Articles Business Crime & Financial Services 3rd Mar 2015

European Brand Trading (EBT) v Commissioners of HRMC (2014) UK UT0026 (TCC)

On 20 August 2009 the goods were seized. EBT gave notice of claim of ownership pursuant to Para 3 of Schedule 3 of the 1979 Act and requested restoration of the goods. In a lengthy letter dated 1 October 2009 those representing EBT provided HMRC with substantial detail as to what they had learnt from enquiries of the history of the goods, providing HMRC not only with detail of those goods which could be shown to be duty paid but also the contact details of importers, breweries and agents who would give the necessary information to the Commissioners. EBT could not conclusively prove that other goods were duty paid since importers, brewers and agents would only provide such information to HMRC.

On 25 February 2010 the reviewing officer upheld the decision of HMRC not to restore, being satisfied on the information before her that excise duty on the seized goods was not paid. On 16 March 2010 HMRC issued a Summons for Condemnation. On 22 April 2010 those representing EBT withdrew its claim for ownership and challenge to condemnation proceedings and on 13 May the Magistrates’ Court ordered forfeiture on the grounds that EBT had not supplied evidence of duty payment.

The difficulty faced by EBT in mounting a challenge to the condemnation proceedings was that faced by many, if not all, traders whose goods are seized by officers of HMRC pending “proof of duty payment”. By s154(2) of CEMA the burden of proof in condemnation proceedings is on the party claiming ownership, i.e. not HMRC. Since those who are able to establish definitively that duty has been paid (i.e. importers, brewers, agents and the like) will only speak to HMRC, the owner of the goods cannot prove duty payment if (for whatever reason) that direct line of communication is not established. Condemnation of goods liable to forfeiture occurs in the event (Para 5 to Schedule 3) of expiration of the relevant period from the giving of notice (one month) or (Para 6) where notice of claim is given and proceedings are taken and the court orders that the item was at the date of seizure liable to forfeiture.

The power to restore goods is found at s152(b) of the Act. It is the stated policy of HMRC however that they will not restore goods on which they are satisfied duty has not been paid. Where a decision is taken not to restore, the party claiming ownership can seek a review under s14(1) and (2) of the Finance Act 1994. Section 16 of the same 1994 Act provides a right of appeal to the First Tier Tribunal (FTT) as to the reasonableness of the decision not to restore. If so satisfied, the FTT can direct that HMRC to conduct a further review.

It follows that where there is an issue as to duty paid status, disputes between the owner of the goods and HMRC may end up in the Magistrates’ Court (or High Court) under Schedule 3 to the 1979 Act or in the FTT pursuant to s16 of the 1994 Act. The respective roles of the different jurisdictions have been considered in the cases of Gora v HMRC (2004 QB 93) and Gascoyne (2005 Ch215). The Court of Appeal sought to resolve any doubts as to the respective jurisdictions in the case of Commissioners of Revenue and Customs v Jones (2012 CH 414). Mr and Mrs Jones were detained on their return to the U.K. with a quantity of cigarettes. The Commissioners contended that the cigarettes were for commercial use and therefore dutiable. Mr and Mrs Jones argued otherwise. As in EBT Mr and Mrs Jones served a Notice of Claim under Schedule 3 but later withdrew. The case concerned the default provisions of paragraph 5 rather than court proceedings under Para 6. The principal judgment of the Court of Appeal is that of Mummery L.J. who said:

“71(4) The stipulated statutory effect of the owners’ withdrawal of their notice of claim under Para 3 of Schedule 3 was that the goods were deemed by the express language of paragraph 5 to have been condemned and to have been “duly” condemned as forfeited as illegally imported goods. The Tribunal must give effect to the clear deeming provisions in the 1979 Act: it is impossible to read them in any other way than as requiring the goods to be taken as “duly condemned” if the owner does not challenge the legality of the seizure in the allocated court by invoking and pursuing the appropriate procedure.

(5) The deeming process limited the scope of the issues that the owners were entitled to ventilate in the FTT on their restoration appeal. The FTT had to take it that the goods had been “duly” condemned as illegal imports. It was not open to it to conclude that the goods were legal imports illegally seized by HMRC, by finding as a fact that they were being imported for own use. …The FTT’s jurisdiction is limited to hearing an appeal against the discretionary decision by HMRC not to restore the seized goods to the owners. In brief the deemed effect of the owners’ failure to contest condemnation of the goods by the court was that the goods were being illegally imported by the owners for commercial use.”

The FTT allowed the appeals brought by EBT. There was one day of evidence before HMRC conceded that there should be a fresh review ordered by the Tribunal. The evidence given by the senior officer in charge was to the effect that no enquiries had been undertaken as to the duty status of the detained goods either prior to or after seizure; that no steps had been taken by HMRC to enquire of those whose details had been provided whether duty had been paid on the goods or not, nor to check with breweries/importers/agents as to the pallet labels (produced by EBT) again to determine whether duty had been paid. The Tribunal was told that a file had been kept as to the detail of the investigation but such file had not been made available either to those representing EBT or the Tribunal and the officer at the time of giving evidence was unaware of its whereabouts. There was no evidence to be called by the Commissioners from the reviewing officer.

The FTT directed that the further review was to examine all relevant material and

“…in particular that material available to and considered by (the senior officer in charge of the investigation) at the date of the decision made, by him, not to restore…, including that material relevant the duty paid status of the goods.”

That examination was to include what response, if any, was made to the letter of 1 October 2009 (written by those representing EBT), the assertion that Fosters EMEA labels confirmed that Wolf Blass wines were duty paid, and what meetings had been held with manufacturers, breweries, agents and suppliers, and

“that the material obtained by (the senior officer) should be disclosed.”

HMRC appealed to the Upper Tribunal (UT) on the grounds that following Jones it was not open to the FTT on an appeal under s16(4) to direct that on a further review the appropriate officer should enquire as to whether HMRC had investigated adequately or at all whether the goods were or were not duty paid. The Commissioners argued that by reason of Para 5 of Schedule 3, for the purposes of the further review, the position was that the goods were deemed to be duly condemned on the grounds that they were non-duty paid. Since this was the position in law the directions of the FTT were misconceived.

The UT decided that the effect of the Magistrates’ Court Order was that in law as between HMRC and EBT duty was not paid on the goods seized in August 2004 (Para 6 Schedule 3) and/or February 2010 (Para 5). Since the FTT had directed that the earlier review decisions were of no effect the further review must be in accordance with ss14 and 15 of the 1994 Act. The form of the new review was a matter for the reviewing officer starting from the position that duty was not paid on any of the seized goods. What enquiries might or might not have been made are not relevant. It is not necessary or relevant to disclose documents which may help EBT to argue that duty was or might have been paid on some or all of the goods.

The UT allowed the Commissioners’ appeal and made revised directions in accordance with its decision. EBT has sought and been granted (by the Court of Appeal) permission to appeal.

If the Court of Appeal upholds the reasoning of the UT, traders in the position of EBT will arguably be left without a real remedy before the courts and unable to resist the loss of their property (which may well be duty paid). In determining the duty paid status of its goods the trader cannot go beyond its supplier which by its invoices has given an assurance that the goods are “UK duty paid”. HMRC could (but not always do) enquire along the chain of supply to determine whether and by whom duty has been paid. EBT gave prompt notice of its claim of ownership and, in respect of the first tranche of goods seized (in August 2009) served notice of its challenge to the issue of proceedings for condemnation. EBT provided HMRC with detailed evidence from which HMRC could have, had they chosen to do so, established the duty paid status of the goods. This material was not acted upon by officers of HMRC.

Since EBT had limited conclusive evidence that the goods it had acquired were duty paid (beyond invoices provided by its supplier) it had no realistic prospect of satisfying the Magistrates’ Court on the balance of probabilities that the goods were not liable to forfeiture. In order to save costs it made the commercial decision (prior to the decision of the Court of Appeal in Jones) to withdraw its challenge to the Commissioners’ application for condemnation and to seek redress before the FTT by way of challenge to the reasonableness of the review of the non-restoration decision. Before the FTT it was established that HMRC had no evidence as to whether or not the goods were non-duty paid and had made no enquiries as to the duty paid status of the goods. The Commissioners had no option but to concede that a fresh review should be undertaken. However, in the light of Jones the UT has concluded that the effect of both Paras 5 and 6 of Schedule 3 is that for the purpose of the further review the goods seized are deemed to be duly condemned as liable to forfeiture on the ground that duty has not been paid. The FTT cannot enquire beyond that deemed finding no matter what evidence is provided by the trader to the review officer on any fresh review which is no longer considering the reasonableness or otherwise of the original reviews which have been quashed by the FTT. If Jones prevents the FTT from considering material relating to the duty paid status of the goods and the argument advanced by the trader for restoration is that the goods were duty paid, then the trader is prevented (by the failure of officers of HMRC to investigate the duty paid status of the goods) from arguing before a court that the goods are duty paid. Furthermore since the stated policy of HMRC is not to restore goods that are non-duty paid there is no realistic prospect of a meaningful remedy before the FTT as to the reasonableness or otherwise of the non-restoration decision (i.e. HMRC policy).

The Commissioners’ argument, accepted by the UT in EBT, that, rather than being deprived of a remedy, the trader has its remedy before the Magistrates’ Court (or High Court) in condemnation proceedings is wholly unrealistic. In those proceedings, the burden of proof is on the trader and HMRC, by reason of its failure to act on material provided and its failure to investigate the duty paid status of the goods, has deprived the trader of the ability to prove its case. There is thus no meaningful protection afforded by the courts to the honest trader who acquires alcoholic goods in good faith from reputable purchasers on invoices stating that goods are UK duty paid. The attitude of HMRC is that no matter what material is provided to its officers by the trader, it is for the trader to satisfy the Magistrates’ Court that its goods are not liable to forfeiture. If it fails to challenge condemnation proceedings in the Magistrates’ Court or fails to prove its case, it has no realistic remedy before the FTT by way of appeal pursuant to s16 of the Finance Act 1994.

It may with some force be argued that the decision of the UT in EBT has played into the hands of HMRC, who would be justified in detaining substantial quantities of alcoholic goods (whether pursuant to s139(1), 118C(2) or 112(1) of the 1979 Act), seizing those goods within a reasonable time, never making any meaningful enquiries as to the duty paid status of the goods, issuing condemnation proceedings and either by virtue of Para 5 or 6 of Schedule 3 of the Act obtaining condemnation of the goods as forfeit. Once condemnation is ordered, whether by reason of Para 5 or Para 6 of Schedule 3, HMRC can respond to any challenge to the reasonableness or otherwise of a statutory review (which purports to be the exercise of a discretionary power) by simply falling back on the decision in Jones as to the effect of the deeming provisions within the statute.

This is a wholly unsatisfactory state of affairs and one which, when subjected to careful analysis, renders the exercise of a statutory discretion, whether pursuant to s152(b) (decision to restore) and/or s14(1) and (2) Finance Act 1994 (departmental review), meaningless. It is hoped that when this matter reaches the Court of Appeal, further light can be shed on the decision in Jones and the extent to which (if at all) there exists any meaningful discretionary remedy for traders such as EBT.

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