Mark Sutherland Williams & Caroline Stone discuss restoration post Mills
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It has now been almost two years since the High Court handed down its judgment in Custom and Excise Commissioners v Mark Mills [2007] EWHC 2241 (Ch), [2007] All ER (D) 59 (Oct). Mills re-focused the spotlight on the government's confiscation and restoration policy, which has led to the seizing and forfeiture of numerous vehicles used to smuggle excise goods into the UK. This article considers the development of the power to restore seized goods, both before and following the Mills ruling.
The discretion to restore
At present there exists a two-track system via which items seized by Her Majesty's Revenue & Customs (HMRC) may be recovered. Initially, an individual can challenge the validity of a seizure through condemnation proceedings in the magistrates' court. Following which or alternatively, they can seek restoration of the goods forfeited. HMRC has a discretion to restore “as they see fit” anything forfeited or condemned, pursuant to s 152(b) of the Customs and Management Excise Act 1979 (CEMA 1979).
Restoration will normally only occur once the seized goods have been condemned (either following a hearing or by virtue of the “deemed forfeited” provision contained in CEMA 1979, Sch 3, para 5). HMRC may impose such conditions “as they think proper” as part of any agreement to restore, including the payment of a sum; production of an import licence; or relabelling. If HMRC refuses to restore a seized item, an individual affected by that decision can request a formal departmental review. Thereafter, an appeal lies to the Tax Tribunal and, ultimately, to the High Court.
Reasonableness
A decision by HMRC to refuse to restore an item is subject to review on the familiar public law grounds of illegality, irrationality and procedural impropriety. Wednesbury unreasonableness is given statutory footing by s 16(4) of the Finance Act 1994 (FA 1994), which states that the powers of a tribunal in relation to an ancillary decision (eg restoration) may only be exercised where “the Tribunal are satisfied that the Commissioners could not reasonably have arrived at it”.
The test for “reasonableness” includes consideration of whether (i) it was a decision that no reasonable panel of commissioners could have come to; (ii) whether some irrelevant matter has been taken into account or a relevant consideration ignored; and (iii) whether there has been an error of law, (Ware v Customs and Excise Commissioners (E00735)).
In order to be reasonable, a decision must also be factually sound. To this extent, the tribunal has a broad primary fact-finding function which extends beyond merely establishing whether customs had sufficient evidence on which to base its decision (Golobiewska v Commissioners of Customs and Excise [2005] EWCA Civ 607). Where the restoration decision is based on materially incorrect facts, a fresh review should be directed under s 16(4) (Szukala Trans Pthu Export-Import v Revenue and Customs Commissioners [2006] 150 SJ 571, paras [76]; [87]).
The burden of proof is ordinarily on an appellant to demonstrate on the balance of probabilities that the refusal to restore is unreasonable and to establish grounds for restoration (FA 1994, s 16(6); and Golobiewska above).
Proportionality
Following the advent of the Human Rights Act 1998, a decision not to restore must also be proportionate to the legitimate aim of preventing the evasion of excise duty. In particular, considerations of proportionality may tip the scale in favour of the restoration of a vehicle where an importation of goods is shown to be for social distribution to family or friends and where there was no attempt to make a profit (Lindsay v Customs and Excise Commissioners [2002] EWCA Civ 267, [2002] 3 All ER 118). A similar rationale applies where an innocent individual has been duped into assisting a commercial importation (Aykut Ates v Customs and Excise Commissioners (2002) (E00188)).
In Lindsay, Lord Phillips MR approved the general policy that individuals who use their vehicles for commercial smuggling should be liable to have them confiscated: the public are warned of this eventuality. Thus, the value of a vehicle used by a commercial smuggler becomes irrelevant. However, where the importation is not-for-profit, proportionality requires consideration of: the value of the vehicle; the scale of the importation; whether it is a “first offence”; whether there was an attempt at concealment or dissimulation; and the degree of hardship caused.
It is clear therefore that the commissioners must not fetter their discretion by undue adherence to a rigid policy. Each case must be assessed on its own merits. A fair balance must be struck between the general public interest in preventing smuggling and the individual's fundamental right to peaceful enjoyment of their property under Art 1, Protocol 1 of the European Convention on Human Rights (the Convention).
Residual questions
Should an individual wish to challenge the correctness of the seizure and its underlying determination as to commercial purpose, it is important that they pursue condemnation proceedings before a magistrates' court. Restoration proceedings before the Tax Tribunal are not intended to be a second bite of the cherry and the doctrine of “abuse of process” should prevent the re-litigation of determinations made at a previous condemnation hearing, and the re-litigation of established facts (Gascoyne v Customs and Excise Commissioners [2005] 2 WLR 222 (CA); Mills, para 24).
However, it will not necessarily be an abuse of process for an individual who failed to pursue condemnation to raise questions of “own use” in subsequent restoration proceedings. In Gascoyne, Lord Justice Buxton queried whether the right to a fair hearing (Art 6 of the Convention) would be infringed if deemed forfeiture prevented an importer from raising the legality of the original forfeiture at the restoration stage. The High Court clarified the issue: in certain limited situations it will be appropriate for a tribunal to consider questions of personal use, even though an appellant has not pursued condemnation proceedings (Customs and Excise Commissioners v David Weller [2006] EWHC 237 Ch). Whether an importer can raise the validity of the forfeiture on a review to the tribunal will depend on two questions:
(i) Did the importer have a realistic opportunity to invoke the condemnation procedure?
(ii) If he did, are there nonetheless reasons which should persuade the commissioners or the tribunal to permit him to re-open the question of the validity of the original seizure on an application for return of the goods?
The first question will almost always be answered in the affirmative, since the facts would need to be exceptional for a tribunal to conclude that the importer was prevented in the month following forfeiture from giving notice to HMRC to initiate condemnation proceedings (Weller, para [16]). Therefore, in the vast majority of cases a failure to give notice will operate against the applicant in any subsequent restoration appeal. Furthermore, failing to pursue condemnation due to the cost and inconvenience is not necessarily a legitimate ground for raising “own use” arguments on restoration (see Customs and Excise Commissioners v Dawkin [2008] EWHC 1972 (Ch), [2008] All ER (D) 83 (Aug)).
Mills
Mills provides an example of the unusual circumstances in which a tribunal may consider the question of own use despite the lack of condemnation proceedings.
In 2006, Mr Mills's £12,000 Volvo was seized when he and his business partner, Mr Kerry, failed to declare 43.5kgs of hand-rolling tobacco upon their return from Belgium. Despite Mr Mills maintaining that his share (21.75kgs) was for his and his wife's personal use, neither man challenged the seizure through condemnation proceedings at the magistrates' court.
The Tax Tribunal at first instance found that Mr Mills's share was for his “own use”, but that any challenge to the seizure in the magistrates' court would have been bound to fail due to the mixing of Mr Mills's goods with Mr Kerry's: Mr Mills's intended use of his portion of the tobacco becoming irrelevant, and thus he could not have prevented his car being condemned. (Mr Mills's goods were mixed with Mr Kerry's and that may have resulted in them being automatically forfeited under CEMA 1979, s 141(1)(a),(b)).
The High Court reached the same conclusion, via a different route. Mr Mills was not bound by Mr Kerry's failure to appeal the seizure. Rather, he could have prevented his goods/car from being condemned by proving that Mr Kerry's goods were not for a commercial purpose (see Fox v HMCE [2002] EWHC 1244 (Admin), [2002] All ER (D) 36 (Jul)). It would therefore not be an abuse to consider “own use” at the tribunal stage (para 36). As a result, where goods are condemned as a result of being mixed, packed or found with other goods liable to forfeiture, the question of “own use” may remain a live issue.
It follows that solicitors must be cautious to ensure that the “commercial purpose” point is not unwittingly conceded in correspondence. If an appellant unequivocally acquiesces to “commercial purpose” (arising from deemed forfeiture), he cannot then rely on contra arguments at the restoration stage (para [38]). (See also HMRC v James [2008] EWHC 230, where the High Court again approved a robust approach to reopening the question of lawfulness during restoration proceedings (paras [31] and [36]), although this was somewhat diluted by two recent tribunal decisions which, albeit on specific facts, suggest a softening in approach where condemnation proceedings are initially commenced but then withdrawn (Foster (2008) (E01124) and (1) David Owens (2) Mandy Owens (2008) (E01096)).
Paving the way for bulk-buying?
The tribunal's finding that Mr Mills imported 21.75kg for his personal use remains open to criticism. On one view, it placed insufficient weight on the fact that the seized amount was seven times the guideline quantities. Indeed, the High Court believed that the “own use” finding was both “wrong” and “surprising” (paras [43] and [45]).
Therefore, Mills, should not be viewed as a green light for individuals to import tobacco vastly in excess of the guideline quantities—3,200 cigarettes, 3kg of hand-rolling tobacco—on the assumption that they will be able to establish own use at the restoration stage.
Tensions
The law governing restoration attempts to resolve the tension between unfairness resulting from the rigid application of the “use it and lose it” policy in relation to vehicles and the rise of illicit importations of excise goods.
The two-track system in relation to condemnation and restoration remains ripe for rationalisation.
Two years on from Mills, the problems encountered in the present system are still exemplified by inconsistent tribunal decisions and, in fairness to all, the difficult balancing act that both HMRC and the courts have to perform. One solution may be to introduce a unified condemnation and restoration procedure, perhaps operated under the auspices of the Tribunals Service, which would not only be less formal, but would be more easily understood.
