have been some merit in the argument that there was little evidence to support the second Gibraltarian insurer's creditworthiness, that insurer was only responsible for providing one layer of insurance which would not be reached until well after disclosure and possibly much later.  There was therefore no reaon to believe the claimants would be unable to pay the defendant's costs already incurred and of the initial stages of proceedings if ordered to do so.

The threshold had not been passed and security would not be ordered.

Something to consider

One of the key points made by the judge in this case was the importance of permitting ATE insurance policies to provide access to justice for insolvent companies.  If there is an ATE policy in place, the court should not be looking at whether another form of security would be better. Instead the court will consider whether there is any reason to believe the policy will not respond.


The Supreme Court has confirmed that HMRC owed a duty of confidentiality to a tax payer in respect of his affairs.  The rule that permitted such disclosure if it was made for the purposes of a function of the Revenue and Customs was to be narrowly interpreted.

The case

In R (on the application of Ingenious Media Holdings PLC & Another) v Revenue and Customs Commissioners (2016) the Supreme Court was asked to consider the duty of confidentiality owed by HMRC in respect of the affairs of tax payers.

The appellants - a firm of chartered accountants and its chief executive officer - promoted film investment schemes which utilised film tax relief.  A senior HMRC official gave an interview to two financial journalists, who had arranged to meet him to discuss tax avoidance.  The meeting was agreed to be 'off the record'.

The HMRC official provided information regarding the tax activities of the appellants and HMRC's attitude towards them. He did so because he believed it was in HMRC's interest to establish good relations with the financial press, the comments provided a way of emphasising HMRC's views on elaborate tax avoidance schemes, and he thought the dialogue might lead to the journalists revealing information that may be of significance. He thought they had agreed that the interview was off the record and that his comments would not be reported.

The appellants sought judicial review of HMRC's actions in disclosing the 'confidential' information to the journalists.

First instance and Court of Appeal decisions

The High Court found that HMRC was justified in providing the information it had in an off the record interview with the journalists. 

HMRC had not breached any duty of confidentiality because the disclosure fell within the exception permitted by S.18(2)(a) of the Commissioners for Revenue and Customs Act 2005 (CRCA 2005) - disclosure is permitted when it is made for the purpose of a 'function' of HMRC.

The court held that there was a connection between "the function of HMRC to collect tax in an efficient and cost-effective way and the disclosures made... in the course of the briefing".  While there was a breach of ECHR article 8(1), the breach was proportionate.

The appellants appealed to the Court of Appeal, who upheld the first instance decision.  There was no breach of CRCA s.18 as the disclosure fell within the exception to the duty of confidentiality.  The Court of Appeal's view was that the exception allowing for disclosure when made as 'a function of HMRC' was meant to be interpreted widely.  The Court of Appeal thought it was "entirely in the public interest that HMRC should let the public know its view" about schemes such as the one set up by the appellants.

The appellants appealed to the Supreme Court.

The Supreme Court's decision

The Supreme Court allowed the appeal.

The leading judgment highlighted that only minimal reference had been made to the courts on the common law duty of confidentiality.  In that regard it was "well established ... that where information of a personal or confidential nature is obtained or received in the exercise of a legal power or in furtherance of a public duty, the recipient will in general owe a duty to the person from whom it was received or to whom it relates not to use it for other purposes".  Specifically in relation to taxpayers, "HMRC's entitlement to receive and hold confidential information about a person or a company's financial affairs is for the purpose of enabling it to assess and collect (or pay) what is properly due from (or to) the tax payer".

The court accepted that the duty of confidentiality could be overridden by explicit statutory provisions and CRCA 2005, section 18, subsections (2)(b) onwards allows for disclosure of taxpayer information for various specific purposes - other than HMRC's primary function of revenue collection and management.  However, HMRC's interpretation of the broader words of subsection 2(a)(i) - "disclosure.... made for the purposes of a function" was too wide.

Allowing HMRC's interpretation would render the specific exceptions "otiose" and fundamentally it would mean the protection "which would otherwise have been provided to the taxpayer by HMRC's duty of confidentiality will have been very significantly eroded by words of utmost vagueness".

Section 18(2)(a)(i) must be interpreted more narrowly - it creates an exception by permitting disclosure only to the extent reasonably necessary for HMRC to fulfil its primary function.

The judgment also confirmed that it was for the courts to decide whether a breach of the duty of confidentiality had occurred.  Contrary to the decision of the lower courts it was for the court to approach the disclosures made by HMRC as if it was the primary decision maker.

The court dismissed HMRC's justifications for the disclosure - a general desire to foster good relations with the media or to publicise HMRC's views about elaborate tax avoidance schemes, and the fact that the HMRC official did not anticipate his comments being reported.  The Supreme Court view was that the "whole idea of HMRC officials supplying confidential information to the media on a non-attributable basis is, or should be, a matter of serious concern".

Something to consider

While the Supreme Court accepted there might be a situation in the future that could justify HMRC taking the media into its confidence.  Such circumstances would however have to be exceptional.  As a general rule HMRC will be subject to the strict duty of confidentiality owed by all public authorities to citizens who provide information to them.


The Chartered Institute of Taxation and Association of Taxation Technicians have published updated guidance on Professional Conduct in Relation to Taxation, effective from 1 March 2017. The updated guidance seeks, in particular, to address the challenge laid down by HM Treasury and HMRC in 2015 for professional regulatory bodies to take a greater lead in setting and enforcing professional standards around the promotion and facilitation of tax avoidance. To that end, the standards prohibit members from creating, encouraging or promoting tax planning arrangements or structures that are highly artificial or contrived and seek to exploit shortcomings within relevant legislation.

Where members have any uncertainty about compliance with that standard, they are advised to document the detailed reasoning and evidence to be able to demonstrate why they took the view that planning was not in breach of the standard, and advise their client on uncertainties and risks.   


HMRC has produced updated draft guidance for the corporate offence of failure to prevent the criminal facilitation of tax evasion.

Whilst it is already a crime both for a taxpayer to evade tax and for another person to facilitate that evasion, HMRC identifies difficulty attributing criminal liability to corporations for the criminal acts of their employees, agents or those that provide services on their account ("associated persons") in the facilitation of tax evasion.

The new legislation aims to overcome these difficulties by focusing on a corporation's failure to prevent such crimes, rather than on seeking to attribute criminal acts to that corporation. Corporations will however have a defence where they can show they put in place reasonable prevention procedures to prevent the criminal facilitation of tax evasion. 

The guidance is intended to help corporations understand the types of processes and procedures that can be put in place to help prevent their associated persons from criminally facilitating tax evasion (whether in the UK or abroad).  The guidance is formulated around six guiding principles of risk assessment:

  • proportionate risk-based prevention procedures (including both formal policy and practical implementation);
  • top-level commitment;
  • due diligence;
  • communication and training;
  • monitoring ; and
  • review 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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