HM Revenue & Customs v Perfect [2019] EWCA Civ 465

HM Revenue & Customs v Perfect [2019] EWCA Civ 465, heard by the Court of Appeal (Civil Division) comprising Lord Justice Patten, Lord Justice Baker and Mr Justice Nugee, resulted in the first ground of appeal being referred to the CJEU and the second ground being dismissed.

HMRC assessed Mr Martyn Perfect, a lorry driver, for excise duty of £22,779 and imposed a penalty of £4,897.48 under Schedule 41 to the Finance Act 2008. Mr Perfect successfully appealed to the First-tier Tribunal, and HMRC’s appeal to the Upper Tribunal was dismissed. HMRC then appealed to the Court of Appeal.

In August 2014 Mr Perfect began working for a firm he understood to be “Kells Transport” based in Basildon, having been engaged by telephone by an individual known only as “Des”. He was paid £250 per week in cash for two or three days’ work taking empty trailers from Basildon to Calais and bringing loaded trailers back to the United Kingdom. On 6 September 2013 he collected from Calais a lorry loaded with 26 pallets of beer. The accompanying documentation indicated that the destination was a warehouse in Barking and identified the consignor, consignee and transporter. When stopped at Dover the UK Border Force found that the Administrative Reference Code stated on the contract had been allocated to a previous consignment and that excise duty had not been paid. The lorry and goods were seized. Mr Perfect spoke to “Des” after the seizure but had no further contact thereafter. HMRC’s subsequent enquiries failed to locate a haulier or transport company matching the name or details given. At all material times HMRC accepted that the evidence did not show that Mr Perfect was actively involved in the attempt to evade duty or that he himself deliberately attempted to evade it.

The Excise Goods (Holding Movement and Duty Point) Regulations 2010, made under the Finance (No.2) Act 1992 to implement Council Directive 2008/118/EC, provide by regulation 13 that where excise goods already released for consumption in another Member State are held for a commercial purpose in the United Kingdom in order to be delivered or used here, the excise duty point is the time when the goods are first so held. The person liable to pay the duty is, depending on the case, the person making the delivery, holding the goods intended for delivery, or to whom the goods are delivered. Article 33 of the 2008 Directive is in substantially the same terms. Schedule 41 paragraph 4(1) of the Finance Act 2008 provides that a penalty is payable by a person who after the excise duty point acquires possession of or is concerned in carrying goods when a payment of duty is outstanding. Paragraph 20 of that Schedule provides that liability to a penalty does not arise in relation to an act or failure which is not deliberate if the person satisfies HMRC or the Tribunal that there is a reasonable excuse.

HMRC assessed Mr Perfect under section 12(1A) of the Finance Act 1994 on the basis that by virtue of his actions an excise duty point had been created and excise duty became liable in accordance with regulation 13 of the 2010 Regulations. Following a review the assessment and penalty were maintained. Mr Perfect appealed to the First-tier Tribunal, which allowed his appeal and discharged both the assessment and the penalty. The First-tier Tribunal found that HMRC had accepted that Mr Perfect would have no means of checking the Administrative Reference Code, that there was no information which could have led him to conclude that he was carrying goods in respect of which excise duty had not been paid, and that there was nothing in the documentation to put him on enquiry. It concluded that he should be regarded as an “innocent agent” in the same manner as the hauliers characterised as such in Taylor and Wood v R [2013] EWCA Crim 1151. The Upper Tribunal dismissed HMRC’s appeal, holding itself bound by the decisions in Taylor and Wood and Tatham v R [2014] EWCA Crim 226 as to the meaning of the 2008 Directive and concluding that a person who lacks actual or constructive knowledge of the criminal enterprise relating to goods cannot be said to be “holding” or “making delivery” of them within regulation 13 even if he knows he is carrying excise goods. The Upper Tribunal further held that such an interpretation was consistent with the scheme and purpose of the Directive and with EU law principles of fairness and proportionality. It added that to impose liability on drivers in physical possession of goods at the time fraud is discovered but without knowledge of what had occurred or was intended would be neither fair nor proportionate. On the penalty the Upper Tribunal upheld the discharge on the ground that Mr Perfect’s status as an innocent agent provided ample basis for concluding that there was a reasonable excuse within paragraph 20 of Schedule 41.

On appeal HMRC submitted that the 2010 Regulations imposed strict liability on those who deliver or hold goods and that regulation 13 contained no requirement for knowledge. Counsel for HMRC contended that the natural meaning of the words “holding” or “making delivery” did not impute any requirement that the person knows the tax status of the goods. She argued that the observations of the Court of Appeal Criminal Division in Taylor and Wood and Tatham to the effect that an innocent agent lacking actual or constructive knowledge could not be a holder were wrongly decided and in any event obiter. She submitted that the purpose of the 2008 Directive, as set out in recital 8 and articulated in cases including Gross v Hauptzollamt Braunschweig (Case C-165/13), required strict liability. She further argued that the Upper Tribunal had wrongly applied the reasoning in Taylor and Wood when it concluded that it had to interpret the concepts in a manner that provided a fair and reasonable justification for imposing liability. She relied on the House of Lords decision in Greenalls Management Ltd v Customs and Excise Commissioners [2005] UKHL 34 as establishing that strict liability had long been recognised as appropriate under the European Directive regime.

Mr Bedenham for Mr Perfect relied principally on Taylor and Wood and Tatham. He rejected the submission that those observations were obiter, pointing out that they were an essential part of the reasoning in both cases. He submitted that the Upper Tribunal had been right to recognise that the approach in those cases was consistent with the scheme and purpose of the 2008 Directive and with wider principles of EU law, in particular proportionality and fairness. He contended that nothing in the Directive suggested that tax should be collected from those who have no interest in the goods and who do not know the goods have outstanding duty on them. He further relied on Article 38(3) of the Directive, which imposes liability on “any person who participated in the irregularity”, submitting that the use of the word “participate” indicated that liability should only be imposed on those with actual or constructive knowledge. On the second ground he submitted that given the First-tier Tribunal’s findings the conclusion that Mr Perfect had a reasonable excuse was unimpeachable.

The Court of Appeal, in a judgment given by Lord Justice Baker, held that the first ground raised a question of EU law that was not acte clair and should be referred to the CJEU. The Court acknowledged the considerable force in HMRC’s argument that strict liability appeared to be an accepted feature of the regime under successive Directives and that the natural meaning of “holding” or “making delivery” did not impute any requirement that the person be aware of the tax status of the goods. The Court noted the public interest in ensuring that excise duty is paid and the argument that anyone holding the goods should be strictly liable, with the possibility of remedy against consignors or importers if their identities were known. The Court further observed that the legislative scheme might draw a distinction between liability for payment of duty and liability for criminal sanctions or penalties. On the other hand the Court recognised that the two decisions of the Criminal Division in Taylor and Wood and Tatham, though in the context of confiscation proceedings, had decided that anyone in physical possession of goods without actual or constructive knowledge of the duty payable could not be a “holder” and that those observations were not obiter. The Court noted the Upper Tribunal’s view that to impose liability on drivers simply because they are in possession of goods without knowledge of what had occurred would be neither fair nor proportionate. Given the fundamental importance of proportionality in EU law, the Court considered it arguable that any intention to impose strict liability would have been expressly stated in the Directive.

The Court therefore referred to the CJEU the following questions. First, is a person in physical possession of excise goods when they become chargeable in a Member State liable for duty under Article 33(3) of the 2008 Directive in circumstances where he had no legal or beneficial interest, was transporting the goods for a fee on behalf of others, and knew the goods were excise goods but did not know and had no reason to suspect they had become chargeable at or prior to the relevant time. Secondly, is the answer different if the person did not know the goods were excise goods. The appeal on the first ground was adjourned pending determination by the CJEU.

On the second ground the Court dismissed HMRC’s appeal. The Court held that the Upper Tribunal had been plainly correct to conclude that Mr Perfect’s action was not “deliberate” within paragraph 20 of Schedule 41 and was capable of giving rise to a reasonable excuse. The findings that he had no interest in the goods, was not part of any conspiracy, had simply followed instructions, had documentation appearing consistent with a valid duty-suspended arrangement, and had no means of checking the Administrative Reference Code entitled the Upper Tribunal to conclude that he was an innocent agent and that he had a reasonable excuse.

In short, the Court of Appeal referred to the CJEU the question whether a driver in physical possession of excise goods but lacking knowledge that duty was unpaid is liable for that duty under the 2008 Directive, and dismissed HMRC’s appeal against the setting aside of the penalty imposed on Mr Perfect.

Greenalls Management Ltd v HM Commissioner of Customs and Excise [2005] UKHL 34
R (on the application of M) v HM Treasury [2008] UKHL 26
Taylor and Wood [2013] EWCA Crim 1151
Tatham [2014] EWCA Crim 226
Butlers Ship Stores Ltd v HMRC [2013] UKUT 564
Retail Ltd v HMRC [2016] UKUT 429
Robinson Ltd v HMRC [2018] UKUT 437
May [2008] UKHL 28, [2008] AC 1028
McKeown and Others v The Commissioners for HM Revenue and Customs [2016] UKUT 479 (TCC)

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