Customs and Excise v Newbury

The Commissioners of Customs and Excise (‘the Commissioners’) appeal by way of case stated from the decision of HHJ Simpson sitting with two justices in Maidstone Crown Court on 18 August 2002. They allowed Mr Newbury's appeal from the order of the Channel Magistrates' Court on 4 April 2002 that certain goods seized by customs officers on 7 April 2001 be condemned as forfeit.

The case raises issues of everyday importance. If someone goes on a shopping trip to the continent and brings back tobacco or alcohol not for their own consumption but to pass on to family or friends in return for no more than what they cost are those goods liable to forfeiture? And if so, are other goods being brought back in the same car for their own use by other people in the car also liable to forfeiture? And is the car also liable to forfeiture even though neither the owner nor the driver was aware of the position?

Obviously, for so long as the United Kingdom wishes to levy excise duties on tobacco and alcohol at a much higher rate than those levied elsewhere in the Community, it will be anxious to detect and deter those who take advantage of the improved communications between these islands and the continent of Europe to import such products without paying United Kingdom rates of duty. The underlying issue in this case is the part played by the individual's rights, both under European Community law and under the European Convention on Human Rights, in determining how far the authorities can go in pursuit of this legitimate aim.

The facts found by the Crown Court are set out in the stated case:

The main issue before the Crown Court was whether liability to forfeiture depended upon the lawfulness of the seizure, which in turn depended on the lawfulness of the initial interception of the travellers. The Crown Court, relying on the Divisional Court's decision in R (Hoverspeed) v Commissioners of Customs and Excise [2002] EWHC 1630 Admin [2002] 3 WLR 1219, held that it did. Questions (1)(a) to (d) in the stated case relate to that question. It is now common ground in light of the Court of Appeal's decision in Hoverspeed [2002] EWCA 1804 ('Hoverspeed') that it did not.

The second question in the stated case is:

"Whether excise goods are liable to forfeiture in a case where they are imported without payment of duty and the importer or holder of the goods holds them not for herself, but for others who have given her the money to buy them, in the context of paras 17 and 18 of the judgment in Lindsay v Customs and Excise Commissioners [2002] 1 WLR 1766."

The Crown Court held that they were not.

The third question in the stated case is:

"Whether, notwithstanding the apparently mandatory terms of s 141 of and paragraph 6 of schedule 3 to the Customs and Excise Management Act 1979, the Court has a residual discretion not to order condemnation of a thing which is liable to forfeiture, if it considers it disproportionate to do so."

The Crown Court held that it had such a jurisdiction. It is also fairly plain from the transcript that they would have found forfeiture on the facts of this case disproportionate, although the ground of their decision was that the goods should not have been seized in the first place.

Section 49(1) of the Customs and Excise Management Act 1979 ('CEMA') provides when goods are liable to forfeiture:

“(1)

Where -

(a)

except as provided by or under the Customs and Excise Acts 1979, any imported goods, being goods chargeable on their importation with customs or excise duty, are, without payment of duty -

(i)

unshipped in any port, . . ..

those goods shall . . .. be liable to forfeiture.”

Section 141(1) provides that (a) any vehicle used for the carriage of any thing liable to forfeiture, and (b) any other thing mixed, packed or found with the thing so liable, shall also be liable to forfeiture. Section 139(1) gives customs officers a discretion whether or not to seize any thing liable to forfeiture. Under schedule 3, para 3, if a thing is seized anyone claiming that the thing is not liable to forfeiture can give notice of his claim. Under para 6, the Commissioners then have to take proceedings for the condemnation of that thing by the court, and 'if the court finds that the thing was at the time of seizure liable to forfeiture the court shall condemn it as forfeited.' However, although the Commissioners must bring proceedings if the thing is to be forfeit, they also have power under section 152 (a) to stay or compound the proceedings, or (b) to restore subject to such conditions (if any) as they think proper, any thing forfeited or seized under the Act. Under section 14(1)(d) and schedule 5, para 2(1)(r) of the Finance Act 1994, a claimant can ask for a review if this is refused and under section 16 of the 1994 Act can challenge the review decision before the VAT Tribunal. The Tribunal's powers are defined by section 16(4):

“(4)

In relation to any decision as to an ancillary matter, or any decision on the review of such a decision, the powers of an appeal tribunal on an appeal under this section shall be confined to a power where the tribunal are satisfied that the Commissioners or other person making that decision could not reasonably have arrived at it, to do one or more of the following, that is to say -

(a)

to direct that the decision, so far as it remains in force, is to cease to have effect from such time as the tribunal may direct;

(b)

to require the Commissioners to conduct, in accordance with the directions of the tribunal, a further review of the original decision; and

(c)

in the case of a decision which has already been acted on pr taken effect and cannot be remedied by a further review, to declare the decision to have been unreasonable and to give directions to the Commissioners as to the steps to be taken for securing that repetitions of the unreasonableness do not occur when comparable circumstances arise in future.”

The scope of the Tribunal's powers has been much debated before us but is currently the subject of a pending appeal to the Court of Appeal in the case of Gora v Commissioners of Customs and Excise [2002] VAT and Duties Tribunal Reports 49.

Ms Simor for the respondent has sensibly concentrated on the position of those whose goods were not liable to forfeiture under section 49(1): ie Mr Newbury, whose goods were only seized because they were mixed, packed or found with Mrs Reed's goods, and Mrs Newbury, whose car was only seized because it was used for the carriage of Mrs Reed's goods, under s 141(1)(b) and (a) respectively. The Commissioners have since decided to return Mrs Newbury’s car but not Mr Newbury’s goods. Ms Simor argues that for different reasons neither of these was liable to forfeiture and the Crown Court was right to decide that it had power to deal with the matter. Only if that fails does she argue the logically prior question of whether Mrs Reed's goods were liable to forfeiture under section 49(1) in the first place.

Her argument in respect of Mr Newbury's goods is squarely based on European Community law. He has the right personally to import goods for his own use by virtue of article 8, EEC Council Directive 92/12 of 25 February 1992, on excise duties ('the Directive'). This reads:

“As regards products acquired by private individuals for their own use and transported by them, the principle governing the internal market lays down that excise duty shall be charged in the Member State in which they are acquired.”

That is a directly effective right Community right. As such it takes precedence over any provision of domestic law which may conflict with it. Domestic courts have to give effect to that right: see European Communities Act 1972, s 2(1) and Amministrazione della Finanze dello Stato v Simmenthal [1978] ECR 629. Hence even though the terms of paragraph 6 of schedule 3 to CEMA appear to give the court in forfeiture proceedings no choice but to condemn the goods if they are 'liable to forfeiture' under the Act, the court must refuse to do this if to do so would be in breach of Mr Newbury's rights under Community law: see Conegate Ltd v HM Customs and Excise [1987] QB 254.

Mr Barling QC for the Commissioners did not in the end dispute that last proposition. But he drew a distinction between charging tax upon the goods and forfeiting them. The Commissioners have not charged Mr Newbury any tax upon his goods. They have simply forfeited them. Their power to forfeit arises under section 141(1)(b), not under section 49(1). Section 141(1) is simply part of the domestic law aimed at enforcing the Community excise duty regime. It is for each member state to decide how to enforce that regime. This country has decided that whenever anything which should pay duty here is brought in, then anything brought in with it is liable to forfeiture even though it should not pay duty here. There is thus no conflict with Community law.

That argument is deeply unconvincing. The right conferred by article 8 is not simply a right not to pay United Kingdom duty on the goods. It must encompass a right to import those goods without paying that duty. When a load of goods is brought into the country in circumstances where customs officers have reasonable suspicions which they wish to investigate, temporary seizure may well be justified. But the court is then charged with determining the facts with a view to deciding whether the goods are in fact liable to forfeiture. Once the court is satisfied as to which goods a person was himself bringing in for his own use then there is no liability to duty and no need at all for his goods to be forfeit in order to enforce any liability to duty upon those goods. The argument, however, is that it may be necessary to do so in order to enforce the liability to duty of other goods found in the same vehicle. At this point the Community law concept of proportionality becomes relevant. In Louloudakis v Elliniko Dimosio [2001] ECR I-5547, 5596, at para 67, it was recognised that as penalties were not harmonised within the Community it remained open to member states to choose the penalties which seem appropriate to them.

'They must, however, exercise that power in accordance with Community law and its general principles, and consequently with the principle of proportionality… The administrative measure or penalties must not go beyond what is strictly necessary for the objectives pursued and a penalty must not be so disproportionate to the gravity of the infringement that it becomes an obstacle to the freedoms enshrined in the treaty."

In this case, the court also found that Mr Newbury had specifically warned his passengers that they must only bring goods in for their own consumption or as gifts. His evidence was that he did not know about Mrs Reed's arrangements. It cannot be necessary to forfeit his goods in order to enforce her liabilities. To do so is in those circumstances indeed an obstacle to the freedoms enshrined in the Treaty and an unjustified interference with his rights under Community law. Indeed it might also be a disproportionate interference with his rights under the European Convention on Human Rights, but that raises rather different issues which are also relevant to the forfeiture of Mrs Newbury's car.

Mrs Newbury's car was forfeit because it was used to transport chargeable goods. There was no countervailing Community law right engaged. There is however a countervailing right under article 1 of protocol 1 to the European Convention on Human Rights:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

In Lindsay v Customs and Excise Commissioners [2002] 1 WLR 1766, at para 52 Lord Phillips of Worth Matravers MR said this:

“The Commissioners' policy involves the deprivation of people's possessions. Under article 1 of the First Protocol to the Convention such deprivation will only be justified if it is in the public interest. More specifically, the deprivation can be justified if it is 'to secure the payment of taxes or other contributions or penalties'. The action taken must, however strike a fair balance between the rights of the individual and the public interest. There must be a reasonable relationship of proportionality between the means employed and the aim pursued: Sporrong and Lonrath v Sweden (1982) 5 EHRR 35, para 61 and Air Canada v United Kingdom (1995) 20 EHRR 150 . . . I would accept [the] submission that one must consider the individual case to ensure that the penalty imposed is fair. However strong the public interest, it cannot justify subjecting an individual to an interference with his fundamental rights that is unconscionable.”

In paras 63 and 64, the Master of the Rolls drew a distinction between those 'who deliberately use their cars to further fraudulent commercial ventures in the knowledge that if they are caught their cars will be rendered liable to forfeiture' and 'the driver importing goods for social distribution to family and friend in circumstances where there is no attempt to make a profit'. The former could not complain about the loss of their car, although even then cases of exceptional hardship must be given due consideration. In the latter, each case should be considered on its particular facts, including scale, whether it was a first offence, whether there was any attempt at concealment or dissimulation, the value of the vehicle and the degree of hardship caused.

It was accepted before us that, in the light of Lindsay, both the Commissioners and the Tribunal must strike this balance. Although the Tribunal's powers are limited by section 16(4) of the 1994 Act, they have a full fact finding jurisdiction: and in Gora v Commissioners of Customs and Excise [2002] VAT and Duties Tribunal Reports 49, the Tribunal held that in order for the proceedings to comply with article 6 of the ECHR it must also have the capacity to determine the issue of reasonableness (which would include proportionality) in the light of the facts found. Gora is currently under appeal, but we are not given to understand that the Commissioners are challenging that aspect of the Tribunal's jurisdiction: they do argue that 'what the rules do not permit is the substitution by the Tribunal of its own view of the merits' (para 90 of their skeleton argument). If by that is meant no more than that the Tribunal cannot actually order a result but must send it back to the Commissioners for them to determine in the light of the Tribunal's decision, that would accord with both section 16(4) and the decision of the Court of Appeal in Lindsay. If it means that the Tribunal cannot consider and make clear its views on the proportionality issue, then it is inconsistent with what is argued before us (see also Commissioners of Customs and Excise v Alzitrans [2003] EWHC 75(Ch)). Mr Barling on behalf of the Commissioners has assured us that in practice the Commissioners will give effect to the Tribunal's determination, including their observations on proportionality in the light of the facts found. Further, as the Master of the Rolls recognised in Lindsay, the Commissioners have a wide range of lesser penalties available to them, which can be tailored to the circumstances of the individual case as found by the Tribunal.

The issue before us is whether it is also open to the court determining whether goods are liable to forfeiture to consider whether forfeiture would be a disproportionate interference with the owner's property rights. Against this it is argued that the issue before the court is the narrow one of whether the property is 'liable to forfeiture' as defined in the statute. There is no need for the court to have this jurisdiction as the Commissioners and Tribunal already have it. Taken as a whole, the condemnation and restoration proceedings are sufficient to comply with Convention rights: see Gascoyne v Customs and Excise Commissioners [2003] EWCA 257 (Ch),paras 112 –120, relying on the European Court of Human Rights’ decision in AGOSI v United Kingdom (1986) 9 EHRR 1. Furthermore, the court has no power to do anything other than decide whether the property is forfeit: it cannot therefore tailor the penalty to the particular circumstances of the case in the way open to the Commissioners and Tribunal.

In Customs and Excise Commissioners v Helman [2002] EWHC 2254 Admin, Davis J held that the courts' jurisdiction was limited to the legality of the forfeiture, as governed by section 141(1)(a) or (b) of CEMA, and they could not consider the wider issues. On the other hand, in Fox v Customs and Excise Commissioners [2002] EWHC 1244 Admin, Lightman J referred an issue arising under domestic law back to the court for factual determination. In rejecting the argument that to do so would not prevent the risk of violation of Convention rights, he pointed out, at para 22, that regard must be had to both the opportunity of defending the claim in court and if that failed making a claim for relief from forfeiture under the procedure invoked in Lindsay. Until the full facts and the outcome of the two sets of proceedings were known, it was premature to assert that Convention rights were violated.

Ms Simor argues that the Helman decision is simply wrong. The court is concerned with the legality of forfeiture. Convention rights are just as much a matter of legality as are European Community rights. Under section 6(1) of the Human Rights Act 1998, it is unlawful for a public authority to act in a way which is incompatible with a Convention right. Under section 6(2), this does not apply to an act if as a result of one or more provisions of primary legislation the authority could not have acted differently, but clearly the Commissioners do have power to act differently if they choose. The Commissioners are a public authority and so is the court. Under section 7(1)(b) 'a person who claims that a public authority has acted (or proposes to act) in a way which is made unlawful by section 6(1) may . . . rely on the Convention right or rights concerned in any legal proceedings . . .. ' It is nothing to the point that another tribunal also has jurisdiction over the same subject matter. This is not a social or policy question which Parliament has left to an administrative body. Ownership and peaceful enjoyment of property is a straightforward civil right. A court which is concerned with that ownership has to determine the issue in the light of all the law, which now includes the rights 'brought home' by the 1998 Act. The European Court of Human Rights decisions in AGOSI v United Kingdom (1986) 9 EHRR 1 and Air Canada v United Kingdom (1995) 20 EHRR 150 were concerned with the compatibility of the system as a whole with Article 6 and Article 1 of Protocol 1. They do not help us to decide the jurisdiction of the court in forfeiture proceedings now that the Human Rights Act is in force. These arguments were not before the court in Helman because the claimant was acting in person.

We can understand why the Commissioners might want to keep this issue under their control, subject to a specialist Tribunal. But courts are used to finding facts and applying their judgment to the consequences of the facts found. There are many other contexts in which courts at all levels have to make the sort of judgments required here. If section 7(1)(b) of the 1998 Act is to have any meaning, how can a court which is seized of the issue of whether property is liable to confiscation by the state not have a duty to consider whether such liability would be in breach of the owner's Convention rights? If it would be, the court cannot condemn the property: it would itself be acting in breach of Convention rights. It is not compelled by CEMA to do so because the concept of liability to forfeiture is capable of incorporating more recently enacted Convention rights.

The argument that the condemnation and restoration procedures, taken as a whole, are sufficient to provide ‘full jurisdiction’ for the purpose of article 6 of the European Convention does not meet the point that seizure and condemnation are themselves acts of interference with the peaceful enjoyment of property and therefore acts incompatible with Convention rights if forfeiture is disproportionate. It is not sufficient to wait until an owner seeks a review and then exercises his right to appeal. The right to peaceful enjoyment is engaged from the moment of seizure and continues thereafter. The initial act of seizure may not be disproportionate because the Commissioners are entitled to investigate. But the interference should cease once an opportunity is available properly to consider whether it complies with Convention rights. The court should not be asked or expected to make an order which is not only in breach of those rights in itself but also legitimates continuing breach by the Commissioners unless and until the review process takes place.

However, section 7 of the 1998 Act does not give the court any wider powers than it already has: see section 8(1). Here, the court's powers are 'all or nothing'. So the court can only refuse to condemn if to forfeit at all would be disproportionate. In this case, where only one passenger was making the sort of non-commercial but not necessarily permitted import contemplated by Lindsay and neither the car owner nor the car driver knew about it, the Crown Court was clearly entitled to find that any forfeiture was disproportionate. Intermediate cases where forfeiture would not be disproportionate if terms were imposed may have to be left to the more sensitive powers of the Commissioners and the Tribunal.

A prior question is whether Mrs Reed's goods were 'goods chargeable on their importation with customs or excise duty' under section 49(1) at all. If they were not, then the other goods and the car were not liable to forfeiture under section 141(1).

This depends upon the interpretation and application of the Directive. The object of the Directive is to determine where goods moving across borders within the internal market should bear duty. The Preamble sets out the basic principles:

" . . . any delivery, holding with a view to delivery or supply for the purposes of a trader carrying out an economic activity independently or for the purposes of a body governed by public law, taking place in a Member State other than that in which the product is released for consumption gives rise to chargeability of the excise duty in that other Member State;

. . . in the case of products subject to excise duty acquired by private individuals for their own use and transported by them, the duty must be charged in the country where they were acquired; . . .”

Article 6 provides that in general excise duty shall become chargeable at the time of release for consumption; article 7 provides that in the event of products already released for consumption in one Member State being held for commercial purposes in another Member State, excise duty shall be levied in the Member State in which those products are held; article 8 (quoted in para 10 above) provides that products acquired by private individuals for their own use and transported by them shall be charged excise duty in the Member State where they are acquired; and article 9 provides that without prejudice to articles 6, 7 and 8, excise duty becomes chargeable where goods are held for commercial purposes in another Member State from the one in which they were released for consumption. Article 9.2 deals with the considerations to be taken into account in deciding when goods are held for a commercial purpose, one of which is quantity, and sets minimum quantities to be used as guidance in determining this. Article 10 deals with distance selling.

The problem, identified in Lindsay, is that in theory something might not be 'held for commercial purposes' under articles 7 or 9 but equally might not be 'acquired by private individuals for their own use and transported by them' under article 8. But it is common ground that these concepts are intended to be antithetical: there can be no clear water between them.

The Directive is given effect in English law by, among other things, the Excise Duties (Personal Reliefs) Order 1992 (the 'PRO'). Article 3 provides that a Community traveller entering the United Kingdom shall be relieved from payment of any duty of excise on excise goods which he has obtained for his own use in the course of cross border shopping and which he has transported. Under article 2(1), 'cross border shopping' means the obtaining of excise goods duty and tax paid in the European Community provided that payment has not been and will not be reimbursed refunded or otherwise dispensed with; also under article 2(1):

"'own use' includes use as a personal gift provided that if the person making the gift receives in consequences any money or money's worth (including any reimbursement of expenses in connection with obtaining the goods in question) his use shall not be regarded as own use for the purpose of this Order."

The Divisional Court in Hoverspeed (see above) held that the PRO was incompatible with the Directive in two respects but also observed that the definition of 'own use' in the PRO did accurately reflect the Directive. The Court of Appeal in Hoverspeed, at the invitation of the parties although not required to do so for the resolution of the case before it, discussed the meaning of articles 8 and 9 of the Directive: see paras 60 to 65. The Court held, at para 65, that articles 8 and 9 are intended to be antithetical: they also held that if products are not covered by article 8 they are to be regarded as held for commercial purposes. They recorded that they were not concerned with the precise scope of the concept 'for his own use' and that the Commissioners accepted that it must receive a sensible interpretation. But they had earlier observed at para 63 that

"There would be an odd lacuna (and indeed a considerably wider exception than article 8 permits) if goods transported by an individual not for his or her own personal use, but for supply to others (albeit for example on a purely reimbursement basis) fell outside the concept of 'product . . . held for commercial purposes in article 9."

Ms Simor accepts that articles 8 and 9 are antithetical. But she argues that what is not held for commercial purposes under article 9 must be personal, rather than that what is not covered by article 8 must be commercial. The crucial distinction, as reflected in the Preamble, is between imports for private and imports for commercial purposes. The criteria in article 9.2 deal with how to decide what is commercial. The other texts of the Directive do not refer to personal 'use' but to personal 'needs' or 'requirements'. It can be a personal requirement for a private person to bring back goods as a favour to friends and family. The PRO's strict insistence that there must be nothing given in return would produce absurd results if strictly applied.

In the EMU Tabac case [1998] QB 791; [1998] ECR I-01605, the European Court considered two questions referred by the Court of Appeal:

“1.

Does Directive 92/12/EEC and in particular Article 8 have the effect of precluding the charging of excise duty on goods in Member State A in circumstances where (ii) the goods were acquired for the use of a private individual in Member State A; (ii) they were acquired in Member State B by an agent acting on behalf of that private individual; (iii) transportation of the goods from Member State B to Member State A was arranged by the agent; and (iv) the individual did not himself travel with the goods from Member State B to Member State A?

2.

Where a scheme has been commercially devised and marketed whereunder purchases made in Member State B for the personal use of a private individual in Member State A are made by an agent for that individual and those purchases are transported from Member State B to Member State A as a result of arrangements made by such an agent, does Directive 92/12/EEC have the effect of precluding the charging of excise duty on those purchases in Member State A?”

The first question might be said to fit the facts of Mrs Reed's import. The second fitted the facts of the commercial enterprise in arranging so-called personal imports which was allegedly involved in the EMU Tabac case. The Court answered in effect the second question in the negative. Ms Simor argues that it did not answer the first.

However, it was part of the Court's reasoning, at para 37, that article 8 is not applicable where the purchase and/or transportation of goods subject to duty is effected through an agent. The Advocate General had answered the first question in the negative and then answered the second a fortiori from the first. The object of the rules is to determine whether duty is payable in the country of origin or the country of destination. The general principle is the latter and article 8 is an exception in which three conditions must be fulfilled: the products must be acquired by private individuals; the products must be acquired by private individuals for their own use; and the products must be transported by private individuals.

"The private individual must carry out sequentially a number of personal operations in order to benefit from the tax provisions in the Member State of purchase: . . . he must travel to that Member State and from there he, personally, must transport the goods acquired. It seems to me to follow logically from those requirements that the purchase, as such, should also be deemed to be limited to a purchase made by the buyer himself, not through an agent or middleman.” (para 27)

The involvement of people other than the purchaser in the intra-Community movement of goods is carefully regulated by other provisions in the Directive, including the provision for distance selling in article 10. If it had been intended that the purchaser could have been reflected by any natural or legal person to whom he had given a power of attorney in order to benefit from article 8 of the Directive, it would have said so. The person doing the transporting must also be the private individual purchaser.

Now it could be said that in his reasoning in a case concerned with a commercial enterprise arranging so-called personal imports for private individuals who never left the comfort of their own armchairs the Advocate General may not have considered carefully enough the position of someone such as Mrs Reed. She travelled to France and bought the goods. She transported them back. Her ‘own use’ might be said to include doing a favour for family or friends who bought them from her for no more than they had cost her to buy. In other words, she was both the purchaser and the transporter within article 8, although she later handed over the goods for what they had cost but at no financial gain to herself.

In this or another case a higher court might find it appropriate to refer these facts to the European Court. But in the face of clear reasoning by the Advocate General, relied upon by the European Court in reaching its conclusion, accepted by both a Divisional Court and the Court of Appeal in this country, and consistent with the wording of the PRO, in our view it would not be appropriate for this court to reach a different conclusion.

It follows that the answer to question 2 in the stated case is 'yes, they are liable to forfeiture'; but the answer to question 3 is that the issue of whether property is liable to forfeiture includes whether forfeiture would be so disproportionate as to be in breach of the particular claimant's rights under article 1, protocol 1 to the Convention and both can be resolved by the court. This is not strictly a question of discretion but a matter upon which the court is entitled to reach its own independent judgment.

We have already indicated that the answer to question 1 in the stated case is ‘no’. However, in the light of the answer to question 2 and 3 and the Crown Office findings, the appeal insofar as it relates to Mr Newbury’s goods and Mrs Newbury’s car is dismissed.