CJEU asked whether 'innocent agent' lorry driver can be liable for unpaid excise duty

In 2013 Martyn Glen Perfect was stopped by UK Border Force at Dover docks, driving a lorry which he had brought from Calais containing pallets of beer, in respect of which excise duty had not been paid. The driver knew he was carrying beer but did not know who owned the lorry, that duty had not been paid and that the documentation which accompanied the load related to a previous consignment.

The lorry and goods were seized. Although HM Revenue & Customs (HMRC) accepted that the evidence did not show that Perfect was actively involved in the attempt to smuggle goods into the UK or that he deliberately attempted to evade excise duty, Perfect was assessed for unpaid excise duty of £22,779 on the basis that he was 'holding' the goods. He was also assessed to penalties of £4,555 which were subsequently increased to £4,897.48

The First-tier Tribunal (FTT) found as a matter of fact that Perfect had neither actual nor constructive knowledge of the smuggling attempt. It found that HMRC had made no real attempt to find out who owned the vehicle or who was behind the smuggling and that, whilst Perfect was undoubtedly in physical possession of the goods, he had no interest of his own in them, was not part of any conspiracy, and had simply followed instructions. Both the FTT and Upper Tribunal decided that Perfect could not be held liable for the unpaid excise duty on the goods.

HMRC appealed to the Court of Appeal, arguing that provided a lorry driver had knowledge that the goods being transported were excise goods, it did not matter that he had no actual or constructive knowledge of the attempt to evade tax on them. HMRC also argued that it did not need to be 'fair and reasonable' for Perfect to be made liable for the duty under EU law.

Perfect argued that, relying on the findings of the FTT, he was an 'innocent agent' and said that an 'innocent agent' cannot properly be said to be 'holding' or 'delivering' excise goods. He also argued that a person who lacks actual or constructive knowledge of either the goods he is carrying or that there is duty payable on them, will not be liable as a 'holder'.

The Court of Appeal accepted HMRC’s contentions that where the driver is the only identifiable person that can be assessed, the opportunity for smuggling and fraud would be manifestly greater if the Courts conclude that he cannot be assessed if he was unaware that the goods were liable to duty. The Court also said that the natural meaning of the words 'holding' or 'making delivery' do not impute any requirement of the person to be aware of the tax status of the goods.

The Court commented that the EU principles of proportionality and fairness do not invariably exclude the imposition of strict liability. However, they decided to refer the question to the CJEU as “given the fundamental importance of proportionality in EU law, it is certainly arguable that had there been an intention to impose strict liability in the 2008 Directive, it would have been expressly stated”. 

The judges also recognised that decisions of the Criminal Division of the Court of Appeal in respect of innocent agents support Mr Perfect's position, noting that: “it was the clear view of the members of this Court in those cases that to seek to impose liability on entirely innocent agents would not promote the objectives of the Directive or the Regulations”.

"Referring a question to the CJEU is likely to significantly delay the resolution of this issue – both for Perfect and for other cases which are held over pending a decision in this case. An EU referral typically introduces a delay of 1-2 years as, once the CJEU has opined, the UK courts have to apply the decision to the facts," said Ian Robotham, a tax disputes expert at Pinsent Masons, the law firm behind Out-law.com.

"In light of the current uncertainty surrounding Brexit and what form that will take, it is difficult to predict whether the reference will be dealt with. As matters currently stand if the UK leaves with a deal and the reference to the CJEU is made within any agreed transitional period, which with the current extension until 31 October 2019 it is presumed that it will be, the CJEU will determine it, and the Court of Appeal will then be required to apply the decision to resolve the Perfect case," he said.

"If the UK leaves without a deal the position is less clear, particularly if the reference is made before Brexit day but the CJEU decides the case after the UK has left," Ian Robotham said. 

"After leaving the EU, the UK will still be bound to apply EU law to periods whilst it was within the EU and the appeal in the Perfect case will continue to be subject to EU law as it stood on exit day under 'retained EU law'. However, if the decision of the CJEU comes after the UK has left the EU, the Court of Appeal may consider that it is not bound by it (as this would arguably be 'new EU law') and reach its own conclusion which must have regard to the retained EU law," he said.