United Kingdom VAT & Duties Tribunals (Excise) Decisions

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URL: http://www.bailii.org/uk/cases/UKVAT/Excise/2006/E00995.html
Cite as: [2006] UKVAT(Excise) E995, [2006] UKVAT(Excise) E00995

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Stanton Shipping and Trading Ltd v Revenue & Customs [2006] UKVAT(Excise) E00995 (03 October 2006)

E00995

EXCISE DUTY – Assessments on Appellant warehouse keeper made under s. 12 FA 1994 following irregular departures from suspension arrangements – art. 6 Excise Directive 92/12/EEC; regs. 4(2) and 5(4) Excise Goods (Holding, Movement and REDS) Regulations SI 1992/3135 – whether unlawful conduct of the Commissioners causative of the irregular departures – held not –– whether Appellant properly liable – held yes – no Community law principle required the assessments to be quashed – Greenalls Management Limited v Commissioners of Customs and Excise [2005] UKHL 34 followed – appeal dismissed

MANCHESTER TRIBUNAL CENTRE

STANTON SHIPPING AND TRADING LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: JOHN WALTERS QC (Chairman)

GILIAN PRATT JP

ARTHUR BROWN JP FCA CTA

Sitting in public in Manchester on 19, 20 and 21 June 2006

Mr. Andrew Young, Mr. Peter Martin and Mr. Muthupandi Ganesan, Counsel, instructed by Needleman Treon, Solicitors, for the Appellant

Ms. Sara Williams, Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006


 


DECISION

1. Stanton Shipping and Trading Limited ("the Appellant") appeals against assessments to excise duty of £723,844 made on 8 October 1998 £1,383,776 made on 27 January 1999.
2. The first assessment was upheld on review by Reviewing Officer E. Beasley, who wrote to Solicitors then acting for the Appellant to that effect on 5 January 1999. The Solicitors also requested a review of the second assessment. From the correspondence before us it appears that although Mr. Beasley was the reviewing officer appointed to conduct the review, he did not communicate a decision on review within the statutory time limit (45 days see section 15(2)(b) Finance Act 1994("FA 1994")), and therefore pursuant to section 15(2) FA 1994 there was a statutorily deemed confirmation of the second assessment. The appeal to this Tribunal lies under section 16(1)(a) FA 1994 against the decisions (including the deemed confirmation) on reviews under section 15 FA 1994. The Amended Notice of Appeal indicates that the decisions appealed against were the assessments themselves. This is technically wrong, and the Tribunal directs an amendment to the notice of appeal under rule 14 of the VAT Tribunals Rules 1986 to provide that the review decision and the deemed confirmation are the subject of the appeal.
3. It is accepted by both parties that the Tribunal has power under section 16(5) FA 1994 to quash or vary the decisions appealed against, and also power to substitute our own decision for any decision quashed on appeal.
4. The Appellant submits that the Tribunal should quash the decisions appealed against on the ground that they are and each of them is unreasonable and that we should in effect declare that the circumstances of the case disclose that the Appellant has no liability to excise duty. The Respondent Commissioners submit that the assessments should be upheld.

The facts (i)

5. Captain William MacDonald gave evidence in the form of a Witness Statement which was supplemented by oral evidence. He was cross-examined by Ms. Williams. Mr. R. Gledhill, the Officer of the Commissioners at Manchester IMPEX Division (a regional team created to disrupt the illegal trade in alcohol diversion and prevent revenue loss), who was Captain MacDonald's contact there and raised the assessments in issue in the appeal, also gave evidence, and was cross-examined by Mr. Martin, on behalf of the Appellant. From the evidence before us we find the following facts.
6. The Appellant operates a bonded warehouse from premises in Birkenhead. It is wholly owned by, and run by (as company director), Captain MacDonald. Captain MacDonald served in the merchant navy from 1957 to 1985, eventually commanding the world's largest vessel, a super tanker of 554,000 tonnes deadweight. In 1985, through the Appellant company, he started a marine business. The Appellant's business diversified over the course of time and in 1997 it established the bonded warehouse at Birkenhead, convenient for the port of Liverpool.
7. In December 1997, the Appellant was approached by Everwine Limited ("Everwine") with a view to Everwine's storing alcoholic products at the warehouse. The Appellant accepted this business and on 30 December 1997 it received the first of 24 movements of goods inwards to be held to Everwine's account. On 21 January 1998 the Appellant received goods to be held to an account set up by Turnstem Limited ("Turnstem"). There followed a further 23 movements of goods inwards to be held to Turnstem's account. On 22 January 1998 the Appellant received faxed instructions from Turnstem transferring the control of its goods to the account of Conrad International Import and Export ("Conrad"). Later the same day the Appellant received faxed instructions from Conrad to have the goods concerned made ready for export to a Spanish bonded warehouse ("Sumares"). On Saturday 24 January 1998 two loads left the Appellant's warehouse apparently destined for Sumares.
8. From 24 January 1998 until 18 February 1998, the Appellant's bonded warehouse traded normally with goods coming in and loads going out. Some 28 loads were released, mainly to Spain, to the bond of Conrad. All of the incoming loads were for the account of Turnstem or Everwine.
9. There were also goods despatched from the Appellant's warehouse to a Danish bonded warehouse to accounts apparently held by A.O. Attoll of an address in Georgia ("Attoll"). Further loads of goods were dispatched to Attoll's account at another Spanish bonded warehouse. Between 18 February 1998 and 11 March 1998 a further 8 loads of goods were dispatched.
10. The Commissioners assert (and the Appellant does not dispute) that these goods were not received at the European bonded warehouses which were their apparent destinations (or at any other bonded warehouse) and that there was a default within section 12(2) FA 1994.

The background legislative provisions

11. At this point it is necessary to set out certain relevant legislative provisions.
12. First, article 6 of Council Directive 92/12/EEC ("the Excise Directive") relevantly provides as follows:

"1. Excise duty shall become chargeable at the time of release for consumption ….

Release for consumption of products subject to excise duty shall mean:

(a) any departure, including irregular departure, from a suspension arrangement:"

"Suspension arrangement" is defined in article 4(c) as "a tax arrangement applied to the production, processing, holding and movement of products, excise duty being suspended".

13. The Excise Goods (Holding, Movement, Warehousing and REDS) Regulations, S.I. 1992 No. 3135 ("the Regulations") provide relevantly as follows:

"4(2) If any duty suspension arrangements apply to any excise goods, the excise duty point shall be the earlier of–

(a) the time when the excise goods are delivered for home use from a tax warehouse or are otherwise made available for consumption, including consumption in a warehouse;

…

5(4) The person liable to pay the duty when the excise duty point specified in paragraph 2(a) of regulation 4 occurs, shall be the authorised warehousekeeper."

14. Section 12 FA 1994 relevantly provides:

"(1) … where it appears to the Commissioners–

(a) that any person is a person from whom any amount has become due in respect of any duty of excise; and

(b) that there has been a default falling within subsection (2) below

the Commissioners may assess the amount of duty due from that person to the best of their judgment and notify that amount to that person or his representative.

(2) The defaults within this subsection are–

(a) any failure by any person to make, keep, preserve or produce as required or directed by or under any enactment any returns, accounts, books, records or other documents.

…"

15. The assessments in this case were made under section 12(1) FA 1994, on the basis that the excise goods in question had been the subject of irregular departures from the suspension arrangements pursuant to which the goods were allowed to be moved without payment of duty from the Appellant's warehouse to a port for export to the respective overseas authorised warehouses (see: regulation 9(2)(b) of the Regulations).
16. This is the basis of the default within section 12(2) FA 1994. Although neither party addressed argument to the Tribunal as to the specific failure within section 12(2)(a) FA 1994 which was alleged, we can safely assume that there was such a failure because Mr. Young, for the Appellant, accepted that there had been irregular departures from the suspension arrangement in respect of the excise goods which were the subject of the assessments.

The facts (ii)

17. Ms. Williams, for the Commissioners, said that the evidence of the irregular departures on which the Commissioners had acted in raising the assessments were official confirmations received by them that the excise goods had not reached the overseas bonded warehouses. The Appellant does not suggest that they did reach any overseas bonded warehouses. The Appellant, in the words of Mr. Young's written document entitled "Closing Arguments" received by the Tribunal after the conclusion of the hearing (paragraph 64) "quite properly admitted that there had been an irregularity after having heard the evidence put forward by the Respondents and drawing an appropriate inference from evidence that was not presented". Quite what conclusion the Tribunal is expected to divine from the somewhat elliptical final words of this citation is unclear. The main point is that Mr. Young, who opened his case refusing to admit that there had been a default within section 12(2) FA 1994, later accepted that there had been one in order to mount an argument that the relevant irregular departure from a suspension arrangement which prima facie gave rise to a liability to excise duty occurred when the excise goods left the warehouse from whence they (or the majority of them) were dispatched to the Appellant's warehouse (namely the Long Reach warehouse of London City Bond). We will consider that argument later in this Decision, but it is sufficient at this point to observe that whether that argument is right or wrong, by advancing it, as Mr. Young accepted, he admitted on behalf of the Appellant that there had indeed been irregular departures from the suspension arrangements under which they were moved from the Appellant's warehouse (provided that on a correct view of the matter they were ever subject to those arrangements). We so find.

Greenalls Management Limited v Commissioners of Customs and Excise

18. At this point it is convenient to mention the authority on the basis of which, so Ms. Williams submits, it is clear that the appeal must be dismissed. That authority is Greenalls Management Limited v Commissioners of Customs and Excise [2005] UKHL 34, a decision of the House of Lords handed down on 12 May 2005.
19. Greenalls concerned a diversion of excise goods from an excise warehouse in the course of a movement of those goods from the warehouse for export. Greenalls was the relevant warehousekeeper and the question in the appeal was whether Greenalls was liable for the excise duty on the goods.
20. In the circumstances of the case there was an irregular departure from a suspension arrangement and, therefore, a "release for consumption" within the meaning of article 6.1 of the Excise Directive. The excise duty point was determined by reference to regulation 4(2)(a) of the regulations, that is, "the time when the excise goods are delivered for home use from a tax warehouse or are otherwise made available for consumption …". Lord Hoffmann said, at [11]:

"On the facts of this case, there can be no doubt that they were made available for consumption. The identity of the person who made them available is unknown. But the language does not require that they should have been made available by anyone in particular. It simply says that they must have been made available for consumption."

21. Accordingly, the person liable to pay the duty was the authorised warehousekeeper, Greenalls, pursuant to regulation 5(4) of the Regulations. (ibid. at paragraph 13)
22. Lord Hoffmann said, further, at ibid. [32], as follows:

"The warehouse keeper in regulation 5(4) [of the Regulations] is obviously the warehouse keeper in respect of the relevant suspension arrangements. If the goods are moved in suspension from his warehouse under regulation 9 [of the Regulations], he is the warehouse keeper. When they reach another authorised warehouse, the movement suspension arrangements come to an end. A new holding arrangement under regulation 8 [of the Regulations] applies. If they are moved again, it will be subject to a new movement suspension arrangement. So there cannot be liability unlimited in time. It exists only while the relevant suspension arrangements continue."

23. On the face of it, this case is indistinguishable from Greenalls and the Appellant is liable for the duty assessed on the same basis as Greenalls were found to be liable. This is, in essence, the Commissioners' case.
24. The Appellant's submission, however, is that Greenalls is distinguishable on the facts, and particularly by reference to the effect which the circumstances surrounding the Commissioners' activities at London City Bond had on the facts of this case. It is therefore necessary at this stage to refer in more detail to the facts relative to the London City Bond aspect of this case.

The facts (iii) – the London City Bond aspect

25. Mr. Young submits that the Commissioners, by their activities relative to London City Bond (another bonded warehouse), directly caused the alleged loss of excise duty with which this case is concerned, by allowing loads to leave the Long Reach warehouse of London City Bond to travel to the Appellant's warehouse, in the knowledge that the loads were to be the subject of a diversion fraud after they left Long Reach, whether before or after they reached the Appellant's warehouse. In his written submission, Mr. Young stated that the Commissioners engaged in a conspiracy with London City Bond to facilitate fraudulent transactions for profit (presumably for London City Bond's profit). Mr. Young submits that Captain MacDonald knew nothing of this and dealt with the loads which came to the Appellant's warehouse from London City Bond in good faith, taking every precaution which could reasonably be required of him to ensure that there was no loss of duty. Captain MacDonald was in fact tried with others before a judge and jury at Manchester Crown Court for a period of four months in early 2002 on a charge of conspiracy to fraudulently evade excise duty. He was acquitted on the unanimous verdict of the jury. On a subsequent application before H.H. Judge Howarth (who had been the judge at his trial), Judge Howarth said that he had gained the impression of Captain MacDonald in the witness box that he was an honest man (see the transcript of an application made to Judge Howarth on 16 November 2004, at paragraph 52). The Commissioners in these proceedings do not allege any dishonesty against Captain MacDonald.
26. The basic facts relative to the London City Bond aspect of the case can conveniently be given by quoting the first four paragraphs of the judgment of Lord Justice Longmore in the judgment of the Court of Appeal (Criminal Division) in R v Gill and Others, [2003] EWCA Crim 123, handed down on 21 January 2003. Longmore LJ said:

"1. During the second half of the 1990s enormous excise duty frauds were practised by certain traders using the largest bonded warehouse in London, London City Bond, known in these proceedings as LCB. Substantial duties on, typically, whisky and cigarettes were evaded by the simple expedient of creating false documents which showed dutiable goods, or more accurately goods on which duty had been suspended, being taken out of the London City Bond and being received into another bonded warehouse in the United Kingdom or elsewhere in the European Community, when such goods were in fact transferred to entirely different destinations from the destinations shown in the documents. They were then sold without duty ever being paid.

2. Customs and Excise officers became aware of this fraud and arranged for the owner and manger of the London City Bond, Mr. Alfred Allington and his younger brother, Edward Allington, to become informers and indeed to encourage the diversion of the goods. This took place over a lengthy period of time and was said to be required in order to catch the chief conspirators. That meant that both brothers at LCB were participating informants.

3. Customs and Excise, however, failed to adhere to Home Office guidelines about participating informants, made no proper record of the arrangements with the Allington brothers, or of the information they provided, and then concealed these failures from the trial judges at various trials which then ensued.

4. To make matters even worse, Mr. Alfred Allington then gave false evidence about his involvement at some of those trials and counsel were inadvertently lured into presenting cases to juries on the basis that the London City Bond had been deceived by the defendants when the opposite was the case."

27. The Allington brothers' bond in respect of London City Bond was prima facie liable for all duty losses on goods improperly diverted from London City Bond. However the bond was wholly inadequate to cover the losses which arose and was not called upon. The Tribunal understands that London City Bond continues to trade.
28. At the invitation of the Chancellor of the Exchequer in late November 2002, Mr. Justice Butterfield prepared a "Review of Criminal Investigations and Prosecutions conducted by HM Customs and Excise" with reference to the London City Bond cases. A copy of the Review was with the Tribunal's papers. Ms. Williams, for the Commissioners, drew the Tribunal's attention to one of Mr. Justice Butterfield's conclusions on the question of entrapment by the Commissioners. He said (at paragraph 6.109 of his Review):

"Expressly setting aside the allegations of Gordon Smith, I have seen no evidence that HMCE or Alf Allington encouraged crime which would not otherwise have been committed. Equally, and applying the same proviso, accepting all the evidence adduced by the defence before Mr. Justice Grigson and drawing every reasonable inference based on that evidence against HMCE, there is still no basis for concluding that any Customs officer committed any offence, or acted dishonestly, in relation to the Commissioners or did not believe they had the right to act as they did."

29. Captain MacDonald estimates that 80% of the loads which came into the Appellant's warehouse originated at London City Bond, that 100% of the loads came for the account of Everwine and Turnstem, customers of London City Bond, and that the whole of the Appellant's warehouse business was affected by the fraud. This was not disputed by the Commissioners.
30. The first movements of excise goods out of the Appellant's warehouse took place on Saturday 24 January 1998. A day or two earlier, Captain MacDonald had communicated with Mr. Gledhill to inform him of these movements out, and Mr. Gledhill and a colleague, a Mr. Smith, attended at the warehouse on that day, though after one of the loads had already left the warehouse. On that occasion, Mr. Smith applied fluorescent markings to boxes in the warehouse, which was an unusual procedure indicating official suspicion about diversions of excise goods. This was done without Captain MacDonald's knowledge or permission at the time.
31. Mr. Gledhill confirmed to Captain MacDonald on that occasion, having checked the documents, that everything was in order for the pending departing load and advised him that if he had any doubt about any other movements of goods out of the warehouse he should contact him. He told Captain MacDonald that signs of irregular movements would be (a) if a trader wanted goods out of the warehouse in a desperate hurry; or (b) if a trader wanted goods out of the warehouse at night; or (c) if a trader wanted goods out of bond outside office hours.
32. On that occasion Captain MacDonald says that Mr. Gledhill advised him that if he had any doubt about the bona fides of a movement of excise goods, he should contact him, and to that end, Mr. Gledhill gave Captain MacDonald his home telephone number. Mr. Gledhill's evidence was that he asked Captain MacDonald on that occasion to give him 24 hours notice of every movement of excise goods was arranged to take place.
33. In the event (as has been said above) 28 loads left the Appellant's warehouse in the period between 24 January 1998 and 18 February 1998. Captain MacDonald had not given Mr. Gledhill prior notification of any of them because he had not had doubts about their bona fides.
34. However Mr. Gledhill, thinking that he would get 24 hours' notice of every movement of excise goods out of the Appellant's warehouse, had given assurances to that effect to the Commissioners' National Intelligence Service ("NIS") – a department concerned with criminal investigations – and on that basis the NIS had agreed to leave the matter of the oversight of the Appellant's warehouse in the hands of IMPEX.
35. Mr. Gledhill's contact with the NIS in relation to the Appellant's warehouse arose because Mr. Gledhill had formed the view on his visit to the Appellant's warehouse, that the circumstances were such that there was a risk of loss of revenue from movements out of the Appellant's warehouse. This was because of the type of spirits observed at the warehouse (the cheap end of the market) and the fact that the owners of the goods at the warehouse were, it seemed to Mr. Gledhill, brokers who would not hesitate to sell to diverters. He said that "he didn't need much more than that" to form the view that there was a risk of loss through diversion of excise goods. He spoke to Martin Jones (an officer at the Manchester NIS) after having visited the Appellant's warehouse and reassured him that the warehouse "wouldn't be the next LCB". As stated above, the basis of this reassurance, apparently, was that he understood that Captain MacDonald would give him 24 hours' notice of any movement out of the warehouse of excise goods.
36. Mr. Gledhill did not at that time inform Captain MacDonald of his suspicions. It was submitted to the Tribunal on behalf of the Appellant that the fact that Mr. Gledhill gave Captain MacDonald his home telephone number suggests that Captain MacDonald's version of the exchange between them was correct, because if Captain MacDonald had agreed to give Mr. Gledhill 24 hours' notice of every movement, he would not have needed his home telephone number. We consider that we cannot draw this conclusion from the fact that Mr. Gledhill gave Captain MacDonald his home telephone number. The number could have been given for added convenience in making the contact which Mr. Gledhill says he expected, and perhaps also for additional convenience at weekends. We conclude that there was a genuine misunderstanding between Captain MacDonald and Mr. Gledhill about what was said at the meeting on 24 January 1998.
37. From 24 January 1998 until 18 February 1998, the Appellant's warehouse traded with excise goods coming in and movements of excise goods going out. Mr. Gledhill was not given prior information of any of these movements as Captain MacDonald had not doubted the bona fides of any of them. There were 28 loads of beer and spirits released, mainly to Spain to the bond of Conrad.
38. On 18 February 1998 Mr. Gledhill discovered that without his knowledge these loads had left the Appellant's warehouse. There was a discussion between him and Captain MacDonald which both of them said was heated on both sides. Mr. Gledhill that day sent a fax message to Captain MacDonald in the following terms:

"OFFICIAL DIRECTION

Until further notice I require 24 hours notice of duty suspended movements out of Stanton Warehouse, Valley Road, Birkenhead. I will confirm this by letter shortly.

R. Gledhill"

39. A confirmatory letter was written by Mr. Gledhill dated 27 February 1998.
40. Thereafter Mr. Gledhill was in constant, probably daily, contact with Manchester NIS as to what tactics to employ in overseeing the operation of the Appellant's warehouse. There was, according to Mr. Gledhill's evidence, no evidence at that stage that diversions had taken place, or were going to take place, but we find that Mr. Gledhill and Manchester NIS had then a strong suspicion that diversions were likely. The letter of 27 February 1998 stated that "the results of checks we have now received [enquiries made of the UK fiscal liaison office based in Spain] give an even stronger indication to us that the vehicles used to remove the goods from your warehouse may not have left the UK".
41. Following the giving of the Official Direction, the Appellant gave notice of movements of excise goods to Mr. Gledhill, and this enabled Manchester NIS to organise surveillance of the goods, which, according to Mr. Gledhill's evidence happened certainly once and possibly twice.
42. Mr. Gledhill expressly denied that he was instructed by the NIS to permit diversion frauds without alerting Captain MacDonald to the situation. In cross-examination it was suggested to Mr. Gledhill that he must have known that the operation of London City Bond, and specifically of the Long Reach Road warehouse of London City Bond, was being conducted with the approval of the NIS to facilitate diversion frauds. He said, and the Tribunal accepts, that he knew of the diversion frauds at London City Bond and that the NIS had a "tight grip" on London City Bond, in that others in the Commissioners' organisation, outside the NIS, had difficulty getting into London City Bond to carry out checks.
43. Mr. Gledhill did not prevent movements of excise goods out of the Appellant's warehouse after 18 February 1998. He said in evidence, and the Tribunal accepts, that each decision to authorise a movement of excise goods out of the Appellant's warehouse after 18 February 1998 was a difficult decision to take, Mr. Gledhill needing to balance the lack of incontrovertible evidence of probable diversion and the operational requirements of the NIS in respect of surveillance, against the danger of revenue loss. The Tribunal does not accept that he knew (as opposed to being suspicious) that these movements of excise goods would be diverted.
44. Eight loads of excise goods left the Appellant's warehouse, authorised by Mr. Gledhill, after 18 February 1998, ostensibly destined for a Spanish or Danish bonded warehouse.
45. Mr. Gledhill accepts, as does the Tribunal, that after 18 February 1998 Captain MacDonald and all the staff at the Appellant's warehouse were very helpful in ensuring compliance with the law to the extent that they were able to do so. As to Captain MacDonald's position personally, the Tribunal records that Mr. Gledhill said in evidence that he would not say anything contrary to him being respectable.
46. On 11 March 1998 officers from the NIS visited the Appellant's warehouse and on 14 March 1998 a restriction order was placed on all beers and spirits belonging to Turnstem and Everwine and the goods were impounded.
47. Negotiations ensued between Captain MacDonald and the Commissioners' officers and on 10 June 1998 the Commissioners notified the Appellant that it could no longer use its bond guarantee.
48. Following ascertainment by the Commissioners that excise goods had not in fact been received in Spain, (as stated above) Mr. Gledhill made the assessments under appeal on 8 October 1998 and 27 January 1999. The Appellant requested reviews of the assessments.
49. The review of the first assessment was conducted by Reviewing Officer E. Beasley (who did not give evidence to the Tribunal). His decision to uphold the decision to issue the assessment in its full amount was communicated to the Appellant's agent in a letter dated 5 January 1999. The basis of the review decision was simply that Captain MacDonald was obliged to take full responsibility for movements under the guarantee, and, following investigation by the IMPEX team, it was found that the consignments concerned had not left the United Kingdom.
50. Officer Beasley was also appointed to conduct a review of the second assessment. In the event this review was not completed and pursuant to section 15(2) FA 1994 the second assessment is deemed to have been confirmed on review.
51. Mr. Gledhill did not brief Officer Beasley about the facts relative to the London City Bond aspect, which the Tribunal has outlined above. Officer Beasley did not take them into account – as was confirmed by Ms. Williams. Captain MacDonald was arrested on 2 June 1999. Mr. Gledhill was "almost certain" that he did not brief Officer Beasley that Captain MacDonald was being charged with criminal conduct, and we so find.

Submissions made on behalf of the Appellant

52. In one of several documents of submissions put by Mr. Young before the Tribunal (his "Supplemental Note" presented when he opened his case), Mr. Young said this:

"The issue for this Tribunal is whether, on the facts of this case, an innocent Appellant ought to be penalised by way of an assessment, when it has acted reasonably and with full integrity in circumstances where it was the unlawful conduct of the Respondents that directly caused the alleged duty loss."

53. This paragraph highlights the main thrust of the Appellant's case, which is that the conduct of the Commissioners was such that, as a matter of law, the Tribunal should quash the assessments. The conduct of the Commissioners referred to is described as unlawful conduct that directly caused the alleged duty loss.
54. The allegation is, in effect, particularised in another document of submissions ("Closing Arguments"), where it is said:

"NIS set up the Appellant as an unwitting participant in a diversion fraud that they had orchestrated with London City Bond."

55. The facts recited above in this Decision under the heading "the London City Bond aspect" are the facts the Appellant relies on for showing on the Commissioners' part unlawful conduct which directly caused the alleged duty loss.
56. On the basis that it is made out that the Commissioners' conduct was of that description, Mr. Young argues in detail that the assessments should be quashed and the appeal allowed for the following several reasons (which are set out in no particular order and are said to raise "a Community law estoppel" – see: Mr. Young's Closing Arguments document):
57. First, he says that the Commissioners failed properly to exercise their discretion not to raise the assessments, so that the assessments are capricious and not bona fide and are void ab initio. The assessments were not made to the best of the Commissioners' judgment, as required by section 12(1) FA 1994. He cites Van Boeckel v Commissioners of Customs and Excise [1981] 2 All ER 505.
58. Secondly, he says that the Community law principle of legal certainty has the effect that where, as in this case, a person has taken every precaution that it reasonably could in its transactions, it should be able to rely on the legality of those transactions. De Haan Beheer BV v Inspecteur der Invoerrechten en Accijnzen te Rotterdam (Case C-61/98) was cited.
59. Thirdly, Mr. Young submits that the assessments breach the principle of proportionality. He cites Garage Molenheide (Joined Cases C-286/94, C-340/95, C-401/95 and C-47/96) [1998] STC 126.
60. Fourthly, he submits that the assessments should be quashed because they are in breach of the Appellant's legitimate expectation that the Commissioners would use their assessing powers under section 12 FA 1994 against "non-compliant and fraudulent traders [viz: London City Bond] rather than seeking to squeeze the Appellant into this definition … and recoup all losses for the goods that the Appellant transacted from it alone". He cites Marks and Spencer plc v Customs and Excise Commissioners (Case C-62/00) [2002] STC 1036. In similar vein, he argues that article 14 of the European Convention on Human Rights ("ECHR"), taken in conjunction with Article 1 of the First Protocol, applies to the effect that the assessments should be quashed because of their discriminatory effect as between the Appellant and London City Bond. The decision to assess the Appellant, rather than London City Bond, Mr. Young submits, has no objective and reasonable justification. He cites Darby v Sweden (Application 11581/85 in the ECHR; Judgment of 23 October 1990).
61. Fifthly, he submits that the assessments are in breach of the Appellant's rights under Article 1 of the First Protocol to the ECHR. In particular, he submits that the assessment powers are not "provided by law" for these purposes in that the Appellant was unable to foresee, to a degree that is reasonable in the circumstances, the consequences which its actions, in facilitating the movements of excise goods with which the appeal is concerned, may entail. He cites Sunday Times v UK [1979-90] 2EHRR 245 and The National Provincial Building Society v UK [1997] ECHR 87.
62. Sixthly, as indicated above, Mr. Young submits that the relevant irregular departure from a suspension arrangement which prima facie gave rise to a liability to excise duty occurred when the excise goods left the warehouse whence they (or the majority of them) were dispatched to the Appellant's warehouse (namely the Long Reach Road warehouse of London City Bond), rather than the Appellant's warehouse, with the consequence that the liability for duty properly fell on London City Bond and not on the Appellant.
63. Seventhly, he submits that on the basis that Mr. Beasley, the Reviewing Officer, did not consider the London City Bond aspect, the Tribunal should quash his decision (presumably in relation only to the first assessment) on the grounds of general unreasonableness. It follows that Mr. Young would submit that the second assessment should be quashed on the same grounds on the basis that Mr. Gledhill did not consider the London City Bond aspect in making the assessment which was subsequently deemed to be confirmed pursuant to section 15(2) FA 1994.
64. Eighthly, he urges the Tribunal to make a reference to the Court of Justice if the Tribunal entertains uncertainty about accepting his propositions that the release of goods from London City Bond for movement to the Appellant's warehouse was in the circumstances a departure from a suspension arrangement within article 6(1) of the Excise Directive, and/or that there are principles of Community law or of interpretation of the Directive which preclude the raising and/or enforcement of the assessments on the Appellant. The Tribunal notes at this point that Ms. Williams had no instructions to make submissions relative to a possible reference.
65. Mr. Young also argues in his document submitted after the hearing (Closing Arguments) that "what in essence is being put forward by the Respondents is that Captain MacDonald of impeccable character and record with over a 30 year bona fide business career behaved out of character for just 3 weeks [24 January to 18 February 1998]". This is a suggestion that the Commissioners were seeking to support the assessments (or the first of them) on the grounds of some negligence or dishonesty on Captain MacDonald's part. In view of the Commissioners' disclaimer of any allegation of dishonesty against Captain MacDonald, and their reliance on the decision in Greenalls, in which Lord Hoffmann found "entirely convincing" an analysis of the scheme of the legislation which attributed to it the practical advantage that "the commissioners do not have to investigate the extent, if any, to which the warehouse keeper was to blame in parting with the goods" (see: ibid. [13] and [12]), there is clearly nothing in this point and we do not consider it further.

Submissions made on behalf of the Commissioners

66. Ms. Williams submits that the assessments should be upheld because the basis on which they were made was correct and has not been successfully challenged by the Appellant. That is, the excise goods were irregularly diverted after leaving the Appellant's warehouse because the accompanying administrative documents (AADs) stated that the destinations of the movements were bonded warehouses in Spain and Denmark, and Mr. Gledhill ultimately received official confirmation that the excise goods did not reach those destinations.
67. As stated above, Ms. Williams relied on Greenalls, which she said provided the answer to the whole case in her favour.
68. In answer to some of the Appellant's submissions (summarised above), she said that no question arose of there being an uncertain tax which the warehouse keeper cannot be aware of. The liability to excise duty on the goods in duty suspension has, in essence, already crystallised. As Lord Hoffmann said in Greenalls at [5], a "suspension arrangement", as referred to in article 6.1 of the Excise Directive, is defined in terms which presuppose that duty has become chargeable, and that liability to pay it is then suspended.
69. Thus, the warehouse keeper knows the position. If circumstances arise where there is an irregular departure from a suspension arrangement on a movement of goods out of his warehouse, then he will be liable for the duty. Against this background the onus is on the warehouse keeper to protect his position. He is not obliged to run a bonded warehouse – it is a privilege which carries obligations: Greenalls [17]. The warehouse keeper can protect his position by increasing his bond (a form of insurance). He can confine his business to dealing with transporters he knows and destinations he knows.
70. The Appellant has no "right" not to be assessed in relation to which it may have an enforceable legitimate expectation that it will not be deprived of it (compare Marks and Spencer plc). The assessments are not a disproportionate response to the mischief of the revenue loss.
71. She submitted that the London City Bond aspect of the matter was irrelevant, even with the benefit of hindsight, such as was provided by Mr. Justice Butterfield's review. However the validity of the assessments fell to be considered by reference to what was known by Customs officers (and Mr. Gledhill and Mr. Beasley in particular) in 1998 and 1999.
72. She submitted that the Tribunal should not impute to Mr. Gledhill or Mr. Beazley (or to the Commissioners) any knowledge of the NIS. And the Tribunal should bear in mind that the London City Bond cases collapsed because the correct procedures at the trials were not followed, rather than because of the conduct of the Commissioners or the NIS in their surveillance of London City Bond.
73. There had been an assurance of non-assessment given to the Allingtons at London City Bond, but no such assurance had been given to Captain MacDonald.
74. She asserted that Mr. Gledhill did not know that any excise goods would be diverted, before he had proof that they had been diverted. There was no evidence that Mr. Gledhill, or the NIS officers with whom he was in contact, knew that offences would be committed and deliberately allowed such commission to happen. She submitted that it does not follow that because excise goods had been moved from London City Bond (Long Reach Road) to the Appellant's warehouse that therefore they would be diverted on movement out of the Appellant's warehouse. She submitted that there were other points of origin of the excise goods moved to the Appellant's warehouse (Oakwood and Hazelwood) and also that some business emanating from London City Bond was legitimate.
75. Thus, she submitted, the Appellant had not established any basis to elevate the circumstances in which Mr. Gledhill had acted as he had, into a situation where with knowledge of irregular diversions he or the Commissioners were investigating them.
76. De Haan Beheer BV (a case concerning customs duties rather than excise duty) does not, in Ms. Williams's submission, assist the Appellant. In that case the Court of Justice held (as its first holding):

"1. Community law does not impose on customs authorities which have been informed of a possible fraud in connection with external transit arrangements any obligation to warn a principal that he could incur liability for customs duty as a result of the fraud, even where he has acted in good faith."

77. Further, the situation in which the Court considered that the customs duties in issue in that case could possibly be repaid or remitted, was that such repayment or remission is specifically permitted by article 13(1) of Council regulation (EEC) No. 1430/79 of 3 July 1979 in "special situations" which result from circumstances in which no deception or obvious negligence may be attributed to the person concerned – see: the Court's second holding:

"2. The demands of an investigation conducted by the national authorities may, in the absence of any deception or negligence on the part of the person liable, and where that person has not been informed that the investigation is being carried out, constitute a special situation within the meaning of article 13(1) of Council Regulation (EEC) 1430/79 of 3 July 1979 on the repayment or remission or import or export duties, as amended by Council Regulation (EEC) No. 3069/86 of 7 October 1986, where the fact that the national authorities have, in the interests of the investigation, deliberately allowed offences or irregularities to be committed, thus causing the principal to incur a customs debt, places the principal in an exceptional situation in comparison with other operators engaged in the same business."

78. The language of the Commissioners' assessing power in relation to excise duty under section 12(1) FA 1994, to the effect that they "may" assess the amount of duty due to the best of their judgment, does not bear the interpretation which, Ms. Williams submitted, Mr. Young sought to place on it, that the Commissioners were obliged not to assess in circumstances which would amount to "special situations" as explained by the Court of Justice in the context of the (different) legislation relating to customs duty. The appearance of the word "may" in section 12(1) FA 1994 tied in, she submitted, with the reference to best judgment, that is the Commissioners are given power to assess where they do not have complete information.
79. She submitted that the excise point can only be when the excise goods left the Appellant's warehouse with the intended destinations of the Spanish and Danish bonded warehouses. It could not be the earlier point when the goods (or most of them) left the London City Bond warehouse.

Decision

80. Greenalls makes clear that an innocent warehouse keeper can properly be assessed for excise duty lost on an irregular departure from a suspension arrangement where excise goods are in fact made available for consumption following delivery from that warehouse keeper's tax warehouse.
81. On this basis, and in agreement with Ms. Williams's submissions, the Appellant is liable for the duty assessed – notwithstanding that, as we find, Captain MacDonald acted "reasonably and with full integrity" (to quote Mr. Young's submission, see, above, paragraph 51) – provided that the duty loss was not caused by "the unlawful conduct" (again quoting Mr. Young's submission) of the Commissioners.
82. If we were to find that the duty loss was caused by the unlawful conduct of the Commissioners, as Mr. Young submits it was, then this would be a proper basis upon which to distinguish Greenalls. We would then need to consider whether the application of any, or all, of the Community law principles advanced by Mr. Young had the effect of invalidating the assessments.
83. We have no hesitation, however, in declining to find that the duty loss was caused by the unlawful conduct of the Commissioners. The evidence before us does not establish any such causative unlawful conduct. Further, Mr. Justice Butterfield, in his Review found no evidence in relation to London City Bond either that the Commissioners (or Alf Allington) encouraged crime which would not otherwise have been committed (by others) or that any Customs officer committed any offence, or acted dishonestly, in relation to the Commissioners, or did not believe they had the right to act as they did – see: the quotation at paragraph 27 above. The quotation from Mr. Justice Butterfield's Review is, of course, expressed to be subject to the proviso of "setting aside the allegations of Gordon Smith". As the Tribunal understands the matter, these allegations are the basis of a police investigation into the Commissioners' activities in relation to London City Bond ("Operation Gestalt") which is not complete. That being the position, there is no basis for this Tribunal to take the allegations into account.
84. Therefore, the Appellant has not succeeded in establishing the basis on which it advanced its case that Greenalls should be distinguished. It has not demonstrated that "NIS set up the Appellant as an unwitting participant in a diversion fraud that they had orchestrated with London City Bond" – see: above at paragraph 53. The London City Bond aspect is strictly irrelevant to the decisions taken to raise and uphold the assessments.
85. The basis of Captain MacDonald's real and understandable sense of grievance, seems to us to be that it is unfair that he should be held liable for excise duty on the diversions by other unknown and unconnected persons, when the Commissioners (whether through Mr. Gledhill or other officers) were in possession of information which showed that it was (at least) likely that the excise goods would be irregularly diverted from duty suspension arrangements on movement out from the Appellant's warehouse. We have found (see: paragraph 39 above) that Mr. Gledhill and Manchester NIS had strong suspicions, at the latest from 18 February 1998, that diversions were likely.
86. However, in agreement with Ms. Williams's submissions, we find that neither Mr. Gledhill nor anyone else knew that any goods would be diverted before they actually were diverted. This is so notwithstanding the fact that it is likely that within the Commissioners' organisation there was at that time information which, if it had been addressed, would have suggested that such diversion was highly probable.
87. In a case where the Commissioners have such information but, as Ms. Williams submitted, where they are not empowered to stop the movements of goods (on account of the inconclusive nature of the information), the general issue of the fairness of imposing liability for the lost revenue on the innocent warehouse keeper is obviously in principle an open question. Both Greenalls (particularly at [18]) and De Haan Beheer BV indicate, in the Tribunal's judgment, that the scheme of the excise duty legislation resolves this question by placing the liability for the lost revenue on the warehouse keeper, and not providing for the loss to remain with the Commissioners. In De Haan Beheer BV the Court of Justice held that there was no general duty imposed by Community law on customs authorities of warning an innocent principal that he could incur liability for customs duty as a result of a fraud as to which the authorities have information. This is a strong indication against there being any analogous duty in the case of liability to excise duty. Further, the provision for repayment or remission of customs duty in the case of "special situations" has no parallel in the excise duty legislation.
88. The Appellant has not succeeded in establishing the basis on which it seeks to argue that "a Community estoppel" is raised to prevent the Commissioners as a matter of law raising the assessments. It is not therefore necessary for the Tribunal to deal with each of the Appellant's submissions (see: paragraphs 56 to 63 above), but we will comment briefly as follows.
89. We reject the submission that the assessments were not made to the best of the Commissioners' judgment. Quantum is not in issue. There was clearly power to make the assessments. We accept Ms. Williams's submissions on this aspect – see: paragraph 77 above.
90. We reject the Appellant's submissions on legal certainty for the reasons expressed in our summary of the Commissioners' submissions on this aspect – see: paragraphs 67 and 68 above.
91. We reject the Appellant's submissions on proportionality. The assessments reflect the excise duty lost. The power to assess does not, in our judgment, go further than is necessary in order to obtain the objective of the Excise Directive and the associated domestic legislation to protect the revenue, and does not undermine the principles of the Excise Directive (cf. Garage Molenheide). Neither the power to assess, nor the assessments in issue in this appeal are disproportionate.
92. We reject the Appellant's submissions on legitimate expectation essentially for the reason advanced by Ms. Williams (see: paragraph 69 above) – that the Appellant has no "right" not to be assessed. The Appellant has no legitimate expectation that the excise duty legislation will not be applied to it in accordance with its terms and intent.
93. We reject the Appellant's submissions that the assessments should be quashed because they represent an exercise of the Commissioners' powers which is discriminatory to the disadvantage of the Appellant and to the advantage of London City Bond. We have found that the duty loss was not caused by the unlawful conduct of the Commissioners, and in those circumstances we hold that the Appellant has failed to establish that the Commissioners had no objective and reasonable justification to assess the Appellant, while giving an assurance of non-assessment to the Allingtons, the operators of London City Bond.
94. We reject the Appellant's submissions that the assessments are in breach of the Appellant's rights under article 1 of the First Protocol to the ECHR. In particular, we hold that the Commissioners' assessment powers are "provided by law" and the consequences of its actions in permitting the movements out of excise goods, which attracted the assessments, were relevantly foreseeable by the Appellant.
95. We reject the Appellant's submissions that the liability for duty with which this appeal is concerned properly fell on the warehouse keeper of London City Bond rather than on the Appellant – see: per Lord Hoffmann in Greenalls at [32] (set out at paragraph 22 above).
96. Again, in the absence of proved unlawful conduct on the part of the Commissioners, there is no basis at all for the Tribunal to ignore the plain fact that the excise goods in question reached the Appellant's warehouse (thus bringing into effect a new holding suspension arrangement) and the plain fact that the excise goods in question subsequently left the Appellant's warehouse (thus becoming subject to a new movement suspension arrangement). It was the irregular departures from such new suspension arrangements which caused the liability to attach to the Appellant.
97. We reject the Appellant's submissions that the fact that neither Mr. Gledhill nor Mr. Beasley considered the London City Bond aspect, when making their respective decisions, gives grounds for us to quash the assessments (or the review decisions) for unreasonableness. Strictly, as we have said, the London City Bond aspect was not a relevant consideration.
98. For the reasons given above, the appeal fails and is dismissed. We consider there is no necessity to make a reference to the Court of Justice in this case.
99. We grant liberty to apply in relation to costs.

JOHN WALTERS QC

CHAIRMAN

RELEASE DATE:3 October 2006

MAN/1999/8009