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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Butlers Ship Stores Ltd & Ors v Revenue & Customs [2012] UKFTT 371 (TC) (14 June 2012) URL: https://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02055.html Cite as: [2012] UKFTT 371 (TC) |
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[2012] UKFTT 371 (TC)
TC02055
Appeal numbers: EDN/08/8009, 8010, 8012, 8013 and 8014
EXCISE DUTY – disappearance of goods; excise duty point; tax warehouse; assessment on consignor; carrier and owner of goods; validity of assessments; joint and several liability; abnormal and unforeseeable circumstances; force majeure; whether supervening principles of European Law of proportionality and/or legal certainty rendered assessments invalid; Council Directive 92/12/EEC, Arts. 13, 14, 15 & 20; validity of Regulation 7 of the Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001
FIRST-TIER TRIBUNAL
TAX CHAMBER
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& ROY McKILLOP |
Appellants |
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- and - |
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THE COMMISSIONERS FOR HER MAJESTY’S |
Respondents |
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REVENUE & CUSTOMS |
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TRIBUNAL: |
JUDGE J GORDON REID QC, FCIArb. |
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Dr HEIDI POON CA, CTA, PhD. |
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Sitting in public at George House, Edinburgh on 27 and 28 February 2012
Julian Ghosh, QC and Philip
Simpson, advocate, instructed by Paull & Williamsons, solicitors, Edinburgh (and Aegis Tax LLP, London) for the Butlers Ship Stores
Ltd
No appearance for Direct Plus Distribution Ltd
Roy McKillop in person (part of hearing only)
Derek Francis, advocate, instructed by the Office of the Advocate General for the Respondents
© CROWN COPYRIGHT 2012
DECISION
Introduction
1.
These appeals relate to the disappearance of consignments of whisky and
vodka despatched from a tax warehouse operated by the first-named Appellant,
Butlers Ship Stores
Ltd (“
Butlers
”) on several dates in 2007. The goods did
not reach their destination (Tallinn, Estonia, and Cadiz). The Respondents
(“HMRC”) raised assessments under reference to the Excise Duty Points (Duty
Suspended Movements of Excise Goods) Regulations 2001, SI No. 3022 (the “2001
Regulations”) against
Butlers
, as consignors, the second-named Appellant,
Direct Plus Distribution Ltd (“Direct Plus”) as the owner of the goods, and the
third-named Appellant, Roy McKillop, (“McKillop”) as the transporter of the
goods.
3.
A Hearing took place at Edinburgh on 27 and 28 February 2012. Julian
Ghosh QC and Philip Simpson, advocate appeared on behalf of Butlers
on the
instructions of Paull & Williamsons, solicitors, Edinburgh, and Aegis Tax
LLP, 2 Stone Buildings, Lincoln’s Inn, London. Mr Ghosh led the evidence of
Douglas
Butler
, the principal shareholder and a director of
Butlers
; Harry Hanton,
a shareholder and a director of
Butlers
; and Alan Powell, an independent
specialist, excise duty consultant. HMRC were represented by Derek Francis,
advocate, instructed by the Office of the Advocate General. He produced the
written evidence of Alexander Stobie a Higher Assurance HMRC Officer and Craig
Clark a Higher Compliance Officer, also with HMRC. Their written evidence was
agreed; they did not give oral testimony.
4.
Witness Statements of Butlers
’ witnesses were exchanged
and lodged in advance of the Hearing. A Joint Bundle of productions (four
lever arch files) was also produced together with an additional file of
productions produced by HMRC. Skeleton arguments were submitted on behalf of
Butlers
and HMRC. A Statement of Agreed Facts as between
Butlers
only and HMRC was also
produced.
5.
Direct Plus were neither present nor represented at the Hearing. Their
professional advisers withdrew at an earlier stage. Mr McKillop attended part
of the Hearing. He conducted his own appeal. His professional advisers also
withdrew at an earlier stage. Mr McKillop gave evidence at the outset of the
Hearing (with the agreement of Butlers
, HMRC and the Tribunal), and then
departed.
Legal Framework
8.
Art. 14, which forms the foundation of part of Butlers
’ appeal, is in
the following terms:-
1 Authorized warehousekeepers shall be exempt from duty in respect of losses occurring under suspension arrangements which are attributable to fortuitous events or force majeure and established by the authorised (sic) of the Member States concerned. They shall also be exempt, under suspension arrangements, in respect of losses inherent in the nature of the products during production and processing, storage and transport. Each Member State shall lay down the conditions under which these exemptions are granted. These exemptions shall apply equally to the traders referred to in Art. 16 during the transport of products under excise duty suspension arrangements.
2 Losses referred to in paragraph 1 occurring during the intra-Community transport of products under excise duty suspension arrangements must be established according to the rules of the Member State of destination.
3 Without prejudice to Art. 20, the duty on shortages other than the losses referred to in paragraph 1 and losses for which the exemptions referred to in paragraph 1 are not granted shall be levied on the basis of the rates applicable in the member States concerned at the time the losses, duly established by the competent authorities, occurred, or if necessary at the time the shortage was recorded.
9.
Butlers
argue that Art. 14 has not been transposed into the domestic law
of the United Kingdom and therefore has direct effect.
11. Section 1 of the Finance (No 2) Act 1992 paved the way for making regulations fixing the time when excise duty became payable in the light of the introduction of the Single Market and the abolition of fiscal frontiers throughout the European Union. It was intended to enable the United Kingdom to give effect to the 1992 Directive. The Excise Goods (Holding, Movement, Warehousing and REDS[1]) Regulations 1992 SI No 3135, enabled the free movement of excise goods with no customs formalities at frontiers and established related systems and procedures to facilitate trade. The Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 SI No 3022 identified excise duty points in relation to Community excise goods in various circumstances, and identified the persons liable to pay the excise duty when an irregularity occurred during the course of an intra-EU movement of duty suspended excise goods. Liability to pay excise duty is suspended where the goods are moved from one tax (colloquially bonded) warehouse to another subject to various prescribed conditions including the use of a form known as an accompanying administrative document or “AAD”.
12.
Regulation 4 of the 2001 Regulations applies where there is a duty
suspended movement, which has not been discharged by the arrival of the goods
at their destination within four months, where there has been no excise duty
point prescribed by regulation 3, and there has been an irregularity (within
the meaning of Art. 20 of Council Directive 92/12/EEC). In those
circumstances, Regulation 4 provides that the excise duty point is to be the
time when the goods were removed from the tax warehouse in the United Kingdom. Here, that means the dates when the goods specified in the Assessments
were despatched by Butlers
, as consignors, from their tax warehouse. It is
common ground that the conditions set out in Regulation 4 are met.
13.
Regulation 7 of the 2001 Regulations provides that where there is an
excise duty point as prescribed by Regulation 3 or 4, the person liable to pay
the excise duty on the occurrence of the excise duty point is the person shown
as the consignor on the accompanying administrative document, or if someone
other than the consignor is shown in Box 10 of that document as having arranged
for the guarantee, it is that other person. Here, there was no other such
person shown in box 10 of the accompanying administrative documents relating to
the consignments in issue. Accordingly, the person apparently liable to pay
the excise duty under this Regulation is Butlers
. As will be seen,
Butlers
contend that Regulation 7, insofar as it purports to implement part of the 1992
Directive, infringes the principles of proportionality and legal certainty as
applied by the law of the European Union.
Excise/Transport Documents etc
21.
A form W70 is required for drawing goods out of stock. It gives details
of inter alia the consignor (despatching warehouse), document reference
number, port of shipment, date of removal, place of destination, details of
agent at port of shipment, bond details and a description of the goods. It was
Butlers
’ practice to have four copies. They kept the top copy;
another was kept by them for invoicing; one copy was for the transporter; and
the fourth copy (signed by the transporter) was also kept by
Butlers
.
Movement Guarantees
The Commissioners may … require any person to give security … by bond, guarantee or otherwise … for the observance of any condition in connection with customs or excise.
The Assessments
32.
On 3 April 2008, HMRC issued two assessments to Butlers
. The first is
in the sum of £201,212, and relates to consignments of (i) 1,144 cases of Glens
Vodka (13,278 litres in one litre bottles), despatched on 18 May 2007 and (ii)
1,142 cases of Glens Vodka (13,704 litres in one litre bottles, despatched on
15 June 2007, both destined for Tallin, Estonia. The owner of each consignment
was Direct Plus, and the consignee was Contimar OU.
34.
Butlers
sought a departmental review of these assessments. By letters
dated 11 June 2008 to
Butlers
, HMRC upheld the assessments. The basis was
that each movement consisted of duty suspended goods being despatched from a UK warehouse, which had not reached their destination within four months, that there was an
irregularity which was not detected in the UK, and that therefore Regulation 4
of the 2001 Regulations applied. The excise duty point was the time when the
goods left
Butlers
’ warehouse. Having regard to the terms of Regulation 7 of
the 2001 Regulations and the Accompanying Administrative Documents (AADs),
Butlers
as consignor was liable to pay the duty. HMRC imposed these assessments on
Butlers
by virtue of S12(1A) of the Finance Act 1994.
Procedural History
36.
The appeals of Butlers
(Appeal 08/8009 and 08/8010), Direct Plus (Appeal
08/8012 and 08/8013), and McKillop (08/8014) were listed together as they all arose
out of the same circumstances. The two Direct Plus appeals were consolidated
by Direction dated 10 September 2008. The
Butlers
appeals were consolidated by
Direction dated 27 August 2008. On 17 February 2010, the Tribunal directed inter
alia that these five appeals (EDN/08/8008, 8009, 8012, 8013 and 8014)
should, in relation to all further procedure, be heard together in terms of
Rule 5(3)(b) of the Tribunal’s Rules.
39.
A Case Management Hearing took place 21 September 2011. HMRC were
authorised to amend their Statement of Case in each appeal (essentially in
response to an amendment to Butlers
’ grounds of appeal - see below) and did
so. It became clear during that Hearing that the criminal proceedings were
irrelevant to the outcome of the tax appeals. There was little dispute on the
background facts. None of the Appellants (and they were all then professionally
represented except Mr McKillop) submitted that proceeding with the tax appeals
while Mr Tariq’s criminal appeal remained unresolved, would cause them any
prejudice.
40.
An application by Butlers
for disclosure of information and documents
was heard on 17 February 2012. It is only mentioned because it has become the
subject of an application for expenses which we consider at the end of our
Decision.
41.
Finally, it should be noted that Butlers
have raised proceedings in the
Court of Session against the other appellants and Mr Tariq. The sums claimed
are the amounts of the sums specified in the Notices of Assessment (£201,212
[the two consignments of vodka to Estonia] and £310,626 [the three consignments
of whisky (1) and vodka (2)] to Spain), plus certain professional expenses
incurred in dealing with the disappearance of the consignments of vodka and
whisky. The basis of the action is fraudulent and/or negligent
misrepresentation. It proceeds on the assumption that
Butlers
are liable for
the duty specified in the notices which are the subject of their appeals to
this Tribunal. If their appeals succeed, then the Court of Session action will
either fall away or be substantially restricted.
Grounds of Appeal
42.
Butlers
’ original grounds were that
Butlers
were wholly innocent of
any fraud when other parties identifiable and registered with HMRC actually
caused the duty point and revenue loss to occur.
43.
Amended grounds of appeal were presented in 2009 and allowed in 2010.
In summary these new grounds acknowledged that the goods failed to arrive at
their destination but contended that this was due to the fraud of Direct Plus
and/or McKillop. The fraud was said to constitute abnormal and unforeseen
circumstances outwith the control of Butlers
, which despite exercise of all due
care by them could not have been avoided. This constituted force majeure
and exempted them from excise duty liability.
44.
They also advanced a separate ground to the effect that HMRC’s assessments
infringed their Community law rights. In particular, the principles of legal
certainty and proportionality would be infringed. Butlers
, it was said, could
have had no knowledge that, as a result of fraud, the goods did not leave the United Kingdom. Moreover, having acted in good faith and taken every reasonable measure
under their power to ensure that the movement of goods from their warehouse
under suspension of duty did not lead to their participation in evasion of
duty.
Facts
46. The Statement of Agreed Facts is detailed and comprehensive. It is in the following terms:-
“1. The Appellant has a place of
business at Blaikies Quay, Aberdeen AB22 5PB. It has a tax warehouse at this
address in which it stores
duty suspended goods under bond.
2. Since April 1990, the Appellant has carried on business consisting of the supply and storage of duty suspended goods. Its customers are primarily fishing vessels, oil rig supply vessels and ferries. Up to 2008 it also supplied oil rigs in the North Sea. These customers purchase duty free tobacco and alcohol from the Appellant.
3. The
Directors of the Appellant were at the time of the assessments, Douglas Smith
Butler
(“DB”) (now deceased), Douglas George
Butler
(“DGB”) and Harry George
Hanton (“HH”).
4. In
about 2004, the Appellant was introduced to Mohammed Ajmal Tariq (“Tariq”), who
was the owner and director of a company called Direct plus Distribution Limited
(“DPDL”). Mohammed Ajmal Tariq styles himself also “A. Tariq”. DPDL is also
known as Direct Marketing Plus and Direct Plus Marketing and Distribution
Limited. DPDL has a place of business at Unit 4, Murraysgate Industrial
Estate, Whitburn, EH47 0LE. Tariq wanted to rent space in the Appellant’s
warehouse to store
tobacco products.
5. DB
and HH requested and received an Excise Warehousing Registered Owners of Duty
Suspended Goods held in Excise Warehouses registration Certificate (“WOWGR”)
certificate from DPDL to ensure that the Appellant was authorised by HMRC to
store
DPDL’s duty suspended goods in its warehouse. They also visited DPDL’s
cash and carry warehouse to satisfy themselves that DPDL was a legitimate
trader running a lawful business.
6. Tariq
as agent for DPDL imported tobacco from a factory in Belgium. DPDL would store
this tobacco in the Appellant’s warehouse in Aberdeen, DPDL would draw/remove
the tobacco as and when needed and always paid the duty on time, usually by
bank transfer into the Appellant’s account. Officers of the Respondents
regularly visited the Appellant to carry out checks on the tobacco held there
for DPDL/Tariq. No problems were identified by them in relation to that
tobacco. Tariq also provided the names, addresses and locations of his
suppliers and overseas bonded warehouses.
7. In early 2007, Tariq on behalf of DPDL approached the Appellant with regard to the storage of duty suspended spirits for sale to customers in Estonia and Spain. He informed DB who informed HH that McKillop Trucking Ltd (contact Roy McKillop) would transport the goods to and from the Appellants warehouse. He also provided the names, addresses and locations of his suppliers and overseas bonded warehouses. Roy McKillop effected, or caused to be effected, the uplift of all consignments.
8. The Appellant obtained an HMRC VAT registration number of DPDL. The Appellant also obtained a WOWGR Certificate dated 17 January 2004 in respect of DPDL.
9. The Appellant enquired of the Respondents using the computerised standard System for Exchange of Excise Data (“SEED”) checks whether the Contimer and Gran MariscalSiglo XVIII warehouses were registered with their respective domestic authorities for receipt of duty suspended goods. They received confirmation that those warehouses were so registered in respect of the goods intended to be transported to them.
10. In respect of each consignment of spirits transported in accordance with Tariq’s instructions, the Appellant followed all procedures required of it in HMRC’s published guidance (Notice 197, paragraph 37) in relation to receiving and thereafter consigning goods on an excise duty suspended basis, although they did not themselves arrange the transportation.
11. The
Appellant obtained a WOWGR certificate in respect of the person from whom the
Goods were being purchased in consignments 1, 2, 3, 4 and 6, namely Abbey
Forwarding (consignment 1), Allied Ship
Supplies (Ireland) Ltd (consignments 2,
3 and 4), and Bosworth Beverages Limited (consignment 6). The seller of
consignment 5 was G101 Sales Limited based in Glasgow. The Appellant had
previously done business with that company, and already had a WOWGR for it.
The Appellant has not been able to find in its files a copy of the WOWGR it
obtained for either Abbey Forwarding or G101, which it is believed may have
been accidentally disposed of.
12. In respect of each of the consignments the Appellant:-
a. received a delivery note and checked it against the goods;
b. received a W8, checked it against the goods, and signed and returned the appropriate copy to the warehousekeeper of dispatch;
c. obtained HMRC confirmation that the warehouse to whom the consignments were to be transferred was authorised to receive goods on a duty suspended basis;
d. completed the relevant form W70 for signature by the transportation company;
e. completed the appropriate Administrative Accompanying Document (“AAD”) and gave it to the driver to accompany the consignment;
f. signed a CMR?Lettre de Voiture (except for consignments 4 and 5, for which a Lettre de Voiture signed by the appellant is not available);
g. in due course received back the relevant copy of the AAD purporting to have been signed, dated and stamped by the consignee warehousekeeper (except for consignment 6).
13. There
were six consignments of alcohol in total. The first five consignments (three
of which had a destination in Spain and two of which had a destination in Estonia) arranged by Tariq appeared to the Appellant to have been delivered in accordance
with the documentation. On each occasion the AAD was returned and appeared to
have been duly signed and stamped by the warehouse that was to be receiving the
goods. The purchase of the third and fourth consignments was funded by the
Appellant on DPDL’s behalf. The Appellant purchased the third and fourth
consignments at £15, 496 and £19, 874.80. It rendered to DPDL invoices in the
respective sums of £18,470.40 and £20,592. The first consignment was obtained
by Tariq/DPDL and transported to the Appellant’s premises on behalf of Glenpark
International Limited, Unit 114, Millennium Business Centre, 3 Humber Trading
Estate, London NW2 6DW, having been removed from Abbey Forwarding Limited, 50
Purland Road, Nathan Way, West Thamesmead Business Park, London SE28 0AT. The
second consignment was obtained by Tariq/DPDL and transported to the
Appellant’s premises from Allied Ship
Suplies (Ireland) Limited (“Allied”),
Unit 5 Site 18 Ballinsk Road, Springtown Industrial Estate, Londonderry. The
third consignment was obtained by Tariq/DPDL and transported to the Appellant’s
premises from Allied’s Londonderry premises. The fourth consignment was
obtained by Tariq/DPDL and transported to the Appellant’s premises from
Allied’s Londonderry premises. The fifth consignment was obtained by
Tariq/DPDL and transported to the Appellant’s premises from G 101 Off Sales
Limited, Burnfield Road, Glasgow G46 7TT. The sixth consignment was obtained
by Tariq/DPDL and transported to the Appellant’s premises from Bosworth
Beverages Limited, Dovecote Cottage, Shackerstone Walk, Carlton, Nr. Nuneaton,
Warwickshire. Each such consignment was held in the Appellant’s warehouse for
a matter of days before dispatch to the ostensible destinations appearing in
the respective AADs. Each such movement ostensibly to such destinations
proceeded using the Appellant’s movement guarantee.
14. In respect of the sixth consignment, on 8 June 2007, Tariq called DB stating that he had sourced 3250 cases of Teachers whisky from Bosworth Beverages, but due to cash flow DPDL could not pay for the load. He asked if the appellant would pay for the goods and then invoice DPDL when he would be in a better position to pay. The Appellant agreed to this course of action. The purchase of the sixth consignment was funded by the Appellant on DPDL’s behalf. The Appellant purchased the sixth consignment at £52,470.00. It rendered to DPDL an invoice in the sum of £54,047.50. Tariq paid for them by three post-dates cheques all of which were in due course honoured.
15. The
Appellant received oral instructions from Tariq to ship
the consignment to
Grand Mariscal in Spain. McKillops were the transporters. On 17 August 2007,
the load was despatched from Aberdeen. On 18 August 2007 DB received
a call from Tariq stating that the lorry had broken down in the Midlands and
that the load had been taken to a warehouse in Walsall. DB was concerned about
this and asked Tariq if it was a bonded warehouse. Tariq was unable to confirm
this. DB then telephoned the driver who stated that the goods had been taken
to the yard of a company called AJK Travel (UK) Limtied (“AJK”). The driver
stated that he did not know whether this was a bonded warehouse.
16. The driver informed DB that the person handling the situation on behalf of HMRC was Jon Hitchman (“JH”). The dirver supplied DB with JH’s telephone number and DB telephoned JH in order to establish the situation. DB left a message, including a telephone number, requesting that JH contact him. A telephone conversation between DB and JH took place on 18 August 2007, commencing at or about 13.25pm upon JH’s return from the premises of AJK whereupon he picked up DB’s message. JH had been attending the premises of AJK at Bentley Business Park, Bentley Lane, Walsall where the Respondents had seized most of the sixth consignment of 26 pallets of Teacher’s Whisky despatched by the Appellants the preceding day and on the face of the AAD destined for Spain. DB stated to JH the fact that he was the managing director of the Appellants. DB wanted to know what was happening to the consignment of whisky packed the preceding day and destined for Spain. For initial security purposes JH asked DB for his warehouse code and Movement Guarantee number. DB stated that he would get these details and phone JH again. At 14.06 JH phoned DB in response to a call in which a different Aberdeen number from that previously used had been provided. DB provided the Appellant’s Warehouse Code and Movement guarantee numbers. JH asked DB what his involvement in relation to the consignment of 26 pallets of Teacher’s Whisky had been. DB stated that, having despatched the consignment destined for Spain the previous day, he was contacted by his customer (whose name he gave as “A. Tariq”; “Tariq”) at approximately 11.00am on the 18th and informed that the load had to be off-loaded into premises in Walsall due to the lorry breaking down. DB explained that the vehicle had to be removed before it went into repair. DB explained that the consignment was being transported on behalf of A Tariq under the name of DPDL. DB quoted DPDL’s company number as 218782 and VAT No. as 7889 8565 37. DB explained that DPDL – at any rate Tariq himself – told the Appellant where the consignment of alcohol was to be sent. This was how the Appellant knew of Tariq’s Spanish-based customer’s warehouse Gran MariscalSiglo. JH asked DB how he knew Tariqu. DB explained that he had known Tariq for two years. Tariq placed cigarettes in bond in the Appellant’s warehouse. The cigarettes were said to be manufactured and sourced in Belgium under Tariq’s brand name “Ultimate Cigarettes”. DB stated that he had had several telephone conversations with Tariq earlier that day (the 18th). He provided JH with contact nunmbers for Tariq; 0790 3153240, 01501 745564, 01501 745587. JH asked how many previous transactions DB had had with Tariq. DB stated approximately four, each of which was said to have been of Glens Vodka despatched for Spain. JH asked DB to send the paperwork for (a) the transaction relating to the movement of 26 pallets of Teachers Whisky, (b) company formation details regarding DPDL, (c) prior movements involving DPDL. JH informed DB that he had concerns regarding the consignment of Teacher’s Whisky reaching its Spanish destination on the following grounds:
· Two pallets of whisky had been removed from the truck at the Walsall address
· Three further pallets of whisky were in the process of being removed from that address;
· A box of whisky had been opened and part of its contents was missing.
JH warned DB that he had since seized and secured the remaining whisky and vehicle at the premises of AJK and informed DB that local HMRC staff would shortly be in touch with him. DB stated that he was astounded by what he had been told and offered to provide all necessary assistance. The call was concluded at 15.10 hours.
17. The Respondents became aware (a) that the consignment of Teacher’s Whisky which was seized in Walsall on 18 August 2007 might fail to arrive at the destination specified in its AAD on the preceding day (b) that previous consignments destined for Spain and Estonia had failed to arrive (i) upon discovering from the Spanish authorities on 12 December 2007 that Mr Antonio Mariscal, administrator of Gran MariscalSiglo XVIII SL, Cadiz, Spain had declared that he and that company had no knowledge of the consignments of goods belonging to DPDL despatched by the Appellants to which AADs numbered 66609, 66158 and 66403 related (ii) upon receiving from the Estonian Authorities on 14 September 2007 notification that the consignments of goods belonging to DPDL despatched by the Appellants to Contimer OU (“Contimer”) warehouse, Tallinn, Estonia to which AADs numbered 66064 and 65643 related had failed to arrive at their destination; that Contimer had not submitted information relating to the goods to the host tax and customs authorities; that the ostensible signatory of those AADs, Sven Aiaste, was not authorised to sign on behalf of Contimer; that the ostensible signature of Sven Aiaste was not his and did not resemble that in his passport. An image file of Aiaste’s passport signature was received by the Respondents from the Estonian authorities on 12 November 2007.
18. On 3 April 2008 the two assessments which are the subject of these Appeals were issued to the Appellant. On 2 May 2008 DB and HH as directors of the Appellant had a meeting with Alexander Stobie and Craig Clark, both being officers of the Respondents. At this meeting they provided details of other checks which had been carried out on the consignments following the assessments. The Appellant stated to Mr Stobie that they had established that the consignments had not arrived with Contimer. Due to language difficulties the Appellant stated that they were unable independently to satisfy themselves whether or not the goods consigned to Spain had arrived with Gran Mariscal.
19. On 16 June 2011 at Manchester Crown Court Tariq was convicted along with other persons not involved in these appeals of conspiracy to evade excise duty, in contravention of Section 170(2)(b) of the Customs and Excise Management Act 1979. The Crown case on the basis of which such conviction proceeded comprised evidence that Tariq, acting as DPDL, organised each of the consignments to which the assessments relate. In Proceeds of Crime Act 2002 proceedings before that Court it is maintained that Mohammed Tariq has benefited from his criminal conduct to the extent of the duty exigible upon the respective consignments to which the assessments relate.
20. The failure of the goods to arrive at their respective destinations was caused by the fraud of Tariq/DPDL and the actings of Roy McKillop and possibly third parties unknown.
21. The Appellant did not participate in, and was unaware of, the irregularity (which the parties acknowledge to have been such for the purposes and within the meaning of r.2. of the Excise Duty Point (Duty Suspended Movement of Excise Goods) Regulations 2001 No. 3022.”
[The text of the Statement of Agreed Facts contains a number of infelicities but it is not for the Tribunal to correct it.]
47.
The facts specified in the Statement of Agreed Facts are, in any event,
established by the evidence adduced. Butlers
, through their solicitors,
produced thorough and detailed Witness Statements which were largely vouched by
a comprehensive compilation of documents. We make the following additional
findings of fact (as a matter of convenience we also add various comments on
the evidence in this section of our Decision).
Butlers
’ Dealings with Tariq/Direct Plus
48.
Between about 2005 or possibly 2004 and 2007 (at least until the events
giving rise to these appeals unfolded) the relationship between Tariq and
Direct Plus with Butlers
was that of normal business traders. There was
nothing about the way Tariq or Direct Plus conducted business with
Butlers
which aroused
Butlers
’ suspicions. Nor would the suspicions of a reasonably
prudent warehousekeeper exercising all due commercial care have been aroused.
49.
At the material time, in 2007, Butlers
had a movement guarantee in place
in the sum of £20,000.
50.
The AADs for each of the five consignments to which the appeals relate
contain entries showing Butlers
as the consignor. Box 10 of each AAD is
blank. No other person is shown in Box 10 as having arranged the guarantee.
Roy McKillop
52.
Prior to 2007, Mr McKillop had some experience of the haulage of excise
goods and the import and export of goods. His first contract with Tariq (he
did not distinguish between Tariq and Direct Plus) related to household goods.
He had also transported goods for Tariq/Direct Plus to and from Butlers
’ warehouse on several occasions prior to 2007, including tobacco from Belgium.
54.
McKillop sub-contracted some of the work. The haulage of the first
consignment referred to above was undertaken by a man named Dave Sell. Sell
collected the goods from Butlers
at Aberdeen and drove south. When the driver
had reached Carlisle or a little beyond, he telephoned McKillop to say that he
had received a phone call on his mobile phone from someone (unidentified)
saying that he was the owner of the goods. McKillop had given Sell’s mobile
number to
Butlers
and Tariq. Apart from that, McKillop had no significant
dealings with
Butlers
.
56.
Much the same happened to the other four consignments which are the
subject of the assessments, although the place within the UK where the goods were unloaded varied. McKillop was the driver for two of the
consignments. When he was the driver no backloads were arranged. In relation
to one of the consignments for Spain, the driver proceed to the Cadiz area to collect a backload. There is nothing in the evidence to suggest that either
Sell or McKillop mentioned to Butlers
that they had been instructed in transit
to deliver the goods to destinations within the United Kingdom rather than Estonia or Spain.
58.
McKillop contacted Butlers
and informed them of the position. McKillop
telephoned Tariq but obtained no response.
59.
McKillop said in cross-examination (by Mr Francis - he was not
cross-examined by Mr Ghosh) that the AADs were in a sealed envelope and he
never saw them. This was not challenged by anyone and we are prepared to
accept that evidence. McKillop also stated in cross-examination that if Butlers
had shown him a copy of HMRC Leaflet Transporting Excise Goods in the UK (02/CD/022) he would not have allowed the goods to be delivered within the United Kingdom. We view this piece of evidence with some suspicion and are not prepared to
accept it. His acceptance of the proposition put to him in cross-examination
appeared to us to be simply a response which he McKillop thought might be
favourable to his cause.
61.
While it is true that he arranged backloads for some of the
consignments, it seems to us that he must or ought reasonably to have been
aware that the arrangements were irregular and suspicious. Our assessment,
based on his evidence as a whole, the manner in which he gave it and his
somewhat cavalier attitude to the appeal generally, is that (at best for him)
he turned a blind eye to what was going on in 2007. Had he been acting
responsibly, he would not have delivered or authorised the delivery within the
United Kingdom of excise goods originally destined for Estonia or Spain,
without making further enquiries eg of the consignor, Butlers
. He did not,
however, do so.
Post Seizure Events
63.
At the meeting on 2 May 2008, Mr Stobie confirmed that Butlers
had
followed the correct procedures and expressed the view that there was nothing
else he expected them to have done. In particular, he said that there was no
requirement for
Butlers
to have contacted the receiving warehouses in Estonia and Spain. He also stated that the seizure of the goods on 18 August 2007 was, at that
stage, unrelated to the earlier consignments of whisky and vodka despatched by
Butlers
.
64.
Following the meeting on 2 May 2008, Mr Hanton emailed Butlers
’
solicitors, Paull & Williamsons on 6 May 2008, narrating his account of the
meeting. The email deals with a variety of matters. It states inter alia that
Hanton asked the HMRC officials if
Butlers
had followed the correct procedures
according to HMRC Regulations. According to the email Alex Stobie (HMRC
officer) stated that we had and there was nothing else we should have done.
We are satisfied that this part of the email accurately reflects what Mr
Stobie said. Mr Hanton confirmed the position in evidence in chief. We
believed him.
The reasonableness of Butlers
’ conduct (due commercial
care etc)
65.
When Mr Butler
and Mr Hanton visited the premises at Whitburn what they
observed appeared to be a legitimate trader operating a lawful and successful
business. Their financial arrangements with Tariq/Direct Plus operated
smoothly. Charges were agreed and paid for. On several occasions
Butlers
initially funded purchases but were always promptly repaid by Direct Plus.
66.
At some point before the first consignment was despatched, Mr Hanton
contacted the HMRC Helpline for advice on paperwork. He was not advised to
intimate the transaction to the receiving warehouse in advance, or to obtain
confirmation of receipt of the goods immediately on their arrival. Nor was he
advised not to let the owner of the goods use Butlers
’ movement guarantee.
He was not told to adjust the level of his movement guarantee.
67.
There was nothing unusual or suspicious about Direct Plus organising and
using their own transporter (McKillop). It is normal or at least common for
the owner of goods to make his own arrangements for their transport. In
agreeing to or acquiescing in this arrangement, Butlers
complied with paragraph
66.4 of Notice 197.
68.
It was not normal practice in 2007 for a consignor such as Butlers
to alert the transporter (here, McKillop) of the risk of diversion fraud. It has
not been established that it is normal practice to hand such a transporter HMRC
leaflets about transporting excise goods such as Transporting Excise goods
in the UK 02/CD/022, prior to the removal of the goods from the consignor’s
warehouse.
Butlers
did not supply McKillop with any such leaflets. The
omission to do so is not evidence of a failure to take due commercial care. In
any event, McKillop, to
Butlers
’ knowledge, was an experienced haulier. It is
simply unrealistic to suggest that they should have passed a copy of the
leaflet referred to, to McKillop or David Sell, or that failure to do so
demonstrates a lack of due commercial care.
69.
It was not normal practice in 2007 to inform receiving warehouses in
advance of a consignment or for receiving warehouses to confirm by telephone or
electronically, immediate safe receipt of the goods. When acting as a
receiving warehouse, Butlers
never received calls from the warehouse
dispatching the goods.
73.
There was no apparent commercial purpose in transporting the
consignments of whisky to Aberdeen where they remained for short periods and
then transport them south again en route for Spain and Estonia. However, such arrangements are not unique and given the past trading history
between Butlers
and Direct Plus they were not sufficient to have required a
warehousekeeper, exercising all due commercial care in the circumstances in
which
Butlers
were placed, to do anything over and above what
Butlers
actually
did. In the circumstances,
Butlers
took every reasonable measure in their power
to ensure the consignments of whisky and vodka dispatched in 2007 which are the
subject of the assessments to which these appeals relate, would not become the
subject of theft, fraud or irregularity or otherwise lead to their entry into
the European economic circuit without due payment of excise duty.
Submissions
74.
Julian Ghosh QC for Butlers
submitted, in summary, that throughout,
Butlers
acted in good faith; they acted to the standard of care HMRC were
entitled to expect having regard to their public notices. If best practice
suggests something further should be done, HMRC are not entitled to demand it.
In particular, there was no obligation to provide McKillop with Leaflet Transporting
Excise Goods in the United Kingdom, 2002.
75.
The UK Regulations which imposed on Butlers
strict liability for a
fraud which they had nothing to do with (Regulation 7 of the 2001 Regulations),
infringed the principles of proportionality, and/or legal certainty and went
beyond what was necessary to achieve a legitimate aim, namely to protect the
exchequer from fraudulent evasion of excise duty; accordingly, Regulation 7
fell to be disapplied as being contrary to European law.
76.
Butlers
had no choice under the UK and European legislation but to
provide a movement guarantee. The notion of letting someone else use their
guarantee is erroneous. Imposing 100% strict liability on
Butlers
, even if
they adopted best practice was disproportionate. Regulation 7 of the
1992 Regulations therefore had to be given a sympathetic construction to
accommodate the principle of proportionality, and if that cannot be done it
must be disapplied as it offends the European Union principles of
proportionality and legal certainty.
78. Mr Ghosh in his written skeleton argument and in submissions relied upon the following cases:- Vlaamse Oliemaatschappij NV v FOD FinancienCase C-499/10, Netto Supermarket GmbH & Co OHG v Finanzamt Malchin Case C-271/06, 2008 STC 3280, Heintz van Landewijck Sarl v Staatssecretaris van Financien C-494/04 2006 ECR 1-5381, Blue Sphere, Axel, Mobilix, Ministerodelle Finanze v Esercizio Magazzini Generali SpA 1984 3 CMLR 217. Reference was also made to R (aoa) Teleos v HMRC Case C-409/04 2008 STC 706, Garrett Trading Ltd (Decision E101061, Ghaidan v Godin-Mendoza 2004 2 AC 557 (HL) at paragraph 33, and HMRC v IDT Card Services 2006 STC 1252 (CA) at paragraph 92.
79.
Mr Francis, for HMRC, submitted that Direct Plus and McKillop were both
jointly and severally liable, having caused the occurrence of the excise duty
points resulting from the application of Regulation 4(2) of the 2001
Regulations. He urged us to regard Douglas Butler
as an unsatisfactory
witness; he submitted that Mr Powell gave the impression of a witness whose
wish to adhere to his witness statement conflicted with his objectivity and
honesty. Mr Hanton’s evidence of what Mr Stobie said at the meeting of 2 May
2008 should be discounted. Overall, the evidence did not establish that
Butlers
took every reasonable measure in their power to prevent fraudulent evasion of
duty. He relied in particular in what he described as the dog-leg movement of
the goods to Aberdeen which was, he argued, manifestly uncommercial.
80.
Mr Francis submitted that the aim of the 1992 Directive was to place the
provider of the guarantee in the position of an insurer; strict liability was
imposed by Art. 20(1) subject to Art. 14(1). This provided a framework within
which the principles of proportionality and legal certainty had to operate.
Support for this view was to be found in Re the Arena Corporation 2004
EWCA civ 371 at paragraph 28, Teliosat paragraph 58, Greenalls
Management Ltd v CCE 2005 1 WLR 1754. Greenalls supports the view
that the strict liability of the warehousekeeper is proportionate. That arises
where he chooses to be the consignor. The liability of the authorised
warehousekeeper of dispatch is the default setting under Art. 15(3). The scope
for contending that Regulation 7 of the 2001 Regulations offends the principle
of proportionality was strictly circumscribed. The fixing of liability on the
warehousekeeper was the very thing which the 1992 Directive envisaged through
its architecture and objectives or aims. Butlers
’ argument is tantamount to
saying that Art. 15(3) and 20 offend the principle of proportionality. Proportionality
in the VAT regime is entirely different
Discussion
Evidence
83.
We found the evidence of Mr Hanton and Mr Butler
to be credible and
reliable. As already noted, they provided detailed written statements which
they amplified in evidence. They were not shaken in cross-examination. In
particular, Mr Hanton was clear in his recollection of what Mr Stobie said at
the meeting on 2 May 2008. Mr Stobie did not deal with this in detail in
his witness statement and did not give oral evidence. Mr Hanton emailed
his solicitor at Paull & Williamsons on 6 May 2008 and described what transpired
at the meeting. We have no reason to doubt the accuracy of that email (apart
from a minor discrepancy over the date, which is immaterial), written shortly
after the meeting. Craig Clark’s (HMRC officer) manuscript notes of the
meeting attached to his unchallenged witness statement are brief but record inter
alia Can’t say what they could have done to confirm goods arrived. As far
as it goes, this is consistent with Hanton’s account. Moreover, the notes do
not record any failure or lack of due care on the part of
Butlers
.
84.
We also found Mr Powell to be credible and reliable. He had a
particular combination of qualifications and experience which added weight to
the expert evidence which he gave about practice and, in particular, what ought
reasonably to have been done in the circumstances in the exercise of all due
commercial care or similar phrases conveying the same essential notion of
taking all reasonable precautions and steps to guard against fraud. There was
no doubt in Mr Powell’s mind that Butlers
acted correctly. In essence, he was
agreeing with the contemporary view expressed by Customs officers at the
meeting in May 2008 referred to above. We consider that the various criticisms
of his evidence advanced by counsel for HMRC were unwarranted. His evidence
was given with care and overall he was not moved from the thrust of his views
expressed in his written statement.
85.
The fact that the goods were being conveyed to Butlers
’ warehouse for
short periods and then taken south again was not something which ought to have
put
Butlers
on their guard or to be suspicious or to take extra precautions
(whatever they might be). The line that the arrangements were uncommercial for
that reason was a theme of Mr Francis’ cross-examination. Mr
Butler
would not
accept it. There was no evidence to support the argument. Mr Powell
acknowledged that some warehousekeepers would if fully circumspect have
contacted the Estonian warehouse (where the first consignment was to be
delivered) but he maintained that
Butlers
acted wholly correctly and had
done nothing wrong in terms of the standard obligations in law. We
agree. We do not find sufficient support in the evidence for the conclusion
that all due commercial care required
Butlers
to contact the Estonian
warehouse before releasing the goods. In particular, we reject the assertion
that Mr Powell lacked objectivity or integrity.
86.
HMRC asserted in their Statement of Case that there were a number of obvious
steps which Butlers
, in the exercise of due care, should have taken. These in
summary were (a) they could have booked in the consignments with the receiving
warehouse, (b) they could have used forms of enquiry forwarded to the receiving
warehouse with questions as to their business and the expected consignments,
(c) they could have contacted the consignee warehousekeeper to ascertain that
the consignment had been received, (d) they could have used their own trusted
haulier, (e) they could have passed the leaflet Transporting Excise Goods in
the UK to the driver, and (f) and in the absence of taking these steps they
should have withheld the use of movement guarantee, ie not acted as consignor.
88.
While Mr Powell acknowledged in cross-examination that some of these
steps would have been reasonable, he did not accept expressly nor did he
impliedly accept that Butlers
’ conduct displayed a lack of due care or
demonstrated something less than the due diligence of a circumspect
warehousekeeper.
89.
We conclude on the evidence that Butlers
did all that could reasonably
be expected of them. Whether one describes this conclusion as all due
commercial care having been taken, or all the due diligence of a circumspect
warehousekeeper, does not matter. They are all different ways of expressing
the same notion, namely that
Butlers
acted properly, carefully, reasonably and
in good faith throughout. Whether some higher standard of best practice might
have been achieved does not, in our view, matter. Standards can always be
improved. The fact that, with hindsight, it might be concluded that, had an
additional precaution been taken, loss would have been avoided, is nothing to
the point. The fact that a precaution is a reasonable one to take does not
mean that it is unreasonable or shows a lack of due commercial care not to take
it, particularly against the background of HMRC’s detailed manual of guidance
(Notice 197) which makes no mention of it.
90.
The only guide we have on whether Butlers
acted with all due commercial
care is the contents of Notice 197 and the expert evidence of Mr Powell, plus
our own assessment of the facts and circumstances. It is accepted
Butlers
complied with the guidance contained in HMRC Notice 197 in force in 2007
(Statement of Agreed Facts paragraph 10). Mr Powell’s final position in
evidence was that
Butlers
acted wholly correctly. He agreed that it would have
been reasonable to contact the receiving tax warehouses in advance and that it
would be reasonable to conclude that the route taken by the goods (north to
Aberdeen for a few days and then south again to the Channel Ports) was strange,
but as we have said that does not mean that
Butlers
fell below the standard of all
due commercial care. It was not the practice to contact receiving
warehouses in advance. Notice 197 did not require it. Moreover,
Butlers
had a reasonably good business relationship with Tariq/Direct Plus. They had
traded for several years without any significant problems. Finally, there was
no evidence that it was the practice that warehousekeepers or consignors to
hand to the transporter or his driver the leaflet Transporting Excise Goods
in the United Kingdom, 2002 either on or before the departure of each and
every, or even any consignment. It might well be reasonable to do so, but that
does not mean it is unreasonable or shows lack of due commercial care not to do
so.
Butlers
were at least entitled to assume that McKillop, who was an
experienced haulier and independent contractor, knew what he was doing and was
honest. It was not incumbent on
Butlers
to tell him what his responsibilities
were.
Law
91.
We consider first the question of force majeure. It is
common ground that Art. 14(1) of the 1992 Directive has not been transposed
into the domestic law of the United Kingdom, and that it has direct effect. Butlers
may therefore rely on it.
102. What emerges from SPMR and Ann BordBainneis that
exemption is to apply where the consequences of abnormal and unforeseeable
circumstances outwith the control and sphere of responsibility of the
authorised warehousekeeper occur despite the exercise by him of all due care,
and lead to losses (within the meaning of Art. 14.1 of the 1992
Directive) occurring under suspension arrangements. The fraud of Tariq/Direct
Plus constitutes abnormal circumstances. These were outwith the control and
sphere of responsibility of Butlers
. The fraud and consequent disappearance of
the goods was entirely unexpected and unforeseen having regard to the trading
relationship with Tariq/Direct Plus. Whatever reasonable assessment of the
potential risks
Butlers
could have made, there was no further appropriate or
effective step which they could reasonably have taken to avoid those risks,
whether at the cost of excessive sacrifice or otherwise.
104. As for Regulation 7 of the 2001 Regulations (proportionality and legal certainty) it is clear that in the exercise of the powers conferred on them by Community Directives, Member States must respect the general principles of law that form part of the Community legal order, including the principles of proportionality and legal certainty (Netto paragraph 18). Thus, subject to the terms of the particular Directive under scrutiny, effective measures to preserve the rights of the public exchequer must not go further than is necessary for that purpose (Netto paragraph 20; VOM paragraph 24; Telios paragraphs 45 & 52-53- VAT cases; Heintz v LandewijckSarl v Staatssecretaris van Financien C-494/04 2006 ECR 1-5381 paragraphs 42-46; Europlus Trading Ltd v HMRC 2011 UKFTT 635 (TC) paragraph 110 - both excise duty cases).
107. At paragraph 18, the Court observed
…in the exercise of the powers conferred on them by the Community directives, Member States must respect the general principles of law that form part of the Community legal order, which include, in particular, the principles of legal certainty, and proportionality and the principle of protection of legitimate expectations.
Accordingly, Member States have to employ means which cause the least possible detriment to the objectives and principles laid down by Community legislation. This has to be read in the light of the background of the obligation of Member States to lay down the conditions for the application of the exemptions for the purpose of preventing any evasion avoidance or abuse. Legitimate measures adopted to preserve the rights of the public exchequer as effectively as possible, must not go further than necessary for that purpose. The Court, in effect, held that in the VAT regime good faith and the exercise of due care was a good defence against the adverse VAT consequences of fraud. The VAT regime was distinguished from the different structure, object and purpose of the Community regime on the levying of customs duties (paragraph 28). However, what the Court appeared to have in mind at paragraph 28 was case law relating to the imposition of customs duty on goods imported from outside the European Union. That can be seen from the Opinion of the Advocate General in Teleos, at paragraphs 78-82, and paragraphs 56-57 in the Judgment of the Court, referred to below.
108. In R (Teleos plc & ors) v C&EC 2008 QB 600, the European Court of Justice held that the same general principles of law which form part of the legal order of the European Union applied to the VAT regime in relation to intra-Community supplies between Member States (see paragraphs 45, 46, 48, 50, 52, 53, 56, 58, 65, 66, 68 and 73.2). It did so in the context of provisions of the Sixth (VAT) Directive which required Member States to lay down the conditions for the application of the exemption of intra-Community supplies of goods (paragraph 45). The case concerned the sale of mobile phones in the UK to Spain, which would be exempt from VAT. The purchasers produced false documents which the tax authorities initially accepted; when the fraud, of which the supplier was entirely innocent, was discovered, the tax authorities demanded VAT from the supplier on the basis that as the goods did not leave the UK, the supply was not exempt.
113. Although not cited to us, we have identified that in Garrett Trading Ltd (No 2) v HMRC 2008 3 CMLR 42 the Tribunal resolved the issue as to whether a person’s liability to pay duty under Art. 20 of the 1992 Directive as a person who had guaranteed payment of the duty in accordance with Art. 15(3), was limited to the amount of the guarantee. The Tribunal held that it was not so limited, following the decision but not all the reasoning in an earlier Tribunal decision (Anglo Overseas Ltd v HMRC (2008) Excise Decision 01090 February 27, 2008). The view of the Tribunal in Garrett No 2 was that having regard to Arts. 13, 15 and 20 of the Directive, there had to be a primary obligant whose liability was guaranteed by a secondary obligant. Art. 20 established that the primary obligant was the person who provided the guarantee in Art. 15(3). That person had a dual role, firstly as the primary obligant (or principal debtor), and secondly as the person who had to provide security in the form of a guarantee from a secondary obligant (or cautioner). That was consistent with Regulation 7(1) of the 1992 Regulations which placed the primary obligation on the person shown in the administrative document as having arranged for the guarantee. The view that the warehousekeeper’s liability is not limited to the amount of security specified in the guarantee provided by him has been followed in Jigsaw Wholesale Ltd v HMRC 2010 UKFTT156 (TC) at paragraphs 169 and 170; the view was expressed that liability was strict under the legislation (paragraph 172). We do not rely on these decisions but note that they are consistent with the conclusions which we reach below.
114. Butlers
submit that the Tribunal in Garrett was wrong in law in the passage quoted.
The Tribunal was not referred to Heintz. There, a Dutch tobacco
wholesaler applied to the tax authorities for excise stamps; the packages of
stamps were entrusted to its agent Securicor, but went missing in transit. The
tax authorities refused to reimburse the amount paid for the stamps, although
under national law reimbursement was authorised where the stamps had been lost
as a result of accident or force majeure. A question arose as to the
compatibility of the national legislation with Arts. 6(1), 14 and 22 of
the 1992 Directive. The European Court of Justice held that the consequence of
disappearance had been left by the Directive to the Member States. The
Directive did not preclude Member States from laying down national rules which,
in a case where tax stamps went missing, placed the financial responsibility
for the loss of those stamps on the purchaser (paragraph 41). It was expressly
held that such national rules could not be regarded as contrary to the
principle of proportionality (paragraph 42). The national rules contributed to
the achievement of the aim of preventing fraudulent use of the stamps and did
not exceed what was necessary to pursue that objective as they did not exclude
the possibility of reimbursement in other situations such as accident or force
majeure (paragraph 44 and 46).
118. HMRC, when their
submissions are carefully analysed, do not resist the proposition that the
principle of proportionality operates in the context of excise duty. Their
argument is that the 1992 Directive expressly provides for strict liability on
the provider of the guarantee (not the actual guarantor) subject only to Art.
14 exemptions. The sharing of risk is largely determined by the 1992 Directive
as one of its aims. That, they argue, is the nature of the structure of the
Directive. Accordingly, they say that the scope for the principles of
proportionality and legal certainty to attenuate that liability is negligible
or non-existent. Applying the principle of proportionality, as Butlers
urge, to relieve them of liability, would subvert the aims or objectives of the
1992 Directive. The Directive has determined how risk is to be shared between
taxpayer and the tax authorities.
119. We return
therefore to the Directive to see whether this submission is well founded
because if it is, it simply destroys Butlers
’ whole case on proportionality.
121. Art. 15(3) says
that the guarantee is to be provided by the authorised warehousekeeper of
dispatch, or if need be by a guarantee jointly and severally binding on both
consignor and the transporter. Butlers
were the authorised warehousekeeper of
dispatch. No guarantee was provided by any other party. The only exception to
this regime in the Directive is Art. 14, which we have already considered and
held that it does not apply to diversion fraud. The combination of Arts. 20,
15(3), 13 and 14 sets forth a clear allocation of risk and the exemptions from
it. Domestic legislation which accurately transposes these provisions into
national legislation cannot be said to be contrary to the principle of
proportionality.
122. Regulation 7(1)
of the 2001 Regulations implements the Directive in part. It deals with the
circumstance where an irregularity has occurred and an excise duty point has
arisen. There is no doubt that the facts disclose the occurrence of an
irregularity. There is no doubt that the excise duty point is the time when
the goods were removed from Butlers
’ tax warehouse (Regulation 4(2)).
123. In those
circumstances, Regulation 7(1) imposes liability on the person shown as the
consignor on the AAD, or, if different, the person shown in Box 10. Here,
liability is imposed on Butlers
.
125. If Regulation
7(1) implements the risk allocation set forth in the Directive, in what respect
can it be said that it contravenes the European principle of proportionality?
In spite of the detailed submissions advanced on behalf of Butlers
, we cannot
identify any respect in which the principle of proportionality is offended.
The essential argument made by
Butlers
was that there was no sharing of the
fiscal consequences of fraud between
Butlers
and the tax authorities. That is
true but that is the consequence of the salient provisions of the 1992 Directive.
Stripped to its bare bones,
Butlers
’ argument is that the allocation of risk
set forth in the Directive is unfair and disproportionate. That is not an
argument to which we can give effect. On this short basis, this second branch
of the appeal must also fail.
126. We should add
that while the cases cited by Butlers
vouch the proposition that Member States
must observe the general principles of proportionality and legal certainty when
implementing Directives, they do not support the argument that the express aims
or objectives of a Directive can somehow be emasculated or diluted by the
application of that principle.
128. Our conclusions
are consistent with the underlying theme of fiscal legislation, noted by
Advocate General Kokott in SPMR, that the distribution of risk of fiscal
liability generally relies on a division into spheres of control rather than
compliance with duties of care. A similar point was made by the Vice
Chancellor in Re Arena Corporation Ltd 2004 EWC Civ 371 at paragraph 28
(quoting Lindsay J in Re Jack Baars Ltd 2004 EWHC 18), and in Greenalls
at paragraphs 17 and 18. Thus, the risk of diversion fraud involving those
on whose behalf Butlers
willingly acted as consignor falls within the risk
allocated by the 1992 Directive and Regulation 7(1), to
Butlers
.
129. As we understood
Butlers
’ arguments, their case on legal certainty stood or fell with the
arguments based on proportionality. Very little was said about it in closing
submissions or in their written reply to HMRC’s written submissions. It must
therefore fall. We have to confess that we had some difficulty in following
Butlers
’ arguments on the question of legal certainty. The fault may be ours, but insofar
as we understood those arguments, we had difficulty in seeing how they
demonstrated that the principle of legal certainty was infringed so as to
create an argument separate from the argument based on proportionality.
131. We reach our
conclusion with regret as we have found on the facts that Butlers
were entirely
innocent and did all that could reasonably be required of them in terms of the
exercise of due care. Liability for the assessments may have severe financial
repercussions for
Butlers
. It is to be hoped that HMRC and
Butlers
are able to
secure full or substantial recovery from Direct Plus and/or McKillop.
Summary of Decision on the merits of the appeals by
Butlers
132. Butlers
did all that could reasonably be expected of them. Whether one
describes this conclusion as all due commercial care having been taken, or all
the due diligence of a circumspect warehousekeeper, does not matter. They are
all different ways of expressing the same notion, namely that
Butlers
acted
properly, carefully, reasonably and in good faith throughout.
133. What
happened to the consignments of excise goods in 2007 did not constitute losses
within the meaning of Art. 14.1 of the 1992 Directive, which is the first ground
of appeal. Butlers
’ first ground of appeal must therefore be dismissed.
134. It is common ground that Art. 14.1 of the 1992 Directive has not been transposed into the domestic law of the United Kingdom, and that it has direct effect.
135. Had the failure of the goods to arrive at their destination through fraud constituted a loss within the meaning of Art. 14.1 of the 1992 Directive, we would have found it difficult to conclude that the loss was attributable to abnormal and unforeseeable circumstances and thus to force majeure.
136. There is no doubt that an irregularity occurred in the course of a movement involving the chargeability of excise duty. There is no doubt that the duty is due in the UK. The duty is due from the person who guaranteed payment of the excise duties in accordance with Art. 15. 3. Art. 20 plainly allocates the risk of liability to that person, where there is an irregularity.
137. The combination of Arts. 20 and 15(3), 13 and 14 sets forth a clear allocation of risk and the exemptions from it. Domestic legislation which accurately transposes these provisions into national legislation cannot be said to be contrary to the principle of proportionality.
138. The only respect in which Regulation 7(1) fails to implement the risk allocation set forth in the 1992 Directive relates to the exemption for fortuitous events and force majeure for which provision is made in Art. 14.
139. What is important is the identification of the aims and objectives of the particular part of the Directive under scrutiny and a consideration whether domestic legislation goes beyond what is strictly necessary to implement those aims and objectives.
140. We cannot
identify any respect in which the principle of proportionality is offended. Butlers
’ second ground of appeal must therefore be dismissed.
The Appeal of Roy McKillop
142. In any event, it
is clear on the facts as we have found them to be, that McKillop was aware of
the diversion of the goods from the first consignment and took no steps to make
enquiries or to alert either Butlers
or anybody else as to what was taking
place. At no stage in these appeals, until he gave evidence on oath, did he
concede that the goods were not delivered outwith the UK, contrary to his Grounds of Appeal which he disproved as soon as he gave evidence. We
consider that it is a reasonable inference from the circumstances presented to
us that he was aware of and made a material contribution to the fraudulent
diversion of the goods. In our view, that is sufficient to conclude, as we do,
that he caused the occurrence of the excise duty points resulting from the
application of Regulation 4(2) of the 2001 Regulations.
143. In these
circumstances, Roy McKillop is liable to pay the duty in respect of the five
consignments to which the appeals relate. He is jointly and severally liable
with Butlers
and Direct Plus to do so in terms of Regulation 7(2) of the 2001
Regulations. We accordingly dismiss Roy McKillop’s appeal.
The Appeals of Direct Plus Distribution Limited
145. In any event, it
is clear on the facts as we have found them to be that Direct Plus or Tariq
(acting as its agent and/or director) procured the dispatch of its goods to
ostensible receiving warehouses who had no knowledge of these goods or
arrangements. The goods were fraudulently diverted. Tariq has been convicted
of conspiracy to evade excise duty arising out of the circumstances to which the
assessments appealed against relate. It is an inescapable inference (even
without the conviction), and if not inescapable, a reasonable inference that
Direct Plus caused the occurrence of the excise duty points resulting from the
application of Regulation 4(2) of the 2001 Regulations. In these
circumstances, Direct Plus is liable to pay the duty in respect of the five
consignments to which the appeals relate. Direct Plus is jointly and severally
liable with Butlers
and McKillop to do so in terms of Regulation 7(2) of the
2001 Regulations. We accordingly dismiss the appeals of Direct Plus.
Expenses
146. HMRC requested,
at the end of the second day of the three days allocated for these appeals, and
after Mr Ghosh had concluded his closing submissions, that proceedings should
be adjourned instead of resuming the following day, and that HMRC be allowed to
lodge written submissions in response to Mr Ghosh’s closing address. As noted
above, the Tribunal agreed, albeit with some reluctance. Mr Francis took full
advantage of the seven days we gave him to produce his written submissions by
lodging a comprehensive, and fully argued response to Mr Ghosh’s powerful and
detailed arguments on the facts and the law. Butlers
produced a written reply
to the HMRC written submissions, which includes an application for expenses,
which was foreshadowed at the end of the Hearing. They have also produced a
schedule of expenses as required by Tribunal Rule 10(3)(b).
147. Butlers
argue that seeking the adjournment constituted unreasonable conduct within Rule
10(1)(b) as a result of which they have incurred extra legal expenses,
essentially the cancellation of the third day, and the additional time
considering and replying to HMRC’s written submissions. In response, HMRC have
lodged a Notice of Objection to the application for expenses. HMRC have also
applied for the expenses occasioned by
Butlers
’ application for disclosure
lodged with the Tribunal on 1 February 2012. A Hearing on that application for
disclosure took place on 17 February 2012. HMRC have lodged a schedule of
expenses and
Butlers
have, in turn, lodged a Notice of Objection.
149. In response, Butlers
say that the fact that part of the application was refused does not mean that it
was unreasonably made; the timing of the application could not be helped; it
was HMRC who lodged the redacted document and then declined to produce an
un-redacted version of it until ordered to do so. They also say that part of
the expenses claimed (counsel’s fees) are excessive.
150. In our view,
while the Tribunal criticised the disclosure application, it cannot be said
that the application was unreasonable. HMRC lodged a redacted document
(presumably with some intention to found on it) and only produced the
un-redacted version when ordered to do so. On that basis the application for
disclosure was justified even although at the end of the day neither party
founded on the un-redacted document. We therefore refuse HMRC’s application
for expenses, which seems to be a thinly disguised and ill-judged
retaliatory strike in response to Butlers
’ application for expenses, otherwise
it would have dealt with, in the lengthy and detailed written submissions which
HMRC were allowed to produce.
151. As for Butlers
’ application for expenses, we agree that all the main points raised by Mr Ghosh in
his closing submissions could have been anticipated. He addressed the Tribunal
in detail on the question of proportionality and force majeure. HMRC
had already responded to these lines of argument in their Statement of Case and
in their Outline Submissions. Seeking an adjournment was not justified and
constitutes unreasonable conduct of the proceedings within the meaning of
Tribunal Rule 10(1)(b) rather than wasted expense as was also tentatively
suggested. We therefore find HMRC liable to
Butlers
in the costs incurred by
Butlers
as a result of the adjournment of the proceedings on 28 February 2012, less any
savings in expenses as a result of the Tribunal not sitting on 29 February
2012.
152. Butlers
have lodged with their application a schedule of the expenses claimed in sufficient
detail to allow the Tribunal to undertake a summary assessment of such expenses
should we decide to do so. It seems to us that it would be expedient for us to
do so rather than remitting to the auditor of court for taxation. This will
avoid unnecessary formality, further expense and delay.
154. It appears that
the bulk of the work carried out in preparing a reply to HMRC’s lengthy
submissions (44 pages - double spacing) was carried out by Mr Ghosh. The
number of hours claimed and the rate charged are, in our view, reasonable.
Junior counsel was also involved. Although the number of hours charged for
considering Mr Ghosh’s submissions and HMRC’s submissions is not
specified, the amount claimed seems to us to be, viewing matters generally,
reasonable. We allow the sums claimed for these matters. We consider it
reasonable for Butlers
to have engaged senior and junior counsel in a case of
this complexity and importance to them.
156. However, two
lawyers from Aegis Tax, 2 Stone Buildings, Lincoln’s Inn, London, who also
acted on behalf of Butlers
, have charged a total of 15.25hrs (one at a rate
substantially in excess of the rate charged by Paull & Williamsons) for
work done on documents, communications with counsel and legal research.
158. Junior counsel
has charged a cancellation fee but senior counsel has not done so. We would
have thought that both counsel would have been entitled to their day’s fee for
the third day. Accordingly, whether the case was completed in two days or
three days, they would have been entitled to and Butlers
would have been bound
to pay the third day. Seeking a cancellation fee suggests that something less
than the full day’s fee is being demanded. Accordingly, that is a saving for
which HMRC are entitled to credit. We cannot, on present information,
determine the amount of any such credit.
159. Using the
figures in the Schedule of Expenses, and applying them to the items we allow,
produces a figure of £7,260. We therefore summarily assess the expenses to
which Butlers are entitled at the sum of £7,260 plus VAT less any credit
arising from any saving in expenses of junior counsel’s fees attributable to
the Tribunal not sitting on 29 February 2012.
161. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.