United Kingdom VAT & Duties Tribunals (Excise) Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> United Kingdom VAT & Duties Tribunals (Excise) Decisions >> Schroeder v Revenue and Customs [2005] UKVAT(Excise) E00929 (02 December 2005)
URL: http://www.bailii.org/uk/cases/UKVAT/Excise/2005/E00929.html
Cite as: [2005] UKVAT(Excise) E929, [2005] UKVAT(Excise) E00929

[New search] [Printable RTF version] [Help]

Peter Schroeder v Revenue and Customs [2005] UKVAT(Excise) E00929 (02 December 2005)

EO0929

JURISDICTION - assessments to excise duty and value added tax notified to limited company – company appealed to the Tribunal – petition to the High Court to wind up the company on the ground of insolvency based on the debt constituted by the assessments – High Court reviewed the documentary evidence at length and decided that there was no real prospect of a successful appeal by the company to the Tribunal and made a winding up order against the company – in the same proceedings provisional liquidator of company obtained summary judgment against the Applicant (as shadow director) for damages to be assessed with an interim payment of £500,000 to be paid to the company – both winding up petition and summary judgment upheld by the Court of Appeal - company's appeal to Tribunal not proceeded with - whether Applicant now has a personal right to appeal to the Tribunal against the assessments notified to the limited company – no – application by the Respondents to strike out the Appellant's appeals – allowed – FA 1994 Ss 14, 15 and 16; VATA 1984 S 83

LONDON TRIBUNAL CENTRE

PETER SCHROEDER

Applicant

Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS

Respondents

Tribunal: DR A N BRICE (Chairman)

Sitting in London on 3 November 2005

The Appellant in person

Ian Hutton of Counsel, instructed by the Acting Solicitor of Her Majesty's Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

The applications

On 12 November 2003 Mr Peter Schroeder (Mr Schroeder) appealed against decisions on review relating to two assessments to excise duty. The first review decision was given on 19 November 2002 to Arena Corporation Limited (Arena) and related to an assessment dated 14 August 2002 for excise duty of £1,459,213. The second review decision was given on 22 November 2002 to Arena and related to an assessment dated 14 August 2002 for excise duty of £101,340. Mr Schroeder stated as his grounds of appeal that the "duty was not payable by Arena". Also on 12 November 2003 Mr Schroeder appealed against an assessment dated 14 August 2002 to value added tax of £327,135; this assessment related to the same matters as the assessments to excise duty. Again Mr Schroeder's ground of appeal was that the "duty was not payable by Arena". Both appeals were initially lodged with the Manchester Tribunal Centre and transferred to the London Tribunal Centre on 4 August 2004.

Meanwhile, on 9 December 2003 the Respondents applied for a direction that the appeal relating to the review decisions concerning excise duty should be struck out on the ground that it was Arena, and not Mr Schroeder, who had required a review of the disputed assessments and so only Arena could lodge an appeal. On 7 April 2004 the Respondents applied for a direction that the appeal relating to the value added tax assessment should be struck out on a number of grounds. These included the ground that it was Arena who had the right to appeal against the assessment and that Mr Schroeder had no such right and the ground that Arena's liability to pay the assessment had been determined by the High Court and the Court of Appeal in winding up proceedings relating to Arena and that it would be an abuse of process to re-litigate the same matter again.

The facts

A bundle of documents was produced by Mr Schroeder and another bundle was produced by the Respondents.

The following facts are relevant to these applications.

Mr Schroeder, Arena and the assessments

Mr Schroeder is a Canadian national living in Denmark. Arena was a company incorporated in the Isle of Man in March 1993; its directors belonged to a corporate services firm in the Isle of Man. At the time of the events which gave rise to the assessments Mr Schroeder was not a director but at all material times Arena was owned and controlled by him. Mr Schroeder became a director on 28 January 2003.

On 23 October 2001 and between 24 January and 11 April 2002 Arena, through Mr Schroeder, engaged in nineteen transactions involving the movement of alcoholic products from two bonded warehouses in London; one of the movements was said to be to a bonded warehouse in Italy called SERIO and the other eighteen movements were said to be to a bonded warehouse in Belgium called TIN. The Respondents formed the view that the goods had been fraudulently diverted and that irregularities had occurred on each of the movements such that excise duty points had occurred. On 14 August 2002 the Respondents issued to Arena a notice that it was jointly and severally liable with the London warehouse keeper to pay the assessments to excise duty. Later the Respondents issued to Arena the consequential assessments for value added tax. On 12 September 2002 Arena sought reviews of the excise duty assessments. In October 2002 Arena appealed to the Tribunal against the value added tax assessment and on 13 November 2002 Arena appealed to the Tribunal against the excise duty assessments. Review decisions in respect of the excise duty assessments were sent to Arena on 19 and 20 November 2002.

2002 – 2003 -the winding up petition and the summary judgment

On 3 December 2002 the Respondents presented a petition for the compulsory winding up of Arena on the ground of insolvency based on the debt constituted by the assessments. On 5 December 2002 Peter Smith J appointed a provisional liquidator of Arena. On the same day the provisional liquidator commenced proceedings in the name of Arena against Mr Schroeder (as the person who at all times had owned and controlled Arena) and applied for wide ranging freezing orders and other injunctions against him.

On 15 May 2003 Mr Alan Boyle, QC, sitting as a Deputy Judge in the Chancery Division, gave judgment in The Arena Corporation Limited v Peter Schroeder [2003] EWHC 1089 (Ch). Mr Boyle was hearing an application to continue freezing orders made against Mr Schroeder, who was represented by leading and junior counsel. Mr Boyle decided that the injunctive relief should not be continued because of material non-disclosure by the Respondents; however he continued the relief pending an appeal to the Court of Appeal. In his judgment Mr Boyle considered whether there was an arguable case and decided that there was strong prima facie evidence that the consignments did not arrive at their destinations and reached the view that the Respondents had demonstrated the existence of a good arguable case "that Mr Schroeder did indeed commit the alleged fraud".

On 23 September 2003 the Tribunal held a hearing for directions in Arena's appeals and directed that Arena should serve further and better particulars of its grounds of appeal and that the Respondents should serve their statement of case.

On 14 to 16 October and 28 November 2003 Lawrence Collins J heard the contested petition for the compulsory winding up of Arena on the ground of insolvency based on the debt constituted by the assessments. He also heard an application for summary judgment on a claim made by the provisional liquidator in the name of Arena against Mr Schroeder. Mr Schroeder was again represented by leading and junior counsel.

On 12 December 2003 Lawrence Collins J gave judgment (In the Matter of the Arena Corporation Limited and Others [2003] EWCH 3032 (Ch). At paragraphs 49 to 54 he considered the general principle that, where there is a genuine dispute about a debt, the court would not normally make a winding up order. At paragraph 52 he recorded that the Respondents accepted that, if Arena could show that it had a real prospect of success in its appeal to the Tribunal, then the winding-up petition could be adjourned until resolution of the appeal; however the Respondents went on to argue that Arena could not show a genuine dispute on the facts or the law and so should be wound up. The judge examined in detail the evidence before him and the arguments of both the Respondents and Arena about whether Arena had a real prospect of success in its appeals to the Tribunal. He dealt separately with the provisional liquidator's claim for summary judgment against Mr Schroeder. The legal basis of that claim was that Mr Schroeder had duties to Arena and, in causing Arena to engage in the activities which made Arena liable to the Respondents in respect of the excise duty and the value added tax, which Arena could not pay, Mr Schroeder had not acted in the interests of Arena.

In giving his conclusions Lawrence Collins J said (at paragraphs 139 to 148) that the evidence before him led him to conclude that the consignments had not arrived in Belgium. He also found (at paragraph 161) that the only credible picture was that Arena had been involved in the diversion of the consignments. He concluded that there was no real prospect of a successful appeal before the Tribunal. He therefore made a winding up order against Arena and granted summary judgment against Mr Schroeder (for being complicit in the diversion fraud) for damages to be assessed and ordered him to make an interim payment of £500,000 to Arena.

2004 – the Court of Appeal

Both Arena and Mr Schroeder appealed to the Court of Appeal from the judgment of Lawrence Collins J. There were three grounds of appeal. First, that the excise duty regulation was invalid; secondly that the assessments were not justified because either there was no excise duty point or, if there were, it was not caused by Arena; and thirdly because the judge had been wrong to conclude that there was no real prospect of a successful appeal to the Tribunal. Before the Court of Appeal Mr Schroeder was represented by leading and junior counsel.

On 25 March 2004 the Court of Appeal gave judgment (Re: The Arena Corporation Limited and Others [2004] EWCA Civ 371). The judgment considered whether Arena's appeal to the Tribunal had a real prospect of success. The evidence before Lawrence Collins J and his findings were reviewed at length. Paragraph 76 of the judgment referred to the argument for Arena that the judge "failed to consider the evidence of Belgium Customs that the individuals behind TIN were known criminals." The judgment went on to consider this and other factors and concluded that there was no real prospect of Arena and Mr Schroeder establishing to the satisfaction of the Tribunal either that the relevant consignments did arrive at TIN or that Arena was not complicit in their non-arrival. Accordingly, the Court of Appeal decided that the order to wind up Arena had been rightly made. The judgment recorded that it had not been suggested that the summary judgment granted in the claim made by Arena against Mr Schroeder was not justified and no complaint had been made about the order for an interim payment. Accordingly, the appeals of both Arena and Mr Schroeder were dismissed.

On 14 July 2004 the Appeal Committee of the House of Lords refused leave to appeal. Accordingly, Arena has now been liquidated and Mr Schroeder has ceased to be its director. The summary judgment against Mr Schroeder was enforced in Denmark where he was made bankrupt.

The appeals by Arena to the Tribunal had become the responsibility of the provisional liquidator on her appointment. It appears that at some stage the provisional liquidator allowed Mr Schroeder to pursue Arena's appeals on condition that he provided security for adverse costs in the sum of £50,000. That security was later withdrawn after which the authority to pursue Arena's appeals reverted to the provisional liquidator. It appears that the provisional liquidator later withdrew Arena's appeals.

The arguments

For the Respondents Dr Hutton argued that, as far as the excise duty assessments were concerned, Mr Schroeder had not requested a review of the decisions to assess and so did not have the right to appeal to the Tribunal. However, even if he had requested a review, he had had no right to request it and so the review would have been a nullity and again there was no right to appeal to the Tribunal. As far as the value added tax assessment was concerned, Dr Hutton argued that Mr Schroeder had no liability to pay the tax but only a liability to pay damages to Arena because of his complicity in the diversion. From that it followed that he did not have a sufficient interest in the value added tax assessment to give him a right of appeal to the Tribunal. In support of these arguments Dr Hutton relied upon the Decision of the Tribunal in Harish Bhanderi v The Commissioners of Customs and Excise (2004) Tribunal Decision No E00814. Dr Hutton argued, in the alternative, that the liability of Arena to pay the assessments had been litigated in the High Court and the Court of Appeal and that it would be an abuse of process for the same issue to be re-litigated before the Tribunal.

Mr Schroeder claimed that, as he was the person most affected by the assessments, he had the right to challenge them under the Finance Act 1994. He had been sued by the provisional liquidator and had been made bankrupt because of the assessments. He distinguished the decision in Bhanderi where the applicant had not been made bankrupt and where the applicant was a director; he had been made bankrupt and he was not appealing as a director.

Turning to the previous litigation Mr Schroeder argued that the assessments should not have been made on Arena as the fraud had taken place in Belgium and he was not a party to it. He argued that the Respondents had kept from Lawrence Collins J information that the person operating the bonded warehouse in Belgium had been prosecuted (but not convicted) twice for alcohol fraud. It was Mr Schroeder's contention that, if that information had been made available, then the judge would have given more weight to the argument that the bonded warehouse in Belgium had been involved in the fraud and that the goods had been delivered to Belgium. The judgments of Lawrence Collins J and the Court of Appeal had been given on the facts and evidence before them but they were not told all the facts and their judgments had therefore been made without full and frank disclosure. If they had been told all the facts then Arena might not have been wound up and there might not have been a summary judgment against him. He wanted a hearing before the Tribunal in order to demonstrate that neither he nor Arena had been involved in fraud and that the fraud had been masterminded in Belgium. Also, in none of the previous hearings had the evidence been tested orally and he wanted a fair hearing and the opportunity to cross-examine witnesses to which, he argued, he was entitled under Article 6 of the Convention in the Schedule to the Human Rights Act 1998.

Reasons for directions

The arguments of the parties raised the following questions:

(1) does Mr Schroeder have the right to appeal to the Tribunal against the assessments to excise duty?

(2) does Mr Schroeder have the right to appeal to the Tribunal against the assessment to value added tax?

(3) has the liability to pay the assessments been finally determined by the Court of Appeal so that it would be an abuse of process for the same matters to be re-litigated before the Tribunal?

In relation to the first two questions it is relevant to record that the Tribunal is a statutory Tribunal and, unlike other courts, does not have an inherent jurisdiction. The Tribunal may only exercise jurisdiction over matters which are specifically mentioned in legislation as being within the jurisdiction of the Tribunal; the Tribunal cannot assume a jurisdiction that it has not been given in legislation. That is why an examination of the relevant legislation is necessary to determine whether any person has the right to appeal to the Tribunal.

(1) - The excise duty assessments

The right of appeal against an assessment to excise duty is contained in sections 14 to 16 of the Finance Act 1994. Section 14 applies to a number of stated decisions including (at section 14(1)(b)) a decision that a person is liable to any duty of excise. Section 14(2)(a) provides that: "any person who is a person whose liability to pay any relevant duty is determined by, results from or is or will be affected by any decision" to which the section applies may require Customs and Excise to review that decision. Section 15 provides that where Customs and Excise are required to review a decision they shall do so. Section 15(2)(a) provides that if Customs and Excise do not give a determination on review within forty-five days then they are assumed to have confirmed the decision. Section 16 provides that an appeal lies to the Tribunal with respect to a decision on review under section 15 and section 16(2) provides that an appeal under the section shall not be entertained unless the appellant was the person who required the review in question.

The first matter for consideration, therefore, is whether Mr Schroeder is a person "whose liability to pay any relevant duty is determined by, results from or is or will be affected by" the decision to assess Arena to excise duty within the meaning of section 14(2)(a). In my view the answer to this question must be no. Mr Schroeder has never had, and still does not have, any liability to pay the excise duty. He had, and still has, no liability to pay anything to the Respondents. He did have a liability to pay damages to Arena because he had duties to Arena and did not act in the best interests of Arena. But that is not the same as saying that he had a liability to pay the excise duty. As Mr Schroeder has no liability to pay, such liability could not be "determined by, result from or be affected by" the decisions to assess Arena to excise duty.

The second matter for consideration is whether Mr Schroeder was the person who required the review. Section 16(2) of the Finance Act 1994 provides that an appeal shall not be entertained unless the appellant is the person who required the review in question. At the hearing of the applications on 3 November 2005 there was a dispute about whether Mr Schroeder had required a review of the assessments relating to excise duty; the Respondents contended that he had not but Mr Schroeder thought that he had. Accordingly, when the hearing of the applications had concluded I directed that, if Mr Schroeder had any documentary evidence to support his argument that he personally had asked for a review of the decision of the Respondents to make an assessment on Arena for excise duty, then he should send copies of such documentary evidence to the Tribunal and to the Respondents within fourteen days and that the Respondents should send copies of their response within fourteen days of receiving any such documentary evidence.

Mr Schroeder wrote on 9 November 2005 and sent a number of documents. Representatives of Mr Schroeder (who had not represented him at the hearing) wrote on 17 November 2005 and sent more documents. Mr Schroeder sent some further documents on 21 November 2005. The Respondents sent their comments on 28 November 2005. From the evidence now before me I find that Mr Schroeder did not personally ask for a review of the assessments relating to excise duty.

It is also the fact that the review decisions Mr Schroeder appealed against had been required by Arena and not him. However, in my view even if Mr Schroeder had required a review, any purported review would be a nullity because it had not been required by a person with the statutory right to require a review. Section 16(2) of the Finance Act 1994 means that only a person who has properly required and received a review could be an appellant before the Tribunal.

I conclude that Mr Schroeder has no separate personal right of appeal to the Tribunal in respect of the assessments to excise duty. The right of appeal lay with Arena as only Arena was liable to pay the duty and only Arena required a review.

(2) - The value added tax assessment

There is no equivalent in the value added tax legislation of section 14(2)(a) of the Finance Act 1994 (which gives a right of appeal to any person whose liability to pay is determined by, results from or will be affected by an assessment). Also, there is no equivalent of section 16(2) of the same Act, which identifies the appellant in an appeal as the person who required a review. Section 83 of the Value Added Tax Act 1994 sets out the value added tax matters which may be the subject of an appeal to the Tribunal but does not identify the appellant.

However, in Williams & Glyn's Bank Ltd v Commissioners of Customs and Excise (October 1974) [1974] VATTR 262 the Tribunal established the general principle that a recipient of a supply has a sufficient interest to maintain an appeal and that principle has been followed ever since. In value added tax appeals that principle is no more than an application of the wider principle that a person who has a liability to pay should have a right of appeal. In the case of value added tax the taxable person has to account for the tax but it is the consumer (in his capacity as the recipient of the supply) who has to pay the tax.

Mr Schroeder was not the maker of, nor the recipient of, any supply and, in any event, has no personal liability to pay the value added tax. I therefore conclude that Mr Schroeder has no separate personal right of appeal to the Tribunal in respect of the assessment to value added tax. The right of appeal lay with Arena.

My conclusions on the first two questions raised by the arguments of the parties mean that the applications by the Respondents for the appeals to be struck out have to be allowed. However, as arguments were put to me on the third question I briefly express my views.

(3) Has there already been a final determination?

The third question is whether the liability to pay the assessments has been finally determined by the Court of Appeal so that it would be an abuse of process for the same matters to be re-litigated before the Tribunal.

In my view the liability of Arena to pay the assessments has been finally determined by the Court of Appeal. Not only would it be an abuse of process for these matters to be re-litigated before the Tribunal but it would not be possible for the Tribunal to usurp the jurisdiction of the High Court and the Court of Appeal in the winding-up proceedings.

Mr Schroeder wants to appeal to the Tribunal so that he can bring forward fresh evidence which, he claims, will show that the person operating the bonded warehouse in Belgium had been prosecuted twice (but not convicted) for alcohol fraud. His argument runs that if that evidence had been before Lawrence Collins J then the judge would have given more weight to the argument that the goods had been delivered to Belgium. In that case Arena might not have been wound up and there might not have been a summary judgment against him (Mr Schroeder).

I first note that in paragraph 76 of its judgment the Court of Appeal did refer to the argument about the individuals behind TIN being known criminals. In my view it would not be appropriate for proceedings before the Tribunal to be used solely to bring forward fresh evidence which should have been produced at a hearing before a higher court. In any event, it would not be possible for the Tribunal to estimate what the effect of the fresh evidence would have been on the judgment of the higher court. It is also relevant that the judgments of Lawrence Collins J and of the Court of Appeal were judgments about the petition to wind up Arena and about the summary judgment against Mr Schroeder for breach of duty. The Tribunal has no jurisdiction in these areas.

Mr Schroeder argued that in none of the previous hearings had the evidence been tested orally and he wanted a fair hearing and the opportunity to cross-examine witnesses to which, he argued, he was entitled under Article 6 of the Convention in the Schedule to the Human Rights Act 1998. Article 6 provides that, in the determination of his civil obligations, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. In my view Mr Schroeder has had fair hearings before Lawrence Collins J and the Court of Appeal at both of which he was represented by leading and junior counsel. There is no requirement in Article 6 for the opportunity to cross-examine witnesses.

I conclude that the liability to pay the assessments has been finally determined by the Court of Appeal and it would be an abuse of process for the same matters to be re-litigated before the Tribunal.

Conclusions

I conclude :

(1) that Mr Schroeder does not have the right to appeal to the Tribunal against the assessments to excise duty;

(3) that Mr Schroeder does not have the right to appeal to the Tribunal against the assessment to value added tax; those conclusions mean that the application to strike out the appeals must be allowed but as arguments were put on the third question I express my views which are:

(3) that as the liability to pay the assessments has been finally determined by the Court of Appeal it would be an abuse of process for the same matters to be re-litigated before the Tribunal.

Direction

That means that the applications of the Respondents for the appeals to be struck out are allowed AND I DIRECT ACCORDINGLY.

Costs

The Respondents are at liberty to make an application for costs. If they wish to do so then the application should be accompanied by a statement explaining why the Respondents consider that the policy announced by Mr Robert Sheldon in Hansard on 13 November 1978 at Cols 91-92 does not apply in this application.

DR A N BRICE

CHAIRMAN

RELEASE DATE: 2 December 2005

LON/2004/1196

LON/2004/8062

11.05