Customs & Excise v Anglo Overseas Ltd

This is the latest in a series of petitions presented by HM Commissioners of Customs & Excise (“HMCE”) seeking to wind up a company which it has assessed to excise duty under the Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 (“DSMEG”). The petitions succeeded in Re Anglo-German Breweries Ltd [2002] EWHC 2458 (Ch) (Lawrence Collins J); Re The Arena Corporation Ltd [2004] BIPR 375 (Lawrence Collins J) and [2004] BIPR 415 (Court of Appeal). The petition was adjourned in HM Customs and Excise v. Jack Baars Wholesale [2004] BIPR 543 (Lindsay J).

In Re The Arena Corporation Ltd HMCE contended that the company was implicated in large scale fraud, and the company’s evidence to the contrary was disbelieved by Lawrence Collins J, despite not having been subjected to cross-examination. The Court of Appeal upheld his conclusion. However, Sir Andrew Morritt V-C said at para. 91:

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

In the cases of this kind that have so far come before the court, the company against which the petition has been presented has been alleged by HMCE to have been implicated in the fraud. That is not the allegation in this case. Anglo Overseas Ltd (“AOL”) is a respectable company, which has been trading successfully since 1925. It employs over 200 people and operates from some 14 locations in the UK. But for the assessments to excise duty, it is not insolvent. The assessment to excise duty arises out of a number of shipments of alcoholic drinks (principally whisky). These shipments were arranged by AOL, in the sense that it was the contracting party with the putative consignee. However, it subcontracted the transport to another company. It was not the owner of the goods in question; nor was it the warehousekeeper. It made a modest profit of about £100 on each consignment. However, as a result of European legislation, it guaranteed any loss which might be suffered by the relevant excise authority for loss of excise duty within the European Union. The relevant excise duty has not been paid. Because of the guarantee AOL has been assessed to excise duty at a rate (roughly) of £100,000 per consignment. The total amount claimed by HMCE amounts to more than £4.5 million.

The question before me is whether a winding up petition is the appropriate way for HMCE to recover what they say is due. At the conclusion of the hearing I was asked to indicate what I had decided. I told the parties that I had decided to dismiss the petition. Although I gave a very brief indication of my reasons, I said that I would amplify them in writing. This is that amplification.

There is no doubt that the problem of fraudulent evasion of excise duty is a serious one. I adopt the general description of the problem from the judgment of Lawrence Collins J in Re Anglo-German Breweries:

“1.

The fraudulent diversion of duty suspended alcohol into the market without payment of duty and VAT is estimated to cost the exchequer some £450 million p.a. Alcoholic goods can lawfully be manufactured, sold, held or moved by the owner without payment of duty, provided that they remain in bond. Fraudulent diversion occurs by the creation of false administrative documents (“AADs”) which permit the release of the duty suspended products from a bonded warehouse. Goods kept in such a warehouse can move from one such warehouse to another without the payment of tax provided the necessary documentation accompanies the goods showing that they are going to another bonded warehouse (both within the United Kingdom and also other EU countries).

2.

In theory the bonded warehouse system is enforced by the requirement that one of the AADs must be returned by the warehouse of destination to the warehouse of despatch by the 15^th day of the month following receipt to evidence the fact that the goods are still in bond. If it is not received in that period the warehouse of despatch is required to report this fact to Customs & Excise, and if it is not received within 4 months of despatch (and no alternative acceptable evidence of delivery is provided) the warehouse of despatch becomes liable for the duty.

3.

There is widespread evasion of these controls by alcohol being unlawfully diverted onto the UK home market through the use of AADs being returned with false stamps evidencing receipt of the goods by the supposed warehouse of destination. The false documents achieve a release of the goods from a bonded warehouse, supposedly to be passed to another such warehouse, but in fact the goods never arrive, and instead they are fed into the home market where they are sold at a reduced price, usually for cash, because duty and VAT have not been paid.”

The break-up and sale of such consignments is known as a “slaughter”.

The relevant legislation is partly European and partly domestic. I take the general description largely from the judgment of Sir Andrew Morritt V-C in Arena Corporation Ltd. By Council Directive 92/12/EEC (“the Directive”), promulgated in February 1992, the Council for the European Communities laid down the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such products.The Directive applies to, among other things, alcohol and alcoholic beverages. It begins with a number of recitals which set out its purpose. Among the relevant recitals are the following:

“Whereas provision should be made, to ensure the collection of taxes at the rates laid down by Member States, for the establishment of a procedure for the movement of such goods under duty suspension arrangements

…

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

Article 1 indicates that the object of the Directive is to lay down arrangements for excise duties and other indirect taxes, except VAT, levied in respect of the consumption of products but recognises that specific directives are needed relating to structures and rates of duty on products subject to excise duty. Article 3 provides that the Directive applies at Community level to, amongst others, alcohol and alcoholic beverages. Article 4 contains definitions of “authorised warehousekeeper”, “tax warehouse”, “suspension arrangement”, “registered trader” and “non-registered trader”. The phrase “suspension arrangement” is defined as:

“a tax arrangement applied to the production, processing, holding and movement of products, excise duty being suspended”.

Article 5 provides that products to which the Directive applies shall be liable to excise duty at the time of their production within the territory of the Community or of their importation into that territory. This is the primary rule for fixing liability to excise duty. Article 5 (2) deals with certain movements into and out of the EU and movements via EFTA countries, and says that in such circumstances “excise duty on them shall be deemed to be suspended”.

Article 6 provides that

“1.

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

(a)

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

(b)

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

(c)

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

2.

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

Title II relates to the production, processing and holding of products subject to excise duty. Article 11 lays down the primary rule that production, processing and holding of products subject to excise duty “shall take place in a tax warehouse”. By Article 13 an authorised warehousekeeper, as defined, is required to provide a guarantee;

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

Article 14 exempts authorised warehousekeepers, under suspension arrangements, from “losses inherent in the nature of the products during production, and processing, storage and transport”. Such losses are to be established according to the rules of the Member State of destination.

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

“(3)

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

(4)

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

Articles 18 and 19 provide for the documentation needed for movements under duty suspension arrangements, including the AAD. Article 19 appears to contemplate that a discharge from duty suspension arrangements takes place on completion of the necessary paperwork.

Article 20 states:

“1.

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

2.

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

3.

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

4.

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

Article 20 does not define either an irregularity or an offence.

As provided in Article 32 the Directive is addressed to Member States.

The Directive was intended to have been implemented in the UK by DSMEG, made under the Finance Act 1994.

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

“a movement of excise goods which:

(1)

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

(i)

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

(ii)

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

(2)

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

“Irregularity” is defined as “an irregularity or offence within the meaning of Article 20 of the Directive”. There is no further definition of an “irregularity” or “offence”, either in DSMEG or in the directive.

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

“3.

- (1) This regulation applies where:

excise goods are:

(i)

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

(ii)

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

(b)

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

(2)

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

(3)

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

(4)

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

4.(1) This regulation applies where:

(a)

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

(b)

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

(c)

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

(d)

there has been an irregularity.

(2)

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

(3)

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

The full terms of Regulation 7 are

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

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

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

HMCE’s power to make an assessment to excise duty arises under section 12 of the Finance Act 1994. The particular provision applicable in this case is section 12 (1A), which applies where the amount of duty due can be ascertained. However, section 12 (4) says:

“An assessment of the amount of any duty of excise due from any person shall not be made under this section at any time after whichever is the earlier of the following times, that is to say—

subject to subsection (5) below, the end of the period of three years beginning with the time when his liability to the duty arose; and

 the end of the period of one year beginning with the day on which evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge;

but this subsection shall be without prejudice, where further evidence comes to the knowledge of the Commissioners at any time after the making of an assessment under this section, to the making of a further assessment within the period applicable by virtue of this subsection in relation to that further assessment.”

If HMCE make an assessment under this section the person assessed may require a review of the decision under section 14 of the Finance Act 1994. Section 16 of the Act enables an appeal to be brought to a VAT and Duties Tribunal against a decision of HMCE on such a review. Under section 16 (5) the Tribunal has the power to quash or vary the decision.

There are two tranches of assessment on which the petition is based. The earlier is a single assessment (BM 193/02) issued on 6 June 2002 in the sum of £3,012,069.37. The second is a series of assessments (BM 21/03, 22/03, 23/03 and 24/03) all issued on 4 February 2003 in the aggregate sum of £1,591,017.

The first assessment relates to movements of alcohol which, according to the paperwork, should have gone to Portugal. The destination given in the paperwork was a Portuguese company abbreviated as SAVM. The second tranche relates to movements of alcohol which, according to the paperwork, should have gone respectively to Italy, Belgium and Spain. The Italian destination was given in the paperwork as Serio; the Belgian destination as Brasserie Caulier and the Spanish destination as Miguel Abad SA. The first assessment specified an excise duty point in accordance with regulation 4 of DSMEG. The second tranche specified excise duty points under both Reg. 3 and Reg. 4.

All the movements to which the assessments relate took place between late September and early November 2001. The bonded warehouses from which the movements originated were called Oakwood Storage Services Ltd (“Oakwood”) and Rangefield Import Export Limited (“Rangefield”). Both of them were in Essex.

In relation to each movement AOL received apparently completed AADs, apparently recording receipt of the goods at a bonded warehouse in another Member State. It later turned out that the AADs were falsified, and that the goods had disappeared. AOL had no reason to suspect any irregularity.

AOL raise a number of different arguments in relation to the two tranches of assessment; and an additional argument in relation to the second.

The first assessment was made on 6 June 2002. The covering letter said:

“The assessed amount represents excise duty arising as a result of the occurrence or detection of an irregularity (within the meaning of Article 20 of Council Directive 92/12/EEC) during one or more duty suspended movements of excise goods dispatched from Oakwood Storage Services Limited and Rangefield Import Export Limited to Sociedad Agricola e Commercial dos Vinhos Messias in Portugal.

…

As the goods have failed to arrive at their destination within four months of the date of removal an excise duty point has arisen within the meaning of regulation 4 (2) of the Excise Duty Points (Suspended Movements of Excise Goods) Regulations 2001 (DSMEG). The time of the duty point is the time at which the goods were removed from the warehouse. Under the provisions of regulation 7 (1) of those Regulations, you, as guarantor of the movements are liable to pay the excise duty now due.”

On 17 July 2002 AOL requested a departmental review of the assessment. Among its complaints were that it had not been given any information about how any fraud had been perpetrated or by whom. They complained that they had not been given adequate information and asserted a right to a fair hearing. On 13 August HMCE indicated that a departmental review would be undertaken. The reviewing officer issued his review on 29 August 2002. Under the heading “Background” he referred to information that had been given to him by Mr Parsons, an officer of HMCE. This information established that the goods detailed in the AADs did not arrive at their destination in Portugal; and that stamps purporting to be official Portuguese stamps were false. Under the heading “Legal grounds for assessment” the reviewing officer set out the text of DSMEG regulation 4 and articles 15 and 20 of the Directive. He did not analyse the legal provisions that he set out, but he did set out some of them in bold face type. Among the parts of the text thus set out were parts of article 20 which read:

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

One might think from this that it was being implicitly asserted that HMCE had “detected” an irregularity. The justification for the assessment was said to be:

“It has been established that the goods did not arrive at the destination indicated on the AAD forms. The fiscal authority certification on the AAD forms has proved to be false, along with the receipt certification by the foreign bonded warehouse.”

The assessments were therefore confirmed. AOL’s solicitors indicated that AOL would appeal against that decision. On 23 September 2002 AOL’s solicitors asked HMCE to consent to an extension of time for lodging the appeal. Two days later, on 25 September, HMCE consented to an extension of time until 9 October (the maximum permissible under the rules applicable to appeals). On 18 October AOL lodged an appeal to the Tribunal against both the decision and the underlying assessment. In order to be able to prosecute an appeal, the appellant must pay the amount of duty to which he has been assessed, or apply for a reduction of that amount on the ground of hardship. AOL maintained that adequate security was provided by a guarantee that it had procured. HMCE took a different view of the scope of the guarantee which, they said, covered only £100,000. On 6 November 2002 the Tribunal fixed a preliminary hearing for 29 January 2003. Shortly afterwards AOL also made an application for permission to seek judicial review of HMCE’s decision on the review.

On 16 December 2002 HMCE wrote to confirm a conversation that had taken place a little earlier. The upshot was that HMCE were proposing to apply for a stay of both the appeal and the application for judicial review pending the outcome of criminal proceedings that HMCE had brought against some of the alleged fraudsters. However, shortly afterwards HMCE changed tack and indicated that they would apply to have the Tribunal appeal struck out on the ground that AOL had not paid the assessed duty and that no “hardship certificate” had been issued. On 22 January HMCE wrote with suggested directions for the strike out application. AOL’s solicitors agreed the approach, and said that since their interpretation of the guarantee had now been challenged, they would be applying for a hardship certificate. The directions were agreed on 28 January. On 4 February 2003 HMCE issued the second tranche of assessments. On 26 February AOL served a statement in support of its application for a hardship certificate. AOL provided further information in response to HMCE’s request; but HMCE refused a hardship certificate on 24 April 2003. In the following month AOL and HMCE agreed to exchange experts’ reports on the question of hardship. Various extensions of time were agreed between AOL and HMCE (at least one at HMCE’s request). Further statements were served in the summer of 2003, including one on behalf of HMCE. On 6 August 2003 HMCE said that it required AOL’s witnesses to attend for cross-examination. Through the late summer there were further agreed extensions of time for exchange of expert evidence. Reports were exchanged on 25 September 2003. HMCE’s report concluded that AOL would be able to pay £2 million of the assessed amount.

However, on 14 October, without prior warning, HMCE’s solicitors sent a letter demanding payment of the assessed amounts (both tranches), and said that if payment was not forthcoming a winding up petition would be issued. A winding up petition was duly presented on the following day.

AOL contends that having gone down the road of an appeal to the Tribunal, and in the light of HMCE’s participation in that process, it is an abuse of process for HMCE now to change tack and sidestep the Tribunal by presenting a winding up petition. In particular AOL have expended time and money (including the commissioning of an expert’s report on the question of hardship) which would be wasted if the appeal is now stifled.

HMCE have not contended that the appeal was lodged in bad faith or simply as a delaying tactic. However, HMCE do say that the appeal has no real prospect of success, although they have not applied to strike it out on that ground. Ms Stubbs submitted that the tribunal had no power to strike out an appeal. This submission is not, on the face of it, consistent with the position that HMCE adopted in Bhanderi v. HMCE [2004] EWHC 1765 (Ch) at paras. 22 and 23.

Mr Chaisty relies on Re a Company (No 003028 of 1997) [1988] BCLC 282. In that case the petitioner had begun proceedings against the company in the Queen’s Bench Division seeking damages for breach of his contract of service with the company. He then presented a petition seeking to wind up the company on the just and equitable ground. Scott J dismissed the petition. He said:

“This is an unusual application to strike out in that, on the view I take, if it had not been for the Queen’s Bench action I think counsel for the company would have been in great difficulty in asserting that the petition was one which was bound to fail. I think that a person in Mr A’s position, part contingent creditor, part contingent shareholder, in substance co-venturer with risk capital at stake, is entitled to invoke the court’s jurisdiction under the just and equitable ground if he has been wrongfully excluded from the management that he was intended to have. If it had not been for the Queen’s Bench action, I think an application to strike out would have been doomed to failure. But there is the Queen’s Bench action. Mr A started it, and is prosecuting it. He is entitled to do that. But he has in a real sense, I think, made an election in favour of the relief sought in that action. The implications of this election render improper the presentation and prosecution of the petition.”

That was a case in which the petitioner himself initiated the alternative legal proceedings. In the present case HMCE did not initiate the appeal. But although they applied to strike it out on the ground that security had not been provided, they did not seek to strike it out on the ground that it was frivolous or vexatious or doomed to fail. It seems to me that AOL were entitled to think, from HMCE’s conduct, that if the question of security and hardship were resolved, it would be allowed to proceed with its appeal.

I do not regard HMCE’s change of mind as an abuse of process, but I do consider that it (and the conduct that preceded it) is a factor that I am entitled to take into account in exercising the discretion that I have under the Insolvency Act 1986.

AOL contend that Reg. 4 of DSMEG does not apply. The principal ground for this contention raised in the skeleton argument is that there is a real issue between AOL and HMCE whether the goods arrived at their destination. Before considering the evidence on this question I think I should briefly mention some of the difficulties which, in my view, attend the interpretation both of the Directive and DSMEG.

Suspension arrangement. As I have said, this is defined by the Directive as:

“a tax arrangement applied to the production, processing, holding and movement of products, excise duty being suspended”.

There is no further definition. I did not find it possible to discern from the Directive itself, what the “tax arrangement” was; or the circumstances in which excise duty would be suspended. Ms Stubbs was unable to identify any other European or domestic legislation which indicated the limits of the “tax arrangement”; or the circumstances in which duty would be suspended. It was certainly assumed that duty would be suspended if a consignment of alcohol travelled from a tax warehouse in one Member State to a tax warehouse in another Member State. But there does not appear to be any legislation that actually says so. Article 15 of the Directive says that movement of products “subject to excise duty under suspension arrangements shall take place between tax warehouses”. But this seems to me to presuppose that there are suspension arrangements and does not actually create them. Article 5 2 does deem duty to be suspended in certain circumstances, but these relate to movements in and out of the territory of the EU. It is common ground that this does not apply in this case.

Departure from a suspension arrangement. Article 6 says that there is a release for consumption of alcohol on:

“any departure, including any irregular departure, from a suspension arrangement”.

Without knowing precisely what the suspension arrangement is, it seems to me to be impossible to determine whether there has been a “departure” from such an arrangement. It is also not clear what is meant by a “departure”. HMCE seems to assume that “departure” means a physical departure of the goods from the route between the point of departure in one Member State and the declared point of arrival in another. But if part of the suspension arrangement is (as it may be) the completion of prescribed paperwork, then it may be that there is a “departure” from the arrangement if the paperwork is falsified. (The latter appears to have been the view of the European Court of Justice in Distillerie Fratelli Cipriani v. Ministero delle Finanze (13 December 2002 Case C-395/00) para. 19). This may be of significance, since an irregularity consisting of the physical departure of the goods may take place (or be detected) in one Member State, while falsification of paperwork may take place (or be detected) in another.

Offence or irregularity. This phrase is not defined by the Directive. To an English lawyer, the word “offence” connotes a criminal offence. But the Directive does not create any criminal offence. Ms Stubbs suggested that this was because the Directive left the criminal law to the Member States. This may well be so. If so, one would need to consider what relevant criminal offences may exist in domestic law. Candidates are:

Fraudulent evasion of duty (Customs and Excise Management Act 1979 s. 170). The actus reus of this offence may consist in taking possession of goods;

Knowingly or recklessly making an untrue statement in a document (Customs and Excise Management Act 1979 s. 167).

Counterfeiting a document (Customs and Excise Management Act 1979 s. 168).

Taking preparatory steps for the evasion of excise duty (Customs and Excise Management Act 1979 s. 170B).

These offences may be committed or detected in England even if the physical whereabouts of the goods is unknown.

Multiple irregularities or offences. It is (at least theoretically) possible for multiple offences or irregularities to be committed in different Member States. For instance, goods may “disappear” in one Member State, while documentation may falsified in another. Article 20 does not provide clear guidance as to the priority between Member States in collecting the duty. This may, of course, be important, since Member States are not required to (and do not) levy excise duty at a uniform rate.

Some of these difficulties of interpretation are carried through into the domestic legislation. Thus Reg. 2 of DSMEG defines a “duty suspended movement”. Part of the definition is that it is a movement in respect of which duty is suspended “pursuant to duty suspension arrangements as defined in Article 4 (c) of the Directive”. But it does not seem to me that article 4 (c) does define duty suspension arrangements in terms clear enough to enable the reader to understand precisely what they are, and when they apply. That is not the end of the difficulties in interpreting Reg. 2. The opening part of the definition refers to a movement of goods:

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

(i)

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

(ii)

the authorised warehousekeeper at a tax warehousekeeper at a tax warehouse in the same member state having passed through at least one other member state during the course of the movement” (emphasis added).

On the face of it, an intention is a state of mind formed by a natural or legal person. In the latter case there are rules of attribution to determine what intention is held by a legal person (such as a company). But whose intention is relevant for the purposes of the definition? And must it be a genuine intention? Suppose that the consignor and the transporter of the goods both intend that a load should be slaughtered after leaving a tax warehouse in England and before crossing the Channel. Can it be said that the movement was “intended” to finish by the arrival in a tax warehouse in another Member State? If they fraudulently filled in an AAD declaring that the point of arrival would be another tax warehouse in, say, Belgium, does that make a difference? In other words, can “intended” be read as “apparently intended”? And if an innocent guarantor is himself deceived by the fraudulent paperwork, is his intention relevant?

I do not have, and I do not need to have, answers to these questions on this petition. But it seems to me to be at least arguable that if the movement of goods never was intended to arrive at a tax warehouse in another Member State, there would not have been a duty suspended movement of goods. So far as the consignor of the goods is concerned, this may mean that his liability arises as soon as the goods leave the warehouse. But so far as the guarantor (like AOL) is concerned his liability arises only by virtue of Reg. 7. Reg. 7 applies only where an excise duty point arises under Reg. 3 or Reg. 4. Both these regulations only apply where there is a duty suspended movement of goods. If there is no duty suspended movement of goods, then Reg. 7 cannot apply, and the guarantor cannot be liable.

I come next to a difficult point on the inter-relationship between Reg. 3 and Reg. 4. One of the conditions necessary to bring Reg. 3 into play is that:

“there is an irregularity which occurs or is detected in the United Kingdom”

Thus there must have been an irregularity; and that irregularity must have either occurred in the United Kingdom, or been detected in the United Kingdom. If this condition applies, then there is an excise duty point arising under Reg. 3. However, Reg. 4 applies where:

“(c)

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

(d)

there has been an irregularity”.

If there is no excise duty point under Reg. 3, it must follow that there has been no irregularity which has occurred in the United Kingdom and no irregularity which has been detected in the United Kingdom. Yet condition (d) requires that there “has been” an irregularity. Unless Reg. 4 is dealing with an irregularity which has occurred outside the United Kingdom or has been detected outside the United Kingdom, there appears to be a logical impasse. How can it be said that there “has been” an irregularity, if it has neither occurred nor been detected? On the present application, it is no part of HMCE’s case that an irregularity occurred or was detected outside the United Kingdom. They explained their reliance on Reg. 4 as being an inability to prove that an irregularity had occurred or been detected in the United Kingdom. If that is the case, then how can they prove that there “has been” an irregularity at all? Ms Stubbs disclaimed any suggestion that the mere fact that the goods did not arrive at the destination stated on the AAD itself amounted to an irregularity. This seems to me to be right. If, for example, the goods failed to arrive because the lorry carrying them was destroyed in a road accident, that would not, on the face of it, seem to be an irregularity. Moreover, the requirement of an irregularity under condition (d) is an additional requirement to the fact of non-arrival under condition (b). Ms Stubbs was, therefore, right to say that the non-arrival of the goods was material from which an irregularity could be inferred. But once one is into the realm of inference to establish the fact of an irregularity, why should not the place where the inference is drawn be the place where the irregularity is detected? If it is, then an excise duty point would arise under Reg. 3; and Reg. 4 (under which the first assessment was made) would not apply.

Arrival at their destination. In order for Reg. 4 to apply, it must be shown that the duty suspended movement was not discharged by the arrival of the excise goods at their destination. What is the “destination” of the excise goods? In ordinary usage the “destination” of a journey is the place at which the traveller intends to bring his journey to an end. This phrase raises the same questions as those raised by the phrase “intended to finish” that I have already mentioned. In addition, it is by no means clear from Article 19 (3) of the Directive that it is the arrival of the goods (as opposed to the return of the AAD to the consignor) which constitutes the discharge.

HMCE relied on Reg. 4 because they were of the view (at the time) that they could not establish that the offence or irregularity had been committed in or detected in the United Kingdom. In his first witness statement Mr Bailey (one of HMCE’s officers) says:

“Put shortly, HMCE contend that the movements which AOL guaranteed were an excise diversion fraud, whereby goods supposedly destined for bonded warehouses were in fact diverted and sold on the black market in the United Kingdom.”

That is the sum total of HMCE’s evidence on where the irregularities were committed. Mr Chaisty, however, points to the statement of one of the lorry drivers involved, who gives evidence of having exchanged trailers with an Italian driver. That is some evidence that the slaughter of the load may have taken place outside the United Kingdom. Mr Chaisty goes further, and submits that this evidence, coupled with AOL’s receipt of apparently valid AADs and CMRs show that the goods arrived at the tax warehouses for which, according to the paperwork, they were destined. The latter submission, in my judgment, has no real prospect of success. The evidence that the documents were falsified is, in my judgment, overwhelming.

The AADs declared that the goods were destined for Portugal. The evidence that they did not arrive there is as follows:

A witness statement made by Mr Vigario, one of the partners in SACVM, the Portuguese entity that runs the bonded warehouse for which the AADs indicated that the goods were destined. He says that his company does not and never has imported goods from the United Kingdom (with immaterial exceptions);

A witness statement made by Mr Reis, the managing partner of Vinland, the local representatives of SACVM in the Lisbon area. He says that he had never heard of Oakwood or Rangefield; that he had received no consignments from either of those warehouses and that the signatures on the AADs purporting to confirm receipt were not the signatures of any of his employees;

A record of an interview with Mr Maia, a Portuguese customs officer. He says that the Portuguese customs stamps on the AADs are false.

In the face of this evidence, I do not consider that it can be seriously contended that the goods did arrive at the destination declared by the AAD. However, the evidence of the lorry driver does cast some doubt on the assertion that the slaughter took place in the United Kingdom. But if there is doubt about where the slaughter took place, that supports HMCE’s contention that they could not “establish” that the slaughter took place in the United Kingdom.

Mr Chaisty also submitted that Reg. 4 was invalid, because that part of the Directive which it was intended to implement, viz. Article 20 (3), was itself invalid. He based this submission on the decision of the European Court of Justice in Distillerie Fratelli Cipriani v. Ministero delle Finanze (13 December 2002 Case C-395/00). In that case Cipriani was an authorised warehouse keeper. It performed a number of operations under duty suspension movements of alcohol. It was subsequently discovered that stamps affixed to the AADs attesting to the products’ having left the territory of the Community had been falsified. The Italian tax authorities made a claim on Cipriani under its guarantee. The claims were made after the expiry of the four month period from the date on which the products were dispatched, set out in Article 20 (3) of the Directive. It was not until the claims were made that Cipriani became, or could have become, aware that the stamps had been falsified. The national court referred three questions to the European Court of Justice for a preliminary ruling. The ECJ conflated the first and third questions, which it answered together, as follows:

“whether, on a proper construction of Article 20 (3), the period of four months allowed by that provision for evidence to be provided of the correctness of the transaction or of the place where the irregularity or offence was actually committed may be relied on against a trader who has guaranteed the payment of the excise duties but was not in a position to know, at the appropriate time, that the duty-suspension arrangements had not been discharged.”

Cipriani’s argument was that time should not begin to run until the moment when the person concerned has, or could have, become aware of the offence or irregularity. Consequently it argued that either time was still running or the “act served on it was vitiated” because it did not refer to that period. I take the reference to the “act served on it” to be a reference to the tax demand. The ECJ held as follows:

“52.

It is obvious that the period of four months allowed by Article 20(3) of the Directive for providing evidence of the correctness of the transaction or of the place where the offence or irregularity was actually committed cannot be considered to be reasonable if it has already expired when the consignor learns, or could have learned, that an irregularity or offence has been committed.

53.

In such circumstances, the application of that period of four months from the date of dispatch of the products at issue does not satisfy the principle of respect for the rights of defence since it is impossible for the trader who guaranteed payment of the excise duties to be informed in good time of the fact that the duty-suspension arrangement has not been discharged. Accordingly, contrary to what is required by that principle, he is unable to make his views known effectively or, more particularly, to provide evidence of the correctness of the transaction or of the place where the offence or irregularity was actually committed.

54.

Having regard to all the foregoing considerations, the answer to the first and third questions must be that Article 20(3) of the Directive is invalid in so far as the period prescribed therein of four months for evidence to be provided of the correctness of the transaction or of the place where the irregularity or offence was actually committed may be relied on against a trader who has guaranteed the payment of excise duty but was not in a position to know, at the appropriate time, that the duty-suspension arrangement had not been discharged.”

The qualified nature of this answer (beginning with the words “in so far as”) seems to me to be inconsistent with Mr Chaisty’s primary submission that the whole of Article 20 (3) was declared to be invalid. That said, it seems to me to be a plausible interpretation of the judgment that the national customs authorities cannot rely on Article 20 (3) (and by extension the domestic legislation that implements it) against a guarantor who does not know, and cannot be expected to know, of the irregularity until such time as he is informed of it by a demand for duty.

It is not suggested in this case that AOL knew or ought to have known of any irregularity before the first assessment was made. Under Reg. 4 an assessment cannot be made until four months after the date of removal of the goods from the tax warehouse in the United Kingdom. But the four month period for accounting for the excise goods runs from precisely the same date. In practice, therefore, no assessment can or will be made until after the expiry of the period during which a wholly innocent party is entitled to account for the goods. On the face of it this is the mischief which the ECJ in Cipriani said made Article 20 (3) invalid. Cipriani does not appear to have been considered in any of the earlier cases on DSMEG, no doubt because in the earlier cases the company in question was alleged to have been heavily implicated in the fraudulent diversion of the goods. In my judgment it is arguable that the assessment of AOL based on Reg. 4 was invalid.

There is one further respect in which Reg. 4 does not appear to implement the Directive. Article 20 (3) envisages that liability may be avoided if:

“within a period of four months from the date of dispatch of the products evidence is produced to the satisfaction of the competent authorities of the correctness of the transaction or of the place where the offence or irregularity was actually committed.”

Reg. 4 (3) says that the excise duty point will not arise where:

“within four months of the date of removal, the authorized warehousekeeper accounts for the excise goods to the satisfaction of the Commissioners.”

Whereas Article 20 (3) leaves open the identity of the person who may avoid liability by producing the necessary evidence, Reg. 4 (3) restricts that right to the “authorized warehousekeeper”. AOL is not the authorised warehousekeeper; it is merely the guarantor. On the face of it, therefore, it does not have any right to avoid liability. It may be that a purposive construction of the regulation would solve this difficulty, but in my judgment that is not the sort of question that should be decided on a petition to wind up.

If AOL has a substantial argument for disputing its liability under Reg. 4 (either because Reg. 4 does not apply; or because it is invalid against AOL), can HMCE rely on Reg. 3 even though it did not do so at the time of the assessment?

HMCE did not rely on Reg. 3 because they were of the view (at the time) that they could not establish that the offence or irregularity had been committed in or detected in the United Kingdom. The evidential position as regards the consignments apparently destined for Portugal does not appear to have changed materially since then.

In some ways, however, this argument seems to me to miss the point. DSMEG is not primarily concerned with fixing a liability to excise duty. That is done by an assessment under section 12 of the Finance Act 1994. DSMEG fixes the excise duty point. DSMEG also fixes the identity of the person who is liable to pay. But the actual liability arises under domestic legislation. Section 5 of the Alcoholic Liquor Duties Act 1979 is the primary measure, supplemented by sections 94 and 95 of the Customs and Excise Management Act 1979. (In the Arena case Sir Andrew Morritt V-C said that liability arose under section 95).

However, the fixing of the excise duty point does have differing legal consequences, depending on which regulation is applicable. First, the excise duty point fixes the date from which liability to pay arises. Second, the excise duty point fixes the rate at which duty is payable, because duty is paid at the rate in force at the excise duty point: Finance (No 2) Act 1994 s. 1 (2). In some cases, therefore, a change of position by HMCE may alter both the date from which duty is payable and the quantum of duty payable. It is not suggested that the quantum of duty would be affected in the present case if HMCE were to rely on Reg. 3. However, the thrust of the evidence has been directed to Reg. 4, at least so far as the first assessment is concerned. It may well be that, in the context of a Tribunal hearing there would be nothing unfair in HMCE relying on Reg. 3 as an alternative to Reg 4. But that was not the basis on which the departmental review was conducted. It was not the way in which the petition was presented at any time before the hearing. I do not consider that it would be fair to make a winding up order on the basis of a changed case.

Mr Chaisty next relied on the “De Haan” defence. This is based on the decision of the ECJ in De Haan Beheer BV v. Inspecteur der Invoerrechten en Accijnzen Te Rotterdam [1999] ECR 1-5003. The case concerned the community customs code. Two of the provisions of the code allowed for relief from liability in particular situations. The ECJ held that if the customs authorities, in order to dismantle a smuggling ring, deliberately allow offences to be committed, then to place the burden of the customs debt on the person strictly liable is inimical to “the objective of fairness” which underlies the code in that it puts that person in an exceptional situation in comparison with other operators in the same business. Thus a “special situation” arises within the meaning of Article 13 (1) of the relevant regulation, and liability may be relieved.

I do not consider that this submission helps AOL. First, the decision of the ECJ was concerned with the customs code; and in particular the interpretation of two of its detailed provisions. Second, on the evidence, HMCE only began to be interested in the two warehouses in question at the end of October 2001, and “enhanced controls” were put in place in early November. I am not persuaded that there is any real prospect of further evidence becoming available on this question in the course of a Tribunal hearing.

AOL have an additional argument as regards the second tranche of assessments. They say that the second tranche of assessments is out of time; or at least that they have a substantial argument that it was out of time. The assessments were issued on 4 February 2003. By virtue of section 12 (4) of the Finance Act 1994 they could not have been issued after the end of the period of one year beginning with the day on which evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge. Thus the first question is whether, on 4 February 2002, one year before the assessments, there was evidence of facts which in the opinion of HMCE, was sufficient to justify the making of the assessment. This can be divided into two further questions: what evidence did HMCE have on 4 February 2002; and was that evidence, in their opinion, sufficient to justify the making of the assessment? If the answer to the first question is that HMCE’s opinion was that there was insufficient evidence to justify an assessment; that leads to the second question: what (if any) power does the Tribunal have to review that opinion?

The evidence clearly available to HMCE on the cut-off date of 4 February 2002, as regards the movements in question, can be summarised as follows:

Investigations by HMCE into the possibility of excise diversion frauds at Oakwood and Rangefield were under way by the end of October 2001; and “enhanced controls” were placed on shipments from those warehouses on 7 November 2001;

On 26 October 2001 HCME became aware that Serio (the Italian destination shown in the paperwork) no longer had the authority to receive duty suspended goods;

Also in November 2001 Mr Finch of AOL provided HMCE with all the paperwork (including AADs) relating to the movements which subsequently formed the subject matter of the second tranche of assessments;

On 24 January 2002 Officers of HMCE (who included Mr Robert Pain, a Higher Investigation Officer) visited Belgium, where they interviewed M. Roger Caulier, the owner of Brasserie Caulier, in company with Mme Esther Van Der Kelen, and M. Michel Urbain, both Belgian customs inspectors. M. Caulier told them that stamps appearing on the AADs purporting to record delivery at his premises were forgeries; that he had never entered into any transactions relating to alcohol dispatched from either Oakwood or Rangefield;

On the occasion of the same visit on 24 January 2002 Mr Pain and Mme Van Der Kelen discussed a stamp on the AADs which purported to have been stamped by a M. Trifin, a Belgian customs officer at Ath. Mme Van Der Kelen told Mr Pain that M Trifin was not authorised to sign documents of that type, and that anyway, the AADs, if genuine, would have been dealt with at Tournai, not Ath. Mme Van Der Kelen therefore told Mr Pain that the Belgian customs stamps had been forged.

Accordingly, on 24 January 2002 HMCE knew that the goods had not arrived at M. Caulier’s premises; that the stamps purporting to be those of Brasserie Caulier were forged; and that the stamps purporting to be Belgian customs stamps had also been forged;

Also on 24 January 2002 another office of HMCE (Mr Groombridge) interviewed Lt Col Granata in Italy. Lt Col Granata is an officer of Italian customs. He confirmed that Serio’s authorisation to receive duty suspended goods had been revoked by the Italian authorities on 29 June 2001 and that from that date no loads of such goods could have been lawfully delivered to Serio. In the course of his interview Lt Col Granata also said that he believed that the stamps on the AADs purporting to be Italian customs stamps were not genuine;

On 31 January officers of HMCE told AOL that it intended to execute a search warrant at AOL’s premises in Bradford.

A number of significant events took place on 7 and 8 February 2002. Although this was three (or four) days after the cut-off date, Mr Chaisty submits that there is at least a substantial argument, in the absence of any other explanation, that HMCE’s state of knowledge on 4 February 2002 was the same as their state of knowledge three or four days later. These events are as follows:

On 7 February 2002 HMCE arrested and interviewed a number of persons suspected of being involved in the excise diversion fraud. One of those arrested and interviewed was Mr Heppenstall. In the course of his interview one of the interviewing officers put to him: “I’ve got mountains of paperwork that shows … there are goods going allegedly abroad that never get there.” It is a reasonable inference that at least part of that mountain was available to HMCE earlier than 7 February. Another person interviewed on 7 February 2002 was Mr Morton of AOL. The interviewing officer put to him that there were “goods going out to wherever, Italy or … Belgium, and basically they don’t even get there.” He said that the non-arrival in Belgium had been established “by enquiries with the Belgian Customs”. He said that he had paperwork to show Mr Morton that reflected that. He said to Mr Morton that “I can say to you for sure that, in relation to Italy and Belgium, the goods have not arrived.” It is a reasonable inference that the paperwork came into existence earlier than 7 February 2002 and that the interviewing officer’s certainty was also formed before that date;

On 8 February 2002 Mr Pain swore an affidavit in support of an application for a freezing order against Westwood Vintners. The affidavit runs to 18 pages and contains a detailed analysis of the exhibits, which themselves run to nearly 400 pages. It is a reasonable inference that the collation and analysis of the information in the exhibits, and the preparation of the affidavit began before 8 February. It is also a reasonable inference that the opinions to which Mr Pain deposed on 8 February were formed or held by him earlier than 8 February. Mr Pain said (among other things);

That he could “categorically confirm” that Brasserie Caulier had “never received any consignments of Duty suspended Excise product from the United Kingdom”;

That “pursuant to Signor Granata’s comments” he believed that goods were not legitimately sent to Serio but were “diverted for home consumption”.

On the basis of that evidence I consider that it is definitely arguable that HMCE did believe that there was sufficient evidence to justify the making of an assessment at least in relation to the consignments apparently destined for Belgium and Italy. There is no such evidence in relation to the consignments apparently destined for Spain.

The Tribunal has power to order HMCE to produce documents (subject to the usual limitations on privileged information and information which, in the interests of public policy HMCE are entitled to withhold). Mr Chaisty submits, with force, that it is unlikely that arrangements were made for HMCE officers to travel to Belgium and Italy without some prior information; and that sight of that information might enable HMCE’s knowledge at earlier dates to be investigated.

Suppose, however, that it turns out that despite the existence in HMCE’s hands of cogent evidence, they did not in fact form the opinion by 4 February 2002 that it was sufficient to justify an assessment. Can their decision be reviewed by the Tribunal; and if so, what is the correct legal test? In BB Supplies Ltd v. HMCE the Tribunal adopted the test whether an assessment would have “stood up to scrutiny as being to best of judgment” had it been made at an earlier date. It is, I think, arguable that this is a test too generous to the taxpayer, but equally, since it is a considered decision of the specialist Tribunal entrusted with this kind of dispute, it cannot simply be brushed aside.

I consider, therefore, that at least part of the second tranche of assessments is capable of being disputed on substantial grounds, based on limitation.

It was common ground that, in any event I had a discretion to refuse to make a winding up order, even if I had found that the statutory ground existed. As it is, I have found that AOL is entitled to dispute the debts on substantial grounds. Had the question arisen for decision, I would have declined to make a winding up order for the following reasons:

In the Arena case, as I have said, Sir Andrew Morritt V-C expressed misgivings about the spread of the use of winding up petitions in cases of this kind;

This is not a case in which there is any allegation against AOL of complicity in any fraud. They are therefore bystanders. Unlike the fraudsters, a bystander cannot be expected to give his own account of what happened to the missing goods. AOL are therefore reliant on HMCE for information. There is not equality of arms between them;

Although an assessment creates a debt, it is unlike most other kinds of debt. It has not arisen out of an agreement between contracting parties, but arises because HMCE asserts that it is due. It is unlike a judgment debt, because there has been no independent testing of HMCE’s assertion;

Part of the debt is capable of dispute on substantial grounds quite apart from any defects in DSMEG;

Although in theory a liquidator could pursue AOL’s appeal, in practice that is most unlikely to happen, because the effect of a winding-up order will close down AOL’s business;

Thus the effect of making a winding up order may be to saddle AOL with a debt a substantial part of which may not be due;

AOL have spent time and money, with the acquiescence of HMCE, in progressing its appeal to the Tribunal;

Apart from the assessed excise duty, AOL is solvent;

Part of the reason why AOL cannot pay the assessed duty is the form of the guarantee which it procured, and which was approved by HMCE.

Taking all these factors into account, I do not consider that it would be right to make an immediate winding up order. I have considered whether to adjourn the petition to await the outcome of the appeal. But in my judgment to leave this petition hanging over AOL’s head would be detrimental to its business. Although it has not been advertised, news of it has leaked out into the business community and is affecting AOL’s business already. If AOL’s appeal succeeds, the resulting damage may be incapable of being compensated. If AOL’s appeal fails, then there will be no possibility of disputing the debts, and HMCE may present a fresh petition.

Accordingly, as I indicated to the parties at the conclusion of the argument, I decided to dismiss the petition. I am aware that other judges have taken a more robust view than I have felt able to do; and that difficulties in interpretation of both the Directive and DSMEG have emerged on the hearing of this petition which seem to have escaped attention in previous cases. Consequently, as I also indicated when I announced my decision, I would be sympathetic to an application for permission to appeal.