Ahmad, R (On the Application Of) v Revenue And Customs [2015] EWHC 3954 (Admin)

Case No CO/5913/2015

[2015] EWHC 3954 (Admin)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

THE ADMINISTRATIVE COURT

Venue Royal Courts of Justice

Date Friday, 18 December 2015

Strand

London WC2A 2LL

B e f o r e:

MR JUSTICE MITTING

Between

THE QUEEN ON THE APPLICATION OF AHMADClaimant

Between

COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMSDefendant

Computer-Aided Transcript of the Stenograph Notes of

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Mr D Bedenham (instructed by Rayner Hughes) appeared for Claimant

Ms A Mannion (instructed by HM Revenue & Customs) appeared for Defendant

J U D G M E N T (As approved by the Court)

[1]MR JUSTICE MITTING: The claimant is a sole trader operating two businesses from a shop and office owned by him and his wife at 243 Beehive Lane, Ilford, under the trading name Beehive Wine Store. The first, which he has operated for 19 years, is a convenience store and off-licence. That business is not directly affected by these proceedings. The second, which has operated for 14 years from the office above the shop, is a wholesale trade in alcoholic liquor. All his trade is in "duty-suspended" goods, i.e. goods on which excise duty and VAT have not been paid.

[2]To operate as a trader in duty-suspended goods, an individual trader requires HMRC approval under the Warehouse and Owner of Warehoused Goods Regulations 1999. The claimant enjoyed such approval for the whole of his 14 years as a wholesale trader until it was revoked with effect from 6 November 2015. The reasons for revocation were not that he was complicit in Revenue fraud - no such accusation has ever been made by HMRC against him; they were that shortcomings in his due diligence enquiries into his suppliers and in his trading records, in particular recording cash transactions, put the Revenue at risk.

[3]HMRC officers reached that conclusion following visits to the claimant's trading premises and interviews with him and his advisers in 2015. Their criticisms were set out in letters of 26 May 2015, 4 September 2015 and 29 October 2015, the letter which gave notice of HMRC's decision to withdraw approval. He produced a detailed reply to the letter of 4 September 2015 by letter dated 17 September 2015 and offered to accept conditions limiting his approval so as to meet HMRC's concerns. That offer was not accepted because HMRC were of the opinion that they did not meet what they regarded as the fundamental deficiency in the claimant's operation of his wholesale trade: his inability to take necessary steps to minimise the risk to the Revenue.

[4]It is neither necessary nor possible for me to determine which of HMRC and the claimant is right about the underlying factual differences between them; they can only be resolved by the tribunal to which Parliament has given the task of reviewing HMRC's decision, the First-tier Tribunal Tax Chamber. The claimant has appealed to the First-tier Tribunal, in time, as is his right. He has also brought these proceedings in which he seeks to challenge HMRC's decision to revoke his approval by judicial review. This is the hearing of his application for permission to apply for judicial review and for interim relief in these proceedings, namely an order suspending the revocation of approval until final determination of his claim.

[5]The statutory scheme under which approval was granted and revoked is contained in the following provisions. Section 5(1)(a) of the Commissioners for Revenue and Customs Act 2005 makes HMRC responsible for the collection and management of revenue for which the Commissioners of Customs and Excise were responsible before the coming into force of the Act. Their responsibilities included Excise Duty and VAT. Section 100G of the Customs and Excise Management Act 1979 provides:

"(1) For the purpose of administering, collecting or protecting the revenues derived from duties of excise, the Commissioners may by regulations under this section (in this Act referred to as 'registered excise dealers and shippers regulations')— (a) confer or impose such powers, duties, privileges and liabilities as may be prescribed in the regulations upon any person who is or has been a registered excise dealer and shipper; ... ... (4) The Commissioners may approve and register a person under this section for such periods and subject to such conditions or restrictions as they may think fit or as they may by or under the regulations prescribe. (5) The Commissioners may at any time for reasonable cause revoke or vary the terms of their approval or registration of any person under this section."

[6]The relevant Regulations are the Warehousekeepers and Owners of Warehoused Goods Regulations 1999, regulation 18.1 of which provides:

"The approval and registration of every registered owner shall be subject to the conditions and restrictions prescribed in a notice published by the Commissioners and not withdrawn by a further notice."

The notice referred to there is Excise Notice 196, which, in section 2, states (amongst other things):

"Only persons who can demonstrate that they are fit and proper to carry out an excise business will be authorised or registered."

Approval is non-transferable. Section 5.4 provides that:

"All owners and duty representatives must comply with the conditions and restrictions detailed in this notice. In addition, we may apply specific conditions (for example, restrictions of the type of goods that can be warehoused) which we will list on your certificate of registration."

[7]Section 10.1 sets out the conditions which HMRC require by way of due diligence:

"This condition requires that all excise registered businesses operating in the alcohol sector consider the risk of excise duty evasion as well as any commercial and other risks when they are trading. Doing so will help to drive illicit trading out of alcohol supply chains, and reduce the risk to businesses of financial liabilities associated with goods on which duty has been evaded. From 1 November 2014 it becomes a condition of your approval as an excise warehousekeeper, registered owner, duty representative or registered consignor that you must: • objectively assess the risks of alcohol duty fraud within the supply chains in which you operate • put in place reasonable and proportionate checks, in your day to day trading, to identify transactions that may lead to fraud or involve goods on which duty may have been evaded • have procedures in place to take timely and effective mitigating action where a risk of fraud is identified • document the checks you intend to carry out and have appropriate management governance in place to make sure that these are, and continue to be, carried out as intended."

These are the conditions which HMRC allege in round terms that the claimant did not fulfil.

[8]Section 16 of the Finance Act 1994 gives to a person adversely affected by the withdrawal of approval a right of appeal to the First-tier Tribunal Tax Chamber. A withdrawal of approval is "an ancillary matter" for the purposes of section 16(4). It sets out the role and powers of the Tribunal in determining such an appeal:

"In relation to any decision as to an ancillary matter, or any decision on the review of such a decision, the powers of an appeal tribunal on an appeal under this section shall be confined to a power, where the tribunal are satisfied that the Commissioners or other person making that decision could not reasonably have arrived at it, to do one or more of the following, that is to say— (a) to direct that the decision, so far as it remains in force, is to cease to have effect from such time as the tribunal may direct; (b) to require the Commissioners to conduct, in accordance with the directions of the tribunal, a further review of the original decision; and (c) in the case of a decision which has already been acted on or taken effect and cannot be remedied by a further review, to declare the decision to have been unreasonable and to give directions to the Commissioners as to the steps to be taken for securing that repetitions of the unreasonableness do not occur when comparable circumstances arise in future."

[9]The status and limitations of the statutory scheme were identified by Underhill LJ in CC&C Limited v HMRC

[2015] 1 WLR 4043

at paragraphs 39 and 42:

"39. The starting-point seems to me that Parliament has enacted a self-contained scheme for challenging 'relevant decisions' by HMRC in relation to (broadly) excise management issues, which covers, inter alia, decisions to revoke the registration of registered excise shippers and dealers. It is trite law that where such a scheme exists it would normally be wrong for the High Court to permit decisions of the kind which it covers to be challenged by way of judicial review. ... ... 42. The absence of any power under the statute to suspend the effect of a relevant decision pending appeal may be capable of operating harshly in the case of decisions to revoke the registration of registered excise dealers and shippers, but it is not incomprehensible. The statute describes the right to trade in duty-suspended goods as a 'privilege', and the nature of the business is such that it is a privilege that should only be accorded to those whom HMRC believe they can trust. There would be an obvious awkwardness in the Tribunal, or indeed the Court, being able to require HMRC to continue, for an indefinite period pending the outcome of an appeal, to confer that privilege on traders who they have ceased to believe are fit and proper persons. Parliament could reasonably have regarded the loss of registration pending an appeal as simply a risk of the business which traders must accept."

He therefore did not believe that the High Court was entitled to intervene to grant him interim relief "simply on the basis that there is a pending appeal" (see paragraph 43 of his judgment); he did, however, acknowledge that there may be circumstances in which this court might grant relief.

[10]Part of the submissions of Mr Bedenham, for the claimant, and Ms Mannion, for HMRC, go to what those circumstances were said by Underhill LJ to be. I will return to that issue later. The claimant's case is that HMRC's actions have unlawfully deprived him of an asset of substantial value (the goodwill generated by his trade in wholesale duty-suspended goods) and so interfered with his right to a peaceful enjoyment of his possessions under Article 1 Protocol 1 ECHR; and that he has no means of protection against such interference, other than an application for interim relief in judicial review proceedings. Therefore, Mr Bedenham submits that his claim is reasonably arguable and permits an application for judicial review and interim relief to be made and granted.

[11]The starting point for that submission is Article 1 itself, which states:

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."

[12]The revocation of a nontransferable state licence or approval which interferes with economic interests is a measure of control under the third sentence of Article 1 and not deprivation under the second sentence: see Tre Traktörer Aktiebolag v Sweden (Application no. 10873/84) (7 July 1989).

[13]When control to secure the payment of taxes is in issue, the Strasbourg Court grants as wide margin of appreciation to contracting states. This was stated in unmistakable terms in Gasus Dosier- und Fördertechnik GmbH v the Netherlands

(1995) 20 EHRR 403

. The Dutch tax authorities had seized property belonging to one company to cover the tax debts of another. The interference in property was therefore direct. The court dismissed an application by the company whose property had been seized. As part of its reasoning it stated the principle to be applied to tax laws of contracting states at paragraph 60:

"As follows from the previous paragraph, the present case concerns the right of States to enact such laws as they deem necessary for the purpose of 'securing the payment of taxes'. ... In passing such laws the legislature must be allowed a wide margin of appreciation, especially with regard to the question whether - and if so, to what extent - the tax authorities should be put in a better position to enforce tax debts than ordinary creditors are in to enforce commercial debts. The Court will respect the legislature's assessment in such matters unless it is devoid of reasonable foundation."

Even retrospective measures can satisfy this test: see Provincial Building Society, the Leeds Permanent Building Society and the Yorkshire Building Society v the United Kingdom

(1998) 25 EHRR 127

, in which, when addressing the concern of the court to achieve a fair balance between the demands of the general interests of the community and the requirements of the protection of individuals' fundamental rights, it observed:

"In determining whether this requirement has been met, it is recognised that a Contracting State, not least when framing and implementing policies in the area of taxation, enjoys a wide margin of appreciation and the Court will respect the legislature's assessment in such matters unless it is devoid of reasonable foundation ..."

[14]Mr Bedenham does not submit that the statutory regime for granting and revoking approvals and for challenging revocation by an appeal to the First-tier Tribunal is incompatible with Article 1; he submits, simply, that because the only means by which the adverse economic consequence of unlawful revocation can be forestalled and/or compensated is a claim for judicial review, so judicial review must be available to a trader such as the claimant. As a general proposition, I cannot accept it. The answer was given to it by Underhill LJ in CC&C Ltd in the passages already cited.

[15]Mr Bedenham concedes that proportionality can be considered by the First-tier Tribunal. His concession is rightly made. What is not reasonable can hardly be proportionate, and what is not proportionate in a context in which a trader's Article 1 rights are in issue cannot be reasonable. The First-tier Tribunal therefore has all the powers it needs to consider the proportionality of a revocation decision. The fact that the remedy it can order is effectively limited to a quashing decision does not mean that proportionality, and so lawfulness of the decision, cannot be examined. Unless the statutory scheme is "devoid of reasonable foundation" (which it is not, for the reasons explained by Underhill LJ), the remedy afforded by Parliament is all that is available to vindicate the Article 1 rights of an affected trader and is sufficient to do so. Mr Bedenham submits that the Court of Appeal decided otherwise in CC&C. Following on from the passages that I have already cited, Underhill LJ went on to stay:

"43. But it does not follow that there are no circumstances in which the Court may grant such relief; and, as noted above, HMRC do not in fact so contend. The correct principle seems to me to be this. If a 'relevant decision' is challenged only on the basis that it is one to which HMRC could not reasonably have come the case falls squarely within section 16 of the Act, and the Court should not intervene. However, where the challenge to the decision is not simply that it is unreasonable but that it is unlawful on some other ground, then the case falls outside the statutory regime and there is nothing objectionable in the Court entertaining a claim for judicial review or, where appropriate, granting interim relief in connection with that claim. A precise definition of that additional element may be elusive and is unnecessary for present purposes. The authorities cited in Harley Development refer to 'abuse of power', 'impropriety' and 'unfairness'. Mr Brennan [counsel for HMRC] referred to cases where HMRC had behaved 'capriciously' or 'outrageously' or in bad faith. Those terms sufficiently indicate the territory that we are in ... 44. In short, therefore, I believe that the Court may entertain a claim for judicial review of a decision to revoke the registration of a registered excise dealer and shipper, and may make an order for 'interim re-registration' pending determination of that claim (subject, no doubt, to such conditions as it thinks fit), in cases where it is arguable that the decision was not simply unreasonable but was unlawful on one of the more fundamental bases identified above..."

He then went on to apply the approach to the facts in the case, and observed in his conclusions that it did not apply:

"But I see no basis whatever for an argument that it amounted to an abuse of power or that it was improper or taken in bad faith ..."

[16]In those passages, Underhill LJ was, in my view, identifying, and identifying only as appropriate for judicial review, cases in which it was plausibly alleged that there was an abuse of power (for example, using the statutory power to revoke because HMRC believed that a trader was no longer a fit and proper person for another purpose) or bad faith (for example, a decision made to damage the business of a trader for a financial purpose) or other impropriety, by which he clearly meant something more than irrationality or procedural unfairness. Underhill LJ did not address the way in which the claimant's case is put in this case, and nothing he said can be taken to indicate that he had identified such a case as one in which a challenge by judicial review could be brought.

[17]Ms Mannion submits that in any event the claimant has not adduced sufficient evidence to show that the goodwill of his business has been damaged by the decision, as opposed to his opportunity to earn future profits. In certain circumstances, it may be necessary to attempt to address this slippery issue: see, for example, London College Limited v Secretary of State for the Home Department

[2012] EWCA Civ 51

at paragraph 95 per Richards LJ. It is not here. I am content to address the applications made by the claimant on the basis that it is at least arguable that the goodwill of his business has been damaged by revocation, because, for the reasons which I have explained, even if it has he should not be given permission to apply for judicial review or interim relief. It makes no difference.

[18]I refuse both applications.

[19]MR BEDENHAM: My Lord, I am grateful. My learned friend I know makes an application for costs. My Lord, I can only say this: the claimant is already on his uppers, as it were, because of the revocation of the approval, but that is all I can say in relation to this.

MR JUSTICE MITTING: That, as you know, is not a principled ground for resisting an order for costs.

[21]MR BEDENHAM: No, I accept that. But I have not seen -- there are two costs schedules now.

[22]MR JUSTICE MITTING: There will be one for the preparation and filing of the acknowledgement of service and the second for attending on this hearing.

[23]MR BEDENHAM: My Lord, yes. That would be the usual course. I understand from my learned friend there is an updated version, so a new version this morning.

MR JUSTICE MITTING: I have not seen the new version.

[25]MR BEDENHAM: My Lord, the short point is, having been served this morning, I have not been in a position to take instructions, so if there is going to be an order for costs then ask for it to be assessed.

MR JUSTICE MITTING: Just let me have a quick glance at the schedule. (Handed).

[27]MR BEDENHAM: Thank you.

[28]MS MANNION: My Lord, I have put on the front of this the dates to assist your Lordship. The first deals with the matters up to the service of the summary grounds of resistance, and your Lordship will see that that has a sum of £4,709. In fact, that can be reduced to £3,900 because it includes attendance at this hearing which is in fact covered more appropriately in the second schedule. So I would ask you to reduce that figure for the first claim.

[29]Then, your Lordship sees 17 December on the top of the second schedule. That has a figure with estimated attendance at today's hearing by one solicitor and my attendance, and comes to £2,587. When it is adjusted for the actual length of the hearing today, that would be £2,883, so formally that would be the sum that we would seek.

[30]My submission is, my Lord, that those costs are reasonable in total and reasonably incurred. Your Lordship recognised the complexity of the issue and your Lordship will have seen, of course, that my learned friend, although not assisted by leading counsel today, certainly the claimant had in the settlement of his grounds.

MR JUSTICE MITTING: Yes.

[32]MS MANNION: So the total application for costs at this stage is, my Lord, £6,783, and in my submission an order in that sum should be made.

[33]MR JUSTICE MITTING: Yes. Are you including in that the cost of resisting the oral application for permission to appeal?

[34]MS MANNION: The costs for today's hearing are included in that. Of course, that was what was --

MR JUSTICE MITTING: Ordinarily, you would not have that element of the costs, would you?

[36]MS MANNION: The difficulty, my Lord, and the way that the application was created is that this was listed for an interim relief hearing, so of course we were and would be expected to attend.

MR JUSTICE MITTING: And you would have to deal with the same issues anyway.

[38]MS MANNION: Exactly, my Lord. So it was hoped, and my learned friend and I, I know, were hoping to save the court having to rehearse the same issues twice by, I hope sensibly, agreeing to roll those two matters up.

[39]MR JUSTICE MITTING: Yes. That was a very sensible decision.

[40]Mr Bedenham, I do not claim to have undertaken a line-by-line analysis of this, but, broadly speaking, the figures do appear to be reasonable.

[41]MR BEDENHAM: My Lord, of course the reason cost schedules are served in advance is so that the parties can consider them and take appropriate instructions. These have changed this morning, I understand, so --

[42]MS MANNION: My Lord, no. My Lord, when my instructing solicitor noticed the error in respect of the first schedule by including costs, he created a new one today. But in fact it is easier to simply rely on the one that my learned friend has already had in the proper time and reduce the sum, which is what I have done. That was the only change in any event to the new schedule that was proposed this morning, was to reduce the figure.

[43]MR JUSTICE MITTING: I can see that, but he has not had the opportunity of considering, and he is entitled to have it, your second schedule.

[44]MS MANNION: The second schedule, my Lord, both schedules were email exchanged by my instructing solicitor and indeed my learned friend yesterday, his instructing solicitor.

MR JUSTICE MITTING: In which case you have fulfilled the necessary requirements then.

[46]MR BEDENHAM: My Lord, forgive me, I have not been given instructions on it. I (Inaudible) changed this morning, but it is not the case.

[47]MR JUSTICE MITTING: No. I do wonder out loud what the benefit of having a detailed assessment is to your client. Unless it overshoots by a significant margin, he will have to pay the cost of it.

[48]MR BEDENHAM: My Lord, he will, of course. There is the ability to agree the costs before the detailed assessment.

[49]MR JUSTICE MITTING: Ms Mannion, I think he should have that opportunity. I know you have done your best to fulfil the requirements and I am sorry that that minor aspect of the case will not be finally resolved today, but I am afraid you will have to put up with it. There will be an order for detailed assessment of the defendant's costs to be paid by the claimant if not agreed.

[50]MR BEDENHAM: My Lord, my understanding has always been that you cannot grant permission to the Court of Appeal (Inaudible) the application is to be made within 7 days to the Court of Appeal. My instructions are to seek permission from you.

[51]MR JUSTICE MITTING: Well, the practice in permission applications is not to do so, but it is a practice not a prohibition. The issue that I have addressed with, I hope, some care is one that is of importance not only in this case but also in others, and this might be, therefore, a proper case in which for you to apply and for me to grant permission to appeal.

[52]MR BEDENHAM: My Lord, with that, then yes I would apply. My instructions are to apply for permission. This is a matter that is deserving of attention by the Court of Appeal, in my submission. That is the compelling reason.

[53]MR JUSTICE MITTING: Yes. It will not surprise you to learn that I do not think I am arguably wrong, but I do acknowledge that the issue is of importance and the only live question is therefore whether there is a compelling reason. Let me find out from Ms Mannion what the number of these appeals is or challenges is in the pipeline.

[54]MS MANNION: My Lord, you will not be surprised that we would oppose permission, but purely on the basis that your Lordship has considered the law correctly and, in my submission, faultlessly. So we would say that it is not appropriate to grant permission.

[55]MR JUSTICE MITTING: I think this is the third time, is it not, at any rate of any decision of which I am aware -- the two I have given and the one by Cobb J -- that this issue has arisen. It seems unlikely that it will go away so long as there is room for argument about what Underhill LJ meant.

[56]MS MANNION: My Lord, I am also mindful of the pragmatic option offered by (Inaudible) in the Court of Appeal. I say as I am instructed to say, but it is certainly right that those who are instructing me are facing a number of permission applications on exactly this topic.

[57]MR JUSTICE MITTING: I think it is about time it was authoritatively sorted out by the Court of Appeal, and I will therefore give permission to appeal on the ground that there is a compelling reason to do so.

[58]Thank you, both, for interesting arguments.