Court of Appeal summarises the correct test for liability to pay excise duty upon goods imported as part of an illegal conspiracy

R. v Doran (Robert), R. v Gray (Patrick) Court of Appeal (Criminal Division) 17 March 2015 [2015] EWCA Crim 384

Martin Evans for the Crown

Summary: The court summarised the correct test for liability to pay excise duty upon goods imported as part of an illegal conspiracy. A judge had correctly concluded that two offenders were liable for excise duty because they were in control of the bills of lading when the goods arrived, and used them to take possession of the goods. The fact that the goods were under surveillance the entire time did not mean that customs officers had been in control of the goods.

Abstract: The appellant offenders (D) appealed against confiscation orders made following their guilty pleas to conspiracy to evade excise duty. The CPS appealed against the judge's apportionment of the benefit of criminal conduct. D had imported two shipping containers from Dubai. The contents of the containers were listed as "toys", but when examined in Felixstowe they were found to be full of cigarettes. Customs officers followed the consignment to a warehouse, where arrests were made and the goods seized. The excise duty payable on the cigarettes was approximately £3.3 million, and the VAT was approximately £500,000. Confiscation proceedings were issued against D. The judge found that the benefit of their criminal conduct amounted to £4.3 million, namely the pecuniary advantage obtained from the unpaid duty and VAT, updated to current values. That sum was then apportioned between the conspirators. The CPS appealed against the apportionment. D appealed against the amount of the order. The court was required to determine whether (i) the judge was wrong to find that D had incurred a liability to pay excise duty and VAT; (ii) D had obtained a benefit from their criminal conduct; (iii) the orders were disproportionate in the light of the ECHR Protocol 1 art.1. D relied on R. v Bajwa (Naripdeep Singh) [2011] EWCA Crim 1093, [2012] 1 W.L.R. 601 and submitted that they were not liable for excise duty because customs knew about the cigarettes before the ship docked, and the conspiracy could not have been achieved as they had lost control of the goods to customs officers before arrival.

Offenders' appeal dismissed, CPS appeal allowed. (1) The issue of liability to pay excise duty was to be answered by an assessment of whether under the Tobacco Products Regulations 2001 reg.13(1) D were "holding the tobacco products" when the vessel entered the limits of Felixstowe port or, under reg.13(2) and reg.13(3)(e) they had caused the tobacco products to enter the port. In addition, the person liable to pay the duty had to have "the prescribed connection with the goods", under the Finance (No. 2) Act 1992 s.14, when the excise duty point was reached, Bajwa and R. v White (Ian Leslie) [2010] EWCA Crim 978, [2010] S.T.C. 1965 applied, Greenalls Management Ltd v Customs and Excise Commissioners [2005] UKHL 34, [2005] 1 W.L.R. 1754 followed and R. v Taylor (Stephen) [2013] EWCA Crim 1151 considered. The liability to pay VAT was coterminous with the liability to pay excise duty (see paras 16, 24-26 of judgment). D could derive no comfort from the outcome of Bajwa because the bills of lading for their two containers had not been seized, but were held by their agent. Further, customs officers had not intervened but had merely kept the consignment under observation until it entered port. The bills of lading constituted D's evidence of title and were used to take physical possession of the containers three days after the vessel docked. D had not abandoned their connection with the goods but had remained in possession and control of the containers until they were seized at the warehouse, Bajwa considered. The fact that the consignment was under surveillance did not result in a disconnection between the goods and D for the purpose of reg.13. The fact that the bills of lading referred to toys rather than cigarettes was not an issue because D knew that the containers were loaded with cigarettes. There had been ample evidence on which the judge could find that D had caused the tobacco products to pass the duty point while retaining a significant connection with those goods, R. v Smith (David Cadman) [2001] UKHL 68, [2002] 1 W.L.R. 54 followed (paras 33-34, 36-39). (2) The court was bound by the decision in Smith , in which the House of Lords held that if a defendant derived a pecuniary advantage in consequence of the evasion of a debt, even a fleeting advantage, then he was to be treated as having received that pecuniary advantage, Smith followed (para.42). (3) D had obtained nothing but a debt to the state to pay excise duty. Whether the confiscation order was proportionate was closely bound to the question of whether the value of the pecuniary advantage obtained was the face value of the debt incurred. If it was not, then no question of proportionality arose. If it was, then provided there was no risk of double recovery by the Revenue, a confiscation order in the amount of the pecuniary advantage obtained was a proportionate means of ensuring that D did not gain from their criminal conduct (paras 46-48). (4) The judge had been wrong to apportion the benefit obtained, R. v Ahmad (Shakeel) [2014] UKSC 36, [2014] 3 W.L.R. 23 followed (para.49).

Judge: Pitchford LJ; Cooke J; Lang J

Counsel: For the Crown: Martin Evans. For the appellants: David Perry QC, Jonathan Ashley-Norman.

Solicitor: For the Crown: CPS. For the appellants: Bivonas Law LLP.

Martin Evans Success in Supreme Court Case: Barnes (as former Court Appointed Receiver) (Appellant) v The Eastenders Group and another (Respondents)

David Perry QC, Martin Evans and Peters and Peters LLP were instructed to act on behalf a Management Receiver in an appeal to the Supreme Court over the principal issue of whether allowing a court appointed receiver to recover their fees and expenses from property under their receivership following an order under s.48(2) Proceeds of Crime Act 2002 (PoCA), is a breach of the owner’s rights under Article 1 Protocol 1 (A1P1) of the ECHR where the order is subsequently quashed by the Court of Appeal.

Summary of the Facts

A number of people suspected of fraud were to be arrested by police. On 6 December 2010 HHJ Hawkins QC made restraint orders over the assets of the alleged offenders on the (without notice) application of the CPS. He appointed a management receiver over their assets pursuant to s.48(2) of PoCA. The assets of the respondent (Eastenders Cash and Carry) were treated as assets of the alleged offenders and the appellant was appointed by the court as management receiver of the companies. In accordance with s.49(2)(d) PoCA and the terms of the Management Receivership Order and letter of agreement, the appellant was to take his remuneration and expenses from the receivership property. On 8 February 2011 the Court of Appeal discharged the receivership order on the basis that the respondent’s assets did not constitute ‘realisable property’ which is property obtained through criminal conduct in which the offender has an interest. No provision is made for the receiver to be paid through any other means than from the property under his control, however, the Court of Appeal held by a majority that to allow the receiver to use the property in this way would breach the respondent’s A1P1 rights.  Peters & Peters were instructed by the management receiver to recover his remuneration and expenses.

The Supreme Court Hearing 24/25 February 2014

On 24/25 February 2013, the appeal was heard by Lady Hale, Lord Toulson, Lord Hughes, Lord Kerr and Lord Wilson.  The basis of the Receiver’s appeal was that (1) Laws LJ was correct in his dissenting view and the costs of the Receivership should be borne by the companies.  (2) If the previous submission was rejected, the alternative is that the costs be borne by the CPS.

The Judgment 8 May 2014 

In their Judgment, the Lords (Lady Hale, Lord Kerr, Lord Wilson, Lord Hughes and Lord Toulson) held that to allow the costs of the Receivership to be borne from the Companies' assets would be disproportionate, and therefore a breach of A1P1. However, Lord Toulson giving judgment commented:  “To take away that right without compensating [the Receiver] would violate the receiver’s rights under A1P1.  Unless it is within the power of the court to ensure that the receiver receives his recompense for which the lien is a security by some other means, the court will be left in the invidious position of violating the companies’ A1P1 rights if the receiver’s application is allowed and violating the receiver’s A1P1 rights if it is refused.”  The Lords then considered whether it was in their power to Order the CPS to meet the Receiver’s remuneration and expenses.  Lord Toulson agreed with the Court of Appeal “that it is not possible to locate within POCA a power to order the CPS to pay the receiver’s remuneration and expenses", but examined the relationship between the Receiver and the CPS in further detail and in particular the terms of the engagement in which the CPS sought the Receiver to act as the Management Receiver in this matter. The letter of engagement sent by the CPS to the Receiver on 29 November 2010 expressly stated that: “[the receiver’s] remuneration costs and expenses are to be drawn from the assets of the defendants under [his] management in accordance with section 49(2)(d) of the Proceeds of Crime Act  and the decision of the House of Lords in Capewell v HM Revenue & Customs [2007] UKHL 2”

The Lords concluded that as the Receiver was unable to recover his remuneration and expenses from the assets of the Companies (as it would breach the A1P1), there was a total failure of consideration of the Receiver’s rights over the said assets.  Lord Toulson commented that this failure “was fundamental to the basis on which the receiver was requested by the CPS and agreed to act.”  He observed that “Most contracts are entered into with intentions or expectations which may not be fulfilled, and the allocation of the risk of their non-fulfilment is a function of the contract.  But in the present case the expectation that the receiver would have a legal right to recover his remuneration and expenses was not just a motivating factor.  Nobody envisaged that the receiver should provide his services in managing the companies as a volunteer; those services were to be in return for his right to recover his remuneration and expenses from the assets of the companies, such as they might be.  The agreement between the CPS and the receiver so provided, and that provision was incorporated into the order of the court.I would hold that the CPS fulfilled its contractual obligations to the receiver by ensuring that the order appointing him conformed with the terms of the underlying agreement between them, but that the receiver is entitled to recover his proper remuneration and expenses from the CPS because the work done and expenses incurred by the receiver were at the request of the CPS and there has been a failure of the basis on which the receiver was asked and agreed to do so.”

The Supreme Court allowed the Receiver's appeal on point (2) that it should be the CPS who meet the remuneration and expenses of the receivership.

Click here for the judgment.

Martin Evans in Supreme Court; Recovery of Management Receiver's Costs

Martin Evans appeared in the Supreme Court case of Barnes (as former Court Appointed Receiver) (Appellant) v The Eastenders Group and another (Respondents).

A number of people suspected of fraud were to be arrested by police. On 6 December 2010 HHJ Hawkins QC made restraint orders over the assets of the alleged offenders on the (without notice) application of the CPS. He appointed a management receiver over their assets pursuant to s.48(2) of PoCA. The assets of the respondent (Eastenders Cash and Carry) were treated as assets of the alleged offenders and the appellant was appointed by the court as management receiver of the companies. In accordance with s.49(2)(d) PoCA and the terms of the Management Receivership Order and letter of agreement, the appellant was to take his remuneration and expenses from the receivership property.

On 8 February 2011 the Court of Appeal discharged the receivership order on the basis that the respondent’s assets did not constitute ‘realisable property’ which is property obtained through criminal conduct in which the offender has an interest. No provision is made for the receiver to be paid through any other means than from the property under his control, however, the Court of Appeal held by a majority that to allow the receiver to use the property in this way would breach the respondent’s A1P1 rights.

The Issue before the Court was:

Whether allowing a court appointed receiver to recover their fees and expenses from property under their receivership following an order under s.48(2) Proceeds of Crime Act 2002 (PoCA) is a breach of the owner’s rights under Article 1 Protocol 1 (A1P1) of the ECHR where the order is subsequently quashed by the Court of Appeal?

Judgment has been reserved.