United Kingdom VAT & Duties Tribunals (Excise) Decisions

Hulme International Transport Ltd v Revenue & Customs [2006] UKVAT(Excise) E01002 (22 November 2006)

E01002

EXCISE DUTY – Appeal under s 16 Finance Act 1994 against decision on review- illicit importation of Class A drugs –8 kilos cocaine hydrochloride concealed in commercial vehicle – driver in possession of drugs – convicted of criminal offence- Appellant haulier not involved in smuggling exercise- failure to carry out precautions to guard against risk of vehicles being used for such importation – recruitment and selection procedures – no references sought from previous employers – no contracts of employment – no disciplinary code – no warnings - decision on review to restore vehicle subject to fee of £2,130 -- application of policy by Customs- whether breach of Article 1 of First Protocol to EHCR – requirement of proportionality- appeal dismissed

BELFAST TRIBUNAL CENTRE

HULME INTERNATIONAL TRANSPORT LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents Tribunal: MR ALISTAIR F W DEVLIN (Chairman) MR JOHN ADRIAN FCA Sitting in public in Belfast on 15 August 2006 Mr P McLaughlin of Counsel, for the Appellant Mr J Puzey of Counsel, for the Respondents
© CROWN COPYRIGHT 2006
DECISION
1. This is an appeal brought by the Appellant company against the decision arrived at on review to uphold the imposition of a fee of £2,130 in relation to the decision to restore a vehicle registration number DKZ 8962 ["the vehicle"] to the Appellant. The disputed decision from which this appeal arises was contained in a letter dated 20 July 2004 sent to the Appellant by Mr Brenton, a Review Officer.

The background facts

2. The background facts of this matter were not in dispute between the parties and can be summarised as follows. On 17 April 2004 officers of the Respondent operating at the United Kingdom Control Zone at Coquelles, France, stopped the vehicle which was a Scania commercial tractor unit with refrigerated trailer attached. The vehicle was being driven by a Mr Edward Harvey, an employee of the Appellant. Upon being questioned by the Respondent's officers, Mr Harvey confirmed to them that he understood that it was illegal to smuggle drugs and firearms into the United Kingdom.
3. The vehicle was however selected for searching. The trailer was found to be loaded with fruit and vegetables. However in the cab of the tractor unit of the vehicle, the Respondents officers found four packages wrapped in gift paper concealed in various areas within the interior of the cab. Mr Harvey was asked what the packages contained, and said that they were 'gifts for the kids, jewellery boxes'. Close examination of one of the packages however revealed that it contained white powder in a black outer wrapped with brown tape. Mr Harvey upon being presented with the contents of the package then admitted that he knew what it contained. He was arrested and cautioned. He was subsequently charged for criminal offences related to the unlawful possession and importation of Class A drugs for which he received a custodial sentence of ten years imprisonment.
4. The four packages were later found to contain eight kilos of cocaine hydrochloride. The drugs were seized. The tractor unit and trailer were also seized for having been used in connection with the importation of prohibited substances.
5. By letter dated 19 April 2004 the solicitors acting for the Appellant wrote to the Respondents requesting the immediate return of the vehicle. In a reply dated 30 April 2004 the Respondents requested further information concerning the vehicle and also concerning the terms and conditions on foot of which Mr Harvey had been employed by the Appellant. This was duly complied with, and the details sought were set out by the Appellant in a fax transmission dated 30 April 2004. The trailer, together with its load of fruit and vegetables, had already been quickly released to the Appellant by 20 April 2004.
6. Subsequently, by letter dated 14 May 2004 the Respondents wrote to the Appellant and offered restoration of the vehicle in return for payment by way of a restoration sum of the sum of £2,130 being 10% of the assessed trade value of the vehicle. Further correspondence between the parties then ensued, and ultimately by letter dated 18 June 2004 the Appellant by its solicitors requested a formal departmental review of the decision.
7. This review was carried out by Mr Brenton, and the outcome of the review was that by letter dated 20 July 2004 the Appellant was informed that the decision to impose a fee upon restoration of the vehicle in the sum of £2,130 had been upheld.

Notice of Appeal

8. In its Notice of Appeal dated 18 August 2004 the Appellant relied upon the following grounds.

'As a result of the seizure of the vehicle our client has already suffered financial losses,

[a] The load was destroyed at a cost of £6,000

[b] The hire purchase on the lorry and cost of insurance for the period the vehicle was seized was £3,357.00.

The individual who was arrested had previously worked for Hulme International Transport Limited for approximately two months in the preceeding twelve months before he was re-hired. This man was hired as a result of a personal recommendation and the owner of the haulage company also made further enquiries with other drivers and indeed the owner of another haulage firm. When he was first employed a very close watch was kept on him and Mr Hulme the owner was more than happy with him. He left their employment due to family circumstances, there were no concerns about his work or character. In light of these factors his employers felt that they had already assessed him and found him to be trustworthy and this was why it was not felt necessary to carry out any further checks or given him any warnings about smuggling as in their view he would not involve himself in such behaviour.

Hulme International Transport Limited also feel that it is unreasonable to claim that any steps they took would have had any impact on this mans behaviour. This man was caught with a very large quantity of Class A drugs for which he will receive a very long custodial sentence. Hulme International Transport Limited feel that there were no sanctions available to them which would have in any way deterred this man if a custodial sentence would not.'

Findings of fact by the Tribunal

9. The Tribunal heard evidence from Mr Derek Hulme, the owner of Hulme International Transport Limited, and from Mr Raymond Brenton, the Review Officer. On the basis of the evidence adduced before it, the Tribunal makes the following additional findings of fact.
10. The Appellant had been in business since 1995, and at the date of these events had fifteen vehicles on the road. Most of the Appellant's business was to continental Europe, with the remainder of its business being to the United Kingdom mainland. The Appellant's staff in the past had been and still were recruited mainly by word of mouth. The Appellant did not normally have to actively seek to recruit staff. Drivers seeking employment would contact the firm and leave their details with the firm to be contacted as and when vacancies might become available. Of these drivers seeking employment with the Appellant, some would be already known to Mr Hulme, whereas others would be total strangers to him. Any staff recruited would only be taken on after a personal visit to and interview at the depot. Mr Hulme accepted that both as to the driving capabilities and also as to the character in general of a driver candidate he would generally rely substantially upon any recommendation from one of his existing drivers. Whilst the driving licences of candidates would certainly be checked, it would only seldom that Mr Hulme would have contacted the previous employer of a driver seeking employment with him. In 2004 Mr Hulme did not have any written disciplinary procedure, nor any written contracts of employment, nor any written statement as to the terms and conditions of employment of his employees.
11. Mr Harvey had previously been employed by the Appellant for a period of about six months. He had telephoned Mr Hulme looking for work. Mr Hulme had enquired of him from an existing driver, Mr Brian Close, who had told him that Mr Harvey was a good driver. Mr Harvey's previous employers had been a removal firm based in Randalstown, which Mr Hulme had not contacted. No written references had been asked for or provided. When initially recruited, Mr Harvey had been brought into the depot office where the basics of the job had been explained to him. He had been specifically advised about the proper and improper use of fuel cards. He had also been warned whenever abroad not to consume alcohol or lose contact with his employers. He had also been advised not to be involved in any importation of cigarettes from abroad, in excess of the amounts permitted to him by way of personal allowances. Mr Harvey was not given any specific advice or instructions about drugs. After Mr Harvey had worked for the Appellant for about six months, he left its employment explaining to Mr Hulme that the reason for him leaving was that his girlfriend wanted him to be more at home. At no stage was Mr Harvey asked about previous criminal convictions.
12. Subsequently, in April 2004, at a time whenever Mr Hulme had a number of drivers out sick, Mr Harvey telephoned him again looking for work. Mr Harvey had explained that his then current employer was about to reduce its staff numbers, and he offered his services once again to the Appellant in either a full or part time capacity. The interception of 17 April 2004 occurred during Mr Harvey's first assignment back with the Appellant. Mr Harvey had been supposed to deliver goods to Paris and to return with a load of fruit and vegetables from Holland.
13. Mr Hulme was contacted by the Respondents officers. Within a short space of time leave had been sought and obtained for the consignment of fruit and vegetables to be released. Another driver was sent to uplift it, and it was ultimately delivered to its intended consignee albeit three days late.
14. Mr Hulme claimed to have sustained substantial losses already as a result of the incident in question. His evidence was that the intended consignee of the fruit and vegetables had deducted £6,500 from his running account with them, as a result of the late delivery of the consignment in question which they maintained had caused it to deteriorate and which they claimed led to the consignment having to be sold on at a reduced price. He additionally claimed that he lost a further £2,730 during the period the vehicle was detained: these losses he said arose as follows, £300 per week in respect of hire purchase charges, £150 per week in respect of insurance charges, and £50 per week in respect of road vehicle licence fund charges. In addition, he claimed to have suffered a loss of use of the detained vehicle throughout the period of its detention, a further loss which he estimated at in or about £3,000 or £4,000.
15. In cross examination, Mr Hulme admitted the involvement of a former driver in a previous similar incident. That incident had taken place in 2002 and by Mr Hulme's admission had involved a driver whom he had known well. The driver in question, a man with five years experience to his credit, had been caught smuggling cannabis resin into the Republic of Ireland.
16. Mr Raymond Brenton a Review Officer based at Plymouth told the Tribunal that the estimated street value of the intercepted drugs found on the vehicle was somewhere between £320,000 and £400,000 or thereabouts. In his evidence he explained the operation of the policy on foot of which his decision on review he said had been based. That policy made it clear that it was not the policy of the Respondents ever to restore seized assets to persons convicted of commercial drugs offences. The policy went on to explain that there were three possible situations where restoration to an innocent third party might be made on payment of a fee. In this regard, the policy drew a distinction as between conduct which was very reckless, reckless and mildly reckless. The fee to be charged would on foot of the policy be based on a percentage of the value of the vehicle with a minimum of £100 and maximum of £500 on a scale of perceived recklessness, as follows:

'Mildly Reckless [10%] – Not taking reasonable precautions to ensure

that the conveyance was not used for illegal purposes.

Reckless [20%] – Allowing use of the vehicle suspecting that it might

be used for illegal purposes.

Very Reckless [30%] – Allowing the vehicle to be used 'no questions asked'.

17. Mr Brenton explained that the basis of his decision on review was that whilst he readily accepted that the Appellant had not been in any way complicit in the drug smuggling exercise, he was of the view that the Appellant had nevertheless failed to carry out proper checks on Mr Harvey before employing him, had failed to apply proper procedures to the engagement of Harvey, and had failed to take reasonable precautions to guard against the risk of the vehicle being used for illegal purposes. In his assessment, checks on the driver were inadequate. He also criticised the Appellant's failure to make it clear to Mr Harvey or indeed other drivers the seriousness of the situation should they be caught smuggling. He also criticised the absence of written contracts of employment, and a disciplinary procedure. He also criticised the practice whereby the Appellant made decisions on staff recruitment on the basis of an oral recommendation of another driver, and in the absence of written references being either sought or provided.

18 In cross examination Mr Brenton explained that in arriving at his decision he did not take into account or otherwise have regard to the extent of the loss which the Appellant might already have sustained as a result of the incident in question. In his view, whilst such loss might well have been a consequence of the events in question, it was not in the absence of evidence as to exceptional hardship relevant to the question which he had to address namely as to whether or not the vehicle should be restored and if so upon what terms. He rejected the suggestion that any such evidence of hardship has been produced to him.

The legislative framework

18. Section 49 of the Customs and Excise Management Act 1979 ["CEMA"] provides as follows:

'Where –

…

[b] any goods are imported, landed or unloaded contrary to any prohibition

or restriction for the time being in force with respect thereto under or by virtue of any enactment

…

[f] any imported goods are concealed or packed in any manner appearing to

Be intended to deceive an officer

those goods shall…….be liable to forfeiture'

19. Section 139[1] of CEMA goes on to provide:

'Any thing liable to forfeiture under the customs and excise Acts may be

seized or detained by any officer or constable or any member of Her

Majesty's armed forces or coastguard'

20. Section 141[1] of CEMA provides:

'……..where any thing has become liable to forfeiture under the customs

and excise Acts –

[a] any ship, aircraft, vehicle, animal, container………or other thing

whatsoever which has been used for the carriage, handling, deposit or

concealment of the thing so liable to forfeiture, either at a time when it

was so liable or for the purposes of the commission of the offence for

which it later became so liable; and

[b] any other thing mixed, packed or found with the things so liable,

shall also be liable to forfeiture.'

21. Finally, section 152 of CEMA establishes that:

'The Commissioners may, as they see fit –

…

[b] restore, subject to such conditions [if any] as they think proper,

anything forfeited or seized under the Customs and Excise Acts.'

Submissions of the parties

22. For the Respondents Mr Puzey submitted that the fine imposed upon the Appellant had come about simply as a result as a failure on its part to take reasonable precautions so as to guard against the risk of its vehicles being used for illegal purposes. Such precautions it was suggested should have included the provision of a written contract of employment or at the very least a disciplinary procedure to the employee concerned in which it was made clear that smuggling by drivers would be regarded as amounting to gross misconduct and would lead to dismissal or other strong sanctions being applied. The reasonable haulier it was submitted should have sought and received employment references from a previous employer or employers, or at the very least should have sought confirmation whether from the employee or elsewhere that the driver had not previously been involved in any incident of an adverse nature involving Customs. Mr Puzey submitted that whilst it was clearly right that actual convicted drugs smugglers should never have seized assets returned to them, it was also right that hauliers whose laxity in precautions and procedures may have facilitated the commission of offences should not be able to escape the consequences of doing nothing. In the present case, it was submitted, not even the bare minimum of checks or precautions was carried out. No written contract, terms of employment, disciplinary procedure or warnings at all had been furnished to the employee. The employee had received a verbal run through of the basic terms of his employment, which included no reference to drugs or drug smuggling at all, and that was it. It was suggested that the Appellant had also failed to put forward any convincing evidence as to why it had failed to seek or obtain references from the employee's previous employers. The life of an international haulage driver is, it was submitted, a solitary affair. Fellow drivers, who were the only persons from whom any information as to the suitability or otherwise of a particular candidate for the post of driver were sought, might be able to give to the Appellant information concerning a driver's driving abilities, but would be unlikely to necessarily know more. It was right, proper and proportionate that a haulier should be required to put in hand precautionary and preventative steps so as to guard against the risk of their vehicles being put to illegal use by international drugs smugglers and by those who might assist them, and in the present case that had not been done. It was simply not enough for the Appellant to seek to argue that it was not his problem.
23. Mr Puzey further sought to draw attention to the relatively modest amount of £2,130 required of the Appellant to be paid, when compared to the street value of the drugs sought by means of the vehicle to be illegally imported. The other losses sustained by the Appellant were, it was submitted, consequential losses and as such were irrelevant in the absence of a hardship case being made out. There was no evidence, it was submitted, of any such hardship. Ultimately, it was submitted, the burden of proof rested with the Appellant to satisfy the Tribunal that the decision on review was one which no reasonable body of Commissioners could have arrived at, and on the evidence that burden simply had not been discharged.
24. For the Appellant Mr McLaughlin agreed that the substance of the appeal was against the unreasonableness of the decision taken on review. It was submitted that the unlawful importation of drugs had occurred irrespective of such precautionary measures which the Appellant had taken, and moreover that there was nothing to suggest that the additional measures suggested would have made any difference. Effectively, it was suggested, the Appellant was being fined for not having had good employment and recruitment practices and procedures. Nothing it was suggested was likely to have prevented the driver from doing what he had done where he had not already been deterred by the prospect of a lengthy custodial sentence if caught. The Tribunal's attention was also drawn to the previous incident free period of employment of the driver in question. It was suggested that in applying the approach which they had, the Respondents were seeking to apply to the Appellant a counsel of perfection, which effectively imposed a penalty upon the Appellant which was disproportionate in all the circumstances. The Appellant cited and relied upon the decision in Rogers –v – The Commissioners of Customs and Excise [Case E00773]
25. The Tribunal's attention was also drawn to the other consequential losses sustained by the Appellant. The Appellant's counsel sought to criticise the Review Officer for having ruled out consideration of these other losses save in circumstances of exceptional hardship .This it was submitted set the bar too high, and there ought to have been retained by the Respondent a discretion to consider such other losses even in the absence of exceptional hardship. However when the Tribunal asked counsel for the Appellant as to whether the Respondent had or had not been informed of the additional losses in advance of the review taking place, the answer came in the negative, the Tribunal being informed that such losses would not have crystallised by the time the review came on for consideration.

Decision

26. It seems to us that the issue of the other consequential losses sustained by the Appellant can be disposed of quickly. Mr Brenton, the Review Officer, in his evidence had made it clear that he would have been prepared to consider whether such losses might have amounted to exceptional hardship. However, it now appears that neither the existence nor the extent of such losses was ever disclosed to the Respondent by the Appellant or its representatives in advance of the review by Mr Brenton taking place. In those circumstances, whether the additional losses sustained could have amounted either to hardship or to exceptional hardship seems to us to be neither here nor there. The fact is that these additional losses were not disclosed to Mr Brenton by or on behalf of the Appellant at the time of or in advance of his review taking place, and the Appellant can therefore scarcely seek to criticise him for failing to take such losses into account in arriving at his decision.
27. The issue which the Tribunal need to address in this appeal is as to whether or not the Tribunal is satisfied, as specified at section 16[4] of the Finance Act 1994, that the Respondent in arriving at its decision on review made a decision which could not reasonably have been arrived at.
28. On the facts of the matter, and on the basis of the evidence presented before it, the Tribunal is far from being so satisfied. The decision of the Respondent on the imposition of a fee in the sum of £2,130 for the restoration of the vehicle was based upon the assumption that the incident involving the unlawful importation of drugs by the Appellant's driver, Mr Harvey, was the first such incident involving this particular firm. The evidence establishes that this was not the case, and that a previous incident involving a different driver had indeed occurred in 2002. That previous incident the Tribunal ought properly have made the Appellant all the more aware at the time of this incident in April 2004 of the risk of commercial vehicles owned and operated by it being used by others to facilitate the unlawful importation of drugs from one jurisdiction to another.

30 The Tribunal is firmly of the view that such steps as were taken by the Appellant to guard against or combat the risks of one of its vehicles being used to facilitate the unlawful importation of drugs were completely inadequate. The Appellant's recruitment and selection techniques were grossly outdated and wholly unsatisfactory. The Appellant's decision never to request or obtain previous employment references, and instead to seek to rely simply upon the word of mouth recommendation of another driver as to the driving abilities and character of a candidate for employment is difficult to understand, to say the least. The Tribunal also fails to understand why nothing was said to the driver upon the commencement of his employment about the importance of him ensuring that the vehicle was not used for the covert and unlawful importation of illicit goods, substances of materials, and why nothing in writing whether in the form of a contract of employment, statement of main terms and conditions of employment, company handbook, rule book, disciplinary procedure, warning notice or other advisory material was issued to him by the Appellant in this regard, particularly against the background of the previous incident involving another driver of the Appellant in 2002.

29. This Tribunal has already expressed its view in Crilly –v- The Commissioners of Customs and Excise [Case E/00452] that the Commissioners are entitled to impose by means of a restoration policy obligations of vigilance upon drivers and hauliers, provided of course that the burdens imposed as a result are not disproportionate, and notes that this view was similarly expressed by the Tribunal in the Rogers case. In Rogers however, it seems to us that the basis of the decision ultimately arrived at in favour of the appellant was that the Commissioners had failed to take properly or adequately into account the fact that the haulier had not been involved in any attempted excise fraud, and the fact that the strict application of the policy as proposed produced a disproportionate result in that case. The Tribunal is of course mindful of the approach to the issue of proportionality outlined by Simon Brown LJ in R. [on the application of International Transport Roth Gmbh] –v- The Secretary of State for the Home Department [2002] EWCA Civ 158 at paragraph [53] in the following terms:

"Even acknowledging, as I do, the great importance of the social goal which the

scheme seeks to promote, there are nevertheless limits to how far the state is

entitled to go in imposing obligations of vigilance on drivers [and vicarious

liability on employers and hirers] to achieve it and in penalising any breach.

obviously, were the penalty heavier still and the discouragement of carelessness correspondingly greater, the scheme would be yet more effective `and the policy objective fulfilled to an even higher degree. There comes a point, however, when what is achieved is achieved only at the cost of basic fairness. The price in Convention terms becomes just too high."

Roth was of course a case concerning the application of a statutory scheme under which owners, hirers, drivers or operators of vehicles were liable to be made subject to the imposition of a fixed monetary penalty of £2,000 if they either intentionally or negligently allowed a person to gain unlawful entry into the United Kingdom by concealment in a vehicle.

30. Nevertheless, if considered against the facts and circumstances of this present case, the Tribunal finds that there was nothing disproportionate either in the policy of the Respondent or in terms of its application to the proposed restoration of the vehicle to the Appellant which was disproportionate so as to offend against Article 1 of the First Protocol to the Convention. The unlawful importation of the drugs effected by means of the Appellant's vehicle was an extremely serious criminal offence, as the lengthy custodial sentence meted out to the Appellant's driver indicates. Had the matter gone undetected the unlawful importation would no doubt have had serious consequences for those persons to whom the illicit substances would have been supplied in due course, and substantial illegal profits earned as a result either for the driver concerned or for those behind him or all of them. For its part the Appellant had it seems to us unfortunately done little or nothing to guard against the risk of such an offence occurring. Nor had it done anything amongst its drivers or amongst persons approaching to it become drivers to make clear to them the seriousness or likely consequences of any such conduct.
31. It is not an answer simply to say that the criminal law had failed to discourage this particular driver from nevertheless attempting to commit a serious criminal offence, and to ask therefore what more could the Appellant as his employer have done. It is certainly correct that the Appellant was not in any way whatsoever involved in the illegal importation itself, but nevertheless it seems to us that that cannot simply be an end of the matter. The fundamental failures on the part of the Appellant to implement or carry out what can only be regarded as basic and common sense checks upon its employees and candidates for employment, combined with the Appellant's extremely casual and outdated approach to such elementary requirements as contracts of employment, written statements of main terms and conditions of employment and a disciplinary codes are all, its seems to us failings of significance. It is of course impossible to say as to whether or not if these matters been properly been attended to by the Appellant, the illicit importation of drugs would nevertheless still have occurred. The fact remains that they were not properly attended to by the Appellant, and that they were matters which in the assessment of the Tribunal ought properly to have been attended to by any reasonable international haulier of the Appellant's size and resources in an attempt to discourage drivers from ever remotely contemplating the type of serious criminal activity which this driver was seeking to undertake.
32. The Tribunal concludes therefore that the restoration fee imposed as it here was on the basis of 10% of the trade value of the vehicle was proportionate in all the circumstances of the case.
33. It follows from the above that the Tribunal is unable to conclude that the decision arrived at on review herein was a decision which could not reasonably have been arrived at. This appeal is accordingly dismissed, with no orders as to costs.
A F W DEVLIN CHAIRMAN RELEASED: 22 November 2006

LON/2004/8069