PROVING THINGS 158: NOW – WHY WOULDN’T BANKS WANT TO REVEAL DETAILS OF THE BONUSES THEY PAID?

The judgment in Credit Suisse Securities (Europe) Ltd & Ors v HM Revenue and Customs [2019] EWHC 1922 (Ch) demonstrates a strange position on the part of the claimant bank.  The claimant banks did not adduce any evidence to prove their case and, instead,  asked the court to infer it.  (I am grateful to George Peretz QC for pointing out this aspect of the case to me.)  The claimant banks did not fare will in the litigation.  The reasons they were unwilling to disclose details of the bonuses they paid to employees (an essential part of their case) is for others to speculate upon…

“Credit Suisse no doubt had reasons for choosing not to adduce witness or direct documentary evidence on this topic. It is inconceivable that they would have been unable to do so as far as their own position was concerned. Essentially, they are asking the Court to draw inferences on matters relating to their own affairs that would ordinarily be proved as primary facts in the normal way, through witness and documentary evidence.”

THE CASE

The claimant banks brought an action in relation to the imposition of a “payroll tax” in 2009 – 2010.  It was alleged that the method and means by which this tax was calculated amounted to State aid and was unlawful.  The tax related to the payment of bonuses.  However, for reasons of their own no doubt, the banks were reluctant to give any details of the bonuses they had actually paid paid.

THE ABSENCE OF EVIDENCE OF AN ECONOMIC ADVANTAGE

Mrs Justice Falk commented on the absence of any evidence at all from the claimant banks.

  1. A notable feature of this case was that Credit Suisse adduced no witness evidence or substantive documentary evidence to demonstrate, as they were required to do to establish State aid, that an economic advantage was in fact conferred on at least one Untaxed Bank, and that that advantage was liable to distort competition and affect trade between Member States. For example, they provided no witness evidence to support their case that, because the group had a calendar year end, it was in practice required to pay bonuses during the period of operation of BPT, whereas comparable banks with different year ends were not, and thereby obtained an advantage. There was also no evidence about specific bonuses paid by other banks at times before or after the period of operation of BPT.
  2. The evidence that was available included the accounts of some banks containing limited financial information about bonus awards, dates to which various banks’ accounts were drawn up and the amounts of BPT paid by a list of banks. Credit Suisse relied primarily on HMRC’s own evidence, including the evidence of HMRC’s witnesses, to demonstrate that there was a bonus paying season in the early part of the year, related to the fact that most banks have calendar year accounting periods, and submitted that it could be inferred from the substantial amount of BPT paid by those banks that they did not have a practical choice to avoid paying bonuses during that period.
  3. Credit Suisse’s case is that they and other banks in their position were compelled in practice to pay bonuses while BPT was in force, because they always did that and they had to meet employees’ expectations, and they say that that is supported by evidence provided by HMRC. That evidence included some limited references to advice that had been provided by Slaughter and May to HM Treasury about bonus practices during the development of the tax. However, those designing the tax in HM Treasury and HMRC were clearly working on the basis of a pretty limited, and incomplete, understanding of the position, and certainly without reference to the specific positions of Credit Suisse or any Untaxed Banks.
  4. Credit Suisse no doubt had reasons for choosing not to adduce witness or direct documentary evidence on this topic. It is inconceivable that they would have been unable to do so as far as their own position was concerned. Essentially, they are asking the Court to draw inferences on matters relating to their own affairs that would ordinarily be proved as primary facts in the normal way, through witness and documentary evidence.
  5. There is clearly some additional complication in relation to the position of other banks. A reluctance on the part of other banks to provide information about their own bonus practices and the impact of BPT is understandable in any circumstances, even ignoring the State aid context, although HMRC remarked that Credit Suisse had made no effort to require information to be provided using third party disclosure orders. Again, Credit Suisse would have had their own reasons for not pursuing that, but it does not assist the Court. In the case of the Untaxed Banks, Credit Suisse are asking the Court to draw inferences from the amounts of bonuses shown in those banks’ accounts and the levels of BPT paid by them without, for example, any clear confirmation that the bonuses were discretionary in nature or were of the requisite size to have been caught by BPT were it in force. The best evidence available comprises some limited references in correspondence between the four banks named at [22] above and HMRC, in which the banks indicate that they consider that they do not have any, or any material, BPT liability because of the timing of bonus payments. This is very limited evidence on which to conclude that there was at least one other bank that conducted a comparable business at the relevant time, paid material bonuses and escaped BPT as a result of its limited duration.
  6. These points are not simply technical or procedural. It is worth bearing in mind that a finding by this Court that State aid exists has implications beyond the case in question. The Commission’s notice on the enforcement of State aid (OJ 2009/C 85/01) requires a national court confronted with unlawfully granted aid to draw all legal consequences, including “in principle” ordering full recovery from the beneficiary (paragraph 30). In practice, of course it would be up to HMRC to take steps to recover aid so far as they were able to do so, but the point is that there would be an obligation to take action. It is not open to Credit Suisse to say that they are looking for a finding that BPT was unlawful, rather than a conclusion that State aid was conferred on any other bank. They cannot have one without the other.