Grundy, Milton: Burden of Proof

Once upon a time, and in a far country, there was a young barrister who advised a company incorporated in O Land to enter into a transaction as a result of which it received some income which had its source in the United Kingdom. O Land had a tax treaty with the United Kingdom which exempted this kind of income from UK tax, and the company therefore claimed repayment of UK income tax which had been deducted at source. The Inland Revenue (as they were in those days) refused the claim, on the grounds that they were not satisfied that the company was truly a resident of O Land within the terms of the treaty. The young barrister then had the job of appearing before the Tribunal, to persuade it that the company was indeed managed and controlled in O Land. The barrister, being young and foolish, saw no real difficulty in this. First of all, he had a certificate from the Inspector of Taxes in O Land, saying that the company was resident there. But the Tribunal didn’t think they could admit this as evidence, since there was no-one present to produce it. But the barrister was not discouraged. He had some very full minutes of directors’ meetings, showing who was present, what they said, and what was resolved. But the Tribunal were not going to admit these minutes as evidence, saying that there was nobody there to produce the documents. What they really meant was that there was nobody who was going to give evidence in person and was therefore going to be subject to cross-examination. The Tribunal of course knew what the young barrister himself came to know when he was older, that anyone can produce reams of plausible-looking minutes, but you need to hear one or more of the directors under cross-examination if you are going to determine whether they are a true record of the exercise of mind and management. The young barrister applied for, and got, an adjournment, so that he could call the directors to give evidence. This was where his troubles began, and – in a sense – ended. The directors had been ‘provided’ by a firm of accountants in O Land. One of them was a senior partner, and the other two were juniors in the office – a not untypical arrangement. Unfortunately, a number of years had passed between the events described in the minutes and the date of the hearing. By now, the senior partner had retired, and the young barrister learnt that the retired partner was known not to be sober after 11 o’clock in the morning, and could not be relied upon to be sober at 10.30. No use calling him as a witness. Of the two juniors, one had spent a short spell in prison, having been discovered making away with some client’s money, but the other was still working for the firm. Neither of them, however, had any recollection of acting as a director of the company, and both said that the senior partner from time to time sent over bundles of document for them to initial where marked in pencil, which they did without reading them. The story had the inevitable unhappy ending: the company’s claim for treaty relief was denied. The young barrister was much chastened by the experience. But he learnt from it. Since that time, he has advised his clients to choose directors of offshore companies with great care: they need to know what they are doing, and understand it, and be prepared if required to give evidence in a foreign tribunal and be cross-examined. The barrister’s much older self is happy to report that he never had a repeat of the experience. If only he had read this article when he was much younger, he would not have had to have the experience at all!