This Irish Supreme Court case considers disclosure obligations under Irish tax legislation, namely section 908 of the Taxes Consolidation Act (“TCA”) 1997, and the potential conflicts with a duty to retain confidentiality or to respect privacy in another jurisdiction.

The decision was delivered on 25 January 2013

Background

In 2006 the Revenue (Mr. Paul Walsh is Principal Officer with Revenue) sought an order from the court under section 908 TCA 1997 that the respondent (National Irish Bank) furnish certain documents, books and records in respect of:

1. Northern Bank Limited
2. Northern Bank (Isle of Man) Limited
3. Isle of Man branch of National Irish Bank

The High Court made the orders sought in respect of A and B on the bank's consent, but declined to grant the order in respect of C. The information sought under A and B referred to transactions between the Irish bank and other named and related banks outside the jurisdiction and the High Court held that there was “no attempt to seek disclosure directly from foreign banks concerning the affairs of their customers but what was sought was information held within the Bank in Ireland which might cast light on accounts which persons with Irish addresses held with those foreign banks. On the other hand, in relation to C more direct information concerning the actual accounts themselves was sought”.

Revenue appealed to the Supreme Court the High Court's refusal to grant the order in respect of the Isle of Man branch.

Issues

A number of issues arose in this case:

1. The definition of “financial institution”.

The Bank argued that the branch of the bank in the Isle of Man is to be treated as a separate entity not regulated by the Central Bank and therefore a “financial institution” for the purposes of the relevant provisions of the Taxes Acts. Revenue contested that argument.

2. The approach to deal with a potential conflict between a disclosure obligation under Irish law and an obligation of confidence or privacy in a potentially relevant other jurisdiction.

Revenue argued that the court should make a disclosure order but appropriate measures should be included which will allow the court in the other relevant jurisdiction, in this case the Isle of Man, an opportunity to consider the matter on the basis of an appropriate application by any party affected by the order. The Bank argued that this would be inappropriate as the banking relationship is under the law of the Isle of Man and in making such an order the Irish courts would be acting extra-territorially on foot of a provision of the Taxes Acts.

3. The law applicable to the banking relationship between the Bank and its customers at its branch in the Isle of Man.

4. The role of the comity of courts and the extent to which it would be inappropriate to make an order which might be said to impinge on the proper jurisdiction of the courts of the Isle of Man.

5. Whether an order of the type sought by the Revenue amounts to an exercise of extra-territorial jurisdiction. If it does, whether section 908 TCA 1997 is to be interpreted as having adequate extra-territorial effect so as to permit the order to be made.

Judgment

The High Court refused to grant the order in respect of the Isle of Man branch and had held that:

• There was an implied term in any contract between a bank and its customers that the Bank will not share confidential information. The Bank owed its customers a duty of confidence.
• The proper law between the Bank and its customers was that of the Isle of Man.
• Section 908 TCA 1997 did not apply due to lack of territoriality to the branch of the Bank in the Isle of Man.

The Supreme Court's starting point was the meaning of “financial institution” and consideration of the definition in section 906A TCA 1997. The Bank came within the definition of financial institution as it was a company registered in Ireland and regulated by the Central Bank. However, with regard to the Isle of Man branch, it was appropriate to treat a foreign branch of a bank as being separate from the rest of the bank. However, the court considered that such a distinction was not relevant for the purposes of deciding whether a company is a financial institution for the purposes of the TCA 1997. The court was “satisfied, therefore, that for the purposes of the definition of “financial institution” to be found in section 906A of the Taxes Acts, the Bank qualifies as such a financial institution just as much in respect of business transacted at its Isle of Man branch as any of its branches in Ireland. For the purposes of the section, the Bank is an indivisible entity which comes within the terms of the section”

Dealing with the issue of transnational conflict between disclosure and confidentiality, the court disagreed with the Banks suggestion that Revenue should have applied to the courts of the Isle of Man first for the order. There was no basis or legal power to make such an application. The Taxes Acts, as Irish Statutes, apply only in Ireland and provide no basis for Revenue to make an order under section 908 TCA 1997 directly to the Isle of Man courts. Revenue was held to be correct in its approach to first apply to the Irish courts for the order.

Considering the extra territoriality effect of section 908 TCA 1997, the court found that this was irrelevant since that section “applies to the Bank because it is an Irish bank which may be required to make available certain information and materials in Ireland to the Irish Revenue”. Neither was it relevant in this case to consider the question of the proper law of any contract which the Bank may have with its customers of the Isle of Man branch. What was relevant was if the Isle of Man courts would be prepared to recognise disclosure obligations arising from a non-Isle of Man jurisdiction. This though was not possible to predict with certainty and despite suggestions in other cases that disclosure may be allowed in aid of revenue investigations it was a matter for the Isle of Man courts only. It was not appropriate for the Irish Supreme Court to express any view on the proper law of the relevant banking contracts.

The primary task of the Irish courts is to determine whether, as a matter of Irish law, it would be appropriate to make an order under section 908 TCA 1997. Where compliance with such an order might result in a breach of the law of another jurisdiction then the Irish courts must consider what weight should be attached to that factor in reaching an overall determination as to whether the order should be made. However, the Irish courts must have clarity as to the consequences of making any order and in this case the Supreme Court did not have the level of clarity needed. This lead to the court finding that is was appropriate to make an order under section 908 TCA 1997 in the form sought by the Revenue in this case. However, in the circumstances of this case the court adopted a procedure which “enables any interested party to obtain a definitive ruling from the courts of the Isle of Man and to make provision for the matter being re-entered before this Court to enable this Court to have regard to any such ruling which may be obtained in a timely fashion”.

The Supreme Court concluded that an order in the terms sought by Revenue should be made under section 908 TCA 1997. However, a process should be in place which gives the Bank the opportunity to seek a ruling from the Isle of Man courts as to whether compliance with the order would be in breach of the laws of the Isle of Man. In the event that such breach was found to exist the matter could be brought back to the Irish Supreme Court for Pre-consideration.

The full text of the case is available at http://www.bailii.org/ie/cases/IESC/2013/S2.html