The Cayman Islands Tax Information Authority has to pay the court costs of two companies that successfully challenged the exchange of their tax information in a judicial review last year, even though the verdict is under appeal.
The Grand Court rejected an application of the Tax Information Authority to stay the execution of a costs order that followed a Sept. 13, 2013, Grand Court judgment quashing a decision by the authority to provide information to the Australian Taxation Office under the tax information exchange agreement between Cayman and Australia.
Australian authorities had made four requests for information to determine the beneficial owners of two Cayman-domiciled companies, M.H. Investments and J.A. Investments, which were suspected of controlling entities that allegedly held untaxed profits from Australian share trades.
In May of this year the Australian authorities dropped tax evasion and money laundering charges involving the Cayman entities.
The Tax Information Authority had applied for a stay of the costs order and a cost certificate over US$143,664.58 because it believes it has very strong prospects of succeeding with an appeal which would overturn the costs order.
In an affidavit, CITIA director Duncan Nicol further suggested that the Companies Law governing the two exempted companies only granted insufficient protection to recover any paid costs in the “highly likely event” that the authority was successful on the appeal.
The authority based its belief on a legal opinion from a leading counsel from Matrix Chambers which argues that the Grand Court erred in most of its findings and conclusion in its September judgment.
According to this judgment, the Tax Information Authority had failed to ensure that the information sought by the Australian Taxation Office only related to tax years and taxable periods after July 1, 2010, as stipulated by the tax information exchange agreement. CITIA also had no legal authority to provide Australian authorities with its consent to use material in court proceedings without first applying to the Grand Court for directions.
In addition, the Tax Information Authority should have notified the companies that were subject to the request of the jurisdiction making the request and the general nature of the information sought. The judgment said in the circumstances, producing the information infringed the applicant’s rights to “a fair and public hearing” and their “rights to privacy” under the articles 7 and 9 of the Cayman Islands Bill of Rights.
Under common law, a simple appeal does not automatically lead to a stay of the order that is appealed, and a good reason, such as a real prospect of success on appeal, is required to deprive the successful applicant from enforcing a judgment.
In his July 30 ruling, Justice Charles Quin said that “despite the opinion of a U.K. counsel I find that the CITIA has not provided any good reason or cause for a stay [of the costs order].” The authority had also failed to provide any evidence that the companies would be unwilling or unable to repay a costs order.
The judge also noted that CITIA waited five months before filing its summons for a stay of the order and took a further four months to file an affidavit in support of the application for a stay pending appeal without giving a reason for the delay.
The ruling also stated that the authority has not challenged the companies’ submission that the authority had failed to serve its notice of appeal in time and failed to apply for an extension. The appeal is tentatively scheduled for November 2014 but is more likely to be heard early in 2015, according to correspondence between legal counsel for the two parties cited in the judgment.