Although the European Convention of Human Rights (the "Convention") was ratified in March 1951, it was not enacted in domestic law. The enactment of the Human Rights Act 1998 ("HRA 1998") in November 1998 has now codified the Convention into UK domestic law. Section 6 of the HRA 1998 states that "it is unlawful for a public authority to act in any way which is incompatible with one or more of the Convention rights". Under the HRA 1998 the courts will be under an obligation to interpret English Law where possible so that it does not conflict with the Convention. If primary UK legislation is found to be in direct conflict with the Convention, a declaration may be made to that effect which will then put an obligation upon Parliament to change the law accordingly. Such a change of law, however, would not have retrospective effect. This rule only covers primary legislation - inconsistent secondary legislation can be overridden directly by the Convention without recourse to Parliament.
Of particular interest is the issue of whether Article 6 of the Convention can be used to appeal against the service of a notice under Section 20(3) of the Taxes Management Act 1970 by an Inspector of Taxes.
A Section 20(3) notice requires the production of documents from third parties (commonly from financial institutions but also advisers) in relation to the tax liability of a particular taxpayer. Such a notice has to be approved by a Special Commissioner. The third party is not given prior warning that the approval of a Special Commissioner is being sought and it also has no opportunity to address the Special Commissioner directly as to whether such a notice should be approved. If the Inspector suspects tax fraud, the taxpayer itself may not be informed that a notice is being granted. Judicial review of the Special Commissioner's decision to approve the notices is available, but in practice is extremely unlikely to succeed.
This can be seen from the recent case of R -v- Inland Revenue Commissioners ex parte Archon Ship Corporation and Others (November 1998). The Court considered appeals by the taxpayer company to set aside Section 20(3) notices on the grounds that the Inland Revenue could not reasonably have believed that all the companies identified in the notices were guilty of tax fraud. The Court, in effect, said that an application for judicial review did not entail standing in the shoes of the Inspector or to examine the grounds for his belief. Both the Inspector and the Special Commissioner were duty bound to observe correct process and there was a presumption that the notices had been issued in a proper manner. It would only be in exceptional circumstances that a notice would be set aside.
Broadly speaking, Article 6 of the Convention entitles a person to a fair trial and, therefore, an adequate right of appeal. It may now be possible to challenge the service of a Section 20(3) notice by alleging a breach of Article 6 of the Convention. The taxpayer could argue that it had not been given a right to appeal against a particular decision or, alternatively, that any right of appeal is so restricted that it may be impossible to exercise. While judicial review may be a theoretical possibility, it could be argued that it is an inadequate remedy, and consequently failed to satisfy Article 6 of the Convention.
Article 6 has been used in the past by taxpayers - for example, in the case of Hodgson [1997] V & DR200, in which the taxpayer argued that he had not been given a fair and public hearing within the terms of Article 6 of the Convention. Although the VAT and Duties Tribunal upheld the taxpayer's argument in this case, the claim under the Convention by Mr Hodgson faced the difficulty that the Convention at that time had not been incorporated into UK law. In future, it should be easier for taxpayers to argue that the Convention should be applied.
Another possible avenue to challenge the Inland Revenue would be the use of Article 1 of the First Protocol to the Convention. This article, in general terms, guarantees a person's right to his property. Property includes intangible rights such as a legitimate expectation that a certain state of affairs will apply. In the field of taxation this could apply to informal arrangements entered into by a taxpayer with the Inland Revenue. Should the Inland Revenue attempt to retrospectively withdraw such an informal arrangement it may now be possible to challenge the decision on the basis of infringement of Article 1 of the First Protocol.
An example of the type of circumstances that might give rise to such a right is provided by the case of R -v- Commissioners of Inland Revenue ex parte Unilever plc. In that case the company sought judicial review of the decision of an Inspector to overturn a practice governing the provisional claim for group relief that had been honoured for more than 20 years on the grounds that the Inland Revenue had acted unjustly and inequitably. The Court of Appeal upheld the company's claim, but in future it may be possible that, rather than facing the difficulties of judicial review proceedings, the taxpayer could argue that such a practice should be protected as the property or right of the taxpayer in accordance with Article 1 of the First Protocol. Any retrospective review of the position could be an infringement of the taxpayer's rights under HRA 1998 by the Inland Revenue.
For further information please contact Saad Ahmed, e-mail: Click Contact Link , Trinity Court, 16 John Dalton Street, Manchester, M60 8HS, UK, Tel: + 44 161 830 5000
This article was first published in the Spring 1999 Hammond Suddards Tax Newsletter Update
The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.
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