Ariel v Halabi and HMRC [2018] JRC006A

The Jersey Court exercised their discretion and consented to vary the terms of Recognition and Consent Orders to allow a Trustee in Bankruptcy to comply with an Information Notice served by HMRC in relation to the Bankrupt's tax affairs.

This case related to an application by the Trustee in Bankruptcy of Simon Halabi for directions in relation to an Information Notice issued by HMRC in England. The Information Notice required the production of documents, some of which the Trustee had obtained in Jersey pursuant to two court orders which HMRC required to determine the Bankrupt's tax liabilities. Directions were sought as to whether compliance with the Information Notice would amount to a breach of two orders made in the Jersey Court and, if so, whether the Court should grant leave to comply with the Information Notice. Failure to comply with the Information Notice could result in a financial penalty.

The first order was the Recognition Order, recognising the Trustee's appointment and giving him authority to exercise in Jersey all the powers he was entitled to under English law. The second order was a Consent Order in which the Trustee was joined to proceedings in private under Article 51 of the Trusts (Jersey) Law 1984 brought by the trustees of the A Trust. The Trustee in Bankruptcy had sought to be joined to the proceedings on the basis that the bankruptcy estate was a substantial creditor of the A Trust.

The Jersey Court was asked to determine three issues:

1.  If compliance with the Information Notice would constitute a breach by the Trustee of either the Recognition Order and/or the Consent Order.
2.  Did the Court have jurisdiction either to consent to or vary the orders so as to permit the Trustee to comply with the Information Notice?
3.  If the Court should exercise its discretion to do so.

In relation to the first issue, the Jersey Court held that complying with the Information Notice would amount to a breach of the Consent Order, as the Order stated that documents should not be disclosed to any third parties, which would include HMRC. The Court further considered the case of Re M Trust (2012) and found that, if the Trustee were to comply with the Information Notice without leave of the court and disclose documents in relation to proceedings held in private, this would amount to contempt of court. It was further held that compliance with the Information Notice would constitute a breach of the Recognition Order, with consideration given to how 'use' should be defined, as the Order stated that the Trustee should only use the information or documents for the administration of the bankruptcy estate.

In considering jurisdiction, the Court held that the insertion of the phrase "save with the leave of this court" in the Recognition Order meant that it was clearly envisaged that the material obtained pursuant to the Recognition Order could be used for a purpose other than the administration of Mr Halabi's bankruptcy. In relation to the Consent Order, it was held that the Court always has an ongoing ability to vary an order which it has made about the confidentiality of material produced in proceedings before it, whether held in public or private.

The Bankrupt, in his capacity as trustee of a deceased estate, argued that if the Court were to vary the two orders this would amount to indirect enforcement of a UK revenue law.  The Court noted that the Trustee in Bankruptcy was "on the horns of a dilemma", as without a variation he must either place himself in contempt of the Jersey Court or fail to comply with an obligatory notice under English law. The Court therefore did not see that a variation by the Court would amount to indirect enforcement of a foreign tax law. The Court therefore held that it had jurisdiction to grant the relief sought by the Trustee in Bankruptcy.

In considering the final issue of discretion, it was noted that bankruptcy and tax are very separate matters, and the process to obtain information is very different in each regime. In bankruptcy, Article 49 of the Bankruptcy Law is the relevant route. For tax matters, Jersey has entered into a Tax Information Exchange Agreement ("TIEA") with the UK which allows requests to be made to the Comptroller of Taxes in Jersey to obtain confidential information. The Court recognised, however, that there would be situations like this where someone is in receipt of restricted material but also bound by obligatory measures requiring its disclosure.

The Court held that ordinarily a Trustee in Bankruptcy would be refused permission if HMRC were able to obtain that information using the TIEA process.

Although HMRC had subsequently applied under the TIEA to obtain material in Jersey relating to Mr Halabi’s tax affairs, the terms of the TIEA did not permit material prior to 2010 to be obtained. HMRC required information for the period 6 April 1993 – 5 April 2013, as per the Information Notice, and this was approved by the First Tier Tribunal (Tax Chamber) as the independent judicial monitor.

In the circumstances, the Court concluded that the right course was to grant consent under the Recognition Order and to vary the Consent Order so as to permit the Trustee in Bankruptcy to comply with the Information Notice.

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