England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM THE CROWN COURT AT NOTTINGHAM
His Honour Judge Bennett
T20030486

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/02/2014

Sir Brian Leveson P:

1. On 5 February 2004, in the Crown Court at Nottingham before His Honour Judge Bennett, Philip Tatham ('the appellant') pleaded guilty on re-arraignment to a single count of being knowingly concerned in the fraudulent evasion of the duty chargeable upon the importation of goods (tobacco products) ("the offence"), contrary to section 170(2) of the Customs & Excise Management Act 1979 ("the CEMA"). The substance of the offence was that between 25 June 2002 and 5 February 2003, the applicant was party to a joint enterprise to import cigarettes into the UK from continental Europe, without paying the duty mandated by the Tobacco Products Duty Act 1979 ("the TPDA") and its subsidiary regulations.
2. On 26 January 2005, he was sentenced to a term of 45 months imprisonment, and made the subject of a confiscation order dated the same day for £88,873.81. This order was imposed pursuant to section 71 of the Criminal Justice Act 1988 ("CJA"), section 71(4) of which required that the offender 'obtains property as a result of or in connection with' the commission of the relevant offence, and section 71(5) is the equivalent provision in respect of 'pecuniary advantage'. Some 6½ years out of time, following a series of appeals in such cases, he now seeks leave to appeal the confiscation order.
3. The justification for this late appeal flows from the decision of the House of Lords in R v May [2008] UKHL 28 in which, by an Endnote at paragraph 48, the test was set out for determining whether or not a particular offender had obtained a pecuniary advantage or benefit of property from offences for which he had been convicted. Of the six principles then enunciated, the final reads:

"D ordinarily obtains property if in law he owns it, whether alone or jointly, which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else. He ordinarily obtains a pecuniary advantage if (among other things) he evades a liability to which he is personally subject. Mere couriers or custodians or other very minor contributors to an offence, rewarded by a specific fee and having no interest in the property or the proceeds of sale, are unlikely to be found to have obtained that property. It may be otherwise with money launderers." (our emphasis)

4. Thus, in order to make a confiscation order in relation to duty evasion offences, the offender against whom the confiscation order was made would have had to have been personally liable for the import duty. As a matter of civil law, such liability arises out of Council Directive 92/12/EEC ("the Directive"), transposed into domestic law by Regulations made under the TPDA and the Finance (No 2) Act 1992.
5. Following the decision in May, the Court of Appeal determined R v Chambers [2008] EWCA Crim 2467 which identified that the confiscation order had been premised on liability under the Excise Goods Regulations 1992 ("the 1992 Regulations"). However, the 1992 Regulations had been superseded in relation to tobacco products, on 1 June 2001, by the Tobacco Products Regulations 2001 ("the 2001 Regulations"), which were materially different in respect of the liability to pay duty, and thus to be subject to a confiscation order. This discovery caused the Revenue & Customs Prosecutions Office ("RCPO") to review all confiscation orders in relation to tobacco smuggling offences and a number of such orders have been quashed as a result. This application (which is contested by the Crown) flows from the publication of the problems that have arisen in these cases. In the circumstances, we grant leave.

The Facts

6. The appellant was tried with two others (Kelly Williamson and John Whitehead) both of whom also pleaded guilty and were sentenced to 4 years 9 months and 3 years imprisonment respectively. It is not disputed that the total revenue avoided (being excise duty and VAT) in respect of the tobacco imported relating to this offence was in the region of £2,500,000. Confiscation orders (limited to their resources) were also made in their cases. Suffice to say, the case concerned a substantial and highly-sophisticated operation, involving hidden compartments in the roof of a refrigerated trailer revealed only by a secret hydraulics lift. One raid by Customs Officers failed to discover tobacco in spite of a full search of the vehicle.
7. We focus on the activities of the appellant who first came to the notice of the authorities on 26 June 2002, as the passenger in a transit van driven by Williamson carrying 200,000 cigarettes marked 'For Export Only'. They were leaving a Leeds industrial park, where police found a further 3.5 million cigarettes. Thereafter, on 7 November 2002, almost 2 million cigarettes were seized from a property called Draycott House Farm, and police noticed nearby a transit van containing cigarettes; this van was regularly outside the appellant's address.
8. The van was next seen on 30 November 2002 visiting the home of Williamson before being abandoned by the appellant 200 yards from Lockington Grounds Farm, where 3.7 million cigarettes were immediately seized. Then, on 18 December 2002, the appellant was a passenger in a blue 4x4, driven by Williamson to the latter's home from where it travelled to collect on a trailer an orange forklift from Lockington Grounds Farm.
9. Of great significance in the context of this appeal, on 4 January 2003, customs officers at Manchester Airport stopped the appellant, Williamson and two other men trying to board a flight to Alicante in Spain. They were collectively carrying £100,000, in four locked bags. One of the other men held the keys for all bags. The money was seized and, without objection, the judge subsequently made a deprivation order under section 143 of the Powers of Criminal Courts (Sentencing) Act 2000. In other words, it was not in issue that this money was (in the terms of the legislation) intended to be used for the purpose of committing or facilitating the commission of an offence.
10. When questioned, both the appellant and Williamson said the cash was for a holiday home they were planning to purchase together. Later in interview, the appellant claimed to have saved the money by storing it under his mattress. In his defence statement (prior to the plea of guilty), he said he would provide proof of a legitimate source of the money, being that he borrowed it from an acquaintance. In plea in mitigation, his counsel alluded to financial difficulties in Summer 2002, said he did not know exactly how much he was carrying, and submitted that there was no way for him to raise that money (being in receipt of benefits). Counsel then submitted that the inference to be drawn was that the appellant was "used as a stool pigeon to carry that money across … in return there was a free holiday to Spain for a period of a week or so". It has not been suggested that there was any evidence to justify that assertion. The appellant was bailed and, on 17 January 2003, was seen driving a vehicle, with Williamson as his passenger, at Draycott House Farm;
11. On 30 January 2003, a lorry was observed being led to the Millennium Business Park, Mansfield, by two 4x4s (one black and one silver). The driver attempted to manoeuvre into Unit 2, but the vehicle was too high. Police moved in and arrested the appellant, Williamson, the driver and two other men. The lorry was found to contain a consignment of apples and pears, but no contraband. The fruit was unloaded into Unit 2 and checked. The five men were released and the fruit returned. It was ascertained that the lessee of Unit 2 claimed to have sub-let it to a man called 'Kelly' (which is the first name of Williamson).
12. On 3 February 2003, the lorry was again seen by police. Although the driver had a return ticket for the ferry from Ipswich, he had remained in the UK after unloading his cargo. The apparently-empty trailer was then discovered to have around 1 million tax-free cigarettes hidden in a secret roof compartment. The trailer registration number was found to have been faked. Along with the others, the appellant was re-arrested on 6 February 2003 at his home, where police observed fruit in a fruit bowl which was wrapped in packaging identical to that unloaded into Unit 2. In addition, there was evidence of substantial contact between the mobile phones of those who had been arrested. In further interview, the appellant denied all wrongdoing, or knowledge of wrongdoing, insisting he was simply helping Williamson who was an old school friend. Williamson had said that his reason for being at Millennium Park was to discuss the sale of some scooters, and that they had asked the lorry driver to back up to see if it could fit into the Unit; this account was largely adopted by the appellant, who initially said he had gone to the toilet and not seen the lorry, later that he was on the phone.
13. The Prosecution case summary described the appellant by saying "[h]e is one of the organisers of the fraud" and in a document headed "Hierarchy", Williamson was described as the "Organiser of importations … Principal of this mini-organisation"; the appellant was described as "Deputy to Williamson, meets and greets incoming loads, distribution and slaughter [the term for disaggregation of bulk], deals directly with customers. Lower in organisational structure than Williamson and similar status to Whitehead". The judge was referred to this final sentence by counsel on the appellant's behalf, whereupon the judge responded "No, I think he's above Whitehead, I'm afraid. That's my assessment";
14. In passing sentence, shorter in term than would otherwise have been the case because of the inordinate delay, the judge said of the appellant:

"Now as far as you're concerned, Tatham, you're a little further down the hierarchy. You played an important part, it seems to me, essentially in the distribution process in particular, that's how I see you, and I have already said more than once, and I remain of this view, nothing has changed it from anything that anybody has said to me, that you played a more serious role than Whitehead but less than Williamson".

15. It is important to note that there was no sufficient challenge to the prosecution case such as would have justified a Newton hearing and only a short hearing in respect of the confiscation orders which began from the premise that each defendant was liable for not less than £500,000 of the £2.5 million lost to the Revenue, so that all that fell to be undertaken was an assessment of actual assets. Most of the challenge related to evidence that certain assets did not truly belong to Williamson or the appellant but to family members. In the event, the Appellant's assets were eventually agreed with the Crown as being £88,619 equity in his house (after deduction of an outstanding mortgage) and £254.81 in his bank account, totalling £88,873.81. This was the sum ordered to be confiscated and to be satisfied within 2 years, with a term of 18 months imprisonment in default.

The Appeal

16. The essential ground of appeal is that had the correct tobacco regulations (i.e. the 2001 Regulations, not the 1992 Regulations) been applied, the Crown Court would have found that the appellant enjoyed no pecuniary advantage as a result of the evasion of the payment of excise duty, and therefore made no confiscation order. The consequence, therefore, is that the benefit figure (being the benefit he was assessed to have received of "not less than £500,000") should be reduced to a nominal amount, with the effect that he would be entitled to a refund of the remainder already paid to the court.
17. We start with the law. It is clear from May that a confiscation order can only be made in respect of a tobacco offence under s170(2) of CEMA if the defendant "evades a liability to which he is personally subject". The jurisdiction to grant a confiscation order is defined by the civil liability to pay excise duty. Further, merely because a person was part of a conspiracy to import, it does not mean that there was a benefit to the value of the duty evaded (see R v Mackle [2014] UKSC 5 at §§65-66). The value of the unpaid duty is only recoverable from the person or persons who are liable to pay it and any particular conspirator will not necessarily have incurred that liability, perhaps because he or she had only been engaged in the conspiracy after the relevant goods had been imported. In R v Khan & ors [2009] EWCA Crim 588 at §2, this Court said that:

"[i]n smuggling cases a person obtains a pecuniary advantage inter alia if he is personally liable to pay the duty which had not been paid, and the pecuniary advantage is equal to the duty evaded".

18. This appeal, therefore, turns on the proper construction of the 2001 Regulations, which now impose the liability to pay excise duty on tobacco and the application of the Regulations to the facts of the appellant's case. As for the former, liability for excise duty on tobacco is governed by the EU Directive and by the implementation of that Directive into domestic law by the 2001 Regulations.
19. At the relevant time (these provisions having since been repealed), Regulation 12 of the 2001 Regulations determined the point at which the tobacco products are charged with excise duty, and Regulation 13 is the operative provision which determined the person or persons who must pay. It was in these terms:

"(1) The person liable to pay the duty is the person holding the tobacco products at the excise duty point.

(2) Any person (not being the person specified in paragraph (1) above) who is described in paragraph (3) below is jointly and severally liable to pay the duty with the person specified in paragraph (1) above.

(3) Paragraph (2) above applies to—

(a) the occupier of the registered premises in which the tobacco products were last situated before the excise duty point; ...

(e) any person who caused the tobacco products to reach an excise duty point.

(4) Paragraph (3)(a) above does not apply to the occupier of registered premises in which tobacco products were last situated before the excise duty point if the tobacco products were lawfully removed from his registered premises and—

(a) he did not provide security for the accomplishment of the purpose for which the tobacco products were removed, and

(b) some other person did provide security for the accomplishment of that purpose.

(5) In any case where paragraph (4) above applies the person who provided security for the accomplishment of the purpose for which the tobacco products were removed from registered premises is jointly and severally liable to pay the duty with any other person who is liable to pay the duty.

20. It is common ground that for the appellant to have been liable for the excise duty, and for any form of substantive confiscation order to be upheld, he would have to fall within either Regulation 13(1) ("the person holding the tobacco products at the excise duty point") or Regulation 13(3)(e) ("any person who caused the tobacco products to reach an excise duty point").
21. The 2001 Regulations must be construed consistently with the Directive, in particular Article 7(3) of the Directive, which provides that:

"Depending on all the circumstances, the duty shall be due from the person making the delivery or holding the products intended for delivery or from the person receiving the products for use in a Member State other than the one where the products have already been released for consumption, or from the relevant trader or body governed by law"

22. The proper construction of the Directive, and its effect on the 2001 Regulations, can be discerned from four leading cases of the Court of Appeal. These are R v Mitchell [2009] EWCA Crim 214, per Toulson LJ (as he then was) at [19]-[33]; R v White & ors [2010] EWCA Crim 978, per Hooper LJ at [56]-[115]; R v Bajwa [2012] 1 WLR 601 per Aikens LJ; R v Taylor & Wood [2013] EWCA Crim 1151, per Kenneth Parker J at [18]-[41].
23. The important principles can be summarised shortly:

a. Mere couriers or incidental custodians, who are rewarded by way of fixed fee and have no beneficial interest in the tobacco, are likely to be excluded from the definition of 'obtaining property' for the purposes of confiscation orders: May [48].

b. The time at which the duty becomes chargeable on tobacco is when the ship carrying it enters the limits of the UK port (Bajwa at [32], [75] and [89]) and, as long as the requisite mens rea is present, 'evasion' occurs from the moment that the excise duty is charged on the goods, as above (ibid [90-94]).

c. Whether a person 'causes' the importation under Regulation 13(3)(e) is a question of fact (see per Toulson LJ in Chambers at [58]) and causation must not be too remote (Taylor & Wood [20]); furthermore, section 1(4) of the Finance (No 2) Act 1992 imports indirectly the test that such a person 'causing' must retain a 'connection' to the goods at or after the excise duty becomes payable: Bajwa [39].

d. By way of contrast, 'holding' for the purposes of Regulation 13(1) can be a question of law, and does not require physical possession of the goods, and the test is satisfied by constructive possession. The test for 'holding' is that the person is capable of exercising de jure and/or de facto control over the goods, whether temporarily or permanently, either directly or by acting through an agent (see Taylor & Wood, [28-40]).

e. There is no need for the person to have any beneficial ownership in the goods in order to be a 'holder' (or indeed to have 'caused' their importation). A courier or person in physical possession who lacks both actual and constructive knowledge of the goods, or the duty which is payable upon them, cannot be the 'holder' within Regulation 13(1) - Taylor & Wood, [30-31], [35].

f. The proper construction of Regulation 13(3)(e) in light of Article 7(3) of the Directive almost certainly operates to make the consignor liable for excise duty (Mitchell at [31]-[32]); in all the circumstances, the consignee will usually be a holder of the goods, but the time at which he becomes such will depend on the mode of shipment (White at [143]).

24. In Bajwa, the appellants would have been 'holders' of the goods on a constructive basis were it not for the fact that the cargo and, more importantly, the bills of lading had never reached them having first been seized by HMRC. They were not, for the purposes of section 3 of the Carriage of Goods by Sea Act 1992, 'holders' of the bill of lading, and therefore had no symbolic or constructive title to, possession of, or liability for the goods at the relevant time (see [77]-[80]).
25. The position was different in Taylor & Wood, not least because the cargo was carried by road which engages the Convention on the Contract for the International Carriage of Goods by Road (incorporated into domestic law by the Carriage of Goods by Road Act 1965). Article 4 of the Convention requires that such conveyancing of goods is accompanied by a CMR 'consignment note'. Much like a bill of lading, the CMR form has details as to the consignor, consignee, cargo. However, Article 4 also makes express that "the absence, irregularity or loss of the consignment note shall not affect the existence or the validity of the contract of carriage which shall remain subject to the provisions of this Convention".
26. The significant difference, however, is that, unlike a bill of lading, the CMR is not a document of title. The Convention allocates passage of title and risk so that constructive 'delivery' of the goods (so as to be in the legal possession of the buyer) takes place when the seller delivers them to the carrier. This matches the rebuttable presumption as to the time that title passes from seller to buyer in section 32 of the Sale of Goods Act 1979. On either analysis, a buyer or consignee of goods transported from abroad into the UK would have constructive possession of such goods at the time of the imposition of the export duty, and likely its evasion (see Taylor & Wood, [8]-[9], [30]).

Discussion

27. It is beyond argument that the confiscation proceedings were conducted on a mistaken premise as to the relevant regulations. Mr Bird, for the prosecution, however, contends that the appeal can and should be dismissed on the basis that the facts found by the judge (on the appropriate civil standard) justify the order when analysed in the context of the operative regulations and that, in addition, the order is not disproportionate having regard to the decision of the Supreme Court in R v Waya [2012] UKSC 51. Mr Pole, for the appellant, does not challenge the proposition that if the facts demonstrate liability under the operative regulations, the appeal must fail: he did not argue disproportionality or breach of Article 1 to Protoco1 of the European Convention on Human Rights ("A1P1 of the ECHR"). He was correct to do so: the sentence is valid until otherwise determined and the same sentence can be re-imposed albeit on a different, now lawful, basis: see R v Howden [2007] 1 Cr App R(S) 31.
28. Having said that, it is important to bear in mind the cautionary observations of Hooper LJ in R v Dennard (which was conjoined with White [2010] EWCA Crim 978), noting that the appellants had not given evidence at the confiscation hearing. Dealing with the prosecution argument that their position necessarily implied certain concessions as to facts, he said (at [125]):

"One problem faced by [counsel for the Crown] is that we do not know what evidence may have been given or led by Dennard had it been known that the prosecution had to show that Dennard was personally liable for the excise duty under the 2001 Regulations. A second problem is what the Recorder said in paragraph 6 (see above para 117). A third problem is that the Recorder ascribed only a limited role to Chambers and Dennard:

'In becoming concerned in the removal and continuing concealment of the goods [the defendants] provided an important link in the chain between the importation and the ultimate sale.'"

29. Beginning with Regulations 13(1) and (3)(e), the question is whether, on the balance of probabilities, the appellant was either the 'holder' of the tobacco at the time the excise duty was imposed or whether he 'caused' it to reach that point, and maintained a 'connection' with the goods at that point or thereafter. As noted above, this is a question of fact. It seems clear that the connection existed once the goods had arrived in this country, but the evidential basis for the appellant being a causative agent is a different issue.
30. Mr Pole submitted that the appellant was a distributor only in the UK uninvolved with the overseas vendors. Rather, he dealt physically with any consignment of tobacco only after it had passed the entry point so that excise duty had been imposed. He submitted that the Hierarchy document does not suggest contact with the sellers, or any involvement in the arrangements for bringing cigarettes into the country.
31. Having said that, Mr Pole rightly conceded that, if it could be shown that the appellant was a buyer or had some beneficial interest in the tobacco, then he would be liable for having 'caused' it to be imported (the later connection with the goods being satisfied by his role as a UK downstream distributor). To that end, he acknowledged that the arrest at Manchester Airport when carrying £25,000 that he once claimed to own could support such an argument. In answer, however, he adopted the submissions made at first instance that the appellant was in fact a mere 'stool pigeon', carrying the money for the true buyers, and that his role as a conduit for the cash did not reach the threshold of 'causing' the importation.
32. The judge clearly determined that the £100,000 seized a Manchester Airport was, in fact, to be used for the importation of tobacco in circumstances in which duty was to be evaded: such a finding was necessary to justify the deprivation order made pursuant to s. 143 of the 2000 Act. The question, therefore, is whether, on the balance of probabilities, it has been established that the £25,000 that the appellant was carrying (even though the key to the case was held by someone else, doubtless for protective purposes) belonged to him. We are satisfied that it did.
33. First, although the appellant was not at the apex of the conspiracy, he was Williamson's deputy and had a leading role in its organisation with substantial responsibilities in the U.K. at least. That itself belies the submission that he was a mere 'stool pigeon' or 'bag carrier'. This conclusion is also consistent with the appellant's own evidence on arrest, when he claimed the money as his albeit that he denied that the subject of the joint investment was tobacco. Though counsel resiled from this admission during the plea in mitigation, it is reasonable to conclude that he was making a cash contribution to the purchase of tobacco abroad.
34. Secondly, before the judge, counsel mitigated by tracing the appellant's initial involvement to financial hardship during Summer 2002: it is clear that he was involved for the purpose of making money. Of course, if he was paid or to be paid a modest fee for his efforts, that would likely preclude the confiscation order against him: see May [48], R v Kullar [2011] EWCA Crim 420, where the confiscation order was reduced to the £400 rent he had received for the use of his unit and, in this case, R v Whitehead [2013] EWCA Crim 302 where the confiscation order imposed on the third defendant was reduced to the £5,000 wages he had been paid.
35. Here, however, there is no evidence, and no positive case has been advanced, as to how the appellant was remunerated for his contribution to the enterprise. It is clearly open to us to infer that the Appellant was remunerated otherwise than by a fixed fee, namely by proceeds from trading in the tobacco. If that is so, and we are satisfied that it is, then he had a beneficial interest in the tobacco.
36. In the circumstances, we conclude from these circumstances that the appellant had made some investment in the enterprise and was financially interested in the purchase and importation of tobacco with the intent to evade excise duty. He therefore 'caused' the goods to reach the point of excise duty and maintained a connection with them by virtue of his UK distribution role thereafter. On the facts, therefore, he was jointly liable for the excise duty, and on that basis a confiscation order may be made.
37. Alternatively, even if (contrary to our assessment of the facts) the appellant contributed no money to the enterprise, and was a mere courier of the cash discovered at Manchester Airport, in our judgment, he falls within the definition of a 'holder' of the goods at excise point, pursuant to Regulation 13(1), where legal, rather than physical, possession is sufficient (see Taylor & Wood and Bajwa). This condition can be satisfied by the appellant being the ordinary consignee of deliveries to the UK; in our assessment, in this case, it is.
38. Against the background of being "one of the organisers of the fraud" as well as Williamson's deputy and consistent with the description that he "meets and greets incoming loads", the appellant's collection and movement of the orange forklift on more than one occasion clearly demonstrates that he was working with palletised stock (such as that unloaded from the lorry), not merely dealing in consumer volumes of tobacco.
39. Furthermore, when he was arrested, his home was searched. Found in a bowl was fruit which had been part of the apparently lawful cargo unloaded into Unit 2 on 30 January 2003 in the circumstances described at paragraph 11 above. On that basis, and bearing in mind the concessions consequent upon his guilty plea, the appellant was 'a' consignee of the legitimate cargo imported (whether or not designated so by the consignment note) and the implied consignee for the purposes of the contract of carriage for transporting these goods by road.
40. On this basis also, on the balance of probabilities, we conclude that the appellant had constructive possession of the goods at the time of excise duty evasion. Thus, with the necessary actual knowledge and intent to defraud, he is properly held liable for the excise duty on the basis of Regulation 13(1) and, both jointly and severally, under Regulation 13(2), for all the excise duty owed on the cargo with all and any other persons including the consignor and any beneficial owners of the cargo falling within Regulation 13(3). This pecuniary advantage is not diminished or obviated by the fact of the seizure and confiscation of the contraband, as was made clear by Lord Rodger in R v Smith (David) [2001] UKHL 68; [2002] 1 WLR 54 at §23.
41. Although Mr Pole did not advance an argument based on A1P1 of the ECHR, we add that the total loss to the revenue has been estimated at around £2.5 million, and one fifth of that excise evaded has been allocated to the appellant as an organising deputy in the organisation responsible. The recoverable assets which he has had to forfeit (under £90,000) amount to less than a fifth of that one-fifth share: so around 5% of the total loss to the Revenue. Thus, analysis of the decision in R v Waya [2012] UKSC 51 is neither necessary nor appropriate: we adopt the reasoning of Kenneth Parker J in Taylor & Wood at [42]-[50], and find the confiscation order in this case compliant with A1P1 in that it is intended to deny benefit and complies with the proportionality test set down by the Supreme Court.
42. In the circumstances, this appeal is dismissed.