Arena Corporation Ltd v Customs & Excise

For duty-suspended movements of excise goods, Council Directive 92/12/EEC did not prevent national legislation imposing joint and several liability on a person who caused the underlying irregularity, in addition to liability under the guarantee. Regulation 7(2) of the Excise Duty Points (Duty Suspended Movement of Excise Goods) Regulations 2001 was authorised by section 1(4) of the Finance (No.2) Act 1992. Causation required more than ownership and instructions to move goods. The court had to consider the role of abnormal interventions and whether they were intended, foreseen or foreseeable. In an unusual and extreme case, the Companies Court could reject a winding-up challenge where there was no real prospect of a successful appeal against the assessments.

The Commissioners assessed Arena for more than £1.8 million in excise duty on 19 movements of alcoholic products from bonded warehouses in England to alleged warehouses in Belgium and Italy. Arena appealed to the VAT and Duties Tribunal. The Commissioners then petitioned for Arena’s compulsory winding up.

The Chancery Division made a winding-up order against Arena, granted summary judgment against Mr Schroeder in related proceedings, and ordered an interim payment. The appeals challenged the validity of Regulation 7(2), the existence and location of excise duty points, Arena’s alleged causation of the irregularities, and the conclusion that the Tribunal appeals had no real prospect of success.

Disposition. The Vice-Chancellor gave the leading judgment. Mance LJ and Carnwath LJ agreed. Both appeals were dismissed, the winding-up order and summary judgment were upheld, permission to appeal to the House of Lords was refused, and a stay of execution was refused.

1. Validity under the Directive. The guarantee provisions in Council Directive 92/12/EEC, including Articles 13 and 15(3), were not an exclusive code of liability. Article 6 left Member States to determine chargeability conditions and the persons liable, subject to the detailed movement provisions in Article 20. The Directive did not create a wholly harmonised excise-duty system. Additional, non-discriminatory liability under Regulation 7(2) was therefore compatible with the Directive and with Article 90 of the Treaty. The court relied on Greenalls Management Ltd v Commissioners of Customs & Excise [2003] 1 WLR 2609.
2. Ultra vires challenge. Regulation 7(2) referred to the person who caused the underlying irregularity, not to a person who caused a point in time. That person had a sufficient connection with the goods for section 1(4) of the Finance (No.2) Act 1992. Where the duty point arose on later detection, the connection could pre-date the duty point, provided it existed no earlier than the time when the goods became chargeable.
3. Causation. Ownership and instructions to move goods were insufficient by themselves. The regulation did not justify inserting the words knowingly or negligently. The question was whether Arena caused the irregularity, although it need not have been the only cause. The court had to consider whether other interventions were normal and, if abnormal, whether they were intended, foreseen or foreseeable. The court applied the guidance in Environment Agency v Express Car Co. Ltd [1999] 2 AC 22.
4. Duty points and evidence. The judge had conflated the alternatives under Regulations 3 and 4, but his factual findings established that irregularities were detected in the United Kingdom or that their location could not be determined, and that the goods never arrived at their destinations. The late attempt to argue that detection occurred in Belgium was refused because it would have unfairly prejudiced the Commissioners.
5. Winding-up jurisdiction. The traditional test of a debt bona fide disputed on substantial grounds was, for practical purposes, synonymous with a real rather than frivolous dispute. The Companies Court should not determine a genuinely disputed debt. This case was exceptional: the evidence was exhaustive, the consignments had not been shown to cross the Channel, and Arena had no credible prospect of discharging the assessments before the Tribunal.

The court added that assessments should identify the relied-on irregularity and the facts said to establish causation. This was important procedural guidance, intended to prevent an oppressive burden on an assessed person who had to appeal before payment.

• Court of Appeal (Civil Division) dismissed both appeals and upheld the orders below: [2004] EWCA Civ 371.
• Chancery Division on 12 December 2003 made a compulsory winding-up order against Arena, granted summary judgment against Mr Schroeder for damages to be assessed, and ordered an interim payment of £500,000.