Innocent Agents – Liable for Unpaid Duty but not Penalties?
The Court of Appeal has referred an important question of law concerning the operation of the excise duty regime to the Court of Justice of the European Union (‘CJEU’).
In The Commissioners for HM Revenue and Customs v Martyn Glen Perfect [2019] EWCA Civ 465, Mr Perfect was a lorry driver who was employed to collect 26 pallets of beer from Calais, and transport them to a warehouse in Barking. He was stopped at Dover and it was found that the excise duty had not been paid on the beer. The beer was seized and condemned without challenge. Mr Perfect’s employers did not prove traceable, albeit the First-Tier Tribunal found HMRC’s investigation in this respect to be very limited. The FTT also found that Mr Perfect neither knew nor should have known that the duty on the beer had not been paid.
Mr Perfect was assessed for the excise duty of £22,779 under section 12(1A) of the Finance Act 1994, and a penalty of £4897.48 under Schedule 41 of the Finance Act 2008. In summary Directive 2008/118/EC (‘the Directive’) and its implementing Regulation in the UK, the Excise Goods (Holding Movement and Duty Point) Regulations 2010 (‘the Regulation’), provide that anyone “holding” excise goods on which duty is payable will become jointly and severally liable for the payment of the duty. A penalty is payable by anyone who acquires possession of the goods or concerned in their carrying, removing, depositing, keeping or otherwise dealing with the goods; but a defence of reasonable excuse is available.
Both the First-Tier Tribunal and the Upper Tribunal ruled in favour of Mr Perfect, finding that an innocent agent did not hold the goods and so was not liable for the excise duty, and had a reasonable excuse under Paragraph 20 of Schedule 41.
The Court of Appeal upheld that ruling on the penalty with relative ease. Far more interesting is the question of the duty, and who is “holding” the excise goods on the wording of the Regulation and the Directive. The FTT and UT relied in this respect upon two decisions of the Court of Appeal in confiscation cases[1], in which the Court considered appellants who had participated in excise frauds, but had employed innocent agents to take physical possession of the goods. The Court found that the appellants held the goods within the meaning of the Regulation due to their control of them, but in doing so relied upon their finding that the innocent agents would not be holding them. HMRC argued that Taylor and Wood was distinguishable, in that the innocent agent did not only not know that excise duty had not been paid, but did not even know that the goods were excise goods at all. Tatham was wrong to extend this, and in any case both cases were obiter. The Upper Tribunal had considered itself bound by both cases.
HMRC relied upon various decisions which emphasised that the ultimate objective of the Directive was that excise was collected on all goods. In Gross v Hauptzollamt Braunshweig (C-165/13, 3 July 2014) the CJEU had emphasised that all successive holders of the goods would be liable to excise duty. In Greenalls Management Ltd v Customs and Excise Commissioners [2005] UKHL 34, the House of Lords found an innocent warehouse company strictly liable as holders of goods fraudulently diverted from their warehouse. The Upper Tribunal has found innocent warehouse holder’s liable for duty in a number of cases.[2] In contrast however, in McKeown and others v Revenue and Customs Commissioners [2016] UKUT 479 (TCC), in the context of lorry drivers who were not innocent parties, the FTT had adopted the definition of holding in Tatham, requiring actual or constructive knowledge that duty was payable, albeit that knowledge was present in McKeown itself.
The Court of Appeal ultimately found itself unable to untangle these conflicting authorities with sufficient certainty to avoid a reference to the CJEU. Whilst finding that “there is very considerable force in the argument that, given the policy underlying the Directive, the imposition of strict liability on a driver in these circumstances does not offend the principles of fairness or proportionality”, the Court of Appeal acknowledge that the clear view in Taylor and Wood and Tatham, was to the contrary, and was not obiter. Ultimately:
“Given the fundamental importance of proportionality in EU law, it is certainly arguable that, had there been any intention to impose strict liability in the 2008 Directive, it would have been expressly stated”.
Accordingly, the Court of Appeal referred the question to the CJEU. Interestingly, the question referred expressly asks whether there is a distinction between a driver who knows that the goods in her possession are excise goods, and one who does not. That distinction potentially reconciles some of the UK authorities, but to what extent it is a principled one is up for debate. It is true that a driver with that knowledge at least would know of the risk they are taking, but it is a risk that seems out of proportion to the driver’s reward and ability to check whether excise has in fact been paid.
The CJEU’s decision will have a substantial impact on the way duty is enforced in the UK, and likely in other parts of the EU. HMRC’s concern as expressed in the appeal is that drivers are regularly reluctant to correctly identify their employers. The answer to that might be that such reluctance is a matter they could prove before the court as evidence that the driver had the required knowledge of constructive knowledge. This is a case to be watched very carefully by practitioners in the field.
[1] Taylor and Wood v R [2013] EWCA Crim 1151, and Tatham v R [2014] EWCA Crim 226
[2] Butlers Ship Stores Ltd v HMRC [2013] UKUT 564 (TCC), B&M Retail Ltd v HMRC [2016] UKUT 429 (TCC), Davison and Robinson Ltd v HMRC [2018] UKUT 437 (TCC)
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