European Court of Human Rights

 

 

 

FOURTH SECTION

Application no. 16788/13
 EASTENDERS CASH AND CARRY PLC and Others
against the United Kingdom
lodged on 28 February 2013

STATEMENT OF FACTS

 

The applicants, Eastenders Cash and Carry Plc, Eastenders (Coventry) Ltd and Eastenders (Birmingham) Ltd are companies registered in the United Kingdom. They are represented before the Court by Rainer Hughes, a firm of solicitors based in Shenfield.

A.  The circumstances of the case

The facts of the case, as submitted by the applicants, may be summarised as follows.

On 16 October and 4 December 2009 Her Majesty’s Revenue and Customs (“HMRC”) visited warehouse premises owned by the applicants and purported to exercise a statutory power to detain goods pursuant to section 139 of the Customs and Excise Management Act 1979 (“the 1979 Act” - see “Relevant domestic law and practice”, below).

The goods were subsequently returned to the applicants after a substantial period of time during which HMRC undertook investigations.

The applicants subsequently sought a declaration from the High Court in judicial review proceedings that the detention of the goods had been unlawful. On 4 November 2010 the judge handed down his judgment. He noted that, as the applicants accepted, there were reasonable grounds for HMRC to believe that there was a real possibility that duty might not have been paid on the goods detained, having regard to the discrepancies in the available documentation in relation to those goods. He therefore dismissed the application and held that HMRC had acted lawfully in detaining the goods. HMRC requested their costs in the proceedings. The judge made a costs award against the applicants in favour of HMRC in accordance with the general rule in civil litigation that costs are awarded against the unsuccessful party.

The applicants appealed against the judgment of the High Court. They did not contest that there were reasonable grounds for suspecting that duty on the goods had not been paid but argued that this was insufficient to allow the goods to be detained under the 1979 Act. By judgment dated 20 January 2012 the Court of Appeal allowed the applicants’ appeal and granted a declaration that the detention of the goods by HMRC was unlawful. It found that it was not sufficient, in order to detain the goods under the 1979 Act on the basis that they were “liable to forfeiture”, that there were reasonable grounds for suspecting that duty had not been paid. Rather, goods could only be detained where there was in fact a breach of an obligation.

On 22 May 2012 the Court of Appeal handed down a judgment on the question of costs. It refused to award the applicants their costs in the first instance and appeal proceedings on the basis that HMRC was protected against such costs orders by section 144(2) of the 1979 Act (see “Relevant domestic law and practice, below). That section removed any entitlement to costs where the court was satisfied that there were reasonable grounds for seizing or detaining goods. Lord Justice Mummery noted that the evidence of reasonable grounds on which HMRC based their decision to detain the goods was not disputed.

On the question of the compatibility of section 144(2) with Article 6 of the Convention, Mummery LJ said:

“17. First, the Claimants have not been denied access to a court contrary to Article 6.

18. Secondly, Article 6 does not require member States to have costs shifting rules, so that a successful litigant should be able to recover costs from the unsuccessful party.

19. Thirdly, the ruling of the Strasbourg Court in Stankiewicz [v. Poland, no. 46917/99, Reports 2006-VI] is of marginal relevance and limited assistance. It is correct that the Court found that there had been a violation of Article 6.1 in relation a decision of the court of the member State (Poland) not to order a public prosecutor to reimburse the costs of civil proceedings to the successful party. However, the decision was expressly based on particular considerations and circumstances of that case that are absent from this case.

...”

He noted that the protection of HMRC against costs and damages under section 144(2) was not absolute: it only applied if HMRC satisfied the court that, although they had acted unlawfully in detaining goods, there were reasonable grounds. Mummery LJ continued:

“24. ... The provisions of s.144(2) appear to strike a fair balance which is consistent with access to a court and is within the margin of discretion afforded to a member State. It does not seem to be unreasonable to require a party to bear their own costs when that party has acted so as to give HMRC reasonable grounds for detaining goods pending investigations, which would not have been necessary if the party had supplied proper evidence that duty had been paid in respect of the goods.”

He therefore held that the court had no power to order HMRC to pay the applicants’ costs as section 144(2) operated as a statutory bar on the court making such an order, concluding:

“29. ... In my judgment, the position is that the Claimants have not been denied access to the courts contrary to Article 6 or in violation of any other principle of law. They took a commercial decision to bring judicial review proceedings in circumstances where they did not provide HMRC with evidence of duty paid in respect of a consignment of goods most of which were liable to forfeiture, and having had returned to them the goods, which HMRC decided not to forfeit. The detention of the goods pending investigation would not have occurred if the Claimants had supplied proper evidence to HMRC that duty had been paid. There were discrepancies in the available documentation in relation to the goods detained.

 

30. I would add that, on the hearing of the appeal, the Claimants in fact relied on s. 144(2) in support of their claim for judicial review, which they now submit should not be applied in respect of their claim for costs. They successfully relied on the protection afforded to HMRC by s.144(2) as a key part of their case on the meaning and effect of s.139 and for their submission that a power of HMRC to act on reasonable grounds should not be implied, because that would render the s.144(2) protection otiose. Having won on that point, it now suits them to take a contrary position in order to recover their costs, by contending that the provision does not apply to these proceedings and should not be given the effect for which they argued at the substantive hearing.”

Lord Justice Elias accepted that Stankiewicz supported the submission that there would be situations where differential rules on costs might engage the requirements of Article 6, although he had difficulty in understanding from the decision precisely when that would be the case. In any event, he noted that the facts in Stankiewicz were unusual and very different from those arising in the applicants’ case. In particular, he observed that the applicant, a successful litigant, had been taken to court by the prosecutor in what was found to be a complex matter warranting legal representation, and did not choose to engage in the litigation. He concluded:

“44. Even assuming that there may be exceptional situations where Article 6 is infringed by unfair discrimination in costs rules, I agree with Mummery LJ that this is not such a case. Section 144 does not deprive the successful applicant for judicial review from obtaining costs, or indeed damages, in all cases. It has that effect only where the Revenue has acted reasonably. As the majority of this court held in the substantive appeal, it is the structure of the legislation which compels the conclusion that a reasonable detention of goods will be unlawful if the goods detained were not actually subject to forfeiture. It will generally only be with hindsight that the Revenue will know for sure whether they have acted unlawfully or not, even where they have acted reasonably. There is a clear public interest in the Revenue, if it acts reasonably, not being liable for damages for the unlawful detention of goods pending a determination as to whether duty has been paid on those goods or not. The costs rule can be similarly justified. This is especially so given that it is usually the failing of the taxpayer to keep proper records of its transactions which creates the uncertainty as to whether the appropriate taxes have been paid and which causes HMRC to detain the goods pending investigation in the first place. A rule which protects and benefits the HMRC only where they have acted reasonably is in my view a proportionate rule in all the circumstances.”

The applicants applied to the Supreme Court for permission to appeal against the order of the Court of Appeal refusing to award their costs. HMRC for their part sought permission to appeal against the judgment of the Court of Appeal on the lawfulness of the detention of the goods.

On 31 October 2012 the Supreme Court granted HMRC leave to appeal. It refused the applicants permission to appeal against the refusal to award costs because the application did not raise an arguable point of law of general public importance.

B.  Relevant domestic law and practice

The general costs rule in civil litigation is set out in the Civil Procedure Rules 1998. Rule 44.2 explains that the court has discretion as to whether costs are payable by one party to another; the amount of those costs; and when they are to be paid. Pursuant to Rule 44.3.2:

“If the court decides to make an order about costs-

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the court may make a different order.”

Section 139(1) of the 1979 Act provides that any thing liable to forfeiture under the customs and excise Acts may be seized or detained by, inter alia, any officer. Section 1 defines “officer” as a person commissioned by the Commissioners of Customs and Excise. Pursuant to section 139(5), any thing seized or detained under the customs and excise Acts, pending the determination as to its forfeiture or disposal, is to be dealt with as the Commissioners may direct.

Section 144 deals with protection of officers in relation to seizure and detention of goods. It provides, in so far as relevant:

“(2)  Where any proceedings, whether civil or criminal, are brought against the Commissioners, a law officer of the Crown or any person authorised by or under the Customs and Excise Acts 1979 to seize or detain any thing liable to forfeiture under the customs and excise Acts on account of the seizure or detention of any thing, and judgment is given for the plaintiff or prosecutor, then if either-

(a)  a certificate relating to the seizure has been granted under subsection (1) above; or

(b)  the court is satisfied that there were reasonable grounds for seizing or detaining that thing under the customs and excise Acts,

the plaintiff or prosecutor shall not be entitled to recover any damages or costs and the defendant shall not be liable to any punishment.”

COMPLAINT

The applicants complain under Article 6 of the Convention that section 144(2) of the 1979 Act denied them equal and proper access to court and equality of arms in the judicial review proceedings.

 




 

 

 

QUESTIONS TO THE PARTIES

 

1.  Is the present application premature in view of the fact that the appeal to the Supreme Court brought by HMRC is still pending?

 

2.  Did the applicants have a fair hearing in the determination of their civil rights and obligations in accordance with Article 6 § 1 of the Convention in light of: the award of costs against them by the High Court in their unsuccessful judicial review proceedings; their subsequent successful appeal to the Court of Appeal and the refusal by that court to award them costs pursuant to 144(2) of the 1979 Act; and the Supreme Court’s refusal to grant the applicants’ leave to appeal the costs order while granting HMRC leave to appeal on the merits (see Stankiewicz v. Poland, no. 46917/99, Reports 2006-VI)?