Ben Nevis (Holdings) Ltd & Anor v HM Revenue & Customs

The Court of Appeal dismissed the appellants' challenge to the High Court's refusal to set aside service out of the jurisdiction and a freezing order obtained by HMRC pursuant to a request for mutual assistance from the South African tax authority. Central legal questions were the temporal scope of Article 25A (assistance in the collection of taxes) as inserted by the 2010 Protocol into the 2002 United Kingdom–South Africa Double Taxation Convention, the interaction (or otherwise) of Article 25A with Article 27 (entry into force / temporal effect) of the Convention, and whether section 173 of the Finance Act 2006 permitted the domestic implementation of the Protocol so as to affect tax liabilities arising before 19 July 2006.

The court applied established principles of treaty interpretation (including Articles 31 and 32 of the Vienna Convention as reflecting customary international law) and concluded that Article VI of the Protocol supplied the appropriate commencement and temporal effect provisions for Article 25A. Article 25A is not to be read as subject to Article 27 so as to impose a backstop by reference to the date on which the 2002 Convention took effect. Article 25A may therefore be used, subject to its own qualifications, to assist in collection of revenue claims even where the underlying tax liabilities arose before the 2010 Protocol entered into force, provided the request for assistance is made after entry into force. The court also held that section 173 Finance Act 2006 validly authorised the making of Orders in Council to give domestic effect to such international tax enforcement arrangements, including in relation to liabilities that arose before 19 July 2006.

Background and parties:

• The first appellant, Ben Nevis (a British Virgin Islands company), was held liable to SARS for substantial South African tax debts for the 1998–2000 years of assessment. SARS alleged asset transfers to a second appellant, Metlika Trading Limited, and discovered a London deposit of approximately £7.8 million in MTL's name.
• SARS requested assistance from HMRC under the 2010 Protocol which amended the 2002 UK–South Africa Double Taxation Convention to introduce Article 25A (assistance in the collection of taxes). HMRC issued proceedings in the Chancery Division seeking judgment against Ben Nevis for the tax debt and relief under sections 423–425 Insolvency Act 1986 to make the deposit available.

Procedural posture: HMRC obtained permission to serve out of the jurisdiction and a freezing order without notice; Ben Nevis and MTL applied to set aside and to strike out. HHJ Pelling QC dismissed that application on 20 July 2012. The appellants appealed to the Court of Appeal but limited their grounds to two temporal issues arising from the Protocol and domestic implementing legislation.

Issues framed:

1. Whether, on proper construction, Article 25A should be read subject to Article 27 of the 2002 Convention so as to exclude assistance for tax debts relating to periods prior to 1 January 2003 (the date in Article 27);
2. Whether section 173 Finance Act 2006 and the 2011 Order in Council could validly give domestic effect to Article 25A in relation to tax liabilities arising before 19 July 2006 (the date section 173 came into force), or whether such domestic implementation would be unlawfully retrospective.

Reasoning and conclusions:

• The court applied treaty interpretation principles derived from the Vienna Convention (Articles 31 and 32) and related domestic authorities. It held that the Protocol itself (Article VI) supplies the appropriate entry-into-force and temporal-effect rules for the provisions it introduces; it is unnecessary and conceptually problematic to import Article 27's temporal limitations into Article 25A.
• Constraining Article 25A by Article 27 would produce absurdities and anomalies (for example differing temporal rules for different taxes) and was not required by the text, context or purpose of the instrument. The court therefore rejected the appellants' proposed backstop limiting Article 25A to liabilities accruing on or after 1 January 2003.
• The amended Article 25 (exchange of information) was likewise not to be treated as subject to Article 27 for analogous reasons.
• The Memorandum of Understanding agreed between the competent authorities was admissible as a subsequent agreement or practice under Articles 31(2)–(3) Vienna Convention and supported the view that requests could relate to liabilities determined before entry into force so long as requests themselves were made after entry into force.
• On the retrospective-legislation point, the court distinguished objectionable retrospective alteration of past legal effects from prospective application of new enforcement machinery to pre-existing debts. Article 25A does not retroactively alter the existence or character of the South African tax liability, nor does it create a substantive new tax right; it operates by legal fiction to permit collection "as if" the claim were a domestic revenue claim. Section 173 therefore validly authorised the 2011 Order in Council to give domestic effect to the Protocol even in respect of liabilities arising before 19 July 2006.

Disposition: The appeal was dismissed and the High Court decision upheld. The Court of Appeal also recorded observations about public availability of memoranda of understanding and the proper form and length of skeleton arguments.

Appeal dismissed. The Court of Appeal held that Article 25A of the 2002 Convention as inserted by the 2010 Protocol is not subject to the temporal limitations of Article 27 and can apply to requests for collection made after the Protocol entered into force even where the underlying tax liabilities arose earlier; and that section 173 Finance Act 2006 authorised domestic implementation of such international tax enforcement arrangements, including in relation to liabilities arising before 19 July 2006.

Appeal from the High Court, Chancery Division (HHJ Pelling QC sitting as a High Court judge in Manchester) (judgment handed down 20 July 2012, Case No: HC 12 C 00707). Permission and hearing in the Court of Appeal under Case No: A3/2012/2201; hearing 30 April and 1 May 2013; judgment of the Court of Appeal handed down 23 May 2013, neutral citation [2013] EWCA Civ 578.