Introduction

The case of Van Driessche v. Revenue and Customs ([2016] UKFTT 441 (TC)) addresses pivotal issues concerning the burden of proof in customs duty penalty cases and the applicability of deeming provisions within such contexts. The appellant, Mrs. Inge Van Driessche, contested penalties imposed by Her Majesty's Revenue and Customs (HMRC) based on alleged dishonest importation of duty-free goods into the United Kingdom from a third country.

The crux of the dispute revolved around whether HMRC sufficiently proved that Mrs. Van Driessche had traveled from a non-EU country with duty-free goods, thereby warranting penalties under the Finance Acts of 1994 and 2003. Additionally, the case examined whether statutory deeming provisions, typically applicable in restoration cases, extended to penalty assessments.

Summary of the Judgment

The First-tier Tribunal (Tax Chamber) delivered a comprehensive decision on June 21, 2016, favoring Mrs. Van Driessche. The Tribunal concluded that HMRC failed to meet the burden of proof required to establish that Mrs. Van Driessche had engaged in conduct aimed at evading customs duty, excise duty, and import VAT. Furthermore, the Tribunal determined that deeming provisions under the Customs and Excise Management Act 1979 (CEMA) do not extend to penalty cases, thereby preventing HMRC from automatically assuming the facts underpinning the penalties without adequate evidence.

As a result, the penalties imposed on Mrs. Van Driessche were annulled.

Analysis

Precedents Cited

The judgment extensively referenced seminal cases to elucidate the legal framework surrounding the burden of proof and the application of deeming provisions:

• Abou-Ramah v Abacha [2006] EWCA Civ 1492: Clarified the objective and subjective elements of dishonesty in civil breach of trust cases.
• Krubally N Diaye v HMRC [2015] UKFTT 380: Provided the Tribunal’s interpretation of the dishonesty test, emphasizing an objective standard supplemented by the defendant's actual knowledge.
• Burgess and Brimheath v HMRC [2015] UKUT 578 (TCC): Highlighted the necessity for HMRC to present a positive case to meet the burden of proof in penalty appeals.
• Seashore Marine SA v Phoenix Assurance Plc (The Vergina) (No.1) [2001] 2 Lloyd's Rep 719: Underlined the principle that burden of proof requires the party bearing it to establish facts or issues decisively.
• Jones and Jones [2011] EWCA Civ 824: Addressed the limited jurisdiction of the Tribunal in restoration appeals and the separation of facts between different proceedings.
• Race v HMRC [2014] UKUT 331 (TCC): Obiter comments suggesting deeming provisions could extend to penalty cases, though not binding.
• Sheldrake v DPP [2004] UKHL 43: Emphasized the balance between statutory presumptions and the rights under Article 6(2) of the European Convention on Human Rights (ECHR).

These precedents collectively influenced the Tribunal's approach by reinforcing the necessity for HMRC to substantiate its claims beyond mere assumptions and preventing automatic transfer of facts from one type of proceeding (restoration) to another (penalty).

Legal Reasoning

The Tribunal employed a meticulous approach to determine the applicability of the burden of proof and the appropriateness of deeming provisions:

1. Burden of Proof: Under the Finance Acts 1994 and 2003, HMRC bears the burden of proving that the appellant engaged in conduct aimed at evading duties and that such conduct involved dishonesty. Drawing from Krubally N Diaye and Abou-Ramah, the Tribunal reaffirmed that the standard is based on the balance of probabilities, not the criminal 'beyond reasonable doubt' standard.
2. Deeming Provisions: Typically applicable in restoration cases (where the focus is on the seizure and potential return of goods), deeming provisions under CEMA Schedule 3 were scrutinized. The Tribunal concluded that these provisions do not extend to penalty cases because the latter involve the imposition of penalties rather than the restoration of goods. This differentiation ensures that HMRC cannot rely on automatic assumptions without presenting concrete evidence.
3. Fact Assessment: The Tribunal found that Euroairport, despite its proximity to Switzerland, is legally situated within France and, by extension, within the EU. Mrs. Van Driessche's evidence about the airport's operations, language, signage, and procurement of goods supported her stance that the goods were duty-paid, undermining HMRC's assertion of duty-free importation.
4. Dishonesty Evaluation: Applying the objective test of dishonesty, the Tribunal assessed Mrs. Van Driessche's knowledge and intentions. Given her consistent belief that she was operating within EU parameters, aligning purchases with normal EU prices, and lack of any corrupt intent, the Tribunal found no evidence of dishonesty.

Overall, the Tribunal emphasized the necessity for HMRC to construct a positive case with tangible evidence rather than relying on statutory presumptions or procedural lapses by the appellant.

Impact

This judgment holds significant implications for future customs duty and penalty cases:

• Clarification of Burden of Proof: Reinforces that HMRC must provide substantial evidence to prove allegations of duty evasion and dishonesty, preventing automatic penalties based on procedural oversights by appellants.
• Non-Applicability of Deeming Provisions to Penalties: Establishes a clear boundary that deeming provisions cannot be generalised to penalty cases, ensuring that each case is assessed on its individual merits and evidence.
• Litigant Protection: Enhances protections for individuals appearing as litigants in person, particularly those with personal or health-related vulnerabilities, by limiting procedural delays and ensuring fair assessment of their cases.
• Customs and Border Protocols: Highlights the importance of clear and accurate operational protocols at border points like Euroairport, influencing how customs and border officials approach the declaration and seizure of goods.

Legal practitioners will reference this case to argue against unfounded penalties, especially in instances where statutory provisions are misconstrued or misapplied by enforcement bodies.

Complex Concepts Simplified

Burden of Proof

The burden of proof determines which party is responsible for presenting evidence to support their claims. In civil cases like customs duty penalties, this burden lies with HMRC, which must demonstrate that the appellant intentionally evaded duties and acted dishonestly.

Deeming Provisions

Deeming provisions allow certain facts to be assumed true without direct evidence. Typically applicable in restoration cases (aimed at returning seized goods), these provisions do not apply to penalty cases where HMRC imposes fines based on alleged duty evasion.

Dishonesty Test

The dishonesty test in this context is primarily objective. It assesses whether, by common standards, Mrs. Van Driessche's actions would be considered dishonest, while also considering her actual knowledge and beliefs at the time.

Litigant in Person

A litigant in person is someone who represents themselves in court without legal representation. This can impact the fairness and efficiency of proceedings, especially when complex legal issues are involved.

Wrongful Seizure

A seizure is deemed wrongful if it occurs without proper legal basis or due process. In restoration cases, if the seizure is challenged and found unlawful, the seized goods may be returned to the owner.

Conclusion

The Van Driessche v. Revenue and Customs decision underscores the critical nature of HMRC's obligations to substantiate claims of duty evasion and dishonesty with concrete evidence. By limiting the scope of deeming provisions to restoration cases and not extending them to penalty appeals, the Tribunal ensures that individuals are not unjustly penalized based on procedural oversights or unverified assumptions.

This judgment serves as a protective measure for appellants, particularly those without legal representation, by mandating that penalties are only imposed following a demonstrable breach of duty and evidence of dishonest intent. Moreover, it clarifies the boundaries within which HMRC must operate, fostering a more equitable and transparent customs enforcement framework.

Ultimately, this case reinforces the principles of fairness and due process within the UK's tax and customs legal landscape, providing a valuable reference point for future disputes and contributing to the evolution of administrative law concerning duty evasion penalties.