Revenue and Customs Prosecutions Office v M (Rev 1)

LORD JUSTICE TOULSON: On 31st October 2005, Walter Mitchell (the respondent) pleaded guilty at Maidstone Crown Court to being knowingly concerned in the fraudulent evasion of duty payable on the importation of tobacco contrary to section 170(2) of the Customs and Excise Management Act 1979. His plea was followed by confiscation proceedings under the Proceeds of Crime Act 2002 ("POCA").

The prosecution did not assert that the respondent had a criminal lifestyle. It did assert that he had benefitted from the particular crime to which he had pleaded guilty. The benefit contended for by the prosecution was put under two heads. It was alleged that he obtained the tobacco within the meaning of section 76(4) of POCA, the value of which was put at £86,020, and that he obtained a pecuniary advantage within section 76(5) by evading payment of the excise duty payable on the tobacco, calculated at £280,103.71. So the total benefit was alleged to be £304,123.71. The respondent said that in point of fact his only benefit from the offence was £100 paid to him in cash for helping to load the tobacco. The lawyers who were at that stage acting on his behalf accepted that, whatever his real benefit might have been as a matter of fact, under the terms of the Act he obtained the benefit alleged by the prosecution.

The confiscation proceedings were heard by Mr Recorder Males QC. He was troubled by this concession which he thought was wrongly made. After considering the position and hearing argument, he declined to proceed on that basis. He was not satisfied that the respondent had obtained either the tobacco or a pecuniary advantage as contended for by the prosecution. He made a confiscation order against the respondent in the sum of £100, being the amount of the payment for his services as a loader which the respondent admitted receiving. The prosecution appeals against that order under section 31 of POCA by leave of the single judge.

The offence came to light when a lorry was stopped by customs officers at Dover on 17th September 2004. The lorry had come from Belgium and was pulling a refrigerated trailer, containing what were supposed to be frozen chips but in fact consisted mainly of Golden Virginia Tobacco. There were a large number of boxes weighing a total of over 2,000 kilograms. The driver was arrested.

On forensic examination, the respondent's fingerprint was found on one of the boxes and he was arrested on 11th April 2005. Further inquiries showed that he had travelled with three others by car from Dover to Calais on the afternoon before the importation and had returned to Dover early on the morning of the importation. He made another swift visit to Calais on the day after the importation, that is, shortly following the driver's arrest, when he went out and returned on the same day.

Very shortly after his arrest, the respondent made cash withdrawals of nearly £14,000 from a joint bank account in the name of his wife and himself, leaving only a nominal sum in the account. The respondent was illiterate and unemployed. Examination of his bank accounts showed that he was in the habit of making cash payments and withdrawals. In the two months before the importation he paid into his account various sums totalling £23,000 and made a number of withdrawals which totalled a little under £30,000. In October 2004, that is the month after the importation, he paid a total of £5,700 in cash into his account.

The respondent's story of what happened was that he is a member of the travelling community and used to borrow money from a loan shark, C, which he would use to buy horses and cars. They were all cash transactions and this explained the cash entries in his account.

On 16th September 2004, he and three others, including C, went to Belgium on what he called a "lads' day off" to buy alcohol and tobacco. C arranged the trip and paid for the respondent's ticket. While they were on the way back from Ostend to Calais, C asked him to help with the loading of some tobacco onto a lorry. He did so and was paid in cash. He appreciated that this was to help a smuggling operation but he had not been aware that anything unlawful was afoot when they set off from England. He said the withdrawals from the account after his arrest were because C, on learning of his arrest, demanded repayment of money owed to him and C was not a man with whom it was wise to argue.

The Recorder delivered a reserved judgment in which he set out his findings of fact, his analysis of the authorities, as they then stood, and his rulings on law with conspicuous thoroughness and clarity. As to the facts, he stated unsurprisingly that "I did not find the defendant to be a reliable witness". Among other reasons, he commented that:

He observed that the question was not whether the respondent may have had involvement in other criminal conduct because the prosecution was not asserting that he had a criminal lifestyle. His task was to assess what benefit he received from the particular offence. In that context he posed the questions:

Mr Mitchell QC submits that the judge was wrong to reach that factual conclusion. There was some discussion about the test which the court should apply in deciding on an appeal by the prosecution under section 31 of POCA whether the judge was wrong. Mr Mitchell accepted that this division would not reverse the finding of a judge on a matter of fact more readily than would the civil division of the Court of Appeal. Whether any stricter approach should be taken is not a matter which requires further consideration in this case. We are content to approach the matter for present purposes in the same way as would the civil division.

As already mentioned, the judge, having found that the respondent was not a witness on whose evidence he could rely, then asked himself whether he should make either of two findings of fact: the first being that the respondent was one of the organisers of the importation, ie an importer, and the second whether he had played some role greater than that which he had admitted, for which it ought to be inferred that the respondent had received a greater benefit than £100. Mr Mitchell did not pursue the second of those alternatives and in our judgment wisely so; for even if he were able to show that the judge ought to have found that the respondent understated his role and had probably received more than £100, for the court to have made a finding that he had received some larger specific sum would, as Mr Mitchell himself indicated, have been pure speculation. Mr Mitchell therefore confined his submission on the facts to the contention that the judge ought to have found from the circumstantial evidence that the respondent was an importer. He submitted that, if a court were too ready to follow the approach adopted by the Recorder in this case of making a confiscation order on the basis of the limited admissions made by a dishonest witness whom the judge did not believe, the result could be to undermine the efficacy of the Act in a case where an offender had not insignificant unexplained amounts of cash going through his account. But Parliament has enacted the criminal lifestyle provisions precisely in order to meet the case of somebody who has a criminal lifestyle and on whom the burden then rests to account for property which he can be shown to have had.

We are concerned with a case of benefit being asserted in respect of a particular offence, and there the burden rests on the prosecution to show what the benefit was. Ought the judge to have found that the respondent was an importer? Mr Mitchell relied on a combination of the following points: (1) the outward and return journey on 16th and 17th September 2004 in company with three other men, one of whom he knew to be a criminal; (2) the visit to France on 18th September, which Mr Mitchell submits could only sensibly be understood as a visit as a damage limitation exercise following the driver's arrest; (3) the respondent's fingerprint; (4) the payments made into his account; (5) lies told by the respondent about his movements, including lying, as the court found, about where the loading of the goods took place.

In relation to the money, Mr Mitchell sought to go into no further detail about cash movements prior to the date of the offence than the Recorder's summary in his judgment in which he said simply that "Bank statements for that account going back to the year 2000 show that substantial cash payments have frequently been be paid into the account".

It is to be noted from looking at those accounts that nowhere are there payments in, or withdrawals, of sums anything like the purchase price of this consignment of tobacco. The schedule produced by the prosecution for the purposes of the confiscation hearing put £86,020 as the price which would have had to be paid abroad by the respondent for this tobacco. If that money did come from him, there is no supporting evidence of it in his bank statements. We have given the aggregate figure during the two months prior to the offence. This was made up of a number of smaller payments at irregular intervals.

We are not persuaded that the Recorder was wrong in not finding that the respondent was the importer or a co-importer. It was submitted by Mr Mitchell that those who carry out this sort of crime would not send a mere lieutenant overseas to do the loading. His presence at the time of the loading was a strong indicator that he was a driving force behind the importation. We do not accept that that is a necessary inference from the evidence. We find nothing remarkable in the notion that those behind the organisation should despatch underlings to carry out the donkey work. There was an absence in this case of evidence of the sort of high living which might be expected if somebody was in a position to lay out over £80,000 on a purchase of this kind. Of course, it might be submitted that he was one of a partnership, and that his outlay would therefore have been rather less, but that is going into the realms of speculation.

So we proceed on the basis that the Recorder cannot be faulted for not finding as a positive fact that the respondent was an importer. The question then arises whether he nevertheless obtained a benefit within the terms of POCA greater than that which he admitted. Mr Mitchell rightly accepts that if he was not the importer or co-importer, then he could not be held to have obtained the tobacco within the meaning of POCA, applying the guidance on that subject given by the House of Lords in the recent trio of cases, May, Jennings and Green [2008] UKHL 28, 29 and 30, and in other more recent authorities of this court.

However, he does submit that the respondent obtained a pecuniary advantage through the evasion of the payment of the duty payable on the tobacco. Mr Mitchell accepted that a necessary part of that argument is to show that the respondent personally was liable for the payment of that duty. The same point had arisen in the case of R v Chambers [2008] EWCA Crim 2467, where counsel instructed by the Revenue and Customs Prosecution Office made the same concession, which we consider to have been rightly made for the reasons set out in that judgment. So the question is whether this respondent, as a loader, was personally liable for payment of the excise duty.

That depends on the proper interpretation of the Tobacco Products Regulations 2001 (SI 2001 No 1712). Those regulations were made under the Tobacco Products Duty Act 1979, in particular section 2. The regulations were made in order to implement EC Council Directive 92/12/EEC (0J L76, 23/3/1992) and another Council directive which is not of present materiality. Regulation 12 of the 2001 regulations provides, so far as material, as follows:

Regulation 12(1) does not of itself define the moment when tobacco products are charged with duty, although it does say that that is the excise duty point. In order to understand when goods are charged with duty, it is necessary to go to section 2(1) of the Tobacco Products Duty Act 1979, which provides:

Regulation 13 is for present purposes the critical regulation. It is headed "person liable to pay the duty". It provides as follows:

The cases set out in Regulation 13(3)(a) to (d) are all in different ways special instances dealing with particular situations. Regulation 13(3)(a) is part of a scheme which deals with the manufacture of tobacco products in the UK, a process for which registration is required. Regulation 13(3)(b) and (c) relate to schemes by which there may be a suspension of duty under arrangements with registered excise dealers and shippers approved by the Customs and Excise and registered under the 1979 Act. Regulation 13(3)(d) deals similarly with the special case of a person approved as an occasional importer and where a particular regime applies.

One is therefore left with two parts of the regulation which are of general application. Those are regulation 13(1) and regulation 13(3)(e). Regulation 13(1) imposes a personal liability on a person holding a tobacco product at the excise duty point. Regulation 13(3)(e) imposes joint and several liability on "any person who caused the tobacco products to reach an excise duty point". We are concerned in this case with the proper construction of regulation 13(3)(e).

It is important to keep separate in one's mind the distinction between civil liability under the regulations and criminal liability under section 170 of the 1979 Act, which may trigger confiscation proceedings under POCA. A person who dishonestly evades the civil liability will commit an offence and be liable to a confiscation order but it is wrong to approach the construction of the civil liability imposed by regulation 13 on the footing that this regulation is aimed at crooks; it is aimed at importations in general, which will include some dishonest importations but of which the vast majority will be lawful. Mr Mitchell submitted that regulation 13(3)(e) should be given a very wide reach and the Secretary of State, pursuant to statutory powers, had deliberately chosen broad words in order that rogues should not escape. Accordingly, anybody, he submitted, whose role contributed to the importation would fall within regulation 13(3)(e). This would include any driver on any leg of the journey which brought the goods to the point of importation, with knowledge that they were to be imported, and anybody who had loaded the goods.

The court put various examples to him in the course of argument, such as the innocent student abroad who, for an small reward, helped to load cigarettes into the boot of a person's car with knowledge that he was returning to the United Kingdom but no knowledge that the goods were intended to be smuggled. Mr Mitchell, consistently with his broad approach to the wording of the regulation submitted that, yes, he would be someone who had caused the tobacco products to reach an excise duty point. So, if we understood him correctly, would the railway porter at a French station who loaded goods into a car or onto a lorry, knowing that the driver was on his way to the United Kingdom. So too would be the individual driver on any leg of the journey and not merely the company which employed him.

These submissions seemed to us to cast the net of civil liability extraordinarily wide. Importation occurs when dutiable goods enter the UK territorial waters, although the point at which an evasion occurs will not be until the importer ought to declare; but it would seem to us to follow as a matter of logic that the innocent driver of products which he had no idea were intended to be smuggled, or which are not intended to be smuggled, would incur a civil liability which could be of significance if, for example, at a time of economic downturn, credit arrangements made by his employer failed and the excise duty was not paid. Mr Mitchell submitted that this was not so but we do not see as a matter of construction why it would not be so. We readily accept that it would be unlikely that the Revenue and Customs would in fact seek to enforce a liability in such circumstances, but nevertheless we are concerned with the proper construction of the regulation.

When the court was preparing for this appeal we noted that the regulations were made in order to implement the Council Directive to which we have referred. We raised this with counsel, because it is trite law that when regulations are made in order to implement a Council Directive it is proper to have regard to the Council Directive in the construction of the regulations. We are aware that this enquiry took the parties by surprise. Over the short adjournment they studied the Council Directive. It follows that the arguments provided to the court on those regulations may have been less full than if the parties had foreseen the point.

The preamble to the regulations identifies among the objects that "... in order to ensure the establishment and functioning of the internal market, chargeability of excise duties should be identical in all the Member States". Article 1 states that:

Article 7 is a little complex. It provides:

Mr Mitchell submitted that Article 7 applied in the present case. In Article 7.1, for "one Member State" should be read "Belgium" and for "another Member State" should be read "United Kingdom". So the article as applied to this case would read:

It seems to us clear that regulation 13 must have been intended to give effect to those provisions of the Council Directive. One can see a broad comparison between those identified in Article 7(3) and those identified in Regulation 13. As we see it, Article 7(3) is directed in effect at the consignor or consignee or, where one and the same person is the holder of the goods both before and after importation, at that person. That is also a rational way to interpret Regulation 13. Regulation 13(1) would cover a recipient who holds the goods from the moment of the importation and also a person who is carrying through the goods which are that person's before and after the importation. Paragraph 13(3)(e) would cover a consignor. Now, there is a difference in language between Article 7(3) of the Directive, "the person making the delivery" and regulation 13(3)(e), "any person who caused the tobacco products to reach an excise duty point". It may be that the reason for the choice of language in 13(3) is to make clear that attention is being directed to the person who may not be physically making the delivery but is the person who is truly responsible for it being made. In the case of a company, to take an example considered in argument, J Snoops might be the driver and could be said to be the person physically making the delivery, but it would be his employer who, in reality, caused the products to reach the excise duty point.

It is not necessary for us to reach a formal decision on this point. We are conscious, as already indicated, that we have not heard as full argument on this subject as we might, but we are satisfied that the civil liability created by the Regulations is not intended to have the wide sweep contended for by the prosecution. It would be undesirable for us to seek to put a precise definition on the phrase "any person who caused the tobacco products to reach an excise duty point", least of all without fuller argument than we have heard in this case, but it appears to us that it is directed at that person or body who had real and immediate responsibility for causing the product to reach that point, which will typically and ordinarily be the consignor.

The Recorder was not addressed on any of these points. Indeed, he was not referred to the Regulations at all, but we are satisfied that he reached the right conclusion after a detailed analysis of the law, as it was brought to his attention, that there was no personal liability to pay duty on the part of the respondent. Interestingly, much of the Recorder's reasoning anticipated the clarification of the law recently provided by the House of Lords. We would not like to finish without paying tribute to the way in which the Recorder dealt with this case. Faced with the concession by the respondent's former legal advisers that the prosecution's case was right in law, many tribunals would have accepted that concession and proceeded accordingly; but the Recorder, not believing that to be the true position, carried out his own research and gave his reasons in impressive fashion. The consequence of his doing so was to avoid a miscarriage of justice.

For the reasons given, this appeal is dismissed.

MR MITCHELL: My Lord, I am sure there will not be an application to certify a question of general public importance but I mention it so that those behind me have an opportunity to consider it and return and may I invoke the written application procedure, so that, if we do wish to, we can send it through to my Lords' respective clerks and deal with the matter in writing.

LORD JUSTICE TOULSON: Yes. You can do that, if you want -- as I have mentioned more than once in the judgment, we are conscious that you have not had very long to think about that. I did say, not too bluntly, the prosecution knows of it but because, if a judgment is given when there has not been full research and later research reveals that there is some other point which ought to be made, it makes the path of a later court a little easier if it is aware of the circumstances in which the first court came to its decision. If, therefore, in considering your position, you need further research and you think that something turns up which would make a material difference, you are of course free to raise it, but you are absolutely right to say we would prefer the written procedure.

MR MITCHELL: My Lord, in order to preserve timetables, and bearing in mind that this is not an imposition on the respondent, would your Lordships not rule finally on the -- which does not mean to say I am asking you to reserve, because of course I am not -- but if your Lordships do not finally refuse the appeal, then we will have to obtain plainly a printed version of your Lordship's extempore judgment to consider it and not prejudice our time constraints in getting an application in. So your Lordship, in other words, you have given the judgment, we know what the position is but no final order, my Lord, so that that time can be engaged. (pause)

LORD JUSTICE TOULSON: Well, we will say the order not to be formally effected until 14 days after receipt of the transcript.

MR MITCHELL: I am very grateful. Thank you.

MR MOUSLEY: My Lord, I address the court only on this matter, in the light of your Lordship's observations of what happened in the court below: if there are any reports, might they record the fact that I did not appear in the court below?

MR MITCHELL: I could add myself to that, but I understand my learned friend's concern.

LORD JUSTICE TOULSON: Well, I am happy -- if you say that but --

MR MITCHELL: I think it will go on the front of the transcript, my Lord, in respect of both of us that we did not appear below.

MR MOUSLEY: Yes, so long as the reporters are aware.

LORD JUSTICE TOULSON: Yes. Well, I understand that point entirely. It is also the fact that, aside from the fact points, the ones which have exercised us in most of this hearing were not drawn to our attention on your side at all.

MR MOUSLEY: Yes. I have that very much in mind.

LORD JUSTICE TOULSON: And we made no reference to that in the judgment, other than, I suppose, anybody obliquely would realise that this was a point which we have indicated in court today came of its own initiative. But, as I say, the purpose of doing that was to explain -- if somebody wanted to say it was decided in unsatisfactory circumstances, to let them do so.

Yes. Well, thank you.

MR MITCHELL: Thank you, my Lord.