EO1012

EXCISE DUTY – Duty suspension – Diversion of spirits on dispatch from authorised warehouse – Liability of owner – False AADs prepared on instructions of owner’s employees without directors’ knowledge – Whether irregularity caused by Appellant – Notice under DSMEG Regs 2001 (S.I.2001/3022) reg 7(2) – Whether prior excise duty point under REDS Regs 1992 (S.I. 1992/3135) reg 4(2)(a) – Validity of assessment under FA 1994 s.12(1A) – Greenalls Management [2005] 1 WLR 1754, HL considered – Excise Directive (EEC/92/12) Art 20 – Assessment to VAT under VATA 1994 s.73(7B) – Appeal dismissed

LONDON TRIBUNAL CENTRE

CLEANACO LTD	           Appellant

-	and –

THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

Tribunal:	THEODORE WALLACE (Chairman)
MRS LYNNETH SALISBURY JP

Sitting in public in London on 24-28 April and 12 and 13 December 2006

Dr David Southern, counsel, instructed by Hepburns, for the Appellant company 

Amanda Tipples, counsel, instructed by the Acting Solicitor for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This appeal concerns the liability of the Appellant to excise duty and VAT arising out of the diversion of seven consignments of spirits owned by the Appellant which were dispatched from an authorised warehouse under duty suspension with false AADs.

2.	The appeal in respect of excise duty is against a review decision dated 2 October 2003 confirming a notice of joint and several liability under regulation 7(2) of the Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 (“DSMEG Regulations”) for £677,778, which was assessed on Anglo Overseas Ltd (“AOL”) as guarantor, on the basis that the Appellant “caused the occurrence of an excise duty point as prescribed by regulation 3 or 4”, when the irregularities were detected or when the goods failed to arrive within four months.

3.	The Appellant contended that no liability arose under regulation 7(2) because, on the basis of the decision of the House of Lords in Greenalls Management Ltd v Customs and Excise Commissioners [2005] 1 WLR 1754, a prior excise duty point had arisen under regulation 4(2)(a) of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992 (“the REDS regulations”) when the goods were diverted.

4.	The Appellant also contended that the irregularities were caused by two employees who had acted contrary to the instructions given by the directors and that their actions should not be attributed to the Appellant company.

5.	The VAT assessment was under section 73(7B) of the VAT Act 1994 on the basis that the excise goods had been removed from the warehouse without payment of the VAT payable under section 18(4).  The VAT assessed, £118,611.26, was 17.5 per cent of the excise duty assessed.

6.	No independent contentions were made as to the VAT assessment.

7.	In outline, seven consignments of whisky, vodka and brandy held in a bonded warehouse at Rainham, Essex, operated by Oakwood Storage Services Ltd (“Oakwood”) were removed from the warehouse between 26 October and 6 November 2001 under AADs (the abbreviation for administrative accompanying documents) for movement to tax warehouses in Italy, Belgium and Spain. Apart from the brandy, the spirits had been manufactured in the United Kingdom. Evidence which is not disputed shows that for differing reasons none of the consignee warehouses shown on the AADs was correct, that none of the consignments had arrived and that the AADs had been returned or purportedly returned with false stamps.

8.	In those circumstances it is clear that the removals from the warehouse were under false AADs.  There was no evidence as to what happened to the consignments.  It is clear that false information for the AADs was provided by Mr and Mrs Wharam who were employed by the Appellant company.

9.	The notice of liability to excise duty under regulation 7(2) was dated 4 February 2003. It was headed ‘without prejudice’. It referred to the assessment of £677,778 on AOL stating that it represented duty arising as a result of the occurrence or detection of an irregularity during movements of goods dispatched from Oakwood to Italy, Belgium and Spain, all of which related to goods dispatched under AADs for which the Appellant was the owner at the time of removal.  The notice continued,

“As an irregularity has occurred, or been detected in the United Kingdom, an excise duty point has arisen within the meaning of Regulation 3 of [DSMEG].  The duty point is on or about the 9th July 2002 in respect of the movements to Serio Import Export, on or about the 5th February 2002 in respect of the movement to Brasserie Caulier and the 11th September 2002 in respect of Miquel Abad, this being the time when the irregularity came to the attention of [Customs].  Or, in the alternative, 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 of [DSMEG].  The time of the duty points is the date of removal, those are the 25th and 31st October 2001 and the 1st and 6th of November 2001.  

Under the provisions of regulation 7(1) of those Regulations, [AOL], as guarantor of the movements is liable to pay the excise duty, which is due immediately.

Under DSMEG Regulation 7(2) any other person who causes or has caused the occurrence of an excise duty point as specified above shall be jointly and severally liable to pay the duty …

This letter is a formal notification of your joint and several liability.”

10.	The assessment for VAT due on removal from a warehouse was also notified on 4 February 2002.

Jurisdiction of the Tribunal

11.	Both counsel agreed that the appeal concerned a decision on review against a decision falling under section 14(1)(b) of the Finance Act 1994,

“So much of any decision by the Commissioners that a person is liable to any duty of excise, or as to the amount of his liability, as is contained in any assessment under section 12 above.”

Miss Tipples said that the notice of joint and several liability served on the Appellant was an assessment within section 12(1A) although it was not expressed as such but as a notification that the Appellant was liable to pay the duty assessed on AOL.  Dr Southern agreed that section 14(1)(b) applied.  Neither counsel suggested that any other paragraph of section 14(1) was relevant.

12.	The Appellant could have required a review of the assessment on AOL under section 14(2)(a) as being a person whose liability to pay the duty resulted from the assessment on AOL; however in that case the review would not have covered the Appellant’s own liability.

13.	The importance of this is that the jurisdiction of the Tribunal under the Finance Act 1994 depends on a review or a deemed review which in turn must concern a decision within section 14.  If the decision does not come within section 14, then the Appellant has no right of appeal to the Tribunal and the issue of the liability of the Appellant could only be determined in the civil courts in proceedings to enforce the liability or on judicial review. Such a result would clearly be a constitutional anomaly and cannot have been intended by Parliament.

14.	The Finance Act 1994 contains no definition of assessment, although it is clear from section 12(1) and (1A) that notification is separate from making the assessment, see Customs and Excise Commissioners v Le Rififi Ltd [1995] STC 103 at 106-107 which concerned similar wording in relation to VAT.  Under section 12(3) the amount assessed only becomes due when notified.

15.	Although it was at one time thought that the assessment could be a purely mental process, the current practice of the Commissioners is that for time limit purposes the date of notification will be treated for VAT as the relevant date, see Notice 915 (March 2002).  In the light of that statement is appears that an officer may not be authorised to make an assessment in advance of notifying it.

16.	The words “contained in any assessment” in section 14(1)(b) clearly indicate the necessity for a document.  The only possible document in the present case is the letter of 4 February 2003 headed “Notice of Joint and Several Liability to pay Excise Duty”.  That stated the amount of excise duty and identified the events on which it was based and the legal effect namely that the Appellant was jointly and severally liable with the guarantor, AOL.

17.	We have concluded that the letter of 4 February 2003 did constitute an assessment on the Appellant and indeed the hearing proceeded on this footing.  We are fortified in this view by the fact that what appears to have been a similar notice also headed “without prejudice” in Re The Arena Corporation [2004] EWCA Civ 371; [2004] BPIR 415 was treated by the Court of Appeal as being an assessment, see at [22].

The evidence

18.	There were four witnesses:  Mr Towe and Mr Edwards, and two Customs officers, Miss Marston and Mr Parsons.  All confirmed statements and were cross-examined.  It is convenient to start with the statement by Mr Parsons although he was not of course the first witness.  Virtually all of his evidence was second hand.  

19.	Mr Parsons was involved from October 2001 in an investigation known as the Fulcrum Initiative.  His team were responsible for the storage of documents obtained by Customs during the investigation and for compiling and examination of evidence.

20.	Between 25 October and 6 November 2001 seven consignments of spirits were released by Oakwood.  All were released from the account of the Appellant under duty suspension on guarantees issued by AOL for movement to Italy, Belgium or Spain.  AOL sub-contracted the transportation to Calderdale Distribution Ltd (“Calderdale”) which in turn sub-contracted some of the haulage to W. and W. Potter Ltd.

21.	During November and December 2001 Customs officers made copies of the AADs in Oakwood’s records.  At the end of December 2001 Oakwood’s warehouse approval was revoked and large numbers of boxes of documents were uplifted.  On 7 February 2002 the paperwork relating to all movements of the consignments in issue was uplifted from AOL and Calderdale.

22.	It is convenient to set out the chronology and documents for the first consignment in some detail. A fax dated 24 October 2001 from AOL to Oakwood confirmed that, using AOL’s guarantee No. G/OO7ST, AOL would load vodka and whisky on the account of the Appellant on trailer TH 22.  A fax from Mr Wharam on the Appellant’s headed paper dated 25 October referring to a previous order instructed Oakwood to release a consignment of Claymore Whisky and Smirnoff Vodka for delivery by AOL to Serio Import/Export (“Serio”) in Italy.  Another fax on the same day from Mr Wharam to John Morton of AOL asked him to arrange collection and delivery on the next day.  Another fax dated 25 October, headed “Serio Import-Export” with an address in Italy, to the Appellant referring to a telephone conversation ordered the vodka and whisky.  An invoice from the Appellant to Serio with the tax date 25 October for the vodka and whisky for £64,690 plus £1,150 transport referred to a purchase order dated 23 October.

23.	An AAD signed on behalf of Oakwood dated 25 October 2001 gave the consignee as Serio, the transporter as AOL, the trailer number and guarantee number given by AOL, the date of dispatch as 25 October and the quantities as on the earlier documents; the address for Serio was as on the Appellant’s invoice.

24.	A further fax from Mr Wharam again on the Appellant’s paper to AOL further to a telephone conversation instructed AOL to re-route the vodka and whisky and another load on the way to Italy to Brasserie Caulier in Belgium to the account of Veltro International BVBA.

25.	A copy of the AAD, presumably in the files of Oakwood or AOL, carried a stamp for Brasserie Caulier, the date 26 October and a stamp “TRIFIN 1° Verificateur” in the control box.

26.	There was a credit note dated 28 October to Serio.  An invoice from AOL for £800 plus VAT for freight charges for shipment to Brasserie Caulier gave the date of shipment as 26 October and certified that the goods had been shipped.  It carried an endorsement in manuscript referring to re-direction costs from Italy to Belgium.

27.	At 4.30pm on 26 October 2001 Mr Parsons was informed by a colleague that the warehouse approval of Serio had been cancelled on 29 June 2001 although the Customs warehouse team at Glasgow did not know the reason.  On that day Mr Parsons instructed his staff to contact all London warehouses.  Mr McLuskey was informed by Oakwood that five consignments had been despatched to Serio within the last two days.  Mr McLuskey told Oakwood to recall any goods still in transit to Serio.

28.	On 28 January 2002 the joint owner of the premises at the address given for Serio stated that, although a preliminary agreement for rent of the premises to a Mr Baldesi was signed on 29 June 2000, it was never completed and that no storage had taken place there; she had retained the keys.  A statement by an Italian Customs officer on 24 January 2002 stated that Serio’s licence was revoked on 29 June 2001 when officers found that the premises was no longer available to Serio and that the warehouse was closed.

29.	On 24 January 2002 M. Caulier, of Brasserie Caulier, told a Belgian Customs officer and Roger Pain, a higher investigation officer of Customs, that he had had no trade with Oakwood and that the stamps and signatures on the returned AADs were false.  On 5 February 2002 M. Paul Trifin of Belgian Customs stated that the position “premier verificateur” does not exist in Belgium, he had never held a seal in his name and did not sign the AADs shown to him.  On 3 June 2002 the manager of Veltro International SPRL told Mr Groomridge that that his company deals solely with insurance, did not buy or sell any spirits and had not carried out any business with Brasserie Caulier.

30.	A second AAD showed the release of whisky on 25 October for dispatch to Serio re-routed to Brasserie Caulier for the account of Veltro and a stamp “TRIFIN 1° Verifacteur.”  Three further AADs showed whisky and also brandy in one case released on 31 October for dispatch to Brasserie Caulier for the account of Veltro with TRIFIN stamps; a similar AAD showed a release of vodka on 1 November with a TRIFIN stamp.

31.	The seventh AAD showed the release of vodka and whisky for delivery to Miguel Abad in Spain.  A CMR in the records of Calderdale purported to show a delivery to Miguel Abad on 8 November 2001.  There was no discharge copy of the AAD.  A statement by a Spanish customs officer on 11 September 2002 stated that no receipts from Oakwood were declared at Miguel Abad in November 2001 and that Miguel Abad had been shut down and its executives could not be contacted.

32.	None of the above was challenged or disputed by Dr Southern.

33.	In his statement Mr Parsons said that he had concluded that the seven consignments had not been received at their destination warehouses and that the AADs had been discharged with false stamps. At paragraph 78 of his statement he stated that he considered that there was no evidence to identify where and when the irregularities occurred; the UK authorities had detected the irregularities; the evidence supplied by the Belgian, Spanish and Italian authorities was produced in response to requests by the UK Customs, the Belgian and Spanish authorities having been unaware of the consignments.
 
34.	Mr Parsons agreed with Dr Southern that Mr Pain was criticised in the Butterfield Report.  He said that although Mr Pain was involved in gathering evidence for the criminal inquiry, he believed that he had not provided any direct evidence in this case, although he would have had a hand in preparing questions for M. Caulier.  Mr Pain had been a minor source.

35.	He accepted that the warehouse of dispatch will not normally know if the receipt stamp on an AAD is false.  He also agreed that it is reasonable for an owner of goods to rely on the SEED (System for Exchange of Excise Data) check with Customs by the warehouse of dispatch.

36.	Mr Parsons said that Customs became concerned with possible problems at Oakwood on 6 November 2001 when a consignment from Oakwood destined for Portugal was stopped on the A30 by police heading away from the Channel.  On 7 November enhanced controls had been implemented at Oakwood involving every consignment leaving being checked by Customs.

37.	He agreed that the AADs copied and documents uplifted from Oakwood would have included SEED checks.  He said that the Italians had not updated the information on SEED.  The paperwork uplifted from Calderdale should have included tachographs but there were none.  He said that the re-direction as from Serio to Brasserie Caulin would not necessarily be irregular but would have to be authorised.

38.	Mr Towe confirmed his statement that he and Mr Edwards acquired a 55 per cent interest in the parent company of the Appellant in 1998, the other 45 per cent being held by Mr and Mrs Wharam who they had met through a wine club.  The Appellant company purchased the wine stocks of a company owned by Mr and Mrs Wharam.

39.	In June/July 2001 Mr Wharam, who dealt with sales at the Appellant company, suggested that the company became a broker for spirits using his contacts.  He and Mr Edwards agreed subject to certain safeguards.  Payments were to be by telegraphic transfer before shipment; only established and reputable hauliers were to be used; Customs approved bonds were to be provided by warehouse and hauliers; information regarding such bonds was to be provided to the dispatching warehouse in advance of shipment to enable SEED checks to be made.

40.	He stated that the Appellant only engaged AOL as haulier because he believed    it to be an established business with a good reputation.

41.	He stated that a management meeting was called when Mr Edwards realised from the bank statements to 30 October 2001 that some of the payments had been received in cash.  At that meeting which was on 6 November Mr Wharam said that this was in the nature of the business because many of the customers were cash and carry wholesalers abroad, but said that he had told customers that all future payments must be through banks.

42.	Mr Towe stated that when it became apparent that further cash payments had been received, all spirits transactions were stopped.  Mr Wharam continued dealing with wine sales but left in March 2002.

43.	Mr Towe told the Tribunal that when Mr and Mrs Wharam were employed he knew that they already had problems with Customs regarding loads not properly delivered; they had said that they were being accused unjustly; their candour reassured him.  The charges were dropped in early 2001.  With hindsight he felt badly let down.

44.	Cross-examined Mr Towe told Miss Tipples that he was responsible for operations and transport : having shown Mrs Wharam what he wanted done in early 2001, he left her to get on with it.  Mr Wharam had joined in June 2001.  Originally they avoided spirits business because of Mr Wharam’s problems.  After a time they were authorised to trade in spirits and to sell overseas, using Mr Wharam’s contacts.  They had discussed the criteria for new customers and had required payment in advance of any shipment : this was the main criterion for creditworthiness.

45.	There were separate files for each customer and for each shipment.  Orders were received by fax.  The invoice to Serio and the credit note of 29 October 2001 were probably prepared by Mrs Wharam.

46.	He told Miss Tipples that Mr Edwards, who was responsible for the financial side, had thought that there were cash payments into the bank.  There were no receipts for cash.  On 6 November 2001 Mr Wharam had confirmed that there had been cash receipts and was told only to accept telegraphic transfers in future.  The meeting was not minuted.  At the time he considered Mr Wharam’s explanation to be adequate.  They did not then have the bank statement issued on 7 November.  Mr Wharam had said that he had received other cash payments. Mr Towe knew that cash had been received in breach of instructions but at the time was content to allow Mr Wharam to continue as an employee because they had ceased to trade in spirits.

47.	Mr Towe denied the suggestion by Miss Tipples that the directors had at the least turned a blind eye as to whether the transactions were legitimate.  He said that it was preposterous to suggest that the directors knew of the irregularities.

48.	Mr Towe said that to the best of his knowledge AOL were honest and reliable hauliers.  They had carried wine for the Appellant before.  They had given a form of certificate of delivery that other hauliers did not give.

49.	He said that Customs officers had visited the Appellant’s office at Leatherhead when he was not there and taken away files.  The visit was not by appointment.  A receipt was given and the files had subsequently been returned.  This was before late 2002 when the offices ceased to be occupied.

50.	Mr Edwards stated that the Appellant started trading in wine in March 2000.  Part of the stock which it acquired from the Wharams’ company was spirits and the Appellant applied for and was granted a WOWGR certificate in March 2001.

51.	He stated that Mr Wharam joined the Appellant company to handle sales.  He was not entirely happy with his suggestion to broke spirits because he knew that Mr Wharam was already in dispute with Customs over this area. They agreed however subject to safeguards, including the requirement for payments to be only by telegraphic transfer.

52.	In September/October 2001 Mr Wharam informed him that stock had become available and that he had found customers. When conducting his normal review of bank statements Mr Edwards discovered that contrary to instructions there had been receipts in cash. On 6 November Mr Wharam said that this was only a temporary measure although some monies were outstanding for goods already in transit.  Mr Wharam was instructed that these could be received but that no further transactions should be entered into without prior written agreement to payment in advance by bank transfer.  The following bank statement (sheet 41) issued on 7 November showed a deposit on 1 November of £82,780.

53.	Mr Wharam ceased to be employed in March 2002 when the business was being wound up.

54.	Mr Edwards stated that the notice and assessment in February 2003 came “out of the blue.”  Neither director had any knowledge of the irregularities or what they might be.

55.	Mr Edwards said that when the bank statement sheet number 40 from 24 to 30 October was received it was clear that large amounts had been credited to different branches of the bank.  Mr Wharam confirmed on the telephone that these were cash deposits.  Mr Edwards called a meeting because this was completely contrary to instructions.

56.	He told Miss Tipples that in 2000 he stood bail for Mr Wharam when he was charged over shipments of spirits.  Mr Wharam denied the charges and they were dismissed in February 2001.

57.	He said that the paying-in book showed that cash had been received from Serio for the order referred to at paragraph 15 above by 26 October.  This would have been in response to a proforma invoice which was replaced by a full invoice.  He was aware of the re-routing to Veltro at the time but could not now remember how he knew.  He was only in the office once or twice a week.  Mrs Wharam was often not available because she was carer for her mother and her aunt.

58.	He said that it had been difficult to relate the cash receipts to the invoices.  He found this most unsatisfactory.  At the time he had no reason to doubt the documents.  When he got the bank statements he probably examined the paying-in books on 6 November.  Mr Wharam told him that the cash had been delivered by courier but he did not say how they were packed.  On 6 November Mr Wharam said that there were outstanding cash sums due for shipments already made.  Mr Edwards told him that apart from those no other cash was to be accepted.  He said that no more shipments were to be made without specific agreement to telegraphic transfer.

59.	Mr Edwards said that he had left it to Mr Wharam to approach customers.  He had employed him and expected him to do the work.

60.	He denied a suggestion that he had turned a blind eye to what was being done.  He said that at the highest he was naïve, at the lowest trusting.

61.	He said that after the business of Cleanaco had been sold, the Appellant still had a lease and had sub-let a room to Mr Wharam when he ceased to be an employee.  It was Mr Wharam’s activities then which resulted in the offence for which he was currently in prison; it was something to do with VAT.

62.	He said that he had neither been visited or contacted before the assessment.  When Customs called at the office asking for the documents, Mrs Wharam had telephoned him and had handed over the documents.  They were returned before the lease was surrendered.

63.	Mr Edwards produced figures showing that the cost to the Appellant of the spirits totalled £344,761 and that sales came to £380,315.

64.	Miss Helen Marston who was called as a witness by the Appellant confirmed a witness statement which she had prepared for the winding-up petition against the Appellant around October 2003.  The information in the statement was provided by Mr Parsons.  She said that she did not know when Customs became aware of problems at Oakwood.

65.	Miss Tipples objected to a question as to whether there had been an informant saying that it was a speculative question and was not relevant to any issue: the Appellant had accepted that Mr and Mrs Wharam caused the irregularity; the question had no relevance to the question whether the company caused the irregularity; if the Wharams caused it, any Customs involvement was irrelevant.

66.	Dr Southern said that there was a possibility that there was an informant at Oakwood.  If Customs knew or suspected that loads might go astray but let them run, they could not or should not say that the Appellant caused them.

67.	The Tribunal ruled that the question was not relevant to the issue before the Tribunal, namely whether the Appellant company caused the irregularities in which its employees were admittedly involved. The clear implication of Mr Parsons’ statement was that Customs did not know of the irregularities at the time.  If there was in fact an informer any question of whether the assessment was an abuse is outside the Tribunal’s jurisdiction.

Causation

68.	The review decision made no reference to Mr and Mrs Wharam or to the directors of the Appellant.  It was however based on actions which on the evidence were performed by Mr and Mrs Wharam.  The notice of appeal gave as the primary ground that the Appellant was not the cause of the excise points and stated that the Appellant did not know and did not have grounds to suspect that the goods had been or might be diverted.  The initial Statement of Case made no mention of Mr and Mrs Wharam in relation to each consignment.

69.	We consider that the Statement of Case should have identified the person or persons said to have caused the excise duty point on behalf of the company.  It was quite unclear at the outset of the hearing or indeed for some days whether Customs case rested on the Appellant company being responsible for the acts of Mr and Mrs Wharam or whether it was contended that the directors themselves were implicated in the diversion.  No specific allegation was pleaded against either Mr Edwards or Mr Towe.  In the event Miss Tipples went no further that to put it to them that they had turned a blind eye to the irregularities : an allegation which both denied.  There was no material to justify any further allegation.  In closing Miss Tipples said that she was not submitting that the directors were dishonest.

70.	While the directors may be criticised for naivety and lack of control over Mr and Mrs Wharam, we accept their evidence that they were unaware of the diversions.

71.	The question whether the Appellant company caused the occurrence of the excise duty points depends on whether the acts of Mr and Mrs Wharam should be attributed to the company.

72.	In her Skeleton argument, Miss Tipples put it as follows in paragraph 38,

	“In dealing with each of the seven consignments, it is plain that Mr and Mrs 	Wharam were acting in the course of their employment.  The Appellant is, in 	those circumstances, vicariously liable for their fraudulent conduct.”

73.	Dr Southern submitted that in a public law as opposed to a private law context the principle of vicarious liability does not apply.  Where the question of attribution of acts of employers to a company arises in a statutory context it is necessary to consider the content and policy of the provision, see Meridian Global Funds Management Asia Ltd v Securitios Commission [1995] 2 AC 500, 506.  He submitted that the issue for regulation 7(2) of the DSMEG Regulations is whether the unauthorised actions of Mr and Mrs Wharam were the acts of the company so that the Appellant caused the irregularities.  This was not a Trade Description Act case as in Tesco Supermarkets Ltd v Nattress [1972] AC 153 but involved liability for a major fraud.  Article 20.1 of the Directive referred to “irregularity or offence.”  He said that causation involves some culpability, see Arena at [41].  In Meridian Lord Hoffman cited Viscount Haldane’s reference to “directing mind and will” at page 509.

74.	He submitted that when attribution of culpable conduct is involved it must be the action of the directing mind, here the directors.  Acts of employees which are detrimental to a company should not be attributed to the company, see McNicholas Construct Co v Customs and Excise Commissioners [2000] STC 553 at [55] and [56].  He submitted that there must be culpable behaviour by the person made liable if regulation 7(2) is to be compatible with Community Law; otherwise the provision would be disproportionate.

75.	Miss Tipples submitted that regulation 7(2) merely requires causation and that there was no additional ingredient of culpability.  There is no necessary mental element and applies even if an employee is acting contrary to instructions.  She said that vicarious liability does not depend on state of mind, see per Moore-Bick LJ in Man Nutzfahrzeuge AG v Freightliner Ltd [2005] EWHC 2347 (Comm) at [157].  Here Mr and Mrs Wharam were authorised to sell spirits in duty suspension and to give instructions to the warehouse and the transporter; they were doing what they were authorised to do.  The fact that they acted in a way which was contrary to instructions does not affect their employer’s liability.  She said that there was a sufficiently close connection between the wrongful acts of Mr and Mrs Wharam and the activities which they were employed to undertake, see Gower and Davies, 7th ed (2003) at pages 165-169 and Lister v Hesley Hall Ltd [2002] 1 AC 215 per Lord Steyn at [14] to [20] and Lord Millett at [69] to [71] and [77].  The close connection approach was applied in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366.  She referred also to Moore v I Bresler Ltd [1944] 2 All ER 515.

76.	She submitted that an employer is vicariously liable for the unlawful act of an employee in the course of employment if it is sufficiently closely connected with the employer’s business.  In order to be vicariously liable it is not material whether the specific act is authorised.  In the context of regulation 7(2) the policy of the provision is to deter wrongdoing; this policy would be frustrated if the actions of employees arranging duty suspended movements were not attributed to the company employing them.  No rule of law had been identified to exclude the normal rules of attribution, see Meridian [1995] 2 AC at 507B-C.  There is no requirement for knowledge in regulation 7(1) or (2).

77.	Miss Tipples further submitted that the directors ought reasonably to have known that Mr and Mrs Wharam were participating in diversion and that their failure to supervise Mr and Mrs Wharam was a sufficient cause to come within regulation 7(2) even if the principle of vicarious liability did not apply.

78.	Dr Southern in reply said that it is necessary to consider what the statute intended. The actions of the Wharams were clearly not in the course of their employment. There must be a limit to a company’s liability for wrongful acts of its servants see Lord Wilberforce in Kooragang Investments Pty Ltd v Richardson & Wrench Ltd [1982] AC 462, 473 cited in Dubai Aluminium.  He said that the doctrine of identification is conceptually distinct from vicarious liability.

Conclusions on Causation

79.	We should state at the outset that we do not consider that the failure of the directors to appreciate what Mr and Mrs Wharam were doing and their failure to supervise them sufficiently had the consequence that either they or the company caused the occurrence of the irregularities which gave rise to the duty points.  The question whether the Appellant company caused the occurrence of the excise duty points depend on the question whether the actions of Mr and Mrs Wharam are to be attributed to the Appellant company which in turn depends on the purpose and ambit of regulation 7(2) of the DSMEG Regulations. We did not understand Miss Tipples to submit that the concept of vicarious liability automatically applies.

80.	Regulation 7(2) extends the strict liability under regulation 7(1) of the consignor, which is the warehouse keeper of dispatch, or the other person arranging the guarantee to any other person who causes the occurrence of the excise duty point under regulation 3 or 4 which necessarily involves an irregularity because of the express wording of regulations 3 and 4.

81.	There are a range of persons who might cause an irregularity, in particular an owner, a transporter, a sub-contractor or a dishonest employee.  An owner,  transporter or sub-contractor will frequently be a company.  It would be anomalous if the irregularity has to be authorised by the directors if the company is to be liable.  The larger the company the easier it would be to show that they were not involved.  Furthermore a company should not in principle be a different position from an individual employer or a partnership.

82.	It is trite law that a company acts through its agents.  In exceptional cases the agent may be another company, but most actions are by employees who are not even managers.  A transport company will carry out its obligations through its drivers.  The Appellant engaged Mr and Mrs Wharam to buy and sell alcoholic goods and arrange duty suspended movements.

83.	We do not consider that regulation 7(2) limits the liability of a company to situations where the directors were privy to the irregularity or that it limits the liability of an employer to circumstances where he is so privy.

84.	In the present case Mr and Mrs Wharam were employed to buy and sell spirits and were clearly authorised to give instructions to the warehouse and the transporter and to provide information to those persons.  Not only were they authorised to carry out those transactions, they were the only persons doing so.  If the movements had been regular and had been preceded by payment by telegraphic transfer, they would clearly have been acting for the company.  As it was none of the movements shown on the AADs were genuine, they received cash and banked it on behalf of the company and, apart from the potential liability to excise duty and VAT now assessed, earned a profit for the company, while no doubt making a larger profit for themselves.

85.	It is not possible to know exactly what part Mr and Mrs Wharam played in the irregularities, however in giving instructions purportedly on behalf of the Appellant company they clearly contributed substantially to the cause of the irregularities. The regulation contemplates that persons in the plural may cause an irregularity.

86.	Different considerations might well have arisen if the Appellant company had not received any payment since then the irregularities would have involved theft from the Appellant.  Again the position might have been different if although employed by the Appellant they were not authorised to make duty suspended sales of spirits.

87.	However although the company did not authorise fraudulent diversions we conclude that there was a sufficiently close connection between the wrongful acts and the activities which Mr and Mrs Wharam were authorised to do for their acts to be attributed to the Appellant company for the purposes of regulation 7(2).

Validity of assessment based on DSMEG Regulations

88.	The Tribunal having concluded (a) that an excise duty point occurred under regulation 4(2)(a) of the REDS Regulations when the goods were released with invalid AADs, (b) that the Commissioners were not satisfied that the irregularity occurred in the UK so that DSMEG regulation 3(2) did not apply and (c) that regulation 3(3) did not apply because the Tribunal found that it was possible to establish where the irregularities occurred, the appeal was relisted for further submissions.

89.	Dr Southern submitted that on the interpretation by the House of Lords in Greenalls Management [2005] 1 WLR 1754 of regulation 4(2)(a) of the REDS Regulations an excise duty point occurred in the present case when the goods left the warehouse.  He referred to the speech of Lord Hoffman at [11] to [13] where he said that an irregular departure from a suspension arrangement involved goods being “made available for consumption.”  Dr Southern said that this excise duty point occurred before the detection of the irregularities within regulation 3 of the DSMEG Regulations and also before the duty point under regulation 4. He said that where there is an earlier excise duty point under the REDS Regulations, the DSMEG Regulations do not apply.  He said that regulation 4 of the REDS Regulations had not been impliedly repealed by the DSMEG Regulations, since regulation 4(5) was expressly amended. He submitted that Customs must rely on either regulation 3 of DSMEG or regulation 4 but not on both. Since the notice under regulation 7(2) of DSMEG depended on regulation 7(1) which in turn depended on regulation 3 or 4, if the excise duty point arose under the REDS Regulations, regulation 7(2) did not apply.

90.	Dr Southern submitted that, if the Appellant was wrong in contending that regulation 7(2) did not apply because the excise duty point arose under the REDS Regulations, the irregularities were detected abroad when the statements were made.  If an irregularity was detected abroad, it fell to be treated as committed in the Member State where it was detected.  DSMEG regulation 3 did not apply because of paragraph (1)(b), since the irregularity was not detected in the United Kingdom. In order to comply with Article 20.2 of the Excise Directive (EEC/92/12), regulation 4 must be interpreted as not applying when the irregularity was detected abroad. He said that the dates on which the Notice of Joint and Several Liability was based were the dates of the statements abroad.  It followed that the irregularities were deemed to have been abroad.  He said that if the liability under regulation 7(2) was to be valid it must be correctly based in law.  It was irrelevant that the Appellant could have been made liable under regulation 5(6) of the REDS Regulations.

91.	Dr Southern said that the REDS Regulations were  made to implement the Excise Directive and took effect from 1 January 1993.  Article 20 of the Directive laid down a simple scheme to determine in which Member State the duty is due when there is an irregularity in the course of a movement.  Under Article 20.1 duty is due in the Member State where the irregularity is committed; Article 20.2 applies where an irregularity is detected without it being possible to determine where it occurred.  “Detected” is not defined in the Directive, but it must have an autonomous meaning; he submitted that it involved something more than knowledge of the irregularity.

92.	He submitted that the DSMEG Regulations were unnecessary and ineptly drafted.  They were intended to implement Article 20, but specified the time when duty is payable or excise duty point rather than the place where it is due.  Regulation 4(2)(a) of the REDS Regulations already specified the excise duty point when there is an irregularity in a duty suspended movement.  The provision that regulation 3(2) of DSMEG Regulations applies “Where the Commissioners are satisfied that the irregularity occurred in the United Kingdom” is not compatible with Article 20.1; regulation 3(1)(b) conflates the occurrence of the irregularity and its detection, whereas they are distinguished in Article 20.  He submitted that regulations 3 and 4 of DSMEG Regulations are too far from the Directive to be saved by a conforming interpretation and should be disapplied, see Marshall v Southampton and West Hampshire AHA (Case C-152/84) [1986] 2 WLR 780 at [41].

93.	He submitted that regulation 4(2)(a) of REDS could not both apply and not apply at the same time.  The dispensing and suspending of laws without the consent of Parliament is contrary to the Bill of Rights, 1688.  He said that implied repeal is only possible when later legislation is repugnant to earlier legislation.  It was said that REDS regulation 4(2)(a) is only overridden when an irregularity occurs.  However DSMEG does not cover irregularities in movements within the same Member State; furthermore it is not clear that DSMEG covers all situations within Article 20.1 because it applies a time test instead of a place test.  It is not clear on the case for Customs when and in what circumstances it is said that there was an implied repeal of regulation 4(2)(a).  There is no repugnancy here.

94.	Dr Southern said that what was considered by the Court in Autotech was a matter for speculation; the judgment made no reference to the REDS regulations.

95.	He said that Customs could not rely on regulation 5(6) of REDS Regulations since the notice was not issued on this basis. An assessment must have the correct statutory basis. In Ridgeons Bulk Ltd v Customs and Excise Commissioners [1994] TC 427 it was decided that Customs could not support an assessment for overclaimed input tax as an assessment for underpaid output tax. In University Court of the University of Glasgow v Customs and Excise Commissioners [2003] STC 495 it was decided that Customs could make two separate assessments both based on disallowed input tax in the alternative.  If Customs are correct in their contentions in this case, there was no need for alternative assessments in that case. He said that if the legal basis of an assessment is incorrect, the proper course is to issue a fresh assessment.

96.	Miss Tipples submitted that regulation 3 of DSMEG applied because the irregularity was detected in the United Kingdom when the facts were assimilated by Mr Parsons.  Alternatively, regulation 4 applied when the goods left the warehouse.  She said that there had been no suggestion in Re The Arena Corporation Ltd (2004) in the Court of Appeal that the provisions in DSMEG were ineffective because the REDS Regulations applied.  She said that the Commissioners clearly had power under section 1 of the Finance (No.2) Act 1992 to make the DSMEG Regulations; those regulations override the REDS Regulations in so far as there is any conflict.  She referred to Bennion, Statutory Interpretation, 4th ed (2002) at pages 201, 218, 226, 254 and 508 and R v Transport Secretary, ex parte London Borough of Richmond[1994] 1 WLR 74, 88.  She also referred to Global Beers and Wines Ltd v HMRC (2005).  She said that insofar as the DSMEG Regulations applied, regulation 4(2) of the REDS Regulations was impliedly repealed or modified.  She accepted that regulation 4(2)(a) applies where release for consumption is not irregular.

97.	She said that in Revenue and Customs Commissioners v Autotech Design Ltd [2006] EWHC 596 (Ch) Michael Briggs QC sitting as a deputy judge of the High Court considered a winding-up petition on similar facts.  The Appellant being unrepresented, counsel for Customs had drawn the Court’s attention to the possible argument for the company that Customs had relied on the DSMEG Regulations incorrectly.  She produced counsel’s skeleton argument in that case.  The Court granted the winding-up order; this was necessarily on the footing that the company had no defence of substance.  She submitted that the Tribunal was bound by this decision.

98.	Miss Tipples submitted that the DSMEG Regulations could be interpreted compatibly with the Directive without difficulty.  Article 20.1 covers the situation when the place of the irregularity is known, see the opinion of the Advocate General at paragraph 82 in Distillerie Fratelli Cipriani SpA v Ministero delle Finanze (Case C-395/000) [2002] ECR I-11877.  Article 20.2 applies when the place is not known and Article 20.3 applies when the goods do not arrive.  She submitted that the knowledge of the irregularity must be by the Member State; in the United Kingdom the Commissioners must know; in The Arena Corporation (2004) the Court of Appeal concluded at [50] that on the evidence before them that the Commissioners were entitled to conclude that it was not possible to determine where the irregularity was committed.

99.	She said that section 1(3) of the Finance (No.2) Act 1992 conferred the power to fix excise duty points; these were not necessarily the same as the time when duty is chargeable under EU law.  The duty points under section 1(3)(a)-(d) will in fact all be the same. The reference in regulation 3(2) of the DSMEG Regulations to the Commissioners being satisfied is additional to the requirement in regulation 3(1)(b) that the irregularity occurs in the United Kingdom, detection only being relevant to regulation 3(3). She submitted that Article 20.1 depends on the Commissioners’ knowledge as does regulation 3(2).  

100.	Miss Tipples said that, in spite of the conclusion of the Tribunal that the irregularity occurred on release from the warehouse,  Mr Parsons had considered that it was not possible to establish when the irregularity occurred.  His evidence on that had not been challenged. The words of regulation 3(3) “where it is not possible to establish” referred to whether the Commissioners could establish the place of the irregularity at the time when they made the decision under appeal.  This was consistent with Article 20.2.  The excise duty point occurred in the present case at the time when Mr Parsons who assimilated the evidence detected the irregularity.

101.	She said that on appeal the Tribunal makes a finding of fact as to whether an irregularity occurred or was detected in the United Kingdom within regulation 3(1)(b) and determines whether the Commissioners were reasonable in the view at the time of the decision as to the requirements of regulation 3(2) or, in this case, regulation 3(3).  It is, she said, irrelevant whether the Tribunal finds that the view of Mr Parsons was mistaken. Although she relied on regulations 3 and 4 in her skeleton argument, she said that regulation 4 of DSMEG did not apply in this case because of paragraph (1)(c) since there had been an excise duty point under regulation 3. She submitted that regulation 3(3) of DSMEG overrides regulation 4(2)(a) of REDS in the circumstances of this case.

102.	She said that in The Arena Corporation the Court of Appeal rejected at [34] the argument that regulation 7(2) was invalid as being inconsistent with the Directive.

103.	Miss Tipples submitted that, if the Tribunal concluded that regulation 7(2) of DSMEG did not apply, then the assessment which was made under section 12(1A) of the Finance Act 1994 should be upheld because the Appellant was jointly and severally liable under REDS regulation 5(5) and (6)(b) to pay the excise duty when the goods reached an excise duty point under REDS regulation 4(2)(a).  The notice of 4 February 2003 (paragraph 9 above) identified the dates of removal at alternative excise duty points and identified the Appellant as having caused the excise duty point.  Here there was no suggestion that the quantum of duty was affected by there being different excise duty points under REDS regulation 4(2)(a) and DSMEG regulation 3(3).  There was no prejudice to the Appellant.

104.	She submitted that the decision in Ridgeons Bulk should be distinguished because in the present case (a) the foundation for liability was the same, being the existence of the excise duty point, (b) the transactions were the same and (c) the quantum was the same.  If it was said that the Statement of Case did not refer to REDS regulation 4(2)(a) she would seek to amend it.

105.	She said that there was no procedural unfairness in relying on the REDS provision.  The only prejudice identified was in relation to the time limit under section 12(4), however that did not arise since no new assessment was needed.

106.	Miss Tipples submitted that even if the excise duty point under regulation 3 of DSMEG Regulations was pre-empted by that under regulation 4(2)(a) of the REDS Regulations that would not make the Notice under regulation 7(2) invalid because the excise duty points were, in the alternative, the dates of removal from the warehouse under regulation 4(2) of the DSMEG Regulations.

Conclusions as to validity of assessment based on DSMEG Regulations

107.	Liability under regulation 7(2) of the DSMEG Regulations 2001 depends on causing the occurrence of an excise duty point under regulation 3 or 4 of those regulations. Section 1(1) of the Finance (No.2) Act 1992 gave the Commissioners power by regulation to make provision for fixing the time when the requirement to pay any excise duty with which goods became chargeable is to take effect (“the excise duty point”).  This was a new concept in UK excise law to give effect to the single market and more specifically to Council Directive (EEC) No.92/12 (“the Excise Directive”).

108.	Regulation 4(2)(a) of the REDS Regulations 1992 provides,

“(2)  If any duty suspension arrangements apply to any excise goods, the excise duty point shall be the earlier of –

(a)	the time when excise goods are delivered for home use from a tax warehouse or are otherwise made available for consumption, including consumption in a warehouse; …”

The other sub-paragraphs are not relevant.

109.	In Greenalls Management the House of Lords decided that when there is any departure, including an irregular departure, from a suspension arrangement, there is a release for consumption to which regulation 4(2)(a) applies, this interpretation being required in order to comply with Article 6(1) of the Excise Directive.

110.	It is clear from the use of the definite article in “the excise duty point” in the Finance (No.2) Act 1992 and from the reference to the earlier of several events in the REDS Regulations that the excise duty point is a single point of time.

111.	On the evidence there can be no doubt on the evidence before us that there was an irregular departure from suspension arrangements at the time of dispatch of each consignment from the warehouse with AADs containing false details and we find this as a fact.  Serio did not have an approved warehouse; Veltro International did not buy any spirits and did not carry out any business with Brasserie Caulier and no receipts were declared at Miguel Abad. At the time of dispatch by Oakwood excise duty points occurred under regulation 4(2)(a) of the REDS Regulations..

112.	Regulations 3 and 4 of DSMEG Regulations 2001, which came into force on 28 September 2001 shortly before the events with which we are concerned, provides (so far as relevant),

	“3(1)	This regulation applies where:

		(a)	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(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 authorised warehousekeeper accounts for the excise goods to the satisfaction of the Commissioners.”

113.	The primary basis of the Notice dated 4 February 2003 was that the excise duty point arose when the irregularities came to the attention of Customs; the Notice was thus based on regulation 3(3).  This was because Mr Parsons who was acting for the Commissioners and who assimilated the facts considered that there was no evidence to identify where and when the irregularities occurred (see paragraph 33 above).  If he was not satisfied, the Commissioners were not satisfied.

114.	Before the adjourned hearing, we were concerned that the requirement in regulation 3(2) that the Commissioners be satisfied that the irregularity occurred in the United Kingdom was incompatible with Article 20.1 of the Directive which states that duty is due in the Member State where the offence was committed.  The fact of the irregularity is clearly a matter for the Tribunal to determine for itself on the evidence, see Van de Water v Staatssecretaris van Financiën (Case C-325/99) [2001] ECR I-2729 at [36] where the Court said,

“… once it is established before the national court that such a product has departed from a suspension arrangement without the excise duty having been paid, it is clear that the holding of the product in question constitutes release for consumption …”

115.	The response of Miss Tipples is that the requirement that the Commissioners be satisfied is additional to the outright requirement in regulation 3(1)(b) that the irregularity occurs or is detected in the United Kingdom and that the words “detection” and “detected” in regulation 3(3) refer to the second limb of regulation 3(2). We accept this submission although we do not understand the logic of the additional requirement.

116.	We do not however accept her submission (see paragraph 99 above) that the words in regulation 3(3) “where it is not possible to establish in which Member State the irregularity occurred” referred to whether the Commissioners considered that they were able to establish where the irregularity occurred when making their decision.  We accept that the Commissioners would not make a decision without forming a view of the facts; however that is true of any decision.  If the legal test in regulation 3(3) was intended to depend on the opinion of the Commissioners, the natural wording would have been “where the Commissioners are not satisfied that it is possible …”.  This however is not what regulation 3(3) says.

117.	More important is the fact that regulation 3(3) is clearly intended to implement Article 20.2, which provides, 

“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.”

Article 20 is designed to specify which Member State is to collect excise duty when there is an irregularity in the course of a movement.  An intra Community movement may involve a number of Member States.  If the authorities in different Member States could form different views as to where an irregularity occurred, the objective of the Article would not be achieved.  That problem does not arise if the matter is to be decided by a court or tribunal on the evidence.  We conclude that words in regulation 3(3) “where it is not possible to establish …” bear their natural meaning and involve a question of fact to be determined by the Tribunal.

118.	The Tribunal has found as a fact that it is possible to establish that the irregularity occurred when the goods were released from the warehouse with false AADs.  On the law as determined by the House of Lords in Greenalls that conclusion is inescapable.  Indeed it was inescapable at the time when the Notice was issued.  The result of this conclusion is that contrary to the view formed by Mr Parsons acting for the Commissioners it was possible to establish where the irregularity occurred and regulation 3(3) did not apply.

119.	That brings us to regulation 4.  During oral submissions Miss Tipples did not in fact seek to rely on that regulation since by reason of regulation 4(1)( c) it could only apply if regulation 3 did not apply and her case was that regulation 3 did apply.  That does not absolve the Tribunal from the duty to apply that regulation if it is relevant.  Dr Southern submitted that Customs must rely on either regulation 3 or regulation 4 but not on both, however he cited no authority in support of this.  In University of Glasgow [2003] STC 495 it was held that Customs could make two alternative assessments to VAT; we can see no reason in logic or principle why an assessment to excise duty should not be made on alternative bases, particularly since the condition for liability under regulation 7 of DSMEG Regulation is expressed in the alternative.

120.	On the basis of our conclusion that regulation 3 did not apply on the facts of this case because the Commissioners were not satisfied as to regulation 3(2), we find that regulation 4 did apply since there was a movement which started in the United Kingdom, the duty suspended movement was not discharged by arrival within four months and there was an irregularity.  Regulation 4(3) did not apply, consequently under regulation 4(2) the excise duty point was when the goods left the warehouse.

121.	If the Appellant company caused an excise duty point under regulation 4, it is jointly and severally liable with the person specified in paragraph 7(1) which was AOL as guarantor.  The fact that the same event constituted the occurrence of an excise duty point under REDS regulation 4(2)(a) does not in our judgment mean that regulation 7(2) does not apply.  There is no reason why there should not be the same excise duty point both under REDS regulation 4(2)(a) and under DSMEG regulation 3.  We conclude therefore that the assessment based on the DSMEG Regulation was valid.

122.	The VAT assessment was made under section 73(7B) of the VAT Act 1994 which provides,

“(7B)	Where it appears to the Commissioners that goods have been removed from a warehouse without payment of the VAT payable under section 18(4) or section 18D on that removal, they may assess to the best of their judgment the amount of VAT due from the person removing the goods or other person liable and notify it to him.”

The goods were removed without payment of VAT. The VAT assessed, £118,611.26, was 17.5 per cent of the excise duty.  No independent evidence or submissions were advanced in respect of the VAT appeal.

123.	Both appeals are dismissed.

THEODORE WALLACE
CHAIRMAN

RELEASED: 11 January 2006

LON/03/8213