31 March 2021
Bermuda decision: Clarification on the right of review of TIEA Production Orders
The recent decision of the Supreme Court of Bermuda in Ministry of Finance v IJK Limited  SC (Bda) 8 Civ provides welcome clarification for Respondents on the right of review of Production Orders pursuant to the Tax Information Exchange Agreements regime (''TIEA'').
Bermuda has long engaged in international tax information exchange. The International Cooperation (Tax Information Exchange Agreements) Act 2005 (''the Act'') enables the Minister of Finance to provide assistance to the competent authorities of any jurisdiction which has entered into a tax information agreement with Bermuda. Section 5 of the Act requires a Production Order from the Supreme Court and permits the application to be made ex parte.
Section 5(6) permits a target of a Production Order to challenge the order by seeking a right of review. The grant of a right of review is not automatic and the court must be satisfied that there is an 'arguable ground' for review with the onus for establishing this resting with the party served with the Production Order ("Target"). Targets face the additional hurdle that they do not have an automatic right to receive disclosure of the documents filed with the court on the ex parte application representing a significant tactical disadvantage.
The Judge in the present case, Mussenden J: (i) accepted the Target had two arguable grounds for review of the Production Order, (ii) ordered the disclosure of the documents filed with the Court by the Minister in support of the ex parte application; and (iii) ordered that the Target be provided with as much information of the request as necessary to show compliance with the safeguards contained within the TIEA.
The factual background involved four historical applications for Production Orders which were previously discontinued or set aside for various reasons. The Court agreed that in light of the historical background, an ex parte hearing without any notice was inappropriate in the circumstances and agreed that an inter partes hearing would have been preferable. The Minister's approach deprived the Target of its fundamental natural justice right of an opportunity to be heard therefore satisfying an arguable ground for a right of review.
The Court agreed that the TIEA is limited to the exchange of information of that which is 'foreseeably relevant.' While the standard of foreseeable relevance is to be construed in the widest extent possible, it does not enable parties to engage in fishing expeditions or to request information that is unlikely to be relevant to the tax affairs of a given taxpayer. The overlap between the previous Production Orders which were set aside or discontinued coupled with the extensive information requested meant that it was at least arguable that some of the requested documents were oppressive due to their 'world-wide effect, a fishing expedition and not foreseeably relevant to a tax investigation of the Respondent in India.' This finding gave rise to the second arguable ground for a right of review.
The Court agreed that the nature of the statutory scheme provides the Minister tactical advantages. With regard to the principles of justice and fairness coupled with the safeguards provided by the common law and the rights enshrined within the TIEA, the Court held that the Respondent should be provided with as much information of the request as necessary to demonstrate that article 5(6) of the TIEA has been complied with.
The decision is a welcome clarification of the law on a target's rights to disclosure when seeking to challenge a Production Order.