E01052

Excise Duty – point at which goods ceased to be owned by an excise trader under WOWGR – payment of itself found to be insufficient to pass title – appeal allowed.

LONDON TRIBUNAL CENTRE					REF. LON/05/8001

	ALLIED SHIPS SUPPLIES (IRELAND) LIMITED	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 
			Respondents

				Tribunal:	IAN W HUDDLESTON (Chairman)
						MRS. JOAN WHITESIDE					 	

Sitting in public in Belfast on 12th and 13th December 2006

Mr. Philip Henry BL for the Appellant 

Mr. James Puzey BL for the Respondents

© CROWN COPYRIGHT 2007

DECISION

	The Appeal

1.	The disputed decision under appeal is the decision by the Respondents to assess Allied Ships Supplies (Ireland) Limited (“the Appellant”) in the sum of £65,165.00, for excise duty.  The decision was notified to the Appellant on the 13th December 2004.  Previously the assessment had included a penalty of £250, but this has since been waived by the Respondents, and is not for consideration in this appeal.

	Background

2.	The Appellant, at the relevant time, carried on business as a bonded warehouse keeper from premises at 14 Abercorn Place, Londonderry, BT48 6SD, a business which it has carried on since 30th April 1999. 

3.	The Appellant, as part of that the business, entered into an agreement to sell a quantity of spirits (“Goods”) to a French customer (“the Customer”) - “The Parched (otherwise the Perched) Parrot”.  The name of the Customer was variously referred to in evidence, and there was no clear determination as to which was its proper name.  The Customer was, at the relevant time, a revenue trader based in France.

4.	Under the terms of the agreement, the Goods were to be transported by the Appellant to a bonded warehouse in France (WYBO Transport SARL) (“WYBO”), using a third party haulier – BMAC International (“the Haulier” or “BMAC”).  As a consequence of that agreement, the following occurred (in chronological order):

•	the Appellant raised an invoice against the Customer dated 1st September 2004, and gave evidence that the invoice was faxed to the Customer.  The net sum due for the Goods on foot of that invoice was £35,624.50;
•	Mr. James Deehan (“Mr. Deehan”) (an employee of the Appellant) sought confirmation from the Haulier that WYBO was authorised to receive excise duty suspended goods, and further confirmed that fact through the Glasgow SEED Unit. 

Mr. Deehan sent an e-mail to the Respondents notifying them of the proposed movement, and that it was scheduled for despatch on the 7th September 2004;
•	on the 2nd September 2004 a second invoice was raised against the Customer – this time for the transport costs of the Haulier in having the Goods transported to France.  That invoice was in the sum of £1,100;
•	the following Monday (the 6th September 2004), an officer of the Respondent (Mr. Kieran Smith) spoke to Mr. Deehan by telephone on a number of occasions (namely at 14.30, 14.35, 15.05 and 16.00) concerning the proposed consignment.  The salient points of those conversations are as follows:

	(a)	14.35

(i)	That the consignment was due to be despatched at 12 on 7th September 2004.
(ii)	That the Goods had been paid for in full.

(b)	15.05

(i)	The Officer advised that there was a problem with the consignment in that it breached the Warehouse Keeper and Owners of Warehoused Goods Regulations 1999 (“WOWGR”), in particular regulation 9(2) and 22(1).  Regulation 9(2) had been breached because the consignment had been paid for and ownership transferred to the Parched Parrott.

(ii)	Mr. Deehan advised that the Appellant had received advance payment because this was the first load to a new customer.

(iii)	He asked whether he could send the money back at this stage; Mr. Smith could not and did not advise on this.

(c)	16.00

(i)	Mr. Deehan advised the Officer that he had spoken to the Respondent’s National Advisory Service and had been told that ownership would not transfer until the Goods arrived at the French warehouse.

(ii)	Mr. Smith advised that this was incorrect in the circumstances of this consignment because payment was received and ownership had been transferred.

(iii)	Mr. Smith advised that because the initial period had expired, the consignment could not be moved.

	5.	On 6th September there was an e-mail sent by the local office of the Respondents to Mr. Surrinder Singh of the React Team in Maidestone.  The e-mail (which essentially was asking for direction) expressed the view that:

		“If the goods are already paid for, then our trader is in breach of WOWGR and as such we need to detain the load”

	Mr. Singh responded on 8th September:

		“My trader Parched Parrot has acknowledged that the goods would not be released by Allied Ship Stores until he had paid for them …… this indicates to me that he was aware that the goods would be held post payment in suspension at Allied.  I feel that this is really enough of a breach to warrant seizure of these goods ………”

6.	On the 7th September 2004 at 15.00, officers of the Respondents entered the Appellant’s premises and detained the Goods, consisting of sixteen pallets of various types of spirit.  The Appellant was informed that the consignment was detained because ownership had been transferred to the Parched Parrot who was:

o	a revenue trader;
o	was not WOWGR registered; and
o	did not have a duty representative acting as agent in respect of the Goods

and that as the Goods had been kept in the Appellant’s warehouse for a period in excess of the permitted period of seventy two hours, the Goods would be detained until excise duty was paid or a WOWGR Certificate for the consignee produced (Regulation 9 WOWGR).  On that occasion the regulations were explained to the Appellant and the relevant parts of Public Notices 197 and 201 were brought to Mr. Deehan’s attention.

	7.	By a Notice dated the 13th September 2004, the Respondents assessed the excise duty due in respect of the goods as £65,165 and served the notice of assessment on the Appellant.  The Appellant elected to pay the excise duty and the Goods were, therefore, released into free circulation on the 13th September.

	8.	By a letter dated the 16th September 2005, the Appellant requested the Respondents to review their decision, but the Respondents did not conduct a review within the statutory time limits and, accordingly, on the 22nd November 2004 the decision was assumed to have been confirmed.

	9.	By a Notice of Appeal dated the 20th December 2004, the Appellant appealed against the decision on the following grounds:

“I dispute the decision as the core issue of contention relates to when change of ownership occurs and who governs change of ownership.  Also due to the fact that all stipulations set out by Customs & Excise in relation to such movements were adhered, including notifying of the details of the movement and its destination.”

	10.	Also material to this Appeal are the two invoices which were raised on, respectively, the 1st September 2004 (“the First Invoice”) (in respect of the Goods) and that which was raised on the 2nd September 2004 (“the Second Invoice”) (in relation to the transportation costs).  Evidence was given that both invoices had been issued on the standard terms used by the Appellant and, therefore, both included on their face the following statement:

“The property in goods belongs to Allied Ships Supplies (Ireland) Limited and will not pass to the buyer until the sellers have received full payment and Customs Regulations covering such movements have been fulfilled.”

	11.	For the purposes of the appeal, this clause will be referred to as “the Clause”.

	12.	A copy of a statement of the Appellant’s bank account with First Trust had been produced during the interlocutory stages of this appeal, and was presented to the Tribunal.  That bank statement confirmed receipt of a CHAPS payment on the 3rd September 2004 in the amount due on the First Invoice.  Therefore, at the operative time, when the inspection and detention of the Goods was undertaken by the Respondents, the only sum outstanding was the sum due on foot of the Second Invoice.

	The Respondent’s Case

13.	The Respondents’ case before the Tribunal, in summary and as set out in its statement of case, was as follows:

•	by operation of Regulation 21 WOWGR, if at any time after relevant goods are deposited in an excise warehouse, those goods cease to be owned (emphasis added) by a registered owner, or there is no duty representative acting as the owner’s agent, the time at which either of those events occur is the excise duty point for those goods;
•	the persons jointly and severally liable to pay duty at the excise duty point are:

	(a)	the authorised warehouse keeper for the excise warehouse in which the goods are kept;
	(b)	the owner of the goods immediately before the excise point; and
		(c)	the owner of the goods immediately after the excise duty point

•	on the facts of this case, the Goods themselves ceased to be owned by a registered owner on the 3rd September 2004, when payment was received by the Appellant in full, and that the Customer did not, at that point, have a duty representative acting as its agent;
•	that the Appellant was the authorised warehouse keeper for the excise goods in which the Goods were kept on the 3rd September 2004, and therefore became liable for the excise duty;
•	that by virtue of the operation of Regulation 22(1) WOWGR, if dutiable goods are deposited or kept in an excise warehouse in contravention of Regulation 9 WOWGR, those goods shall be liable to forfeiture;
•	that Regulation 9 WOWGR states that relevant goods shall not be kept in an excise warehouse for a period in excess of seventy hours, beginning with their deposit in that warehouse, if the owner is a revenue trader who does not have a duty representative acting as an agent in respect of those goods;
•	that the Goods which are the subject of this appeal were sold to the Customer on the 3rd September 2004, and that ownership passed on that date;
•	that the Customer is not a registered owner, is a revenue trader and did not have a duty representative acting for it in respect of those goods and that therefore they could only be kept in the Appellant’s warehouse until the 6th September 2004.  As a consequence, the Goods’ detention on the 7th September 2004 was both lawful and proper;
•	that the Respondents assessed the Appellant to excise duty in respect of the Goods and levied the original penalty pursuant to Section 12 of the Finance Act 1994, and that the assessment was both in time and otherwise the best judgment.

	14.	In short, therefore, the Respondent equated payment of the Goods with the transfer of title in them.

	The Appellant’s Case

15.	The Appellant, by its notice of appeal (quoted above), indicated that it takes a different line as to when the change of ownership occurs.  The Appellant contended in its letter dated the 16th September 2004 and in its further and better particulars of the grounds of its appeal, that:

•	the ownership in the Goods only transferred when the following conditions are satisfied (and contended further this applies to all of its goods):

	(a)	that all details of the receiving bond are verified with SEED;
	(b)	that traders’ details are verified with the receiving bond;
	(c)	that the goods are paid for;
	(d)	that the goods are transported on Allied Ships own (Appellant’s emphasis) transport, and their own (Appellant’s emphasis) movement guarantee (reference 572MP);
	(e)	the goods are securely lodged in the receiving bonded warehouse;
	(f)	that all Customs regulations are adhered to, which is only completed on receipt of stamped AAD documentation;
	
•	on the facts of this case the Parched Parrott did not make full payment for the goods on the 3rd September 2004, because the invoice for transport had not been paid.

	16.	Mr. Deehan gave evidence to the Tribunal on behalf of Appellant in support of the Appellant’s contentions.

	17.	In relation to the meaning of the Clause which appeared on the First and Second Invoices (and which, according to Mr. Deehan, appeared on all of the Appellant’s invoices), he stated that:

(a)	the word “full payment” means full payment, not only of the goods, but all payments due in respect of the movement of those goods;
(b)	as to the phrase “Customs Regulations”, he gave evidence as to the AAD procedures, and indicated that, in his opinion, Customs Regulations were only satisfied when the “copy 3” form had been returned, which effectively was when Customs absolved the bonded warehouse from any further obligation in respect of the goods – something which customarily occurred up to two months after the original consignment.

	18.	As to the issue of why payment was taken in full in relation to this consignment, he gave evidence that he had demanded up front payment because this was the first transaction which had been carried out with the Customer and that he would not (and commercially could not) extend credit facilities to unknown trading entities.

	19.	It was clear from Mr. Deehan’s evidence that, on the issue of risk, he was firmly of the view that responsibility for the Goods (and therefore risk in the legal sense) rested with the Appellant until the Goods were safely delivered to the Customer or, as in this case, its bonded warehouse.  Mr. Deehan could not, however, identify to the Tribunal the legal basis upon which he took that view.  He was unable to adduce any evidence of the terms of the Appellant’s insurance, or the contractual arrangements which it had with its hauliers, in relation to any possible bailment of the Goods as between the Appellant and the Haulier.  Evidence was given by Mr. Deehan that the Appellant was responsible for arranging the transportation of goods through its preferred haulier (in this case BMAC) and in support of that obviously there was the Second Invoice which purported to charge the Customer, the Parched Parrott, for arranging the transportation.  The logic behind that (apart from a small mark up on the transportation costs), Mr. Deehan stated was to ensure that there were no breaches of the Movement Guarantee by which (in basic terms) the Appellant remained liable for the exercise duty due until discharged by Customs through the AAD procedures mentioned above.  Evidence was further given that there was a small profit made by the Appellant in relation to such arrangements in the raising of such invoice.  

In short, therefore, the Appellant’s case seemed to rest on the following:

(i)	the Clause in the invoices;
(ii)	the fact that the Customer had not paid the Second Invoice;
(iii)	that Customs Regulations had not been complied with in full;
(iv)	that risk in the Goods remained with the Appellant – although the exact basis upon which that contention was made was unclear.

	Decision

20.	The net point of this case boils down to when ownership of the Goods passed.  If the Respondents are correct in their contention, then the appeal would be dismissed on the basis that the excise duty point happened on the 3rd September 2004 when payment was made by the Customer. 

21.	It was clear from the evidence given to the Tribunal that the Appellant did not have formal terms and conditions of trading.  Had it done so, the question for the Tribunal could probably more easily have been dealt with, because a number of the issues upon which this decision is based would have been resolved by an interpretation of those terms and conditions of trading.  In their absence, therefore, the Tribunal was left trying to discern the intention of the parties in relation to the Contract for the sale and carriage of the Goods that had undeniably been formed and the trading customs of the Appellant, as to which Mr. Deehan gave evidence.

22.	The Appellant’s contention that ownership of the Goods did not pass because of the existence of the Clause in the First and Second Invoices presents some difficulties:

•	in the first place, the Clause was ambiguous as to its actual meaning, although the Tribunal accepted that it was an attempt to retain title;
•	in particular, within the context of the Clause, the phrase “Customs Requirements” is imprecise and, if the Tribunal were to accept the Appellant’s contention that ownership would only pass when the AAD Form was returned to the Appellant, that would produce the illogical situation that the Appellant would be contending that ownership in goods had not passed long after they had been despatched from the bonded warehouse in France to the Customer, and probably even consumed.  The Tribunal would not give such an interpretation to that phrase;
•	as to the question of whether “full payment” had been made, the Tribunal was of the view (as will be apparent below) that payment of the First Invoice was not the sole determinant of the passage of title. 

The Tribunal did not find the six conditions which the Appellant had stipulated in its letter of the 16th September 2004, and subsequently relied on in evidence, as being particularly convincing.  In any event, those six conditions were simply the Appellant’s interpretation of the position, and did not actually constitute evidence of the contractual arrangements which existed between the Appellant and the Customer in relation to the Goods in question.  The Appellant’s letter of 16th September did state that:

“These arrangements were agreed with Allied Ships Supplies and the Parched Parrot prior to the movement taking place”

But no evidence or corroboration of that statement was actually adduced to the Tribunal and no weight is given to it.

The only “documentary” evidence, therefore, which was relevant to these proceedings the Tribunal largely found unhelpful and, as a consequence, it was left to interpret the intention of the parties based on the actions that had occurred.

23.	In situations where there is uncertainty as to when title passes, S18 of the Sale of Goods 1979 (“the Sale of Goods Act”) helpfully sets out certain rules for ascertaining the intention of the parties, and it is to those that we now turn.

24.	Rule 1 states that where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery or both be postponed.  Applying that to this case, however, the Tribunal felt that whilst imperfect, the Clause as it appeared on the invoice was certainly an attempt to make the contract a conditional one – even if those conditions were imprecise.  In any event, it was a situation where the Appellant (as seller) had to appropriate goods from its warehouse to the particular contract in question, so the case more readily fell within the confines of Rule 2.

25.	Rule 2 provides that where there is a contract for the sale of specific goods, and the seller is bound to do something to the goods for the purposes of putting them into a deliverable state (in this case allocating them to the Contract) property does not pass until the thing is done and the buyer has notice that it has been done.  In the present case, the Customer could not have known that the Appellant had actually placed the Goods on a number of pallets and had stored them separately from the rest of the goods within the warehouse.  The first time that the Buyer would have had knowledge of any such appropriation would have been when the Goods were committed to the Haulier.

26.	Rule 5 provides that:

		“5(2)	Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodia … for the purpose of transmission to the buyer, and does not reserve a right of disposal, he is taken to have unconditionally appropriated the goods to the contract.”

27.	Section 19(1) SGA specifies what constitutes a “right of disposal”:

“19(1)	Where there is a contract for the sale of specific goods, or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled; and in such a case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailee or custodian for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.”

28.	Section 19(2) then states:

“19(2)	Where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facia to be taken to reserve the right of disposal”

		Applying that to the facts of this case:

•	the Clause in the Invoice for all of its ambiguities, did seem to indicate to the Tribunal an intention on the part of the seller / Appellant to withhold the passing of title until “Customs Regulations had been satisfied”;
•	as indicated above, the Tribunal did not agree with the Appellant on its interpretation of what the Clause meant in this regard but, nonetheless, it was clear that it was meant to preserve the Appellant’s rights as seller and the Tribunal believed Mr. Deehan’s evidence that the reason for doing so was to protect the Appellant in relation to its participation in the Movement Guarantee Scheme;
•	as carriage was arranged by the Appellant through its normal carriers, it did seem to the Tribunal that the Appellant did continue to control the Goods and therefore had, in effect, reserved a “right of disposal”.  The Tribunal was of the view that the Appellant could have at any point up to delivery of the Goods to WYBO told the Haulier to deliver them elsewhere.  That was, in the Tribunal’s view, sufficient to constitute a right of disposal.

	29.	The question of risk in the Goods was also very material in this context.  The Appellant had given evidence that it was of the view that it retained risk in the Goods until they were delivered.  Section 20 of the Sale of Goods Act provides as follows:

			“20(1)	Unless otherwise agreed, the goods remain at the Seller’s risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not.”

		It was quite clear to the Tribunal that the parties to this transaction had not even considered the question of risk.  The only evidence on the point was that which Mr. Deehan gave in both his evidence in chief and cross-examination.  He had been clear, however, that it was his view that risk remained with the Appellant until the Goods had been delivered to WYBO.  If the Goods had been damaged or destroyed or stolen in transit, that risk was something he felt fell to the account of the Appellants, and not the Customer. 

	30.	It seemed to the Tribunal that that was a logical stand point, despite the paucity of documentation on the point.  In such a circumstance, the Customer would have simply sought a refund of any prepayment.

	31.	If one accepts that logic, then more compelling is the case where the Goods themselves are destroyed within the warehouse in Londonderry. In that case the Customer would most certainly have sought a refund of the prepayment that had been made.  It would not then have been in its contemplation that it had, at that point, accepted the insurance risk.  That would have been the Customer’s position had damage or destruction occurred to the warehouse at any point after payment was made on the 3rd September 2004.  Had that happened, the Customer would simply have said “Can I have my money back?” and, on the evidence of Mr. Deehan accepting, as he did, that the Appellant retained risk in the Goods, he would have refunded that money and made his own insurance claim.

	32.	The Respondents have taken the contrary view, namely that property passed simply when payment was made.  That, with respect, is to fail to do justice to the complex law on the matter of the transfer of title under the Sale of Goods Act and at common law.  It was clear that in their exchange of e-mail  Mr. Smith and Mr. Singh simply focused on the fact that payment had been made.  Whilst prima facia that may, in certain circumstances, be sufficient to justify a claim that title has passed, the Tribunal was not of the view that it was sufficient in this case.  The Appellant, admittedly, had been naïve in its treatment of the situation.  In the first place it could have avoided the issue completely had it adopted standard terms and conditions making clear its intentions.  Equally, it could have developed a methodology by which it could have accepted monies as security for the transfer of goods, and held that money as effectively a deposit, to be released only when the Goods themselves were delivered – something which appeared to be the Tribunal to be the underlying intent behind the initial payment.

	33.	Accordingly, and for the reasons given above, this Tribunal finds that title did not pass when payment was made.  It finds that a right disposal was reserved to the Appellant and that, at the operative time, that right of disposal meant that both risk and title to the Goods rested with the Appellant.  On that basis, the duty point which the Respondents alleged had occurred on the 6th September 2004 did not arise and, as a consequence, at that point the excess duty was wrongly levied by the Appellants.

	The appeal would be allowed.  No order as to costs.

IAN HUDDLESTON
CHAIRMAN

RELEASED: 5 July 2007

LON/2005/8001