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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Davis & Dann Ltd & Anor v HM Revenue and Customs  EWCA Civ 142 (15 March 2016)
Cite as:  STC 1236,  STI 1157,  EWCA Civ 142,  BVC 11
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ON APPEAL FROM
UT (Tax and Chancery Chamber)
JUDGE MALCOLM GAMMIE CBE QC AND JUDGE EDWARD SADLER
 UKUT 374 (TCC) (6 AUGUST 2013)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE TOMLINSON
LORD JUSTICE LINDBLOM
| Davis & Dann Limited & Anr
|- and -
|The Commissioners for Her Majesty's Revenue and Customs
David Scorey QC and Edward Brown (instructed by Cobleys LLP) for the Respondents
Hearing dates: 24-25 November 2015
Crown Copyright ©
LADY JUSTICE ARDEN :
Issue on this appeal
Respondents' prior knowledge
Nature of respondents' business
Prior warnings by HMRC
July 2003 letter from DDL to HMRC
Circumstances in which the respondents were offered the goods
Decision of the FTT
273…if it were otherwise, and it was possible to give a potentially reasonable explanation for each allegedly suspicious circumstance viewed in isolation, it would then not be possible to consider the cumulative improbability of all those circumstances combining in relation to the disputed transactions.
Decision of the UT
55. The impression is that the quantity of razor blades purchased and sold by the Appellants was a more compelling factor and, possibly, a conclusive factor. It appears to us, however, having regard to the Tribunal's description of the Appellants' business and the grey market in which they operated, that the transactions were entirely explicable as ordinary market transactions. In the absence of any evidence to demonstrate why they were not and without any explanation by the Tribunal as to why the factors to which they refer necessarily point to a connection with fraud, it seems to us that the Tribunal erred in concluding that the only reasonable explanation for the circumstances in which the Appellants' purchases took place was that they were connected to fraud. That is so, in our judgment, whether the various factors identified as relevant to their decision by the First-tier Tribunal are examined individually or as a cumulative whole.
56. This appears to us to be consistent with the overriding right of a taxpayer to recover input tax and the requirement for legal certainty for traders dealing in a market such as this. If the terms of dealing are broadly consistent with the way in which transactions in the market are ordinarily conducted, it can hardly be said that the only reasonable explanation for the circumstances in which the transactions took place is that the transactions are connected with fraud, even if some facets of the transactions might raise a suspicion of fraud. That is the case with regard to the Appellants in this appeal. HMRC may not be appreciative of the existence of a market that enables those who are intent on fraud to trade goods to that end. On the other hand there is no reason to penalise innocent traders in that market merely because it offers that facility.
Submissions and discussion
Totality of the evidence
 If a taxpayer has the means at his disposal of knowing that by his purchase he is participating in a transaction connected with fraudulent evasion of VAT he loses his right to deduct, not as a penalty for negligence, but because the objective criteria for the scope of that right are not met. It profits nothing to contend that, in domestic law, complicity in fraud denotes a more culpable state of mind than carelessness, in the light of the principle in Kittel. A trader who fails to deploy means of knowledge available to him does not satisfy the objective criteria which must be met before his right to deduct arises.
Prior knowledge - the missed issue
Bristol's financial standing
The Risk Disk report showed that Bristol was a non-trading company and recommended that further enquiries be made before offering the company credit. The version of the Risk Disk report in our papers contain the legends: "Reported printed: 16 February 2006" and "05.05.06:19/01/2006". The report noted that the last return date for Famecraft Limited as being 2 April 2005 and the last accounting date as being 30 April 2005. From this information it was clear that Bristol had only been in business for a maximum period of less than 12 months. The description of Bristol's business in the report was "wholesale of alcohol and other beverages". There was no mention of toiletries or razor blades.
Normal course of business
According to the evidence before us, the Appellants had not purchased such a large quantity of razor blades (still less a particular type of razor blade) in a similar period of time either before or after the transactions under appeal.
Question of law?
"Whether one characterises this as a question of fact depends…upon whether as a matter of policy one thinks that it is a decision which an appellant body with jurisdiction limited to errors of law should be able to review" …"
…, given the difficulties of drawing a clear division between fact and law, discussed by Lord Hoffmann, it may not be productive for the higher courts to spend time inquiring whether a difference between the two tribunals was one of law or fact, or a mixture of the two. There may in theory be a case, where it can be shown that the sole disagreement between the two tribunals related to an issue of pure fact, but such a case is likely to be exceptional. In the present case, as Lord Sumption has shown, there were no significant issues of primary fact. The differences between the two tribunals related to the understanding of the "abuse of law" principle, and their evaluation of the facts in the light of that understanding. The Upper Tribunal reached a carefully reasoned conclusion on law and fact. The task of the Court of Appeal was to determine whether that conclusion disclosed any error of law."
A finding of fact in some cases is inseparable from the principles through which it was deduced. At some point the reasoning by which a fact is "found" crosses the line between application of those ordinary principles of logic and common experience which are ordinarily entrusted to the finder of fact into the realm of a legal rule upon which the reviewing court must exercise its own independent judgment. Where the line is drawn varies according to the nature of the substantive law at issue. Regarding certain largely factual questions in some areas of the law, the stakes – in terms of impact on future cases and future conduct – are too great to entrust them finally to the judgment of the trier of fact.
Pleadings points taken by the respondents and the UT
Lord Justice Tomlinson
Lord Justice Lindblom