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HMRC press briefing in film tax case breached confidentiality duty, says Supreme Court

Out-Law News | 20 Oct 2016 | 2:44 pm | 3 min. read

'Off the record' comments made by former HM Revenue and Customs (HMRC) permanent secretary for tax Dave Hartnett to journalists at The Times in 2012 breached the duty of confidentiality owed to taxpayers by the department, the UK's highest court has ruled.

Quotes about financial advisers Ingenious Media, known for its promotion of film investment schemes, and its founder Patrick McKenna later appeared in the newspaper attributed to an unnamed "senior Revenue official". In the interview, Hartnett described McKenna as a "big risk" who had "never left my radar", and said that HMRC would "clean up on film schemes over the next few years".

Hartnett made additional comments to the journalists that were not published, including a description of the schemes marketed by Ingenious as "scams for scumbags". The schemes took advantage of tax reliefs that were available at the time, and HMRC had not reached a formal decision on whether to challenge their validity when the comments were made, according to the Supreme Court.

The High Court dismissed a judicial review claim brought by Ingenious and McKenna against HMRC in relation to the comments in 2013, on the grounds that they were "not irrational" and agreed to be off the record. This was later upheld by the Court of Appeal. The Supreme Court has, however, disagreed; finding that the comments could not be justified regardless of whether Hartnett intended for them to be reported publicly.

"The whole idea of HMRC officials supplying confidential information about individuals to the media on a non-attributable basis is, or should be, a matter of serious concern," said Lord Toulson, giving the unanimous judgment of the court.

"I would not seek to lay down a rule that it can never be justified, because 'never say never' is a generally sound maxim. It is possible, for example, to imagine a case where HMRC officials might be engaged in an anti-smuggling operation which might be in danger of being wrecked by journalistic investigations and where for operational reasons HMRC might judge it necessary to take the press into its confidence, but such cases should be exceptional," he said.

HMRC officials are bound by a statutory duty of confidentiality, which prevents them from disclosing information other than in certain limited circumstances. This includes where the disclosure is made "for the purposes of a function of" HMRC. HMRC had argued in court that Hartnett's comments were justified as it was "generally in HMRC's interests to try to establish good relations with the financial press" and that the journalists may have been able to provide Hartnett with valuable information as the conversation continued.

However, the Supreme Court ruled that these arguments relied upon far too wide an interpretation of the statutory exemptions to the general duty of confidentiality set out in the 2005 Commissioners for Revenue and Customs Act. Lord Toulson pointed out that the statutory duty "[was] not something which sprang fresh from the mind of the legislative drafter", and was instead based on the common law duty of confidentiality. Any exceptions to that duty must be explicitly set out in statute, he said.

"It is a well established principle of the law of confidentiality 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," he said.

"In passing the 2005 Act, parliament cannot be supposed to have envisaged that … it was authorising HMRC officials to discuss its views of individual taxpayers in off the record discussions, whenever officials thought that this would be expedient for some collateral purpose connected with its functions, such as developing HMRC's relations with the press," he said.

"If parliament really intended to delegate to officials such a wide discretion, limited only by a rationality test, in place of the ordinary principles of confidentiality applicable to public bodies in respect of confidential or private information under statutory powers or for a statutory purpose, it would have significantly emasculated the primary duty of confidentiality recognised in [the 2005 Act]," he said.

The decision provided "an interesting take on the correct legal forum for such breaches of confidentiality by HMRC" said Steven Porter of Pinsent Masons, the law firm behind Out-Law.com, which is acting for a number of investors in various Ingenious partnerships in a separate judicial review. That review concerns HMRC's decision to issue the investors with partner payment notices (PPNs)  requiring disputed tax to be paid before the underlying dispute with HMRC had been determined.