United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2007] UKVAT(Excise) E1014, [2007] UKVAT(Excise) E01014

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Pierhead Purchasing Ltd v Revenue & Customs [2007] UKVAT(Excise) E01014 (24 January 2007)

E01014

PRACTICE AND PROCEDURE – Appeal – Agreement – Whether agreement which was not under section 85 or Rule 17 concluded appeal – Customs mistakenly purported to carry out statutory re-review – Offer of restoration for fee accepted – Terms not certain – No promise or consideration provided by Appellant – Held no contract – Appeal against original review not concluded – VAT Act 1994 s.85 – FA 1994 s.7(4), 15(4) and 16(4)

LONDON TRIBUNAL CENTRE

PIERHEAD PURCHASING LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: THEODORE WALLACE (Chairman)

Sitting in public in London on 8 December 2006

John Shelley, of Shelley & Co, Solicitors, for the Appellant

Richard Smith, instructed by the Acting Solicitor, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

This hearing concerned an appeal dated 8 March 2005 against a review decision dated 1 March 2005 refusing to restore 18,273 bottles of whisky seized at Dover on 17 September 2004. It was listed as an application for re-instatement of the appeal. In fact it was an application for the appeal to be progressed.

The issue is whether the parties reached a binding agreement on 19 September 2005 which had the effect of concluding the appeal. It was common ground that there was no agreement within section 85 of the VAT Act 1994 which applies to excise appeals by reason of section 7(4) of the Finance Act 1994. There are two questions : first, whether there was a contract, and second, if so, did it have the effect of concluding the appeal although not within section 85.

There were no witnesses but there was a substantial bundle of documents.

The following facts appear from the documents.

At around midnight on 16 September 2004 a tractor and trailer carrying the whisky was stopped at Dover. The whisky was consigned to Euro Cellars Ltd from a company in Germany. The Appellant was the owner. The goods were detained. Following inquiries by Customs first with the Appellant and then with the Appellant's solicitors, Shelley & Co, notice of seizure was given on 11 December. On 16 December Mr Shelley applied for restoration and asked for the facts and matters relied on for the seizure to be given. On 25 January 2005 Mr Shelley was informed that the goods would not be restored. On 31 January Mr Shelley asked for a review.

On 1 March Mrs Hilda Marshall, of the Review Team at Plymouth, confirmed the decision to refuse restoration. Mr Shelley appealed on behalf of the Appellant on 8 March contending that the Review decision contained allegations not previously raised, referred to documents not disclosed to the Appellant and was unreasonable and disproportionate; additional grounds of appeal extending to four pages were served on 22 March disputing allegations of fact in the Review. Mr Shelley served a substantial List of Documents on 19 March. Customs' Statement of Case and List of Documents were dated 2 June.

On 28 June Mr Shelley applied for a direction for particulars and disclosure. The Tribunal notified a directions hearing for 29 July. On 25 July Customs wrote to Mr Shelley conceding the appeal and stating that they consented to the Tribunal agreeing to a re-review and that they would pay the Appellant's costs to date. Following this the appeal was stood over for 60 days.

On 15 August Customs applied to the Tribunal for a direction under section 16(4)(b) of the Finance Act 1994 for a further review giving the following grounds:

"… the Review Officer failed to consider the issue of proportionality, which the Appellant explicitly referred to in their Grounds of Appeal. Further, the Respondents consider that the Review Officer had taken into account matters that should not have been."

The Tribunal notified the application to Mr Shelley asking whether the Appellant consented. On 24 August Mr Shelley objected on behalf of the Appellant and asked for an alternative decision or direction so as to put the Appellant in the same position as if restoration had not been refused.

Without waiting for the response of the Tribunal to the application by Customs, Raymond Brenton, also of the Review Team at Plymouth, notified Mr Shelley that he had carried out a re-review under section 14(5). His letter stated as follows:

"On 15^th August 2005 an application was made to the VAT & Duties Tribunals, London to conduct a re-review of the decision from Customs dated 1^st March 2005 not to restore your client's 12,791.1 litres of whisky. This is in accordance with the provisions of sections 14(5) (second or subsequent reviews) and Schedule 5 to the Finance Act 1994. The law allows me to confirm, withdraw or vary the original decision."

Mr Brenton then described the whisky and the duty, stated that the whisky had not been disposed of and said that he had not been involved in the seizure or in the original decision. He wrote that he had considered the circumstances to decide if there were any mitigating or exceptional circumstances.

He then continued,

"Having considered afresh the background of this case, the related evidence and subsequent representations made, I am of the opinion that it would be reasonable and proportionate to vary the original contested decision and to restore the 12,791.1 litres of Lawrence Whisky to your clients on payment of the duty evaded – this being £100,077.57.

If these terms are acceptable to your client, you need do nothing. The Customs Post Seizure Unit, Plymouth, whose address is on the head of this letter, will contact you. They will action the restoration procedure. I would also request that Pierhead Purchasing Ltd withdraw their appeal to the VAT & Duties Tribunal."

Mr Brenton's letter said that the Appellant could appeal within 30 days to the Tribunal and continued,

"Restoration and/or payment of a restoration fee do not affect your right to appeal subsequently against my decision. The amount of the fee does not fall within the jurisdiction of the Tribunal. The decision to impose a fee for the restoration is the appealable matter."

I observe at this point that the letter gave no further details of the facts or material on which the decision was based apart from referring to "duty evaded"..

Also on 31 August the Tribunal gave notice of a hearing on 23 September of the Appellant's application of 24 August and Customs' application of 15 August.

On 2 September Mr Shelley served a protective Notice of Appeal against the decision of 31 August while challenging the power of Customs to issue a new review decision. Also on 2 September Mr Shelley wrote to Mr Brenton sating that his present instructions were to decline the offer but asking for clarification as to whether the goods would be treated as duty paid and in free circulation if the payment was made and the goods restored; he challenged the right of Customs to make a further decision under section 14(5) without a request from the Appellant and stated that no such request had been made; he wrote that procedurally speaking the letter was a settlement offer in respect of the existing appeal.

On 15 September Mr Brenton replied,

"I can confirm that should your client take up the restoration offer of paying £100,077.57 for the return of their 12,791.1 litres of whisky then those goods would be deemed to be duty paid goods in free circulation. The restoration fee is not a penalty …

If this offer were acceptable I would also request that Pierhead Purchasing Ltd withdraw their appeal to the VAT & Duties Tribunal."

On Friday 16 September Mr Shelley replied by fax. His letter included the following,

"It seems to me that this appeal has now been conceded in all material respects; an impression which was not conveyed by earlier correspondence. My client therefore thanks you for the agreement to restore however, the arrangements are not fully agreed.

These goods were seized 12 months ago at a time when they were in duty suspension arrangement being shipped into bond in the UK and there is no valid reason why the goods should not be restored in their original states as goods under bond."

The letter said that potential customers were lost as a result of the seizure and that it might take time to find new purchasers; paying duty up front represented an additional cost of some £4,000. Mr Shelley continued,

"You refer in your letter 15 September that the restoration fee is not a penalty but to give practical effect to that sentiment the goods should be restored 'in bond'."

On the morning of Monday 19 September there was a telephone conversation between Mr Shelley and Mr Brenton after which Mr Brenton sent a letter and Mr Shelley sent a fax later on the same day. Mr Brenton's letter read as follows,

"I refer to your letter of 16^th September 2005 and our subsequent telephone conversation of 19^th September. As per that conversation I confirm that the terms of the restoration of your client's alcoholic goods are that which was communicated to you in my re-review letter dated 30^th August 2005 : that being the goods will be released to Pierhead Purchasing Ltd on payment of the duty of £100,077.57. These goods would then be deemed to be duty paid goods in free circulation. The restoration fee is not a penalty. If those terms are not acceptable to your client then they may continue their appeal to the VAT & Duties Tribunal. May I respectfully remind you that it is the reasonableness of my decision to restore for a fee that is the appealable matter. The fee itself is not an appealable matter within the jurisdiction of the Tribunal forum.

If this offer is acceptable, I would request that Pierhead Purchasing Ltd withdraw their appeal to the VAT & Duties Tribunal."

Mr Shelley's fax, which presumably crossed this letter because it made no mention of it, it read,

"Further to my fax on Friday and our conversation this morning regarding the decision to restore my client's goods on payment of £100,077.57 (namely the duty) I have now spoken to my client who has instructed me to accept the Commissioners' offer.

Since this appeal has already been conceded in earlier correspondence I have informed the Tribunal that there is no need now for a hearing on this Friday."

Also on 19 September Mr Shelley wrote to the Tribunal. His letter contained the following,

"The Commissioners' letter dated 31 August conceded the appeal with costs but the position became more complex when they purport to issue a new decision. Having clarified matter with the Review Office it now appears that the Commissioners were, for practical purposes, making an offer to settle. That offer has since been accepted.

Accordingly, I invite the Tribunal to cancel the hearing on the 23 September. I am also, for the avoidance of doubt, withdrawing the subsequent associated appeal ref. LON/05/8101."

The reference to 31 August was clearly an error for 25 July. Mr Shelley sent a copy of this letter to Customs' Solicitors Office and stated that he would submit his costs claim very shortly. The Tribunal notified the parties on 21 September that the hearing on 23 September had been cancelled stating, "the hearing has been withdrawn and no hearing will be required." This was not in fact correct since only the second appeal had been withdrawn; however Mr Shelley did not reply.

Neither party confirmed the terms of the agreement in writing within section 85(3).

The next communication between the parties was apparently a letter from the Post Seizure Unit to Mr Shelley on 24 November stating that the goods had not been collected from the Queens Warehouse and would be disposed of if not collected within 14 days.

On 7 December Mr Brenton wrote to Mr Hercules of the Appellant, however that letter was not in the bundle. On 22 December Mr Hercules wrote to Mr Brenton a letter which included the following,

"The appeal regarding the detention of our goods was eventually conceded by Customs on the strict understanding that there would be no restoration penalty. The payment of the duty on the spirits prior to the formal restoration was accepted with reluctance but circumstances have changed and that duty payment is no longer appropriate because the UK sale is no longer viable.

The goods have now been sold free of duty for export – copy invoice enclosed. Since the goods are presently held under suspension arrangements and are also eligible for repayment of duty under drawback arrangements they could be released directly under bond to the receiving bond in Germany. To do otherwise would in fact be a penalty because of the 6/8 months delay on the duty drawback arrangements, which we are currently experiencing.

Please confirm that the goods will be released under duty suspension arrangements …"

Mr Brenton replied to Mr Hercules on 5 January 2006 stating that the goods were initially seized "due to the infringement of duty suspension arrangements. You are fully aware of the restoration conditions as per my review letter dated 30th August 2005." He wrote that the decision to restore the goods for the duty was not negotiable.

On 9 January 2006 Mr Shelley wrote to Mr Brenton stating that the goods were still held under duty suspension and the demand for payment of duty was a penalty contrary to the intentions in September. He applied formally for the goods to be moved under duty suspension. He asked what had happened to his client's costs which Customs had agreed to pay when conceding the appeal.

Mr Brenton replied on the next day stating that if the terms of the re-review were not acceptable the Appellant could have appealed but had not done so. He wrote that he had communicated the terms and was not prepared to correspond any further. He wrote that he could not accept that payment of the duty was a penalty.

Mr Shelley replied on the same day, 10 January, stating that an appeal has been lodged on 2 September 2005 against the August decision and enclosed a copy. He wrote, "To insist that duty is paid merely in order to be repaid as a duty drawback imposes a heavy financial burden which my client contends is a penalty and an unreasonable condition for restoration." He asked for a statutory review of the decision to refuse re-exportation under duty suspension.

On 11 January Mr Brenton acknowledged the letter informing him that an appeal had been made against his August decision. He continued,

"The review under section 15 of the Finance Act 1994 had been previously communicated to your client and a re-review under section 16(4) was communicated to your client in my letter of 30^th August 2005 and this is the decision under appeal. Should the Tribunal allow your client's appeal then they will direct a further re-review under section 16(4) of the FA '94."

He repeated this in another letter a day or so later.

On 10 March 2006 Mr Shelley wrote to the Tribunal asking for the appeals to be reinstated and listed for directions. There was a delay in listing the application because the Tribunal file had been destroyed in the mistaken belief that the appeal had been withdrawn.

Submissions

Mr Shelley submitted that the original appeal had not been determined and that the Tribunal should give directions under section 16(4) of the Finance Act 1994. He said that, although the hearing listed for 23 September 2005 for applications by both parties for directions under section 16(4) had been vacated, no agreement had been reached under section 85 of the VAT Act 1994.

Mr Smith, for Customs, accepted that there had been no section 85 agreement. However he submitted that nevertheless there had been agreement concluding the appeal since the Appellant's letter of 19 September 2005 was an acceptance of Customs' conditional offer of restoration and resulted in a binding contract between the parties. He said that enforcement of the agreement was a matter for the civil courts rather than the Tribunal, citing HSM Technologies v Customs and Excise Commissioners (2004) E 794. He submitted that the purpose of section 85 is to give an agreement the same status as a Tribunal decision; the fact that there is a statutory procedure to reach an agreement could not oust the basic provisions of contract law, there being no provision to that effect. In the present case there was a clear agreement that if £100,077.57 was paid by the Appellant, the goods would be restored, with no time limit. He said that as a result there is no outstanding issue either as to restoration or the terms; restoration is still physically possible.

He said that although the appeal had not been withdrawn there is no longer an appealable matter because the Appellant is contractually bound by the terms of the agreement. He said that he did not submit that the agreement directly concluded the appeal so removing the jurisdiction of the Tribunal. He said that section 152(b) of the Customs and Excise Management Act 1952 gave Customs power to restore goods forfeited or seized on such conditions as they think proper; the conditions were the terms of an offer which gave rise to a contract when accepted. The terms were those in the Review of 30 August. He said that apart from HSM Technologies there is no other case law on an agreement outside section 85. In his skeleton argument Mr Smith accepted that the Tribunal would have directed a new review of the decision of Mrs Marshall, however he said that his instructions were that the result of such review would be the same as in the August decision; in answer to the Tribunal, he said that it would not inevitably be the same, see John Dee Ltd v Customs and Excise Commissioners [1995] STC 941.

In reply Mr Shelley said that there was no contract in September 2005 because there was no meeting of minds and no consideration moved from the Appellant. The offer was accepted on the basis that there was no penalty, however Customs refused to allow the goods to be held in bond without payment of duty until removed from bond.

He said that HSM Technologies was an example of how matters could go wrong; in that case there was an imperfect agreement and the appeal was withdrawn. Here the appeal had not been withdrawn and there had been no contract.

Conclusions

The proceedings in this matter provide an object lesson in how not to conduct the review procedure.

The application of 15 August 2005 (see paragraph 8 above) stated in terms that the Review Officer failed to consider proportionality and took into account matters which should not have been taken into account. This of course was in relation to Mrs Marshall's appeal.

Since the goods can still be restored, it is clear that the Tribunal would have directed a new review and this was accepted by Mr Smith. It is not however the practice of the Tribunal to direct a new review without a hearing unless the Appellant does not object, since the Tribunal can and frequently does make findings of fact on which the new review must be based. A new review on disputed facts would serve no useful purpose.

Mr Shelley was entirely correct in his letter of 2 September 2005 in challenging the right of Mr Brenton to carry out a statutory review based on section 14(5) without a requirement by the Appellant; such requirement must be in writing and must be to the Commissioners. No such requirement was made.

The application by Customs dated 15 August 2005 to the Tribunal did not give Customs the power to carry out a new statutory review without a direction. If a direction had been given, Mr Brenton who was by then involved would have been precluded from carrying it out.

It is of course open to Customs at any time to reconsider their position on a non-statutory basis. Although this was not the intention of Mr Brenton, this was what happened as a matter of law and fact.

I would also point out at this stage that the final two sentences of Mr Brenton's letter (see paragraph 11 above) are manifestly wrong. While the Tribunal cannot direct what the conditions of restoration should be, where conditions are imposed it can and indeed must consider whether the conditions including the amount of any fee are unreasonable.

In the context that Mr Brenton believed that he had carried out a valid statutory review, whereas Mr Shelley correctly considered that he had not, I turn to consider whether there was an agreement which in effect concluded the appeal.

The first point to note is that neither the procedure under section 85 nor that under Rule 17 for settling an appeal by agreement was followed. It was clearly the intention of Parliament that one or other of those procedures should be followed. Both would have required the terms to be specified in writing. A section 85 agreement would have entitled the Appellant to resile within 30 days. It would have involved specifying in terms that the decision was varied in a particular manner. The fact that the procedure was not followed meant that if there was a contract the Appellant was deprived of the right to resile. If either of the statutory procedures had been followed, there should have been no dispute as to whether there was an agreement and what were its terms, so that this hearing should not have been necessary.

Leaving aside the question whether an appeal can be concluded by a contract outside the statutory procedure, in my judgment in circumstances where a party contends that an appeal has been so concluded the burden is on that party to establish the fact of the contract and that it has the effect of concluding the appeal.

The fact that both parties may have thought that there was an agreement is not conclusive if it is not clear what were the terms and whether it concluded the appeal.

In his skeleton argument Mr Smith contended,

"that the Appellant's representative's letter of 19^th September 2005 was an acceptance of the Respondent's conditional offer of restoration and formed a binding contract between them."

The offer on which he relied was that contained in the letter of 31 August. There was no evidence that the terms had been varied apart from the clarification on 15 September that if the sum of £100,077.57 was paid the "goods would be deemed to be duty free goods in free circulation." The word "deemed" in fact added an element of uncertainty.

Returning to the letter of 31 August 2005, it is clear that it was not intended to be a contractual offer but was rather the statement of the conditions on which restoration would be made under section 152(b) of the Customs and Excise Management Act 1979. The wording of the letter reflected this, since it stated that the Appellant need do nothing if the terms were acceptable and merely requested that the appeal be withdrawn; furthermore the letter stated that payment of a restoration fee did not affect the right of appeal against Mr Brenton's decision. Mr Brenton did not write that if the terms were accepted the appeal must be withdrawn.

There was clearly a conversation between Mr Brenton and Mr Shelley on 19 September, however there was no direct evidence of what was said and in particular there is nothing to suggest that Mr Brenton made withdrawal of the appeal a condition. The fact that Mr Shelley, while withdrawing the second appeal, merely asked for cancellation of the 23 September hearing which was concerned with the first appeal indicates that it was not a condition that the first appeal be withdrawn.

The submission by Mr Smith that the acceptance of Customs' offer had the effect that there was no outstanding issue in the first appeal appears to me to conflict with Mr Brenton's letter. It was no doubt because of this that Mr Smith did not submit that it concluded the appeal.

There are further difficulties in Mr Smith's submissions. A contract requires consideration. He did not identify any consideration provided by the Appellant. There was no evidence or suggestion that the Appellant agreed to pay the duty, still less that the Appellant agreed to pay within any time. Mr Smith did not identify any promise by Mr Shelley on behalf of the Appellant. He did not suggest that cancellation of the hearing on 23 September constituted consideration.

I do not derive any assistance from the decision in HSM Technologies E 794 which concerned reinstatement of an appeal which had been withdrawn by the Appellant. In that case the Appellant sought to contest the seizure of the trading stock, however there had been no decision refusing to restore the goods and consequently no review deemed or otherwise against which to appeal, see at [50].

My conclusion that there was no binding agreement concluding the issues in dispute in the appeal is reinforced by the decision of the Court of Appeal in R (DFS Furniture) v Customs and Excise Commissioners [2003] STC 1 albeit on facts which were very different. Mummery LJ, giving the judgment with which the other Lords Justices concurred, said this at [40],

"The letter of 11 November 1996 [from the appellant], read in context and according to its ordinary and natural meaning, did not make any offer to the Commissioners, which was capable of acceptance by them, so as to lead to a concluded agreement to settle the appeal. The letter was not worded as an offer nor, … as an invitation to agree that the decision under appeal was invalid and to treat it as discharged or cancelled … . In the absence of an offer and acceptance, there was no meeting of minds and no agreement, either within the meaning of section 85 or at common law …"

I consider that the second and third sentences apply to the present case.

At [43] Mummery LJ said this,

"It is true that it may be possible to infer an agreement to settle a claim or an appeal from the conduct of the parties and the surrounding circumstances, by relying, for example, on the refund followed by the withdrawal or the appeal. But the making of the refund and the withdrawal of the appeal need not, in all the circumstances, be referable to a prior agreement reached by the parties. It all depends on the context in which the refund was made. There may be a non-contractual explanation for the refund and for the withdrawal or the appeal."

Here of course there was no payment and no withdrawal of the appeal. More important, there was a clear non-contractual explanation for the decision to offer to restore on payment of the duty, namely that it was proper to vary the original decision as to the exercise of the powers under section 152(b).

I conclude that there was no agreement concluding the issues in dispute in the appeal against the review by Mrs Marshall and that that appeal remains to be determined by the Tribunal. Given this conclusion it is not necessary to consider whether such agreement could in law conclude the appeal if it did not comply with either the statutory procedures.

Since Customs still hold the whisky the issue to be decided by the Tribunal is the basis on which a new review should be directed under section 16(4)(b) which provides for a direction to conduct a further review of the original decision "in accordance with the directions of the Tribunal".

I have accordingly directed that within 28 days Customs serve statements by any witnesses intended to be called and that (if necessary) their List of Documents be amended to add any documents relied on by Mrs Marshall in reaching her review decision which are not already listed.

THEODORE WALLACE

CHAIRMAN

RELEASED: 24 January 2007

LON/05/8031