United Kingdom VAT & Duties Tribunals (Excise) Decisions

Dolling v Revenue & Customs [2006] UKVAT(Excise) E01003 (30 May 2002)

E1003

EXCISE – Practice – Non-compliance with direction – Late service of Statement of Case – Appeal concerning restoration refusal – Powers of tribunal under rule 19(4) in light of FA 1994 s.16 – Whether to allow appeal under rule 19(4) – Penalty under VATA 1994 Sch 12, para 10 – Relevance of factors in Civil Procedure Rules Part 3(9) – Penalty of £200 awarded against Commissioners

LONDON TRIBUNAL CENTRE

PETER JOHN DOLLING Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: THEODORE WALLACE (Chairman)

Sitting in public in London on 9 November 2001 and 1 May 2002

The Appellant appeared in person

Richard Hill, counsel, instructed by the Solicitor for the Customs and Excise (on 9 November 2001 Mr Jonathan Holl, senior officer) for the Respondents

© CROWN COPYRIGHT 2002

DECISION

1. This hearing was listed on the Tribunal's own motion because of the Commissioners' failure to comply with a direction to serve their Statement of Case and List of Documents by the time specified. It was in fact listed as an appeal.
2. The appeal was against a deemed confirmation of the decision to refuse to restore 4000 cigarettes and 2.5 kilogrammes of hand rolling tobacco seized from the Appellant at Eastern Docks Dover on 19 April 2001. This compares with the indicative limits in the Schedule to the Excise Duties (Personal Reliefs) Order 1992 of 800 cigarettes and 1 kilogramme.
3. The Appellant was a foot passenger. He had his eight year old daughter with him. The officer recorded him as saying that he had been in Belgium for two days and had stayed in Panne. He had bought cigarettes. His holdall contained the cigarettes and tobacco but not clothing commensurate with a two day trip. She did not ask why he bought the goods. She required him to satisfy her that it was for his own use. He asked how long an interview would take and she replied that she did not know. He said that he did not want to delay his eight year old daughter. The whole process from being stopped to seizure took just 20 minutes. Mr Dolling said that on the next day he telephoned to ask for an interview and was told that the goods had already been destroyed. Mr Holl did not contest this; however evidence was given subsequently that it was destroyed on 7 June 2001.
4. On 20 April the Appellant wrote requesting return of the goods. On 1 May the Commissioners wrote asking whether he was appealing against seizure or simply restoration with this passage:

"Please be aware that although you may request both restoration and appeal against the seizure, the condemnation proceedings will take precedence over the restoration request, and the senior officer will decline to give you a decision regarding restoration until such time as the condemnation proceedings are withdrawn or have concluded."

5. He wrote on 5 May 2001 asking for return of the goods. This was refused in an unsigned letter dated 30 May in which it was stated that all the factors had been considered but which made no mention of any of the facts. It did not mention what was seized or the date. It appeared to be in a standard form. The letter stated that he could ask for a review.
6. Mr Dolling wrote by return on 2 June requesting a review. This letter was received at the Review Office on 6 June, the day before the goods were in fact destroyed.
7. Under section 15(1) of the Finance Act 1994 it is the duty of the Commissioners to review a decision when required to do so.
8. On 19 June the Commissioners wrote stating that the request would be passed to the review team and that he could expect a reply within 45 days.
9. No review decision was given. Under section 15(2) there is a deemed refusal after 45 days : on 2 August 2001, two months after his original request Mr Dolling appealed.
10. His appeal grounds stated,

"My case wasn't reviewed properly because I was told the review team No.2 was to busy due to the heavy work load therefore they were upholding the original decision. Also review team No.2 told me I did not need their reasons in writing."

In earlier letters the Appellant wrote that he had paid duty at the point of purchase and that he was allowed to bring in gifts.

11. The appeal was notified to the Commissioners on 10 August 2001. The Statement of Case was due within 30 days under Rule 8 of the VAT Tribunals Rules 1986.
12. On 22 August the Commissioners applied for an extension to 22 September to complete their Review. This was granted subject to any objection by the Appellant. He did not object.
13. On 17 September just five days before the extension expired the Commissioners sought another month to 22 October, giving as the reason that the Commissioners required further time to complete their Statement of Case and List of Documents. On the day of receipt, 18 September, a proper officer stamped the application "Unless notice of objection is served within 14 days, this application is allowed under Rule 33(1)(b) as being unopposed." This Direction was served on the Commissioners and the Appellant on 18 September 2001. This time the Appellant did object on 21 September. Unfortunately the objection was not notified by the Tribunal to the Commissioners until 12 October. The Commissioners therefore knew on 12 October that the extension was not operative because of the objection, unless their application was allowed in spite of the objection.
14. Because the existing time limit had expired on 22 September and because when the objection was referred to me the extension application could not be listed before the new date sought (22 October), I gave the following direction on Tuesday 16 October,

"Whereas the Appellant has objected to this extension I hereby direct under Rule 19(1) that the Statement of Case and List of Documents be served on the Tribunal by 4.00pm on Monday October 22."

This was a manuscript endorsement on the application notice. In effect despite the objection I allowed the Commissioners' application but gave a positive direction as to the date. The direction was sent by Fax just after noon on 16 October.

15. Monday October 22 passed without either compliance with the Direction or an application for a further extension.
16. This hearing was notified on the Tribunal's Own Motion for the Commissioners' non-compliance. The notice was faxed at 9.54am on 26 October.
17. On the same day the Commissioners sent the Statement of Case by fax to the Tribunal. The Tribunal has no record of its receipt, however Mr Holl produced the transmission report timed 2.33pm and I accept that it was despatched. He did not produce any confirmation slip as to its receipt by the Tribunal.
18. Mr Holl told me that on 26 October he drafted also an application to waive the breach of the Direction and applied for the hearing to be vacated. This was clearly not despatched since the transmission report records 14 pages and the Statement of Case, List of Documents and cover sheet accounted for all 14 pages.
19. The Commissioners receive regular copies of the Tribunal's forward listings. The hearing remained listed however nothing was heard by the Tribunal until the day before the hearing when Mr Holl faxed a further copy of the Statement of Case at 3.51pm. Mr Dolling was informed by telephone that the Statement of Case had been received but stated that he wished the hearing to go ahead.
20. Mr Holl submitted that apart from the delay the Appellant had not been prejudiced by the non-compliance. He said that the draft Statement of Case had been sent for approval to the review officer at Dover on 16 October (the day of the Direction) although the review officer had not been told of the time limit. The review officer had not replied until 1 November. Since no review had been carried out it is not clear what purpose was served by sending it to him.
21. In the event of failure to comply with a direction the Tribunal has three options.

(a) to allow or dismiss the appeal under Rule 19(4) because of the non-compliance;

(b) to waive the breach under Rule 19(5) upon such terms as it may think just;

(c) to impose a penalty under Schedule 12, paragraph 10(1) of the VAT Act 1994 not exceeding £1,000 which shall be recoverable as if it were VAT due.

22. In any event Mr Dolling is clearly entitled to his costs. He travelled by car from Chesham and incurred parking costs. At the first hearing Mr Holl offered £50 which the Appellant accepted. The Tribunal has no power to order more costs than the Appellant incurred.
23. Penalties have been imposed on the Commissioners before. It has not been argued that they are not "a person" within Schedule 12, paragraph 10. The imposition of a penalty is however merely a transfer from one of their pockets into another since it is recoverable as tax. It can be no more than a mark of the Tribunal's disapproval.
24. To allow the appeal is a serious step. However non-compliance with a direction is a serious matter.
25. Section 16(4) of the Finance Act 1994 states that the powers of the Tribunal in relation to appeals as to an ancillary matter (which this is) are confined to a power to take specified actions when it is satisfied that the Commissioners or other person making the decision could not reasonably have arrived at that decision.
26. On a literal interpretation of section 16(4) of the Finance Act 1994, the powers of the Tribunal on an appeal as to an ancillary matter do not include power to allow an appeal under Rule 19(4) of the Rules because they are confined to the powers specified in section 16(4). If this is the correct interpretation there must be considerable doubt whether such a limitation on the powers of the Tribunal is compatible with EU law. It would have the effect that an appeal could be dismissed because of non-compliance by an Appellant but not by the Commissioners. Since any penalty is payable by the Commissioners to themselves as tax, the Tribunal would be without an effective sanction in the event of non-compliance by the Commissioners. It is difficult to square such a result with the rule of law.
27. In my judgment section 16(4) cannot properly be interpreted so as to deprive the Tribunal of the sanction for non-compliance. Section 7 of the Finance Act 1994 specifically provides that references to an appeal tribunal are references to a VAT and Duties Tribunal and subsection (5) specifically refers to the generality of the powers governing the Tribunal's procedures. In my view the provisions of section 16(4) cannot be taken as excluding the powers under the Rules including the power under Rule 19(4) to allow an appeal for failure to comply. Mr Holl did not make any submission to this effect and submitted rather that the Appellant had not been prejudiced.
28. Mr Holl told me that the Commissioners' staff do their best. This may be. However the Appellant is entitled to have his appeal progressed within the time limits laid down by Parliament and in accordance with the Directions of the Tribunal. Mr Dolling did what was required of him in time. He is entitled to expect the same of the Commissioners.
29. The statutory review was never carried out leaving Mr Dolling to appeal against a deemed confirmation under section 15(2). The decision letter of 30 May was therefore the only decision but this itself was wholly uninformative and in a standard form. In those circumstances the Statement of Case had increased importance. As already stated this was not served within the 30 day time limit. Far from this being an exception, the Commissioners regularly seek an extension of the time laid down by Parliament in the Rules. Mr Dolling did not oppose their first extension.
30. On 12 October the Commissioners knew that the Appellant opposed the further extension because this was notified to them and was specifically mentioned in the Direction of 16 October. Although it must have been obvious when the draft Statement of Case was sent to Dover on 16 October that the deadline of 22 October would be difficult to meet, there was no attempt to seek an extension before it expired.
31. I issued an initial decision in draft setting out the matters above but gave the Respondents an opportunity to make submissions in particular as to the Tribunal's powers under Rule 19(4) with skeleton argument. That direction gave the Commissioners leave by 5 February to serve a witness statements as to the Appellant's assertion that he was told that the officer did not know how long the interview would last and that he was told on the following day that the goods had been destroyed. A witness statement dated 5 February was in fact served on 25 March.

Submissions

32. Mr Richard Hill, for the Commissioners, accepted the reasoning in paragraph 27 above that the Tribunal's power under Rule 19(4) to allow or dismiss an appeal for failure to comply with a direction was not affected by section 16 of the Finance Act 1994. He said that the Tribunal had a discretion to be exercised judicially on the relevant factors. He identified four factors in the present case.
33. The delay here was only four days. He contrasted Faccenda Chicken v Commissioners of Customers and Excise [1992] VATTR 395 where the delay was four weeks. Although the Statement of Case here was served after notice of the non-compliance hearing, the reaction had been immediate. The draft had already been sent to Dover. The overall delay here was seven weeks from the original due date under the Rules. In Wine Warehouses Europe Ltd v Commissioners of Customs and Excise [1993] VATTR 307 where a £200 penalty was imposed the Commissioners were still in default at the date of the hearing after three extensions. He accepted that the Tribunal could consider whether there had been earlier defaults or delays; this was relevant in considering whether "a wholesale disregard of the rules" albeit with no prejudice to the Appellant, see Bennett v Commissioners of Customs and Excise (2000) Decision No.16590, approved by Patten J at [2001] STC 137, paragraphs 23 and 24. He referred to Broadley v Commissioners of Customs and Excise (2001) Decision No.17153.
34. He said that there had been no repetition of the default in this case. This was the first default. Two applications for extensions had been made in time. He submitted that it was not relevant that the Commissioners were in default in other cases to which they were a party. This case should be considered on its own facts. Conduct in other cases was only relevant with a vexatious litigant.
35. The adequacy of the decision letter, the Commissioners' failure to carry out the Review and the fact that the Appellant is unrepresented were all immaterial to the defaults in issue.
36. The main consideration was whether the Appellant had been prejudiced by the delay. It was difficult to see how a delay of four working days could materially affect the listing of the appeal or affect the listing of other appeals.
37. There was no suggestion that the non-compliance had been intentional, see Part 3.9(1)(c) of the Civil Procedure Rules. Mr Hill accepted that the circumstances listed in Part 3.9(1) were relevant to the Tribunal also. The effect on each party of granting relief to the Commissioners should be considered, see paragraph (1)(i).
38. Mr Hill submitted in his skeleton that the view expressed in the Court of Appeal by May LJ in Chapple v Williams and Emmett (1999) unreported that "all the circumstances" in Part 3.9(1) included the merits should be approached with caution. He said that it was obiter and was concerned with the merits of the case of the person in default, here the Commissioners.
39. In his skeleton argument, Mr Hill submitted that the Tribunal should not reject the possibility of a penalty under Schedule 12, paragraph 10 simply because any penalty would be paid by the Commissioners to other public funds. There was power to impose a penalty, see Freight Transport Leasing Ltd v Commissioners of Customs and Excise [1992] VATTR 120.
40. In reply to a question as to what was the purpose of the appeal proceeding when the Commissioners had put it out of their power to restore the goods by destroying them, Mr Hill said that the Commissioners were entitled in law to destroy the goods once they had been condemned. He pointed to the power under Schedule 3, paragraph 16(b) of the Customs and Excise Management Act 1979 to destroy perishable goods although not yet condemned subject to compensation under paragraph 17 if it was held in the condemnation proceedings that they were not liable to forfeiture. The tobacco was perishable. The Tribunal could not direct restoration; the fact that the goods had been destroyed before the Tribunal proceedings was irrelevant. Section 16(4)(c) of the Finance Act 1994 made specific provision for a situation where a decision has been acted on and cannot be remedied.
41. Mr Dolling said that it seemed that on one hand Mr Hill said that the case should be judged on its own merits but on the other he cited other cases. The Commissioners knew that there was a deadline and if he had not objected they might have sought a further extension. It was not a big case involving goods costing £500. He said that if he had not been told that the goods had been destroyed he would have gone back for an interview. He asked for travelling costs of £50.

Conclusions

42. Rules 19(4) of the Tribunals Rules 1986 provides,

"(4) If any party to an appeal or application or other person fails to comply with any direction of a tribunal, a tribunal may allow or dismiss the appeal or application."

Rule 19(5) enables the Tribunal to waive non-observance of a direction on such terms as it thinks just. Schedule 12, paragraph 10 of the VAT Act 1994 enables the Tribunal to award a penalty not exceeding £1000 for failing to comply with a direction, the penalty to be recoverable as if it were VAT due from the person liable to the penalty.

43. Part 3.9 of the Civil Procedure Rules 1998 provide as follows:

"Relief from sanctions

3.9-(1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order the court will consider all the circumstances including –

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure;

(e) the extent to which the party in default has complied with other rules, practice directions and court orders and any relevant pre-action protocol,

(f) whether the failure to comply was caused by the party or his legal representative;

(g) whether the trial date or the likely date can still be met if relief is granted;

(h) the effect which the failure to comply had on each party; and

(i) the effect which the granting of relief would have on each party.

(2) An application for relief must be supported by evidence."

44. The Civil Procedure Rules do not as such apply to the Tribunal, however it is appropriate for the Tribunal to follow the same principles unless there is a reason to depart from them arising from the Tribunal's rules or procedures.
45. The main sanction to which Part 3.9 refers is the sanction of striking out a statement of case which includes a defence. This is analogous to the power under Rule 19(4). Rule 19(5) is analogous to Part 3.9. Both sanctions are of course discretionary.
46. Part 3.9 refers to "all the circumstances". In Chapple v Williams and Emmett (1999) May LJ said that his initial view was to reject the proposition that the relevant circumstances did not include the merits. He said this,

"The court has to consider all the circumstances. The list in Part 3.9(1) of the CPR is not exhaustive and in an appropriate case the court can and should consider the merits as part of the circumstances."

Although technically this was obiter, both Lord Woolf MR and Walter LJ agreed with the judgment. It is cited as authority in the White Book. I do regard the merits as a relevant factor for the Tribunal to consider .

47. Mr Hill stressed the importance of prejudice to the other party, arguing that it was the primary factor. It is to be noted that the effect on the other party of the non-compliance appears at paragraph (1)(h) rather than at the top of the list under (1)(a). At paragraph 3.4.4 the editors of the White Book state that it is no longer necessary to consider prejudice in the way it was considered pre-CPR, see Axa Insurance Co Ltd v Swire Fraser Ltd [2001] C.P. Rep.17. In Biguzzi v Rank Leisure PLC [1999] 1 WLR 1926, Lord Woolf MR said that under the CPR the keeping of time limits is more important and the Court has an unqualified discretion to strike out for failure to comply with an order of the Court; he also said that under the Rules the Court had broad powers and there were open to it alternatives enabling a case to be dealt with justly without the draconian step of striking out. Lord Woolf said,

"if the court were to ignore delays which occur, then undoubtedly there will be a return to the previous culture of regarding time limits as being unimportant.

There are alternative powers which the courts have which they can exercise to make it clear that the courts will not tolerate delays other than striking out cases. In a great many situations those other powers will be the appropriate ones to adopt because they produce a more just result. In considering whether a result is just, the courts are not confined to considering the relative positions of the parties. They have to take into account the effect of what has happened on the administration of justice generally. That involves taking into account the effect of the court's ability to hear other cases if such defaults are allowed to occur. It will also involve taking into account the need for the courts to show by their conduct that they will not tolerate the parties not complying with dates for the reasons I have indicated."

48. I now return to the present case, working through the CPR factors:

(a) Late service of Statements of Case by the Commissioners has been a real problem for the Tribunal particularly in restoration cases, clogging up the administration with a knock-on effect on other cases.

(b) The application for an extension drafted by Mr Holl on 26 October was apparently never despatched and the Commissioners took no further action regarding the non-compliance hearing until 8 November, although no acknowledgement had been received from the Tribunal.

(c) The failure to comply was not intentional in the sense that any individual intended it. However it resulted from the lack of resources devoted by the Commissioners to handling this type of appeal. This is a matter for which the Commissioners must take responsibility.

(d) Apart from lack of resources there was no proper explanation for the failure.

(e) The first application for an extension was in good time, the second was five days before the extension expired. Although it referred to time to complete the Statement of Case, it appears that the draft had not even been sent to Dover. The initial written refusal and the Review are analogous to a pre-action protocol : the letter of 30 May was inadequate and the review was not carried out. Further, the Commissioners were not entitled to refuse to give written notification of the original decision while possible condemnation procedures were outstanding : section 14(4) imposes a duty to notify the decision when requested. The Commissioners were nearly seven weeks late in serving the witness statement referred to in paragraph 31.

(f) The Respondents' legal representative is in-house.

(g) No trial date is set until after receipt of the Statement of Case.

(h) The failure to comply on time delayed the communication to the Appellant for the first time of the reasons for non-restoration. Mr Hill was entitled to stress that the actual default was cured after only 4 working days. This was however in response to the non-compliance hearing notice without which it would clearly have been longer.

49. Given the brevity of the questioning, the officer's statement that she did not know how long an interview would take and the refusal of an interview on the following day, there is a clear possibility that the Tribunal will conclude that the refusal decision was not properly taken.
50. The effect of granting relief under Rule 19(5) or dismissing the appeal under Rule 19(4) is not in fact clear. Simply allowing the appeal would not give the Appellant his goods back. The Tribunal cannot order their restoration. It would in fact mean that there was no decision on the substance of the appeal, no appeal on whether the decision was Wednesbury unreasonable and no findings on disputed facts. The Appellant would be left to his civil remedies which are unclear.
51. On the other hand, if the appeal goes ahead, a direction that the decision cease to take effect would not be appropriate, see Lindsay v Customs and Excise Commissioners [2002] STC 588, a further review could not lead to the return of the goods and a declaration that the decision was unreasonable with directions to avoid repetitions of the unreasonableness when comparable circumstances arise in the future would be of little use to the Appellant.
52. In my view the effect of the right to require a review and the right of appeal under the Finance Act 1994, Schedule 2(1)(r ) have the effect of limiting the power of the Commissioners to dispose of condemned goods under the 1979 Act until the review and any appeal are concluded or abandoned. There is no equivalent to Schedule 3, paragraph 17 of CEMA in the 1994 Act.
53. While the Commissioners' failure to comply with the Direction is not a trivial matter, and this was not suggested, Mr Holl sought to remedy it promptly and no real incremental prejudice was suffered by the Appellant. It is not clear that the Appellant would benefit from the appeal being allowed and the Commissioners are most anxious that it should not be. This was not however a prolonged default, although other aspects were far from satisfactory, and the default itself did not cause material prejudice. On this occasion I have decided not to allow the appeal but to impose a penalty.
54. The Appellant was awarded £50 costs at the first hearing and I award a further £50 costs of the second hearing. The Respondents were fortunate that the Appellant was not represented. I conclude that a penalty of £200 is appropriate.

THEODORE WALLACE

CHAIRMAN

RELEASED: 30 May 2002

LON/01/8122-DOL.WAL