The Commissioners for HMRC & Anor, R (on the application of) v John Charles Parsons & Ors

In these proceedings the Claimant (“HMRC”), the successor to Her Majesty’s Commissioners of Customs and Excise, seeks judicial review of two determinations dated 27 January 2005 of Mr Raymond Machell QC, acting as statutory referee appointed under paragraph 17(4) of Schedule 3 to the Customs and Excise Management Act 1979 (“CEMA”), determining the market value of tobacco goods belonging to the Interested Parties that Customs had seized and destroyed. For convenience, I refer to both H.M. Commissioners of Customs and Excise and HMRC as “Customs”. One of Mr Machell’s determinations related to goods that had been imported by the First and the Second Interested Parties, Messrs Parsons and King; the other related to goods imported by the Third and the Fourth Interested Parties, Messrs Cusiter and Henderson. CEMA requires Customs to pay that market value so determined to the Interested Parties.

Different referees have made different decisions as to the basis on which the market value of such goods is to be determined. Mr Machell decided that the market value of the cigarettes and tobacco imported by the Interested Parties that had been seized by Customs and destroyed as being perishable was the retail price of similar goods in the UK. He had previously, on 7 April 2004, made a determination to a similar effect in a similar case. On 19 November 2004 another referee, Mr Andrew Edis QC, had refused to follow Mr Machell’s earlier decision, and decided that the appropriate award was of the retail price of the tobacco goods in the country of purchase, in that case Spain. Conversely, in his determinations of 27 January 2005 Mr Machell refused to follow the decision of Mr Edis. The difference is substantial: in the case decided by Mr Edis, on the basis of Mr Machell’s decision, the sum payable to the importers would have been some £4,400, whereas the sum awarded by Mr Edis was £1,743. By reason of the volume of personal imports of cigarettes and other tobacco goods from other countries in the EU, the principal issue before the Court is of considerable practical and financial importance.

Tobacco is a perishable commodity. Mr Machell’s determination of 27 January 2005 included an award in respect of alcoholic goods, including spirits, which had a long shelf life. They had been disposed of by Customs in error. Customs contends that the statutory jurisdiction of Mr Machell was limited to perishable goods, and that his determination in so far as it related to non-perishable items destroyed in error was outside his jurisdiction.

The object of Customs in bringing these proceedings is to obtain an authoritative determination of the basis on which awards should be made under paragraph 17 of Schedule 3 to CEMA, in order to secure consistency and predictability of decisions. They seek declaratory relief only: they do not seek orders quashing Mr Machell’s determinations. In these circumstances, the Interested Parties have no immediate financial interest in the outcome of these proceedings, and they have understandably not participated in them. It was for this reason that Miss Simler was instructed to appear as advocate to the Court. I am grateful to the Attorney General for her appointment, and to her for her helpful submissions.

It is well known that levels of duty payable on tobacco and alcoholic goods in other members of the EU are substantially lower than those in this country. As a result, tobacco, wine and spirits may be purchased much more cheaply on the Continent than here. Persons travelling between EU countries may personally import goods on which VAT and duty have been paid in the country of purchase for their own use without paying UK duties. However, if they intend to sell those goods, they must pay the applicable UK duty and VAT. In order to assist travellers to know what quantities of such goods may be imported without challenge by Customs (assuming that there is no indication of commercial intent), Customs publishes guidance on the quantities of tobacco and alcoholic goods that will be assumed to be imported for the importer’s own use, and state that travellers are particularly likely to be questioned if they import quantities in excess of the guidelines. The guide quantities are derived, in the case of beer, from the provisions of the Beer Regulations 1993, and, in the case of tobacco, from the Tobacco Products Regulations 2001, which specify those quantities of beer and tobacco products which, if exceeded, may be taken into account by Customs in determining whether or not they have been imported for personal use.

On 29 May 2002, Messrs Parsons and King purchased tobacco and alcohol in excess of the Customs guide quantities in Belgium. Belgian duty had been paid on those goods. Messrs Parsons and King brought their purchases into the UK. They did not declare them on importation. The goods were seized by Customs on the basis that they were intended for commercial use. Messrs Parsons and King gave the requisite statutory notice under paragraph 3 of the Third Schedule to CEMA claiming that the goods were not liable to forfeiture. Customs took proceedings for the condemnation of the goods as required by CEMA. On 23 December 2003, Dover Magistrates’ Court condemned the goods as forfeit. The tobacco goods were then destroyed as being perishable. The alcoholic goods with a long shelf life were destroyed in error. Messrs Parsons and King appealed to the Crown Court. Their appeal was successful. However, the Court granted a certificate pursuant to section 144(1) of CEMA that there had been reasonable grounds for the seizure. Mr Machell determined that the market values of their goods were £1,266 and £1,526 respectively.

The facts of the cases of Messrs Cusiter and Henderson are similar to those of Messrs Parsons and King, save that in their cases the Court did not grant a certificate under Section 144(1) of CEMA. Mr Machell determined that the market values of their goods were £1,135 and £1,979 respectively.

The basis of the statutory provisions is Article 8 of Council Directive 92/12/EEC of 25 February 1992 on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such products:

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.

It is implicit in Article 8 that duty paid products acquired by private individuals for their own use in one Member State and transported by them to another Member State are not dutiable in the latter State.

This principle is applied by permitting personal imports for the importer’s own use without payment of UK duty. For present purposes, for reasons that will be apparent, it is sufficient to refer to the provisions of the Tobacco Products Regulations 2001, as amended by the Excise Goods, Beer and Tobacco Products (Amendment) Regulations 2002. The Regulations specify when duty is payable on tobacco. Excise duty must be paid at the applicable excise duty point. Regulation 12(1A) provides:

In the case of tobacco products acquired by a person in another member State for his own use and transported by him to the United Kingdom, the excise duty point is the time when those products are held or used for a commercial purpose by any person.

“Own use” includes use as a personal gift: regulation 12(1B)(b). Paragraph (1B)(c) is as follows:

(c)

if the tobacco products in question are—

(i)

transferred to another person for money or money’s worth (including any reimbursement of expenses incurred in connection with obtaining them), or

(ii)

the person holding them intends to make such a transfer,

those products are to be regarded as being held for a commercial purpose, …

Thus, there is no excise duty point in relation to tobacco goods personally imported by a person for his own use. If, however, at any time, even after importation, he intends to sell them (or to exchange them for other goods, or to transfer them to another person on terms that he is reimbursed his expenses), they are regarded as held for a commercial purpose, and excise duty is therefore immediately payable.

It is an offence under section 170(1) of CEMA knowingly to acquire possession of goods which are chargeable with duty on which duty has not been paid, if done with intent to defraud Her Majesty of any duty. Section 170(2) creates an offence of being knowingly concerned in the evasion of any duty chargeable on goods. A person who honestly sells tobacco on which duty has not been paid will be liable to a civil penalty under section 170A. A person who buys such tobacco who had no grounds for suspecting that duty had not been paid, or believing on reasonable grounds that duty on them had in fact been paid has a defence under section 170A(2)(b).

The 2001 Regulations require cigarettes, and hand-rolling tobacco (other than hand-rolling tobacco intended for retail sale in loose form that is supplied by the manufacturer or importer in packets that each contain not less than 500 grams) imported or sold in the UK to carry a fiscal mark, the object of which is to demonstrate that duty has been paid on them. Cigarettes and tobacco that have been acquired by a person in another member State for his own use and transported by him to the UK are exempt from this requirement. It is an offence to sell unmarked cigarettes and hand-rolling tobacco: section 8G of the Tobacco Products Duty Act 1979.

The primary statutory provisions concerning seizure of goods by Customs are contained in CEMA. Section 49 provides for the forfeiture of goods improperly imported. It is relevant to note that it is not confined to goods that are chargeable to customs or excise duty that are imported without payment of that duty: it extends to any goods imported contrary to any prohibition or restriction under or by virtue of any enactment: subsection (1)(B). It therefore applies to, for example, counterfeit goods and endangered species protected under the Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES). Section 139(1) authorises the seizure or detention of any thing liable to forfeiture under the Customs and Excise Acts. Section 139(6) provides that Schedule 3 to the Act has effect for the purpose of forfeitures, and of proceedings for the condemnation of any thing as forfeited, under those Acts. Section 144, so far as is relevant, is as follows:

144.—(1) Where, in any proceedings for the condemnation of any thing seized as liable to forfeiture under the customs and excise Acts, judgment is given for the claimant, the court may, if it sees fit, certify that there were reasonable grounds for the seizure.

(2)

Where any proceedings, whether civil or criminal, are brought against the Commissioners, a law officer of the Crown or any person authorised by or under the Customs and Excise Acts 1979 to seize or detain any thing liable to forfeiture under the customs and excise Acts on account of the seizure or detention of any thing, and judgment is given for the plaintiff or prosecutor, then if either—

(a) a certificate relating to the seizure has been granted under subsection (1) above; or

(b) the court is satisfied that there were reasonable grounds for seizing or detaining that thing under the customs and excise Acts,

the plaintiff or prosecutor shall not be entitled to recover any damages or costs and the defendant shall not be liable to any punishment.

(3)

Nothing in subsection (2) above shall affect any right of any person to the return of the thing seized or detained or to compensation in respect of any damage to the thing or in respect of the destruction thereof.

(4)

…

Paragraphs 16 and 17 of Schedule 3 to CEMA are as follows:

16.

Where any thing has been seized as liable to forfeiture the Commissioners may at any time if they see fit and notwithstanding that the thing has not yet been condemned, or is not yet deemed to have been condemned, as forfeited—

(a) deliver it up to any claimant upon his paying to the Commissioners such sum as they think proper, being a sum not exceeding that which in their opinion represents the value of the thing, including any duty or tax chargeable thereon which has not been paid;

(b) if the thing seized is a living creature or is in the opinion of the Commissioners of a perishable nature, sell or destroy it.

17.—(1) If, where any thing is delivered up, sold or destroyed under paragraph 16 above, it is held in proceedings taken under this Schedule that the thing was not liable to forfeiture at the time of its seizure, the Commissioners shall, subject to any deduction allowed under sub-paragraph (2) below, on demand by the claimant tender to him—

(a) an amount equal to any sum paid by him under sub-paragraph (a) of that paragraph; or

(b) where they have sold the thing, an amount equal to the proceeds of sale; or

(c) where they have destroyed the thing, an amount equal to the market value of the thing at the time of its seizure.

(2)

Where the amount to be tendered under sub-paragraph (1)(a), (b) or (c) above includes any sum on account of any duty or tax chargeable on the thing which had not been paid before its seizure the Commissioners may deduct so much of that amount as represents that duty or tax.

(3)

If the claimant accepts any amount tendered to him under subparagraph (1) above, he shall not be entitled to maintain any action on account of the seizure, detention, sale or destruction of the thing.

(4)

For the purposes of sub-paragraph (1)(c) above, the market value of any thing at the time of its seizure shall be taken to be such amount as the Commissioners and the claimant may agree or, in default of agreement, as may be determined by a referee appointed by the Lord Chancellor (not being an official of any government department), whose decision shall be final and conclusive; and the procedure on any reference to a referee shall be such as may be determined by the referee.

Before Mr Machell, Customs argued that the market value of goods that had been seized by them on importation, on which no duty had been paid, was their retail price in the EU country of purchase, plus the travel costs of the importer to that place and back. In his determination of 27 January 2005, Mr Machell accepted the submission of Customs that the term “market value” should be construed with reference to the common law measure of damages for conversion. He cited part of the written submissions of Customs before him:

… the approach taken by the common law authorities dealing with the core loss recoverable for the tort of conversion provide a strong indication of the approach to be taken when construing this part of CEMA.

He referred to the decision of the Court of Appeal in J & E Hall Ltd v Barclay [1937] 3 All ER 620, and to the speech of Lord Porter in Caxton Publishing v Sutherland Publishing [1939] AC 178, and stated:

In my judgment, these authorities justify the following conclusions:

(a)

the rationale behind the market price measure of damages is that, by this means, if there is a market, a claimant can replace the goods;

(b)

in the absence of a market, market value must be assessed by other means, such as cost of replacement;

(c)

market value is a notional value, rather than the price at which the goods in question could have been sold, in reality.

Mr Machell recognised that the most important argument against taking a UK retail price as the market value of goods on which no duty had been paid was that their sale in the UK without payment of duty would be unlawful, but concluded that his conclusions considerably weakened the argument that a UK valuation is precluded by illegality. He said:

The question is not one of the price which the Claimants could have obtained by sale of the goods (nil, because illegal), but rather the cost to them of purchasing similar goods in replacement.

He considered that the expression “market value” was not apt to include travel costs. This encouraged him to conclude that the market value was the value at the place of the goods’ seizure and wrongful conversion, namely the UK. It followed that the market value of the goods was to be taken as the cost of purchasing replacement goods at UK prices prevailing at the time of their seizure. The prices to which he referred were duty paid prices.

In his determination, Mr Edis stated:

“For the purposes of this legislation, the market value of an item is, in my judgment, the price which can be obtained for it by offering it for sale in a manner which is likely to bring its availability to the attention of a reasonable number of potential buyers. I consider that the notional sale on which the value is based must be lawful, in the sense that it must not be a crime.

Like Mr Machell, he considered that it was not possible to include travelling costs as a component of market value. Because a sale in the UK of the goods acquired by the importer would be illegal, he concluded that the market value of the goods in question was their market value where purchased.

There are three issues before me:

Mr de la Mare, for Customs submitted:

It is evident from the determinations of Mr Machell and Mr Edis that the cases of the importers before them were that market value is the duty paid retail price of similar goods in the UK. I can assume that if they had appeared before me they would have made submissions to that effect.

Miss Simler submitted:

It is common ground before me, as it appears to have been before Mr Machell and Mr Edis, that cigarettes and alcoholic drinks imported for own use from Member States of the EU cannot lawfully be bought or sold in the UK. So far as tobacco is concerned, the basis of the illegality appears from the statutory provisions referred to above. It is that illegality that principally justifies Customs’ rejection of a UK retail value.

In my judgment, the provision that a referee’s determination is to be “final and conclusive” does not exclude judicial review. Provisions purporting to oust the review jurisdiction of the Courts are narrowly interpreted, although I doubt whether a narrow interpretation is necessary in this case. A decision is “final” if there is no appeal from it: R v Medical Appeal Tribunal, ex p Gilmore [1957] 1 QB 574; R v Nat Bell Liquors Ltd [1922] 2 AC 128, per Lord Sumner at 159-60. “Conclusive” means no more than that the decision as made is binding as between the parties. There is no unambiguous exclusion of judicial review. It follows that the decision of a referee under paragraph 17 of CEMA is amenable to judicial review. In any event, however, since Customs do not seek to set aside Mr Machell’s determination, the practical purpose of these proceedings is to obtain an authoritative decision on which future determinations can be based. Given that there have been differences between the decisions of different referees, the practical importance of the issue, and the likelihood (indeed, inevitability) of the issue having to be addressed by referees in the future, I have no doubt that the Court should seek to provide guidance as to the effect of the statutory provision.

The amenability to judicial review of Mr Machell’s decision in so far as it related to goods destroyed in error by Customs is even more obvious. If Customs are correct, he had no power to make this part of his decision; it was legally null, or at least voidable, and an appropriate declaration should be made.

The statutory power to destroy seized goods is confined to things that are “in the opinion of the Commissioners of a perishable nature: paragraph 16(b) of Schedule 3 to CEMA. If they destroy goods that are not in their opinion of a perishable nature, as in the case of the spirits that were the subject of Mr Machell’s determination of 27 January 2005 (and the goods are not living creatures), they do not act under paragraph 16. Paragraph 17 is concerned with any thing which has been “delivered up, sold or destroyed under paragraph 16 above”. It does not apply to something destroyed otherwise than under paragraph 16. It follows that a referee has no power to make a determination under paragraph 17(4) in respect of such things.

I turn to the principal question before me, namely the basis of determination of market value for the purposes of paragraph 17 of the Third Schedule to CEMA. Having regard to my conclusion in paragraph 26 above, I shall confine my analysis to cigarettes and tobacco.

By referring to a market value, Parliament referred to a price at which goods may be bought and sold. It is not necessary that there should be a perfect market, or that there should be identical goods available to buy or to sell: a unique painting or antiquity has a market value. Similarly, it is unnecessary to show that there is more than one buyer or seller, or a market in the sense of an open (or electronic) market; and the buyer, the seller and the market may be hypothetical: see the judgments of Lord Denning MR and Pearson LJ in Building and Civil Engineering Holidays Scheme Management Ltd v Post Office [1966] 1 QB 247 at 264 and 268-9, dealing with the cognate question of the then limitation of the liability of the Post Office for loss of registered parcels to their market value. But, with respect to Mr Machell, it seems to me inconceivable that in referring to market value, Parliament envisaged a reference to transactions that would be illegal. In referring to a market value, Parliament was referring to a value established by or from lawful transactions. I would therefore exclude any unlawful or illegal transaction in tobacco or other imported goods from consideration in determining a market value.

This approach is supported by the judgments of the Court of Appeal in the Building and Civil Engineering Holidays Scheme Management case. Lord Denning MR at 264D-E excluded illegitimate transactions from the determination of market value; Lord Pearson LJ at 269A defined market value as “the uniform or average price for which the article in question is ordinarily bought and sold or acquired and disposed of in legitimate transactions” (my italics); and Russell LJ at 272B-C excluded the thieves’ market in the lost holiday stamps. It is arguable that in using the same expression in CEMA Parliament must be taken to have had the judgment of the Court of Appeal in mind, but it is unnecessary for me to reach a conclusion on this.

The next question is: what are the goods the purchase and sale of which is envisaged in determining market value? If one answers simply, for example, cigarettes of a certain brand, one can take the price at which such cigarettes are sold in the UK as their market value. But in my judgment that would be to refer to goods that are materially different from those imported by the Interested Parties. The retail price in the UK is of cigarettes on which UK duty has been paid. That is demonstrated by the fact that they bear the requisite fiscal mark. The Interested Parties’ cigarettes were not cigarettes on which UK duty had been paid and they therefore did not bear the fiscal mark. It was for that reason that they could not be lawfully bought or sold in the UK. It follows that the duty paid price of similar cigarettes or tobacco in the UK was not their market value for the purposes of paragraph 17 of the Third Schedule.

This does not however mean that the goods had no market value. In the ordinary way, unless there is something to indicate a different conclusion, one would assume that the market value of goods for the purposes of paragraph 17 is the value both at the date and the place of seizure. But paragraph 17 specifies only the relevant date at which the market value is to be determined; it does not specify the location of the market, and it would be wrong to imply a restriction that Parliament has not included. If there is no lawful market at the place of seizure, and therefore no market value there, one is driven to a market value at a place where similar goods may be lawfully bought and sold. I say this because, like the Court of Appeal in the Building and Civil Engineering Holidays Scheme case, I consider it necessary to strive against concluding that the market value of goods lawfully purchased is nil. That would be a conclusion that Parliament, which clearly intended to confer a measure of compensation on persons whose imported goods are seized and destroyed, could not have intended. There was a place where the goods in question could be lawfully bought and sold, namely the country of purchase. In my judgment, the market value of cigarettes bought in retail quantities in Belgium is their retail price in Belgium.

It may be that some support for this conclusion may be derived from a consideration of the provisions of paragraph 17(1)(b) and (2). Suppose Customs had sold the tobacco goods they had seized instead of destroying them. (For the purpose of this comparison, I make the assumption that the packaging complied with English Law.) I do not see why Customs could not deduct from the amount to be tendered to the importer the amount of the duty on those goods. It has to be borne in mind that the deduction permitted by paragraph 17(2) applies only where the goods were not in fact liable to forfeiture for (in this example) non-payment of duty. It is difficult to see why the amount payable under paragraph 17(1)(b) should differ drastically from that payable under sub-paragraph (c).

I turn to consider the question whether travel costs are recoverable under paragraph 17 of Schedule 3. Customs have presumably conceded their recoverability on the basis that without them the amount payable under paragraph 17 would not fully compensate a personal importer. Consideration of this issue involves consideration of the nature of the right conferred by paragraph 17(4) of Schedule 3.

It is implicit in section 144 that if Customs seize goods without reasonable grounds for doing so, they are liable in damages at common law. It is reasonable to infer that in the circumstances specified in section 144(2) in which Parliament has excluded that liability, the liability of Customs provided under subsection (3) is for something other, and presumably less, than common law damages. Leaving aside the question whether the compensation referred to in that subsection is identical to that provided for in Schedule 3, on which I express no view, in these circumstances there is no presumption that Schedule 3 confers a right to an amount equal to common law damages, and if anything a presumption the other way. Authorities on damages at common law may be a guide to what is fair and just, and may therefore influence the interpretation of the statute, but they must give way to the express provisions of the statute. In other words, the issue before the Court is one of statutory interpretation rather than the application of common law principles applicable to the measure of damages for torts or breaches of contract causing the loss of goods.

When I turn to paragraph 17 of Schedule 3, I find provisions that do not confer a right to damages. Paragraph 17 confers a right to an amount equal to market value. Like Mr Machell and Mr Edis, I cannot see how it can be construed as conferring a right to travel costs in addition to the value of the goods in question on the relevant market. Mr de la Mare referred me to the well-known decision of the House of Lords in The Liesbosch [1933] AC 449, in which the costs of the transport of a comparable dredger from the place of her acquisition to the place where she was to be used were included in the damages recoverable by the appellants, the owners of the dredger that had been sunk as a result of the negligence of the respondents. However, those costs were not recoverable as a component of the market value of the sunk dredger, but as a component of the appellants’ loss in addition to her market value. Lord Wright, all the other members of the House agreed, summarised at 468 the measure of damages recoverable as follows:

… it follows that the value of the Liesbosch to the appellants, capitalized as at the date of the loss, must be assessed by taking into account: (1.) the market price of a comparable dredger in substitution; (2.) costs of adaptation, transport, insurance, etc., to Patras; (3.) compensation for disturbance and loss in carrying out their contract over the period of delay between the loss of the Liesbosch and the time at which the substituted dredger could reasonably have been available for use in Patras, including in that loss such items as overhead charges, expenses of staff and equipment, and so forth thrown away, but neglecting any special loss due to the appellants' financial position.

In my judgment, therefore, travel costs are not recoverable under Paragraph 17.

I reach these conclusions without regret. To include travel costs would involve difficulties of assessment that in my judgment paragraph 17 is designed to avoid. What if the goods were purchased in Poland, by someone who travelled business class? Would he be entitled to the cost of a business class return ticket? Would the market value of his cigarettes differ from that of the same cigarettes purchased by someone who travelled by coach? Would the entitlement to travel costs depend on whether the travel had a purpose other than the purchase of the goods in question? Would someone who purchased the goods after a long holiday in Europe recover something other than someone who had crossed the Channel for the sole purpose of buying alcohol and tobacco? Mr de la Mare’s response to such questions that the travel costs would be restricted to those that would be reasonably incurred for the purpose of buying replacement goods raises questions as to what is reasonable, and in any event by introducing principles applicable to the assessment of damages and mitigation of loss confirms that travel costs are a component of damages rather than of market value.

It is true that payment of the market value of goods may not in many cases amount to adequate compensation. Given the wide application of Schedule 3, which is not limited to personal imports, I cannot consider every possible case that may arise under paragraph 17. But in the case of personal imports, paragraph 17 will generally ensure that the importer’s expenditure on his goods is reimbursed. If he purchases and imports quantities in excess of the guide quantities, he should be aware that he faces the risk of Customs’ suspicions being aroused and his goods seized and only his expenditure on the goods reimbursed. If he bought the goods while on holiday, he will have lost only one of the benefits of his travel. If he travelled to Europe for the sole purpose of purchasing alcohol and tobacco, he is able to return and with the payment made by Customs replace the lost goods. To pay him the UK retail price would enable him to return to Europe, replace the goods seized and pocket the substantial difference between the UK price and the Continental price, less only his travel costs, which given the level of imports in the cases I have seen may be relatively insignificant. Reimbursement at UK price levels may operate unfairly to the public purse, just as reimbursement at Continental price levels may be argued to be unfair to at least some personal importers. No formula, short of full compensation, can be fair as between the personal importer and the public purse in all cases.

For the reasons set out above, subject to any submissions that counsel may make as to their terms, I shall make declarations to the following effect: