Introduction

The case of Butlers Ship Stores Limited v HMRC ([2013] UKUT 564 (TCC)) addressed the validity of excise duty assessments imposed on Butlers Ship Stores Limited ("Butlers") following the disappearance of consignments of whisky and vodka. As an authorized warehousekeeper operating a tax warehouse under EU and UK excise duty legislation, Butlers contended that being held liable for the full excise duty on lost or stolen goods, without any fault on their part, violated the principles of proportionality and legal certainty as stipulated by European Law.

The Upper Tribunal (Tax and Chancery Chamber), presided over by Lord Glennie, examined whether the existing legal framework, particularly Council Directive 92/12/EEC and the UK's Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001, appropriately balanced the objectives of ensuring excise duty collection and facilitating the free movement of goods within the EU.

Summary of the Judgment

The core issue revolved around six consignments of alcoholic beverages stored by Butlers in their tax warehouse and dispatched to tax warehouses in Spain and Estonia. These consignments subsequently went missing due to fraud by the owner of the goods and the actions of the haulier. HMRC challenged the First-Tier Tribunal's (FTT) finding that Butlers acted with due diligence and should not be held liable. However, Lord Glennie upheld the FTT's decision, affirming that under the applicable EU Directive and UK Regulations, the warehousekeeper is liable for unpaid excise duty on goods lost or stolen during transit, even in the absence of fault. The judgment meticulously analyzed the principles of proportionality and legal certainty, ultimately ruling that the strict liability imposed on warehousekeepers does not infringe these principles and aligns with the objectives of the Directive.

Analysis

Precedents Cited

The judgment references several pivotal cases to elucidate the application of proportionality and legal certainty within EU law:

• Edwards v Bairstow [1956] AC 14 – Discussed the reasonableness of factual findings in tribunal decisions.
• Marleasing SA v. La Comercial Internacional de Alimentación SA (Case-106/89) – Emphasized consistency between national legislation and EU Directives.
• Heintz van Landewijck Sarl v. Staatssecretaris van Financiën (Case C-494/04), Netto Supermarkt GmbH v. Finanzamt Malchin (Case C-271/06), and Vlaamse Oliemaatschappij NV v. FOD Financien (Case C-499/10) – Reinforced the applicability of proportionality and legal certainty in excise duty and VAT contexts.
• Re. The Arena Corporation Limited v. Schroeder [2004] EWCA Civ 371 and Greenalls Management Limited v. Customs and Excise Commissioners [2005] 1 WLR 1754 – Supported strict liability on warehousekeepers for excise duty in cases of irregularities.

Legal Reasoning

Lord Glennie dissected the legislative framework, emphasizing that the 1992 EU Directive was designed to harmonize excise duty collection across member states while facilitating the free movement of duty-suspended goods. The UK Regulations, implementing this Directive, established that the warehousekeeper is primarily liable for unpaid excise duty upon irregular departures (theft or fraud) unless another party assumes the guarantee.

The appellant's contention that this strict liability regime violated proportionality and legal certainty was systematically addressed. Lord Glennie reasoned that the imposition of strict liability is a necessary measure to prevent tax evasion and ensure effective duty collection, aligning with the Directive's objectives. He acknowledged that while strict liability may seem harsh, mechanisms such as insurance, commercial agreements shifting guarantees, and potential contributions from culpable third parties provide avenues for warehousekeepers to mitigate this liability.

Furthermore, the judgment noted that legal certainty is preserved as warehousekeepers are fully aware of their obligations and the potential consequences under the regulation, allowing them to make informed business decisions.

Impact

This judgment reinforces the strict liability framework for warehousekeepers within the EU's excise duty regime. It underscores the importance of compliance with EU Directives in national legislation and affirms that such strict liability does not breach foundational legal principles. Future cases will reference this judgment when addressing similar liability disputes, solidifying the precedent that excise duty regulations can impose strict liabilities without infringing on proportionality and legal certainty. Additionally, it highlights the necessity for warehousekeepers to engage in risk management practices, such as obtaining insurance or negotiating guarantees, to shield themselves from potential liabilities.

Complex Concepts Simplified

Tax Warehouse and Duty Suspension Arrangements

A tax warehouse, also known as a bonded warehouse, is a storage facility authorized to hold goods subject to excise duties without immediate payment of the duty itself. Under duty suspension arrangements, goods can be stored or moved between warehouses without incurring excise duty until they are released for consumption.

Irregular Departure

An irregular departure refers to the removal of goods from duty suspension arrangements outside the agreed terms, which can include situations like theft, fraud, or unauthorized removal.

Excise Duty Point

The excise duty point is the moment when goods become chargeable for excise duty. This occurs when goods are "released for consumption," which includes any irregular departure from the duty suspension arrangement.

Principles of Proportionality and Legal Certainty

The principle of proportionality ensures that the measures imposed by the law are suitable and necessary to achieve their intended purpose without being excessive. Legal certainty guarantees that laws are clear, predictable, and applied consistently, allowing individuals and businesses to understand and anticipate legal consequences of their actions.

Conclusion

The Upper Tribunal's decision in Butlers Ship Stores Limited v HMRC reinforces the principle that warehousekeepers operating under duty suspension arrangements bear strict liability for unpaid excise duties resulting from irregular departures, such as theft or fraud. This liability holds even in the absence of fault, aligning with the EU Directive's objectives to safeguard the internal market and ensure effective tax collection. The judgment meticulously upholds the principles of proportionality and legal certainty, demonstrating that the strict liability regime is both necessary and reasonable within the context of excise duty regulations.

Moreover, the decision provides clear guidance on the mechanisms available to warehousekeepers to manage and mitigate their liability, including insurance and commercial agreements. As such, this judgment not only affirms existing legal frameworks but also underscores the importance of risk management practices for entities operating within the excise duty regime.