"The Rahman test I have not yet studied this and at this date do not yet fully appreciate why there is a conflict between this and Wednesbury. I do not see any conflict based on the facts of this case. I say that Mr Bakewell has acted vindictively, capriciously, and has made a spurious estimate or guess in which all the elements of honest judgment are missing. The assessments are wholly unreasonable. I have no evidence that he has acted dishonestly in respect of obtaining a monetary advantage."
"Dear Eamon Pegasus Birds LON/1997/814 + 00/1228 Allegation of Dishonesty 1. I regret that I have to give notice that I will be arguing this. The overriding suspicion remains the same as previously. There was a Cites/Endangered Species operation at the same time. When this failed the VAT investigation and prosecution had to be exaggerated in order to justify the wasted costs. ………. 4. I have expressed in other letters of today’s date severe reservations regarding the integrity and good faith of the investigation and the interviewing of witnesses. I do not see that I must set out all the detail as I will want to confront Bakewell with some of them on cross examination. 5. Some, albeit rather skimpy, evidence has come to light which implies that Bakewell met or knew of Hammond when they were boys. I make it clear that the evidence goes nowhere near supporting an allegation of malice. However, I would want to see clear evidence that Bakewell disclosed the fact that he had known Hammond when they were young to his superiors and that they authorised him to continue the investigation and prosecution."
"2.13 For the avoidance of doubt the Commissioners submit that the allegations of dishonesty against Mr Bakewell and/or the Commissioners have no substance and the Tribunal should not allow them to be pursued so late into the case and with so little warning having been given to the Commissioners. The unfairness and prejudice to the Commissioners of allowing the allegations to be put at this late stage far outweighs any prejudice to the Appellant in not being able to pursue the allegations. 2.14 If, contrary to 2.13 above, the Tribunal is minded to allow the allegations to be put then they must be pleaded with particularity. It is understood that the Appellant has no objection to pleading the allegations, or at least part of them."
"1. The Appellant’s purpose is to show that the raising of the assessment in April 1997 fell firmly within one of the tests whereby the assessment could be found not to have been made to best judgment. These tests are currently well defined in case law as including dishonesty and malice. Reference has previously been made to both of these elements although without formal pleading. However, in case law equal weight is also given to capriciousness as well as the global tests that include that of being wholly unreasonable. The assessing officer, Mark Bakewell has, under Van Boekel, to consider fairly all the material before him. 2. It is undoubtedly the case that Mr Bakewell took exceptional pains both with respect to the evidence in this case both during the criminal trial and also during the VAT proceedings. However, on careful consideration of (a) the evidence, (b) the requirements of C&E at the date of making the assessment and (c) the likely mindset of Mr Bakewell at that precise date, the main issue that will be pleaded by Appellant is that of capriciousness. In essence, the making of the assessment was regarded as paperwork for internal purposes. It could have had any numbers on it. ………. 4. The decision to prosecute Mr Hammond and Mr Foster for VAT offences was clearly not that of Mr Bakewell alone. Likewise with the level of liability that was asserted. The course of the prosecution heavily involved Mr Bakewell but any decisions taken could not have been his alone. The Appellant considers that the prosecution was dishonest but that is neither a matter before this Tribunal nor a personal allegation against Mr Bakewell. 5. When one comes to the actual making of the assessment, the issues then become (a) what was the mindset of Mr Bakewell?, (b) what evidence did he take into account in making the assessment? and (c) was the end result wholly unreasonable? For the purpose of this note there is no need to go into further detail as to requirements. ………. 14. There will be a number of individual issues within this case that can only be explained by negligence or mala fides. An example is the interviewing of overseas witnesses such as Vanderfeesten. Where such alternatives are available, the Appellant will not assert mala fides. The Appellant cannot think of any essential issues that require an allegation of mala fides, i.e. that they cannot be made on an alternative basis. ………. 16. The Appellant, and Mr Hammond, have no intention of pursuing issues of mala fides in any other forum; it never has had any such intention as can be seen from the numerous attempts to find ways to settle this matter, the most recent being in October 2001. Nevertheless, I consider myself professionally obliged to reserve the position of the Appellant and Mr Hammond on this point."
"Member States may impose other obligations which they deem necessary for the correct collection of the tax and for the prevention of evasion, subject to the requirement of equal treatment for domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers."
"Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him."
"an assessment - (i) under section 73(1) or (2) in respect of a period for which the appellant has made a return under this Act; or (ii) under [subsections (7), (7A) or (7B)] of that section; or (iii) under section 75; or the amount of such an assessment."
"Where on an appeal it is found - (a) that the whole or part of any amount paid or deposited in pursuance of subsection (3) above is not due; or (b) that the whole or part of any VAT credit due to the appellant has not been paid, so much of that amount as is found not to be due or not to have been paid shall be repaid (or, as the case may be, paid) with interest at such rate as the tribunal may determine; and where the appeal has been entertained notwithstanding that an amount determined by the Commissioners to be payable as VAT has not been paid or deposited and it is found on the appeal that that amount is due, the tribunal may, if it thinks fit, direct that that amount shall be paid with interest at such rate as may be specified in the direction."
" Those authorities require that the commissioners make a value judgment on the material before them and must do so honestly and bona fide, not arbitrarily, dishonestly, vindictively or capriciously. They must act on some material and reasonably base an assessment on it and not act ‘upon a whim or without any rational basis’ (see Schlimberger Inland Services Inc v Customs and Excise Comrs[1987] STC 228 at 235). It would, said Woolf J ([1981] STC 290 at 292) - ‘ . . . be a misuse of that power if the commissioners were to decide on a figure which they knew was, or thought was, in excess of the amount which would possibly be payable, and then to leave it to the taxpayer to seek, on appeal, to reduce that assessment.’ I do not accept for a moment that Mr Andrews’ assessment was inconsistent with that dictum.In a case of this sort where the taxpayer’s dishonesty deprives the commissioners of most of the critical information needed for a proper assessment, it is difficult indeed to exercise a proper judgment. Really in a case like this all that the commissioners know for certain is that there is a wide bracket represented at the top end by the very most which could possibly be payable if all the factual doubts were resolved against the taxpayer and at the bottom end by the least sum payable assuming the taxpayer were to succeed on all points. In such a case I see no possible reason why the commissioners should decide on some figure beneath the upper end of the bracket let alone why, as counsel for the appellant submits, they should carry out some averaging exercise, merely because of the likelihood that when on appeal the taxpayer comes to make his detailed case on the facts liability will be found to fall below that upper figure. On the contrary, it would seem to me in a real sense objectionably arbitrary to determine a figure below the top of the bracket."
" The contentions on behalf of the taxpayer in this case can be summarised by saying that on the facts before the tribunal it is clear, so it is contended, that the assessment in question was not valid because the commissioners had taken insufficient steps to ascertain the amount of tax due before making the assessment. Therefore it is important to come to a conclusion as to what are the obligations placed on the commissioners in order properly to come to a view as to the amount of tax due, to the best of their judgment. As to this, the very use of the word ‘judgment’ makes it clear that the commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them. Clearly they must perform that function honestly and bona fide. It would be a misuse of that power if the commissioners were to decide on a figure which they knew was, or thought was, in excess of the amount which could possibly be payable, and then to leave it to the taxpayer to seek, on appeal, to reduce that assessment. Secondly, clearly there must be some material before the commissioners on which they can base their judgment. If there is no material at all it would be impossible to form a judgment as to what tax is due. Thirdly, it should be recognised, particularly bearing in mind the primary obligation, to which I have made reference, of the taxpayer to make a return himself, that the commissioners should not be required to do the work of the taxpayer in order to form a conclusion as to the amount of tax which, to the best of their judgment, is due. In the very nature of things frequently the relevant information will be readily available to the taxpayer, but it will be very difficult for the commissioners to obtain that information without carrying out exhaustive investigations. In my view, the use of the words ‘best of their judgment’ does not envisage the burden being placed on the commissioners of carrying out exhaustive investigations. What the use of the words ‘best of their judgment’ envisage, in my view, is that the commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due. As long as there is some material on which the commissioners can reasonably act then they are not required to carry out investigations which may or may not result in further material being placed before them."
"The element of guess-work and the almost unavoidable inaccuracy in a properly made best of judgment assessment, as the cases have established, do not serve to displace the validity of the assessments, which are prima facie right and remain right until the taxpayer shows that they are wrong and also shows positively what corrections should be made in order to make the assessments right or more nearly right. It is also relevant, when considering the sufficiency of evidence to displace an assessment, to remember that the facts are peculiarly within the knowledge of the taxpayer."
"The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively or capriciously, because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee’s circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate: and though there must necessarily be guess-work in the matter, it must be honest guess-work. In that sense, too, the assessment must be to some extent arbitrary."
"In my judgment the tribunal was right to follow the approach that a much stronger finding was required, for example, that the assessment had been reached dishonestly or vindictively or capriciously, or was wholly unreasonable."
"The second limb to the taxpayer’s attack on the tribunal’s approach is based on the submission that ‘assessments more than double the VAT which should have been assessed on the material before Customs are not to best judgment’. It is said, in the skeleton argument prepared by counsel for the taxpayer, that where (1) the reduction in the assessments is made by the tribunal on the same material as that which was before the commissioners and (ii) the amount of that reduction is substantial (in this case the assessment was reduced by over 55%) it must inevitably follow that the commissioners’ assessment was not made to the best of their judgment. But non sequitur: on a true analysis all that can be said is that the fact that, on considering the same material, the tribunal has reached a figure for the VAT payable which differs from that assessed by the commissioners requires some explanation. The explanation may be that the tribunal, applying its own judgment to the same underlying material at the second, or ‘quantum’, stage of the appeal, has made different assumptions - say, as to food/drink ratios, wastage or pilferage - from those made by the commissioners. As Woolf J pointed out in Van Boeckel ([1981] STC 290 at 297), that does not lead to the conclusion that the assumptions made by the commissioners were unreasonable; nor that they were outside the margin of discretion inherent in the exercise of judgment in these cases. Or the explanation may be that the tribunal is satisfied that the commissioners have made a mistake - that they have misunderstood or misinterpreted the material which was before them, adopted a wrong methodology or, more simply, made a miscalculation in computing the amount of VAT payable from their own figures. In such cases - of which the present is one - the relevant question is whether the mistake is consistent with an honest and genuine attempt to make a reasoned assessment of the VAT payable; or is of such a nature that it compels the conclusion that no officer seeking to exercise best judgment could have made it. Or there may be no explanation; in which case the proper inference may be that the assessment was indeed arbitrary."
"84. We are unable to accept that the test of best judgment is wholly subjective. Of course bad faith or vindictiveness are subjective being dependent on the state of mind of the assessing officer. However the question whether an assessment is capricious or a spurious estimate or guess or wholly unreasonable does not depend on the officer’s state of mind although it may or may not result from it. The apparent prominence given to the subjective aspect of best judgment in the two Rahman appeals has had the unfortunate result of an increased tendency to personalised attacks on assessing officers in appeals to the Tribunal by Appellants wishing to challenge best judgment. 85. It is clear from those decisions that the adjective "best" in best judgment is not in any sense superlative but is at most relative. Indeed it is clear from Rahman (No 2) that it is not even the judgment of "reasonably competent officer"
"232. In considering whether the Appellant has shown that the assessments were not made to best judgment we consider first the method of calculation and then consider whether the result is credible in the light of the material before the Commissioners and in particular Mr Bakewell. We consider this objectively. It is not however enough for the Appellant to show that the assessments did not reach the standard required of a reasonably competent officer, it must satisfy the Tribunal that the assessments were wholly unreasonable. We take this to mean that the assessments were outside the parameters of what could have been reasonable if all the material before the Commissioners had been fairly considered. ………. 250. Our conclusion is that far from the other evidence supporting the level of the assessments, every single indication shows the assessments to be wholly excessive. We conclude that the assessments were wholly unreasonable, being outside the parameters of the reasonable. All of the matters to which we have referred in the last five paragraphs were there for Mr Bakewell to consider. He either failed to consider them at all or failed to consider them fairly; he therefore failed to consider fairly all the material before him. We are driven to the conclusion that far from making any assumptions in favour of the trader (paragraph 194), Mr Bakewell closed his mind to any material which did not fit his case. The Appellant has satisfied us that the assessments were not to best judgment; there is no logical basis to uphold the assessment for any individual period."
" 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."
"Human Rights [52] The commissioners’ policy involves the deprivation of people’s possessions. Under art 1 of the First Protocol to the convention such deprivation will only be justified if it is in the public interest. More specifically, the deprivation can be justified if it is ‘to secure the payment of taxes or other contributions or penalties’. The action taken must, however, strike a fair balance between the rights of the individual and the public interest. There must be a reasonable relationship of proportionality between the means employed and the aim pursued (Sporrong and Lönnroth v Sweden(1982) 5 EHRR 35 , para 61; Air Canada v United Kingdom(1995) 20 EHRR 150 para 36). I would accept Mr Baker’s submission that one must consider the individual case to ensure that the penalty imposed is fair. However strong the public interest, it cannot justify subjecting an individual to an interference with his fundamental rights that is unconscionable. European Community law [53] It does not seem to me that the doctrine of proportionality that is a well established feature of European Community law has anything significant to add to that which has been developed in the Strasbourg jurisprudence. There is, however, a passage in Paraskevas Louloudakis v Elliniko Dimisio (Case C-262/99 ) (2001) Transcript 12 July, which is helpful in the present context in that it is of general application. I quote from para 67: ‘Subject to those observations, it must be borne in mind that, in the absence of harmonisation of the Community legislation in the field of the penalties applicable where conditions laid down by arrangements under such legislation are not observed, the Member States are empowered to choose the penalties which seem appropriate to them. They must, however, exercise that power in accordance with Community law and its general principles, and consequently with the principle of proportionality.’ "
"The points raised by the applicants, in any event, concern the right of states to enact such laws as they deem necessary for the purpose of ‘securing the payment of taxes’ (see for example Gasus Dosier- und Fördertechnik GmbH v Netherlands(1995) 20 EHRR 403 at 434, para 60). In that case it was held that the legislature must be allowed a wide margin of appreciation and that ‘the Court will respect the legislature’s assessment in such matters unless it is devoid of reasonable foundation’ (see(1995) 20 EHRR 403 at 434, para 60). In the present case, the review machinery under the 1983 Act cannot be said to be devoid of reasonable foundation."
"[37] The fourth ground of attack on this issue is put thus: ‘If assessments more than double what they should have been are to best judgment, the legislation is unlawful and contrary to EC law.’ It is said that the legislation does not accord with art 22(8) of EC Council Directive 77/388 on the harmonisation of the laws of the member states relating to turnover taxes - common system of value added tax: uniform basis of assessment (the Sixth Directive). Article 22(8) requires member states to take measures which they deem necessary for the correct collection of the tax. It is said, also, that the legislation authorises an unlawful deprivation of property contrary to art 1 of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms 1950 (the convention). [38] In my view there is no substance in that fourth ground. It must be kept in mind that the power to make an assessment under s 73(1) of the 1994 Act does not arise unless the taxpayer has failed to make returns or to keep documents and afford facilities for verification, or unless the commissioners are satisfied that returns which have been made are incomplete or incorrect. If the VAT legislation failed to provide some machinery for the assessment of tax in those circumstances, the United Kingdom would, indeed, be open to the criticism that it had failed to implement art 22(8) of the Sixth Directive. If the power to assess under s 73(1) could be exercised arbitrarily, there would be force in the point that the legislative response was disproportionate in the context of art 1 of the First Protocol to the convention. But it is accepted that the power cannot be exercised arbitrarily; and the 1994 Act itself provides a means, by way of appeal, by which the correct amount of tax payable by the taxpayer can be ascertained. An assertion that the legislation must be contrary to the United Kingdom’s international obligations because an assessment, made in the exercise of best judgment, may be subsequently found to be substantially too high cannot be supported. The relevant question is whether an assessment which is subsequently found to be substantially too high can be an assessment made in the exercise of best judgment. That question has already been addressed in the context of the second ground of attack."
" 59. VAT is governed by the Sixth Directive. Article 22(8) allows Member States to "impose other obligations which they deem necessary for the correct collection of tax."
"it is appropriate to stress that, as the Court held in particular in its judgment of13 February 1979 in Case 85/76 Hoffman-La Roche v Commission [1979] ECR 461, observance of the right to be heard is, in all proceedings initiated against a person which are liable to culminate in a measure adversely affecting that person, a fundamental principle of Community law which must be guaranteed even in the absence of any rules governing the procedure in question. The Court has consistently held that, in order to respect the principle of the right to be heard, the person against whom an administrative procedure has been initiated must have been afforded the opportunity, during that procedure, to make known his views on the truth and relevance of the facts and circumstances alleged and on the documents used by the Commission to support its claim that there has been an infringement of Community law."
"it must be ascertained whether the means which it employs are suitable for the purpose of achieving the desired objective and whether they do not go beyond what is necessary to achieve it. Furthermore, as the Court stated in its judgment of21 February 1979 (Stölting, quoted above), if a measure is patently unsuited to the objective which the competent institution seeks to pursue this may affect its legality."
"In that connection, the court has consistently held that the principle of the protection of legitimate expectations forms part of the Community legal order and must be observed by the member states when they exercise the powers conferred on them by Community directives (see, to that effect, Hauptzollant Hamburg-Jonas v Krücken (Case 316/86) [1988] ECR 2213, para 22, Alois Lageder SpA v Amministrazione delle Finanza dello Stato (Joined cases C-31/91 to C-44/91)[1993] ECR I-1761 , para 33, Belgocodex SA v Belgium (Case C-381/97 )[2000] STC 351 ,[1998] ECR I-8153 , para 26, and Grundstückgemeinschaft Schloßstraße GbR v Finanzamt Paderborn (Case C-396/98 )[2000] ECR I-4279 , para 44)."
"(1) There is no statutory requirement on commissioners to investigate a case, but good administrative practice compels the acquisition of material sufficient to make an assessment. (The commissioners always have a discretion whether to make an assessment at all. But if they do it must be based on sufficient information (see Van Boeckel) ) (2) The totality of the information acquired must be taken into account, but the commissioners are fully entitled to disregard any material which they adjudge is of no assistance in making an assessment. It is the information upon which reliance is placed that must demonstrate that the amount of the assessment is ‘to the best of their judgment’. (3) The case law establishes that both ‘best judgment’ and the quantum of tax due are questions of fact to be proved on a balance of probabilities by the taxpayer. (4) Questions of quantum are issues of pure fact - namely, the true state of affairs. Assessment of tax due is a matter of informed guesswork. (5) The mere fact that the result of the assessment appears to be correct does not answer the question whether best judgment has been properly applied. Method of arriving at the assessment is always relevant to ‘best judgment’. Outcome of the assessment is not the exclusive test. (6) There is often more than one method of applying ‘best judgment’ to a particular assessment (see Seto). ‘Best judgment’ is not the equivalent of the best result or the optimum conclusion. It is a reasonable process by which an assessment is successfully reached. (7) ‘Best judgment’ is to be viewed objectively by the value added tax tribunal in two stages: first, it must decide what information, which was before the commissioners at the time of the assessment, was relied upon for making such assessment. Information acquired post-assessment cannot disturb the ‘best judgment’. It may be used non-evidentially merely as a means of arguable support to the commissioners’ assertion of ‘best judgment’. That stage is a question of fact for the tribunal; second, it must find out how the commissioners arrived at their assessment, e g, any computation of trading figures. (8) The tribunal must make a value judgment about the way in which the commissioners arrived at an assessment. This involves a reassessing process. Its function is supervisory and is not to be exercised at too high a threshold, but at a reasonable standard (see Schlumberger)."
"The assumption that each trip involved purchases by Pegasus of 57% of£18,508 even as an average was in our judgment unreasonable."
"If there was other evidence to corroborate sales of the magnitude assumed by the assessment, this might compensate for the defects in the methodology. We accept that quantification in a case of this type is always likely to be difficult. However the other evidence clearly points to the assessments being wholly excessive."
"Q. But, in arriving at an average, do you say that to take one trip and multiply by 165, or any number, is a rational way of coming to this overall assessment? A. Let me rationalise it for you, right? That particular trip seemed to me to be one of the smallest trips that took place. It is important, is purely and simply because we arrested Mr Hammond and Mr Foster, et cetera, the day after. But let us look at it. That was one van, neither Mr Foster nor Mr Hammond travelled. Normally when we would go out there would be at least two vehicles, sometimes three, plus a trailer. So from an observed point of view, it was a relatively minor trip. It seemed to have relatively minor significance to Mr Hammond and Mr Foster, because neither of them thought it was sufficiently important to travel in person. In an ideal world, we would have had more evidence for other trips, and obviously that would have made a less unassailable position for Customs. The fact is that is all we had because of the fact that everything else was destroyed. Q. When you have had evidence of other trips, you have actually ignored it. I put that to you, Mr Bakewell. A. No."
"On all of the occasions that Customs undertook surveillance of Foster’s known vehicles a further van was identified. On each and every occasion the vehicles went straight to Pegasus Birds and unloaded. Hammond was observed as present although not appearing on manifests on each occasion except the last where neither Hammond nor Foster travelled."
"Customs officers followed vehicles and each time they went to Pegasus. The chances of that happening six times by chance if there were only ten trips in all must be astronomical, indicating . . . actually many more off-record trips going back to Pegasus than those Customs observed."
"Right, so every time we observed Mr Foster or Mr Foster’s drivers at Dover, every time, Mr Hammond was either there but not manifested anywhere or the vans went straight to Mr Hammond’s premises. Now, that is a simple question of logic; that if that happens every time, one has to assume that was the norm. If there had been cases when it had not happened, or it did not start happening until later on, maybe you would have a point, but the fact is I believe, then and now, that Mr Hammond and Mr Foster were involved throughout the entire indictment period in bringing in birds from Holland and Belgium off record and selling them off record. The evidence shows me that. It is nothing to do with my personal opinion about Mr Hammond, Mr Foster or anything else."
"A. . . . I am just saying that every time we went out and it was not, you know these were not any particular reason that we went out. It was just we went out and did surveillance. On every occasion that we did surveillance that is what happened. Q. I believe you have referred to that as a spooky coincidence. A. It is rather. But obviously I do not think it was a coincidence. Q. Do you regard that as establishing the MO, the modus operandi? A. I think in conjunction with the other evidence, I think it gives a pretty good indication of the MO, yes. Q. You referred to Occam’s Razor. A. Yes. Q. Am I right in assuming that what you mean by that is that because on the six occasions that you did observe Hammond was involved, what you are saying is that that implies he was likely to be involved on a lot more trips? A. Just that in itself does imply that he was likely to be involved in a lot more trips. When you add it to the rest of the evidence that we obtained I think it makes it a racing certainty, but I was not referring to Occam’s Razor in relation to that. ………. Q. Were these six trips chosen at random? A. Those six trips related to occasions when we had the time to do it around other duties. "