McL -v- D Anor
High Court
Judgment was given by Ms Justice Laffoy on April 3rd, 2009
Judgment
Orders freezing the accounts of a tax consultant and his wife, obtained by the Revenue Commissioners, were justified as the court could reasonably infer that there was a real risk that the taxpayers concerned would move any funds held by the financial institutions involved.
Background
The case concerned an authorised officer of the Revenue Commissioners, the applicant in the case, who had applied to the High Court for orders requiring four financial institutions to allow her to inspect documents and asking them to furnish information relating to the accounts of the first named respondent and his wife, the second named respondent.
As part of her grounding affidavit, the Revenue officer referred to a search of the home office of the respondent by officers of the Criminal Assets Bureau, during which a laptop was seized. The bureau extracted information from the laptop and passed it on to the Revenue Commissioners.
She said in her affidavit that the documents recovered from the laptop revealed that the couple had accumulated very substantial capital and had substantial income which had not been returned for tax purposes. She estimated that their tax liability could exceed €6.4 million.
She applied for a freezing order on the accounts, stating that she believed there was a real and substantial risk that the respondents or their servants or agents would remove money from the accounts unless there was a restraining order.
She stated that the respondents owned property and held assets outside the jurisdiction; that a dissolved company used by the husband had well over €1 million pass through it from an offshore source; that a substantial property was for sale, and that property had recently been transferred from the husband to the wife.
She also said that the respondents had shown disregard for their statutory duty with regard to tax, and the Revenue Commissioners had difficulty in trying to engage with them.
The orders were granted and renewed on a number of occasions, and eventually lifted on August 27th, 2008, by agreement, on the basis of certain undertakings being given by the respondents.
However, they challenged the making of the freezing order, and sought damages to compensate them for the damage they suffered as a result.
One of the principal grounds for challenging the making of the freezing order was that information received by the Revenue Commissioners was obtained illegally.
This referred to the information contained on the laptop, and given to the Revenue Commissioners by the Cab.
The first respondent averred that the Cab investigated a certain unnamed person who had employed him to do tax returns for him. In the course of their investigation they also obtained other, unrelated information concerning the respondent’s affairs. He said this was not obtained for the purpose laid down in the Act of 1996, establishing the bureau.
His counsel drew an analogy between a filing cabinet containing paper files and a laptop. If a bureau officer obtained a search warrant for a tax consultant’s office arising out of an investigation into a Mr X, and seized a filing cabinet, he did not have authority to look at any file other than those relating to Mr X, he said. Ms Justice Laffoy agreed.
Decision
Therefore, any information contained on the laptop that did not relate to the unnamed client’s affairs was not obtained for the purpose of the 1996 Act, and the bureau had no authority to transmit the information to the Revenue Commissioners. This evidence was not admissible in support of the Revenue officer’s application for the freezing order, she said.
The question was whether there was other evidence to support her application, Ms Justice Laffoy said. “I am satisfied that there was.”
She said that the lack of response from the tax adviser to the officer’s investigation of his tax affairs was of particular significance here.
Under the law the court must be satisfied that there are reasonable grounds for applying for a freezing order. Excluding the information derived from the laptop, she considered whether there were grounds for inferring that the respondent would remove the funds from the four institutions.
The mere existence of assets outside the jurisdiction did not in itself justify the inference, but the existence of foreign bank accounts may make it easier to move funds, which was relevant, she said.
The movement of funds through the bank account of a dissolved company also was an understandable concern. The disregard of the first respondent in complying with his statutory duties, and the difficulties experienced by the Revenue Commissioners, “is a significant feature”, and overall there were reasonable grounds for apprehending that the first respondent would move assets in the four institutions so as to avoid liability to tax, the judge said.
Turning to the claim of his wife, she recalled that this respondent had stated that her tax affairs were in order and the only outstanding issue with the Revenue were two capital gains assessments which were under appeal.
The Revenue officer had detailed the wife’s history of filing tax returns in her maiden name, and maintained that she had evaded very substantial tax liabilities from 1997 onwards.
The officer had set out her attempts to establish the extent of this respondent’s capital accumulation and the correct tax liabilities, but her correspondence elicited no response, leading to her raising assessments of capital gains tax. Appeals against them were only made when enforcement proceedings were commenced.
Mr Justice Laffoy said that there was a conflict of fact between the position of this respondent and the applicant, and there were reasonable grounds for suspecting that she may fail to comply with the tax code.
Her financial affairs and asset ownership were intertwined with those of her husband, so her factual position could not be factually distinguished from his. Therefore, there was a real risk that assets in her name would be moved with a view to taking them out of the reach of the Revenue Commissioners, and accordingly she found that the freezing orders were properly made.
The full judgment is on www.courts.ie.
Anthony Collins SC and Mark O’Mahony BL, instructed by the Revenue Solicitor, for the Revenue Commissioners; Eoin McGonigal SC and Frank Mitchell BL, for ED, Bernard Madden SC and Niamh Stewart BL, for JD, all instructed by Daly Derham Donnelly, Cork