United Kingdom VAT & Duties Tribunals (Excise) Decisions

Hardy & Anor v Customs and Excise [2004] UKVAT(Excise) E00805 (21 October 2004)

E00805

PROCEDURE — refusal by Commissioners to comply with a direction of the tribunal — "unless" direction made — repeated refusal to comply — appeal allowed and penalty imposed on Commissioners

MANCHESTER TRIBUNAL CENTRE

PETER STANLEY HARDY and KEVIN JOHN HARDY Appellants

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Colin Bishopp (Chairman)

Sitting in private in Birmingham on 30 September 2004

Andrew Young of counsel, instructed by Vincent Curley & Co, for the appellant

James Puzey of counsel, instructed by the solicitor for Customs and Excise, for the respondents

© CROWN COPYRIGHT 2004


 


DIRECTION
1. On 30 September 2004 I sat to hear an application by the appellants, the background of which requires some explanation. The dispute between the parties raises a number of issues about the nature and scope of the tribunal's jurisdiction when it deals with an appeal within section 16(4) of the Finance Act 1994. It was agreed between the parties that this direction, and the reasons for it, should be made public and I so direct.
2. The appeal itself is one by the two appellants, who are brothers, against the Commissioners' refusal to restore to them a motor car and 30,000 cigarettes seized from them when they arrived at Dover from France as long ago as 12 November 2000. So far as I am aware neither appellant caused the Commissioners to take condemnation proceedings, but each asked for restoration of his goods and Mr Kevin Hardy, who was its owner, for restoration of the car. Those requests were refused and the refusal led to a review, the result of which was notified to solicitors then acting for two appellants by letter dated 12 January 2001. It was written by a review officer, Diane Florence.
3. Mr Kevin Hardy, though not his brother, made a complaint about the manner in which he had been interviewed by a Customs officer at Dover. That complaint led to an inquiry by the Commissioners which was concluded in February 2001 (and therefore after Mrs Florence carried out her review), and its outcome was communicated to Mr Kevin Hardy at that time. I understand too that his complaint was rejected, but I have not been made aware of any further detail. I understand that Mr Hardy has not taken the matter further, for example by way of an approach to the Adjudicator.
4. Notice of appeal against the review decision was lodged with the tribunal on 7 February 2001. The grounds of appeal were:

"(1) We were not told we were free to leave;

(2) We were not allowed to fully answer any questions that were asked;

(3) Only parts of questions have been quoted to give a false impression;

(4) The officers told us lies, in trying to trick us about what the other party had said;

(5) At no time have we been shown what officers had written down to questions."

5. Initially the appeal proceeded in the ordinary way; the respondents filed the statement of case and their list of documents on 15 March 2001. At the same time they sought further particulars of the grounds of appeal, contending that they amounted to no more than a complaint. The application came before a chairman — not myself — who took the (I presume pragmatic) view that the essence of the appellants' challenge to the decision was clear and that requiring appellants in person — as at that time they were — to serve further particulars would achieve nothing. He accordingly dismissed the respondents' application and directed that the appeal be set down for hearing.
6. Shortly afterwards, however, a number of cases raising similar questions were listed to be heard in the High Court and, thereafter, the Court of Appeal and this appeal, in common with a great many others, was stood over. The stand-over came to an end in December 2001.
7. In January 2002 the appellants instructed their current advisers Vincent Curley & Co, who are not solicitors but who practise in the field of excise duties and appeals against customs decisions. They immediately applied for a further stand-over pending the appeal of Gora and others v Customs and Excise Commissioners which eventually found its way to the Court of Appeal and is reported at [2004] QB 93.
8. Nothing further of any consequence happened until June 2003 when the matter came again before the tribunal and directions were made enabling the appellants to serve amended grounds of appeal and the respondents an amended statement of case. It was recorded that the statements of witnesses already served by the respondents, which included those of the interviewing officers and of the review officer, had been objected to. The appellants were directed to serve a list of documents but nothing is recorded in the direction about the respondents' list of documents and any possible addition to it. It was further directed that the appeal should be set down to be heard at Manchester, not before 1 September 2003.
9. That direction was, broadly speaking, complied with (though it is not clear to me at this stage whether there was strict compliance with the time limits) and the appeal was listed to be heard on 5 December 2003. That date turned out to be inconvenient to the appellants' counsel and the case was removed from the list.
10. In the meantime, there began a train of correspondence between Vincent Curley & Co and the respondents' solicitor's office about the documents generated in consequence of Mr Kevin Hardy's complaint. A request was made for copies of all the paperwork generated by the officer to whom the complaint was made, of the reports of the two interviewing officers, and of a further report made by an unnamed senior officer. The respondents did not comply with that request and in November 2003, Vincent Curley & Co lodged an application for directions compelling the respondents to disclose the documents they had identified. They described the grounds of the application as follows:

"During the course of their unlawful activity, officers of the respondents interrogated the appellants in an improper fashion.

Officers purported to take notes of the interrogation but failed to ask the appellants to sign their records."

11. That application came before me on 16 March 2004. Both parties were represented by counsel, the appellants by Mr Andrew Young, who also appeared before me at this hearing, and the respondents by Mr Nicholas Smith. I made the following direction:

"(1) The respondents shall, by 4 pm on 16 April 2004, serve a further list of documents setting out those documents in their possession or power (other than those already disclosed ) relating to the appellants' complaints about the manner in which they were interviewed and shall set out in such list any claims they make that the documents are protected from production on grounds of privilege, public interest immunity or otherwise; and at the same time they shall provide to the appellants' representatives copies of the documents so disclosed, save for those for which protection is claimed.

(2) The respondents shall pay the appellant's costs of and occasioned by this application."

12. I did so having the taken the view that the documents might be relevant to the reliability of the interviewing officers' notes. The notes were included in the respondents' list of documents as documents on which they proposed to rely at the hearing and there was evidence from her review letter that Mrs Florence had had the notes available to her when she came to her decision. I considered that the proper forum for determining whether the documents requested by the appellants' advisers were of relevance, and if so whether they affected the reliability of the notes and of Mrs Florence's decision, was the tribunal hearing the substantive appeal. I had some concern whether the tribunal which heard the appeal would be satisfied that it was able to do proper justice if the appellants and the tribunal were precluded from seeing the documents. I concluded also, however, that it was proper to give the respondents the opportunity of claiming that any or all of the documents were protected from production for some reason, and made express provision for their doing so in the direction.
13. The respondents did not comply with that direction but instead served a notice, the first paragraph of which reads as follows:

"TAKE NOTICE that the Commissioners of Customs and Excise shall disclose only those documents which were used by the review officer and which were relevant to her decision of the 12^th January 2001, being the matter which is the subject of appeal before this Tribunal. The documents referred to in the Tribunal Direction dated 6^th April 2004 are protected from production as they fall outside of the Commissioners duty of disclosure and consequently they will not be disclosed."

14. The notice went on to rely on rule 20 of the Value Added Tax Tribunals Rules 1986 (SI 1986/590). In summary, so far as relevant to this appeal, the rule provides that each party to an appeal is to serve a list of the documents in his possession which he proposes to produce at the hearing, that in a case such as this the respondents' list shall contain a "reference to the documents relied upon in reaching a decision on a review" and that the tribunal has the power "where it appears necessary for disposing fairly of the proceedings" to direct either party to serve a list of any documents "which are or have been in his possession, custody or power relating to any question in issue in the appeal, and may at the same time or subsequently order him to make and serve an affidavit verifying such list." The notice went on to contend that the documents sought by the appellant were not relevant to the matters within the tribunal's jurisdiction — which by section 16(4) of the Finance Act 1994 is limited to determining whether Mrs Florence's decision is one at which she could reasonably have arrived — and thus, despite the direction, the Commissioners did not propose to disclose any further documents; as the notice put it, "the Commissioners have therefore fulfilled their duty of disclosure in the present matter and can confirm that no further disclosure in the terms directed will be made."
15. It is in my view pertinent that the author of the notice included in it the sentence "It follows that the Tribunal has only the authority to look at all relevant information that was taken into account by the review officer." That assertion is clearly wrong. To take a simple example, a review officer may have material in front of him which he considers irrelevant, and he leaves it out of account in reaching his decision. When, however, the matter reaches the tribunal on appeal it is for the tribunal to decide whether the information was relevant or not. If the tribunal considers the information relevant, it follows that it ought to have been taken into account by the review officer; thus the failure to take the information into account may render the decision one at which the review officer could not reasonably have arrived.
16. The appellants' advisers then issued a further application for what is conveniently referred to as an "unless direction" compelling the respondents to comply with the direction which I had made in March. Coincidentally, that application came before me on 9 August 2004. The appellants were again represented by Mr Young; on this occasion the respondents were represented by Mr Ian Speed of counsel. Mr Speed attempted to persuade me that the Commissioners' notice did all that it was necessary to do in order to comply with the earlier direction. I did not accept that submission; I was satisfied that the author of the Commissioner's notice had missed the point in two respects. First, he had misrepresented, or at least misunderstood, the Commissioners' normal duty of disclosure. Secondly, he had failed to recognise that if the tribunal makes a direction, the party required to comply with it must either do so or appeal against it. The Commissioners had not done the latter and were refusing to do the former (the claim that the Commissioners are not obliged to disclose documents as they are irrelevant is not a claim of protection from production, but a contention that the direction I had made was erroneous). I indicated to Mr Speed in those circumstances that the Commissioners' conduct was not of the kind which the tribunal would tolerate and I accordingly directed that the earlier direction should be complied with, on affidavit, by 23 August 2004 and that in default the appeal should be allowed with costs. Recognising, however, that the tribunal's jurisdiction in cases of this kind is restricted by section 16(4) of the Finance Act 1994, I also directed that if the appeal were allowed on that basis it should be on terms that the Commissioners should be required to conduct a further review upon a basis agreed between the parties or, failing agreement between the parties, determined by the tribunal.
17. The Commissioners' response was to serve, first, what purported to be an affidavit made by Mr A W Phillips, a lawyer employed in the Commissioners' solicitor's office. Although the document is headed with the word "affidavit" it is not in fact an affidavit since it complies with none of the formal requirements of an affidavit, and in particular is unsworn. Though in rather different words, Mr Phillips repeats the substance of the earlier notice and, even if in more diplomatic terms, also repeats the Commissioners' refusal to comply with the direction made in March. The purported affidavit was sent to the tribunal by fax on 24 August, that is one day out of time. What in my view is a rather lame apology for its being late appears near its end; no explanation of that lateness is offered.
18. On the same day the Commissioners filed an application that the direction made in March should be reconsidered for, broadly speaking, the reasons advanced by Mr Phillips in his purported affidavit, namely that the documents sought were irrelevant to the issues in the appeal. That application, together with the appellants' application for a direction that the appeal be allowed, came before me on 30 September when the appellants were again represented by Mr Young and the respondents on this occasion by Mr James Puzey.
19. Mr Puzey explained first that the purported affidavit had been filed out of time because the direction I had made on 9 August did not come to Mr Phillips' attention until 24 August and he complied with it, or attempted to comply with it, immediately. That in my view, is a lamentable failing since I suggested to Mr Speed on 9 August that he should telephone the solicitor's office immediately to inform them of the direction which I had indicated would be made and he undertook to do so. The written direction was in fact signed and sent to the solicitor's office on 10 August. I consider it lamentable too that the solicitor's office should put forward a document described as an affidavit which any lawyer would know was nothing of the kind.
20. There is, by contrast, some merit in Mr Puzey's argument that the request for reconsideration of the March direction was put forward in an attempt to save costs. I recognize that an appeal from this tribunal to the High Court on an interlocutory matter can be both expensive and time consuming. Of course, the moment to make such an application was not after the time for complying with the direction had expired, but promptly after the direction was made. Although the Tribunal rules do not provide specifically for the reconsideration of directions, rule 19 is, I think, in terms wide enough to permit reconsideration and I would not myself insists on fastidious compliance with a direction which, on closer examination or in the light of later developments appeared to be unnecessary or inappropriate. Mr Puzey sought to persuade me to the view that the notice served by the Commissioners in April, even if not explicitly, did invite the tribunal to reconsider the March direction and that Mr Speed, had I permitted him to do so, would have advanced such an argument in August. I have carefully considered the notice of 15 April. If there is in it a suggestion that the tribunal should reconsider the direction it is of the most oblique nature. Mr Speed did not make an application for reconsideration to me but I am willing to accept, as Mr Puzey suggested, that I deflected him from doing so by the firmness of my indication that the Commissioners could not simply disregard a direction but must appeal against it or comply with it.
21. As it is, the Commissioners have not complied with the direction made in March, and they have not complied with the direction made in August. In addition the purported compliance with the latter direction was out of time and was not made, as required, by means of affidavit. I accept Mr Puzey's word for it that Mr Phillips prepared his purported affidavit immediately the direction came to his notice but the failure of those concerned to bring the direction to Mr Phillips' notice sooner is in my view inexcusable. I made a clear "unless" order with which the Commissioners have failed to comply in several respects. Had my allowing the appeal summarily been determinative of the issues between the parties, I would have had little hesitation in adopting that course.
22. The difficulty which arises in this case is due to the nature of the tribunal's jurisdiction, restricted as it is by section 16(4) of the Finance Act 1994. For practical purposes the only power available to the tribunal if it allows an appeal is to direct that the Commissioners carry out a further review. Ordinarily that is done either by agreement, when the Commissioners have indicated that they wish to reconsider the matter in the light of, for example, recent case law; or, more commonly, after the tribunal has heard evidence and made findings of fact. Here, the Commissioners have not volunteered a further review and the tribunal has not proceeded to a hearing from which findings of fact could be made. If I allow the appeal and direct a further review, there will be no new material before the Commissioners and, as Mr Puzey candidly said, the outcome will almost inevitably be the same, that is the original decision will be confirmed for a second time.
23. I suggested to Mr Young that in those circumstances my allowing the appeal would be of limited benefit to his clients. They might win this appeal but, being faced with the same decision, they would have to launch another appeal and, I suspect would have to make another application for public funding. I suggested to him that instead, and despite the view I had formed of the Commissioners' conduct, the pragmatic solution was after all to reconsider the direction for disclosure which had been made in March, in the hope that it would be possible to identify documents which the Commissioners were willing to disclose and which would be sufficient to satisfy the appellants' desire to complete their evidence, and allow the tribunal to proceed to a hearing of this appeal. After some deliberation, however, Mr Young indicated that his instructions nevertheless were to ask for a direction allowing the appeal. His clients were willing to launch a second appeal should that be necessary.
24. It does not seem to me that in the circumstances of this case I can properly force on the appellants an outcome which they do not desire. Rule 19(4) of the Tribunal rules, even if it is not an exhaustive provision, prescribes that the tribunal may allow an appeal if one party fails to comply with a direction. It provides for no other remedy. Although elsewhere there is conferred on the tribunal the power to impose a penalty, the imposition of a penalty provides no relief to an aggrieved appellant. The direction I made in August was to the effect that if the Commissioners did not comply with the March direction the appeal should be allowed — no other possibility was identified — and I think that must now be outcome.
25. The parties have not agreed the terms upon which a further review should be carried out and in those circumstances I can do no more than direct the Commissioners to carry out a further review of the refusal to restore the appellants' property. That review is to be carried out within six weeks after the release of this direction, by an officer who has not previously been involved in the case, and the outcome of the review is to be communicated to the appellants' advisers and to the tribunal as soon as it has been completed.
26. Mr Young asked for a direction that the respondents pay the appellants' costs on the indemnity basis. Mr Puzey did not object to my making a direction for costs, but asked that it should be on the standard basis. He suggested that if I was minded to include in my direction an expression of the tribunal's disfavour, it should be in the form of a penalty.
27. I am, of course, conscious that the imposition on the Commissioners of a penalty is no more than a token since by paragraph 10(4) of Schedule 12 to the Value Added Tax Act 1994 any penalty imposed by the tribunal is recoverable as if it were VAT. Nevertheless, and although I recognise the inconvenience it has occasioned to the appellants, the essence of the conduct of which I disapprove in this case is the deliberate refusal to comply with a direction of the tribunal. For that reason I have decided that the appropriate course is to impose a penalty. I have also concluded that the Commissioners' failings are serious and merit the imposition of a penalty at the higher end of the available range; the maximum penalty I may impose is £1000. There has been a repeated refusal to comply with a direction of the tribunal. The time limit I imposed was not met; and the formal requirement of an affidavit was disregarded. All that can be said in mitigation, I think, is that Mr Phillips misunderstood what the Commissioners were required to do, but even so he failed to adopt the obvious course (short of an appeal) of making a timely application for reconsideration. Bearing in mind that by imposing a penalty I am doing no more than marking the measure of the tribunal's disapproval, I have come to the conclusion that the penalty I should impose is three quarters of the maximum, namely £750.
28. I do not think it appropriate or proportionate to award costs on the indemnity basis in addition. I therefore allow the appeal with costs, which are to be assessed on the standard basis by a tribunal chairman if the parties cannot agree them, direct a further review on the terms which I have previously set out, and impose a penalty on the Commissioners of £750.
COLIN BISHOPP CHAIRMAN Release Date: 21 October 2004

MAN/01/8026