Commissioners of Customs and Excise v Hoverspeed Ltd. & Ors, R (on the application of)

Factual and Procedural Background

This judgment concerns an appeal by the Commissioners of Customs and Excise ("the Commissioners") against certain aspects of a prior Divisional Court decision dated 31st July 2002. The respondents include Company A and four individuals who, on 22nd August 2001, used a car borrowed from one of the individuals together with Company A's cross-Channel services for a day trip from The City to France. During this trip, they purchased cigarettes, tobacco, and alcohol. Upon their return to The City at Dover, Customs conducted checks, subsequently seizing the goods and the vehicle.

The Divisional Court had previously found that a particular statutory instrument (the Excise Duty (Personal Reliefs) Order 1992, "the PRO") was incompatible with European Community law in two respects, but these findings are not subject to appeal in the present case.

The current appeal challenges the Divisional Court's quashing of Customs' decisions to (a) stop and check the individuals and vehicle, (b) seize the purchased goods, and (c) seize the vehicle. The respondents have served a notice seeking to uphold the quashing of these decisions on additional grounds, including alleged errors in Customs' approach to excise duty chargeability and the interpretation of "commercial purposes".

The Divisional Court also quashed Customs' refusal to return the vehicle to the individual owner, a decision not appealed here, resulting in the vehicle's return.

Legal Issues Presented

1. Whether Customs had reasonable grounds to stop and search the individuals and their vehicle under the relevant statutory powers.
2. Whether the decisions to seize the goods and vehicle were lawful, particularly in light of the legality of the initial checks.
3. Whether Customs' use of profiles and trends to justify checks complies with European Community law and domestic legislation.
4. The proper interpretation of "products held for commercial purposes" under articles 8 and 9 of the 1992 Directive.
5. The implications of incompatibility between the PRO and the 1992 Directive on Customs' decisions.

Arguments of the Parties

Appellant's Arguments (The Commissioners)

• Customs had reasonable grounds to suspect the individuals and vehicle, justifying the stop and search, which should not be invalidated by the absence of recorded reasons at the time.
• The decisions to seize goods and vehicle remain valid even if the checks were quashed, as seizure powers are independent of stop and search powers.
• Use of profiles and trends is a legitimate and necessary part of Customs' enforcement strategy and is consistent with both European Community law and domestic law.
• Misapprehensions in Customs' legal understanding (specifically regarding the PRO) do not invalidate seizure decisions if the goods were liable to forfeiture.
• Challenges to seizures on grounds of disproportionate interference with freedom of movement or property rights should be addressed through statutory remedies rather than by quashing seizure decisions.

Respondents' Arguments (Company A and Individuals)

• Customs failed to provide any specific or recorded reasons for stopping and checking the individuals, rendering the checks unlawful.
• The decisions to seize goods and vehicle should be quashed as they stem from unlawful checks.
• Customs' approach to excise duty chargeability, based on the PRO, was legally flawed due to incompatibility with the 1992 Directive.
• Customs erred in interpreting "commercial purposes", and goods held for supply to others on a non-commercial basis should not be considered held for commercial purposes.
• The seizures constituted breaches of rights under the European Convention on Human Rights and European Community law, warranting quashing on grounds of disproportionality and illegality.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by affirming the Divisional Court's conclusion that Customs failed to justify the stop and search of the individuals and vehicle on 22nd August 2001, since no specific reasons were given or recorded. The court emphasized that the burden of proof rests on Customs to establish reasonable grounds to suspect under sections 163 and 163A of the Customs and Excise Management Act 1979 ("CEMA"). The mere fact that the individuals were found with excise goods exceeding indicative levels does not infer reasonable grounds for suspicion.

The court then addressed the use of profiles and trends by Customs. It rejected the Divisional Court's apparent dichotomy between reliance on "generalities or trends" and "reasonable grounds to suspect" as a false one. Both European Community law and domestic law permit the use of profiles and trends to form reasonable suspicion, provided that checks are proportionate, non-systematic, and do not create unjustified obstacles to free movement of persons or goods. The court noted that domestic law is more restrictive than European law in disallowing random spot checks without reasonable suspicion.

Regarding the seizure decisions, the court held that the power to seize goods or vehicles liable to forfeiture under CEMA is independent of the lawfulness of any prior stop or search. The seizure power is exercisable whenever goods are liable to forfeiture, regardless of how they were discovered. The court rejected the Divisional Court's conclusion that an unlawful check necessarily invalidates an ensuing seizure. It acknowledged that evidence obtained during unlawful checks might raise separate admissibility issues but did not affect seizure validity.

The court considered the respondents' alternative grounds for quashing the seizures, including alleged misapprehension of law by Customs and claims of disproportionate interference with rights under European Community law and the European Convention on Human Rights. It found no sufficient basis to uphold the quashing on these grounds, emphasizing that statutory remedies exist for challenging seizure decisions and that detailed fact-specific assessments are required for proportionality claims.

On the interpretation of articles 8 and 9 of the 1992 Directive, the court agreed with the Divisional Court that the concepts of "products acquired by private individuals for their own use" and "products held for commercial purposes" are antithetical and comprehensive. There is no intermediate category for goods held for supply to others on a non-commercial basis. This interpretation aligns with the Directive's scheme and recitals and has priority over conflicting domestic provisions.

Holding and Implications

The court upheld the quashing of Customs' decisions to check the individuals and vehicle on 22nd August 2001. It concluded that Customs had not demonstrated reasonable grounds to suspect justifying those checks.

The court set aside the Divisional Court's quashing of Customs' decisions to seize the cigarettes, tobacco, alcohol, and the vehicle. It held that seizure powers under CEMA are not invalidated by prior unlawful checks, and the legality of seizure depends on whether goods are liable to forfeiture rather than the lawfulness of the stop.

The court recognized that Customs may use profiles and trends to establish reasonable suspicion for stop and search powers, provided that such use is proportionate and does not unjustifiably impede free movement.

The court confirmed the antithetical relationship between articles 8 and 9 of the 1992 Directive concerning personal use and commercial holding of excise goods.

The matter was remitted to the Divisional Court for further consideration of any claims under European Community law or the Convention on Human Rights arising from the specific facts of the individual cases.

No new precedent was established beyond the clarification and application of existing principles. The decision clarifies the relationship between stop and search powers, seizure powers, and the use of profiles and trends under both domestic and European law, emphasizing the need for proportionality and lawful justification in Customs enforcement actions.