PEGASUS BIRDS LTD
- v -
H.M. CUSTOMS and EXCISE
MR DAVID EWART and MR JAMES HENDERSON (instructed by Amery Parkes, London WC2A 1EN) appeared on behalf of the Appellants.
MR EAMON Mc NICHOLAS (instructed by Customs and Excise, Essex SS14 2DX) appeared on behalf of the Respondents.
This is an appeal by Pegasus Birds Limited ("Pegasus") on a point of law against a decision of a VAT Tribunal (Miss Jane Plumtre) issued on 22 October 1997. Pegasus had appealed against assessments to VAT made on 16 April 1997 in the total sum of £658,388 plus interest of £111,920.34 issued on 14 May 1997. There were 10 separate assessments for the 3 month accounting periods ending 31 March 1993 to the period ending 30 June 1995. Pegasus appealed on a number of grounds. These included that (i) the assessments were not made in accordance with section 73(1) of the Value Added Taxes Act 1994 ("VATA") to the best of the Commissioners' judgment ("the best judgment point"); and (ii) the assessments for the periods up to and including the quarter ending 31 March 1995 had not been made within the time limits stipulated by section 73(6)(b) of VATA ("the time limits point").
On 12 August 1997, a different Chairman of the Tribunal directed that the time limits point should be determined as a preliminary issue. This point was determined in favour of the Commissioners, and it is against this decision that Pegasus now appeals.
Before I summarise the relevant facts, it will be convenient to set out the material parts of section 73 of VATA. These are:
"(1) Where a person has failed to make any returns required under this Act....or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify him.(6) An assessment under subsection (1), (2) or (3) above of an amount of VAT duefor any prescribed period must be made within the time limits provided for in section 77 and shall not be made after the later of the following--(a)...(b) one year after evidence of facts, sufficient in the opinion of the Commissionersto justify the making of an assessment, come to their knowledge."
Pegasus is a retailer of exotic birds. The company has at all material times been controlled by Mr Hammond. It has a close business relationship with E & J Birds and Things ("E & J"), another company which engages in trading in exotic birds. E & J has at all material times been controlled by Mr Foster.
In about 1993, the Commissioners started to investigate the affairs of the 2 companies. Surveillance operations were mounted. Visits were made to trade fairs, auctions and the premises of Pegasus, and the homes of Mr Hammond and Mr Foster were kept under surveillance. On 24 May 1995, the premises of Pegasus and its accountants were raided by the Commissioners, and documents were removed. In October 1995 and February 1996, the Commissioners interviewed a number of Dutch and Belgian suppliers to Pegasus and E & J.
Criminal proceedings were instituted against Mr Hammond and Mr Foster. They were charged with conduct that must have involved the commission of one or more offences under section 72(1) and/or 72(3) of VATA, contrary to section 72(8) of that Act. It was alleged that they had sold birds for cash, collecting VAT thereon, failed to keep proper records, failed to account for and pay to the Commissioners all VAT collected on the sale of birds, and concealed the true nature and scale of their business activities. They were jointly committed for trial on 24 January 1996. At the plea and directions hearing on 25 March 1996, both defendants pleaded not guilty. On 2 October 1996, Mr Foster decided to plead guilty. On 8 October, Mr Hammond changed his plea. The trial of both men was adjourned for a Newton hearing to take place so that the amount of VAT evaded could be determined by the judge who was to pass sentence.
During the period between April 1996 and early 1997, the Commissioners sought to calculate the amount of VAT that had been evaded by Pegasus and E & J. The absence of records made this a very difficult task. It was the view of the Commissioners that evidence as to the level of business undertaken by the 2 companies had been suppressed on a substantial scale. Some transactions were not recorded at all. Others were not recorded accurately in the business records. The problems were exacerbated by the fact that it was difficult to disentangle the transactions that were referable to Pegasus from those referable to E & J. The 2 companies bought from the same suppliers. Their businesses were similar, but there were differences: Pegasus dealt in birds and parrots, and sold both retail and wholesale. E & J dealt only in birds, and sold predominantly wholesale.
On 30 April 1996, Mr Booker, an accountant employed by the Commissioners, produced a report. He said that the business records of the 2 companies were of limited use. From other information, however, he was able to arrive at what he regarded as "a reliable estimation of sales and the VAT thereon". He calculated that the average cost of birds purchased per trip was £15,303.61. Information provided by investigators indicated that during the relevant period, a minimum of 165 trips were made by Pegasus and E & J to purchase birds. Allowing for mortalities, Mr Booker arrived at a minimum total cost of birds purchased during the relevant period of £2,272.586. Mr Booker then turned to the question of mark-up. Using sales invoices and sale prices advertised in a trade magazine, he arrived at retail and trade mark-up figures for birds, and a retail figure for parrots. His figures for birds were 227% (retail) and 157% (trade). His retail figure for parrots was 107%. He calculated an overall retail mark-up of 159% and trade mark-up of 104%. His figures for the arrears of VAT for the 2 companies together was between £691,934 and £879,718.
Mr Bakewell was the Commissioners' officer who headed the investigation. He would have given evidence at the Newton hearing. On 1 November 1996, he prepared a statement for the hearing. His calculations as to the amount of arrears of VAT were different from those of Mr Booker. He invited the court to infer that Pegasus was a more substantial trader than E & J. On the central issue of mark-up, he gave a range from 125% to 450%, with an average of 285%. He calculated a range of figures for arrears of VAT for the 2 companies together of between £1,286,137 (on the basis of 125%) and £2,200,723 (on the basis of 285%). In a report of 30 September 1996, Mr Freeman, the accountant who was representing Pegasus and Mr Hammond had put forward a mark-up figure of 80%. Applying this figure to his own calculations, Mr Bakewell arrived at a figure for VAT of £1,028,909.
On 30 January 1997, an important meeting took place between Mr Booker and Mr Bakewell for the Commissioners, and Mr Kerr and Mr Dean of Messrs Grant Thornton, who were representing Mr Foster. Mr Hammond and Pegasus were not present or represented. The meeting was agreed to be "without prejudice". Mr Kerr made it clear that he had no involvement in Mr Hammond's defence. Mr Kerr put forward a figure of 150% for mark-up. It was based on Mr Booker's 157%, slightly discounted to reflect the discounts that Mr Foster would have given to his trade customers. Mr Booker and Mr Bakewell agreed that this was not unreasonable. Although they agreed this figure for mark-up, they were unable to reach agreement on all aspects of the dispute. Mr Kerr made it clear that he was not authorised to make an agreement with the Commissioners that was binding on Mr Foster.
The assessments made on 16 April 1997 stated that Pegasus was "to be held liable for 57% of an amount based on an average value per trip, an agreed mark-up of 150% and a proven
number of trips". The figures were set out in the form of a schedule.
The central part of the decision is contained in a section headed "Time Limit", which is as follows:
“Mr Freeman submits that the assessments for periods 3/93-3/95 are all out oftime because they were issued on 16 April 1997 ie more than one year afterevidence of facts was available to Customs to justify making an assessment.He submitted that all the evidence needed to make an assessment was avail-able before 17 April 1996. In particular Customs had evidence of the purchasesof birds made abroad by at the latest 13 February 1996 or 5 March 1996 whenEnglish translations were available. In addition Mr Colin Booker had producedreports by 30 April 1996 calculating the amount of VAT evaded. Mr Freemanalso submitted that the statements of British Telecom managers obtained on5 June 1996 which Customs stated established a link between Pegasus Birdsand the overseas suppliers were not relevant to the assessment.It follows from Mr Freeman’s submissions that Customs ought to have issuedtheir assessment before they had the benefit of his first report dated 30September 1996 indicating a mark-up of 80% and thus before they had thebenefit of any information as to the volume of trading, or the split betweenMr Foster and Mr Hammond or more importantly, any acknowledgementby Mr Hammond that he was engaged in the activity of buying and sellingexotic birds purchased abroad as established by his guilty plea.Mr Freeman referred me to Mervyn Conn Organisation Ltd Case No 5205LON/89/672 which provided a helpful analysis of the earlier legislationnow repeated in section 73(6)(b) VATA 1994. In particular that Tribunalconsidered as I do, that the legislation requires Customs to have evidenceof basic facts and not inferences from facts and that their knowledge shouldbe actual knowledge and not constructive knowledge.The statements of Mr Bakewell point to a strong suspicion of Mr Hammondbeing involved in the purchase and sale of birds from overseas but I agreewith Mr McNicholas that it is not until the plea of guilty on 8 October 1996that those inferences and constructive knowledge become a fact accepted byMr Hammond and actual knowledge of his trading on Customs’ part, asopposed to constructive knowledge of it.Whilst I do not accept Mr McNicholas’ proposition that any one fact reliedupon by the Commissioners is sufficient to satisfy the test set out in section73(6)(b) VATA 1994, I have little difficulty in holding that Customs wereright to issue the assessment after the plea of guilty. To do so before whenthere was no certainty as to the involvement of Mr Hammond in the purchaseand sale of birds from abroad and at a time when the mark-ups calculatedvaried so enormously as previously set out might have been perverse. Moreoverfollowing the meeting on 30 January 1997, Customs had the benefit of amark-up proposed by an accountant on behalf of a trader in a similar lineof business. It is common for Customs to take into account mark-ups achievedby other traders in order to arrive at a assessment made to best judgment.Cumbrae Properties (1963)Ltd v Customs and Excise Commissioners 1981STC 799 to which I was referred by the Appellant binds this Tribunal. Potts Jheld that this Tribunal could not substitute its own view of what facts justifiedthe making of an assessment. It could only interfere if there was sufficientmaterial to show that the failure to make an earlier assessment as perverse.The material adduced before me with its enormous variations in value pertrip, mark-ups as between retail and trade, as between parrots and “birds”to my mind supports the proposition that an earlier assessment might havebeen perverse and would have made it open to the challenge that Customswas acting other than bona fide ie arbitrarily, dishonestly, vindictively orcapriciously. It might, in the words of Woolf J as he then was, in Schlamberger
Inland Services Inc v Customs and Excise Commissioners (1989) STC 228
at page 235 “be a misuse of that power if the Commissioners were to decide
on a figure which they knew was, or thought was, in excess of the amount
which would possibly be payable, and then to leave it to the taxpayer to seek,
on appeal, to reduce that assessment.”
I was referred to the cases of Spillane v Custom and Excise Commissioners
(1990) STC 212 and Customs and Excise Commissioners v Post Office (1995) STC 749. Factually there are some similarities between the Spillane case and
this appeal since Spillane carried on a clandestine business of manufacturing
and selling counterfeit tape recordings, did not keep records nor render VAT
returns, nor answer questions, nor comment on a schedule of possible amounts
for an assessment. Evidence from Spillane’s suppliers became available to
Customs on 25 and 25 January 1984, and Customs issued an assessment on
18 January 1985. Thereafter additional evidence became available and the
assessment was reduced by £40,000. In this application, although Customs
had available statements from suppliers more than one year before the
assessment was made, they were of limited assistance in particular because
Mr Kloeg was wholly uncertain as to which supplies were for Mr Hammond
or Mr Foster. Further the same distinction between constructive knowledge and actual knowledge is also made in the Spillane case see Simon Browne J
at pages 215-6 and in the Post Office case as was made in the earlier Tribunal
decision of Mervyn Conn. As stated above I accept this distinction and apply
it to this application.”
1. The Commissioners' opinion referred to in section 73(6)(b) is an opinion as to whether they have evidence of facts sufficient to justify making the assessment. Evidence is the means by which the facts are proved.2. The evidence in question must be sufficient to justify the making of the assessment in question: C & E Commissioners v Post Office  STC 749, 754G.3. The knowledge referred to in section 73(6)(b) is actual, and not constructive knowledge: C & E Commissioners v Post Office at p755D. In this context, I understand constructive knowledge to mean knowledge of evidence which the Commissioners do not in fact have, but which they could and would have if they had taken the necessary steps to acquire it.4. The correct approach for a Tribunal to adopt is (i) to decide what were the facts which, in the opinion of the officer making the assessment on behalf of the Commissioners, justified the making of the assessment, and (ii) to determine when the last piece of evidence of these facts of sufficient weight to justify making the assessment was communicated to the Commissioners. The period of one year runs from the date in (ii): Heyfordian Travel Ltd v C & E Commissioners  VATTR 139,151; and Classicmoor Ltd v C & E Commissioners  V &DR 1, 10.I.27.5. An officer's decision that the evidence of which he has knowledge is insufficient to justify making an assessment, and accordingly, his failure to make an earlier assessment, can only be challenged on Wednesbury principles, or principles analogous to Wednesbury: Classicmoor paras 27 to 29; and more generally John Dee Ltd v C & E Commissioners  STC 941, 952D-H.6. The burden is on the taxpayer to show that the assessment was made outside the time limit specified in section 73(6)(b) of VATA.
I think that principles 1 to 3 and 6 were common ground. I need to say no more about them.
It is convenient to examine principles 4 and 5 together. In a cogent and sustained argument, Mr Ewart submits that the test to be applied in section 73(6)(b) is objective. The only question to be considered by the Tribunal is when did the Commissioners have knowledge of evidence of facts, which viewed objectively, was sufficient to justify making the assessment. The opinion referred to in the subsection must be the reasonable opinion of the Commissioners. The test must be objective. Otherwise, the section fails in its manifest objective of protecting the taxpayer from tardy assessments: see Parakh v C & E Commissioners  STC 284, 288B. Moreover, asks Mr Ewart rhetorically, if the test is subjective, whose opinion is considered where, as often occurs, there is more than one officer involved in the investigations leading up to the making of an assessment?
In my judgment, as a matter of statutory construction, it is not possible to read into section 73(6)(b) the qualification that the opinion of the Commissioners as to the sufficiency of the evidence must be reasonable. If that had been the intention of Parliament, it would have been simple so to provide. If the test had been objective, there would have been no need to refer to the opinion of the Commissioners at all. Nor is there any problem about identifying the person whose opinion is to be determined. The person whose opinion is imputed to the Commissioners is the person who decided to make the assessment. It does not matter that he or she may not be the person who first acquired knowledge of the evidence of the facts which are considered to be sufficient to justify making the assessment. The knowledge of all officers who are authorised to receive information which is relevant to the decision to make an assessment is imputed to the Commissioners.
Moreover, I do not accept that, if an objective approach is adopted, the protection afforded by the subsection to the taxpayer is illusory. This raises the question of the circumstances in which it is possible to challenge the opinion of the Commissioners. It is common ground that, in forming their opinion of what evidence of facts is sufficient to justify making the assessment, the Commissioners must have regard to their obligations to act to the best of their judgment as explained in Van Boeckel v C&E Commissioners  STC 290. Thus, they must perform their function honestly and bona fide, and fairly consider all the material placed before them, and, on that material, come to a decision which is reasonable. In some cases, the taxpayer may complain that the Commissioners have made an assessment on insufficient material. In other cases, the complaint of the taxpayer may be that, in the light of the evidence of which they were aware, it was wholly unreasonable for the Commissioners to delay making the assessment. In both cases, an appeal will succeed if it is shown that the Commissioners' approach was wholly unreasonable, and fails to pass a test akin to the Wednesbury test. I recognise that this is a high hurdle for the taxpayer to surmount, but Parliament has entrusted these matters to the judgment of the Commissioners, and it is right that challenges to the exercise of judgment should only succeed when something has gone seriously wrong.
“ The tribunal accepted her evidence, namely, that ‘in her opinion she didnot have sufficient evidence of facts to justify her in making an assessmentuntil she had obtained up to date details of the seconded employees and thefigures relating thereto which she had obtained on visits which she made tothe taxpayer company on 22nd May 1979 and in February 1980’. Thetribunal then went on to hold that they were precluded by the decision ofthe House of Lords in Customs and Excise Commissioners v J.H.Corbett (Numismatics) Ltd  2 ALL ER 72,  AC 22 STC 231, from substituting their opinion (which they took to be theopinion of the commissioners) that she did not have evidence of factsufficient to justify her in making an assessment prior to February 1980.Counsel for the taxpayer company submitted that the court in this caseis concerned with a discretion of a wholly different character and thatthis is an appeal against an assessment. However, in my judgment Counselfor the Crown was right when he said on the authority of that case that thetribunal cannot substitute its own view of what facts justify the makingof an assessment but can only decide when the last of those facts wascommunicated or came to the knowledge of the officer.In my judgment, the court can only interfere if there is sufficient materialto show that the officer’s failure to make an earlier assessment was perverseand there is no material for such a conclusion in this case, and I holdthat this court is bound by the decision in the Corbitt case and that it applies.”
At paragraphs 27 and 29 in Classicmoor, His Honour Stephen Oliver Q.C. followed Cumbrae, and said that the Tribunal could only interfere with the decision of the Commissioners not to make an assessment earlier if that decision was perverse. I observe, however, that in Cumbrae at page 805B, Sir Douglas Frank Q.C. was referring to the powers of the court, and not the powers of the Tribunal.
I heard considerable argument as to the scope of any challenge before a Tribunal on the ground of a failure to make an earlier assessment, and the route by which such a challenge may be made. Mr Mc Nicholas accepts that such a challenge can be made, but submits that it is an appeal against an assessment under section 73(1) of VATA, ie a challenge to the exercise of best judgment. He submits that the Tribunal has no jurisdiction to entertain a challenge to the subjective opinion of the Commissioners regarding the sufficiency of the evidence of facts before them: he relies for this proposition on C & E Commissioners v J.H.Corbitt (Numismatics) Ltd  STC 231.
Mr Ewart points out that section 84(10) of VATA was introduced to meet the problem exposed in Corbitt. It provides:
“Where an appeal is against a decision of the Commissioners which dependedupon a prior decision taken by them in relation to the appellant, the fact thatthe prior decision is not within section 83 shall not prevent the tribunal fromallowing the appeal on the ground that it would have allowed an appeal againstthe prior decision.”
He submits that it is important to keep distinct the time limits point and the best judgment point. He asserts that the opinion of the Commissioners as to the sufficiency of the evidence of facts to justify an assessment can be the subject of challenge before the Tribunal by virtue of section 84(10).
In my judgment, it is unnecessary to identify the jurisdictional basis of the ability to challenge the Commissioners’ failure to make earlier assessments. I incline to the view that the opinion of the Commissioners as to the sufficiency of the evidence is a prior decision within the meaning of section 84(10). Whether or not that is right, it is common ground that these decisions are susceptible to appeal, whether by the route of section 73(1) and section 83(p) of VATA, or via section 84(10). It is also clear that, whichever is the correct route, the test is the same. The appellant has to show that the decision of the Commissioners was perverse or wholly unreasonable. It is clearly established that a Tribunal will not set aside an assessment where there is a challenge to the exercise of best judgment, save on grounds similar to Wednesbury grounds: see, for example, Rahman (t/a Khayam Restaurant) v C & E Commissioners  STC 826, 835-836. If the matter is viewed through the prism of section 84(10), what is under challenge is the opinion of the Commissioners. That seems to me to be closely analogous to a case such as John Dee Ltd v C & E Commissioners  STC 941, 952D-J. That case concerned an appeal against a decision of the Commissioners in relation to the requiring of security. The relevant statutory provision was : “Where it appears to the Commissioners requisite ...... they may require a taxable person ...... to give security...” The Court of Appeal held that, in deciding whether it appeared to the Commissioners requisite to require security, the Tribunal had to consider whether (using shorthand) they had acted unreasonably in the Wednesbury sense.
The question for the Tribunal on an appeal, therefore, is whether the Commissioners' failure to make an earlier assessment was perverse or wholly unreasonable. In some cases, the position will be clear. Suppose that evidence of all the facts which in the opinion of the Commissioners justified the making of the assessment was known to the Commissioners at the beginning of year 1, and the assessment was not made until the beginning of year 3. Suppose further that the reason for the 2 year delay is that the file was lost, or there was a change of staff with the result that the officer who had acquired the evidence did not pass it on to his successor. In those circumstances, the delay in making the assessment would be wholly unreasonable, and an appeal would succeed on the time limits point.
More difficult are cases where the Commissioners delay making the assessment because they consider that they need more evidence. In Lazard Brothers v C & E Commissioners (a decision of the Tribunal dated 24 July 1995), it was held that the Commissioners had knowledge of the evidence of facts sufficient to justify making the assessment, even though the officer wanted the taxpayer to classify that evidence and provide schedules and further calculations on it. The classification and further calculations were not further evidence of facts. The obligations of the Commissioners to exercise the best of their judgment could not be delegated to the taxpayer. On the facts of that case, the Tribunal was able to find that the basic facts were in the hands of the Commissioners by 22 March 1993, by which date they had already formed the opinion that the facts of which they were aware were sufficient to justify an assessment. Although the Tribunal did not expressly state that it was wholly unreasonable or perverse of the Commissioners not to make the assessment within 1 year of 22 March 1993, it seems to me that this is how their decision should be interpreted. Cumbrae was cited to them, and the relevant passage is referred to without demur at page 22 of the decision.
A different conclusion was reached on different facts in Classicmoor. In April 1993, the Commissioners assessed Classicmoor to VAT in a sum on the basis of their view of the true nature of a transaction between Classicmoor and another company, Quarry. At the heart of the problem lay the question of the authenticity and effect of an invoice and an alleged credit note. Classicmoor contended that the relevant information was in the possession of the Commissioners by October 1991 following a visit by an officer. It was said that no new information was obtained thereafter before the assessment was made. The officer of the Commissioners had been given conflicting explanations about the transaction. The facts on which the decision to assess could be based were unsubstantiated and the different assertions were of little evidential value. Neither the explanations nor the assertions changed in any substantial respect between October 1991 and April 1993 when the assessment was made. The officer made the assessment shortly after an interview of a representative of Quarry, which led the officer to believe that there was unlikely to be any change of substance in the positions taken by the parties in relation to the credit note and the invoice. In his decision, the Chairman said that the officer had "to make what appears to me to be an acutely difficult and, so far as protecting the revenue was concerned, precarious exercise of best judgment" (para 28). In the light of these circumstances, he could not “conclude that the evidence of the facts was sufficient, at any time before 20 April 1993, to justify the Commissioners making the assessment" (para 29).
It will be seen, therefore, that in Classicmoor, the Commissioners did not acquire any more knowledge of basic or primary facts than they had known since October 1991. They had to take a view as to the true nature of the transaction, and the position with regard to the invoice and the credit note. They carried out investigations between October 1991 and April 1993 in an attempt to make as accurate an assessment of what had been going on as possible. The meeting of 20 April merely satisfied the Commissioners that it would not be possible to determine more precisely what had been going on. In those circumstances, they decided without more ado to exercise best judgment, and made an assessment.
It seems to me that the central part of the Tribunal's reasoning is to be found in the 5th and 6th paragraphs of the extract that I have quoted earlier in this judgment. The Chairman found that evidence of 2 facts relied on by the Commissioners in forming their opinion was first acquired during the 1 year period ending on 16 April 1997. These were (i) Mr Hammond's plea of guilty, and (ii) the fact that at the meeting held on 30 January 1997, the accountant acting for Mr Foster proposed a mark-up of 150%. The Chairman decided that the failure to make an assessment before acquiring these 2 pieces of evidence was not perverse, and went so far as to suggest that it might have been perverse for the Commissioners to make the assessment before they acquired that evidence.
Mr Ewart criticises this part of the Chairman's reasoning. I start with the guilty plea. The Chairman said that until Mr Hammond pleaded guilty, there was no certainty as to his involvement in the purchase and sale of birds from abroad. As Mr Ewart points out, the amount of evasion admitted by Mr Hammond did not have any influence on the Commissioners, since the assessment that they made is more than 13 times the maximum amount admitted by Mr Hammond. Thus the only way in which it could be said that the guilty plea influenced the Commissioners was that it showed that Mr Hammond admitted some fraudulent underdeclaration of VAT. But the Commissioners must have been satisfied that some fraudulent underdeclaration had taken place before Mr Hammond pleaded guilty, since they decided to prosecute him. A great deal of direct evidence of fraudulent underdeclaration was available to the Commissioners before 16 April 1996. Without such evidence, it would have been improper for the Commissioners to prosecute Mr Hammond. I accept these submissions of Mr Ewart. It seems to me to be fanciful to suggest that the guilty plea was evidence of Mr Hammond's involvement which the Commissioners relied on to justify the assessments. There was no evidence before the Tribunal to the effect that the Commissioners did in fact rely on the guilty plea to justify making the assessments. No doubt, of course, the guilty plea made the Commissioners' case on involvement even stronger than it already was, but that is not material. If the Commissioners had sought to justify deferring the assessments until Mr Hammond pleaded guilty or was found guilty, it seems to me that, on the facts of this case, they would have been acting wholly unreasonably. The reality, however, is that the assessments were delayed not because the Commissioners had any doubts about the fact of Mr Hammond’s involvement. They had doubts as to the extent of his involvement, and, above all, about the amount of VAT that had been evaded.
I turn, therefore, to the second piece of evidence relied on by the Chairman. There is no doubt that, in making the assessments, the Commissioners did rely on the agreement reached at the meeting of 30 January 1997 as evidence of the fact that the mark-up was 150%. That is clear from the face of the Commissioners’ letter dated 16 April 1997. Mr Ewart submits that it was perverse of the Commissioners to treat this as evidence of any fact, let alone a fact which justified making the assessments. He argues that the figure of 150% was merely a proposal to settle the dispute between Mr Foster and the Commissioners, and had no relevance to Mr Hammond. There were material differences between the trading activities of the 2 defendants. In particular, Pegasus sold parrots which had a lower mark-up than birds, whereas E & J only sold birds. That is why Mr Kerr based his settlement offer on Mr Booker's figure of 157%, which was the trade mark-up for birds, rather than the lower figure of 104%, which was Mr Booker's average trade mark-up for both birds and parrots.
These are powerful arguments, but I cannot accept them. As the Chairman pointed out, by the 30 January 1997, the Commissioners were faced with widely varying opinions about the mark-up. I have earlier referred to the calculations of both Mr Booker and Mr Bakewell. Mr Bakewell's figures for Pegasus ranged from 125% to 450%. Mark-up was the aspect of assessment which was causing the Commissioners acute difficulties. These problems had been created by the fraudulent suppression by Pegasus of material from the Commissioners. The enormous range of possible mark-ups carried with them a similarly enormous range of possible figures for VAT, and the sums were very large. In those circumstances, it was entirely responsible of the Commissioners to exercise caution. They could not simply pluck figures out of the air.
It is true that there were differences between the businesses of Pegasus and E & J, and that the mark-up agreed between Mr Kerr and the Commissioners at the meeting did not even bind Mr Foster, let alone Mr Hammond. But the fact is that Mr Kerr, who was an accountant representing the interests of Mr Foster did agree that 150% was a reasonable uplift for E & J. Furthermore, although there were differences between the 2 businesses, there were also many similarities. One of the problems facing the Commissioners was that they dealt with the same suppliers, and it was very difficult to disentangle the affairs of the 2 companies from each other. The Commissioners did not know what the mark-up was. The limited material available to them could be used to support a wide range of figures. The case was, therefore, closer to Classicmoor than to Lazard Brothers . In these circumstances, I consider that the Commissioners were entitled to take the view that the fact that the accountant acting for Mr Foster was prepared to agree a mark-up of 150% in the case of E & J was an important fresh piece of evidence relevant to the assessments against both E & J and Pegasus. It was a matter for their judgment whether the differences between the 2 businesses required a different overall figure for mark-up to be used in the 2 cases. In my judgment, the Commissioners were not wholly unreasonable in regarding the agreement by Mr Kerr to the uplift figure of 150% as evidence that the appropriate figure was indeed 150%, nor were they perverse in not using this figure for mark-up as the basis for their assessments before 16 April 1996. It was not communicated to the Commissioners until the meeting on 30 January 1997.
It follows that I agree with the Chairman that the Commissioners were not perverse in failing to make the assessments before the start of the 1 year period. In fact, the question is not whether I agree with the conclusion of the Chairman, but whether in reaching her conclusion, she erred in law. Although I do not agree with all her reasoning, I am satisfied that, in so far as it is based on the agreement of 30 January 1997, the conclusion that she reached was one which she was entitled to reach and that she committed no error of law in doing so. She took into account the fact that it was common for the Commissioners to take into account mark-ups achieved by other traders (in the same or a similar line of business) in order to arrive at an assessment made to best judgment. No challenge has been made to the truth of this observation. In my view, she was entitled to take this into account in reaching her conclusion on the mark-up point.
As we have seen, she rejected the submission advanced on behalf of the Commissioners that any one fact relied on by them to justify the assessments was sufficient to satisfy the test in section 73(6)(b). She did not explain why she took this course, and in my view she was wrong to do so. I refer to the 4th principle stated earlier in this judgment. Provided that the last piece of evidence of sufficient weight to justify the assessments was acquired within the 1 year period, the test is satisfied. I did not understand this proposition to be controversial. It is quite clear that the Chairman decided (rightly) that evidence of the 150% mark-up of sufficient weight in the opinion of the Commissioners to justify the assessments was not received until 30 January 1997. This was the last piece of relevant evidence to be acquired by the Commissioners. The fact that this piece of evidence was not known by the Commissioners until late in the 1 year period, and that, for the reasons that I have given, they were not perverse in not using the 150% figure as the basis for their assessments before 16 April 1996, was a sufficient reason for deciding the time limits point in favour of the Commissioners. It is quite clear, therefore, that if the Chairman had proceeded on the basis that one fact was sufficient, and had not regarded the guilty plea as a relevant fact, she would still have decided the preliminary issue as she did, because she would have found in favour of the Commissioners on the 150% mark-up point.
Mr Ewart also criticises the way the Chairman approached the question of constructive knowledge. I think that there is substance in his submission that she may have misunderstood what is meant by constructive knowledge. She referred to constructive knowledge in 2 passages. The first concerns the Commissioners' knowledge of Mr Hammond's involvement in the purchase and sale of birds from overseas. The second concerns the Commissioners' knowledge of the nature and extent of Pegasus' purchases from its suppliers. But none of this can avail Pegasus in relation to the 150% mark-up point. There is no doubt that the last piece of evidence of the 150% mark-up acquired by the Commissioners was the acceptance of that figure by Mr Kerr on 30 January 1997. The Commissioners could not have had knowledge of that figure, whether actual or constructive, before that date. Accordingly, if the Chairman did misunderstand the meaning of constructive knowledge, her misunderstanding was immaterial.
In the result, although Mr Ewart has exposed some flaws in the reasoning of the Tribunal, I am satisfied that it would be quite wrong to allow this appeal. A central part of the Chairman's reasoning concerned the 150% uplift point, and I reject the criticisms made of that part of the decision. Her conclusion on that point alone was sufficient to determine the time limit point in favour of the Commissioners. In these circumstances, this is a case in which I should dismiss the appeal in so far as it is based on the time limits point, since I am satisfied that the flaws in the Chairman's reasoning had no effect on her decision in relation to the 150% mark-up, and that accordingly, they did not lead her to a wrong conclusion on the time limits point.