Customs & Excise v Smith

MR JUSTICE LEWISON: On 22^nd May 2004 Mr Smith was driving back from France in a Toyota Land Cruiser. His vehicle was stopped at Dover by Customs officers. The officers found that Mr Smith was carrying over 2,000 litres of beer, 225 litres of wine and 4 litres of spirits.

The officers read Mr Smith a formal statement in the following terms:

“You have excise goods in your possession or control and appear not to have borne UK duty. Goods may be held without payment of excise duty providing that they have been acquired and are held for your own use. I suspect that you may be holding goods for a commercial purpose and not for your own use. I intend to ask you some questions to establish whether these goods are held for a commercial purpose. If no satisfactory explanation is forthcoming or if you do not stay for questioning, I may be forced to conclude that the goods are not held for your own use but held for a commercial purpose, and your goods and vehicle may be seized as liable to forfeiture.”

Mr Smith was then interviewed further by customs officers and he signed their notes of interview as being accurate.

According to the findings of the VAT and Duties Tribunal, Mr Smith was told that his car was being seized because the goods contained in it were being imported for commercial use. The Customs officers sent Mr Smith shortly after the seizure a booklet called “Notice 12A”. That is a booklet which explains the courses of action open to a person whose goods have been seized by Customs.

The legal background to this is that there is an essential distinction between goods acquired and transported from one member state to another for a person’s own use and goods acquired or held for commercial purposes. In the former case, excise duty is payable in the member state where the goods were acquired. In the latter case, excise duty is payable in the member state into which the goods are transported or in which they are held for commercial purposes. Section 49 of the Customs and Excise Management Act 1979 empowers Customs to forfeit goods which are liable to duty but which have been imported without duty having been paid. Under section 141 of the same Act, where Customs are empowered to forfeit goods of this kind, they are also empowered to forfeit any vehicle in which the goods are carried. These were the powers that the Customs officers purported to invoke.

Where goods or indeed vehicles have been forfeited, Schedule 3 to the Customs and Excise Management Act 1979 sets out alternative courses of action. It is these courses of action which are explained in Form 12A. I will return in due course to the adequacy of the explanation.

Paragraph 1 of Schedule 3 requires the Commissioners to give notice of seizure of anything liable to forfeiture and of the grounds to any person who, to their knowledge, was the owner or one of the owners of what it is that has been forfeited. But notice need not be given if the seizure was made in the presence of the person whose offence or suspected offence occasioned the seizure. That was the position in the present case, so no formal notice was required to be given under paragraph 1.

Paragraph 3 of the Schedule provides as follows:

“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.”

Paragraph 4 deals with the form and service of such a notice. Paragraph 5 continues:

“If on the expiration of the relevant period under paragraph 3 above for the giving of notice of claim in respect of any thing no such notice has been given to the Commissioners, or if, in the case of any such notice given, any requirement of paragraph 4 above is not complied with, the thing in question shall be deemed to have been duly condemned as forfeited.”

Paragraph 6 provides:

“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 court shall condemn it as forfeited.”

Paragraph 7 then deals with the date of the forfeiture, where either something is condemned by the court or is deemed to have been condemned because of the operation of paragraph 5.

In essence, this procedure (which is known as “condemnation”) results in one of two things. If the Commissioners succeed in condemnation proceedings, then the item in question remains forfeited. If, on the other hand, the applicant succeeds in showing that the thing in question was not liable to forfeiture, then the Customs must return it, or, alternatively, pay its market value.

Alongside this procedure for condemnation the Customs have a discretionary power to restore anything which has been forfeited. This power arises under section 152 of the Customs and Excise Management Act 1979, which says:

“The Commissioners may, as they see fit-

(b)

restore, subject to such conditions (if any) as they think proper, any thing forfeited or seized…”

under the Customs and Excise Acts.

If in the exercise of their discretion Customs refuse to restore something that has been forfeited, a person aggrieved by the decision can require it to be reviewed. The review is conducted by a reviewing officer who is an independent employee of Customs and Excise, i.e. “independent” in the sense of not having been one of the officers who made the original forfeiture. The power to require a review is one that arises under Section 14 of the Finance Act 1994.

If a review is carried out under those provisions and a person is dissatisfied with the result of the review, there is then a power to apply to a tribunal known as a VAT and Duties Tribunal. This power arises under section 16 of the Finance Act 1994, which also demarcates the tribunal’s jurisdiction in considering any such appeal. An appeal from a decision not to restore and a review of such a decision is called “an ancillary matter” in the language of Section 16. Section 16(4) provides as follows:

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

(a)

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

(b)

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

(c)

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

This power is to be contrasted with the power given to the tribunal in relation to other decisions under Section 16(5) of the Finance Act 1994. In other cases, the tribunal has the power to quash or vary a decision and also a power to substitute their own decision for any decision quashed on appeal.

The deeming provision in paragraph 5 of Schedule 3 to the Customs and Excise Management Act 1979 potentially deprives the citizen of his property as a result of his failure to invoke the condemnation proceedings in time and without the merits of the forfeiture having been considered by an independent and impartial tribunal.

This operation of the deeming provisions has plainly been a matter of concern to the Court of Appeal, which considered the position in Gascoyne v Customs and Excise Commissioners [2005] 2 WLR 222. The problem arose because of the decision of the Court of Appeal in an earlier case called Gora v Customs and Excise Commissioners [2003] 3 WLR 160. The Court of Appeal in Gora took the view that it was not open to an appellant before the tribunal to impugn the legality of a seizure or forfeiture if he had failed to invoke the condemnation proceedings contemplated by Schedule 3 of the 1979 Act. Pill LJ said at page 180 paragraph 58:

“While the division of jurisdiction between the courts and the tribunal may arguably be curious, and is probably retained because of the long standing jurisdiction of the courts in proceedings for condemnation, the division is clear and it is not intended that the tribunal should have jurisdiction to reconsider the condemnation of goods as forfeited. Mr Cordara's submission that the tribunal should have jurisdiction to consider whether duty has been paid is no more than another way of claiming that the court's findings should be reopened. The tribunal's view would produce the surprising result that the person whose goods had been seized could make a choice of fact-finding tribunal. If he wanted the court to determine the issue he would serve a notice under paragraphs 3 and 4; if he wanted the tribunal he would do nothing. In my judgment, the statutory scheme does not produce that result. The application to the tribunal is for restoration under section 152. There is no breach of article 6 because the owner has recourse to the courts in the condemnation proceedings.”

The reference to article 6 is of course a reference to article 6 of the European Convention on Human Rights and Fundamental Freedoms.

This conclusion, as I have said, clearly troubled the Court of Appeal in the subsequent case of Gascoyne. The court said that, as a mater of domestic law, what Pill LJ had said in Gora was “clearly correct”. Buxton LJ said in paragraph 46 of his judgment in Gascoyne:

“I do not think it can have been intended that the importer before the tribunal would have a second bite at the cherry of lawfulness, having failed in the condemnation proceedings, or let them go by default.”

I emphasise the words “or let them go by default”, which shows that Buxton LJ, as a matter of domestic law, was indeed saying that letting condemnation proceedings go by default should not give rise to an opportunity to re-argue matters before a tribunal, or indeed to argue them for the first time before the tribunal.

However, what principally troubled Buxton LJ was the position under article 6 of the European Convention on Human Rights, and in particular in relation to the deeming provisions. Buxton LJ indicated that, if there had actually been a condemnation hearing, then there was nothing wrong with the findings of whichever court had conducted the condemnation proceedings binding the parties in any subsequent proceedings in front of a tribunal. However, he went on in paragraph 52 of his judgment as follows:

“Secondly, however, that jurisprudence itself creates a great deal more difficulty in relation to the deeming provisions under paragraph 5 of Schedule 3. One's instincts, if no more, suggest that the extent to which it was held in Gora’s case that those provisions necessarily prevent any further consideration of the legality of the seizure was an excessive limitation.”

Buxton LJ went on to say:

“54.

As it seems to me, for an importer to be completely shut out in the only tribunal before which he has in fact appeared from ventilating the matters that are deemed to have been decided against him because of paragraph 5 of Schedule 3 does not adequately enable him to assert his Convention rights.

55.

In my view, therefore, in a case where the deeming provisions under paragraph 5 are applied, the tribunal can reopen those issues: though the tribunal will always have very well in mind considerations of, or similar to, abuse of process in considering whether such issues should in fact be ventilated before it.

56.

The mere fact that the applicant has not applied to the commissioners, and therefore there have been no condemnation proceedings, would not, in my view, be enough. But, in my judgment, it goes too far to say that the deeming provisions have always, in every case, got to be paramount.”

Pausing there, what Buxton LJ is saying is not enough is the mere fact that the applicant has not applied to the Commissioners requiring them to invoke condemnation proceedings. Not enough for what? Clearly, in my view, not enough to enable the tribunal to re-open the question, or indeed open the question for the first time. There must, therefore, be something more than a failure on the part of the applicant to invoke condemnation proceedings before the tribunal is empowered to question the legality of the forfeiture.

This is borne out by a subsequent passage in Buxton LJ’s judgment. He refers to the judgment of the first instance judge in paragraph 66 of the first instance judge’s decision, in which that judge said that the applicant was able to argue against the validity of a seizure on the review under sections 14 and 15 of the 1994 Act and on an appeal to the tribunal under section 16.

Commenting on that, in paragraph 76 of his judgment Buxton LJ’s said:

“What, however, about para 66? In the light of Gora’s case [2004] QB 93 what the judge says there is not correct, or at least not unequivocally correct. That is because failure to give a paragraph 3 notice will, in most cases, preclude subsequent challenge to the lawfulness of the seizure.”

It is, in my judgment, clear from that passage that in the run-of-the-mill case where there has been a failure to give a paragraph 3 notice invoking the condemnation proceedings, the deeming provision will indeed operate against the applicant in any subsequent appeal to a tribunal. The tribunal’s function, therefore, is analogous to a sentencing court once a defendant has been convicted. No matter that the defendant still protests his innocence of the charge against him. The function of the sentencing court is to accept mitigation, but not to question the original conviction.

Buxton LJ’s reference to “abuse of process” or to considerations analogous to abuse of process are, in my view, references to the well-known principle that it may be an abuse of process to raise in one tribunal matters that could and should have been raised in another. So the relevant questions will always be, first, could the applicant have raised the question of lawfulness of forfeiture in other proceedings? If the answer to that question is “Yes”, why did he not do so? In the light of his reasons for not raising the matter in condemnation proceedings, the tribunal can then answer the question, “Should he have done so?” and, if they answer that question “Yes”, then it will be in most cases an abuse of process for him to raise the question before the tribunal.

In the present case the tribunal directed itself in paragraph 17 of its decision as follows:

“The phrase ‘the tribunal can re-open those issues’ in paragraph 55 clearly refers back to the matters that are deemed to have been decided against the importer and so the validity of the seizure does become an issue where it is relevant to the question whether the goods should be restored. Clearly, in any normal situation where the goods were not liable to seizure in the first place, that would be a highly relevant factor for the Commissioners to take into account when they are considering whether to restore the goods even though they have been deemed to be condemned.”

In my judgment, this was a misdirection. The validity of the seizure does not become an issue merely because it is relevant to the question whether the goods should be restored. The validity of the seizure will only become an issue if, and only if, the tribunal is satisfied that the applicant had good reasons for not having raised the matter by way of condemnation proceedings. There must, in my judgment, be a burden on the applicant to satisfy the tribunal that there was a good reason why he did not challenge the forfeiture.

The tribunal gave some reasons for holding that there was no abuse of process. The first is that they say that only sketchy details of the reason for seizure were explained to the appellant at the time of the seizure. But they made a clear finding of fact in paragraph 11 of the decision under appeal that Mr Smith was told by the officer in question that the car was being seized because the goods were being imported for commercial use. That, as it seems to me, is all that anyone needs to know before deciding whether or not to challenge the seizure of the car.

The second ground on which the tribunal held that there was no abuse of process was because of perceived deficiencies in notice 12A, which was, on the tribunal’s finding, sent to Mr Smith shortly after the seizure. They quote selectively from parts of that notice and reached the conclusion in paragraph 20 of the decision in the following terms:

“There is nothing to suggest that there will be any impediment against arguing that the goods were not liable to seizure after unsuccessful condemnation proceedings.”

This seems to me to be an unsustainable conclusion. Paragraph 2.3 of Form 12A poses the question: “What if I miss the time limit?” The answer given is this:

“If you fail to send a valid Notice of Claim to us one month from the date of seizure the ownership of the vehicle and/or goods will pass to Customs as a matter of law; you will no longer be able to challenge the seizure.”

Paragraph 2.19 of the form poses the question: “What if I do not agree that my goods/vehicle were properly seized, but I do not want to go through this procedure?” The answer given is as follows:

“If you do not submit a valid Notice of Claim within one month from the date of seizure, the ownership of the seized items will pass automatically to Customs and you will then be unable to appeal against the seizure. However, you can still ask us to consider returning the vehicle and/or the goods – see Section 3.”

These two statements appear to me to be unequivocal in telling the person whose vehicle has been seized that, if he does not invoke the challenge to the seizure within one month, he will thereafter lose the right to challenge it. Indeed, insofar as form 12A purports to state the law, it may in fact be more draconian than the law really is, because it does not admit of the exceptional circumstances to which Buxton LJ referred in Gascoyne. But the question at this stage is whether fair warning was given to Mr Smith that, if he did not invoke the condemnation procedure, there would be, to use the tribunal’s words, an impediment against arguing that the goods were not liable to seizure. Plainly, in my judgment, form 12A adequately deals with those matters.

In paragraph 22 of the decision the tribunal said that their view that there was no abuse of process was not affected by the fact that Mr Smith received some legal advice from a firm of solicitors “before deciding not to give a notice of claim”. The tribunal therefore seems to me to have found that Mr Smith decided not to give a notice of claim. But there is no finding that Mr Smith, in making that decision, was in fact misled by form 12A or that his legal advisors, whom he consulted before deciding not to issue a notice of claim, were themselves misled.

In truth, on the facts found by the tribunal, there was no more than a failure to issue a notice of claim, which, as Buxton LJ said, is not enough to enable the tribunal to re-open the question. The tribunal never asked itself what were Mr Smith’s actual reasons for not issuing a notice of claim, and never therefore considered whether those reasons, if accepted, were good ones. In addition, the tribunal jumped straight to the question whether the goods which Mr Smith had in his car were for his own use. The statutory question which the tribunal was required to answer was whether the Commissioners’ decision was one which they could not reasonably have arrived at. The tribunal never referred to any of the matters considered by the reviewing officer and did not answer the only question which the statute poses for them, namely whether that decision was one which the Commissioners could reasonably have arrived at. It is not, as I understand it, the function of the tribunal to substitute their own view on a review under section 16(4) of the 1994 Act as opposed to an appeal to which section 16(5) applies. The only power which the tribunal have to go into the question whether goods have been lawfully seized is in the very limited circumstances described by Buxton LJ. Those circumstances did not, on the tribunal’s finding, arise in the present case, and the decision of the tribunal is therefore, in my judgment, legally flawed and should be set aside.

I should perhaps add that, although it seemed at one point that Mr Puzey, who appears on behalf of the Commissioners of Revenue and Customs, wanted to advance an argument that the procedure under Schedule 3 was compliant with the European Convention on Human Rights, he did not invite me to depart from the decision of the Court of Appeal in the Gascoyne case, which plainly proceeds on the assumption that the procedure is not Convention compliant.

I propose therefore to allow the appeal.