Newsletters Business Crime & Financial Services 8th Mar 2016

Condemnation – The Harsh Reality

There has been much criticism of the unhappy mismatch between the jurisdictions of the Magistrates / High Court in condemnation proceedings under Schedule 1 of the Customs and Excise Management Act [CEMA] 1979 and that of the then VAT and Duties Tribunal, now First Tier Tribunal [FTT] when considering the reasonableness of the Commissioners’ review of a non-restoration decision pursuant to ss14-16 of the Finance Act 1994 and s152 of CEMA 1979. In Gora [2004] QB93 the Court of Appeal considered that whether a thing was condemned as forfeited was a matter for the courts. That issue could not be revisited on any subsequent appeal to the tribunal. The tribunal’s jurisdiction was limited to considering the reasonableness or otherwise of the Commissioners’ decision on review to uphold an officer’s decision not to restore the thing pursuant to its discretionary power under s152(b) of the 1979 Act.

In Gascoyne [2005] Ch215 the Court of Appeal, whilst affirming that in domestic law the decision in Gora was correct, considered, obiter, that there may be circumstances where the tribunal might revisit issues pertaining to the duty status of the thing seized to ensure the protection of the putative owner’s rights under the Convention.

Then along came Mr and Mrs Jones returning from the continent in their car loaded up with alcohol and tobacco. The alcohol and tobacco and the car were seized as being liable to forfeiture on the grounds that they were being imported for commercial use. Mr and Mrs Jones argued to the contrary claiming it was for their personal use. There were no condemnation proceedings. The goods and the car were deemed to be condemned as forfeited pursuant to paragraph 5 of Schedule 1 of the 1979 Act (the deeming provision.)

Before the FTT Mr and Mrs Jones argued that the alcohol and tobacco were for personal use. The tribunal found in their favour as did the UT on HMRC’s appeal. However, the Court of Appeal found for the Commissioners holding that once a thing was condemned as forfeited the jurisdiction of the tribunal thereafter was limited to the reasonableness or otherwise of the review of a non-restoration decision and the tribunal was not permitted to revisit the issue of forfeiture.

The decision of the Court of Appeal in Jones was followed by the Upper Tribunal [UT] in European Brand Trading [EBT] [2014] UKUT 0026 TCC. Morgan J. found that once a thing (in this case alcoholic goods) had been condemned as forfeited by order of a court any review of non-restoration must proceed on the basis that duty had not been paid. Such a finding, whilst following Jones, restricted still further the jurisdiction of the tribunal on an appeal pursuant to section 16 of the 1994 Act. Furthermore, since it is the stated policy of the Commissioners not to restore seized goods which are liable to forfeiture, and following Jones and EBT, the putative owner of the goods cannot raise issues as to duty status before the tribunal. As such an owner’s prospects for success on an appeal to the tribunal are not good.

But what of the exercise of discretionary power of the reviewing officer pursuant to section  152(b) of the 1979 Act? Is that officer not required to consider all relevant factors and if so can he/she ignore evidence available to HMRC as to the duty paid status of the goods? Surely the duty status of the goods is the most relevant factor in any departmental review.

All those arguments were before the Court of Appeal [2016] EWCA Civ 90 in February this year when EBT sought to reverse the decision of the UT and persuade the Court to reconsider the decision in Jones or at least the restrictive interpretation placed upon Jones by Morgan J. in the UT in EBT. However, the Court of Appeal affirmed Jones and approved the approach taken by Morgan J. in EBT. At paragraph 31 Lewison LJ said:

“If HMRC have refused to restore on the ground that excise duty was payable and has been deemed not to have been paid then the clear effect of HMRC v Jones is that the FTT cannot investigate that question.”

In conclusion, he commented that (paragraph 41):

“Some tribunal judges have expressed dissatisfaction with HMRC v Jones. In reality, however, what they are dissatisfied with is the statutory scheme. But since this court has held in Jones that the statutory procedure is Convention compliant, any perceived shortcomings in the scheme are matters for Parliament and not for the courts or tribunals. Their duty is to apply Jones.”

So it seems that following the decision of the Court of Appeal in EBT the way forward is clear. Any putative owner of goods seized pursuant to Schedule 1 of the 1979 Act, if it wishes to contest their liability to forfeiture must serve a notice of claim within 28 days of receipt of notice of seizure and must contest condemnation proceedings in either the magistrates’ court or the High Court. This will present an immediate difficulty since the burden of proving that the goods are duty paid rests on the claimant. The claimant will have to satisfy the court on balance of probabilities that duty has been paid. In practice this is almost impossible since all the claimant will have is an invoice from its supplier stating that the goods are “UK duty paid.” The claimant can go no further. It cannot go beyond its supplier.

But in the new, somewhat harsh “reality”, claimants will have to go further and trace the goods  along the supply chain to show that the goods have been duty paid. They will have to undertake significant and expensive investigations and interrogations of the supply chain. Again in practice this is fraught with difficulty since suppliers and even bonded warehouses will only provide information to HMRC for reasons of alleged confidentiality. If HMRC are not prepared to assist a putative owner or claimant then there is little that claimant can do.

The trader whose goods are seized will find itself between a rock and a hard place. It will have little prospect of success in condemnation proceedings where it bears the burden of proof but what alternative is there? Not to contest condemnation plays into the hands of the Commissioners who then have either an order of the court or a deemed decision condemning the goods as forfeited. That coupled with their stated policy that they do not restore goods liable to forfeiture would leave little if any prospect of a successful appeal to the tribunal. The only issue to be advanced on a section 16 appeal would be personal mitigation and hardship, factors which in themselves would be unlikely to sustain “unreasonableness.

The Court of Appeal has affirmed its previous decision in Jones. If an owner of seized goods does not contest condemnation proceedings then no matter what evidence he/she has or acquires to prove that the goods are duty paid is of no future relevance. It must be ignored not only by an officer undertaking a review of a decision not to restore, but also on any subsequent appeal by the tribunal. The review and consideration of the reasonableness of that review by the tribunal must proceed on the basis that the goods are non-duty paid. And that is so even if there is evidence that the goods were in fact duty paid.

In the light of the decision of the Court of Appeal in EBT, there is likely to be increased criticism of the unhappy mismatch of the two jurisdictions. Nothing has been resolved. It is all very well for the Court to say that the remedy lies not with the courts but with Parliament, but if Parliament is not minded to act, where can the trader turn for his remedy if not the courts? And while nothing is done to resolve the mismatch and provide the trader with a fair, proper and proportionate remedy, and a forum within which to advance its case, there will be more cases of unfairness and injustice.

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