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10 June 2008
Walsh v National Irish Bank was an important High Court case concerning the extent of the Revenue's powers to obtain information about bank accounts held outside Ireland. The background to the case lay in a Revenue investigation into tax evasion by Irish-resident taxpayers who hold offshore bank accounts.
National Irish Bank (NIB) carried on a banking business in Ireland and also had a branch in the Isle of Man, which operated under an Isle of Man banking licence. The case arose out of a Revenue investigation into taxpayers who held accounts in an Isle of Man branch of NIB.
The Revenue sought three categories of information from NIB.
Two categories of information sought were not contentious. NIB agreed to provide the Revenue with information relating to transfers to and from NIB customer accounts to Northern Bank Limited and Northern Bank (IOM) Limited. NIB was obliged to inform the Revenue of all transfers made between 1994 and 2006 between these banks where (i) the sums transferred equalled or exceeded €6,350 and (ii) the accountholder gave an Irish address.
The third category of information sought was disputed by NIB, because the information sought related solely to its Isle of Man branch (and did not cover transfers to or from NIB to its Isle of Man branch).
In relation to this category of information, NIB argued that this pertained to a branch of NIB outside the jurisdiction and that the information could not be released without an order of the court of the Isle of Man.
Section 908 of the Taxes Consolidation Act 1997
The Revenue requested the High Court to order NIB to disclose financial information relating to deposit holders with the Isle of Man branch where such deposit holders gave an Irish address. This order was sought under Section 908 of the Taxes Consolidation Act 1997.
NIB understandably wished to have certainty as regards the ambit of Section 908. As a matter of Manx law (as under Irish law), it owed a duty of confidentiality to its customers and could not encroach on this duty.
Section 908 is directed at financial institutions. It allows the Revenue, on application to the High Court, to seek information from financial institutions about taxpayers about whom there are reasonable grounds to suspect tax evasion. Justice McKechnie, in the High Court, was of the view that the information sought did fulfil these criteria.
Could Section 908 be given extra-territorial effect?
The High Court identified a fundamental objection to the application of Section 908: that the Irish High Court had no jurisdiction to order production of financial details relating to an Isle of Man branch of NIB.
NIB argued that it owed a duty of confidentiality to its customers under Manx law, and that it would not be entitled to disclose the requested information pursuant to an order by the Irish courts as Ireland was not the governing law jurisdiction. NIB argued that the governing law of a contract between the bank and its customer is the law of the location of the branch.
NIB produced evidence of Manx law which supported its argument and while the Revenue challenged this evidence, it produced no alternative Manx view.
The Revenue argued that while Section 908 should be given extra-territorial effect, there was no need to do so in this case. It pointed out that NIB was incorporated in Ireland and could produce the information sought in Ireland. To demonstrate the nexus between Ireland and the accounts, the Revenue asserted that it was likely that instructions relating to the account would have been given in Ireland and not the Isle of Man.
High Court Decision
NIB was successful in the High Court.
The court found that there was no doubt that the bank owed a contractual duty of confidentiality to its customers. This duty is subject to exceptions, the most relevant in this case being where disclosure of banking information was compelled by law.
The court agreed with NIB that the Isle of Man accounts were governed by Manx law. It found this to be the case in spite of the fact that technology means that it is no longer apposite to refer to accounts 'kept' at a branch. Nonetheless, where an account is held with a foreign branch of a bank, the account is governed by the law of the jurisdiction in which the branch is situated. This is so both under common law and under the Contractual Obligations (Applicable Law) Act 1991.
Moving to the question of whether Section 908 could be given extra-territorial effect, the court subscribed strongly to the principle of international comity - that is, the respect which one judicial system accords to another. It took the view that the Isle of Man courts would object to the Isle of Man branch complying with an order of the Irish courts which was in breach of Manx laws on banking confidentiality. It believed it highly probable that the Manx court would prohibit disclosure of the financial details of the Irish-resident account holders.
In the absence of clear language, the Oireachtas (Parliament) did not intend the statute to have extra-territorial effect. The Isle of Man branch should not be assimilated with NIB, an Irish-incorporated company, for the purposes of the application of domestic Irish law.
The judgment is being appealed by the Revenue to the Supreme Court, although no hearing date has yet been set.
The judgment is a compelling victory for NIB for several reasons:
For further information on this topic please contact Bríd Munnelly, Emer Hunt or Carina Lawlor at Matheson Ormsby Prentice by telephone (+353 1 232 2000) or by fax (+353 1 232 3333) or by email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org).
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