E01126

EXCISE DUTY – whether requirement to provide a guarantee under art 13 of Council Directive 92/12/EEC means that the person’s liability is limited to the amount of the guarantee – no – appeal dismissed

LONDON TRIBUNAL CENTRE

	GARRETT TRADING LIMITED (No. 2)	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	DR JOHN F AVERY JONES CBE (Chairman)
					PRAFUL D DAVDA FCA

Sitting in public in London on 9 July 2008

Andrew Young, counsel, instructed by Mills & Reeve LLP, for the Appellant

Rebecca Stubbs, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	This is a second decision after a resumed hearing following our interim decision released on 22 August 2007 which needs to be read with the previous decision.  As before, the Appellant was represented by Mr Andrew Young, and Customs by Ms Rebecca Stubbs.
2.	The issue left outstanding in our first decision is whether the liability of the person providing a guarantee is limited to the amount of his guarantee.  This point had not been argued at the previous hearing because Customs were contending that Mr Maggs of the Appellant had caused the occurrence of an excise duty point or caused the irregularity, on which we found in favour of the Appellant.  
3.	Article 13 of Council Directive 92/12/EEC (“the Directive”) provides:
An authorized warehousekeeper shall be required to:
(a) provide…a compulsory guarantee to cover movement subject to article 15(3), the conditions for which shall be set by the competent authorities of the Member State in which the tax warehouse is authorized….
Article 15 provides:
1. Without prejudice to the provisions of Articles 5 (2), 16, 19 (4) and 23(1a), the movement of products subject to excise duty under suspension arrangements must take place between tax warehouses. 
…
3. The risks inherent in intra-Community movement shall be covered by the guarantee provided by the authorized warehousekeeper of dispatch, as provided for in Article 13, or if need be, by a guarantee jointly and severally binding both the consignor and the transporter. The competent authorities in the Member States may permit the transporter or the owner of the products to provide a guarantee in place of that provided by the authorized warehousekeeper of dispatch.  If appropriate, Member States may require the consignee to provide a guarantee.
…
The detailed rules for the guarantee shall be laid down by the Member States.  The guarantee shall be valid throughout the Community” 
Article 20 provides:
“1. Where an irregularity or offence has been committed in the course of a movement involving the chargeability of excise duty, the excise duty shall be due in the Member State where the offence or irregularity was committed from the natural or legal person who guaranteed payment of the excise duties in accordance with Article 15 (3), without prejudice to the bringing of criminal proceedings. …” 
4.	Miss Stubbs contends:
(1)	The Tribunal’s subsequent decision in Anglo Overseas limited v HMRC (2008) Excise Decision 01090 was correct in the following reasoning:
1.	the inference from the Directive as a whole is that the entire duty is the responsibility of the provider of the guarantee;
2.	it would be surprising if it were open to a Member State to accept a limited guarantee when the guarantee is to be binding throughout the Community;
3.	by “provide a guarantee” in art 13 is meant that the person providing the guarantee guarantees the duty;
4.	the Directive does not allow for the provision of a third party guarantee and there is nothing in it which allows a guarantor to limit his liability
5.	the person whose name is in box 10 of the AAD remains liable for the duty regardless of the terms of the security he may have obtained;
6.	the inclusion in the guarantee limiting the institution’s liability is consistent only with the Appellant having a potentially greater liability;
7.	the use in reg 7 of DSMEG (see below) of the words “having arranged for the guarantee might suggest a third party guarantee but in fact means the person who as provided a guarantee by himself standing as guarantor.
(2)	Lord Hoffmann in Greenalls Management Limited v Customs and Excise Commissioners [2005] 1 WLR 1752 at [25] recognised the dual role of providing a guarantee and being personally liable under the former Regulations: “The fact that someone can be required to give a bond is not inconsistent with his being personally liable.  Usually it is his own liability which the bond is intended to secure.”
(3)	In van de Water, Case C-325/99, the European Court of Justice said: “…it follows from the scheme of the Directive, and from the ninth recital in the preamble, that the national authorities must in any event ensure that the tax debt is in fact collected.”  This was confirmed in Cipriani, Case C-395/00 at [46].  These are inconsistent with any limitation of the liability.
5.	Mr Young contends that unless the Tribunal is satisfied that the interpretation put forward by Customs is acte clair, bearing in mind that legal concepts may have different meanings in different states and in other languages and may be influenced by the general philosophy of the legal system, the Tribunal should refer the question to the European Court of Justice.
6.	Since our interim decision, in Anglo Oversees Limited v HMRC the Tribunal (Chairman Mr Bishopp) has found that the liability of the person required to provide a guarantee is not limited to the amount of the guarantee for the reasons summarised in Miss Stubbs’ submissions.  The Tribunal concluded:
83. It is, I think, the use of the phrase “provide a guarantee” which has led to confusion. It does not appear to be a mistaken translation: the corresponding French text is “fournir une garantie”, which has the same meaning. But what is intended, in my judgment, is that the warehousekeeper is expected to guarantee the duty. It may be that the draftsman had in mind that the warehousekeeper would execute some document to the effect that he assumed that obligation; what the Directive does not do, in my judgment, is allow for the warehousekeeper (or other person assuming liability) to provide a third party “guarantee”, given (as in this case) by an institution such as an insurance company, to replace and, as is suggested in this case, limit his own liability. There is nothing in the Directive or in DSMEG which, in my judgment, allows a guarantor to limit his liability, or which permits the fiscal authority to accept a guarantee for anything less than the full amount of the duty.
We understand that this decision is under appeal but the parties did not want us to hold up our decision until after the appeal.
7.	We are dealing with a duty suspended movement of excise goods on which, if everything goes to plan, there is no actual duty.  The duty arises if there is an irregularity and it is therefore a contingent liability to duty.  The contingent duty on any such movement must be covered by a compulsory guarantee provided by the warehousekeeper (art 13), but the competent authorities may permit the transporter or (as here) the owner to provide a guarantee in its place (art 15(3)).  In English law:
A guarantee is an accessory contract by which the promisor undertakes to be answerable to the promisee for the debt, default or miscarriage of another person, whose primary liability to the promisee must exist or be contemplated. (Halsbury’s Laws vol 49 para 1013.)
There must therefore be a primary obligor whose liability is guaranteed by a secondary obligor.  The question is whether the term is used in a different sense in the Directive, such as of a person’s being liable to pay a contingent liability.  We do not consider that it is.  Article 15(3) requires various people to “provide a guarantee” that is valid throughout the Community, the detailed rules for which must be laid down by the Member States.  If the Directive had merely wanted to specify who is the primary obligor of payment of the contingent liability to duty art 20 would have been sufficient without the need for arts 13 and 15 requiring detailed rules for something, for the validity of something throughout the Community, or for something to be provided.  Alt this seems to imply that the guarantee referred to is a true guarantee from a secondary obligor.  
8.	Although we do not use Commission Recommendation of 29 November 2000 art 6 to interpret the Directive this is consistent with such a reading:
“1.  The amount of the guarantee should reflect the risk inherent in the activities of the warehousekeeper or the registered trader.
2.  The amount of the guarantee should be regularly reviewed to reflect any changes in the volume of trade, the activities of the warehousekeeper of the rates of excise duties applicable in the Member States.”
Reference to the amount of the guarantee shows that it cannot be a reference to a primary obligation to pay the whole of the contingent duty.  We were also shown evidence that the Commission was taking infringement proceedings against Portugal for requiring a guarantee of 2 per cent of the average monthly amount of excise duty paid in the previous year, with a minimum and maximum.  This is also consistent with our reading of the Directive as requiring a true guarantee, with the dispute turning on the amount.
9.	Accordingly while we respectfully disagree with Mr Bishopp that the Directive does not refer to the provision of a third-party guarantee, for the reasons give below we agree with his conclusion.  We consider that the source of the confusion that that under art 20 of the Directive the identity of the primary obligor is the person providing the guarantee:
“1. Where an irregularity or offence has been committed in the course of a movement involving the chargeability of excise duty, the excise duty shall be due… from the natural or legal person who guaranteed payment of the excise duties in accordance with Article 15 (3),…
The problem with this wording is that art 15(3) does not identify a person who guaranteed payment; it merely says that various people must “provide a guarantee,” and so the cross-reference must be to the person providing the guarantee.
10.	Accordingly, we interpret the Directive as saying that the identity of the primary obligor is the person providing the guarantee.  Such a person therefore has a dual role of being the primary obligor and being required to provide security for such obligation in the form of a guarantee from a secondary obligor.
11.	United Kingdom domestic law is consistent with this interpretation.  The Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 (“DSMEG”) provides:
7. - (1) Subject to paragraph (2) below, where there is an excise duty point as prescribed by regulation 3 or 4 above, the person liable to pay the excise duty on the occurrence of that excise duty point shall be 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, that other person.
(2) Any other person who causes or has caused the occurrence of an excise duty point as prescribed by regulation 3 or 4 above, shall be jointly and severally liable to pay the duty with the person specified in paragraph (1).”
This puts the primary obligation to pay the excise duty on the person shown in box 10 “as having arranged for the guarantee” thus demonstrating such dual role.
12.	The parties have pointed out an error in our interim decision.  In paragraph 21 we referred to 136 transactions in which beer came to the UK from Italy.  This should be the other way round, that the beer went from the UK to Italy.  This does not affect the conclusion we reached in that paragraph.
13.	Our decision is therefore that our interim conclusion reached without the benefit of argument was wrong and that the Appellant is liable for the full amount of duty.  We do not have doubt about this that would justify making a reference to the European Court.  We therefore dismiss the appeal.
14.	In our interim decision we reserved the question of costs.  Any application for an award of costs in principle (leaving aside the figures for the moment) should be made within 30 days of the date of release of this decision.

JOHN F AVERY JONES

CHAIRMAN
RELEASE DATE: 18 July 2008

LON/06/8024 and 8003