Arena Corporation Ltd v Customs & Excise

Excise duty is an indirect tax levied on alcoholic products. Such products may be lawfully manufactured, sold, held or moved by the owner without payment of duty under duty suspension arrangements, colloquially known as ‘in bond’. In the case of a movement, if the liability to pay duty is to remain suspended the goods must be moved from one bonded warehouse to another subject to a number of prescribed conditions including the use of a quadripartite form known as an accompanying administrative document or “AAD”. When an alcoholic product ceases to be in bond not only excise duty but also VAT becomes payable on the duty inclusive selling price of the product. The proportion of the retail price of an alcoholic product represented by the liability for duty and VAT far exceeds the proportion representing the cost of production. The profit to be made from the fraudulent evasion of duty and VAT exceeds that available from honest trade in the underlying alcoholic product.

By Council Directive 92/12/EEC (“the Directive”), promulgated in February 1992, the Council for the European Communities laid down the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such products. By Finance (No.2) Act 1992 the Commissioners for Customs and Excise (“the Commissioners”) were authorised by regulation to prescribe when, defined as the ‘excise duty point’, and by whom, “being the person or persons having the prescribed connection with the goods at that point or at such other time, falling no earlier than when the goods become chargeable with the duty as may be prescribed”, such duty was to be paid. In purported exercise of that power on 5th September 2001 the Commissioners made The Excise Duty Points (Duty Suspended Movement of Excise Goods) Regulations 2001 SI 3022/2001 (“DSMEG”). Regulation 7(1) imposes liability on the consignor or other person shown in box 10 of the AAD as having provided the requisite guarantee. Regulation 7(2) provides that

“any other person who causes or has caused the occurrence of an excise duty point as prescribed by regulation 3 or 4 above, shall be jointly and severally liable to pay the duty with the person specified in paragraph (1) above.”

The Arena Corporation Ltd (“Arena”) was incorporated in the Isle of Man in March 1993. At all material times it has been owned and controlled by Mr Peter James Schroeder (“Mr Schroeder”), a national of Canada and a resident in Denmark. On 23^rd October 2001 and between 24th January and 11th April 2002 Arena, through Mr Schroeder, engaged in 19 transactions involving the movement of alcoholic products from two bonded warehouses in England, London Bridge Vaults Ltd (“London Bridge”) and Rangefield Import Export Ltd (“Rangefield”). One of those movements was said to be to a bonded warehouse in Italy called SERIO, the other 18 to a bonded warehouse in Belgium called TIN.

The Commissioners considered that irregularities had occurred on each of those movements such that excise duty points had occurred under either Regulation 3 or 4 of DSMEG. On 14th August 2002 assessments to excise duty were made on Arena pursuant to DSMEG regulation 7(2) in the aggregate sum of over £1.8m. (Consequential assessments for VAT were also raised, but as no separate point arises in respect of the VAT assessments I will make no further reference to them.) Arena sought a review of the assessments to duty but without success and on 14th November 2002 appealed to the VAT and Duties Tribunal. The appeal has not proceeded beyond the exchange of statements of case.

On 3rd December 2002 the Commissioners presented a petition for the compulsory winding up of Arena on the ground of insolvency based on the debt constituted by the assessments to duty. On 5th December 2002 Peter Smith J appointed a provisional liquidator of Arena and, on the application of the provisional liquidator in proceedings commenced that day by her in the name of Arena against Mr Schroeder, wide-ranging freezing and other injunctions against him.

On 14th to 16th October and 28th November 2003 Lawrence Collins J heard the winding up petition and an application for summary judgment on the claim made in the name of Arena by the provisional liquidator against Mr Schroeder. On 12th December 2003 Lawrence Collins J made a winding up order against Arena, granted summary judgment against Mr Schroeder for damages to be assessed and ordered him to make an interim payment to Arena of £500,000. Both Arena and Mr Schroeder now appeal with the permission of the judge. Their grounds of appeal may be summarised as follows: (1) DSMEG regulation 7(2) is invalid because (a) it is contrary to the Directive, and/or (b) it is beyond the authority to make regulations conferred by s.1(4) Finance Act 1992; (2) the assessments made on Arena were not justified by DSMEG Regulation 7(2), assuming it to be valid, because (a) there was no excise duty point under regulations 3 or 4 so as to justify the recovery of duty in this jurisdiction, and/or (b) such excise duty point was not caused by Arena within the meaning of Regulation 7(2); (3) the judge was wrong to conclude that Arena had no real prospect of a successful appeal to the Tribunal. I will consider these grounds in due course, but, first, it is necessary to explain the legislative framework and the assessments made on Arena in more detail.

The starting point must be the Directive. It recites the need for the free movement of goods including those subject to excise duties and for the chargeability of duty to be identical in all member states. It points to the need for checks on production and storage and documents to accompany the goods in movement in order to ensure that the duty is ultimately collected. It states that a procedure for the movement of goods “under duty suspension” should be laid down and that

“..excise duty should in the event of an offence or irregularity be collected in principle by the Member State on whose territory the offence or irregularity has been committed, or by the Member State where the offence or irregularity was ascertained, or, in the event of non-presentation in the Member State of destination, by the Member State of departure;”

Article 1 indicates that the object of the Directive is to lay down arrangements for excise duties and other indirect taxes, except VAT, levied in respect of the consumption of products but recognises that specific directives are needed relating to structures and rates of duty on products subject to excise duty. Article 3 provides that the Directive applies at Community level to, amongst others, alcohol and alcoholic beverages. Article 4 contains definitions of “authorised warehousekeeper”, “tax warehouse”, “suspension arrangement”, “registered trader” and “non-registered trader”. Article 5 provides that products to which the Directive applies shall be liable to excise duty at the time of their production within the territory of the Community or of their importation into that territory.

Article 6 provides that

“1.

Excise duty shall become chargeable at the time of release for consumption or when shortages are recorded which must be subject to excise duty in accordance with Article 14(3). Release for consumption of products subject to excise duty shall mean:

(a)

any departure, including any irregular departure, from a suspension arrangement;

(b)

any manufacture, including irregular manufacture, of those products outside a suspension arrangement;

(c)

any importation of those products, including irregular importation, where those products have not been placed under a suspension arrangement.

2.

The chargeability conditions and rate of excise duty to be adopted shall be those in force on the date on which duty becomes chargeable in the Member State where release from consumption takes place or shortages are recorded. Excise duty shall be levied and collected according to the procedure laid down by each Member State, it being understood that Member States shall apply the same procedures for levying and collection to national products and to those from other Member States.”

Title II relates to the production, processing and holding of products subject to excise duty. By Article 13 an authorised warehousekeeper, as defined, is required to provide a guarantee

“if necessary, to cover production, processing and holding and a compulsory guarantee to cover movement, subject to Article 15(3), the conditions for which shall be set by the competent authorities of the Member State in which the tax warehouse is authorised;”

Title III deals with movement of goods. In general movement of products subject to excise duty must take place between tax warehouses. By Article 15(3) and (4)

“(3)

The risks inherent in intra-Community movement shall be covered by the guarantee provided by the authorized warehousekeeper of dispatch, as provided for in Article 13, or if need be, by a guarantee jointly and severally binding both the consignor and the transporter. If appropriate, Member States may require the consignee to provide a guarantee. The detailed rules for the guarantee shall be laid down by the Member States. The guarantee must be valid throughout the Community.

(4)

Without prejudice to the provision of Article 20, the liability of the authorized warehousekeeper of dispatch and, if the case arises, that of the transporter may only be discharged by proof that the consignee has taken delivery of the products, in particular by the accompanying document referred to in Article 18 under the conditions laid down in Article 19.”

Articles 18 and 19 provide for the documentation needed for movements under duty suspension arrangements, including the AAD.

Article 20 states:

“1.

Where an irregularity or offence has been committed in the course of a movement involving the chargeability of excise duty, the excise duty shall be due in the Member State where the offence or irregularity was committed from the natural or legal person who guaranteed payment of the excise duties in accordance with Article 15 (3), without prejudice to the bringing of criminal proceedings. Where the excise duty is collected in a Member State other than that of departure, the Member State collecting the duty shall inform the competent authorities of the country of departure.

2.

When, in the course of movement, an offence or irregularity has been detected without it being possible to determine where it was committed, it shall be deemed to have been committed in the Member State where it was detected.

3.

Without prejudice to the provision of Article 6 (2), when products subject to excise duty do not arrive at their destination and it is not possible to determine where the offence of irregularity was committed, that offence or irregularity shall be deemed to have been committed in the Member State of departure, which shall collect the excise duties at the rate in force on the date when the products were dispatchedunless within a period of four months from the date of dispatch of the product evidence is produced to the satisfaction of the competent authorities of the correctness of the transaction or of the place where the offence or irregularity was actually committed. Member States shall take the necessary measures to deal with any offence or irregularity and to impose effective penalties.

4.

If, before the expiry of a period of three years from the date on which the accompanying document was drawn up, the Member State where the offence or irregularity was actually committed is ascertained, that Member State shall collect the excise duty at the rate in force on the date when the goods were dispatched. In this case, as soon as evidence of collection has been provided, the excise duty originally levied shall be refunded.”

As provided in Article 32 the Directive is addressed to Member States. It is well established that neither that Directive, nor any subsequent EU instrument has given rise to a wholly harmonised system of excise duty, see for example per Simon Brown LJ in R v HM Treasury & others, ex parte Shepherd Neame Ltd (12th February 1999, unreported). It is in that context that it is necessary to consider the Finance (No.2) Act 1992 and the regulations made under it.

Finance (No.2) Act 1992 s.1(1) enables the Commissioners, by regulations to prescribe “the time when the requirement to pay any duty with which goods become chargeable is to take effect”. Such time is defined as “the excise duty point”. S.1(2) provides for the rate of duty to be that prevailing at that time. S.1(3) sets out a range of times which may be prescribed as excise duty points by reference to duty becoming chargeable, cesser of a suspension arrangement, contravention of any requirement or condition for suspension and any time after those times as may be prescribed. With regard to contraventions the subsection specifically authorises a time by reference to whether or not at that time the Commissioners have been satisfied as to some matter.

S.1(4) provides

“(4)

Where regulations under this section prescribe an excise duty point for any goods, such regulations may also make provision—

(a)

specifying the person or persons on whom the liability to pay duty on the goods is to fall at the excise duty point (being the person or persons having the prescribed connection with the goods at that point or at such other time, falling no earlier than when the goods become chargeable with the duty, as may be prescribed); and

(b)

where more than one person is to be liable to pay the duty, specifying whether the liability is to be both joint and several.”

By s.1(7) the word “prescribed” means prescribed by regulations under that section.

Although DSMEG was made in exercise of other statutory powers it is common ground that the relevant authority for them is to be found, if at all, in s.1(4) Finance (No.2) Act 1992. Particular emphasis is laid on the restriction imposed by the words

“being the person or persons having the prescribed connection with the goods at that point or at such other time, falling no earlier than when the goods become chargeable with the duty, as may be prescribed.”

DSMEG Regulation 2 contains definitions of an AAD and an authorised warehousekeeper by reference to the Directive. It defines a “duty suspended movement” as

“a movement of excise goods which:

(1)

starts in one member state and is intended to finish by the arrival of those goods with either:

(i)

the authorised warehousekeeper at a tax warehouse or a registered or non-registered trader in another member state, or

(ii)

the authorised warehousekeeper at a tax warehousekeeper at a tax warehouse in the same member state having passed through at least one other member state during the course of the movement; and

(2)

in respect of which the excise duty to which those goods are subject by virtue of Article 5 of the Directive is suspended pursuant to suspension arrangements as defined in Article 4(c) of the Directive;”

“Irregularity” is defined as “an irregularity or offence within the meaning of Article 20 of the Directive”.

Regulations 3 and 4 define excise duty points by reference respectively to an irregularity occurring or detected in the United Kingdom and the failure of excise goods to arrive at their destination. They are in these terms:

“3.

- (1) This regulation applies where:

(a)

excise goods are:

(i)

subject to a duty suspended movement that started in the United Kingdom; or

(ii)

imported into the United Kingdom during a duty suspended movement; and

(b)

in relation to those goods and that movement, there is an irregularity which occurs or is detected in the United Kingdom.

(2)

Where the Commissioners are satisfied that the irregularity occurred in the United Kingdom, the excise duty point shall be the time of the occurrence of the irregularity or, where it is not possible to establish when the irregularity occurred, the time when the irregularity first comes to the attention of the Commissioners.

(3) Where it is not possible to establish in which member State the irregularity occurred, the excise duty point shall be the time of the detection of the irregularity or, where it is not possible to establish when the irregularity was detected, the time when the irregularity first comes to the attention of the Commissioners.

(4) For the purposes of this regulation, detection has the same meaning as in Article 20(2) of the Directive.

4.

- (1) This regulation applies where:

(a)

there is a duty suspended movement that started in the United Kingdom; and

(b)

within four months of the date of removal, the duty suspended movement is not discharged by the arrival of the excise goods at their destination; and

(c)

there is no excise duty point as prescribed by regulation 3 above; and

(d)

there has been an irregularity.

(2)

Where this regulation applies and subject to paragraph (3) below, the excise duty point shall be the time when the goods were removed from the tax warehouse in the United Kingdom.

(3) The excise duty point as prescribed by paragraph (2) above shall not apply where, within four months of the date of removal, the authorized warehousekeeper accounts for the excise goods to the satisfaction of the Commissioners.”

The full terms of Regulation 7 are

“Payment
7.  - (1) Subject to paragraph (2) below, where there is an excise duty point as prescribed by regulation 3 or 4 above, the person liable to pay the excise duty on the occurrence of that excise duty point shall be the person shown as the consignor on the accompanying administrative document or, if someone other than the consignor is shown in Box 10 of that document as having arranged for the guarantee, that other person.

(2) Any other person who causes or has caused the occurrence of an excise duty point as prescribed by regulation 3 or 4 above, shall be jointly and severally liable to pay the duty with the person specified in paragraph (1) above.”

Regulation 8 prescribes the time of payment to be at or before the excise duty point.

Although the transaction concerning SERIO was liable to duty, if at all, pursuant to s.95 Customs & Excise Management Act 1979 it is to be considered under DSMEG too by virtue of s.94(6) as amended by Finance (No.2) Act 1992.

The general provisions relating to excise duty are contained in Finance Act 1994. S.12(1A) provides that

“...where it appears to the Commissioners –

(a)

that any person or persons from whom any amount has become due in respect of any duty of excise; and

(b)

the amount due can be ascertained by the Commissioners,

the Commissioners may assess the amount of duty due from that person and notify that amount to that person..”

By subsection (3)

“where an amount has been assessed...it shall, subject to any appeal under s.16..be deemed to be an amount of the duty in question due from that person....and may be recovered accordingly, unless or except to the extent that, the assessment has subsequently been withdrawn or reduced.”

S.16 provides that on any such appeal, but subject to immaterial exceptions,

“it shall...be for the appellant to show that the grounds on which any such appeal is brought have been established”.

In relation to the consignments to TIN the Commissioners had already assessed Seabrook and Smith Ltd, the owners of London Bridge and consignor or guarantor as shown in box 10 of the relevant AADs. The assessment on Arena is dated 14th August 2002 and is headed “without prejudice” and described as a notice of joint and several liability to pay excise duty. A copy of the notification of an assessment on Seabrook and Smith and a schedule showing the movements in question, being those to TIN, were enclosed. The assessment continued

“All [these movements] relate to goods which were dispatched under cover of Accompanying Administrative Documents and for which you were the owner at the time of the removal from warehouse.

As an irregularity has occurred, or been detected, in the United Kingdom, an excise duty point has arisen within the meaning of regulation 3 of [DSMEG]. The duty point is on or about 2nd May 2002, this being the time when the irregularity came to the attention of the [Commissioners]. Or in the alternative as the goods have failed to arrive at their destination within four months of the date of removal an excise duty point has arisen within the meaning of regulation 4 of [DSMEG]....Under the provisions of regulation 7(1) of [DSMEG] Seabrook and Smith Ltd, as the guarantor of the movements is liable to pay the excise duty which is due immediately.

Under DSMEG Regulation 7(2) any other person who causes or has caused the occurrence of an excise duty point as specified above shall be jointly and severally liable to pay the duty. The notice of assessment...has been sent to the guarantor, Seabrook and Smith Ltd...

This letter is a formal notification of your joint and several liability.”

The assessment in relation to the consignment to SERIO was in a different form to the details of which it is unnecessary to refer. Neither assessment contained information as to the facts on which the Commissioners relied as entitling them to assess Arena under Regulation 7(2) DSMEG.

In the further and better particulars of the grounds of appeal dated 1st October 2003 ordered by the Tribunal to be served by Arena it is contended, amongst other things, that no duty excise point has arisen under either regulation 3 or 4 of DSMEG, but if it has Arena did not cause it. The response of the Commissioners dated 21st October 2003 sets out the background at some length including the fact that the Commissioners made inquiries in Belgium relating to the consignments to TIN where they obtained evidence from one Norbert Roothaert, an officer of the Belgian Customs and Excise Administration. After setting out the results of that and other enquiries the Commissioners contend that

“xv.

In respect of the consignments to TIN the goods did not arrive at a tax warehouse within the EC. The goods were diverted from duty suspension without payment of excise duty. An irregularity within the meaning of DSMEG has therefore occurred.

xvi.

It has not been possible to detect where the irregularity occurred. An excise duty point has arisen in accordance with regulation 3 of DSMEG on 2nd May 2002 in the United Kingdom being the date on which the irregularity first came to the attention of the [Commissioners] as a result of its enquiries with the Belgian Customs Authorities.

xvii.

In the alternative, excise duty points have arisen pursuant to regulation 4(2) DSMEG at the dates the goods...were removed from [London Bridge and Rangefield]. The goods were removed on the dates given...on the respective AADs.

xviii.

[Arena] instructed [London Bridge and Rangefield] to release the goods...By such instruction [Arena] caused the occurrence of an excise duty point pursuant to regulation 3 of DSMEG or in the alternative regulation 4 of DSMEG in respect of those goods which did not arrive at TIN and is jointly and severally liable with [Seabrook and Smith Ltd] to pay the excise duty due.”

During the course of his reply on the afternoon of the third day of the hearing in this court counsel for Arena sought to contend that the discovery on 2nd May 2002 to which paragraph xvi of the Commissioners’ response relates occurred in Belgium not England. This was based on the evidence of Mr Roothaert to the effect that it was on that day he visited the premises of TIN. In his statement of 29th May 2002 he stated that he then discovered that TIN held no AADs for the relevant consignments. Counsel contended that this showed that the detection occurred in Belgium, not England, with the consequence, so he suggested, that under Article 20(2) of the Directive the irregularity is to be deemed to have occurred in Belgium. This point had not been raised before and counsel for Arena applied for permission to take it.

Counsel for the Commissioners opposed the grant of permission. Having heard argument on both sides we upheld the objection. We said we would give our reasons in our judgments on the appeals to be delivered in due course. Mine are simply that no prior notice of the point had been given to the Commissioners, notwithstanding that the material on which it was based had been available to the advisers of Arena since before the hearing of the petition by Lawrence Collins J. If it had been taken before that hearing the Commissioners would have wished to adduce evidence to show when and how the irregularity had been detected by them and the basis on which Mr Roothaert went to the premises of TIN as part of the investigations being made by the Commissioners as alleged in paragraph xvi of their response in the Tribunal. It would be unjust to the Commissioners to allow the point to be taken at so late a stage.

This point arises for the first time on this appeal pursuant to permission to amend the appellant’s notice granted by Mance LJ on 5th February 2004. It is contended that regulation 7(2) DSMEG is invalid as contrary to or inconsistent with the Directive in that it purports to impose liability on a person or persons, that is one who causes or has caused the occurrence of an excise duty point, who were not referred to in the Directive in addition to those, that is the authorised warehousekeeper and others referred to in Article 15(3), who were.

The same point was raised by Counsel for Arena before Lindsay J in Re Jack Baars Ltd [2004] EWHC 18. As Lindsay J observed, paragraph 31, the point only emerged late in the hearing, thereby restricting the time available for counsel for the Commissioners to deal with it. In the light of such argument as he heard Lindsay J concluded in paragraph 35 that it

“raises a genuine triable issue. It confers on the appeals to the Tribunal the description of their being “real as opposed to frivolous” appeals and even amounts, in my judgment to “a bona fide dispute on substantial grounds” which, moreover, goes to the whole of the debt asserted.”

The reasoning of Lindsay J on that point appears in paragraph 30 in the following terms

“Equally, Article 20 (1) provides that it is to the guarantor that the Member States should look for payment. It is easy to see why that should be so. Where a load of alcoholic drinks, moving under a suspension arrangement, are stolen or are dissipated or vanish without obvious explanation it will plainly be very often difficult, if not impossible, to say when and where the irregularity occurred and who was responsible for it or complicit in it. To avoid that sort of problem the Directive provides instead for liability upon guarantee. Simultaneously it created clear liability irrespective of culpability and a powerful incentive upon the guarantors to do their best to ensure safe arrival without irregularities. For a Member State to add a civil liability not based on guarantee but on some form of causation or culpability (and perhaps on a knowing participation) would be to revert to the very forms of liability which one can assume had proved or were likely to prove so difficult to bring home that the Directive (it would be argued) had replaced them or had never employed them. Moreover, if some only of the Member States did revert to causation or culpability as a test for liability even absent such a person's liability qua guarantor or where provisions on the point differing from one state to another to emerge, it would not be difficult to espy a restriction on that freedom of movement of goods which Community law so strives to achieve and protect. To revert to my example of the 100 cases of whiskey, the English dealer, rather than putting himself at risk by selling to someone as far off as Italy, submitting the goods to the risk of irregularity over so long a journey, may prefer to sell within the United Kingdom (perhaps without the goods even leaving the warehouse) and the Italian purchaser, not a guarantor, may prefer not to deal with a United Kingdom vendor so as to avoid the risk of liability that Reg 7 (2) introduces. He would seek instead to purchase within Community jurisdictions which rely only on the guarantees which the Directive provides for or which otherwise would not put him at risk.”

Counsel for Arena contended that we should find, not only that Lindsay J was right to consider that the argument did indeed raise a bona fide dispute on substantial grounds, but also that as a matter of law regulation 7(2) DSMEG is invalid. He pointed out by reference to the relevant authorities that although member states may have a discretion as to the manner in which the object of a directive addressed to Member States is to be achieved they must achieve it in fact and by the most appropriate method. He referred to the recitals to the Directive I have summarised in paragraph 7 above. He submitted that one of the objectives to be achieved was the avoidance of the necessary checks impeding the free movement of goods. He suggested that the Directive generally provides for a complete regime. He pointed out that by contrast regulation 7(2) is a purely national provision which provides an additional liability beyond that of the guarantor.

In this court counsel for the Commissioners has had more time than he did before Lindsay J fully to research his response to the argument. He pointed out that excise duty is not fully harmonised throughout the EU and relies on the passage in the judgment of Simon Brown LJ in R v HM Treasury & others, ex parte Shepherd Neame Ltd (12th February 1999, unreported) to which I have referred in paragraph 13 above. He submitted that the provisions of Article 15(3) imposing liability on the warehousekeeper or other guarantor do not purport to be exclusive of liability being imposed on others under Article 6(2). He pointed out that the imposition of such additional liability is fully consistent with the opinion of the Social and Economic Committee dated 18th March 1991, to which the Directive referred in the fourth paragraph of the preamble, emphasising the principle of subsidiarity. He relied on decisions of the ECJ in Eurotunnel SA v Sea France ECR [1997] I-6315; Emu Tabac and others [1998] ECR I-1605 and Societe Michel v Recettes des Douanes ECR [2001] I-9141 as demonstrating the limits of harmonisation in the field of excise duty. He criticised Lindsay J for confusing problems of distance selling with the legal concept of the free movement of goods and relied on the fact that DSMEG regulation 7(2) is a provision of the internal tax system which is permitted by Article 90 of the Treaty so long as it is not discriminatory.

I do not find it necessary to deal with the arguments for the Commissioners in such detail. Article 20 is part of Title III of the Directive dealing with the Movement of Goods under suspension. Article 6, part of Title I, General Provisions, provides generally for excise duty to become chargeable at the time of release for consumption, defined to include any departure, regular or irregular, from a suspension arrangement. Under article 6 it is Member States that set chargeability conditions and, necessarily, define the persons by whom duty is payable. The conditions and rate of excise duty are to be those in force on the date on which duty becomes payable. But this is subject, in the case of Movement of Goods to the detailed provisions of article 20(3) and (4). The Directive provides in various places for a guarantee to be issued, e.g. by an authorised warehousekeeper (cf articles 13 and 15(3)) or, in the case of movement of goods, by the consignor and/or transporter or the owner (cf article 15(3) and 20(3)). But these additional guarantee provisions do not exclude the continuing ability of the State to determine by whom duty should be payable under articles 6 and 20(3) and (4) by a person releasing goods for consumption (e.g. by a regular or irregular departure from a suspension arrangement) under the definition in article 6 read (in the case of movement) with article 20(3) and (4). In short, I see nothing in the policy or terms of the Directive to suggest that there is to be implied in the imposition of liability on the guarantor, be he the authorised warehousekeeper, the consignor or the transporter, in implementation of Articles 13(a) and 15(3) of the Directive a prohibition on the imposition of liability on anyone else. The terms of Article 6(2) are inconsistent with any such implied prohibition, recognising, as they appear to do, the freedom of Member States to impose non-discriminatory internal taxation as permitted by Article 90 of the Treaty.

Moreover as was pointed out by Carnwath LJ in Greenalls Management Ltd v Commissioners of Customs & Excise [2003] 1 WLR 2609 para 34 excise duty is not a European based tax, but a domestic tax which has been adapted along with similar taxes in other member states to make it compatible with a single market. He noted in paragraph 36 that Article 6 did not determine the person from whom the duty should be claimed; rather it emphasised the need for the national authorities to ensure that the duty is collected. In paragraph 41 he pointed out that the need for domestic legislation in the form of the Finance (No.2) Act 1992 arose from the fact that the regulations needed to go beyond the scope of the Directive by providing for a liability to tax to arise, not only the time when it arose. Lindsay J was not referred to this judgment.

Further the principle of subsidiarity, as mentioned in the opinion of the Economic and Social Committee to whose opinion the makers of the Directive paid regard, is quite inconsistent with the concept of the Directive containing any restriction on the right of the legislature of Member States to impose a liability on others. Nor do I see how to impose liability on one who causes the irregularity can impede the free movement of legitimate goods.

For all these reasons I reject the contention that DSMEG regulation 7(2) is invalid as being so inconsistent with as to be prohibited by the Directive. It follows that a defence on those grounds, if duly raised before the Tribunal could not, in my judgment, give rise to a bona fide dispute on substantial grounds so as to warrant either the dismissal or adjournment of the winding up petition.

I turn then to the contention that regulation 7(2) is invalid as being ultra vires s.1(4) Finance (No.2) Act 1992. I have set out the terms of both provisions in paragraphs 15 and 19 above. Counsel for Arena points out that s.1(4) requires the regulations to prescribe a connection with the goods at the time of the excise duty point. He contends that not only do they fail to do so but it is not possible to cause an excise duty point any more than it is possible for a human being to cause a particular point in time.

These arguments did not commend themselves to Lawrence Collins J. At paragraph 48 of his judgment he said

“It is true that Regulation 7(2) is not very happily drafted. It provides that any other person who "causes or has caused the occurrence of an excise duty point" is to be liable. But "excise duty point" is, according to Regulation 3(2), "the time of the occurrence of the irregularity or the time when the irregularity first comes to the attention of the Commissioners." What Regulation 7(2) is plainly endeavouring to do is to prescribe responsibility for the occurrence of the irregularity, and not for the time of the occurrence, but I am satisfied that the wording is apt to establish liability for the occurrence. The point which is taken by Arena is that a person who has caused such an occurrence is not a person having a "connection with the goods" within the meaning of section 1(4), and that consequently the 1992 Act does not authorise Regulation 7(2) to be made. I consider that there is nothing in the point. A person who is guilty of an irregularity in relation to goods is plainly a person with a connection with the goods.”

I agree with the judge. The very fact that a person cannot cause a point in time shows that the draftsman cannot have had in mind causation of the excise duty point as such. He must have been referring to the event which marked out that point of time as being significant for the purpose of the regulation, was capable of being caused and was consistent with the purpose of imposing liability on one who might be expected to be required to pay the duty. The obvious and only candidate is the irregularity. The existence of an irregularity is one of only two requirements common to both regulation 3 and 4, the other being the corollary of a duty suspended movement. Further it is consistent with the obvious purpose of the regulation to impose liability on he who caused it. In my view it is clear that a person who causes the underlying irregularity is a person on whom it is intended to impose liability for duty on those goods. I agree with the judge that such a person has an obvious and sufficient connection with the goods so as to come within the terms of s.1(4) and authorise regulation 7(2).

There remains a point on the timing required by s.1(4). Where the excise duty point arises on the occurrence of the irregularity then the connection required by s.1(4) must exist at that time and not earlier. But where the excise duty point occurs on a subsequent detection or attraction of the attention of the Commissioners the connection and therefore the liability will exist at a point of time earlier than the excise duty point. It was suggested that such earlier liability is not permitted by s.1(4).

I do not agree. S.1(4) requires the connection to exist not earlier than the time when “the goods become chargeable with the duty”. That time occurs when in accordance with Articles 6 and 20 there has been a departure from a suspension arrangement because of an irregularity occurring in the course of a movement. Such time is the same as the occurrence of an excise duty point, as envisaged by s.1(3)(a)-(d), or before the time denoted in s.1(3)(e). It follows that though an excise duty point may arise by detection after the occurrence of the irregularity it cannot be before the goods become chargeable to duty. As it is the latter time to which s.1(4) refers no question of inconsistency arises.

For all these reasons I do not consider that regulation 7(2) is invalid as being ultra vires the enabling power contained in s.1(4) Finance (No.2) Act 1992. It follows that an assertion before the Tribunal that the assessments are invalid on that ground could not succeed and cannot give rise to a bona fide defence on substantial grounds to the claim of the Commissioners.

Given that the regulation is intra vires there remains the question what are the necessary elements of the requisite causation. In paragraph 54 of his judgment Lawrence Collins J noted that the Commissioners accepted for the purposes of the petition before him that the expression “any other person who causes or has caused” the occurrence of an excise duty point requires some culpability on the part of that other person. In paragraph 112 he recorded the argument for Arena that the requisite causation must involve more than being the owner of the goods and giving instructions to the warehouse of despatch to arrange for their transportation from one authorised warehouse to another. In paragraph 161 he concluded that

“The only credible picture is Arena being involved in the diversion of the consignments and receiving the proceeds of that diversion in cash in Southend in a form and manner designed to be as untraceable as possible.”

If the evidence justified that conclusion then I do not doubt that Arena caused the irregularity but it is necessary to consider why.

The form of assessment and the response of the Commissioners before the Tribunal both suggest that it was the case for the Commissioners that causation was sufficiently established by proof of ownership and giving instructions for the movement of the goods. In my view that is not enough. It would include, for example, the case of an owner whose goods were stolen en route. In such a case the instructions of the owner may give occasion for the subsequent theft and irregularity but, in the absence of some foreknowledge, they cannot be said to have caused them. Cf Quinn v Burch Bros (Builders) Ltd [1966] 2QB 370

Before us counsel for the Commissioners submitted that there should be interpolated in regulation 7(2) before the words “causes or has caused” the additional words “knowingly or negligently”. I do not accept that submission either, because it adds ingredients not to be found in the regulation, does nothing to explain the ingredients of causation and may actually alter the statutory criterion of liability. For example the word “knowingly” would impose a higher standard than that of causation alone; but the word “negligently” might impose a lower one.

In Environment Agency v Express Car Co. Ltd [1999] 2 AC 22, 29 Lord Hoffmann considered some of the problems associated with causation. He warned against the dangers of overcomplication and oversimplification; he discouraged refuge in Latin or metaphor; he continued with some valuable guidance as to how to deal with questions of causation such as arise in this case. First, it is necessary to ascertain the purpose for which the question is asked. In this case it is in order to ascertain whether a given person, in this case Arena, is jointly and severally liable for the excise duty. Second, the question is not who or what caused the irregularity but ‘did Arena cause it?’. Other persons and events may have been involved. Their actions or occurrence may also have been causative but that will not necessarily excuse Arena. In short, regulation 7(2) does not require the person alleged to have caused the irregularity to have been the only cause. Third, in cases where other persons or events are also involved it is necessary to consider the extent to which their intervention was normal. If it was not then the extent to which such intervention was either intended, foreseen or foreseeable has to be considered. If such abnormal intervention was intended then it cannot interrupt the causation initiated by the owner’s instructions to move the goods. If it was abnormal but not intended but was foreseen then it may not break the chain of causation, but if it was neither intended nor foreseen but was foreseeable then it may. For example, if a lorry laden with duty free whisky is stolen from a lorry park and the whisky is then sold on the black market the answer to the question of causation may differ according to whether or not the owner of the whisky told the driver to stop at that park. If he did then the answer to the question may also differ depending on whether or not the owner of the goods instructed the driver to leave the keys in the ignition.

In my view questions of complicity arise as part of the question of causation not as additional ingredients to a finding of liability. How and why the relevant events occurred, whether any and if so which of them were out of the ordinary and whether those which were out of the ordinary were intended, foreseen or foreseeable by the person alleged to be liable all have to be considered in forming the relevant conclusion on causation.

The assessments were made in respect of an excise duty point under either regulation 3 or 4. In paragraph 54 of his judgment the judge identified two conditions for liability:

“The first is the non-arrival of the goods at the warehouse of destination by reason of an irregularity which occurred in, or was detected in, the United Kingdom. The second is Arena's complicity by virtue of its having "caused" the occurrence of the excise duty point for the purposes of Article 7(2) of the DSMEG Regulations.”

In paragraphs 139 to 148 Lawrence Collins J set out his reasons for finding that the consignments with which he was concerned did not arrive at SERIO or TIN but he made no express finding where the irregularity occurred or when it was detected. Counsel for Arena points out that a finding either that the irregularity was committed in UK or it is impossible to determine where it was committed but it was detected in the UK is necessary if the excise duty is to be recoverable in the United Kingdom pursuant to Article 20(2) of the Directive. Similarly a finding that the goods did not arrive at their destination but that it is not possible to determine where the offence or irregularity was committed is necessary if jurisdiction is to be derived from Article 20(3). It is evident that Regulations 3 and 4 are intended to reflect Article 20(2) and (3) respectively.

Counsel for Arena contends that the test adopted by the judge conflated the two alternatives and that he ended up by asking himself the wrong questions. Counsel suggests that the right questions are ‘was there an irregularity?’ and if so “where did such irregularity take place?’ Counsel suggests that if the judge had asked the right questions he might well have considered that the irregularities occurred in Belgium.

I agree that the judge conflated the issues arising under regulations 3 and 4. I also agree that he did not expressly ask or answer either of the questions counsel for Arena contends are the relevant ones. But the facts he did find, assuming that he was entitled to do so, amply supply the deficiencies.

In relation to Article 20(2) and regulation 3 it is plain that one or more offences or irregularities occurred in the course of the movement of the consignments from London Bridge and Rangefield. Arena has been refused permission to suggest that the irregularity first came to the Commissioners’ attention through Mr Roothaert in Belgium, rather than as a result of the communication of his information to and its consideration by the Commissioners in London (paragraphs 24-25 above). In these circumstances, it is clear that some at least of those offences or irregularities were detected in the United Kingdom. Assuming, without deciding, that regulation 3 is only relevant in either of the two situations identified in regulations 3(2) and (3) (cf. Articles 20(1) and (2) of the Directive), I would readily conclude that the Commissioners were, on the basis of the evidence before them, entitled to conclude that the second situation applied, viz that it was not possible to determine where the offence or irregularity was committed. The relevant consignments had disappeared. Notwithstanding the exhaustive enquiries made by the Commissioners both here and through the Customs Authorities in Belgium and Italy it remained unclear whether the consignments ever crossed the Channel. In those circumstances either it was not possible to determine where the offence or irregularity was committed or it must be assumed under regulation 4 to have been committed in the UK as the last member state in which the presence of the consignments was recorded. Accordingly the conditions imposed by either regulation 3(3) or regulation 4 were satisfied. I would add, however, that the only alternative conclusion – and one which I regard as most probable on all the information now available – is that the irregularities occurred in the United Kingdom, with the goods being sold here for sterling free of duty and VAT on the black market. If the Commissioners had been able to reach that conclusion at the earlier stage when they were making their assessments, it would not have assisted Arena. Regulation 3(2) would have applied, with the excise duty point being, once again, either the time when the irregularity came to the Commissioners’ attention or (on the basis that the irregularity occurred then) the time of removal of the goods from the tax warehouse.

In the case of Article 20(3) and regulation 4 it is also plain that the conditions imposed by those provisions are satisfied. The suspended duty movements were not discharged by the arrival of the consignments at SERIO or TIN within four months of removal from London Bridge or Rangefield or at all. Plainly there have been one or more offences or irregularities. If there is no excise duty point under regulation 3 then there must be under regulation 4.

S.12(3) Finance Act 1994, which I have quoted in paragraph 21, shows that the amount of the assessment is a debt presently due by Arena but subject to its appeal to the Tribunal. On such an appeal, as prescribed by s.16, it is for Arena to establish circumstances justifying the discharge or reduction of the assessments. If there is a real doubt as to the propriety of the assessments then the issues should be resolved by the Tribunal, not only because the Tribunal is the forum prescribed by Parliament, but also because it is not the function of the Companies Court in the exercise of its winding up jurisdiction to adjudicate in respect of a genuinely disputed debt. By contrast a company which is unable to pay its debts is not to be permitted to delay its winding up by advancing spurious excuses for non-payment of the petitioner’s debt.

The test for where to draw the line has been expressed in various different terms. They were referred to by Lindsay J in paragraph 22 of his judgment in Re Jack Baars Ltd [2004] EWHC 18. He said

“In the ordinary way, argues Mr Bompas, insolvency proceedings are recognised as not being the proper forum in which to determine issues in relation to disputed debts; if there is an issue which can be described as a "genuine triable issue" then that ought to be resolved by a trial before the insolvency process is invoked – see Turner –v- Royal Bank of Scotland [2000] BPIR 683 at p. 692 per Chadwick L.J.. The test most frequently applied, in my experience, is whether the petition debt is bona fide disputed on substantial grounds. Mr Bompas, though, draws my attention to Everard and Ors –v- Society of Lloyds per Laddie J., 18^th July 2003 [2003] EWHC 1890 (Ch). In Everard the "real as opposed to frivolous appeal" test seems to have been adopted but there the petitioner, Lloyds, already had judgments against the respondents. That, one might think, would conduce to a more stern test being applied to the respondents' cases rather than, as the "real as opposed to frivolous appeal" would seem to be, if not a test synonymous with the usual one, then an easier one. I thus have some unease about adopting that Everard test as exclusive guidance; I shall fall back instead on the more familiar test; is the debt bona fide disputed on substantial grounds? That I shall take to be the first principal question which I need to address but, as a second one, there may be this; even if no such dispute appears, are there circumstances such that in my discretion (which all accept I have) it would be more appropriate nonetheless either to dismiss or adjourn the Petitions?.”

For my part I think that the traditional test of “bona fide disputed on substantial grounds” is in this case, for all practical purposes, synonymous with “real as opposed to frivolous”. It was not suggested by counsel for Arena in this case that Lawrence Collins J had adopted the wrong test.

In order to test the conclusion of Lawrence Collins J against that standard it is necessary to consider the facts of the case in more detail. He summarised the case for the Commissioners in paragraphs 21 and 22 in the following terms:

21.

The excise duty and VAT claimed by Customs arises in relation to 20 consignments of spirits and beer which between October 2001 and April 2002 Arena acquired in bond in England and sold and shipped, or purported to sell and ship: (a) as to 19 of the consignments, to a Maltese entity called Celers for collection from a bonded warehouse operated by Transport International Nieuwpoort ("TIN") in Belgium; and (b) as to 1 of the consignments, to an Italian company called Euronet srl for collection from a bonded warehouse operated by Serio Import Export ("SERIO") in Italy.

22.

According to Customs: (a) the evidence from Belgian and Italian Customs is that the goods never arrived at their supposed destination and the relevant copy AADs, by which the tax-free movement of goods between bonded warehouses is evidenced and justified, are false; (b) Celers and Euronet srl, if they existed at all, did not genuinely buy the goods; (c) none of the consignments were delivered to TIN or SERIO, and the SERIO warehouse had been closed by the time of the purported shipment to it; (d) the only payments identified by Mr Schroeder as received by Arena in respect of the consignments purportedly sold were payments in cash sterling delivered by hand by an Indian man (who cannot or will not be named) to a Mr Paul Judd (a business associate of Mr Schroeder) in Southend, who then paid the money so received into an account in the name of a company owned by Mr Judd, Ampleaward Ltd; (e) the Indian man neither asked for nor was given a receipt for any of the money, even though he was delivering cash in very large amounts, where almost £800,000 was handed over in a period of some 4 weeks in January and February 2002.”

In paragraph 29 Lawrence Collins J summarised the case for Arena and Mr Schroeder as follows:

29.

The case for Arena and Mr Schroeder on these applications was as follows: (a) it is accepted that Arena, through Mr Schroeder, instructed the warehouses in the UK to move alcoholic goods to the TIN warehouse and to the SERIO warehouse; (b) these movements were made at the request of clients who had been introduced to Arena through word of mouth, a feature of the trading business; (c) the common point of contact for both the customers, Euronet and Celers, was a man called Tony who had, in turn been introduced to Arena by an existing customer; (d) once the instructions were given to the UK warehouses to arrange the movements, they were responsible for the selection of the haulier, the precise transportation arrangements and the proper completion of the AADs and any other required documents; (e) in relation to the SERIO consignment, the goods were despatched on the basis of information from Customs that it was an authorised warehouse on the SEED system (the System for the Exchange of Excise Data maintained by EU countries); (f) Arena was paid for all the goods it transported, and no problems were notified to it by the warehouse which was responsible for the movement, and therefore Arena had no reason to doubt that any of the transactions it engaged in were anything other than valid; (g) Mr Schroeder now believes that, if there was a fraud being carried out, then it was in Belgium by the owners of TIN and that this matter is one for Belgian Customs – the goods arrived but the bond was broken at TIN and the goods were removed from the bonded system at that point.”

It is not suggested that this summary is in any way inadequate.

In paragraphs 30 to 37 the judge summarised the evidence relating to Arena. In paragraph 33 he recorded the evidence of Mr Schroeder that between 1993 and August 2002 Arena had carried out between 100 and 200 deals a year. In paragraph 34 he pointed out the paucity of Arena’s accounting records and in paragraph 35 referred to the analysis of such documents as there were indicating a turnover of £30.5m and a gross profit of £2.3m in the period 1997 to 2002. In paragraph 36 he said that “much of the business appears to have been in cash, and the provisional liquidator cannot tell what has happened to Arena’s money”.

In paragraphs 55 and 56 Lawrence Collins J described the parts played by London Bridge and Rangefield. In this section he referred to Shelley Transport and the part it played in this case in the following terms:

“...London Bridge Vaults Ltd ("LBV")...was owned by Seabrook and Smith Ltd ("Seabrooks," now in administration), which also had a transportation business, which in turn sub-contracted transport to Shelley Transport, which is owned by a Mr Shelley whom Customs allege has previously been involved in the slaughtering of alcoholic beverages. The other bonded warehouse (for consignments 16 to 19) was Rangefield Import Export Limited ("Rangefield"), but transport by Shelley Transport was arranged by LBV on Mr Schroeder's instructions.”

In paragraphs 57 to 73 the judge described the evidence concerning SERIO and TIN. With regard to SERIO he said in paragraph 58

“Customs have produced statements by officials of the Bergamo office of Italian Customs. The effect of the evidence is that SERIO had a store available for a few months in the Telamonte district of Cologno al Serio. It was licensed to operate as a bonded warehouse between September 2000 and June 2001, during which period two consignments arrived at or were despatched from SERIO, one from Ireland and the other from Greece. Italian Customs inspected the warehouse on June 22, 2001 and found that it was no longer available to SERIO, and that it was closed. The licence was therefore revoked on June 29, 2001. All AADs purportedly issued and stamped after June 29, 2001 are therefore false, and the Mr Ricci who purported to sign the Italian Customs' stamp on the AAD is not a person known to Italian Customs.”

With regard to TIN, in paragraphs 60 and 61 the judge recorded that

60.

The evidence is that TIN started trading as a bonded warehouse on November 18, 2001 and had its licence removed on May 8, 2002. Customs claim (on the basis of evidence from Belgian customs) that during the time of its operation only 28 genuine consignments came in and only 25 left. It was a small warehouse, holding about 12 lorry loads, all of which had to be unloaded in the street and it was not possible to transfer a load from one lorry to another without being seen. The warehouse did not have any full-time personnel on the premises, and it was only opened up when it received a fax saying that a lorry was arriving or that a load needed to be sent out. The Belgian authorities kept the warehouse under continuous surveillance, and went there several times a week. Monthly stock checks were taken, and Belgian Customs required notification of arrivals at and departures from TIN.

61.

There is no physical or documentary evidence of the arrival of the relevant consignments at TIN, and Belgian Customs are satisfied that they did not arrive at TIN. None of the relevant consignments were ever found in stock at TIN, and there is no record of any of them leaving TIN. Belgian Customs received no notification in relation to any of the consignments, and the TIN records which the provisional liquidator has obtained do not contain any reference to the relevant AADs. None of the relevant AADs were found at TIN, and none were found at Belgian Customs, and Mr Roothaert considers that the AADs are false. The relevant AADs, where stamped, bear one of two types of stamp. Nine bear a black stamp which resembles the true TIN stamp, and seven bear a blue stamp which is different in colour and typeface (and in the course of the hearing it became apparent that in addition the blue stamp contains an error in the bank account number). There is no trace of the blue stamp in the TIN warehouse, and the TIN employees say that there was no such stamp. Mr Bartel telephoned the shop which made the TIN stamp, and it confirmed that it had only ever made one stamp. The effect of the evidence is that a genuine TIN stamp may have been put on some of the AADs, and a forged stamp on the others.

In paragraphs 64 to 68 Lawrence Collins J considered the evidence in relation to the alleged buyers of the consignments, Celers and Euronet srl. In paragraphs 69 to 71 he considered the part played by Mr Paul Judd. In that connection he said in paragraph 70

“According to Mr Schroeder, payment for the consignments was made "in cash (Pounds Sterling) in the UK by a smart-looking Indian gentleman wearing a turban." As he was in Denmark and Arena did not have any place of establishment or office in the United Kingdom, payment was received on Arena's behalf by Mr Judd who Mr Schroeder telephoned when a payment was expected. Mr Judd would check the amount and confirm receipt to Mr Schroeder of the correct amount. Mr Judd would then pay the sums into his company account in the United Kingdom and then remit the sums to Arena's account in Belgium, or for payment of amounts outstanding from Arena to suppliers in the United Kingdom, or the money would be used to discharge amounts owed to Mr Judd's companies.”

In paragraphs 72 to 79 the judge analysed the evidence relating to the relevant consignments in some detail. With regard to the SERIO consignment he said, in paragraph 73

“I have already said that the Italian Customs have confirmed that the Italian Customs stamp is a forgery, and there is no such person as Mr Ricci with the Bergamo Customs. It is accordingly plain that the AAD is false since SERIO was unauthorised at that time, and the evidence is that there is no such person as Mr Ricci. According to Customs (and there is no evidence to the contrary), there is no evidence of any contemporaneous telephone or fax contact between Arena and Euronet or SERIO.”

In the case of the first four consignments to TIN the judge recorded in paragraph 76 that

“The total amount of the invoices for consignments 1 to 4 was £71,183. Among the documents in this case are letters from Mr Schroeder to his solicitors on September 27, 2002 confirming that the goods in consignments 1 to 4 (and 5) were released only after receipt of payment. The records produced by Mr Judd show that he did not receive cash by Thursday, January 24, 2002 (the date when the instruction to release the goods in consignments 1 to 4 is dated).”

In the case of consignment 5 the judge said in paragraph 77

“There is no written instruction to TIN to release the products, but according to Mr Schroeder's note to his solicitors of September 27, 2002 the goods were released by telephone instruction after payment. According to the telephone records produced by Customs, there is no record of any telephone call from Arena to TIN, and there is no record of any fax or telephone call from TIN to Arena after January 22, 2002 (when there was one telephone call and one fax transmission) until April 2002 (when there was a telephone call from TIN to Arena).”

With regard to the remaining consignments in paragraph 78 the judge said

“In relation to the other consignments, there is no evidence concerning the alleged date of release of the goods to Celers. Consignments 16 to 19 came from Rangefield Import Export Ltd, although Kevin at LBV was asked by Mr Schroeder to arrange the transport. In each of these cases, and in the case of the other remaining consignments there is no written release instruction, and for the reasons given above Customs' case is that according to the telephone and fax records, there was no telephone or fax contact at all between Arena and TIN in the relevant period.”

In paragraph 79 the judge referred to the analysis of payments received by Mr Judd for Arena. He said

“An analysis of the payments received by Mr Judd for Arena shows (a) in the period from January 24, 2002 to February 25, 2002, Arena invoiced Celers for £803,253 of goods; (b) between January 24 (on Mr Schroeder's case) or January 28, 2002 (on Customs' case) and March 22, 2002 Mr Judd received £802,380 in cash for Arena; (c) there is no correspondence between the receipts and the amounts of the invoices; (d) on any view Arena was extending considerable credit to Celers – Customs say that by February 5, 2002 it reached about £280,000. On Mr Schroeder's own figures by that date it was in excess of £40,000.”

In paragraphs 80 to 100 the judge dealt at length with the evidence of Arena as it had developed chronologically. He summarised the first witness statement of Mr Schroeder made on 16th January 2003 noting that the substance of his defence was “that the goods had arrived at TIN and that if there had been any diversion it occurred thereafter”. He noted Mr Schroeder’s description of the normal way in which Arena traded and his account of the dealings between Arena and SERIO and TIN. After noting the evidence given by the provisional liquidator on 7th February 2003 he considered Mr Schroeder’s witness statement in response made on 4th March 2003.

Lawrence Collins J then considered the course of an application to a deputy judge (Mr Alan Boyle QC) made by Arena and Mr Schroeder to discharge the injunctions granted on 5th December 2002 on grounds of material non-disclosure. He noted the view of the deputy judge that the account which Mr Schroeder gave “strains credulity” and recorded the further evidence to which it gave rise both then and thereafter, in particular witness statements from Mr Schroeder dated 23rd June and 10th October 2003.

In paragraphs 101 to 109 Lawrence Collins J set out the submissions of the Commissioners based on this evidence and in paragraphs 110 to 117 the opposing submissions for Arena and Mr Schroeder. In paragraphs 118 to 125 he summarised the claim made against Mr Schroeder by the provisional liquidator and his defence.

In paragraphs 126 to 138 Lawrence Collins J described certain events which occurred after the hearing on 14th to 16th October 2003. They related to questions concerning disclosure and whether the contentions of Arena should be determined by the Tribunal because, inter alia, it could require full disclosure by the Commissioners. The judge sought an assurance from counsel for the Commissioners that

“this matter had been dealt with by Customs on a "cards on the table" basis, and that there were no other relevant documents which had not been disclosed. I was given such an assurance in court on behalf of Customs.”

As the judge recorded in paragraphs 128 to 133 that and subsequent assurances turned out to be wrong. Later the transcript of an interview with Mr Leadbetter, one of the drivers used by Mr Shelley, was produced by the Commissioners. According to the transcript Mr Leadbetter was the driver of consignments 1, 5, 8 and 12 and had delivered them to TIN. The judge was critical of the Commissioners’ approach to that aspect of the case. He summarised the overall position in paragraphs 135 and 136 and continued

“137.

It seems to me that the correspondence and the documents now produced indicate that the provisional liquidator and her solicitors were guilty of nothing more than infelicitous language in the solicitors' letter of February 28, 2003 (which is quoted in Berg & Co's letter of November 21, 2003) which suggested that drivers had been interviewed and in the provisional liquidator's report to the court which also implied that some drivers had been interviewed. For the sake of completeness, I should add that Berg & Co sent to me after the hearing on November 28, 2003 further copy correspondence designed to show that the provisional liquidator had withheld material relating to interviews with personnel of LBV, but I am satisfied that this correspondence is of no assistance.

138.

Arena and Mr Schroeder submit that the production of the material and the contents of Mr Parsons' two statements reinforce their argument that Customs have a vast array of documents in their possession which are, or may be, relevant to the matter, and the court cannot proceed on the basis that it has had all the relevant documents before it.”

In paragraphs 139 to 148, to which I have already referred, Lawrence Collins J set out his reasoning and conclusion that none of the relevant consignments arrived at SERIO or TIN. I will consider some of the details in relation to the specific submissions made on behalf of Arena and Mr Schroeder.

In paragraph 149 the judge turned to the issue of complicity. He said

“The starting point is that Mr Schroeder's account of his dealings is wholly implausible. That in itself does not necessarily mean that it is incredible to the point where it is absolutely unarguable that Arena was not complicit in a diversion, but I am satisfied that the inconsistencies, contradictions, and shifts in Mr Schroeder's evidence make that conclusion inevitable. In my judgment, these are not simply matters for cross-examination, but make his case so implausible that there is no real prospect of it emerging that Arena did not participate in the diversion fraud.”

In paragraphs 150 to 160 the judge set out in detail eleven respects in which it had been demonstrated that the account he gave was not true. At paragraph 161 he concluded that

“Accordingly, I accept the submission that the evidence as a whole shows no bona fide substantial case that in relation to the relevant consignments Arena was, and believed itself to be, engaged in genuine duty-suspended trading. The only credible picture is Arena being involved in the diversion of the consignments and receiving the proceeds, or its share of the proceeds, of that diversion in cash in Southend, in a form and manner designed to be as untraceable as possible.”

In paragraphs 163 and 165 he added

“163.

For the reasons I have given I do not consider that there is any real prospect of a successful appeal to the Tribunal. This is not a case where the weaknesses in Mr Schroeder's evidence are simply matters for cross-examination. Mr Schroeder's case is so incredible, and the shifts in his evidence to meet its contradictions, and his failures to respond adequately to the evidence against him, are such that I am satisfied that there is no conceivable explanation for the events other than that Mr Schroeder and Arena were concerned in a diversion fraud.

165.

I am fully mindful that in the claim against Mr Schroeder I should not conduct a trial on the basis of witness statements, and that I should only proceed to summary judgment if he has no real (as opposed to fanciful) prospect of defending the claim. This does not mean (as those who deal with summary judgments applications on a regular basis well know) that every case in which a defendant makes assertions of fact in a witness statement must go to trial. It was not suggested on Mr Schroeder's behalf that, if he had been complicit in a diversion fraud, he would not be liable to Arena. For the reasons I have given I do not consider that Mr Schroeder can show any real prospect of defending the claim.”

These conclusions are expressed in unusually trenchant terms given that none of the witnesses was cross-examined. The issue on this appeal is whether they were justified. If they were not then the winding up order should be set aside and the petition adjourned until the conclusion of the appeal to the Tribunal.

Counsel for Arena and Mr Schroeder submits that they were not. He makes the following points:

Did the consignments arrive at TIN? Counsel for Arena submits that the judge placed undue reliance on the evidence from Belgian Customs, failed to appreciate that the lack of documentation at TIN was equally consistent with bad book-keeping, did not take into account the fact that other consignments to TIN did arrive and failed to give due weight to the evidence of Mr Shelley and the drivers and failed to consider the evidence of Belgian Customs that the individuals behind TIN were known criminals.

There is some force behind some of these points. Thus the evidence from Belgian Customs is not free from inconsistency and does show signs of development through successive versions. Other consignments did arrive at TIN for some of which TIN’s documentation was similarly inadequate. And TIN was shut down for poor record-keeping. Belgian Customs did apparently consider that the individuals behind TIN were criminal. But the evidence of Mr Shelley and the drivers does not identify the consignments they claim to have delivered. Although Arena had for a considerable time known the identity of Mr Shelley and the drivers, it produced no direct evidence from them. The drivers’ information was given to the police under caution, and was noticeably unspecific. Without admitting participation in diversion, there was nothing that any driver could have said, other than that which they did in effect say, namely that, if the documents suggested carriage and delivery, then carriage and delivery took place. Mr Shelley’s explanation for the absence of any primary documentation recording cross-Channel delivery was that payment was made by the Austrian firm engaging him to carry loads back to England, and that he fitted in the outward loads to fill his lorries. Such limited petrol receipts as he produced do not lend any support to the case that his lorries went to TIN. It is true that there is evidence that the warehouse, London Bridge, or its associated company, Seabrooks was responsible for issuing Mr Shelley with instructions for the deliveries to TIN, but that does not mean that there were no communications by others with him or the drivers.

If this evidence had to be considered against a background of what in other respects appeared to be normal commercial transactions there would be much to be said for leaving the resolution of the dispute to the Tribunal. But it does not. Arena’s underlying documentation and the other documents and evidence relating to the consignment to SERIO and the consignments to TIN are quite inconsistent with the normal course of a typical transaction as described by Mr Schroeder in his first witness statement. And notwithstanding all the investigations which have been undertaken by both sides and the Customs Authorities in both Belgium and Italy there is not a shred of evidence from any source to show that any of the relevant consignments even crossed the Channel.

Thus, in relation to TIN consignments 1 to 5, where there are a few documents of a basic commercial nature, such as a price enquiry by the supposed customer, Celers, and release instructions addressed by Arena to TIN, they do not fit into a pattern which either matches Mr Schroeder’s evidence or is remotely plausible. In the case of consignment 1 to 5, goods were requested and moved from Holland to England, 9 days before - and were instructed to be sent to TIN in Belgium the day before - Celers’ supposed enquiry of 23rd January 2002. For consignment 1, the removal from warehouse, invoice to Celers (which records show can only have been faxed at 1624) and release instructions to TIN (which can only have been faxed at 1659) all took place on 24th January. For consignments 2 to 4, the invoice and release instructions were also on 24th January, but the removal from warehouse took place on 25th January. Mr Schroeder’s evidence was that he ordered release of goods only after receipt of cash, hardly surprising for a new customer whose payment methods were as unconventional as Celers’ are supposed to have been.

According to the books of Ampleward Ltd. (Mr Judd’s company, which received cash allegedly coming from Celers on Arena’s behalf) £70,000 was received on 28th January. Ampleward’s bank account shows cash credits of £600, £4,540, £14,000, £25,000 and £25,000 (making £69,140 on that day). (There were a number of other entries, not suggested to have any direct relevance to the alleged transactions with Celers, on 24th and 25th January, including other substantial deposits and cash credits.) The credits totalling £69,140 are said to have been attributable to consignments 1 to 5, on 28th January. Copies of what are on their face the relevant bank paying in slips show that they bear hand-written dates 28th, but bank stamps dated 24th January. There is nothing to show how the supposed contracts with Celers were concluded, following the supposed price enquiry of 23rd January. Records in respect of Mr Schroeders’ telephone and fax lines show only two calls to Celers, one sending the invoice, the other later at 1734, and he has confirmed that he did not use his mobile to give any instructions. But, it is implausible that some of all of the miscellaneous sums totalling £69,140 could or would have been paid into a Southend bank account on 24th January in payment of invoices for £15,444 and/or £55,791 faxed to Celers at 1624 hours (Danish time) on the same day.

As to later movements, the documentation is even more exiguous. There is nothing in the way of written communications with Celers, save from invoices regularly addressed to Celers one, two or up to six days before the movement, and the telephone and fax records are equally inconsistent with any of the alleged transactions as regards both Celers and TIN. Cash payments allegedly attributable to Celers’ English paying agent continued to be made in Southend often some days after invoices addressed to Celers and after despatch of goods to TIN, but there is no documentary evidence of release instructions to TIN and the records show no telephone or fax communications which could fill the gap.

In respect of one consignment not relied on in support of the Commissioners’ petition (No. 20 in a list put before us, which took place in April 2002, nearly two months after all the other movements and not long before the Belgian Customs enquiries in May which led to TIN’s closure), there is no doubt that actual movement of goods did take place – from England to Belgium, from Belgium to France and then back to England, with the goods remaining Arena’s property throughout until sold to A & J Imports & Exports Ltd., who according to Mr Schroeder introduced to him Tony who in turn introduced Celers. In contrast with the position relating to other transactions, Mr Schroeder was able to produce a good deal of material about the physical side of this movement within a short time. He has given as the reason for so oddly circular a movement that Celers, having placed the order by a telephone call from Tony, let Arena down in another such call from Tony after the goods had reached TIN. However, there is no trace even of an invoice to Celers (or Tony), let alone any evidence of any communication with or complaint to Celers or to Tony. Be that as it may, the fact that this consignment actually moved does nothing to reinforce the occurrence of the previous alleged movements.

The issue relating to SERIO is immaterial. It is true that the Commissioners may have misled Arena into thinking that SERIO was an authorised warehouse at a time when it would have been possible to alter the delivery instructions. If the goods had been delivered to the address given it might have mitigated the irregularity. But as there is no evidence that they were so delivered it can have no effect on the validity of the assessment.

In relation to the finding of complicity counsel for Arena and Mr Schroeder criticised the judge’s reasoning and conclusion. It was said that the forensic analysis of the statements and documents performed by the judge was no substitute for oral evidence and cross-examination of Mr Schroeder. Counsel complained that the judge failed to give weight to the admitted fact that all transport arrangements were made not by Arena but by London Bridge.

But counsel was quite unable to undermine the inherent implausibility of Arena’s case. This is best described in the judge’s summary of the case for the Commissioners in section XVI. I will quote only paragraphs 101 and 102. The judge said

“101.

Customs' case is essentially that Mr Schroeder's case is simply incredible. Celers is said to be a Maltese company, about which Mr Schroeder knew nothing and with whom he was dealing for the first time, introduced by a man named Tony about whom one is told (and Mr Schroeder apparently knew) nothing and with whom Mr Schroeder dealt over the phone. Tony cannot be contacted on any of the phone numbers given for him, and no other contact details are available.

102.

Celers, it is said, was looking to buy from Arena in Denmark goods in bond ex a Belgian warehouse, for which it paid in sterling by delivery of cash to Mr Judd in Southend. Why it should pay in cash sterling in England is not explained. The cash was delivered by a smart Indian gentleman (identified only by the fact that he wore a turban) who neither asked for nor was given a receipt.”

In succeeding paragraphs the points are made that Mr Schroeder did not himself open an account with TIN, Mr Schroeder’s account does not fit with the documents and when faced with contrary evidence Mr Schroeder’s evidence changed in material respects more than once.

It was suggested that a hearing before the Tribunal might elicit more evidence either documentary or oral. But counsel for the Commissioners pointed out that all potential sources, namely the sellers, Tony, the hauliers, the warehouses of despatch and the warehouses of destination as well as all relevant Customs Authorities had been exhaustively examined. Whilst it is possible for odd documents to surface that possibility and its effect must be considered in the context of the relevant questions. They are whether there is any real prospect of Arena and Mr Schroeder establishing to the satisfaction of the Tribunal either that the relevant consignments did arrive at TIN or that Arena was not complicit in their non-arrival so as to show that Arena did not cause any irregularity.

I am satisfied that the answer to both questions is in the negative. When I first read the papers my inclination was that the judge had gone too far. In effect he had disbelieved Mr Schroeder and a number of others without cross-examination and in a forum which did not exist to determine disputed debts. But the longer the hearing continued the more convinced I became that Lawrence Collins J was right to have done so. The evidence of Mr Schroeder is inconsistent not only internally but with the underlying documents. It is not possible for him now to advance to the Tribunal any credible account which could entitle them to discharge the assessment.

In my view the order to wind up Arena was rightly made. In that event it is not suggested that the summary judgment granted in the claim made by Arena against Mr Schroeder was not justified. No complaint is made about the order for an interim payment.

For all these reasons I would dismiss this appeal.

Whilst I have no doubt about the correctness of the judge’s orders in this case, I am concerned lest the procedure adopted in this case is extended to others less clear than this. It is not the function of the Companies Court to adjudicate in respect of a genuinely disputed debt, particularly where it involves the rejection of sworn evidence. But the circumstances of this case are, in my view, both unusual and extreme.

In circumstances such as these it is essential that the procedure is fair. I understand that there is no prescribed form of assessment and no complaint was made about the form used in this case. Nevertheless it is important that the Commissioners should specify either in the assessment or a letter accompanying it what irregularity they rely on and the facts said to support the contention that the person assessed caused it. This would enable a person in receipt of such an assessment to challenge its propriety. If no such information is given and the person assessed merely appeals then the onus is on him to disprove causation without knowing what he is alleged to have caused. This could be oppressive, the more so as he is required to pay the assessed duty before appealing unless the Commissioners agree or the Tribunal orders otherwise.

I agree.

I also agree.