French Sole (Marylebone) Ltd v The Commissioners for HMRC

Introduction

1. With the consent of the parties, the form of the hearing was a video hearing using the Tribunal video hearing system. A face-to-face hearing was not held because it was more expedient not to do so. The documents to which we were referred were contained in single bundle of 132 pages.

2. Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

3. This is an appeal bought by French Sole (Marylebone) Ltd ( Appellant ) in respect of a decision by HM Revenue and Customs ( HMRC ) to refuse to restore, or pay compensation in respect of, 517 pairs of shoes ( Shoes ) imported into the UK on 11 October 2018 and subject to a notice of seizure on 25 October 2018.

4. The principal decision to refuse to restore the Shoes was made on 31 October 2018. That decision was reviewed and upheld by letter dated 22 November 2018. On appeal ( First Appeal Judgment ) against that review decision the Tribunal directed HMRC to undertake a further review taking account of matters not apparently previously considered by HMRC.

5. The second review, the review to which this appeal relates ( Review ), dated 11 November 2021 again upheld the refusal to restore.

6. For the reasons stated below we find that HMRC’s decision, as contained in the Review, was reasonable and the appeal is dismissed. Adjournment

7. Shortly before 10am, as the hearing was due to commence, an application was received from Mr Bunyard (director of the Appellant) seeking an adjournment of the hearing on the grounds that, due to a cancellation of his train from Paris, he would not be in a location convenient to join the video hearing.

8. We opened the hearing to determine the application. Ms Whittaker, an employee of the Appellant, was in attendance. She explained that she was a witness in the case but did not know the details of the Appellant’s case and was not authorised as the representative to speak on its behalf. She could add no further information as to Mr Bunyard’s unavailability or why Mr Hirst (who had completed the Notice of Appeal) was not in attendance.

9. We invited HMRC to indicate their position on the application. At our suggestion HMRC consented to a short adjournment to noon in order to facilitate Mr Bunyard arriving back in the UK but were clear that they would object to any further adjournment.

10. We determined to grant an adjournment to noon. The reasons for permitting only that adjournment were communicated to Mr Bunyard as follows: (1) there has been repeated non-compliance by the Appellant in these proceedings (a failure to serve a list of documents or witness statements in accordance with the directions dated 29 June 2022 or at all); (2) the Tribunal would have expected the Appellant to make arrangements that ensured attendance of the relevant and key individuals. Evidence may not be given from overseas without prior notice and authorisation being received from the relevant jurisdiction. (3) it was our expectation that Appellants should take proceedings sufficiently seriously so as to make appropriate arrangements to facilitate and ensure their presence; (4) it was in the interests of justice.

11. During the short adjournment there were further email exchanges with Mr Bunyard who indicated that he was prepared to provide any missing documents and that an adjournment to a later date was required because his attendance at the hearing was critical.

12. When the hearing resumed Mr Bunyard was not in attendance. Ms Whittaker was again in attendance, but she confirmed she had no authorisation to represent the Appellant. Mr Bunyard had confirmed by email that she was a member of staff and not management and could not represent the Appellant. The effect was that the Appellant was unrepresented at the resumed hearing. Ms Whittaker asked to be excused from further attendance. She was informed that it was her choice. She then withdrew from the hearing.

13. Rule 33 Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 provides that the Tribunal may proceed with a hearing in a party’s absence where satisfied the party was given notification of the hearing and where it is in the interest of justice to do so.

14. As indicated the Appellant was not represented at the resumed hearing. There was no question that the Appellant had been notified of the hearing. We considered whether it was in the interests of justice to proceed with the hearing and determined that it was.

15. We did so for the following reasons: (1) The application for a substantive adjournment was made at the last minute. It was made on the basis that, due to storms, the trains from Paris had been cancelled on Monday 23 October 2023 precluding travel back to the UK. No direct evidence of the cancellation was produced. The weather in the UK and the near continent on 23 October 2023 was comparatively settled and there were no strikes in either the UK or France so far as an internet search was able to identify. There was also no evidence of the efforts made by Mr Bunyard to make alternative travel arrangements to ensure attendance. (2) The Appellant had a history of non-compliance. The Appellant failed to serve either a list of documents or witness statements in accordance with the Tribunal directions dated 29 June 2022 or at all. (3) The Tribunal’s jurisdiction on an appeal of this type is limited. In summary, and as set out in more detail below, we are entitled to consider only whether HMRC’s decision on review is unreasonable i.e. whether it takes account of irrelevant factors or fails to take account of relevant ones or is otherwise obviously unreasonable. (4) The exercise of our jurisdiction is limited to considering the evidence available to us, in the form of documents and as set out in any witness statements provided by the Appellant, as to the factors considered by HMRC; and, by reference to such evidence, whether irrelevant factors have been considered or relevant factors ignored. (5) The appeal concerns a second review of the original decision following the First Appeal Judgment which concluded that HMRC had failed to take account of identified relevant factors. In the First Appeal Judgment, Judge Newstead-Taylor had, in our view correctly, dismissed other factors as matters she (and HMRC) were not able to consider. Such factors (addressed below) did not therefore require us to hear from Mr Bunyard (with or without a witness statement having been served outlining any evidence he wanted to rely on). (6) We considered the asserted prejudice to the Appellant, as articulated by Mr Bunyard in his emails, that he needed to give evidence but noted that no witness statements had been served and that the statements available to Judge Newstead-Taylor had been made available to us. (7) Against that prejudice we considered that HMRC had prepared for the hearing. Mr Higginson (the officer responsible for the Review) was in attendance and we were able to take evidence and thoroughly explore with him the factors he had considered and the reasonableness of his decision generally. (8) Having taken account of all these factors we concluded that it was in the interests of justice to proceed. The First Appeal Judgment

16. We attach as an appendix to this judgment the First Appeal Judgment. It sets out a full history to the importation, seizure of the Shoes and the original decision of HMRC refusing restoration of the Shoes.

17. At paragraphs 38 – 54 it sets out the applicable law. With thanks we adopt that summary.

18. The First Appeal Judgement set aside HMRC’s original review of the decision to refuse restoration of the Shoes and directed HMRC to conduct a further review. That review required HMRC to retake their decision on restoration afresh considering all relevant matters including those identified in the First Appeal Judgement (at paragraph 55(3)). The Review

19. We heard evidence from Mr Higginson, the reviewing officer, of the matters he had considered when undertaking his review.

20. As the Appellant was not in attendance, we adopted an inquisitorial position fully exploring with Mr Higginson the factors considered.

21. Through that process, and by reference to the documents contained in the bundle, including the grounds of appeal and the witness statements provided on behalf of the Appellant in respect of the First Appeal Judgment, we find the following facts: (1) Mr Higginson undertook a fresh review of the decision to refuse restoration; he did not limit himself to considering the matters identified in the First Appeal Judgment; he considered all the relevant material. However, he expressly considered each of the individual factors identified in the First Appeal Judgment. (2) Consistently with the legal framework, and as confirmed in the First Appeal Judgment, he was unable to take account of the Appellant’s assertion that HMRC’s conclusion that 96 pairs of shoes had been incorrectly classified was incorrect as the Appellant had not challenged seizure by way of condemnation proceedings. (3) He did not consider that the inexperience of the previous owner when completing the relevant import documentation was a basis on which to restore the goods as it was the responsibility of the Appellant to ensure that the declaration was correct. (4) He recognised and acknowledged that the Appellant had agreed to remediate the paperwork and pay both the duty and penalties. (5) It was noted that there was no evidence that the misdeclaration had been deliberate. (6) The Review confirmed that had the only error made in connection with the relevant import been the misclassification of 96 (of 517) pairs of the Shoes it would have been “difficult to make a compelling argument that [the Appellant’s] actions would have seen [the Appellant] gain any significant commercial advantage over other traders, and when also taking into account there is no evidence that [the Appellant had] a poor compliance history, it would [have been] unreasonable and disproportionate to refuse restoration entirely”. (7) However, his decision to refuse restoration was grounded in the second error, the under valuation of the commercial value of the consignment. The C88 documents declared the commercial value of the goods as £5,408.50 whereas the commercial value of the Shoes was, in truth, £24,076.00. He considered that any review of the accompanying documentation by the Appellant, or anyone acting on its behalf, would have revealed the error as each line item had been particularised. Whilst administrative it was such a basic mistake that it was at least careless. Had the consignment not been stopped for verification the error would have facilitated the Appellant with a significant commercial advantage over other importers of similar shoes. (8) HMRC’s policy is not to restore goods on which duty and the associated import VAT has not been paid unless there is an exceptional basis for doing so, including a humanitarian or financial circumstance justifying restoration. No such exceptional circumstance had been evidenced in this case. (9) In response to questions put by us, Mr Higginson confirmed that whilst he had considered (and dismissed) partial restoration of the Shoes (by way of compensation as the Shoes had accidentally been destroyed) which had been correctly classified (see (6) above) he had not expressly considered partial restoration by reference to the payment of duty made (i.e. the duty and VAT associated with a commercial valuation of £5,408.50). Grounds of Appeal

22. The Appellant’s grounds of appeal contend that the failure to restore is an “excessive penalty for administrative errors”.

23. The grounds note that the classification error was one which arose as a consequence of an error in identifying the textile composition of some of the Shoes and that the magnitude of the associated error was small.

24. It was claimed that the error in the declaration of the commercial value of the Shoes was purely administrative and not deliberate. The Appellant accepts that forfeiture is a reasonable and proportionate consequence of a deliberate error but considers that it is otherwise excessive and that a more lenient approach should have been adopted by HMRC as the Appellant has suffered financial hardship as a consequence of having lost the ability to sell the forfeited Shoes contributing to the Appellant having entered into a Company Voluntary Arrangement in February 2020.

25. The Appellant claims that there are exceptional circumstances as the duty calculations have not been clearly stated by HMRC or the Tribunal and that the correct classification position cannot be determined as a consequence of the accidental destruction of the Shoes by HMRC.

26. The magnitude of the error (£5,985.02) as compared to the commercial value of the Shoes should, in the Appellant’s view, justify restoration (by way of compensation as the Shoes have been destroyed).

27. The Appellant also complains that the accidental destruction of the Shoes has, in effect, prejudiced their position. Discussion

28. As clearly explained in the First Appeal Judgment and briefly set out above, our jurisdiction is limited to considering the reasonableness of the Review. If the Review decision is reasonable then it must be upheld even were we to consider that we might have reached a different conclusion if taking the decision ourselves.

29. Not considered expressly in the First Appeal Judgment is the case of John Dee v Commissioners of Customs & Excise [1995] STC 941 . In that case it was determined that where the jurisdiction of the Tribunal is to consider the reasonableness of an HMRC decision a finding that HMRC acted unreasonably (for instance in failing to take account of a relevant factor) does not necessarily result in the relevant decision being set aside and a direction that it be remade. If HMRC can show, or the Tribunal are satisfied, that the decision being reviewed is one that would inevitably have been reached had HMRC not acted unreasonably the decision will not be set aside (see John Dee at pages 952 – 3).

30. We have carefully considered the terms of the Review and we questioned Mr Higginson on the factors he had considered and those he had not considered and the thought processes he went through.

31. The Appellant is aggrieved because they have lost the ability to sell stock with a commercial value of £24,076 for what it considers to be administrative errors. It contends that as a consequence of having lost £24,076 of stock financial hardship has been suffered. However, no evidence of the contributory cause of the forfeiture of the stock has been provided. Further, it will always be the case that forfeiture results in the loss of the goods in question unless there is a decision to restore. One is the simple and necessary consequence of the other. As such the direct loss associated with forfeiture cannot be an exceptional circumstance in and of itself justifying restoration of goods on which duty is mis-declared or unpaid and which are forfeit under section 49(1) (a) and (e)) Customs and Excise Management Act 1979 ( CEMA ). It might be a relevant factor when considering restoration of goods forfeit under section 141(1) CEMA i.e. those on which duty has been duly paid but which were “found, mixed or packed” with goods on which duty was not paid.

32. The Appellant’s position on the incorrect classification of the 96 pairs of shoes is inconsistent. The Grounds of Appeal both appear to accept that there was an incorrect classification but also contend that this cannot be verified because of the destruction of the Shoes.

33. We can see that were it possible for us to consider the misclassification issue the destruction of the shoes may have been prejudicial. However, as has been explained in the First Appeal Judgment, we cannot consider whether there was, or was not, a classification error. That is a matter which was within the exclusive jurisdiction of the magistrate’s court in condemnation proceedings. We must assume that the goods were misclassified.

34. The effect of such misclassification is that the 96 pairs were forfeit under section 49 CEMA i.e. they are goods on which the incorrect amount of duty was paid. HMRC’s policy on the restoration of goods forfeit under section 49 CEMA is that they must not generally be restored. The decision to restore must be applied firmly but not rigidly and will usually only be permitted where there is a humanitarian or hardship reason warranting departure from the usual restoration criteria. HMRC’s policy on restoration of goods forfeiture under section 141 CEMA as “found, mixed or packed” is marginally more relaxed.

35. The justification for this policy may be summarised as maximising the deterrent value of seizure, giving a proportionate response and to protecting legitimate trade.

36. Mr Higginson did consider whether it was proportionate to refuse restoration in whole or in part in consequence of the misclassification error. He noted that the under declared duty arising from the misclassification error was £440.00 and he considered that to have refused restoration “entirely” as a consequence would have been disproportionate. Having questioned him on this we understand that by “entirely” he meant that, applying the restoration policy to a situation similar to the present appeal and limited to the misclassification error, he would have been likely to consider it appropriate to restore (or pay compensation in respect of) the correctly classified shoes but refuse to restore those that had been incorrectly classified.

37. However, and as is clear from the terms of the Review letter, he decided that restoration was inappropriate because of the error which undervalued the consignment. As set out in the Review the commercial value of the whole consignment was £24,076 as compared to the declared value of £5,408.50. The customs valuation of the consignment was £26,518.78 (the commercial valuation plus the correct duty). VAT on the consignment should therefore have been £5,303.75. The Appellant had paid duty of £419.56 and VAT of £1341.95.

38. Mr Higginson considered that the under payment was so significant that legitimate trade could have been affected had the error not been detected. Whilst he did not consider there to be any evidence that the error had been deliberate he considered that it was such an obvious error he could not comprehend how it could have gone unnoticed and he considered the deterrent effect of non-restoration was important in ensuring that the Appellant was not careless in its declarations and ensuring that legitimate trade was protected was equally important.

39. Mr Higginson confirmed that he had not considered partial restoration such that goods with a commercial value of £5,408.50 and on which duty and VAT had been paid might be restored.

40. We have carefully considered whether failing to consider partial restoration (and in this case compensation) by reference to the duty paid renders the Review unreasonable and justifies it being set aside. In the end we have concluded that the decision should not be set aside.

41. Ms Shillaker spent some time during the short adjournment trying to establish which of the various line items had been summed in order to total £5,408.50 and could not do so. Mr Higginson indicated that he too had sought (but not exhaustively) to identify how the £5,408.50 sum had been calculated and had failed to do so. At no point either before the First Appeal Judgment nor in relation to this appeal had the Appellant sought to explain the arithmetical error. We therefore conclude, as did Mr Higginson, that the whole consignment of Shoes was affected by this error. Each of the pairs of Shoes was thereby, and in effect, the subject of an under declaration of duty/import VAT such that each was liable to seizure under section 49 rather than section 141 CEMA. As such the more stringent policy applies.

42. We do not consider it necessary to determine whether Mr Higginson’s failure to consider partial restoration was unreasonable because we are satisfied, by reference to the terms of the policy, that even were he to have done so he would inevitably have concluded that it was inappropriate to restore. This was on the basis that the duty/import VAT payment totalling £1,761.51 did not pertain to identified or identifiable goods within the consignment but to it generally.

43. Accordingly, we consider that HMRC’s Review decision was reasonable, and we dismiss the appeal. Right to apply for permission to appeal

44. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. AMANDA BROWN KC TRIBUNAL JUDGE Release date: