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On 6 March 2015 Switzerland updated the measures that it introduced to prevent circumvention of international sanctions against Russia. At present the Ordinance is only available in the official languages of the Swiss Confederation (see here for the German and French versions), although a press release is available in English (see link below). The amendment came into force on 6 March 2015 at 18:00.

In brief:

• The Swiss Federal Council has added the measures decreed by the EU in December 2014 following non-recognition of the annexation of the Crimea and Sevastopol to the ordinance on international sanctions of 27 August 2014. All foreign investment in the Crimea and Sevastopol is now prohibited. Service bans apply in the investment and tourism branches, and in some other economic sectors. The existing ban on the export of key goods to the Crimea and Sevastopol has been extended to include further articles. In addition, the measures have been made more precise to accord with adjustments made to the EU sanctions.
• The Federal Council has also added to Annex 3 of the ordinance the names of 28 further persons and entities who have had financial and travel restrictions imposed on them in the EU. Anyone in Switzerland with an existing business dealings with any of these entities is required to report this relationship.
• Swiss territory may not be misused to circumvent EU sanctions. The Federal Council is continuing current policy and taking measures necessary to prevent circumvention of the latest EU sanctions.

Press release: Situation in Ukraine: Federal Council extends measures to prevent the circumvention of sanctions

The Finance Act 2014 (High Risk Promoters Prescribed Information) Regulations 2015, which come into force on 27 March 2015, were laid before the House of Commons on 6 March 2015. These Regulations implement certain aspects of the regime created by Part 5 of the Finance Act 2015 applying enhanced disclosure obligations to certain promoters of tax avoidance schemes, as well as their intermediaries and clients.

The Regulations prescribe:
A technical consultation on this instrument ran from 16 December 2014 under 27 January 2015. Taking account of comments received, the conditions in the final version for producing copies of documents now make it clear that it is permissible to redact copies of documents where necessary to preserve legal professional privilege. See paragraph (3) of Regulation 11.

• how a promoter subject to enhanced disclosure obligations (“monitored promoter”) must publish that fact;
• how a client of such a promoter must report that fact to HMRC:
• the information and documents that must be provided to HMRC about the promoter’s tax avoidance schemes and clients, and
• the conditions under which copies of documents may be produced instead of the originals.

HMRC issued a press release publicising these Regulations on 7 March 2015. According to the press release, HMRC has already written to a number of promoters warning them of the consequences if they do not change their behaviour and has also sent the first Conduct Notice to a promoter. Promoters who fail to comply with the terms of a Conduct Notice can be issued with a “Monitoring Notice”. As “monitored promoters” they then fall within the terms of these Regulations.

The Finance Act 2014 (High Risk Promoters Prescribed Information) Regulations 2015

Explanatory Memorandum

HMRC press release

On 4 March 2015 the Court of Appeal handed down judgment in R (Ingenious Media Holdings plc) v HMRC. Sir Robin Jacob delivered the judgment of the court. This was an appeal from Sales J’s judgment in this matter.

Ingenious Media Holdings plc (“Ingenious”) and its subsidiaries conducted, inter alia, a business of promoting investment schemes in the form of partnerships intended to allow participating taxpayers to take advantage of certain tax reliefs and exceptions associated with films. HMRC maintain that all or most of these film schemes are ineffective for tax purposes, a matter that is currently being litigated. This case concerned statements made by HMRC’s then Permanent Secretary for Tax, Dave Hartnett, to two Times journalists in what Mr. Hartnett thought was an off-the-record briefing on tax avoidance schemes. The disclosure made to the journalists was that HMRC did not accept that the Appellants’ film schemes generated the tax reliefs claimed and that HMRC was going to challenge their validity. Mr. Hartnett acknowledged that he was aware of Patrick McKenna, the founder of Ingenious. Mr. Hartnett said that he thought that HMRC would be ultimately successful in defeating film schemes. This was information of HMRC’s own creation, not information given to it by taxpayers or by the Appellants in this case. Following the disclosure, various comments made by Mr. Hartnett were published in The Times, albeit attributed only to a “senior Revenue official”, in apparent breach of Mr. Hartnett’s understanding that they would not be published at all.

In brief, the Court of Appeal has held that:

• Mr Hartnett and HMRC did not breach section 18 of the Commissioners for Revenue and Customs Act 2005 in making the disclosure Mr Hartnett did, to journalists from The Times in what HMRC understood to be an off-the-record briefing. “Information held” was conceded by HMRC to have a wide meaning capable of including information generated by HMRC as well as information supplied to HMRC. But the Court also construed the meaning of “for the purpose of a function of the Revenue” in section 18(2) widely, meaning that the disclosure was permissible.
• Although Article 8(1) of the European Convention on Human Rights (“ECHR”) was engaged in respect of the founder of Ingenious, the disclosure had no effect on the Appellants’ private life and there was no evidence of any damage to reputation as a result of it.
• Article 1 Protocol 1 (“A1P1”) to the ECHR was not engaged because the case concerned a mere loss of future income said to result from the disclosure, which is not an interference with “possessions” within the meaning of A1P1. Although this was determinative of the A1P1 claim, the Court also indicated that it was in the public interest for HMRC to let the public know its view that film investment schemes were ineffective, regardless of the fact that no formal closure notices had been issued at the time.

R (Ingenious Media Holdings plc) v HMRC [2015] EWCA Civ 173, 4 March 2015

On 27 February 2015 the Court of Appeal held that it had jurisdiction to order a beneficiary under a discretionary trust to disclose details of the trust.

The court also dismissed the claimant liquidator’s appeal against an unlimited sum cross-undertaking in damages, but allowed the liquidator to appeal against the fortification of the cross-undertaking.

The case concerned a freezing order under which the defendant had to inform the claimants of his assets. The defendant disclosed that he was a discretionary beneficiary under certain named trusts, but did not give further details of the trusts. The defendant applied for an order discharging the freezing order unless the claimants gave an unlimited cross-undertaking fortified by an appropriate payment into a bank account in England to be held to the order of the court.

The Court of Appeal held as follows:

• The defendant’s interests under the discretionary trust were caught by the prohibition on dealing with assets and were subject to the disclosure order. The purpose of a freezing order was to prevent a defendant from putting assets beyond the reach of creditors in the event that judgment was entered against him. On the face of it assets held by the trustees of a discretionary trust would not be amenable to execution if judgment was entered against one of the class of potential beneficiaries at the suit of a third party. However, in the present case the wording of the freezing order was non-standard, and did in fact cover the interests of a beneficiary under a discretionary trust.
• The court had jurisdiction to order the beneficiary under a discretionary trust to disclose details of the trust and the trust assets, and it had been appropriate to make the disclosure order in the present case. The jurisdiction to make a freezing order carried with it the power to make whatever ancillary orders were necessary to make the freezing order effective. The claimants were only asking for information (not for an order preventing the defendant from dealing with assets).
• The judge had been correct in ordering an unlimited cross-undertaking from the liquidator, but there was not enough evidence in the present case to require fortification. The judge was entitled to take into account the lack of evidence about what efforts the liquidator had made to persuade substantial creditors, for whose benefits the recoveries would ensue, to back the cross-undertaking. As regards fortification, the judge had reasoned that an international businessman on the scale of the defendant was likely to suffer loss if prevented from conducting his ordinary business activities. However, the judge did not provide details about why she reached the general conclusions that she did regarding such business activities, and those conclusions were unsustainable on the evidence.

JSC Mezhdunarodniy Promyshlenniy Bank v Sergei Viktorovich Pugachev [2015] EWCA Civ 139, 27 February 2015

On 3 March 2015 HM Treasury published notices regarding updated EU sanctions against Somalia, the Central African Republic and Belarus.

Following the UN Security Council’s delisting of Mohamed Sa’id on 19 December 2014 from its sanctions in respect of Somalia, Sa’id was also removed from the EU sanctions list against the country.

Following the UN Security Council’s delisting of Levy Yakete on 31 December 2014 from its sanctions in respect of the Central African Republic, Yakete was also removed from the EU sanctions list against the Republic.

Following the General Court’s judgment in Case T-438/11 BelTechExport v Council of 9 December 2014, published in the Official Journal on 2 February 2015, EU sanctions in force against BelTechExport, a Belarus entity, were annulled. BelTechExport had been listed for providing assistance (including military assistance) to the Lukashenka regime.

On 12 February 2015 the Court of Appeal gave judgment in Investment Trust Companies (in liquidation) v Commissioners for HMRC. This was an appeal from Henderson J’s two previous judgments in this matter.

In brief, the Court of Appeal has held that:
What was the Court of Appeal hearing about?

• Investment Trust Companies (“ITCs”) can recover from HMRC, by way of restitution, the amount of the VAT actually paid to HMRC by their managers (the “75s”) in the “dead period”.
• ITCs cannot however recover from HMRC the amount of any input tax set against the manager’s VAT liability in any period (the “25s”). Instead, ITCs would have to bring separate claims against their managers for these amounts.

This case involved the payment of unlawful VAT by investment trusts (“ITCs”) to their managers for management services. The managers then paid a proportion of the VAT (the “75s”) to HMRC and set the remaining proportion (the “25s”) against an input tax which the managers had paid to their third party suppliers. The managers successfully recovered the “75s” for certain periods from HMRC (and passed this to the ITCs) under s. 80 VATA. However, that section prevented recovery of the “25s” and restricted recovery to a 3 year limitation period which created a statutory “dead period”. The ITCs sought restitution directly from HMRC of the full VAT paid by them to their managers in the “dead period” and the “25s” in the other periods.

Henderson J, in two separate judgments, found that ITCs:
Both parties appealed Henderson J’s judgments.

• could not recover, from HMRC, any amounts of VAT paid to HMRC by their managers in the “dead period”; but
• could recover, from HMRC, the amounts set against input tax which the managers could not recover from HMRC under s. 80 VATA (i.e. the “25s”) for periods other than the “dead period”.

We discuss below the key issues in the Court of Appeal’s judgment. For ease of reference, we have adopted the Court of Appeal’s notional claim values of:
How much can the ITCs recover from HMRC under UK domestic law?

1. £100 being the full VAT liability paid by the ITCs to the managers;
2. £25 being the amount of VAT paid by the managers to their third party suppliers and set against the managers’ VAT liability collected from the ITCs; and
3. £75 being the amount of VAT paid by the managers to HMRC from the amount collected from the ITCs.

This involves determining the value of HMRC’s unjust enrichment (i.e. the value of VAT in principle recoverable from HMRC). Henderson J found that this was the £100 VAT liability which was incompatible with EU law. HMRC argued that its enrichment was only the £75 actually paid to HMRC (the “75s”) and not the £25 set against input tax (the “25s”).

The Court of Appeal agreed with HMRC. It found that whilst the primacy of EU law required disapplication of national legislation by national courts it did not involve the national court treating the incompatible national legislation as a nullity. As a result, the effect of the UK legislation if it were compatible with EU law was that no VAT was payable by the managers to HMRC at all, and similarly, the managers would not have had the right to deduct any input tax either. HMRC therefore would have had no obligation, even in the dead periods, to allow the deduction of input tax. This was because the HMRC was entitled to £25 from the managers’ suppliers and overcharged tax could never be more than £75. Therefore, neither the managers nor the ITCs could recover more than £75 from HMRC. However, the managers were enriched by the £25 and the ITCs have a claim against them instead.

The Dead Periods

Henderson J found that claims in respect of the dead periods by the ITCs were prevented. His reasoning was that any claim by the ITCs should be analogous to that provided to the managers under s. 80 VATA. Since the managers were not entitled to recover for the dead period because of the exclusive nature of s. 80 imposed by s. 80(7), so the ITCs should be subject to the same limitation.

The Court of Appeal disagreed. It agreed that the effect of s. 80(7) was that s. 80 was the only remedy available to the taxpayer (i.e. the managers). However, s. 80(7) did not apply to other parties seeking recovery. It therefore could not prevent the ITCs from bringing a UK domestic law mistake claim against HMRC for the dead periods.

Can the ITCs recover the 25s from HMRC under EU law?

Henderson J found that the ITCs were permitted to recover the 25s from HMRC under EU law because the managers could rely on change of position to defend a claim against them for the 25s. HMRC argued that change of position was not available to the managers and therefore, they were the proper defendants to a claim for the 25s not HMRC.

The Court of Appeal agreed with HMRC. It found that EU law principles allowed (i) a two-stage recovery (i.e. against the State and the taxpayer); and (ii) recovery by the ultimate consumer against the State only where it was “impossible or excessively difficult” for the consumer to recover from the taxpayer. The Court found that it was not “impossible or excessively difficult” for the ITCs to recover the 25s from the managers because the evidence showed that the managers could not take advantage of the change of position defence in respect of the 25s.

Investment Trust Companies (in liquidation) v Commissioners for HMRC [2015] EWCA Civ 82, 12 February 2015

The Civil Procedure (Amendment) Rules 2015 were published on 26 February 2015 and came into force on 27 February 2015. They amend the Civil Procedure Rules 1998 for the purpose of implementing certain provisions of the Counter-Terrorism and Security Act 2015.

The amendments are as follows:

• The insertion of a new Part 88 containing rules about proceedings in relation to temporary exclusion orders, particularly where sensitive material is in issue, and it is necessary to ensure that such material is not disclosed where such disclosure would be contrary to the public interest. This includes modification of the application of other Parts of the CPR for the purposes of those proceedings; and
• The amendment of rule 1.2 (application by the court of the overriding objective), so that it is subject to rule 88.2 (modification to the overriding objective). Rule 88.2 modifies the overriding objective for the purposes of Part 88 by placing a duty on the court to ensure that information is not disclosed where such disclosure would be contrary to the public interest and by requiring that the overriding objective be read and given effect in a way which is compatible with that duty. This, and the rest of Part 88, is, however, subject to paragraph 5(1) of Schedule 3 to the 2015 Act, which provides that nothing in the relevant provisions of the 2015 Act or in rules made by virtue of them is to be read as requiring the court to act in a manner inconsistent with Article 6 of the European Convention on Human Rights.

The Civil Procedure (Amendment) Rules 2015 (SI 2015/406)

On 26 February 2015 the US Treasury, Office of Foreign Assets Control (OFAC) announced that it had placed a number of individuals alleged to be connected with Hezbollah on its sanctions list.

According to the official press release, the following actions have been taken:

• Mustapha Fawaz, Fouzi Fawaz and Abdallah Tahini have been designated pursuant to Executive Order (EO) 13224 for acting for or on behalf of Hezbollah;
• Amigo Supermarket Limited, Wonderland Amusement Park and Resort Ltd, and Kafak Enterprises Limited have also been designated pursuant to EO 13224 for being owned or controlled by Mustapha Fawaz and Fouzi Fawaz; and
• Any property or interests in property that the aforementioned individuals or entities may have within the US have been frozen, and US persons have been generally prohibited from dealing with them.

The Specially Designated Nationals List Update of 26 February 2015 has been made availablehere.

On 21 January 2015 the Administrative Court (Laing J) dismissed an application for disclosure by the National Crime Agency (NCA) of letters of request for mutual legal assistance from the US.

The letters of request concerned fraud proceedings against a number of Nigerian defendants. The US had obtained a prohibition order (under Part 4A of the Proceeds of Crime Act 2002 (External Requests and Orders) Order 2005/3184) freezing assets in the UK belonging to the defendants. The defendants applied for disclosure of the letters and argued that the letters lay at the heart of the NCA application; without them the application could not have been pursued at all, and they were therefore disclosable under CPR 31.14.

Laing J held as follows:

• The expectation was that communications between foreign states were confidential for reasons of international comity. It had been confirmed by the US Department of Justice that it wished to maintain the confidentiality of these letters of request. The reason for not ordering disclosure of letters of request, though in some cases it might yield to considerations of justice, was that such letters were confidential.
• There was no legislative requirement that letters of request should be disclosed. The question was whether inspection was necessary for the fair disposal of the action. The defendants had all the material that they needed in order to challenge the order.

National Crime Agency v Abacha [2015] EWHC 357 (Admin), 21 January 2015

On 20 February 2015 the Commercial Court (Leggatt J) emphasised the need for concise documents for the court and the correct nature and content of statements of case.

The case concerned allegations that the defendants conspired to induce the Serious Fraud Office (SFO) to investigate the claimants on a false basis by making statements to the SFO which the defendants did not believe to be true.

Leggatt J held as follows:

• “Statements of case must be concise. They must plead only material facts, meaning those necessary for the purpose of formulating a cause of action or defence, and not background facts or evidence. Still less should they contain arguments, reasons or rhetoric”.
• According to the Commercial Court Guide (8th edition, 2009), statements of case should be limited to 25 pages in length (with extensions to be granted by the court exceptionally and based on good reasons provided by the requesting party). Contentious headings, abbreviations and definitions should not be used. Particulars of primary allegations should be stated as particulars and not as primary allegations. Substantial factual information or lengthy particulars relied on should be set out in schedules or appendices. Evidence should not be included.
• “The particulars of claim which have been served in the present case flout all these principles. They are 94 pages in length. They include background facts, evidence and polemic in a way which makes it hard to identify the material facts and complicates, instead of simplifying, the issues. The phrasing is often not just contentious but tendentious”.
• “…unless adverse costs orders are made in cases of flagrant non-compliance, practitioners who are well aware of the principles of pleading and the provisions of the Commercial Court Guide will continue to overlook them, as happened here. In my view, the appropriate order in this case, and the order which I will make, is that the particulars of claim are struck out, the costs of drafting the particulars of claim are disallowed, and fresh particulars of claim no longer than 45 pages and otherwise complying with Appendix 4 of the Commercial Court Guide should be served within 21 days”.

Tchenguiz & ors v Grant Thornton UK LLP & ors [2015] EWHC 405 (Comm), 20 February 2015