Address tax info debacle

My attention has been drawn to two very important news items, one in the issue of the Cayman News Service dated Oct. 9, 2013 headed “ATO (Australia Tax Office) ignores Cayman Court”, and the other one in the Caymanian Compass newspaper of Fri. Oct. 11, 2013 headed “Australia defies Cayman court ruling.”

Both news media should be congratulated on the speed with which they have brought to the attention of the public in two well written and factually correct articles the facts surrounding this unfortunate and disturbing matter. These two articles should be read very carefully by the general public, the government of the Cayman Islands and our Legal Department and immediate steps should be taken by the appropriate authorities to prevent the action that has been taken by the Australian court from ever happening again either by that court or any other court.

The Australian Court has acted in relation to a judgment of our Cayman Court in a very important matter in a manner that I do not think our Cayman Court would have acted in relation to a judgment of an Australian Court. In acting as it did, the Australian Court has disregarded the well known principle of International Judicial Comity, which is that courtesy and recognition of the judgment of one foreign court is usually extended to such judgment by another foreign court. This is especially to be observed when the two courts belong to states which both have Her Majesty the Queen as their Head.

In relation to the principle of International Judicial Comity, Australia should remind itself of the classic approach to this principle by Lord Denning in Rio Tinto Inc. Corporation v Westinghouse Electric Corporation 1978 A.C at page 560, where he said, “It is the duty and pleasure of the English Court to do all it can to assist the foreign Court just as the English Court would expect the foreign court to help in like circumstances.”

Our courts over the years have frequently acted in compliance with this dictum of this great English judge and jurist and I am disappointed to observe that an Australian Court has chosen to disregard it in this matter. The Australian Court has instead chosen to disregard and defy a judgment of a judge of our Cayman Court in which he held that four requests for documents and information made to our Cayman Islands Tax Information Authority (the CITIA) by the Australian Tax Office (ATO) and granted by our CITIA were wrongly and illegally granted and that the documents sent to the ATO pursuant to those requests ought never to have been sent, should not therefore be used and should be returned to the CITIA or destroyed. The Australian Court has permitted the ATO to disregard the request of the CITIA either to return the documents sent to them or to destroy them and have permitted and sanctioned their use as evidence in Australian proceedings, despite the judgment of our Cayman Court and even before the judgment of our court by Justice Charles Quin has been adjudicated upon by our Court of Appeal, in which court I understand that an appeal by the CITIA against the judgment of Justice Quin is pending. This is an especially troubling ruling by the Australian Court for the Cayman Islands.

The Cayman Court in its judgment came to the conclusion that the CITIA had acted wrongly, illegally and in breach of the provisions of the agreement and the law governing the agreement and granted to the applicant companies all the relief that they claimed against the CITIA.

It is this important judgment of our Court that has been disregarded and defied by a judgment of the Australian Court and pursuant to which the ATO has refused to comply with the requests made to it in the letter written to it by the CITIA following the judgment of the Grand Court in the judicial review proceedings.

I think that, in the circumstances that have arisen, the first step to be taken is for both our government and Her Majesty’s government to strongly protest to the Australian Government about the refusal of its court to extend the usual International Judicial Comity to the Cayman Islands judgment and about the fact that its court has decided to disregard and defy the judgment of our court whilst it is still binding and has not yet been adjudicated upon by our Appeal Court. I will make some other suggestions which might serve to prevent a similar situation from arising in the future but it is important to realize that, if nothing is done, the confidence of persons who do and wish to do business here will be seriously affected and they will no longer regard the Cayman Islands as a place where they can expect to see the judgments of Cayman courts followed and respected by foreign courts and also where they can expect to receive fair and equitable treatment from bodies like the CITIA, according to the rule of law.

In this matter, it is clear from Justice Quin’s judgment that it was the unlawful decisions made by the CITIA and its failure to follow clear and specific provisions in the tax agreement and the TIA Law that has given rise to the situation whereby the ATO has received and is in possession of documents which was produced for it by the illegal and wrongful actions of the CITIA and which has enabled the ATO and the Australian Court to say that, despite the fact that this is material that was obtained illegally and in breach of Cayman law, they are entitled to use it and to disregard and defy the judgment of our court to the contrary and which must be regarded as a binding judgment until it is reversed by our Court of Appeal.

However, the effect of Justice Quin’s judgment as it stands, and until it is reversed either partially or entirely by the Court of Appeal, is that the CITIA is responsible for creating the embarrassing and possibly very costly position in which Cayman now finds itself.

My other recommendations:

I respectfully suggest that provisions be inserted into the TIA Law by way of amendment thereto to require the CITIA before it supplies any information or documentation or gives its consent to any use of documents which it proposes to supply in response to a request, to make an application to a judge of the Grand Court to sanction and approve the action that it proposes to take to the requests that have been made to it by the requesting party. This will enable the court to consider and sanction and approve all the steps that the CITIA has taken in relation to a request and to verify that the CITIA has properly complied with the law and the provisions of the tax agreement in respect of which the application to the court is made.

Judicial supervision of the CITIA is both desirable and needed. Such a procedural step will, I am sure, be welcomed by the persons who do or intend to do business here and will restore and enhance their confidence in the Cayman Islands. It should also be a step that would be welcomed by the CITIA.

I do urge our authorities to take steps along the lines of the suggestions that I have made in this letter. I certainly think that the public would like to know:

How many requests for information has the CITIA received?

How many of such requests has the CITIA responded to by supplying information and documentation?

How many times has the CITIA applied to the Court for directions under the provisions of section 21(2) which deals with the restriction on the use of information and provides that before consent is given for the use thereof that the CITIA should apply to a judge for directions?

Is it the practice of the CITIA to serve section 17 (1) notices on persons or entities who are the subjects of a request or requests as required by the provisions of this section?? If yes, how many such notices have been served by the CITIA?

Has the CITIA ever refused a request? And if so, on how many occasions?

The CITIA is a body entrusted with very important functions and also to make very important decisions after following the provisions of the law and the tax agreement and it is my hope that it will provide a
nswers to the above questions.

Ramon Alberga Q.C.