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United Kingdom VAT & Duties Tribunals (Customs) Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> United Kingdom VAT & Duties Tribunals (Customs) Decisions >> Padley Ltd & Anor v Revenue & Customs [2009] UKVAT(Customs) C00270 (25 February 2009)
URL: http://www.bailii.org/uk/cases/UKVAT/Customs/2009/C00270.html
Cite as: [2009] UKVAT(Customs) C00270, [2009] UKVAT(Customs) C270
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Padley Ltd and Agroeuropa Spa v Revenue & Customs [2009] UKVAT(Customs) C00270 (25 February 2009)
    C00270
    COSTS – Application for indemnity costs – Failure to disclose notes – Classification of uncooked seasoned meat – Samples sent for analysis – Reports produced without notes – Appellants told by Customs that no notes – Analyst produced notes during cross-examination – Finding that conduct of Customs unreasonable to a high degree – Direction for indemnity costs

    LONDON TRIBUNAL CENTRE

    PADLEY LTD (LON/04/7053) Appellant
    • and –

    THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

    AGROEUROPA SPA (LON/05/7046) Appellant
    • and –

    THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

    Tribunal: THEODORE WALLACE (Chairman)

    MRS SHAHWAR SADEQUE, BSc, MPhil

    Given in London on 23 February 2009 under Rule 29

    © CROWN COPYRIGHT 2009

     
    DECISION AS TO COSTS
  1. This decision concerns applications by the Appellants for indemnity costs following the decision on 27 March 2008 allowing their appeals against post-clearance demands for customs duty in respect of the importation of frozen uncooked peppered turkey from Brazil and Chile. The decision number in the appeal was C255.

  2. At the request of the Appellants and also Customs we considered the application on the basis of written submissions although this proved much more difficult and time consuming than an oral hearing.

  3. Customs do not oppose an order for costs on the standard basis but resist the application for indemnity costs.

  4. The consignments giving rise to the demands were entered under Commodity Code 1602. Samples were taken by Customs and sent for analysis at the laboratory of CCFRA Technology Ltd ("CCFRA"), Chipping Campden, Gloucestershire. On the basis of analysis reports by CCFRA, Customs reclassified the consignments under 0207 involving increased duty and issued the demands

  5. The appeals raised a series of issues in respect of the tests and analysis by CCFRA. We concluded that there were material irregularities in the examination of the samples, that but for the irregularities the outcome of the verifications might have been different and that there was therefore no valid verification within Article 71.2 of the Community Customs Code so that the declarations on entry stood.

  6. The main ground on which both Appellants relied in applying for indemnity costs arose out of the production by Louise Gearey, the main witness for Customs, during cross-examination on the fourth day of the hearing of files which she had collected from her office overnight and which had not been listed by Customs. This was covered in paragraphs 13, 68 to 73 and 82 and 83 of Decision C 255.

  7. The Tribunal had observed on the third morning of the hearing that CCFRA must have files relating to the tests. At the outset of her evidence that afternoon, Miss Gearey said that she did keep notes or files including the booking-in forms but did not have those with her. The reports had been prepared from the notes and her witness statements were prepared from the reports. It was in the middle of the following morning that she produced the files which up to that point had not been seen by counsel or solicitors on either side; those included the Analysis Request Forms (the booking-in forms) and Visual Assessment Sheets.

  8. On 7 December 2007 the Tribunal directed,

    9. "That by 20 December 2007 the Respondents produce to each appellant copies of the visual inspection records and any other material relating to the reports by CCFRA in respect of the consignments giving rise to the post-clearance assessments under appeal."

    These were duly produced on 20 December.

  9. On 26 August 2005 Ince & Co, Padley's solicitors, had served on Customs a request for further information and disclosure extending to 12 paragraphs on six pages. The request in paragraph 8 read as follows,

    10. "8. Please provide copies of any notes taken either by CCFRA or HMCE, relevant to the issues raised in this appeal, from January 2002 to date, including but not limited to notes taken by the 'classification team' at Southend."

    The response by Michael Zeffman, senior lawyer, Customs and International Advisory Division dated 9 December 2005 was as follows,

    "8. There are no notes taken by CCFRA or HMCE relevant to the issues raised in this appeal at the relevant time."
  10. Customs produced an e-mail from Mr Palmer to Miss Gearey on 7 November 2005 which included this,

    11. "You will see from paragraph 8 of Ince's fax that they are asking for copies of any notes taken by CCFRA or HMRC – can you also confirm whether or not you have any such notes as part of your statement – if the answer is yes then please add them to your list of exhibits."

    In an e-mail to Mr Zeffman on 18 November 2005, Mr Palmer said,

    "I have requested a copy of any notes from Louise Gearey. There are no notes held by HMRC …
    "You have the amended version of Louise's statement – I am waiting to hear from her regarding whether there are any notes held by CCFRA.
    Please let me know if you require any further clarification at this stage."
  11. On 24 April 2006 Ince & Co again wrote to Mr Zeffman referring to his letter of 9 December 2005 asking for any notes taken by CCFRA relevant to the issues pleaded. Mr Zeffman's reply on 5 July 2006 said that he had asked all personnel involved in the appeal to check their records for further documents that should now be disclosed. This letter was copied by Mr Zeffman to Mr Palmer and Miss Gearey.

  12. In a letter to Ince & Co on 28 December 2007 after the first hearings, Mr Zeffman wrote that he had sought instructions from the Review Officer, Mr Palmer, and that Mr Palmer had specifically asked Miss Gearey to check the files at CCFRA and "she informed him that no such notes were held at CCFRA." In a further letter dated 7 January 2008 Mr Zeffman wrote,

    13. "In fairness to Miss Gearey I should explain that Steve Palmer asked her to exhibit any such notes in her witness statement [later served and dated 30 November 2005]. Miss Gearey did not exhibit any such notes and Steve Palmer and I therefore assumed that no such notes were held at CCFRA."
  13. At the hearing on 28 January 2008, there was a formal transcript. At page 27 Miss Shaw asked Miss Gearey about the Analysis Request Form described at paragraph 13 of the decision which recorded that the sample had been taken out three times, the first being for a visit by Steve Palmer. In response to the Question, "When did you show those documents to Mr Palmer?" Miss Gearey said, "I cannot remember exactly." Then,

    14. "Q. Can you give us an approximate? Did you show him those documents, for example, at his visit?
    A. It probably would have been on one of his visits or I might have sent a copy through the post. I do not know."

    Later,

    "Q. But you sent these documents to Mr Palmer or Mr Palmer had seen them before the hearing commenced?
    A. Yes, and these if they come out obviously other things are written on there.
    Q. Did Mr Zeffman ever ask you for copies of those documents?
    A. No.
    Q. Were you ever asked to append those documents to your witness statement?
    A. No."
  14. Later Miss Shaw asked,

    15. "Q. When you wrote those witness statements did you go back and look at the visual assessment form and the analysis request form for each of Padley and AgroEuropa?
    A. Well, the report and everything are all together so obviously I cannot just memorise so I would look at the files."
  15. During re-examination by Mr Thomas as to the first Analysis Request Form Miss Gearey gave the following answers,

    16. "Q. And the first one, it says, 'Sample taken out for 24 hours for Steve Palmer to visit'. If I said that Mr Palmer instructs me that he did not see the Padley sample before my visit, does that accord with your recollection?
    A. No. I thought he might have done.
    Q. Right. But at any rate we do not have any dates for that?
    A. No."

    Although Mr Palmer was present at the appeal hearing he was not called as a witness.

    Submissions
  16. Miss Shaw submitted that Customs' conduct in relation to the disclosure of documents on the third day of the hearing merited the label "disgraceful", citing Waites v Stapleton Construction & Commercial Services Ltd and UNUM Ltd [1997] 2 Lloyd's Rep 112. Not only were the documents of critical importance to the issue in dispute but their existence should have been obvious to the solicitor in charge of the case. They should have been disclosed in Customs' List of Documents or appended to Miss Gearey's witness statement. This was exacerbated by the response on 9 December 2005 to the request on 26 August for any relevant notes; the statement that there were "no notes taken by CCFRA" was simply untrue. Customs had persisted in this when replying in July 2006 to a subsequent request for disclosure. The explanation by Mr Zeffman in his letter of 7 January 2008 was inadequate not least because it failed to deal with his assurance in the letter of July 2006 that he had asked all persons involved to check for relevant records.

  17. She submitted that Customs' persistence with the appeal when the deficiency of the expert evidence should have been obvious was wholly unreasonable. She pointed to the differences between the CCFRA Report and Miss Gearey's witness statement. The late-disclosed documents seriously undermined her credibility and showed that her conclusions were not necessarily shared by her colleagues. The flaws in her evidence took the case out of the norm. The late documents showed that she had "cherry picked" from the test results. If the deficiencies in her evidence had been picked up earlier the appeal would in all probability have been conceded, thus avoiding the expense of litigation. The late disclosure of documents had materially added to the duration and costs of the hearing.

  18. Miss Shaw submitted in addition that it was unreasonable for Customs to persist with the appeal when the duplicate sample was lost in a freezer breakdown whilst in their custody. In other cases Customs had withdrawn their decisions following the loss of the duplicate sample.

  19. Wragg & Co, for AgroEuropa, submitted that the conduct of Customs throughout the appeal process was wholly unreasonable. Due to a freezer breakdown in 2004 Customs were unable to provide any duplicate samples for testing.

  20. They submitted that the contemporary documents held by CCFRA relating to the tests which were only revealed during the hearing went to the very heart of the appeal and contained information which AgroEuropa had sought even before the appeal was lodged. Details had first been requested on 1 April 2004 and again on 18 May 2004. It was only in Miss Gearey's statement served in December 2005 that Customs had asserted that a surface taste test had been carried out. The late production of documents had led to a significant lengthening of the hearing.

  21. They also submitted that the circumstances took the case out of the norm as being a test case, citing Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 at [31].

  22. Mr Thomas served a skeleton argument in response submitting that, although conduct falling short of deserving normal condemnation could be so unreasonable as to justify indemnity costs, it would need to be unreasonable to a high degree not merely wrong or misguided in hindsight, see Kiam v MGN Ltd (No.2) [2002] EWCA Civ 66 at [12].

  23. He submitted that there were issues in the appeals as to the interpretation of the legal provisions, the procedures adopted for arriving at the decisions and the actual merits of the decisions. The results of the analyses samples were reported to the Commissioners by CCFRA and both they and the Commissioners had acted in good faith. All the issues were proper issues to bring to the Tribunal and needed to be determined not only for the purpose of those appeals but for other taxpayers. The stance of the Commissioners on some issues had been upheld by the Tribunal; where the Tribunal had rejected the stance of the Commissioners, that stance had still been responsible and legitimate. The Commissioners were duty bound to secure the correct amount of duty. There was no formal mechanism for test cases but both Appellants had wanted their cases to be the first decided.

  24. The Commissioners considered that the late documents supported their case and had relied on them in closing; even if they had been aware of them earlier they would have viewed them in the same light.

  25. Mr Thomas accepted that the documents disclosed during the hearing were of central importance to the issues and should have been disclosed earlier. While it was accepted that was completely unsatisfactory, it was not disgraceful. Following the request for disclosure by Padley on 26 August 2005 the Commissioners made enquiry of the relevant personnel both at CCFRA and internally as to the existence of any further relevant documents; the Commissioners were informed by Mr Palmer that he had no further documents : that was true. Miss Gearey was asked explicitly in an e-mail from Mr Palmer to annex to her statement all of the relevant notes taken. The Commissioners had no reason to believe that she had not done what she was asked. When the Commissioners made the statement that there were no notes to be disclosed, they believed that to be true on the basis that the exhibits to Miss Gearey's statement contained everything that CCFRA held. In July 2006 the Commissioners had asked Mr Palmer and Miss Gearey to check their records for further documents that should now be disclosed. The Commissioners had responded to the best of their knowledge at the time to the request that was made.

  26. He submitted that it was wrong, unfair and unrealistic to suggest that the departures in Miss Gearey's statement from the Reports reflected the use of undisclosed documents when compiling the statement rather than Miss Gearey's own knowledge.

  27. As to AgroEuropa's submissions, Mr Thomas submitted that although they took samples from two consignments they had produced no analysis from either. The taking of a duplicate sample was not a legal requirement; the freezer breakdown was unfortunate but not blameworthy.

  28. AgroEuropa had specifically resisted an application by the Commissioners that their appeals on classification be stood over pending a test case and had specifically asked at a directions hearing on 21 October 2005 to be a party to Padley's appeal.

  29. In reply, Miss Shaw accepted that Customs did not act in bad faith in making the decision. She submitted however that their conduct in pursuing their defence of the appeal was unreasonable in all the circumstances. If they had scrutinised the documents produced during the hearing, they would have challenged the conclusions in CCFRA's report and questioned the correctness of their own decision. It could not seriously be suggested that the documents were supportive of their case. Their shortcomings should not be excused simply because the appeals were regarded as lead cases.

  30. She submitted that it was regrettable that neither Mr Zeffman nor Mr Palmer have served witness statements to explain the failure to disclose the documents. There had been no opportunity to cross-examine either of them. There was no evidence from Mr Palmer as to the instructions which he gave to Miss Gearey. Miss Gearey's evidence was that Mr Palmer had at least seen the documents before the hearing, that Mr Zeffman never asked for them and that she was never asked to append them to her witness statement.

    31. Conclusions
  31. The basic principles to be applied in relation to an application for indemnity costs appear from the judgment of Lord Woolf LJ in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879. At [30] Lord Woolf cited Simon Brown LJ in Kiam v MGN Ltd (No.2) [2002] 1 WLR 2810 where he said at [12],

    32. "… Conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs … To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this conduct certainly does not mean merely wrong or misguided hindsight. An indemnity costs order made under Part 44 … does, I think, carry at least some stigma. It is of its nature penal rather than exhortatory."

    At [32] Lord Woolf said that there is an infinite variety of situations which justify an indemnity order. He said,

    "This court can do no more than draw attention to the width of discretion of the trial judge and re-emphasise … that, before an indemnity order can be made, there must be some conduct or some circumstance which takes the case out of the norm. That is the critical requirement."
  32. We do not consider that the continuing opposition to the appeals in spite of the loss of the duplicate samples through freezer breakdown was so unreasonable as to justify an indemnity costs order. There was no legal obligation under the Code to provide a duplicate sample. Although regrettable there was nothing to suggest that the breakdowns were anything but accidental.

  33. Nor do we consider that the fact that the cases were test cases is relevant. They were important for both Appellants so that they were test cases for them as well as for Customs.

  34. Again, we do not consider the continued resistance by Customs to the appeals after the late disclosures was so unreasonable as to justify indemnity costs. There were other issues including the effect of the irregularities in the verifications on which there had been no previous decision.

  35. The failure to disclose or produce the contemporary notes and documents relating to the analysis is quite another matter. Mr Thomas accepted that these were of central importance. Neither Appellant suggested that the non-disclosure was deliberate. That does not however mean that it was not unreasonable.

  36. We are wholly unable to understand why it was not obvious to Customs' legal team that there must have been notes and material on which the CCFRA reports and Miss Gearey's witness statement were based. There were significant passages in Miss Gearey's witness statement which were not derived from the Report. As an example we instance the passage at page 83 of her statement,

    37. "The liquid present and the inside of the package in this instance was not found to contain significant amounts of pepper."

    The Report contained no mention whatsoever of the amount of liquid in the package or indeed of liquid. It is inconceivable that Miss Gearey could have remembered this type of detail when making her statement a year and a half later without the benefit of any notes. Indeed if no notes had been taken that would by itself have raised grave doubts as to the analysis exercise. The answer given by Miss Gearey during cross-examination at paragraph 14 above that she could not just memorise was clearly correct.

  37. We are satisfied that the sample was taken out for Mr Palmer to see before the visit by the legal team and that Mr Thomas's instructions referred to at paragraph 15 cannot be correct. It seems extraordinary if the paperwork was not shown to him. If Miss Gearey's evidence as to this was mistaken, Mr Palmer could have been called to give evidence.

  38. In his written submissions (see paragraph 25 above) Mr Thomas appeared to equate the Commissioners with the Solicitor's Office and to distance the Respondents from Mr Palmer as well as from Miss Gearey. To the extent that Mr Zeffman relied on Mr Palmer, we do not regard that as a material factor. Mr Palmer was treated by Mr Zeffman as his client. We regard the assumption recorded in his letter of 7 January 2008 as totally unjustified. Customs knew that CCFRA were varying out a large number of analyses on their behalf. Mr Thomas provided no explanation as to how it would have been possible for Miss Gearey to remember the differences between analyses without notes. We conclude that this was because there was no credible explanation to be given.

  39. We ask ourselves whether the conduct of Customs in failing to disclose the notes before the hearing was unreasonable to a high degree. The definition of "unreasonable" in the New S.O.E.D (1993) is,

    40. "1. Not endowed with reason; irrational.
    2. Not based on or acting in accordance with reason or good sense.
    3 Being beyond what is reasonable or equitable, excessive."

    We consider that the response recorded at paragraph 9 above to the request by Ince & Co based on the assumption that no such notes were held was not based on reason or good sense. It was the more serious since it was a considered reply after a delay of over three months. Indeed even if the Appellants had not asked for the notes these were clearly of central importance. If Customs had been told by CCFRA that they had no notes, we would at the least have expected them to ask how this could be.

  40. The late disclosure undoubtedly added substantially to the length of the hearing and therefore the costs incurred by the Appellants.

  41. While we do not consider that the conduct of Customs was deserving of moral condemnation, we consider that it was unreasonable to a high degree see Simon Brown LJ in Kiam at [12].

  42. There was no suggestion by Mr Thomas in his written submissions that the position of the Appellants should be distinguished.

  43. We direct that the Respondents pay the Appellants' costs of and incidental to and consequent on the appeals to be assessed by a Taxing Master of the Supreme Court on the indemnity basis.

    44. THEODORE WALLACE
    CHAIRMAN
    RELEASED: 25 February 2009

    LON/04/7053

    LON/05/7046

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