United Kingdom VAT & Duties Tribunals (Excise) Decisions

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URL: http://www.bailii.org/uk/cases/UKVAT/Excise/2008/E01080.html
Cite as: [2008] UKVAT(Excise) E1080, [2008] UKVAT(Excise) E01080

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Philip T Wharam and Jane E Wharam v Revenue & Customs [2008] UKVAT(Excise) E01080 (10 January 2008)

E01080

PROCEDURE – application to allow appeal on the ground that there would be an abuse of the Tribunal's process if the appeal proceeded; whether Tribunal has power to allow appeal; whether substantial delay and collapse of criminal trial sufficient to warrant appeal being allowed – No – VAT Tribunal Rules 19(3) and (4) – ECHR Art.6.1. – Human Rights Act 1998, s.3.

LONDON TRIBUNAL CENTRE

PHILIP T WHARAM and JANE E WHARAM	Appellants
and
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS	Respondents

Tribunal: Rodney P Huggins (Chairman)

Catherine Farquharson BscACA

Sitting in public in London on 13 December 2007

Dr David Southern, Counsel, instructed by Hepburns, for the Appellant

John O'Flaherty, Counsel, for the Respondents.

???... CROWN COPYRIGHT 2007

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DECISION

The application

1. By a letter dated 2 May 2007 the Appellants through their Solicitors, Hepburns, made application that their appeals be allowed with the Respondents paying their costs.

2. The appeals were against assessments on Philip T Wharam (Mr Wharam) in the sum of £31,977,943 and Jane E Wharam (Mrs Wharam) of £5,649,396.

3. Before the hearing, the only documents which had been served in the proceedings were Notices of Appeal with Grounds and the Respondents' Statement of Case.

Background and procedural history

4. What follows is drawn from paragraph 3 of the Appellants' Skeleton Argument dated 7 September 2007 and the Respondents' Statement of Case. The facts as set out below are not in dispute.

5. The Appellants were directors of four companies which imported numerous consignments of spirits between 1 January 1999 and 5 July 2000.

6. The Respondents (the Commissioners) allege that a total of 546 transactions were carried out at the instigation of either Mr or Mrs Wharam by which spirits were purchased from suppliers in France and the Netherlands, purportedly by one of the four companies on behalf of various customers most of which were in the United Kingdom.

7. The Commissioners further contended that these consignments intended for delivery to various bonded warehouses in the United Kingdom never reached their intended destinations. It was also maintained that in respect of some consignments there existed official Accompanying Administrative Documents which had falsified endorsements indicating receipt of goods by relevant warehouses which never occurred.

8. The Appellants have indicated in their grounds of appeal broadly that the factual assumptions of the Commissioners are mistaken.

9. Assessments were issued by the Commissioners on 5 February 2003 against the Appellants on the basis that they, as individuals, were the true importers of the relevant goods. Further, alternative assessments were issued against three companies through which the Appellants acted on the basis that the importers were indeed those companies.

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10. The Commissioners have submitted in their Statement of Case that the assessments were issued within the time limits provided by section 12(5) of the Finance Act, 1994, asserting that they arose from the fraudulent nature of the importations. The Commissioners also stated that they did not process all the facts necessary for the determination of the assessments until about February 2002 when documents and other evidence received from inquiries in France had been translated.

11. In a letter dated 29 April 2003, the Appellants sought a formal review of the assessments. By a letter dated 13 June 2003, those assessments were upheld. The Appellants appealed on 11 July 2003. The grounds of appeal can be summarised as follows :

(i) The Commissioners cannot "lift the corporate veil" in order to fix the Appellants with personal liability;
(ii) Mrs Wharam had no involvement in this matter;
(iii) There is no basis for the assessments in the Finance Act 1994;
(iv) The assessments are out of time;
(v) The factual assumptions of the Commissioners are mistaken;
(vi) The appropriate Regulations must be interpreted in a
proportionate manner such that joint and several liability cannot
be imposed.

12. On 11 May 2004 the Commissioners delivered their Statement of
Case.

13. In the meantime in 2000 both Mr and Mrs Wharam were arrested and charged with excise duty fraud but these proceedings were discontinued in February 2001.

14. In June 2004, the Commissioners revived the criminal proceedings and at the same time applied to the tribunal to stand over the two appeals for a period of six months or sixty days after the release of the judgments in the criminal proceedings against the Appellants. This was granted by the tribunal. Further applications along similar lines were directed by the tribunal on 19 August 2004 and 8 October 2004.

15. On 1 September 2004, the Appellants and five other defendants were indicted in criminal proceedings.

16. Eventually on 4 December 2006 Her Honour Circuit Judge Faber as a result of Applications on behalf of the Appellants and other Defendants to stay the criminal proceedings gave her ruling accordingly and summarised as follows :

"I have decided to stay the prosecution because on the facts of this case it
will not be possible to hold a fair trial of these Defendants. I have

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formed the view that there is likely to be missing evidence that
undermines the Crown's case and would be of significant assistance to
the Defendants. That missing evidence relates not just to a few
witnesses and to some documentation but to the reliability of all the
witnesses and the documentation from the foreign distilleries and from
the domestic bonds. Whether the evidence of such witnesses and
documentation is excluded from the trial or included under a direction
that it may well be unreliable, cannot cure the unfairness of holding a
trial in the knowledge that there is likely to be other material of such
great significance which cannot be presented to the jury. The reasons for
this conclusion are fully explained below. Here I state only that it does
not flow from a finding of bad faith. It has been unnecessary for me to
make a finding as to whether there was bad faith on the part of any body
involved in this case".

17. On 17 January 2007, at the Commissioners' request the appeals against the assessments were stood over by the tribunal until 31 March 2007. Nothing happened after this date until the Appellants made their application for the appeals to be allowed on 2 May 2007.

The legislation

18. The material words of Rule 19(3) of the Value Added Tax Tribunals Rules 1986 as amended are as follows :-

"… a tribunal may … make any direction as to the conduct of or as to
any matter or thing in connection with this appeal … which it may think
necessary or expedient to ensure that speedy and just determination of
the appeal including the joining of other persons as parties to the appeal"

19. Rule 19(4) of the same Rules provides :-

"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."

20. Sections 3 and 4 of the Human Rights Act 1998 legislated :-

"3. Interpretation of legislation
(1) So far as it is possible to do so, primary legislation and subordinate
legislation must be read and given effect in a way which is compatible
with the Convention rights.

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(2) This section – (a) applies to primary legislation and subordinate
legislation whenever enacted; (b) does not affect the validity, continuing
operation or enforcement of any incompatible primary legislation; and
(c) does not affect the validity, continuing operation or enforcement of
any incompatible subordinate legislation if (disregarding any possibility
of revocation) primary legislation prevents removal of the
incompatibility

4. Declaration of incompatibility
(1) Subsection (2) applies in any proceedings in which a court
determines whether a provision of primary legislation is compatible with
a Convention right.

(2) If the court is satisfied that the provision is incompatible with a
Convention right, it may make a declaration of that incompatibility."

21. The relevant part of Article 6.1 reads as follows :
"in the determination of his civil rights and obligations or of any
criminal charge against him, everyone is entitled to a fair and public
hearing within a reasonable time by an independent and impartial
tribunal established by law …"

22. Cases referred to in the proceedings

[reference to C&E Comrs is Commissioners of Customs and Excise]

Bremer Vulkan ASchiffbau und Maschinenfabrik v South India Shipping Corporation [1981] 1 All ER 289 (Bremer)

Hunter v Chief Constable of West Midlands [1981] 3 All ER 727

Attorney-General v British Broadcasting Corporation [1981] AC 303

C & E Comrs v Gil Insurance Ltd [2000] STC 204

Schouten and Meldrum v Netherlands [1994] 19 EHRR 432 (Schouten and Meldrum)

Kunstannus Oy Vapaa Ajattelija AB v Finland App No. 20471/92 ("Kunstannus")

Ferrazzini v Italy [2001] STC 1314

Kuwait Petroleum (GB) Ltd v C & E Comrs [2001] STC 1568

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Taylor v Lawrence [2002] 2 All ER 353 (Taylor)

Ghaidan v Godin-Mendoza [2004] 2 AC 557 (Ghaidan)

Kingpin European Ltd v C & E Comrs [2004] VTD 18695 (Kingpin)

Morris, Fitch & Hatherley v HMRC[ 2006] VTD 263 (Morris)

Jussila v Finland ECHR Case 73053/01 :23 November 2006

Conlon V Simms [2007] 3 All ER 802

Arguments for the Appellants

23. For the Appellants Dr Southern argued that like a Court a tribunal has the inherent jurisdiction to dismiss an appeal for abuse of process.

24. In support of this assertion he cited from several decisions. He started by referring to the judgment of Lord Diplock in the Bremer case who said at p.295 "The High Court's power to dismiss a pending action for want of prosecution is but an instance of a general power to control its own procedure so as to prevent its being used to achieve injustice."

Dr Southern said that any Court has this inherent power and maintained this included a tribunal which was a Court.

25. He followed by quoting from the judgment of Lord Woolf CJ in Taylor at p.361 :

"We here emphasise that there is a distinction between the question
whether a court has jurisdiction and how it exercises the jurisdiction
which it is undoubtedly given by statute. So, for example, a court does
not need to be given express power or decide upon the procedure which
it wishes to adopt. Such a power is implicit in it being required to
determine appeals … These powers to determine its own procedure and
practice which a court possess are also referred to as being within the
inherent jurisdiction of the court…"

26. Dr Southern then submitted there were six questions to be answered. He put forward further arguments under each question in accordance with the following.

27. First question :

How should the Rules on the Tribunal's jurisdiction and procedure be construed if the Tribunal was to conclude it would be an abuse of process to allow a matter to continue; would it be obliged to hear the case ?

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Dr Southern maintained that Rule 19(3) of the 1986 Rules could be applied to allow the appeal if the tribunal found there had been an abuse of process although he admitted on a literal reading of the phraseology it did not appear this was possible.

28. Second question:

Was Article 6 of the European Convention on Human Rights engaged in the proceedings ?

Dr Southern said it was common ground that Mr and Mrs Wharam were alleged to have committed dishonesty both in the criminal proceedings and in the Statement of Case. Accordingly, Article 6.1 was engaged and therefore could be applied as the procedural rules for the administration of both excise duties and VAT needed to conform with Community law.

He referred to the tribunal decision in Morris which related to the applications in three appeals in a VAT tribunal which sought to allow the appeals on the ground of delay. The tribunal Chairman Mr Theodore Wallace held (inter alia)

"That the reading into rule 19(3) of words enabling the tribunal to
allow an appeal where there had been a delay such as to deprive an
Appellant of his right under Article 6.1 to fair trial cannot be regarded
as inconsistent with a fundamental feature of the legislation; that this
would also accord with the principle of effectiveness in Community
Law."

29. Dr Southern used examples from the Ghaidan case to add weight to his assertion that the interpretation under s3(1) of the Human Rights Act 1998 was the prime remedial remedy of applying Article 6(1).

30. Third question:

Given that the Crown Court is a Higher Court than a tribunal, what is the significance of the Crown Court finding that the Crown's evidence was unreliable ?

Reference was made by Mr Southern to the Ruling of Her Honour Crown Court Judge Faber handed down on 4 December 2006 and particularly paragraph 1 [set out in paragraph 16 of this decision] and paragraphs 92 to 96 (inclusive). He maintained that as Judge Faber had found the evidence was unreliable then that applied likewise to the appeals before the tribunal.

31. Fourth question:

Is there any realistic possibility that the Tribunal could come to a different conclusion from that reached by the Crown Court ?

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He argued that a Crown Court must be a higher judicial body than the tribunal and therefore the tribunal had to take the Crown Court ruling seriously which was more persuasive.

32. Fifth question

Does the correct remedy for the Appellants lie in applying for judicial review to the Administrative Court ?

The Appellants could apply for judicial review, but considered it was more expedient to apply to the tribunal to allow the appeal. In any event, if successful, the Court was likely to refer the case back to the tribunal for determination.

33. Sixth question:

Would it be an abuse of process to hear the appeals ?

Dr Southern pointed out that it was seven years since the acts were alleged to have taken place. The delay in bringing the matter before the tribunal had arisen because the Commissioners had sought twice to pursue the matter by way of criminal indictment. The delay would make a fair trial difficult to achieve and the dimensions which the proceedings had assumed would make their continuance oppressive.

Arguments for the Respondents

34. Mr O'Flaherty for the Commissioners considered Dr Southern's first question as being of prime importance. He said it was widely accepted
judicially that the tribunal was a creature of statute bound by Rules of Procedure. It had no powers to govern its own procedure.

35. He referred to two cases in support of his contention.

First, another tribunal decision where an application to allow an appeal for delay was made in the case of Kingpin. The Chairman was Stephen Oliver QC and he commented in paragraph 33 that the tribunal's jurisdiction was strictly statutory. This was following the Court of Appeal case of Kuwait. Chadwick LJ said in paragraph 114 of the judgment:
"…The tribunal is a creation of statute and it cannot operate outside the
rules which govern its procedure…"

36. He agreed that the High Court had an inherent jurisdiction to deal with an abuse of process but the VAT and Duties tribunal was not a court and therefore did not have an inherent power to allow an appeal. Furthermore, Rules 18(2), 19(3) and (4) did not in his view give a tribunal the power to allow an appeal without a prior direction having been made.

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37. He conceded that as fraud was alleged in the appeals, it was probable that Article 6.1 of the European Convention on Human Rights did apply to these appeals.

38. He then turned to Dr Southern's third and fourth questions. He submitted that the findings of the Crown Court in Judge Faber's Ruling were not binding on the tribunal. The standard of proof in criminal
proceedings was higher than the tribunal as it was beyond reasonable doubt. It would be improper for the tribunal to rely upon the Crown Court ruling.

39. There was, in his opinion, a realistic possibility that the tribunal could come to a different conclusion. There was additional evidence which would be produced.

40. As for the final sixth question, Mr O'Flaherty argued that it would not be an abuse of process for the tribunal to hear the appeals. The Appellants could have acted differently in the proceedings. They had never previously
raised the issue of delay and it was considered by the Commissioners that they had not created excessive delay in the complicated circumstances of the assessments.

Conclusions
Article 6.1

41. Counsel for the parties inferred that Article 6.1 probably applied to the proceedings because the Statement of Case refers to a submission that the assessments arose from the fraudulent nature of certain importations. Paragraph 4 of the Statement continues :

"It is contended that the conduct of both Mr and Mrs Wharam is such
that the conditions of liability to a penalty pursuant to section 8 of the
Finance Act 1994 are established, irrespective of the fact that payment of
the penalty has not at this stage been demanded by virtue of any
assessment. In any event, the Commissioners did not possess all the facts
necessary for the determination of the assessments until around 15
February 2002 when documents and other evidence received from
inquiries in France had been translated."

42. In the case of Morris, Miss Neenan (Counsel for the Commissioners) submitted that there was no criminal charge within Article 6.1 until a penalty is ratified She relied upon a tribunal decision Lai and Lai v Customs and Excise Commissioners (2002) Decision 17739.

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The tribunal Chairman was Stephen Oliver QC who said at paragraph 25 :

"… it is part of the tax system of the United Kingdom that there has to
be an administrative act of assessment before there can be any liability
to tax. When the Commissioners make the assessment, that act creates
the liability. When the individual taxable person carries out his
statutory obligation and files his own return, that likewise creates
the liability. Both ways there are no "civil rights and obligations", for
Article 6 purposes, until the assessment has been made. By the same
reasoning there will have been no "criminal charge" against a taxable
person until the Commissioners have taken the appropriate step of
either issuing a civil penalty notice (under section 60) or instituting
criminal proceedings under section 72 …"

We agree with that reasoning.

In these appeals, although criminal proceedings were instituted against the Appellants they have been removed and there are no criminal charges existing since 4 December 2006. In our opinion this means that the Appellants cannot rely upon the reference in Article 6.1 to "any criminal charge" to bring this provision into force because there is no criminal charge subsisting.

Furthermore, there is no penalty raised against the Appellants at this stage of the proceedings.

43. As for "civil rights and obligations" which is the other avenue affected by Article 6.1 we agree with Mr O'Flaherty that it is settled law that Article 6 is inapplicable to civil taxation disputes or to proceedings relating to the assessment of tax. This is made quite clear in the cases of Schouten and Meldrum and Kunstannus.

44. On this basis, we take the view that his assumption must be correct. Therefore, Article 6 does not apply in this application and we do not have to consider the implications of Article 6.1 with reference to the circumstances bringing about this application.

45. Having heard the other legal arguments for both parties, there are two possible further remedies which Dr Southern argued assisted the Appellants and we now consider these in turn.

Has the tribunal an inherent jurisdiction to allow an appeal for an abuse of process ?

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46. It is clear following the submission of Mr Southern that higher courts
have an inherent jurisdiction to dismiss an appeal for abuse of process. What is not clear is whether a tribunal has a similar jurisdiction. Dr Southern maintained that a tribunal is a court. We agree with Mr O'Flaherty that there is no authority in statute or case law giving a firm indication that is the case. It is well established that the jurisdiction of the tribunal is strictly statutory.

47. Therefore, the tribunal does not have the power to exercise many of the remedies available to the higher courts under their inherent jurisdiction. The existence of an inherent jurisdiction pf the tribunal is at best uncertain. We have to be sure on the balance of probabilities that Dr Southern is right. We cannot follow that course because of the uncertainty.

What is the effect of Rules 19(3) and 19(4) ?

48. In our view, Rule 19(4) of the Value Added Tax Tribunals Rules 1986 only provides a power for the tribunal to allow or dismiss an appeal where any party to the appeal has failed to comply with any direction of the tribunal (although Rule 19(5) provides for waiver of any breach or non-observance with the Rules or any direction of the tribunal). This is an express power provided by statute, but it des not apply in the present case as the Appellants have not pleaded that the Respondents have failed to comply with the Rules or with any direction of the tribunal.

49. Rule 19(3) provides a power for the tribunal to "give or make any direction as to the conduct of or as to any matters or thing in connection with the appeal or application which it may think necessary or expedient to ensure the speedy and just determination of the appeal …" Unlike the express wording of Rule 19(4), there is no power here to allow or dismiss an appeal. Rather there is just a power to give directions for the conduct of the appeal, which quite clearly cannot include actually determining the appeal either way.

50. Thus, the tribunal has no inherent jurisdiction to allow an appeal on the ground of abuse of process and it has no statutory power to allow or dismiss an appeal other than in accordance with Rule 19(4) prior to the final determination of the appeal.

51. We have dealt with the first, second and sixth questions raised by Dr Southern. As for questions three and four these relate to the aborted criminal proceedings against the Appellants, It is obvious from the Ruling of Judge Faber that there is a considerable amount of evidence at stake some of which was found unreliable. We have not had an opportunity of looking at this evidence and comparing it with the evidence and

documentation in the current appeals. Besides which there were other defendants in the criminal proceedings. It is therefore not possible for us to comment on these questions which must be left to the tribunal hearing these appeals.

52. As for the fifth question, it would appear that the Appellants could make an application to the QBD Administration Court for judicial review when that Court should have an inherent jurisdiction to consider an abuse of process.

53. There are some features in the process of these appeals which are unsatisfactory but we believe we do not have the power to allow the appeals at this stage of the proceedings. Accordingly, the application is
dismissed.

54. However in view of the delay which has occurred so far we DIRECT
that a pre-hearing review is arranged by the tribunal centre as soon as possible at which, if practical, the same Chairman of the tribunal should sit. Then directions can be given as to the timescale of further steps in the proceedings and if, for instance, the Respondents do not comply with time limits, the Appellants are at liberty to apply for an "unless" direction when Rules 19(3) and (4) could come into force.

55. We make no order of costs in the circumstances of this application and bearing in mind the current plights of the Appellants.

Rodney P Huggins
Chairman
Release date: 10 January 2008

LON/2003/8160