United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2007] UKVAT(Excise) E1042, [2007] UKVAT(Excise) E01042

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Davids Car Hire v Revenue & Customs [2007] UKVAT(Excise) E01042 (15 May 2007)

E01042

Excise duty – car provided on hire to driver – unauthorised travel abroad – importation of hand rolling tobacco – seizure of goods and car – whether owner culpable – agreement between parties that further review to be carried out on footing that owner not culpable – basis for Tribunal's directions – mere agreement insufficient – decision based on factual information provided for intended hearing – appeal allowed and directions given

LONDON TRIBUNAL CENTRE

DAVIDS CAR HIRE Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: JOHN CLARK (Chairman)

JOHN BROWN CBE, FCA, CTA

Sitting in public in London on 1 May 2007

David Gibbs for the Appellant

S Singh of counsel, instructed by the Acting Solicitor for Her Majesty's Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The issue in this appeal is the decision by the Respondents ("Customs") to offer restoration of a Vauxhall Astra, registration number M574UGS, for a fee of £250. When the appeal came on for hearing, Mr Singh applied for a direction that the decision should be set aside and that a further review should be directed on the basis of a finding by the Tribunal that the Appellant was not culpable. We consider below the basis on which the Tribunal may arrive at a decision to direct such a further review, but it is necessary first to set out the background facts.

The factual background

As the hearing consisted simply of the application made by Mr Singh and Mr Gibbs' comments on that application, we heard no formal evidence. The following is therefore taken from the bundle of documents supplied for the hearing.

David's Car Hire is a car hire company based in Essex. It is a "one man firm" owned and run by Mr David Gibbs. (For convenience, we refer in this decision to "the Appellant" as if it were a separate person.) On 19 May 2006 the above vehicle owned by the Appellant was intercepted while being driven by a Mr D Cunnington. Mr Cunnington had hired the vehicle from the Appellant and was attempting to import 7.5 kilogrammes of hand rolling tobacco into the UK. (The hiring of the vehicle to Mr Cunnington had been dealt with by a Mr Bob Cummings on the Appellant's behalf, in the absence of Mr Gibbs.)

The Customs Officer was satisfied that the excise goods were held for a commercial purpose and that none of the proper methods of importation of excise goods had been used. On 19 May 2006 the excise goods were seized as being liable to forfeiture. The Appellant's Vauxhall Astra was seized as being liable to forfeiture because it was used in the carriage of goods liable to forfeiture. A Seizure Information Notice, Seizure of Vehicle Record and Customs Notice No 12A were issued to the driver. It was explained to the driver that the seizure could be challenged within one month of the date of seizure.

On 22 May 2006 the Appellant requested restoration of the Vauxhall Astra. On the same day Customs requested further information. On 23 May 2006, in two separate fax transmissions, Mr Gibbs on the Appellant's behalf provided further information. On 25 May 2006 Mr Bob Cummings on behalf of the Appellant provided a list of the vehicles on the Appellant's hire fleet.

On 1 June restoration of the car was offered for a fee of £250. On 25 June Mr Gibbs responded to this letter explaining why he considered that the fine was "very unfair". His letter was treated as a request for a review of Customs' decision, and on 23 June 2006 Customs wrote to explain the review process and to indicate that if the Appellant wished to provide any further information, this should be done immediately in order to have it taken into account. The Appellant did not provide any further information before the review was carried out; Customs wrote on 31 July 2006 to set out the review decision.

In that decision Mr G Crouch, a Senior Detection Manager for Customs, considered the question of restoration. He did not consider the legality or correctness of the seizure itself, as the Appellant had not appealed to a magistrates' court within one month of the date of the notice of seizure. Having had the opportunity of raising the lawfulness of the seizure in the magistrates' court, there was no second chance of doing so on statutory review or before a tribunal.

Mr Crouch also considered the request for the restoration of the car. If the car was owned by a third party who was not present at the time of the seizure, and that third party could show that they were both innocent of and blameless for the smuggling attempt, Customs could give consideration to restoring the car for a fee. If in addition to being innocent and blameless the third party could demonstrate that they had taken reasonable steps to prevent smuggling in the car, then Customs could consider restoring it free of charge. Mr Crouch continued:

"Whilst I note that the small print on the back relating to the conditions of hire states ' . . . outside the United Kingdom without the express written authorisation of the owner'. However, [punctuated as reproduced] I note from the hire agreement in place between you and Mr Cunnington that you did not specify the area of use on the front of the hire document on either the initial hire document or the continuation document, which from Mr Cunnington's point of view meant that he was able to use the vehicle abroad and improperly import excise goods, which has not bee [sic] disputed by Mr Cunnington. I further note that you have no clause in your terms and conditions of hire that specifically refer [sic] to the smuggling of goods into the UK, something that you may wish to consider adding for the future. It is my view that you as the hirer of the vehicle had not applied any restrictions to the use of this particular vehicle other than those set out and therefore, had not taken reasonable steps to prevent smuggling."

On the reverse of the car hire form the terms and conditions of hire are set out. The following terms are relevant in the present case:

"1. IN no event shall the vehicle be used operated or driven

. . .

(c) knowingly for any unlawful purpose:

. . .

(i) outside the United Kingdom without the express written approval and authorisation of the Owner."

It was confirmed at the hearing that the car had been restored to the Appellant on payment of the restoration fee of £250, although the exact date was not stated.

The Appellant's case

As Mr Singh applied at the beginning of the hearing for the decision to be set aside, Mr Gibbs did not have the opportunity to put the Appellant's arguments at the hearing. We therefore record what we consider to be the relevant arguments among those which he put in the correspondence with Customs.

Mr Cunnington had hired the car for seven days from 6 May to 13 May 2006. At some time between these dates he had telephoned to ask for an extension of the hire period, which the Appellant had agreed. The next Mr Gibbs had heard was that the car had been seized at Dover. A Mrs Thornton at Customs' Post Seizure Unit had informed Mr Gibbs that the Appellant would have to pay a charge to get the car back. She had explained that the amount of the charge for a first offence could vary from almost nothing to a maximum of £250. Subsequently she had informed him that the fine would be the maximum of £250. He felt that this was a very unfair charge, as he had been in business for over ten years hiring cars and had not had this problem before.

Mrs Thornton had asked a number of questions, one of which was whether he told his hire customers that they must not use the hired vehicle to smuggle goods to the UK. He had spoken to other car hire companies and had also hired cars himself in different parts of the UK, and had never been asked this question. The Appellant's agreements asked for confirmation of the area of use. It was the Appellant's practice always to fill in this section. However, in the present case the standard practice had not been followed; on this occasion the task of hiring out the car had been dealt with by a person who helped Mr Gibbs when he was away. Mrs Thornton had seemed not to believe Mr Gibbs' explanation.

An additional point which Mr Gibbs had made to Mrs Thornton was that the Appellant's agreements stated on the reverse that the vehicle being hired must not be taken outside the UK without the Appellant's consent, and even where such consent was given, only where the Appellant had arranged insurance. As Mr Cunnington had not told the Appellant that he was going abroad, this had not been done.

Mrs Thornton had also asked for a list of all of the Appellant's hire cars; this had been provided to her. She had also asked for a list of other hires to Mr Cunnington. All this led Mr Gibbs to think either that Mrs Thornton did not believe his explanations, or that she had the impression that he was involved somehow with Mr Cunnington.

On 8 October 2006 Mr Gibbs had responded to the review decision letter dated 31 July 2006. The review decision had referred to his failure to challenge the seizure of the goods. Mr Gibbs asked how it was possible to challenge the seizure when he had never had any knowledge of what had been seized. In particular, as he had not been the importer, how could he challenge the seizure? It was Mr Cunnington who had been involved in the commission of an offence, and therefore it was Mr Cunnington who should be pursued, not the Appellant. Mr Gibbs had telephoned Dover Customs after the fine of £250 had been imposed, and an officer who had looked at the papers had expressed the view that the amount of goods in the vehicle was barely enough to warrant a seizure. Mr Gibbs accepted that he could not dispute this one way or the other.

In the Appellant's Notice of Appeal, Mr Gibbs set out the grounds of appeal. Mr Cunnington had hired the Appellant's vehicle, and in good faith Mr Gibbs had thought that Mr Cunnington would use it in England, as he had always done before. Mr Gibbs referred to the discussions with Mrs Thornton, and to the indications of a fine of a minimum of nil and a maximum of £250. In relation to the review letter, Mr Gibbs felt that the absence of any appeal by Mr Cunnington against the original decision to impound the contents of the car had no connection to the Appellant, as Mr Gibbs did not even know at that stage what had been in the vehicle. From what he had understood by speaking to Customs staff at Dover, the amount of goods had been so small that if Mr Cunnington had appealed against the seizure, he could possibly have recovered his goods. Mr Gibbs contended that if a fine was to be imposed on the Appellant, it was unfair to charge so much, when the Appellant was an innocent party. If a fine was necessary, it should be imposed on Mr Cunnington.

Customs' case

Despite Mr Singh's application, we think it appropriate to set out a summary of Customs' case as set out in their Statement of Case:

(1) The goods and vehicle were seized lawfully. On seizure, a 'Seizure Information Notice' and a 'Customs Notice 12A' were issued. No appeal was made. The goods and vehicle were therefore condemned pursuant to paragraph 5 of Schedule 3 of the Customs and Excise Management Act 1979.

(2) Customs argued that the offer of restoration of the vehicle for a fee was reasonable and proportionate. The Appellant had been expressly involved in enabling this smuggling operation or had not sufficiently considered the potential for use of its vehicles in smuggling operations. These conclusions were justified on the basis of the information provided by the Appellant in correspondence with Customs.

(3) The Appellant had enabled the smuggling operation and taken part in it by hiring out the vehicle without the security of a deposit; a company of the Appellant's size would not risk hiring out a vehicle without the security of a deposit. The Appellant knew that it was not at risk from Mr Cunnington, because it was involved in the smuggling operation.

(4) The Appellant was either expressly involved in enabling the hire car to be used outside the UK, or implicitly involved because reasonable care and attention were not exercised when leasing the vehicle to Mr Cunnington.

(5) There were inconsistencies in the number of cars that the Appellant had claimed to own. It was inconceivable that a sole proprietor running a company of the Appellant's size could make such a fundamental mistake. These statements were designed to mislead Customs.

(6) The Appellant could not and had not demonstrated hardship caused by the seizure of the vehicle and goods.

(7) If the Tribunal were to decide that the reasons for the decision as set out above were not the reasons behind the Review Officer's decision of 31 July 2006, Customs relied on the case of Alzitrans SL v Customs and Excise Commissioners [2003] EWHC 75 to advance different reasons confirming the Review Officer's decision.

Discussion and conclusions

Mr Singh prefaced his application by stating Customs' acceptance that the Appellant was not culpable. Customs agreed that a further review of their decision should take place, on the basis of a finding by the Tribunal that the Appellant was not culpable. The review should take place within 45 days of the release of the Tribunal's directions. Customs accepted that they should bear the Appellant's costs incurred in relation to the hearing. Mr Singh argued that it had been necessary for the parties to attend the hearing in order for the request for directions to be made. On behalf of the Appellant, Mr Gibbs accepted that these directions should be made.

Despite the agreement between the parties, we do not think that it is correct for us simply to agree to make these directions, especially as we are requested to make a finding that the Appellant was not culpable. Section 16(4) of the Finance Act 1994 governs our jurisdiction in appeals of this type. Having regard to the terms of this sub-section, we consider that it is necessary for us to allow the appeal, and in the course of doing so to set out our directions concerning the basis on which the further review is to be conducted. It is necessary for us to take account not only of the absence of culpability on the Appellant's behalf but also of any other matters which we consider relevant to the terms on which the further review is to be conducted. As a result, we need to look at Customs' conclusions in the light of the points made by Mr Gibbs on the Appellant's behalf.

The first contention of Customs in relation to the review letter is that the goods and vehicle were seized lawfully, and that no appeal against seizure had been made. Although we accept that the appropriate procedures were followed in relation to Mr Cunnington, we entirely understand Mr Gibbs' argument that he had not been given an opportunity to challenge the seizure. The standard approach in these cases does not adequately take account of circumstances where the vehicle is owned by a third party who may wish to put arguments which are independent of any that the driver may have advanced. In particular, serving documentation on the driver without providing all the corresponding information to the owner appears to put the latter at a disadvantage, and may even leave the owner unable to challenge an important element of the case advanced by Customs, especially where, as here, the driver chooses not to challenge the seizure. We think that Customs' procedures in such cases should be reconsidered and if necessary amended to enable possibly innocent third party owners to put their own arguments where this is appropriate.

Customs' second contention, that the offer of restoration of the car for a fee of £250 was reasonable and proportionate, cannot be supported on the basis of the acceptance that the Appellant was not culpable. Even disregarding such acceptance, we consider that Customs' decision was not reasonable or proportionate. There is no basis for any suggestion that the Appellant was expressly involved in enabling the smuggling operation. In relation to the argument that the Appellant had not sufficiently considered the potential for the use of its vehicles in smuggling operations, this fails to take account of the terms of the agreement as set out above. The fact that the restriction on use of the vehicle abroad does not appear on the front of the document does not prevent the hirer of the car from being bound by the contractual conditions imposed on him by the owner. In Mr Cunnington's case, the section on the front of the document headed "Area of use" was not completed as it would normally have been; it is likely that this omission was because Mr Cummings in Mr Gibbs' place dealt with the documentation. However, we do not think that the omission detracts from the strength of the contractual conditions set out on the reverse of the agreement. By taking the car abroad, Mr Cunnington was not only in breach of those conditions, but would not have been covered by the owner's normal insurance.

The reference in Mr Gibbs' letter dated 23 May 2006 to 15 cars as opposed to the 12 hire cars listed in Mr Cummings' fax dated 25 May 2006 should not necessarily be seen as prejudicial. The question being answered in the latter was the number of hire cars; the former may have been referring to the total number of cars owned by the company, whether for hire or otherwise. We think it would have been appropriate for the Customs officer to ask about this discrepancy, rather than simply drawing adverse conclusions without further enquiry.

Having regard to the contractual restrictions against use of the car abroad, we do not think that the absence of a deposit in Mr Cunnington's case should result in the Appellant being seen as facilitating or participating in the smuggling operation. Although it was the Appellant's policy to take a deposit, the omission was that of Mr Cummings, who was working in Mr Gibbs' place when the car was hired out to Mr Cunnington. This omission was an isolated error.

On the question of exceptional hardship, we consider that inappropriate criteria were applied, bearing in mind that it is the business of the Appellant to provide cars for hire. The Appellant's ownership of other vehicles did not reduce the impact on the Appellant of being deprived of the Vauxhall Astra and therefore prevented from deriving hiring income in respect of that vehicle. For hire companies, ownership of other vehicles is irrelevant, and the appropriate test is what loss of profit has resulted from the seizure, and whether this loss of profit amounts to exceptional hardship.

In addition to the loss of use of the vehicle during the period from seizure until restoration, leading to loss of profit, the Appellant has also been kept out of its money for the subsequent period for a reason which Customs now accept was misconceived.

The jurisdiction conferred on us by section 16 of the Finance Act 1994 enables us to direct that Customs decision contained in the review letter is to cease to have effect, and also to direct that Customs shall conduct, in accordance with our directions, a further review of the original decision. We take into account Mr Singh's application on behalf of Customs, and Mr Gibbs' agreement with that application. However, it is open to us to make directions in accordance with our own views, without being bound by the agreement between the parties. One particular element of the agreed suggested directions appears to us on reflection to be too generous; this is the time limit of 45 days for carrying out the further review. We think that this review should be carried out as soon as possible, with the 45 day limit being an absolute maximum. We encourage Customs to produce the further review well within the time limit, to avoid further delay. On the general question of the application, we wish to record that we find it unsatisfactory for Customs to have made this application on the day of the hearing, without any prior notice to the Tribunal, and to have abandoned their grounds for the appeal as set out in the papers submitted to the Tribunal.

In addition to our above findings, we find as requested that the Appellant was not culpable in relation to the hiring of the vehicle to Mr Cunnington. In the absence of culpability, we find it difficult to see that any fee for restoration is appropriate, having regard to Customs' policy relating to hire cars as explained by Mr Crouch in the review letter.

We allow the appeal and make the following directions:

(1) The decision in Customs' letter dated 31 July 2006 to offer restoration of the Appellant's Vauxhall Astra, registration number M574 UGS, for a fee of £250 shall cease to have effect.

(2) As soon as possible, and at maximum within 45 days of the release of this decision, Customs shall carry out a further review of their restoration decision. The review shall be carried out by an officer who has not previously been involved in considering this case. The review shall take into account our finding that the Appellant was not culpable, as well as the other points set out in paragraphs 19 to 28 (inclusive) above.

(3) Within 5 days of the completion of that further review, a copy of that review shall be served on the Tribunal.

(4) Within 7 days of the release of this decision, Customs shall pay to the Appellant by way of reimbursement £35 in respect of Mr Gibbs' expenses of travel to the hearing and £60 for the cost of engaging another person to take charge of the business in Mr Gibbs' absence.

JOHN CLARK

CHAIRMAN

RELEASE DATE: 15 May 2007

LON/06/8080