[2011] UKFTT 218 (TC)

TC01083

Appeal numbers:  TC/2010/7027 & 7030 & 7031

INFORMATION NOTICE – whether documents in  “possession or power” of Respondents – meaning of “power” not restricted to immediately enforceable legal right – penalties imposed

FIRST-TIER TRIBUNAL

TAX 

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	   Appellants

	- and -	
                  	
	                       		PANOS PARISSIS                                                        Respondent

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Appellants

	- and -
		
	                       		ADRIAN TOWLAND                                                   Respondent

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Appellants

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	                       		IAN HARRISON                                                           Respondent

				TRIBUNAL: Mrs B Mosedale (Tribunal Judge)
					         Mr C Jenkins (Tribunal Member)

Sitting in public at Reading County Court on 9 February 2011

Mr P Shea, officer of HMRC,  for the Appellants

Mr A Brown, of Andrew Brown 57 Ltd, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	The hearing concerned applications by HMRC for penalties against the three Respondents under s98(1)(i) and s100C Taxes Management Act 1970 (“the Act”) in respect of alleged failure to comply with notices issued under s20(1) of the same Act.
2.	The three applications were heard together by request of HMRC and with the consent of the Respondents.
3.	On 5 September 2008, with the approval of the Oxford General Commissioners, two notices under s20(1) of the Act were issued to Mr Towland, two to Mr Harrison and  two to Mr Parissis.  One of the two notices issued to each Respondent required under s20(1)(b) particulars to be furnished to HMRC  and the other under s20(1)(a) required documents to be delivered to HMRC.
4.	The three Respondents to these proceedings challenged the lawfulness of the issue of the notices in the High Court.  These proceedings were heard in December 2009 and were reported at [2009] EWHC 3734 (Admin) (R (oao Parissis & others) v J Grinyer and Commissioners for the General Purposes of Income Tax, Oxford City Division.)  The Respondents were unsuccessful.  Following the outcome of that challenge, the three Respondents then provided documents and particulars to HMRC.
5.	HMRC accept that the three notices requiring particulars, one to each Respondent, have been complied with and this hearing was not concerned with them.  HMRC also accept that some documents were provided in compliance with the three notices, one to each Respondent, requiring production of documents.  Their contention is that the documents supplied only partly complied with these s20 notices.
6.	The Respondents’ contention is that the s20 notices have been fully complied with because the documents demanded by the s20 notices which have not been produced to HMRC are not (they contend) in their “possession or power”. Section 20 of the Act in so far as relevant read as follows:
“20(1) Subject to this section, an inspector may by notice in writing require a person-
(a) to deliver to him such documents as are in the person’s possession or power and as (in the inspector’s reasonable opinion) contain, or may contain, information relevant to -
(i) any tax liability to which the person is or may be subject, or
(ii) the amount of any such liability……”
Background
7.	There was no dispute before us on the validity of the s20 notice and in particular whether the documents might contain information relevant to the Respondents and for that reason there is no need for us to set out in detail the information HMRC set before us as to what they believed to be the onshore and offshore structures with which they considered the Respondents connected in some way. 
8.	In summary, the Respondents were the founders and owners of Path Group PLC.  That company owned Path Distribution Ltd and IXOS Ltd (both UK companies).    IXOS Ltd sold some intellectual property rights to another company called IXOS Ltd, a company incorporated in the British Virgin Islands.  We will refer to it as “BVI” to avoid confusion.  BVI granted a licence over some of the IXOS intellectual property to Path Group PLC on 2 January 2001.  This was renewed and extended in 2006.
9.	In 2002 other intellectual property rights (relating to STOREX) were transferred by the owner to BVI but paid for by Path Distribution Ltd. In 2002 Path Group PLC agreed to pay BVI royalties on the use of the STOREX brand name.
10.	There was a management buy-out of Path Group PLC when the Respondents sold the worldwide group of Path companies to a team of directors.  In this agreement (“the Acquisition Agreement”) the intellectual property held by BVI was also transferred to the purchasers.  
11.	BVI has now been dissolved but it was owned by the Bourse Trust Company Ltd (“Bourse”) (a company incorporated and based in Guernsey).  Employees of this company were the directors of BVI.  Bourse held the shares on trust equally between three trusts, the Ionia Trust, the Jasper trust and the Caraudavian Trust.  Other assets are also held by these trusts.
12.	Mr Parissis was the settlor of the Ionia Trust and the beneficiaries are himself and members of his family.  Mr Towland was the settlor of the Jasper Trust and the beneficiaries are himself and members of his family.  Mr Parissis was also the settlor of the Caraudavian Trust but the beneficiary of the trust is Mr Ian Harrison.
13.	In the Acquisition Agreement, the Respondents describe themselves as the beneficial owners of BVI and guarantee the obligations of BVI under the agreement.
14.	The Ionia trust has made loans to Mr Parissis, the Jasper Trust has made loans to Mr Towland and members of his family; the Caraudavian trust has made loans to Mr Harrison.
The missing documents 
15.	HMRC gave the Tribunal a list of the documents requested which have not been supplied and for convenience in this Decision Notice we will refer to them as “missing documents”.  Mr Brown made no objections to the accuracy of this list.  The missing documents we find are:
(1)	The trust deed for the Caraudavian Trust;
(2)	The letter of wishes (or equivalent document) for the Caraudavian Trust;
(3)	(for all 3 trusts) all other correspondence and documentation issued when the trust was set up.
(4)	All correspondence which has been generated in the intervening period for the Caraudavian trust.
(5)	(for all 3 trusts) the trust accounts for all years from set up;
(6)	(for all 3 trusts) the trust bank statements (or client ledger account if no separate bank account was operated for the trusts).
(7)	Copies of all accounts drawn up by BVI since it was incorporated.
Burden of proof
16.	HMRC considered it was for the Respondents to demonstrate that the documents requested were not in their power.  Mr Brown disagreed with this.
17.	This is HMRC’s application for a penalty and for them to satisfy us that the documents have not been provided.  This point was not in dispute and it must be right that it is for HMRC to satisfy the Tribunal that the Respondents are liable to a penalty.
18.	Nevertheless, it must also be the case that if the Respondents wish to raise a specific defence to a penalty, such as reasonable excuse were it applicable, it would be for them to prove it.  In this case, the issue is whether the documents are in the Respondents’ possession or power.  Who has the burden of proof?  Is it for HMRC to show the documents are within the Respondents’ possession or power or for the Respondents to show that they are not?
19.	It seems to us that it is HMRC’s application for a penalty and it is for them to satisfy us that the documents are in the Respondents’ possession or power. We bear in mind it is hard to prove a negative. But, we think, although HMRC must raise a prima facie case that the documents are in the Respondents’ possession or power then it is for the Respondents to show that they are not.
Existence of documents
20.	It was the Respondents’ main case that they had no power over the missing documents.  Mr Brown however also maintained that they might not exist.  On this, as with possession or power, we think HMRC must establish a prima facie case that the documents exist.  It is then for the Respondents to prove that they do not.
21.	Item (7) BVI accounts:  Mr Brown pointed out that the British Virgin Islands law does not require companies to produce accounts and HMRC did not dispute this.  However, they produced a set of accounts which were later said to be in draft for BVI dated y/e 31 December 2006 which included comparatives for the previous year end.  These had been given to HMRC by Path Group plc.  Both sides were agreed (although the documentary evidence was not produced to us) that Path Group plc had been asked to provide all accounts for BVI and had replied saying that this one set of accounts was all they had. 
22.	The only other evidence led on this from the Respondents was from Mr Parissis that he did not know whether BVI had produced accounts (other than those for 2006).
23.	We find it most improbable that the shareholder, Bourse, with its responsibilities as trustee, would not require the Directors to produce accounts or that the Directors of a commercial company would not chose to produce accounts, whether or not required to do so by law.  Indeed they clearly did produce accounts or draft accounts for 2006 and 2005.  We find it is more likely than not that accounts were produced for every year the company was in existence.
24.	It was also suggested to us by Mr Brown that the accounts, if they existed, might have been destroyed once BVI was dissolved.  Again we find this improbable:  why would a professional trustee destroy accounts for a company in which it was the only shareholder, accounts which it might need to demonstrate its proper discharge of its duties of trusteeship?  There is a prima facie case these accounts exist and have not been destroyed and the Respondents have not led any evidence to contradict this.  We find they exist.
25.	Item (5) Trust accounts:  Mr Brown also suggested that the trust might not have produced accounts.  We consider it improbable that a commercial trust company would not keep accounts of its trusteeship.  We further note that (as set out below) it is required to do so as a matter of Guernsey law, as Section 25 of The Trust (Guernsey) Law 2007 provides:
“A trustee shall keep accurate accounts and records of his trusteeship.”
We find there is a prima facie case that these accounts exist and the Respondents have not led any evidence to defeat this.  We find they exist.
26.	Item 3 all other correspondence and documentation issued when the trust was set up:  Mr Brown also suggested that the correspondence and documentation issued when the trusts were set up might no longer exist.  We consider it improbable that a commercial trust company (Bourse) would destroy such documents where they relate to an extant trust with substantial property.  
27.	We also consider it improbable that a settlor would destroy such documents particularly in respect of a trust in which he and his close family are the only beneficiaries yet we note that HMRC have effectively accepted that the Respondents no longer possess this information (see below).  
28.	We find on the evidence before us that the documents do exist at least in the hands of the trustee.
Possession
29.	At first glance, many of the 7 items requested seem the sort of documents that a settlor or beneficiary (and the Respondents were both) would possess, such as the trust deeds and letter of wishes and the trust accounts.  Indeed HMRC are satisfied that the trust deeds and letters of wishes for the Ionia and Jasper trust have been produced.  
30.	The three notices of application for penalties state that HMRC do not agree with the Respondents’ refusal to produce the missing documents on the grounds they are not in their “possession or power” but it is clear that their grounds for stating this is that they believe that the three Respondents have de facto control of the three trusts and therefore also had de facto control of BVI.  HMRC maintained this stance in their skeleton argument where it was their case that the documents were within the power of the Respondents because irrespective of the legal structures, HMRC’s opinion was that the Respondents have the power to influence the trustees to provide the missing documents.  At the hearing they said they accepted that the Respondents may well not possess the missing documents and Mr Shea did not put it to Mr Parissis (who gave evidence) that he possessed any of the documents.
31.	Therefore, it was not HMRC’s case that any of the three Respondents are in possession of any of the missing documents and we did not consider this.  At the hearing the dispute between the parties was on the legal issue of the meaning of “power” when used in s20 and whether the documents were within the Respondents’ power as properly defined.
32.	Before turning to the legal meaning of “power” we first consider exactly what power or influence the Respondents have over the 7 classes of documents requested and that requires consideration of the terms of the trust deeds and the terms of Guernsey law.
Guernsey Trust Law
33.	Both parties accept that the three trusts were established under Guernsey law with a Guernsey company as its trustee and that it is subject to Guernsey law of trusts.  We were referred to the Trusts (Guernsey) Law 2007.  Both parties accepted that this Act governed the legal position of trusts in Guernsey (even the trusts in this case which were in existence before this Law entered into force).
34.	The relevant parts read as follows:
“Duty to keep accounts
25.  A trustee shall keep accurate accounts and records of his trusteeship.
Duty to give information
26.	(1)  A trustee shall, at all reasonable time, at the written request of 
(a) any enforcer, or
(b)	subject to the terms of the trust – 
(i) any beneficiary (including any charity named in the trust)
(ii) the settlor, or
(iii) any trust official
provide full and accurate information as to the state and amount of the trust property.
(2)	Where the terms of the trust prohibit or restrict the provision of any information described in subsection (1) a trustee, beneficiary, trust official or settlor may apply to the Royal Court for an order authorising or requiring the provision of the information.
(3)	The person applying to the Royal Court for an order under subsection(2) must show that the provision of the information is necessary or expedient – 
(a)	for the proper disposal of any matter before the court,
(b)	for the protection of the interests of any beneficiary, or
(c)	for the proper administration or enforcement of the trust.
(4)	[transitional provisions relating to pre-1990 trusts and  not relevant]	
……..
Non-disclosure of deliberations or letters of wishes
38.	(1)  A trustee is not, subject to the terms of the trust and to any order of the Royal Court, obliged to disclose-
(a)	documents which reveal – 
(i)	his deliberations as to how he should exercise his functions as trustee,
(ii)	the reasons for any decision made in the exercise of those functions,
(iii)	any material upon which such a decision was or might have been based,
(b)	any letter of wishes.
(2)	A “letter of wishes” is a letter or other document intimating how the settlor or beneficiary wishes the trustees to exercise any of their functions.
(3)	The person applying to the Royal Court for an order under this section for the disclosure of any document must show that the disclosure is necessary or expedient – 
(a)	for the proper disposal of any matter before the court,
(b)	for the protection of the interests of any beneficiary, or
(c)	for the proper administration or enforcement of the trust.”

35.	State and amount of trust property:  Our interpretation of Section 26(1) &(2) is that a trustee is obliged at the request of a settlor or beneficiary to provide full and accurate information as to the state and amount of the trust property unless the trust deed itself provides otherwise.  If the trust deed does overrule this requirement, the settlor or beneficiary may apply to the Royal Court for an order compelling the trustee to provide this information but to be successful would have to show it was expedient in the interests of the beneficiary or for the proper administration of the trust.
36.	It is clear from S25 as already noted that Bourse is legally obliged to prepare accounts for the trust.  However, s26 is an obligation to provide to the settlor or beneficiary full and accurate information as to the state and amount of the trust property.  We were given no evidence on how S26 has been applied in the courts of Guernsey.  All the evidence we have is the bare terms of the Act.  
37.	Mr Brown’s contention was that s26 did not cover any of the items demanded by HMRC in the s20 notices.  His view was that “state and amount of trust property” did not include accounts, correspondence and letters of wishes.
38.	Reading these it seems to us more likely than not that a trustee could only fulfil his duty by showing the current assets of the trust:  the “state and amount of the trust property” and at the same time showing how the trust came to comprise those assets.  In other words showing the “full and accurate information” on the current assets would require tracing the current state of the assets back to inception of the trust through its accounts and other information.  We also think it would include evidencing the trust assets which would include showing the bank statements for the trust (or client ledger if the money was held on a client account) and trust deed.
39.	So if clause 26 applies to the 3 trusts at issue in this case we think under the plain words of s26 the trustees would be obliged on request of a settlor or beneficiary to produce the following items demanded by HMRC
(1)	The trust deed;
(5)	the trust accounts for all years from set up;
(6) 	the trust bank statements (or client ledger account if no separate bank account was operated for the trusts).
40.	Where the trust owns a company, we think clause 26 extends to include the accounts of that company.  The accounts of that company would be information relevant to the amount or value of the trust assets.  However, BVI is dissolved.  Nevertheless, although the Tribunal was given no information on the circumstances in which BVI was dissolved (we could speculate this was after the management buy-out) nevertheless the company had been an asset of the trust and a full account of the current value of the trust must take into account what happened to past assets.  So in conclusion, we consider S26 also covers item (7) to the extent, of course, that the trustee possesses them.
41.	We agree with Mr Brown that s26 would not cover items (2), (3) and (4).
42.	letters of wishes:  Under Section 38 the trustee is not obliged to disclose a letter of wishes without a court order and again to be successful in this application would have to show that it was expedient in the interests of the beneficiary or for the proper administration of the trust.
43.	Ionia & Jasper trusts:  Although it was not brought to our attention in the hearing it is apparent on reading the trust deeds for the Ionia and Jasper trusts that s26(1) is excluded.  Clause 25 of the Ionia trust reads as follows:
“Exclusions to Trust Law Provisions
It is hereby declared that clauses 19, 22, 25, 34 and 57 of the Trusts (Guernsey) Law 1989 are excluded to the extent that they shall not be applicable to this Settlement.”
44.	The Jasper Trust has an identical clause 25.  We do not know the terms of the Caraudavian trust as this has not been produced to the Tribunal.
45.	We were given evidence that the Trusts (Guernsey Law) 1989 applied before the Trusts (Guernsey) Law 2007 and that it was amended by the Trusts (Amendment) (Guernsey) Law 1990.  The evidence with which both parties concurred is that this amended Law was in force at inception of the trusts.  
46.	The provisions of this Law excluded by the two trust deeds were (19) duty to get in and preserve trust property; (22) Duty to give information (25) impartiality of trustees; (34)liability for breach of trust and (57) Power to prescribe permitted investments.
47.	Clause 22  (as amended) of the 1989 Law provided as follows:
“22.	(1)	Subject to the terms of the trust, a trustee shall, at all reasonable times, at the written request of any beneficiary (including any charity named in the trust) or of the settlor, provide full and accurate information as to the state and amount of the trust property.
(2)	[transitional provisions – not relevant]”
48.	As this point was not raised at the hearing, we had no evidence on whether a trust deed could validly exclude provisions of statutory law from applying to the trustees.  The evidence we had from both parties was that the Trusts (Guernsey) Law 2007 now governs the trust.  Clause 26 of that Law does permit (under clause (2)) a trust deed to restrict or prohibit the provision of information set out in clause 26(1).
49.	We find that the effect of clause 25 of both the Ionia and Caraudavian trust deed was to do just that.  It referred to the duty to given information under clause 22 and said it would not apply to the trust.  Whether or not this was effective under the 1989 Law, we find it was effective under the 2007 Law and that was the law in force at the date the information notices were issued by HMRC in 2008.
50.	Under the 2007 Law we find the settlor or beneficiary of the Ionia or Jasper trust could only legally oblige the trustee to provide full and accurate information as to the state and amount of the trust property (which we find includes providing all the accounts for the trust and all the bank statements:  items (1),(5), (6) & (7)) if he applied to the Royal Court of Guernsey for an order under s26(2) and the Royal Court made that order.  And we find that the Royal Court would only give that order if satisfied that one of three sub-conditions in s26(3) applied.
51.	Under the 2007 Law we find trustee of the Caraudavian trust is legally obliged to provide the settlor and beneficiary of the trust with full and accurate information as to the state and amount of the trust property (which we find includes providing all the accounts for the trust and all the bank statements:  items (1),(5), (6) & (7)) as we have no evidence that clause 26(1) of the 2007 Law is excluded.
52.	Under the 2007 Law we find the settlor or beneficiary of any of the three trusts could only legally oblige the trustee to provide any letter of wishes or other documents as listed within s38 (in this hearing items (2)) if he applied to the Royal Court of Guernsey for an order under s38(3)  and the Royal Court made the order.  And we find that the Royal Court would only give that order if satisfied that one of three sub-conditions in s38(3) applied.
53.	There is nothing in the 2007 law which gives the beneficiaries or settlors the right to demand from the trustees (by court order or otherwise) other documents relating to the trust if they are not within s26 or s38, such as correspondence and documentation issued when the trusts were established or generated since then unless it relates to how the trustee should exercise its function as trustee, the reasons for the trustee’s decisions, or material on which those decisions were based.  This covers items (3) and (4) in this appeal.
54.	It is the Respondents’ case that they do not have a presently legally enforceable right to any of the material sought by HMRC and that it is therefore not within their power.  It is HMRC’s case that the material must be de facto in their power because they are the settlors and beneficiaries and can be presumed to have real power over the trustees.
Meaning of “power”  
55.	Mr Brown cited the House of Lords decision in Lonrho Ltd & another v Shell Petroleum Co Ltd [1980] 1 WLR 627 in which their Lordships considered the phrase 
“[documents] which are or have been in his possession, custody or power relating to any matter in question in the cause or matter.”
56.	Lord Diplock delivered the unanimous decision of the court and said:
“…the expression “power” must, in my view, mean a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else.”
57.	It was Mr Brown’s contention that trustee is not legally obliged to provide these documents, and we have found that the trustee is not obliged to produce quite a few of the documents demanded by HMRC without a court order, and in the case of some of them the trustee has no legal obligation to produce them at all (ie documents (3) & (4) except to the extent they are within clause 38 of the 2007 Law).
58.	Therefore, Mr Brown says applying Lonrho, the documents are not in the “power” of the Respondents.
59.	The meaning of “power or possession” was considered by the Special Commissioner in the case (cited above) of Meditor Capital Management Ltd.  The case concerned a Notice of Enquiry issued under Finance Act 1998, Schedule 18 paragraph 27 and like s20 of the Act it required the taxpayer to produce documents reasonably requested by the Inland Revenue which were in its “possession or power”.
60.	The Special Commissioner upheld the notices and concluded that the Appellant had failed to demonstrate that it did not hold the documents in its power even if the meaning of “power” was the presently enforceable legal right to obtain them.  However, the Special Commissioner went on to say that he saw no reason why in the context of an Inland Revenue notice “power” should have the same restricted meaning as applied by the House of Lords to “power” in the context of discovery of documents for legal proceedings:
“(paragraph 57)…..Thus even if the Lonrho test is the correct test to apply for Para 27 purposes (and it need not be:  (I see no eason why in the context of Para 27 ‘power or possession’ should mean anything other than a de facto ability to obtain the documents or particulars), the Appellant has certainly not discharged the burden imposed by the Taxes Management Act 1970 section 50(6) that the documents sought by the Inland Revenue within Items 3, 4 & 5 are not within its ‘power or possession’, whether ‘power or possession’ means the legal ability to obtain documents or particulars or de facto ability to obtain them.”
61.	HMRC pointed out that the Special Commissioner in Meditor, although he did not decide the point, was inclined to the view that Lonrho did not apply to interpretation of “power” in s20 of the Act and asked this Tribunal to agree.
62.	The decision of the House of Lords in Lonrho is of course binding on this Tribunal to the extent that it decided the same question of law.  But it did not do this.  It decided the meaning of “power” in the context of the rules of the Supreme Court (RSC) not in the context of s20 of the Taxes Management Act.  Nevertheless, the Lords’ view of the meaning of “power” carries considerable weight with the Tribunal so we need to consider in detail why the House of Lords came to the conclusion that it did in order to consider whether it would be right for us to come to the same conclusion (but in the context of s20).
63.	Words are not used in a vacuum.  The word “power” in one context might have a different meaning when used in another context. The House of Lords when looking at the Rules of Supreme Court considered the word “power” as part of a phrase of three words “possession, custody or power” and as part of the overall rule that required disclosure of documents which are or had been in the person’s possession custody or power.  It was a requirement to list for the benefit of the other side in the litigation documents which they still had or had once had had ‘available to be looked at.’ Lord Diplock said at page 635 G-H:
“Identification of documents requires that they must be or have at one time been available to be looked at by the person upon whom the duty lies to provide the list.  Such is the case when they are or have been in the possession or custody of that person; and in the context of the phrase ‘possession, custody or power’ the expression “power” must, in my view, mean a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else.”
64.	We draw from this that Lords gave a restricted meaning to power in this context because the context only required documents to be listed if they had been or were available to be looked at; and further that the meaning of ‘power” was qualified by the two preceding words “possession” and “custody”.  
65.	There is nothing in what the Lords said in Lonrho which would necessarily mean that “power” should always bear this restricted meaning.  
66.	The purpose of s20 is to compel a taxpayer to produce documents which are relevant to his tax liability:  it is not (unlike Lonrho) a case of giving a list of documents which the person had or had had available to look at. The RSC looked at the past and present.  On the contrary, s20, looks at the present and future.  It looks at what documents the taxpayer has or can obtain.   
67.	Another distinction is that the phrase used in the legislation is “possession or power” and not “possession, custody or power”.  It is a normal rule of statutory construction that a word in a list may take its meaning from that list.  Where the list contains at least three words, the first two words used (such as ‘possession’ and ‘custody’) might well and did colour the meaning of the third word (such as ‘power’).  And this seems to have happened in  Lonrho where “power” was given a construction in line with those other two words.  Possession denotes physical possession, custody denotes legal possession:  therefore “power” was taken to be restricted to an immediately enforceable legal right to acquire possession without the need to obtain anyone’s consent.
68.	A word in a list cannot be constructed in this manner where there are only two words in the list, as it cannot be clear which word qualifies the other.  ‘Power’ clearly has a different meaning to ‘possession’ and vice versa.  The one cannot qualify the other.
69.	We therefore agree with the Special Commissioner in Meditor that the meaning of “power” in respect of information notices is not necessarily limited as it was in Lonrho.
70.	 The question is therefore what meaning is properly attributed to “power”  in the context of an information notice.  HMRC say that it is “de facto” power as well as legal power.  In Lonrho the Lords said there must be a presently enforceable legal right and that no one else’s consent to obtain the document was needed.
71.	We consider whether the context of s20 requires a meaning wider than this to be given to “power”.  We consider “power” splits into two concepts – legal power and power in a practical sense.  We consider each in turn.
Legal right to the document
72.	On the facts of the Lonrho case the Lords decided there was no presently enforceable legal right to the documents because it would require the defendant to use its position as shareholder to procure the directors of the company to change the articles of a subsidiary company to allow its shareholders the right to inspect the company’s documents.  
73.	Is “power” in the legal sense for s20 restricted to ‘presently enforceable legal right’ or is its meaning wider?
74.	Is a document within a person’s power for the purposes of an information notice if they have to take action in the Guernsey Royal Court to compel a trustee to produce it where such action is only going to be successful if they can show the production of the document is “necessary or expedient – 
(a)	for the proper disposal of any matter before the court,
(b)	for the protection of the interests of any beneficiary, or
(c)	for the proper administration or enforcement of the trust”?
When the reason is the person is taking the action at the behest of the UK’s revenue raising authority, the Guernsey Royal Court may well consider that none of the conditions are satisfied and refuse to make the order for production.  We find on the evidence in front of us such action is likely to fail.
75.	Weighed against this is that the Respondents, as settlors, themselves voluntarily entered into the trust deeds with terms that result that they do not have a presently enforceable legal right to procure from the trustees standard documentation about the trusts of which they are beneficiaries. Why should the Respondents not be compelled to take legal action under clause 26(2) of the 2007 Law at their own expense even if it is very uncertain of success?  It was their choice to put the documents beyond their reach.  But nothing in s20 suggests that this is relevant:  as we have said it looks to the present and future and not to the past.  It does not ask a taxpayer to produce documents which they once had in their power but do so no longer.  We conclude that the fact the Respondents attempted (perhaps successfully) to put documents beyond their power is not relevant to the question of whether the documents are now within their power.
76.	While ‘power’ in the legal sense may have a wider meaning for s20 than in Lonrho and despite considerations that the Respondents have voluntarily put the documents beyond their own reach, nevertheless we conclude that the ordinary meaning of power could not extend to include taking legal action that is likely to fail.  
77.	We do not consider that the possibility of taking action against the trustee under clauses 26 and 38 of the Trusts (Guernsey) Law 2007 means that the documents ((1), (2), (5), (6), & (7)) which could be the subject of such action are within the legal power of the Respondent, because we find such legal action is likely to fail.
De facto power
78.	De facto or practical power did not arise in Lonrho as the defendants in that case had asked the owners of the documents sought for their production and been refused.  The documents were not in Shell’s de facto power.  In any event, the Lords in Lonrho did not consider that being able in practice to obtain a document, perhaps by influence, was enough for it to be within the person’s ‘power’.  Not only did the Lords require a presently enforceable legal right to the documents to exist but they said it must be exercisable without another person’s consent.  HMRC are asking us to find that a document may be within a person’s power for s20 purposes even if they do need the consent of another person.  “De facto” power would cover documents (1)-(7) in that the trustee possesses them and (in HMRC’s view) would produce them on request to the settlor and beneficiaries.
79.	Could documents be within the Respondents’ power if they have to get the consent of another person (in this case the trustee) in order to obtain them?  It costs very little to ask.  We consider, in the context of information notices where the emphasis is on the present and future, and contrary to the conclusion reached in Lonrho in the context of disclosure for litigation where the emphasis was on the present and past, that documents are within a person’s power if they can obtain them, by influence or otherwise, and without great expense, from another person even where that person has the legal right to refuse to produce them.
80.	So the question is then is it for HMRC to show that the trustees certainly would hand over the documents if asked or for the Respondents to demonstrate they have asked the trustees and been refused? 
81.	HMRC have raised a prima facie case that the Respondents would be given the documents by the trustees:  they are both settlors and beneficiaries. The Respondents, we find, transferred some of their wealth to the trustee on trust for themselves.  We find they were unlikely to do this if they did not believe that the trustee would act on their instructions.  The trustee is a professional trust company and will have a reputation to maintain. The trustee has made loans to the beneficiary.  From what little evidence we were given, we find the trustee cooperated in the sale of the business.  Even if not obliged in the absence of a court order to provide documents (1)-(7), we find it is likely a trustee would chose, in the spirit of trusteeship, to provide copies of them to the settlors and beneficiaries.
82.	HMRC have raised a prima facie case that the documents are within the power of the Respondents and we therefore think it is for the Respondents to show that they have asked the trustee for the documents and been refused.  They have not done this.  They are therefore liable to a penalty.
The penalties
Mr Parissis
83.	Mr Parissis has partly complied with the information notice.  He provided the Ionia Trust deed and letter of wishes. As we have already found, despite having only the right to take an uncertain action against the trustee for legal possession of the documents, he is liable to a penalty because he has failed to show the documents are not in his power because he has not shown the tribunal that he asked the trustees to provide items (3)- (7) inclusive.
84.	The maximum penalty is £300.  Bearing in mind his partial compliance we assess a penalty of £200 against Mr Parissis.
Mr Towland
85.	Mr Towland had partly complied with the information notice.  He had provided the Jasper trust deed and letter of wishes.  As we have already found, despite having only the right to take an uncertain action against the trustee for legal possession of the documents, he is liable to a penalty because he has failed to show the documents are not in his power because he has not shown the tribunal that he asked the trustees to provide items (3)- (7) inclusive.
86.	The maximum penalty is £300.  Bearing in mind his partial compliance we assess a penalty of £200 against Mr Towland.
Mr Harrison
87.	Mr Harrison had partly complied with the information notice.  He has not provided the Caraudavian trust deed or letter of wishes but he did provide 3 asset summaries for the trust for years to 31 March 2005, 30 June 2005 and 31 March 2006.  Asset summaries are not accounts and do not cover all the years in question.  Without the trust deed there is no evidence it contains a similar clause 25 to the other two trusts.  We find he has failed to demonstrate that the documents are not within his power as he has not asked the trustees to produce them and under s26 of the Guernsey Trust Law 2007 it seems he would have a presently enforceable legal right to items (1), (5)(6) & (7).
88.	The maximum penalty is £300.  Bearing in mind his compliance has been very partial, we assess a penalty of £250 against Mr Harrison.

89.	The result of our decision is that each of the Respondents is in breach of the information notices served on them unless and until they request from the trustee the missing documents and hand over to HMRC the documents provided by the trustee.
90.	Yet it follows from our decision that, in so far as the Ionia and Jasper trusts are concerned, because these trusts contain clause 25 excluding the Trustee’s duty to give information that if Mr Parissis or Mr Towland had asked the trustee to provide the missing documents and if the trustee had refused to do so, that on our view of the law the documents would not have been in their “possession or power”.  However, HMRC have wide powers of assessment and we note that HMRC can make a discovery assessment where they honestly consider there has been an underpayment.  Once an assessment is made it is for the taxpayer to show that it is wrong.  The case of T Haythornthwaite & Sons Ltd CA 1927 11 TC 657 is a case where taxpayer refused to produce requested documents which it could not lawfully be compelled to produce.  But the effect of its refusal was to leave itself without the evidence to challenge the assessment, which was therefore upheld in the Court of Appeal.
91.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

Barbara Mosedale

TRIBUNAL JUDGE
RELEASE DATE: 1 APRIL 2011

Amended pursuant to rule 37 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 on 14 April 2011.