B e f o r e :
The Honourable MR JUSTICE COBB
|| THE QUEEN
On the application of
HT & Co. (DRINKS) LIMITED
MALCOLM COWEN (DRINKS) LIMITED
||- and -
||THE COMMISSIONERS FOR HM REVENUE & CUSTOMS
James Pickup QC, Conrad McDonnell, Marc Glover (instructed by Neumans) for the Claimants
James Eadie QC, Sarah Harman (instructed by Solicitor's Office, HMRC) for the Defendant
Hearing date: 6 March 2015
HTML VERSION OF JUDGMENT
Crown Copyright ©
The Honourable Mr Justice Cobb:
- The principal issue before the Court is whether I should grant interim injunctive relief within prospective judicial review proceedings, in favour of parties who have an appeal pending in the First-Tier Tribunal (Tax) ("FTT"). The Claimants in this application (and the Appellants in the FTT) are warehousekeepers and traders in duty-suspended goods; the Defendants/Respondents in both actions are the Commissioners for Her Majesty's Revenue and Customs ("HMRC").
- By a claim dated 24 February 2015, the Claimants, HT & Co. (Drinks) Ltd. ("HT") and Malcolm Cowen Drinks Ltd ("MC"), seek permission to apply for judicial review against decisions of HMRC, communicated by letters dated 15 December 2014, by which HMRC revoked the Claimants' authorisation to trade in duty-suspended goods (i.e. wines, beers and spirits). By separate application dated 27 February 2015 the Claimants seek urgent interim injunctive relief, namely a stay of those revocations, and orders reinstating the revoked authorisations (on suggested new conditions), pending determination of their potential claims for judicial review.
- The application for urgent interim relief was considered on the papers by Haddon-Cave J. on 27 February 2015; he refused the application. The Claimants renewed the application orally before the court on 6 March 2015; both sides were represented by leading and junior counsel. Following a full day of argument, I reserved this judgment for a short time to consider the submissions and the evidence. A decision is required before 16 March 2015.
- The Claimants and HMRC both further invite me to consider the Claimants' application for permission to apply for judicial review. The Claimants invite me to grant permission if I accede to the application for interim injunctive relief, but to adjourn the question of permission if I refuse the application for an injunction so that they can elaborate further on points not argued in full at this hearing. The Defendant invites me to refuse the Claimants' permission to apply for judicial review.
- The context in which this application arises is factually and legally similar to that recently considered by the Court of Appeal in CC&C v HMRC  EWCA Civ 1653 ("CC&C"); Underhill LJ described (at ) the grant of authorisation by HMRC in these circumstances as one which:
"… permits wholesale trading in alcoholic drinks and other dutiable goods which are held in, or moved between, excise warehouses without giving rise to an "excise duty point" and thus attracting liability for excise duty. Goods so traded are generally described as "duty-suspended goods". The regime is governed by both EU and domestic regulations. The Warehousekeepers and Owners of Warehoused Goods Regulations 1999 ("the Regulations" – also known as "WOWGR") provide for persons holding or buying duty-suspended goods to be approved and registered by Her Majesty's Revenue & Customs ("HMRC") as "registered owners". The regime is highly prescriptive as regards the procedures and paperwork to be employed, but there is a recognised problem of dishonest traders seeking to manipulate the system in order to evade duty, typically by so-called "duplicate loads" being moved under cover of paperwork generated for legitimate movements. Registered owners are expected to use all due diligence to prevent their legitimate trade being exploited to facilitate fraudulent transactions."
- By its substantive proposed claim for judicial review, the Claimants challenge the four decisions of HMRC communicated by letters dated 15 December 2014; those decisions were:
i) Revocation of HT's authorisation as a registered owner of duty-suspended goods (this was to have immediate effect);
ii) Revised approval of HT's premises at Admiral House, London Rd, West Thurrock from 15 December 2014 to 16 March 2015 with termination operable from 16 March 2015; in the meantime a condition banning the exportation of goods from this warehouse to the EU;
iii) Revocation of HT as an authorised warehousekeeper with effect from 16 March 2015;
iv) Revocation of MC's authorisation as a registered owner of duty-suspended goods with immediate effect.
- The effect of these decisions was to prohibit (a) the Claimants' ability to buy and hold duty-suspended goods in bonded warehouses in the UK with immediate effect, and (b) the operation of its bonded warehouse and the warehouse premises with effect from 16 March 2015. The decisions further prevented the Claimants from exporting goods from the UK; since December 2014 they have only been able to withdraw goods from the warehouse for the purposes of making duty-paid supplies in the UK.
- By Notices of Appeal dated 14 January 2015, the Claimants have separately lodged appeals against these decisions to the FTT.
- The Claimants are long-established wholesalers, registered in England and Wales, specialising in the sale of beers, wines and spirits; they operate large-scale businesses, and have both been trading for a number of years, in companies with significant financial turnovers (HT = £130m in 2014, MC = £50m in the same period). The majority of the market is in UK duty-paid sales including sales from a Cash and Carry warehouse. MC has an account in a tax warehouse in Belgium from which it supplies goods to third party customers largely in France. HT has been a registered owner of duty-suspended goods under the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 ("the 1999 Regulations") since 1999, and an authorised warehousekeeper since 2008. Its warehouse has been approved as a tax warehouse since 2008.
- HT and MC are wholly-owned by the same company, Everwine Ltd. (an English company). Mr Prakash Thakrar is director and 99% shareholder of Everwine Ltd.; the only other director of Everwine Ltd. is Mr Sanjay Thakrar. The two companies are closely linked in their trading operations; the majority of HT's EU export is to MC's account in the Belgian tax warehouse.
- It is in HMRC's power to grant approvals/authorisations to businesses such as the Claimants to operate excise warehouses and to hold goods in such warehouses; these authorisations are known as (and indeed treated by all as) 'privileges' (see Part VI of the 1999 Regulations). In this case, the relevant approval was issued on 18 March 2014 to HT in respect of its warehouse premises, and as a warehousekeeper of an excise warehouse, and to HT and MC as registered owners of goods in an excise warehouse.
- Given the Claimants' challenge to the proportionality of HMRC's action in revoking the authorisations, and their complaint about unfair process in effecting the same, it is necessary to outline the background to the decisions under challenge in a little detail. In doing so, I wish to emphasise that HMRC does not allege that the Claimants, or either of them, have been involved in fraudulent or dishonest trading.
- During 2013, HMRC had cause to investigate the Claimants' trading activities, concerned about the extension of credit limits and the receipt of large cash round-sum payments in its duty-suspended business. In March 2013 HMRC officers interviewed the Claimants' directors; interviews were repeated in August 2013, this time over a number of days, and under caution. The Claimants' directors had accepted that they agreed to grant customers credit limits of £100K-£200K without sight of any formal business plans, trade references or financial security. The second round of interviews gave the Claimants opportunity to explain its customer due diligence arrangements and credit procedures, and gave the directors an opportunity to appraise HMRC of improvements to their operations since the concerns had been raised earlier in the year.
- In November 2013, given the suspicions about the large cash sums, HMRC requested the Claimants' records of internal Suspicious Activity Reports, Suspicious Activity Reports to the Serious Organised Crime Agency and contemporaneous documents recording continuing anti money-laundering due diligence in respect of thirty-three customers. The Claimants' solicitor replied by letter dated 17 January 2014, indicating that neither company had any of these documents to disclose. This was, in the circumstances, surprising to HMRC. Following this enquiry the Claimants engaged the service of its first due diligence company, namely Due Diligence Exchange Ltd.
- None of this early history is materially in dispute.
- On 18 March 2014, HMRC granted renewed authorisations to the Claimants as 'registered owners' under the 1999 Regulations; these authorisations were subject to certain conditions relevant to ensuring that the companies conducted due diligence in relation to their customers. The schedule of conditions attached to the authorisations bears the warning:
"Failure to comply with a condition of approval could result in your registration being revoked. You may also incur a financial penalty".
- These conditions were explained directly to the directors of the Claimants on the day that they were issued. On the following day, HMRC issued a letter to the Claimants which explained the imposition of conditions:
"Our enquiries and review of your records have shown that the due diligence you carry out on your underbond customers and on the transactions you carry out with your customers is inadequate….
We also have serious concerns about the way in which vast sums of cash sterling have entered your business without meaningful Anti-Money Laundering (AML) procedures being followed…
During the course of our investigations we have found that your lack of meaningful due diligence and lack of money laundering controls has led to the following …"
There then follows a list of alleged consequences of these defaults including the supply of goods to customers with no commercial viability, supplying duty suspended alcohol into supply chains that have ended with missing traders, leaving substantial VAT debts in the EU, and suspected money laundering offences committed by the Claimants' customers.
- The conditions were further explained in a letter from HMRC to the Claimants' solicitors on 2 April 2014. I pause here to observe that much later in the year (and indeed up to this hearing) the Claimants maintain that the conditions were excessively onerous, requiring the Claimants to perform unnecessarily exacting levels of due diligence in relation to their customers. That said:
i) There was no challenge by the Claimants at the time of the authorisations;
ii) Due diligence conditions similar to those imposed on the Claimants in March 2014 are now (and have been since November 2014) common to all excise authorisations.
- Following this, the Claimants assert that they took a number of steps to improve their trade practices including:
i) Ceasing to accept cash payments for their duty-suspended sales to third parties; and
ii) Ceasing to offer credit facilities to new duty-suspended third-party customers.
- Meetings between HMRC and representatives of the Claimants took place in April and May 2014, resulting (I am told) in a minor amendment to the conditions (concerning the precise manner in which a due diligence interview with customers could take place). Separately, there were exchanges of correspondence and e-mails. A further meeting took place between the parties on 26 June, in which alleged failures to comply with the conditions of trading imposed in March were identified by HMRC. On the following day, the Claimants "coincidentally" (per Mr Pickup QC, on instructions) engaged the services of a second due diligence consultant, True Diligence Ltd ("TDL").
- On 11 July, HMRC sent a 'Warning Letter' (as it was so headed) to MC; in the letter, HMRC referred to six alleged failures to comply with the March 2014 conditions which had been identified at the 26 June meeting. The letter concludes:
"The Commissioners may at any time for reasonable cause revoke or vary the terms of their approval or registration of any person under section 100G(5) of the Customs and Excise Management Act 1979. Unless you now fully comply with all the conditions notified to you on 18th March, including but not limited to addressing the failures notified at 1-6 above, your approval will be revoked with immediate effect and without any further notice to you."
- On 18 July a further 'Warning Letter' (again, so headed) was sent by HMRC to HT. The principal complaint was that HT had failed (through the newly appointed TDL) to undertake due diligence checks in relation to a number of customers. The letter ends with the same explicit warning about the effect of non-compliance with any of the conditions in the terms set out at  above.
- On 26 September 2014, a meeting took place between HMRC and representatives of the Claimants, and TDL. Notes of that meeting (taken by HMRC) reveal a frank discussion about certain shortcomings of the Claimants in compliance with the March 2014 conditions; the Claimants indicated a willingness to improve practice. The parties specifically discussed the necessary ingredients and standards of effective due diligence checks. These discussions were later described (letter HMRC to Claimants: 26 January 2015), in these terms:
"[T]he question of 'commercial viability' was explored and [the Claimants] and TDL were left in no doubt as to the practical meaning of the requirement in the context of trading in duty-suspended goods".
- Notes of the meeting were sent to the Claimants on 6 October with a request that they be considered and approved, or that suggested amendments be submitted by 10 October. The Claimants did not respond to the request within that time-frame, or indeed at all; at the next meeting, on 10 November 2014, the Claimants disputed the accuracy of the record.
- That next meeting between the parties (on 10 November) gave the parties further opportunity to consider compliance with the conditions. The meeting appears to have been more contentious. HMRC's notes of the meeting reveal the following:
i) The representative from TDL told HMRC that he considered that "the conditions imposed are not feasible or workable", and that HMRC was 'changing the goalposts';
ii) The Claimants' solicitor told HMRC that "amendment was needed" to the conditions, indicating that HT had not accepted part of the conditions; he is later reported to have said that the Claimants considered "the conditions to be totally unreasonable and felt that they would not stand up in a Tribunal";
iii) The Claimants had asked for removals and changes to the conditions; they further asked for "perceived non-workable areas" to be referred and escalated to HMRC decision-makers;
iv) That the Claimants were still "in the process of bringing due diligence up to date for existing customers";
v) The Money Laundering Reporting Officer said that "the conditions laid had not ever been agreed, HT/MC considered the conditions impractical…";
vi) That the Claimants would set out their areas of concern and their proposed variations to the conditions in writing within two weeks;
vii) A senior HMRC representative informed HT/MC at the meeting that "if it was found that the conditions were not being met HMRC can revoke the approvals".
- As agreed at the 10 November meeting (see [25(vi)] above), the solicitors for the Claimants wrote to HMRC on 26 November. The letter is expressed to be written "in the spirit of the substantial co-operation that our clients have shown and will continue to show to HMRC". It sets out three proposed amendments to the conditions, going on to set out fifteen numbered areas in which HMRC had required "more detail on due diligence", but which were said to be "impractical and unrealistic" for the Claimants to provide, and exceeding what the Claimants "can or are capable of doing". The solicitor asserted that while the Claimants have "sought to comply with the conditions where possible", it was "simply commercially unviable" for them to do so. Specifically, the Claimants:
i) Accused HMRC of a "misguided belief" that the Claimants' customers would share sensitive information with them as part of the due diligence exercise;
ii) Alleged that HMRC was setting "a highly unrealistic target" in relation to due diligence, asserting that the expectations are "commercially unviable";
iii) Maintained that "the level of information HMRC are seeking to elicit, through the medium of our clients, significantly falls outside the scope of what our clients can realistically obtain".
- The Claimants' solicitor erroneously asserted in this letter that the "primary purpose" of due diligence is for the Claimants to be satisfied who to trade with; subsidiary to that, he says, "HMRC may rely on these records for intelligence". As HMRC later pointed out, the due diligence exercise is necessary to protect the Revenue, and to protect the Claimants from being part of an illegitimate supply chain. It is effected in this way so that the Claimants can satisfy themselves:
"… as to the legitimacy of the market that they supply, in order to reassure HMRC that their businesses do not pose an unacceptable risk to the Revenue … HMRC need to see information that [the Claimants] have considered in order to assess for themselves the impact of [the Claimants'] decisions on reducing, or exacerbating, the risk to the Revenue that is inherent in dealing in duty-suspended goods" (reference: letter 26 January 2015).
- By letter dated 15 December 2014, HMRC responded to the 26 November letter, advising the Claimants that it had reached the conclusion, having regard to the totality of the interactions and engagement since 18 March 2014, that the Claimants "are not meeting the requirements as set out in the conditions". The letter responds in detail to the fifteen numbered concerns raised by the Claimants' solicitors. HMRC maintained that it was not satisfied that due diligence had been adequate to mitigate the risk to the Revenue. On the same date, letters were sent out revoking the authorisation of MC and HT as registered owners of duty-suspended goods with immediate effect, and cancelling or revoking the authorisation of HT as an authorised warehousekeeper, and the approval of HT's warehouse premises as a tax warehouse. The details of the alleged non-compliance with the conditions were set out in annexes to the letters.
- A detailed, 38-page, Pre-Application Protocol letter was sent to HMRC on 9 January 2015 ("with the air of a skeleton argument about it" as HMRC legitimately observed later) to which HMRC later responded in detail.
- On 14 January 2015, the Claimants lodged their appeals to the FTT, supported by wide-ranging Grounds of Appeal raising many similar arguments to those that are raised here.
- On 25 February 2015, HMRC confirmed to the Claimants that the warehousing approvals will cease on 16 March 2015; from that date, the warehoused goods will become liable to forfeiture. HMRC has offered the Claimants some limited scope to trade in those goods after that date, but only with specific authorisation and on payment of duties.
- Mr. Pickup QC, with Mr. McDonnell and Mr. Glover, argue on behalf of the Claimants that the decisions are challengeable by way of judicial review for a number of reasons (identified at  of their 'Application for Interim Relief and Reasons for Urgency' document). In presenting this case, they focused on three (reference  of their Skeleton Argument), but I have considered their arguments more broadly as outlined below:
i) It is first argued that while the conditions imposed were unduly onerous, the alleged breaches of the conditions are merely 'purported' and 'perceived' 'administrative/technical' shortcomings in nature (/ Skeleton Argument); it is alleged therefore that revocation of authority is 'grotesquely disproportionate' ([5a] of Detailed Grounds). They contend that HMRC has failed to demonstrate why no less draconian sanction could have been imposed. The Claimants point to the HMRC manual which provides for the imposition of civil penalties; they say that there is a reasonably inference that civil penalties should be considered (and indeed imposed) before taking the step of revocation, relying specifically on the following passage:
"Where continuing issue of civil penalties does not result in improved trader compliance, officers will need to consider alternative action. A trader's failure to improve his compliance record demonstrates a lack of concern for the regulations breached and the directions issued by HMRC. In such circumstances, officers must seriously consider whether the trader warrants continued authorisation/approval."
ii) The Claimants assert that they have not been given a proper opportunity to answer the alleged inadequacies in their due diligence procedures, and that the ultimate sanction of revocation was procedurally unfair; they complain of a lack of consultation, and an alleged failure of the HMRC to provide a "show cause" letter in accordance with the suggestion for good practice proposed by the Court of Appeal in CC&C, where Underhill LJ said:
"The risk of error is obviously increased if the trader has not been given an opportunity to draw to HMRC's attention, before the decision is taken, factual or other matters which they may have overlooked or mis-appreciated in their assessment of the grounds for revocation. I do not see why it should not be normal practice for a trader whose registration HMRC is contemplating revoking to be given prior notice of the intended decision, and the grounds for it, in the form of a "show cause" or "minded to" letter, with a limited time for response, before a final decision is taken. (Or the decision could be notified, but on the basis that it would not take effect for a limited period during which representations could be made.)"  (emphasis added).
In this regard they further rely on the decision of the Supreme Court in Bank Mellat v HM Treasury (No.2)  UKSC 38 / 39  AC 700.
iii) The imposition of conditions as onerous as those imposed here are in breach of the obligation in EU law to permit free movement of goods; it is said that HMRC has exceeded the powers of a Member State to control duty-suspended storage and movement of dutiable goods; there is an "issue" (it is put no higher than this in the Detailed Grounds) that the system of registered owners is ultra vires the provisions of Council Directive 2008/118/EC concerning the General Arrangements for Excise Duty ("the 2008 Directive"), which came into force on 1 April 2010 through the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (the "2010 Regulations"). In essence the Claimants maintain that HMRC has no power to impose conditions which affect the Claimants' business with export customers to non-EU countries or EU Member States.
iv) It is asserted that the action breaches the Claimants' ECHR right to freedom from interference with property – and they rely on Rosenzweig v Poland (2006) 43 EHRR 43 maintaining that the interference here is not justified in pursuit of a legitimate public interest.
- The Claimants maintain that if an injunction is not granted, they will suffer catastrophic financial consequences causing irremediable damage to their businesses. I was provided with detailed evidence to this effect.
- HMRC set out its case fully in its letter dated 26 January 2015 responding to the Pre-Application Protocol letter. The arguments were further developed in the written and oral argument of Mr Eadie QC and Ms Harman.
- The Defendant invites me to consider the context in which to review the issues engaged here: the protection of the Treasury from frauds perpetrated in supply of goods within the duty-suspended market, including (though it is not alleged here, again I emphasise) by owners of bonded warehouses, and the detection and prevention of money laundering. In this regard, they point out that the right to hold and deal in excise goods is, and is described in the statute as, a "privilege" (see Part VI of the 1999 Regulations), carrying obligations (see Greenhalls Management Ltd v. HM Commissioners of Customs and Excise  1 WLR 1754); it is in "the nature of the business …. that it is a privilege that should only be accorded to those whom HMRC believe they can trust" (per Underhill LJ in CC&C ). They further refer me to the passage in Underhill LJ's judgment in which he comments (at ) on the fact that:
"… the management of the excise system is a matter for the administrative discretion of HMRC. The decision whether a registered owner remains a fit and proper person to trade in duty-suspended goods is a good example of the kind of decision which the HMRC are peculiarly well-fitted to judge, since it requires what is necessarily to some extent a subjective – albeit evidence-based – assessment of such matters as the attitude of the trader and its principal employees to due diligence issues and their sensitivity to the risk of becoming involved, albeit unintentionally, in unlawful activities".
- This has an echo from the judgment of Sales J (as he then was) in Accenture Services v HMRC  EWHC 857 (Admin) who described HMRC as:
"… the body entrusted by Parliament with the role of administering the tax system, who have made the relevant decision …. They have experience and expertise in making evaluative judgments of the kind in question here."
This was further recently alluded to by Sir Robin Jacob (giving the judgment of the Court) in R (Ingenious Media Holdings PLC & An'or) v HMRC  EWCA Civ 173 at :
"The Court is not a tax-gatherer. It simply is not in a position to evaluate the likely effect of a disclosure on an HMRC function in the same way as an official concerned with the day to day operation of the system".
- HMRC make four essential points:
i) There is a bespoke statutory scheme available to traders in the position of these Claimants, where it is alleged that HMRC has exceeded its powers, or exercised them unreasonably, in the FTT (see section 16 Finance Act 1994); the FTT has the power to consider all of the complaints made by the Claimants raised within this prospective application for judicial review. It would be wrong for the High Court to permit a challenge to a decision of the kind covered by the statutory scheme (see CC&C [39/40]). Moreover, statute does not endow the FTT with the power to grant interim relief, and this Court should not step in to fill a perceived jurisdictional gap; as Underhill LJ in CC&C reflected at :
"Parliament could have provided for the First-tier Tribunal to have power to make suspensory orders pending the outcome of an appeal, but it did not do so. I do not think that it is open to the Court to provide remedies or procedures for which the statute does not provide – particularly so when, as I have pointed out above, care was obviously taken to specify precisely what the Tribunal could and could not do."
ii) It was a proportionate response of the HMRC to revoke the licences given the evidence of sustained non-compliance, the continuing resistance to complying over a period of 8 months, and the Claimants' assertions that they were unable to comply. Specifically:
a) the Claimants' trading practice in the past had given rise to very significant concerns, including extensive due diligence failures;
b) the Claimants new due diligence procedures implemented after the conditions were imposed in March 2014 were in many respects superficial – little more, it was said, than a box-ticking exercise;
c) conditions had been lawfully imposed on 18 March 2014. The Claimants had not challenged the lawfulness of the conditions at the time, and indeed had not done so until many months after the event; the challenge to the conditions was unsustainable as (since November 2014) these are now broadly standard within the trade;
d) there had been continuing and serious failures to implement improvements, specifically in following and evidencing appropriate due diligence procedures;
e) the steps taken to assist and reinforce improvements in the Claimants' practice of due diligence had proved to be ineffective.
iii) The process has been procedurally fair; the Claimants have had more than enough opportunity to address compliance with the conditions; there has been a prolonged and detailed engagement with the Claimants over a significant period, accompanied by a ratcheting up of enforcement measures;
iv) The excise regime in operation domestically is entirely in accordance with the 2008 Directive.
- Mr. Eadie contends that it would be unconscionable for the Court to require HMRC to continue to regulate an operator in this 'privileged' area of duty-suspended trade in respect of whom it had fundamentally lost trust.
- Since April 2009 (following the implementation of the Tribunals Courts and Enforcement Act 2007 in this field), appeals on taxation decisions by HMRC have been heard within a dedicated and specialist chamber of the Tribunals system. I am conscious of the need to respect the jurisdictional domain of the FTT, and exercise care not to interfere with it, particularly as the Claimants have quite properly engaged with this statutory route to remedy. There is a degree of overlap between the two jurisdictions given the common focus on the 'reasonableness' of the decision-making; in the area of the 'overlap' the jurisdiction of the FTT must prevail, for where a statutory scheme of this kind exists it would normally be wrong for the High Court to permit challenges on the same ground to proceed by way of judicial review (see Harley Development Inc v Commissioner of Inland Revenue  1 WLR 727, at pp. 736-7).
- The relevant statutory regime is summarised at - of CC&C. It is sufficient for me to identify the key provisions. Section 100G(1) of the Customs and Excise Management Act 1979 ("the 1979 Act") provides that:
"For the purpose of administering, collecting or protecting the revenues derived from duties of excise, the Commissioners may by regulations under this section (in this Act referred to as "registered excise dealers and shippers regulations") —
(a) confer or impose such powers, duties, privileges and liabilities as may be prescribed in the regulations upon any person who is or has been a registered excise dealer and shipper; and
(b) impose on persons other than registered excise dealers and shippers, or in respect of any goods of a class or description specified in the regulations, such requirements or restrictions as may by or under the regulations be prescribed with respect to registered excise dealers and shippers or any activities carried on by them". (emphasis added).
- Section 100G(4) provides:
"The Commissioners may approve and register a person under this section for such periods and subject to such conditions or restrictions as they may think fit or as they may by or under the regulations prescribe" (emphasis added).
- Section 100G(5) provides:
"The Commissioners may at any time for reasonable cause revoke or vary the terms of their approval or registration of any person under this section." (emphasis added).
- The powers of the Tribunal at an appeal are set out in section 16 Finance Act 1994:
"In relation to any decision as to an ancillary matter, or any decision on the review of such a decision, the powers of an appeal tribunal on an appeal under this section shall be confined to a power, where the tribunal are satisfied that the Commissioners or other person making that decision could not reasonably have arrived at it, to do one or more of the following, that is to say—
(a) to direct that the decision, so far as it remains in force, is to cease to have effect from such time as the tribunal may direct;
(b) to require the Commissioners to conduct, in accordance with the directions of the tribunal, a review or further review as appropriate of the original decision; and
(c) in the case of a decision which has already been acted on or taken effect and cannot be remedied by a review or further review as appropriate, to declare the decision to have been unreasonable and to give directions to the Commissioners as to the steps to be taken for securing that repetitions of the unreasonableness do not occur when comparable circumstances arise in future." (emphasis added).
- In short, "any decision for the purposes of section 100G … as to whether or not … any person is to be, or to continue to be, approved and registered …" is a decision which is appealable to the FTT (Schedule 5, para.2 of the Finance Act 1994); the FTT has jurisdiction to consider the reasonableness of the decisions of HMRC to revoke authorisations only for reasonable cause (section 100G(5) of the 1979 Act), and to consider whether it was a decision which HMRC could reasonably have arrived at (see section 16(4) of the Finance Act 1994); it can determine the Claimants' claims under the Human Rights Act 1998 and the first protocol to the ECHR. The FTT cannot determine the application for interim relief.
- I referred at  above to the factual similarity between the instant case and CC&C. Mr Pickup sought to argue that CC&C is distinguishable from the instant case, on the basis that in CC&C (unlike this case):
i) The application before the court was a free-standing application for an injunction under section 37 Senior Courts Act 1981, and not for an interlocutory order within judicial review proceedings; and
ii) There was no suggestion of procedural unfairness.
He goes on to argue that the key principles expounded in CC&C are therefore of limited relevance to this case. He specifically dissociates this claim from those in which an applicant for relief would need to satisfy the 'exceptional' threshold of 'fundamental unlawfulness' (or similar) so as to be entitled to the intervention of the High Court. He further argues (with more conviction, I detect) that if he fails in that primary submission, the facts of this case do meet the 'exceptional' threshold required.
- In my judgment, there is no material basis on which to distinguish this case from CC&C – certainly none which impacts on the application of principle here. Underhill LJ specifically did not draw any distinction between a potential judicial review claim and a free-standing injunction when contemplating the limited class of case which could be brought outside of the statutory scheme, viz:
"[W]here the challenge to the decision is not simply that it is unreasonable but that it is unlawful on some other ground, then the case falls outside the statutory regime and there is nothing objectionable in the Court entertaining a claim for judicial review or, where appropriate, granting interim relief in connection with that claim"  (emphasis added).
For my part, I can see no proper basis for concluding that a different test applies where the application is brought within prospective judicial review proceedings. Indeed, were a lower bar to be set for cases of prospective judicial review, this could provoke a proliferation of unmeritorious claims in the Administrative Court in cases which should be, or indeed are, before the FTT, simply as a vehicle for obtaining interim relief. Moreover, dealing with Mr. Pickup's second alleged distinguishing feature ([45(ii)] above), Underhill LJ specifically contemplated that procedural unfairness could found a basis for challenge outside the statutory scheme (see below ), so the fact that it was not actually argued in CC&C is of no consequence.
- As I mentioned in passing (see  above), Underhill LJ recognised that there would be circumstances in which the Court would be enabled to grant interim relief outside of the statutory scheme but the Claimant would need to show something more than a "realistic chance of success" in an appeal to the Tribunal (or, given his comments cited above, in any prospective judicial review) in order to engage the power of the High Court. The Claimant would need to demonstrate more than that the relevant decision was not reasonable (as this would fall within section 16: see above). It would need to be "unlawful on some other ground" ( of CC&C). He went on in  to consider the circumstances which may justify the intervention of the High Court, though declined to be too prescriptive, describing the right 'territory' as one in which it is said that HMRC has acted through an "abuse of power", with "impropriety" and "unfairness", or where HMRC had behaved "capriciously" or "outrageously" or in bad faith (he raises a question mark over too literal an application of "capricious" and "unfair" in this context, as a "capricious" decision may fall within the statutory scheme, and an "unfair" process, however closely connected with the substantive unreasonableness alleged, will not always be sufficient to justify the intervention of the Court).
- Underhill LJ continued at  of CC&C:
"In short, therefore, I believe that the Court may entertain a claim for judicial review of a decision to revoke the registration of a registered excise dealer and shipper, and may make an order for "interim re-registration" pending determination of that claim (subject, no doubt, to such conditions as it thinks fit), in cases where it is arguable that the decision was not simply unreasonable but was unlawful on one of the more fundamental bases identified above. Such cases will, of their nature, be exceptional." (emphasis added).
- I turn to consider whether the Claimants have made out a case that their claims for judicial review fall into this special category.
- The Claimants' case is that their inability to comply with the conditions imposed in March 2014 represents merely an "administrative/technical shortcoming" and the sanction is therefore fundamentally disproportionate (see [32(i)] above); this mischaracterises in my judgment the nature and extent of their failures to implement and maintain a robust system of due diligence. More significantly it misses the mark of recognising that maintenance of a 'privilege' (for that is what it is) requires the HMRC to repose in a trader a high degree of trust to ensure that trade is carried on in a way which minimises exposure to the Revenue of unlawful trade practice. A flawed understanding of the purpose of effective due diligence (see  above) may to some extent have wrongly fed the Claimants' sense that revocation of authorisation was, and is, disproportionate.
- HMRC does not implement any fixed incremental system of penalties, and I do not consider that reference to the HMRC manual therefore assists the Claimants (see again [32(i)] above). Indeed, the manual makes clear that revocation is a likely sanction where there is a "failure to improve … compliance"; such a failure is evident here over a period of months. In this case, once the Claimants had indicated in meeting (10 November) and in correspondence (26 November) that they were unable to comply with the conditions (which they had not opposed at the time of implementation), it is difficult for the Claimants to sustain the argument that HMRC was wrong in taking the step of revocation. This is not a case in which the Claimants make any allegation of bad faith or impropriety (characteristics which may justify the exercise of High Court jurisdiction in a case where there is a parallel appeal in the FTT); on the arguments before me, the Claimants have failed to demonstrate that the HMRC decision was so disproportionate as to render it fundamentally unlawful or unsustainable.
- I am wholly satisfied that, through exchange of correspondence and regular meetings between the parties going back to March 2013, the Claimants have had more than ample notice of the dissatisfaction of HMRC with the due diligence compliance; in this regard, this case is wholly different from Bank Mellat (see above). While endeavouring to support the Claimants to improve practice, HMRC has, over time, reasonably ratcheted up its enforcement measures against the Claimants; initially it imposed conditions (18 March 2014), before sending warning letters (11 / 18 July 2014), finally holding a meeting in which it explicitly warned of revocation (10 November 2014). The Claimants' solicitor's letter of 26 November 2014 following that meeting clearly demonstrated, very late in this process, that the Claimants were objecting fundamentally to the conditions imposed in March 2014, and were continuing to find it impossible to comply with them. Given the uncompromising tone of that letter, there was little purpose, in my judgment, in HMRC issuing a "show cause" or "minded to" letter (as per CC&C ).
- Underhill LJ leaves open the possibility that procedural unfairness could justify intervention of the Administrative court in these circumstances ("I am not convinced that any allegation of procedural unfairness, however closely connected with the substantive unreasonableness alleged, will always be sufficient to justify the intervention of the Court" ). However, I am clear that the Claimants have failed to demonstrate (certainly to the 'fundamental' extent required) that HMRC has acted procedurally unfairly on the facts of this case, with reference to this particular history; in so concluding, I have applied the well-known principles from Lord Mustill's speech in R v SSHD ex parte Doody  1 AC 531, including: "[w]hat fairness demands is dependent on the context of the decision, and this is to be taken into account in all its aspects".
- Article 15(1) of the 2008 Directive provides for each Member State to determine its own rules concerning the "production, processing and holding of excise goods" subject to the Directive. It is therefore for national systems of Member States to make judgements about the precise structures and systems that should be put in place to serve the objective of protecting the public revenue by detecting and controlling fraud under the 2008 Directive. The 2010 Regulations have introduced a penalty system enabling HMRC to seize goods, assess for excise duty and issue a penalty where there is evidence of wrongdoing.
- For the purposes of this application, I reject the Claimants argument that the 1999 Regulations are ultra vires the 2008 Directive. It seems to me that the 1999 Regulations contain a regulatory regime which is entirely consonant with the objectives of the 2008 Directive; moreover, Parliament has also provided a statutory mechanism under the 2007 Act for those who are aggrieved to bring their complaints before a tribunal. Even if there were merit in this regard (which there is not), any judicial review claim in this regard should have been made sooner than February 2015. Finally, I note, in passing, that these two instruments have co-existed for nearly five years, without apparent challenge.
- The Claimants further relied on alleged interference with the rights which they were entitled to enjoy pursuant to Article 1 of Protocol 1 to the European Convention of Human Rights (a right to peaceful enjoyment of possessions) and section 6 of the Human Rights Act 1998; such a route was canvassed by Lord Scott in Jain v Trent Strategic Health Authority  UKHL 4,  1 AC 853. In this regard, Mr. Pickup relied on Rosenzweig v Poland (2006) (see [32(iv)] above); while confirming that the withdrawal of a valid permit to trade is an interference with a right to the peaceful enjoyment of possessions (see  (2006) 43 EHRR 43), Rosenzweig was, however, a markedly different case on its extraordinary facts and does not in my judgment offer the Claimants support in its claim other than to confirm that interference with the peaceful enjoyment of possessions must be lawful and proportionate (an argument not challenged by HMRC). As it happens, in CC&C it appears to have been conceded by the Appellant (the registered owner of duty-suspended goods) that it was doubtful whether registration would fall within the scope of Article 1; in that respect, Underhill LJ referred to R (New London College Ltd) v Secretary of State for the Home Department  EWCA Civ 51. On either basis, therefore, the point does not gain sufficient traction to surmount the requisite hurdle.
- It follows that in none of the areas argued before me have the Claimants succeeded in demonstrating a fundamental unlawfulness in the conduct or reasoning of HMRC; it follows that they do not therefore enjoy a reasonable prospect of success in their judicial review application. Even though before the FTT they may be able to show some unreasonableness in HMRC decision-making, this leaves them without an interim remedy. In this regard, Underhill LJ in CC&C made these important observations:
"The view that I have taken of the law means that HMRC's power of revocation is indeed capable of operating harshly, essentially for the reasons advanced by Mr Jones: if they make an unreasonable decision, the trader affected by their mistake will almost certainly suffer serious uncompensatable loss, which may sometimes be fatal to his business, before it can be corrected through the review or appeal mechanisms. It is all the more important, therefore, that they take all possible care to ensure that any such decision is well-founded." (emphasis added).
- I have had the advantage not enjoyed by my brother judge, Haddon-Cave J, of detailed Skeleton Arguments and helpful oral submissions by leading and junior counsel on this case. Having carefully considered the material, I have reached the same conclusion. He expressed himself clearly and crisply. Having heard the argument over the course of a day, I hope that I can be forgiven for more discursive reasoning.
- As indicated above (), for my part, I am far from satisfied that this claim raises a serious issue to be tried or enjoys a realistic chance of success, particularly given the high threshold which is set in circumstances where an appeal is available to the Claimants, and is indeed afoot, in the FTT. The Claimants have fallen far short of demonstrating in my judgment that the decision of HMRC is in that elevated and "exceptional" category which could be described as fundamentally unlawful (see  CC&C).
- If it had been necessary for me to go on to consider the balance of convenience, I would of course have had regard to the serious (Mr Pickup asserts "irremediable") consequences for the trading ability of the Claimants, and their dire predictions concerning the impact of the revocation of authority on their businesses as a whole. Mr. Pickup contended that there would be nothing to place on the other side of the balance; I do not agree. Far from it, I would have been required to consider:
i) the wider public interest in the trade in dutiable goods being properly regulated, and being carried out only by persons who HMRC can trust, and in a manner which protects the interests of the Treasury and prevents fraud;
ii) the Claimants' history of non-compliance with conditions;
iii) the fact that the FTT is statutorily mandated to consider the Claimant's appeal, and is indeed seised of the Claimants' case.
Weighing in the balance would also have been the "obvious awkwardness" (see  CC&C) of the Tribunal or the Court requiring HMRC to continue, for an indefinite period pending the outcome of the application for judicial review, to confer a privilege on traders who they have ceased to believe are fit and proper persons. Weighing all of these matters together, I would have concluded that the balance of convenience comes down against the Claimants.
- Underhill LJ recognised that the approach laid out in CC&C may operate (or be felt to operate) harshly against those trading in this environment. The Claimants may feel it does so here, but in my judgment they would have no objective justification for such a view.
- I therefore dismiss the application for interim injunctive relief.
- I have had the benefit of surveying all of the evidential material, and hearing oral argument over the course of a court day. The Claimants have focused on a number of arguments in support of their application for interim relief, identifying these as their stronger arguments in the judicial review; inevitably, we have traversed the other ground. Having formed the view that the Claimants do not enjoy a reasonable prospect of success in their claim for judicial review on these principal grounds, I have considered whether the outstanding, subsidiary, points would be likely to fare better. I conclude that they will not. Haddon-Cave J had expressed himself in more trenchant terms – the claim is unarguable and bound to fail. There is therefore no purpose in deferring the application for permission simply to require another judge to consider grounds which were not regarded as strong enough to be advocated at this hearing. I therefore dispose of the application for permission to apply for judicial review, by refusing it.
- That is my judgment.