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Checkprice (UK) Ltd (In Administration) v HM Revenue & Customs

[2010] EWHC 682 (Admin)

Case No: CO/4589/2008
Neutral Citation Number: [2010] EWHC 682 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 31/03/2010

Before :

THE HONOURABLE MR JUSTICE SALES

Between :

Checkprice (UK) Limited (in administration)

Claimant

- and -

The Commissioners for Her Majesty’s Revenue & Customs

Defendants

Mr Sarabjit Singh (instructed by Steeles Law LLP) for the Claimant

Mr Philip Coppel QC and Ms Jennifer Thelen (instructed by HMRC Solicitor’s Office) for the Defendants

Hearing dates: 11 & 19/2/10

Judgment

Mr Justice Sales :

1.

This is an application made in judicial review proceedings for damages for interference with goods or compensation by way of just satisfaction under section 8 of the Human Rights Act 1998.

2.

The Claimant, Checkprice (UK) Limited (“Checkprice”), was the owner of alcoholic beverages which it supplied to a company called Star Beers Sussex Limited (“Star Beers”). The goods were supplied under conditions of sale whereby Checkprice retained title until Star Beers paid for them. Star Beers stored the goods at a warehouse operated by it at Southampton.

3.

The Defendants (“HMRC”) became suspicious that movements of alcoholic goods into the Star Beers warehouse related to goods in respect of which duty had not been paid and properly accounted for. There were sound objective grounds for HMRC’s suspicion in this regard. An empty lorry had been found by HMRC officers at Dover with documentation which appeared to relate to alcoholic beverages sent for export to France. Where such goods are exported to France, the high duty payable in respect of such goods if sold in the United Kingdom can be avoided or reclaimed and lower French duty is paid instead. The circumstances of the discovery of the empty lorry suggested that the alcoholic beverages shown on documentation on the lorry had not in fact been exported from the United Kingdom to France (as, according to the documents, should have happened), but had been diverted for sale in the United Kingdom without proper payment of United Kingdom duty in respect of them.

4.

The HMRC officers also found on the lorry a request to deliver to Star Beers’ warehouse an amount and description of goods which matched those covered by the export documentation. Since Star Beers’ warehouse was not a bonded warehouse, this gave rise to a suspicion that goods stored at it might include goods for sale in the United Kingdom in respect of which United Kingdom duty had not been properly paid or accounted for.

5.

As a result of the discovery of the lorry and the documents, on 14 March 2007 HMRC officers visited the warehouse. The warehouse keeper refused to unlock the warehouse without approval from his superior. There was some delay while that was obtained. The warehouse keeper told the officers that since Star Beers had occupied the warehouse there had only been four deliveries, all of which were from Checkprice. The warehouse keeper could not produce paperwork relating to the deliveries or any stock records. This struck the officers as unusual, since a legitimate warehouse would be expected to maintain such paperwork on site.

6.

In view of the suspicious circumstances, the HMRC officers then detained all the alcoholic beverages located at the warehouse and removed them to a secure warehouse controlled by HMRC. The same day, HMRC issued a Notice of Goods Detained (“the first notice”) to Star Beers, identifying the goods detained.

7.

Shortly after this, HMRC learned that more alcoholic beverages had been delivered to the warehouse. Accordingly, on 19 March 2007 HMRC officers visited the warehouse again and detained all the further alcoholic beverages which had been placed there. Again, the goods were moved to a secure warehouse controlled by HMRC.

8.

In the first witness statement of Mr Mark Feneron (“Mr Feneron”), the Managing Director of Checkprice, he said that in relation to both detentions a director of Star Beers informed HMRC that part of the goods detained had been supplied by Checkprice who had not yet been paid and who therefore retained title to the goods. Mr Feneron did not identify his source of information, but this account was not challenged by HMRC in their evidence. I therefore proceed on the basis that this is correct. Certainly it seems that on the occasion of the second detention, at least, the warehouse manager or owner informed HMRC that the detained goods belonged to Checkprice, because on 21 March 2007 HMRC issued a second Notice of Goods Detained (“the second notice”), with a list of the further goods which had been detained, which was addressed to Checkprice.

9.

Checkprice’s case is that duty had in fact been paid in relation to its goods, that HMRC should have investigated this expeditiously and discovered that fact, and that HMRC should then have released the goods back to Checkprice. Instead, Checkprice says HMRC’s inquiries regarding payment of duty in respect of the goods were prolonged without good reason so that months passed, with the result that over that period, one by one, packages of Checkprice’s goods passed their sell-by dates (or certain cases became infested with flies) and so had to be destroyed on health and safety grounds. Checkprice therefore lost all its goods detained under the first notice and the second notice, for which it had paid a total of £54,126.45.

10.

There was common ground regarding the basic legal framework to be applied. Section 139 of the Customs and Excise Management Act 1979 (“CEMA”) provides in relevant part as follows:

“139.

– Provisions as to detention, seizure and condemnation of goods, etc.

(1)

Any thing liable to forfeiture under the customs and excise Acts may be seized or detained by any officer or constable or any member of Her Majesty’s armed forces or coastguard. …

(6)

Schedule 3 to this Act shall have effect for the purpose of forfeitures, and of proceedings for the condemnation of any thing as being forfeited, under the customs and excise Acts. …”

11.

Section 144 of CEMA provides in relevant part as follows:

“144.

– Protection of officers, etc. in relation to seizure and detention of goods, etc.

(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 … –

(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. …”

12.

Schedule 3 to CEMA contains provisions relating to forfeiture of goods which are seized (as opposed to simply being detained) by HMRC. Paragraph 1 requires HMRC to give notice of a seizure, which amounts to notice of an intention to forfeit the goods in question (e.g. on grounds of non-payment of duty). Paragraph 3 provides:

“3.

Any person claiming that any thing seized as liable to forfeiture is not so liable shall, within one month of the date of the notice of seizure or, where no such notice has been served on him, within one month of the date of the seizure, give notice of his claim in writing to the Commissioners at any office of customs and excise. …”

13.

Where notice is given of such a claim, paragraphs 6 and 8 provide as follows:

“6.

Where notice of claim in respect of any thing is duly given in accordance with paragraphs 3 and 4 above, the Commissioners shall 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 courts shall condemn it as forfeited. …

8.

Proceedings for condemnation shall be civil proceedings and may be instituted –

(a)

in England or Wales either in the High Court or in a magistrates’ court; …”

14.

Paragraphs 16 and 17 provide in relevant part 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 - …

(c)

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

(3)

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

15.

Where notice of a claim is given under paragraph 3 of Schedule 3 and condemnation proceedings are brought by HMRC in the High Court or in a magistrates’ court under paragraphs 6 and 8 of Schedule 3, the burden of proof is on the owner claiming the goods to show that duty had been paid in respect of them: section 154(2)(a) of CEMA.

16.

It is established that a distinction is to be drawn between the power of detention and the power of seizure in section 139(1) of CEMA: see in particular Gora v Commissioners of Customs and Excise [2002] Ex Dec 262 (VAT Tribunal) at [15] to [18] (the case went on appeal, where this distinction was not called in question: [2003] EWCA Civ 525). The power of detention is a power to hold goods on a temporary basis for a reasonable period while HMRC carry out investigations to determine whether they are liable to forfeiture (e.g. because duty has not been paid on them) or not. The power of detention arises where there are reasonable grounds to suspect that goods are liable to forfeiture: see Gora, VAT Tribunal, at [15]:

“15.

In the scheme of the Customs and Excise Management Act the power to detain goods is separate and distinct from the power to seize. Section 139(1) confers these powers by the words “may be seized or detained by any officer”. The exercise of both powers is subject to the overriding condition that the goods in question be “liable to forfeiture”. That condition imposes the requirement that the Customs officer should have grounds for regarding the goods as liable to forfeiture. Those grounds must be sufficient to be justified by him, if required to do so, as “reasonable” in the “Wednesbury” sense. At that stage, and whether the power is exercised as a seizure or a detention, the goods in question are simply “liable to forfeiture”. The next stage, if the Commissioners decide to proceed to it, is to get those goods condemned as liable to forfeiture. That requires them, if they have not already done so, to seize the goods and to give notice of the seizure and “of the grounds therefor”: see Schedule 3 paragraph 1(1). That step will lead on to condemnation within a month, unless “a person” claims that the “thing seized as liable to forfeiture is not so liable” and notifies his claim; in that case condemnation proceedings ensue and it will be for the relevant court to decide whether “the thing was at the time of seizure liable to forfeiture” and, if so, to condemn it: Schedule 2 paragraph 5.”

17.

In this case, Checkprice accepts that HMRC did have reasonable grounds in March 2007 to suspect that the goods in question in these proceedings had not had duty properly paid on them and were liable to forfeiture, so that the power of detention under section 139(1) of CEMA was properly exercised at the outset. However, it was also common ground that the power of detention (for HMRC to investigate) only authorised the detention of the goods for a reasonable period to allow reasonable inquiries to be made. This is implicit in the scheme of the legislation. As Pill LJ put it in the Court of Appeal in Gora at [51]:

“51.

I agree with the Tribunal’s view of the lawfulness of detention. There is a public interest in the availability of the procedure described by the Tribunal and some such procedure is reasonably required “to secure the payment of taxes”. The power to detain is both legitimate and proportionate as a short-term measure pending release or seizure. While the opportunity to hold the goods while enquiries are made may in some cases lead to seizure, in others it may lead to the release, without seizure, of goods found on enquiry not to be liable to forfeiture. The acceptability of the procedure does, however, depend on enquiries being made expeditiously and a prompt decision taken as to whether to return the goods or to seize them.”

18.

Issues arise, which I address below, concerning the claim that HMRC are liable in conversion for continuing to detain Checkprice’s goods beyond a reasonable period under the detention power in section 139(1) and, if they are liable, in relation to the quantum of damages in respect of such conversion. In view of the issues which arise on analysis of ordinary domestic law and the extent of the relief potentially available to Checkprice under such law, and having regard to the reasoning in Gora in both the Tribunal and the Court of Appeal, it was common ground before me that the Claimant’s case based on Article 1 of Protocol 1 to the European Convention on Human Rights and sections 6 and 8 of the Human Rights Act 1998, added nothing of substance to Checkprice’s claim in conversion. Accordingly, I focus on the arguments arising under ordinary domestic law and it is unnecessary to analyse the claim further by reference to the Human Rights Act.

Procedure

19.

Checkprice commenced these proceedings as judicial review proceedings on 15 May 2008, claiming return of the goods and damages. By that stage most of the goods in question had passed their sell-by dates and had been destroyed. The remainder passed their sell-by dates and were destroyed in about July 2008. In substance, therefore, the claim has proceeded as a claim for damages, albeit in the context of judicial review proceedings. It is, of course, possible to bring claims for damages based on causes of action (such as conversion of goods) which arise in private law in judicial review proceedings under CPR Part 54; but where that is done, careful consideration needs to be given to whether the issues which arise require oral evidence as would be heard where such a claim is commenced in ordinary proceedings under CPR Part 7: see R (Hussein) v Secretary of State for the Home Department [2009] EWHC 2506 (Admin) at [3] to [7].

20.

In this case witness statements were adduced from a number of HMRC witnesses. HMRC offered to make those witnesses available for cross-examination, but that offer was not taken up. This meant that matters regarding who was doing what and when they took particular actions were not explored in evidence beyond what the witnesses said in their witness statements and what the contemporaneous documents revealed. The court has to determine the case on the basis of the evidence before it. In view of the offer to tender HMRC witnesses for cross-examination, which was declined, their evidence stands as unchallenged, so far as it goes.

HMRC’s investigations and liability in conversion

21.

According to Checkprice, the goods detained by HMRC fell into three categories:

Category A: goods supplied to Checkprice via a supply chain involving more than one intermediary seller between Checkprice and the brewing company which produced the goods (items listed at paragraphs 13.1 to 13.19 of Mr Feneron’s first witness statement);

Category B: goods supplied to Checkprice via an intermediary seller where, as it transpired, there was only one intermediary between Checkprice and the brewing company which produced the goods (items listed at paragraphs 13.20 to 13.23 of Mr Feneron’s first witness statement);

Category C: goods purchased by Checkprice on which it had paid duty itself (items listed at paragraph 13.24 to 13.28 of Mr Feneron’s first witness statement).

22.

In relation to goods in categories A and B, Checkprice maintained that duty on the goods would have been paid by a company in the supply chain other than itself. In relation to category C, Checkprice maintained that it had paid the relevant duty itself and held the appropriate form in each case (Form W5) evidencing that.

23.

As became clear as HMRC investigated the question of payment of duty on the goods in all three categories, the principal difficulty lay in linking information which Checkprice provided (such as the W5 forms for the goods in category C) with the particular goods found at the Star Beers warehouse. Since the goods were fungible in nature and it was relevant for HMRC to establish that duty had been paid in respect of the particular goods they had detained, this was an important matter. HMRC officers drew up a spreadsheet listing the detained goods to record the information obtained to trace whether duty had indeed been paid on them.

24.

On 19 March 2007, in response to an HMRC request for information, Mr Feneron e-mailed Mr Andrew Stowe at HMRC a list of goods supplied to Star Beers under two Checkprice order numbers, giving the name of the supplier to Checkprice and the invoice numbers for such supplies, but not listing the quantities of the various types of alcoholic beverages listed which had been supplied under those invoices. The main suppliers were listed as Just Beers Limited (“Just Beers”) and Gempost Limited (“Gempost”) (with some supplies from “Excel” and a supply of Magners cider from “Melrose Wines”). The list also included four items showing Checkprice as the supplier and marked “duty paid”. In his e-mail Mr Feneron explained:

“Obviously we have W5s for the stock we have duty paid and invoices for the rest.”

25.

On 29 March 2007 Mr Stowe sent on the list to Mr Mahendra Gajjar at an HMRC investigation unit (the Finchley Serious Non-Compliance Team), asking him in a short e-mail to investigate where Gempost and Just Beers got the goods from. (It is unclear why the other suppliers, Excel and Melrose Wines, were not also referred to, but work was done in relation to the goods from those suppliers as well and it is likely that Mr Stowe’s e-mail would have been understood by Mr Gajjar as a request to investigate the origins of all the goods listed other than those for which Checkprice said it held W5 forms). The list supplied by Checkprice proved not to be fully accurate and later Checkprice provided HMRC with different supplier information.

26.

On 4 April 2007 Checkprice faxed to HMRC copies of the Just Beers and Gempost supply invoices referred to in Mr Feneron’s list of 19 March. It seems that only Just Beers and Gempost invoices were faxed at this stage, presumably because at this point Checkprice was maintaining that the detained goods derived from items supplied under those invoices. The total of the goods shown supplied to Checkprice under those invoices was far greater than the quantities of the goods which had been detained at the Star Beers warehouse. There was no simple way of reconciling the goods in detention to the invoices. In addition, the invoices did not show who, if anyone, had paid duty in respect of the goods listed in them.

27.

I was told by Mr Singh for Checkprice that it was practically impossible for Checkprice to investigate the supply chains in categories A and B for itself because, for reasons of commercial sensitivity, suppliers are unwilling to disclose to their customers details of their own suppliers and the prices at which they have bought goods from those suppliers for fear those customers might thereafter cut them out of the supply chain and go straight to their sources. It was for this reason that Checkprice did not supply HMRC with any more information about the supply chain in relation to these categories of goods. HMRC had to carry out their own investigations to determine what the supply chain was and whether duty had been paid on the goods shown in the invoices (as well as trying to link the goods shown in the invoices with the particular goods detained by them).

28.

There was no witness statement from Mr Gajjar, the HMRC officer who undertook the initial stages of this investigation. Instead, there was a witness statement from the relevant Higher Officer in HMRC with overall responsibility for the detained goods at this stage (Jane Barr). As to Officer Gajjar’s work, she simply said that research was carried out by Officer Gajjar into the supply chain without giving details of what he did and when. In the context of a claim which turns on the question of what would constitute a reasonable time for reasonable inquiries to be undertaken, this was not entirely helpful (nor was I impressed by reference to the time taken for inquiries in other cases, since what is a reasonable time for inquiries in any case must depend on the specific circumstances of that particular case). However, it is clear that Officer Gajjar did make inquiries of Just Beers and Gempost to determine the suppliers to them, because on 10 July 2007 he sent Officer Barr copies of all the Just Beers and Gempost invoices supplied by Checkprice together with copies of the invoices which had been provided to him showing the suppliers to Just Beers and Gempost. As it turned out, these were all goods in category A. The invoices showed the suppliers to Just Beers and Gempost to be a mixture of 5 Star Beverages Limited (“5 Star”), Shiraz Drinks Limited (“Shiraz”), SCS Trading Limited (“SCS”) and Blue Star Trading. There were also other suppliers of goods shown in the Just Beers and Gempost invoices who proved to be untraceable.

29.

The gap in time between 19 March 2007 (when Mr Feneron sent his list) and 10 July 2007 (when it seems Officer Gajjar had finished his investigations) seems lengthy, even allowing for what I am sure was a busy office with a significant workload across a range of cases. Having regard, in particular, to the importance for expedition in carrying out investigations where goods are detained (as referred to in Gora, Court of Appeal, at [51]) and the absence of detailed explanation from HMRC why Officer Gajjar’s investigations took such a long time (e.g. to show that he encountered any particular difficulties in finding out the suppliers to Just Beers and Gempost), I conclude that the time taken to get to this point in the investigation was unreasonable in all the circumstances of the case. In my view, a period of about six weeks from 19 March 2007 to get to the stage of identifying the suppliers to Just Beers and Gempost and obtaining their invoices would have been the limit of what was reasonable, which takes one to about the beginning of May 2007 rather than mid-July for this stage of the inquiries.

30.

In her evidence, Officer Barr also referred to efforts made to “track and trace” the lot numbers of the goods. The evidence about what was done for this was vague, but Mr Coppel for HMRC explained to me on instructions and by reference to e-mail correspondence and reports of HMRC officers who carried out one such inspection that this track and trace procedure is only viable when markings on the cans containing the beverages can be visually identified. That is not possible when drink cans are placed in containers and wrapped up on a pallet. In the case of one parcel of Checkprice’s goods seized by HMRC, tracking and tracing the goods to identify from where they came and to establish that duty had in fact been paid on them was undertaken. This was because the goods (parcels of Strongbow cider) had become infested with flies while held at the HMRC warehouse and the wrappings had to be broken into to determine the nature and extent of the problem. This meant that the relevant lot markings on the cans could in this case be visually inspected.

31.

Checkprice suggested that this procedure should have been followed in the case of the other detained goods, but HMRC maintained that this was not possible because the other parcels of goods remained wrapped up; lot markings on individual cans were not capable of visual inspection; and there was not a proper legal basis for them to break up the parcels to gain access to the cans. In my view, this is a good answer to Checkprice on this point. HMRC never received a request or authorisation from Checkprice to break up its parcels of goods to allow visual inspection. If HMRC had broken them up without permission, that would have involved tortious interference by HMRC with Checkprice’s goods. It could not be assumed that Checkprice would agree to this, since it would make it more difficult to handle and transport its goods.

32.

The evidence did not disclose why HMRC did not break up the parcels to check the lot markings on the cans when they eventually came to destroy each parcel of goods. That would not have been relevant to the exercise of the power of detention (since the goods had to be destroyed rather than returned), but might have assisted in getting an answer to the underlying question whether duty had in fact been paid on each parcel of goods. The reason this examination was not carried out may have been because HMRC never came to exercise the power of seizure under section 139(1) of CEMA (as opposed to the power of detention). At all events, when I turn to consider the question of damages it is without the benefit of information from these investigations.

33.

Once HMRC had obtained the invoices relating to the supplies to Just Beers and Gempost, they made checks on the suppliers shown in those invoices. They also carried out work to check on the owners of the goods detained from Star Beers’ warehouse. Three owners of the goods apart from Star Beers were identified (including Checkprice).

34.

On 7 August 2007 HMRC sent Checkprice a revised detention notice (misdated 8 August 2007) listing the detained goods which were believed to be owned by Checkprice and asking Checkprice to provide evidence of duty payment for the goods by 7 September 2007. The letter stated that if no satisfactory evidence was produced the goods would be seized. In my view, if HMRC had proceeded timeously in line with the timescale I have indicated above, such a letter would have been sent by about mid-May 2007 to bring matters to a head on the question of seizure by about mid-June 2007 – rather than 10 December 2007, which is the date which HMRC proposed at the hearing before me as the point when a reasonable period of time for exercise of the power of detention expired.

35.

On about 9 August 2007, in response to HMRC’s letter sent on 7 August, Checkprice sent HMRC copies of purchase invoices from their suppliers (for the goods in categories A and B) and copies of W5 forms (for the goods in category C). The documents supplied by Checkprice also included an invoice for a sale of parcels of Strongbow cider from Scottish & Newcastle (the manufacturer) to RM Swaine Limited (“RM Swaine”), which showed that duty on the goods had been paid, and an invoice for on-sale of those parcels to Checkprice. It is unclear how, exceptionally, Checkprice managed to obtain the Scottish & Newcastle invoice to Checkprice’s own supplier given the usual refusal of suppliers to provide such information for reasons of commercial confidentiality (see para. [27] above). The invoice showed lot numbers as printed on the cans and so offered the possibility of carrying out a track and trace procedure in respect of the particular cans, if they could be visually inspected. The track and trace procedure for the parcels of Strongbow cider was carried out after fly infestation in the parcels was identified in about late July 2007. Two pallets were destroyed due to the infestation, leaving two more pallets. These were inspected for track and trace purposes (and also, as I understood Mr Coppel’s submissions made upon instructions, to check them for infestation) in early October 2007 pursuant to an internal HMRC request made in late September 2007 to follow up on the invoice from Scottish & Newcastle in respect of what was said by Checkprice to be the parcels of Strongbow cider taken from the Star Beers warehouse. These were the goods in category B referred to at paragraphs 13.21 and 13.22 of Mr Feneron’s first witness statement.

36.

It was not explained in HMRC’s evidence why there was a delay of almost two months between provision of the Scottish & Newcastle invoice bearing relevant information on about 9 August 2007 and visual inspection of the pallets of Strongbow cider (which had been identified as having a potential problem with fly infestation in about late July 2007, thereby making a visual inspection for track and trace purposes feasible). In my view, a reasonable period to digest the information provided by Checkprice on 9 August, to put it together with the information that the Strongbow cider could, because of the fly infestation, be available for visual inspection, and then to carry out that inspection should reasonably have taken no more than about a month from the time when the Strongbow parcels were found to be fly infested in about late July – i.e. by about the beginning of September 2007. As events transpired, when the checks were in fact carried out in October 2007, HMRC came to the conclusion in late October 2007 that duty had been paid on those parcels of goods.

37.

Mr Coppel accepted that the Strongbow cider which did not have to be destroyed because fly infested was unlawfully converted by HMRC on 29 October 2007, when they had established that duty had been paid on the goods but failed to return them (the goods had not passed their sell-by date by then, and so should have been returned). In my judgment, this concession did not go far enough: a reasonable period for investigation under the detention power whether duty had been paid on the goods, using the track and trace procedure, expired by about 1 September 2007, at which point the Strongbow cider which was not fly infested should have been returned to Checkprice. Therefore, Checkprice is entitled to damages for the tort of conversion of such goods as at that date.

38.

It is convenient now to analyse the position in relation to the goods in category C, in respect of which Checkprice maintained that it had paid duty and had W5 forms to show that, which it sent to HMRC in response to their request for information on 7 August 2007. As explained above, HMRC should have been in a position to request such information in about mid-May 2007, in which case Checkprice would have provided the W5 forms at that point.

39.

However, the provision of the W5 forms was not sufficient to show that duty had been paid on the goods in category C which were detained by HMRC. The W5 forms did not exactly match the quantities of the detained goods and it was necessary to link in the particular goods detained by HMRC in category C with the goods shown on the W5 forms. Higher Officer Angela Jackson of HMRC took on the task of seeking to check the link between the detained goods and the forms.

40.

On 6 September 2007, in a conversation relating to another matter, Mr Feneron asked Officer Jackson for an update of what was happening with the detained goods. She checked on the position and contacted Ms Dennis, the bond manager at Checkprice, by e-mail on 11 September 2007 requesting all paperwork relating to the detained goods. Officer Jackson visited Checkprice’s offices on 13 September 2007 and on that occasion dealt with Miss Kelly Garrard from the bonded sales office. Miss Garrard provided certain information, but it was incomplete. In her witness statement, Officer Jackson explained the difficulties which were then encountered by HMRC as follows:

“16.

Miss Garrard agreed that she would provide paperwork to verify the audit trail for the duty suspended Goods [i.e. the goods in category C] as they moved through Checkprice’s stock control system (essentially track the Goods from removal from the duty suspended warehouse to the purchaser). She explained that the Goods would have been booked into the duty suspended rotation numbers within the system. Rotation numbers are given to stock within an excise warehouse to identify particular goods held. Each entry to a warehouse would be given a sequential unique reference number that would allow the Goods to be tracked. As the Goods were sold and dispatched from the warehouse the records would be updated to show the decreasing number of bottles or cases held until the stock was all disposed of. She said that the Goods detained would have been moved from duty suspended stock to duty paid when payment to HMRC was made. This would have meant being booked out of the duty suspended rotation number and given a new duty paid rotation number.

17.

Once the Goods were classified as duty paid, they were then moved from [Checkprice’s] Norwich site to GG Tomkinson Ltd (“Tomkinsons”), Rattenden Lane, Marden, Tonbridge, Kent, TN12 9QJ. This site was used by Checkprice as a storage and distribution site for duty paid stock. When the stock was delivered to Tomkinsons, they would allocate a new internal rotation number to the Goods received. I was told by Miss Garrard that the Under Bond Goods would have all been dispatched via Tomkinsons. Additionally, based on my knowledge of Checkprice, I believe that the Tomkinson’s warehouse was also used to distribute other Checkprice stock in Kent and the south east of England. However, I did not specifically discuss the use of Tomkinsons for distribution of the Goods other than with respect to the Under Bond Goods.

18.

On 20 September, Miss Garrard sent me an email providing information in relation to the detentions. She provided a print out from Checkprice’s computer system, which showed the movement from duty suspended status to duty paid and subsequent transfer to the Tomkinson’s rotation number. I attempted to reconcile these movements with the purchase invoices and the external acknowledgements. However, in some cases there were no relevant purchase invoices or apparent link through to the external acknowledgements, and where goods appeared to be similar I lacked evidence that the goods referred to on the purchase invoices I had were those actually dispatched to Star Beers. On 1 October I raised further queries with Checkprice by email:

“Dear Kelly

Thanks for the documents attached – I did think that you would be able to link the sales invoice to Star Beers to Tomkinson’s stock number and their picking list for these invoices. Is this possible?

Equally – have you shown what rotation number the goods on the purchases invoices were booked into before they were dispatched to Tomkinsons? There still seem to be a couple of missing links in the chain.”

19.

From this I was trying to establish a full audit trail for the duty suspended goods via the stock control system to show that the goods received into Checkprice from their suppliers were those dispatched to Tomkinsons and then on to Star Beers. On 23 October 2007, I visited Checkprice at its premises in Norwich on another matter and was told by Messrs Feneron and Warren that in relation to the detentions further evidence would be provided. On 29 October 2007 I chased Mr Feneron by email for this evidence.

20.

On 5 November 2007, Mr Feneron sent me an email stating that once the goods reached Tomkinson’s warehouse the goods were stored by product line not rotation number. This meant that when Tomkinsons were instructed by Checkprice to deliver goods to customers Tomkinsons would select goods from the relevant stock pile but not necessarily select from the rotation number that Checkprice indicated. Accordingly, there was no way anyone could be certain that the goods Checkprice had instructed Tomkinsons to send from Tomkinsons to Star Beers were those actually despatched to Star Beers. I was surprised by this system. Particularly where a company is, like Tomkinsons, handling goods belonging to other companies I would have thought a system for identification of particular goods would be essential. It would be even more essential where, as here, the products were nearing their sell-by dates. Good stock control would ensure, in this situation, that stock was timely sold.

21.

Indeed, based on this email it appeared to me that it would be impossible for Checkprice to identify any of its stock, with a view to establishing duty paid status, once it had gone into storage at Tomkinsons. This impasse on the audit trail most certainly applied to the Under Bond Goods which were dispatched through Tomkinsons. It would have also applied to any other Checkprice goods which were distributed through Tomkinsons. On 10 December 2007 I emailed Mr Feneron advising him that I was not satisfied on the evidence that the duty had been paid on the goods detained. This was reiterated in my letter to Checkprice dated 20 December.

22.

On 1 April 2008, Officer Zoe Newton from the HMRC Maidstone Office informed me that she had visited Tomkinson’s warehouse on 16 October 2007 (and subsequently on 27 and 28 November 2007) and as a result she had produced a report. Officer Newton had essentially come to the same conclusion as I had, namely that Tomkinsons was not able to deliver identifiable goods as instructed by the owner of those goods. She listed a number of stock control failings on the part of Tomkinsons, including a mismatch between paperwork and physical stock. Also, she noted that some of the goods owned by Checkprice at Tomkinsons were out of date.”

41.

There is no reason to think the nature of HMRC’s investigations and their outcome in this regard would have been any different if conducted earlier in time, as they should have been. Officer Jackson’s investigations proceeded from early September 2007 at what was, in my view, a reasonable speed in all the circumstances. She reached the conclusion on 10 December 2007 that duty had not been paid on the goods in category C. Had that process commenced, as it should have done, by about mid-May 2007, the same conclusion would have been reached within a similar three-month period i.e. by about mid-August 2007. In my view, given the difficulties explained by Officer Jackson in linking the particular goods in category C held by HMRC with the items listed in the W5 forms supplied by Checkprice, the conclusion reached by Officer Jackson was a reasonable one. What should have happened at that point (mid-August 2007) in relation to those parcels of goods in category C which had not by then been disposed of on grounds of passing their sell-by dates was that HMRC should have given notice of seizure in respect of such goods in accordance with the regime in Schedule 3 to CEMA. Checkprice would then have given a counter-notice to contest the seizure and HMRC would have commenced proceedings in the magistrates’ court for an order that the goods should be forfeit. That would have led to a hearing in that court with evidence on both sides. The magistrates would have had to decide (with the burden of proof resting on Checkprice), on the balance of probabilities, whether duty had been paid on the particular seized goods. If they found it had been paid, they would have ordered the return of any goods still held and payment of compensation in respect of any goods which had been seized and then destroyed by HMRC (paragraph 17 of Schedule 3 to CEMA). I consider below what might have happened had events been brought to a head as they should have been by HMRC exercising their power of seizure in this way.

42.

Before doing that, it is necessary to consider whether HMRC are liable as at mid-August 2007 (when the reasonable period for investigations under the power of detention expired in relation to this category of goods) for the tort of conversion in respect of the goods in category C which had not been destroyed by that time. Mr Singh submits that HMRC are liable in conversion in respect of such goods. Mr Coppel for HMRC submits they are not, on the grounds that HMRC would in fact have been entitled to exercise a power of seizure at that stage, which they would have done had they appreciated the reasonable period for investigation under the power of detention had expired. He relied on an analogy with the law of bailment: if a bailee detains goods, purporting to rely on one ground giving him a right of detention which is not in fact present, but at the same time there is another basis of detention available to him (albeit not one on which he purports to rely), the bailee will not be liable for conversion for detaining the goods. Mr Coppel submitted that the position is the same here, where HMRC had a right to keep the goods pursuant to a power of seizure even when the right to keep them pursuant to the power of detention had expired.

43.

I do not accept this argument. In the bailment example the bailee has an underlying right under the terms of the bailment to detain the goods, and it does not matter whether or not he correctly refers to that right at the time he detains the goods. On proper analysis, he detains the goods in question in circumstances where he has a right to detain them (cf. the right of an innocent party to a contract to rely on breaches of contract against the other party even though they were not invoked by him at the time he treated the contract as having been repudiated: Boston Deep Sea Fishing & Ice Co v Ansell (1888) LR 39 Ch D 339, CA). This analysis does not apply in the present case. HMRC had no right to withhold the goods in question save to the extent that they validly exercised a statutory power to do so. They had a statutory power under section 139(1) of CEMA to detain the goods for a reasonable period, which period expired in mid-August 2007. Thereafter, HMRC could only lawfully retain the goods if they properly exercised their distinct power of seizure contained in section 139(1). Exercise of that power of seizure brings into operation statutory provisions constituting a protective regime for the benefit of the property-owner. The notional availability of the power of seizure cannot be relied upon as a defence to a claim in conversion where it has not in fact been exercised and where, therefore, HMRC have not brought the statutory protective regime into operation. There is no underlying right of retention for HMRC as there is in the bailment situation. HMRC’s right of retention of the goods pursuant to the power of seizure is conditional upon their actual exercise of that power. Therefore, in my judgment, HMRC were liable for conversion in respect of the relevant goods in category C in mid-August 2007.

44.

I turn now to deal with the question of liability in conversion in relation to the goods in category A and the goods in category B other than the Strongbow cider referred to above. I consider first the position regarding the goods in category A. Having regard to (a) the timescale of one month set out by HMRC in their letter of 7 August 2007 (dated 8 August 2007) for them to make a decision whether to return the goods or to exercise their power of seizure; (b) my finding above that such a letter should have been sent in mid-May 2007; and (c) the absence of evidence suggesting that HMRC would have had any difficulty in gathering and considering within that timescale the information which they did in the event acquire which led them to the conclusion that duty had not been paid in respect of those goods, I conclude that the relevant reasonable period for HMRC to carry out its investigations into the position regarding payment of duty in respect of the goods in category A came to an end on about 15 June 2007.

45.

If HMRC had carried out their investigations in good time in relation to this category of goods, they would have concluded that their power of seizure should have been exercised at that date; but they did not in fact exercise that power at that time. Therefore, for the reasons given at paras. [42]-[43] above in relation to the goods in category C, I find HMRC liable for conversion as at 15 June 2007 of such of the goods in category A as had not been destroyed as being past their sell-by date at that time.

46.

If HMRC’s investigations had been carried out in good time, I consider they would have arrived by then at the conclusions they came to in respect of these goods much later on, namely:

i)

that the goods shown in the invoices to Checkprice could not clearly or readily be linked with the particular goods which had been detained by HMRC (which position was set out in the relevant Schedule exhibited to Officer Barr’s witness statement); and, in addition,

ii)

that duty could not be shown to have been paid in respect of the goods set out in those invoices because of difficulties in tracing them back through the suppliers shown in those invoices to any person who was able to show that duty had been paid on the goods referred to in them.

47.

In relation to this last point, when HMRC did undertake the work to trace back the supplies they ran into the problem that the suppliers of most of the goods shown in the invoices issued to Just Beers and Gempost (5 Star, Shiraz and SCS), were found to be what were referred to as “disappeared traders”, i.e. companies which would not respond to inquiries and whose officers could not be traced. By June 2007, neither 5 Star nor Shiraz was contactable or trading. In June 2007, SCS failed to respond to a VAT assessment and attempts by HMRC to chase this up in August 2007 showed that SCS was not contactable either. Therefore, I consider that any attempt to trace the relevant supplies through these companies in about June 2007 would have failed, as in fact such attempts did fail later on.

48.

On the basis of the range of invoices obtained by HMRC, there was no realistic prospect of it being established that all (or indeed any) of the particular goods detained by HMRC came from sources other than these. In all probability HMRC would have encountered similar difficulties in tracing the detained goods back through such companies if they had carried out their investigations at an earlier point in time. The evidence before me did not indicate that any better information would have been forthcoming if inquiries had been made at an earlier stage which would have enabled HMRC to conclude that duty had indeed been paid in respect of the goods in category A. Therefore, what would and should have happened as at 15 June 2007 is that HMRC would have exercised their power of seizure at that point, leading to a hearing in the magistrates’ court in the same way as in relation to the goods in category C considered above.

49.

Finally, as regards liability, I consider the remaining goods in category B. These are the goods referred to in paragraphs 13.20 (Guinness Original) and 13.23 (Magners cider) in Mr Feneron’s first witness statement. As with the goods in category A, I conclude that HMRC should have conducted their investigations more expeditiously and should have decided at a relatively early stage whether to return the goods or to exercise their power of seizure in relation to them. The invoices for these items (Magners cider – Melrose Wines, Guinness Original – RM Swaine Ltd) were only supplied by Checkprice on 9 August 2007 in response to HMRC’s request for information of 7 August 2007. It appears that no inquiries were made to follow up the supply chain for these items any further. As explained above, HMRC should have made their request for information of 7 August 2007 by about mid-May 2007. It is likely that the relevant invoices would have been provided by Checkprice at about that time in response to such a request. There is no reason to think HMRC would have done any more to investigate those supplies at that stage than they did in fact do in August 2007. Since HMRC would not have sought to carry out further investigations into the supply chain for these items, the reasonable time for such investigations under their power of detention would have come to an end about that time, on about 23 May 2007 (allowing a period of about 7 days for HMRC to consider and digest the fruits of their investigation into those items). At that time, HMRC should have decided whether to return the goods or to exercise their power of seizure. They failed to do either and so are liable as at that date for the tort of conversion.

50.

At that stage, simply on the evidence of invoices from Melrose Wines and RM Swaine Ltd, HMRC would not have been satisfied that duty had been paid on the goods and so would have seized them. That would have led to proceedings in the magistrates’ court in a similar manner as in relation to the other items referred to above. Because HMRC did not investigate the supply chain for these items in greater depth, it is difficult to know what their case on them in the magistrates’ court might have been; and in the absence of detailed evidence from Checkprice as to any case it might have presented to show that duty had in fact been paid on these items, it is difficult to form any view what finding might have been made by the magistrates’ court in such proceedings.

Quantum of damages

51.

I have found that some of the Strongbow cider detained by HMRC should have been returned to Checkprice on 1 September 2007 and that the goods were converted on that date (para. [37] above). An issue then arises regarding the compensation payable in respect of that conversion.

52.

The usual measure of damages for conversion of goods is the value of the goods of which the owner has been deprived. In this case the parties proceeded on the basis that the price paid by Checkprice for the goods was an appropriate measure of their market value for the purpose of damages. It should be observed that section 144 of CEMA does not afford HMRC any defence to this claim, since it is brought on account of the detention of the goods and at the point it arose HMRC’s reasonable grounds for detaining the goods had come to an end (see section 144(2)); also, section 144(3) preserves the right to claim compensation “in respect of the destruction” of the goods, which is in my view language sufficiently wide to encompass Checkprice’s claim that its goods were detained and destroyed without being returned to it as they should have been.

53.

The parties should now, in the light of this judgment, seek to agree the sum payable as damages in respect of the parcels of Strongbow cider which should have been returned to Checkprice, to be assessed by reference to the value of the goods. If they cannot agree the order, any points in dispute can be referred back to the court.

54.

In addition to the value of the goods, Checkprice claims consequential losses by reason - it says - of being deprived of the money it would have received from the sale of the Strongbow cider in the course of its business, which it could have used to finance a series of further transactions at a profit in each case. Checkprice claims that this loss was compounded many times over, because in each transaction it would have made yet more profit which it would have invested in further transactions generating more profits, and so on.

55.

I do not accept that damages should be awarded for such alleged consequential loss. The market value of the goods in this case represents what Checkprice could have sold them for, and in my view the appropriate compensation to Checkprice for loss of that money is by way of payment of interest on that sum. If Checkprice had opportunities to enter into transactions at a profit, one would expect it to be able to raise finance to do so. Checkprice’s claim for consequential loss therefore depends on the notion that Checkprice was unable to raise the finance for such further transactions. It is not suggested that Checkprice had any specific profitable transaction in contemplation in relation to these goods, still less that HMRC were on notice of any such specific transaction. Nor were HMRC on notice that Checkprice’s financial situation was such that it would be unable to fund any profitable transactions which presented themselves. In broad terms, the interest payable on the damages representing the market value of the goods corresponds with the interest which might be expected to be paid by Checkprice if raising equivalent funds to engage in further transactions. That is the extent of the loss which it was reasonably foreseeable that Checkprice might suffer from its loss of the money represented by the value of the detained goods. I consider that the consequential losses now claimed by Checkprice are too speculative and too remote to be compensated by an award of additional compensation: see Saleslease Ltd v Davis [2000] 1 All ER (Comm) 883, 887-889 and Clerk and Lindsell on Torts, 19th ed., paras. 2-141 and 2-142.

56.

As regards the other goods detained by HMRC, I do not consider that damages equivalent to the market value of those goods would be appropriate. Although that is the usual measure of damages for conversion of goods, that is only because that is usually the best measure of the true loss suffered by the claimant. The principle to be applied, however, is that damages should be awarded to provide a just remedy reflecting the loss actually suffered by the claimant which may, in some circumstances, be different from the market value of the goods: Kuwait Airways v Iraqi Airways [2002] 2 AC 883, [63]-[68].

57.

In my judgment, that is the position here. In relation to these goods, if HMRC had acted as they should have done, the goods would not have been returned to Checkprice at the date of their conversion; rather, HMRC would have exercised their power to seize the goods, leading eventually to a hearing in the magistrates’ court to determine whether the goods should be forfeit (i.e. never returned to Checkprice) on the grounds that duty had not been paid on them.

58.

Mr Singh submitted that the court should assume that it would have been established in such proceedings that duty had been paid on the goods, since otherwise (he said) HMRC would be benefiting from their own wrong in not having exercised their seizure power as they should have done. I reject that submission. In my view, the appropriate analogy is with cases where solicitors, through their negligence, fail to take a step in litigation so leading to their client losing a case or claim with no hearing in court on the merits of that case or claim. In such cases, although the solicitor has acted unlawfully in breach of duty, the court does not assume that the client would have won his case and award damages assessed by reference to that. Instead, the court assesses as best it can the position which would have arisen in that litigation including by reference to the evidence which would have been deployed at a hearing on the merits to assess the value of the opportunity to proceed with the claim which the client has lost. Damages are assessed by reference to the value of that lost opportunity: see e.g. Mount v Baker Austin [1998] PNLR 493, CA, at 510D-511C.

59.

In my view, that is the approach which in the present context best reflects the application of the fundamental principle identified in Kuwait Airways and is the appropriate basis for assessing damages in this case. As regards these goods, what Checkprice lost as a matter of commercial reality was the opportunity to try to prove in the magistrates’ court that duty had been paid on the goods, rather than an outright right to have the goods back.

60.

Mr Singh faintly argued for an alternative claim based on breach of statutory duty rather than conversion, but that would make no difference to the principle to be applied for the assessment of damages and it is unnecessary to consider it further.

61.

Once Mr Singh’s submission that it should be assumed that Checkprice would have won the case in the magistrates’ court is rejected, Checkprice’s claim in damages runs into major difficulties. This is because Checkprice would have borne the burden of proof in the magistrates’ court to show that duty had been paid on the particular goods and because Checkprice has not adduced evidence in these proceedings to show how it would have met the concerns identified in the evidence adduced by HMRC regarding the difficulties in showing any link between payment of duty and the particular goods held by HMRC.

62.

At the hearing before me Mr Singh sought to suggest, by way of example, that perhaps Checkprice could have called evidence in proceedings in the magistrates’ court about the stock control procedures at Tomkinsons. That may be so, but on the material available to me that was a completely speculative suggestion. Checkprice has not shown that it would have had any significant chance of being able to establish in the magistrates’ court on the balance of probabilities that duty had been paid on the particular goods detained in this case.

63.

Therefore, in my judgment, the appropriate award of damages in respect of the conversion of these goods is of a nominal sum. Having regard to the range of goods converted by HMRC, I consider the appropriate nominal sum is £500.

Conclusion

64.

Checkprice succeeds in its claim that HMRC converted significant quantities of its goods. It is entitled to substantial damages for conversion in relation to a relatively small quantity of Strongbow cider, to be assessed by reference to the value of the goods at the time of their conversion. It is only entitled to nominal damages assessed at £500 in relation to the remainder of the goods converted by HMRC.

Checkprice (UK) Ltd (In Administration) v HM Revenue & Customs

[2010] EWHC 682 (Admin)

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