UT/2022/000157 - [2024] UKUT 00346 (TCC)

With those principles in mind, we turn to the issues in this case. We should say at the outset that, as is clear from the case law authorities to which we have referred, challenges of this nature to the decisions of first-instance tribunals face significant substantive and procedural hurdles. For the reasons that we set out below, in our view, HMRC has not overcome those hurdles in this case.

Our starting point is the first stage in the process outlined in Evans LJ’s judgment in Georgiou, which requires an appellant to identify the relevant finding of fact which is being challenged. This ground of appeal assumes that the FTT made a finding that Adrena supplied the alcohol in the UK, but should have made a finding that Global supplied the alcohol in the UK. HMRC say the relevant finding is found in FTT [643] where the FTT states that “it would appear that Adrena, not Global, owned the alcohol seized in the United Kingdom and that it supplied the alcohol that was sold”. Mr Hayhurst says that the FTT’s words “it would appear” are coloured by the words “As such” at the beginning of FTT [644], which demonstrate that the FTT’s conclusion – that Global was not required to be registered for VAT – was based on that finding.

We do not agree. In our view, it is clear from the FTT’s use of the words “it would appear” that this is not a finding of fact that Adrena supplied the alcohol that was sold in the UK. It is simply a statement of what the evidence suggests to the FTT may be the position. Rather, it is clear from FTT [644] that the FTT’s view was that the evidence before it was inconclusive and certainly insufficient to support a finding that Global supplied the alcohol in the UK. This was the reason for the FTT’s conclusion in FTT [644] that “in the absence of that Global was the owner of the goods that were supplied in the United Kingdom we are unable to find that it was liable to be registered for VAT”. The FTT reached that view having heard all the evidence. We have not. We are in no position to interfere with the FTT’s conclusion.

In our view, this ground of appeal therefore fails at the first hurdle. But even if we were to accept that the FTT made a relevant finding of fact that Adrena, and not Global, supplied the alcohol that was sold in the UK, we would not conclude that the FTT was not entitled to reach that finding on the basis of the evidence before it.

We can illustrate the difficulties in HMRC’s case by reference to the examples from the evidence to which we were taken by Mr Hayhurst.

Mr Hayhurst points to the fact that it was accepted by the respondents, and found by the FTT (at FTT [300]), that Global was the “successor” to SA’s business. The FTT found that SA supplied alcohol in the UK (FTT [637]). The suggestion was that Global must therefore also have supplied alcohol in the UK. The fundamental difference was, however, that, in the period during which Global carried on its trade, the evidence showed that Adrena was inserted into the supply chain as a “buffer company” and sold goods to Corkteck. On HMRC’s case, of course, Adrena was inserted into the supply chain only in relation to the cover loads (see the evidence of Mr Foster at FTT [525]). But there was no direct evidence that Global supplied the mirror loads in the UK, and there were material difficulties in HMRC’s case that Adrena’s involvement was limited to the cover loads (to which we refer below). Against that background, and in the light of the FTT’s concerns about the failures of HMRC to address properly the separate personality of the entities involved, a conclusion that Adrena may have supplied the alcohol in the UK was one that was open to the FTT.

We were also taken by Mr Hayhurst to the evidence that was before the FTT that Global acquired significant amounts of alcohol from traders and wholesalers in the EU. This evidence included details of the acquisition of alcohol worth £8.1 million from Adrena. It was not disputed by the respondents that Global acquired significant amounts of alcohol in the EU. However, Mr Hayhurst also directed our attention to evidence of sales of alcohol by Global which according to records in the EU Excise Movement and Control System (EMCS) were made to EU-based traders and wholesalers. Mr Hayhurst suggested that these sales were fictitious and the alcohol was actually smuggled into the UK by Global. He pointed to the fact that these sales were not reflected in banking, transportation or warehouse records and to evidence, which was also before the FTT, of the movement of lorries purportedly transporting alcohol to traders and wholesalers in the EU, which were at the relevant times in the UK. Mr Hayhurst asserted that the FTT had ignored this evidence, which, he submitted, demonstrated that the alcohol was in fact smuggled into the UK by Global.

We do not agree. Far from ignoring this evidence, much if not all of the evidence to which Mr Hayhurst referred was faithfully recorded by the FTT in the FTT Decision (see, in particular, FTT [301] – [326]). We do not need to revisit it in detail here. The simple point is that whilst it may have been open to the FTT to draw the inference that Mr Hayhurst invited us to draw, there was no direct evidence that Global supplied alcohol in the UK. Given the FTT’s reservations about the details of HMRC’s case, it was equally open to the FTT to reach an alternative conclusion.

On a related point, Mr Hayhurst referred to the fact that Global received substantial payments from the participants in Operation Banjax. Mr Hayhurst submitted that these payments represented the proceeds of sale of alcohol by Global in the UK, which had been laundered by Operation Banjax. This was on the basis that Operation Banjax was, in Mr Hayhurst’s words, a “paperwork factory” involved in the creation of fictitious transactions designed to justify the proceeds of diversion fraud being transferred by Operation Banjax to Global.

The relevance of this submission was, as we understand it, in relation to the parties’ differing explanations of the possible destinations for the substantial amount of alcohol that Global acquired in the EU. In short, it was HMRC’s case that Global smuggled the alcohol into the UK (in the mirror loads) and the proceeds of that smuggling operation were then laundered through fictitious transactions created by Operation Banjax. The respondents did not advance a positive case in relation to the place of supply, but did suggest in their submissions that at least one explanation was that the alcohol was sold to participants in Operation Banjax and then perhaps smuggled into the UK by them. HMRC’s response to that suggestion was that the participants in Operation Banjax were not involved in smuggling alcohol.

In support of his explanation, Mr Hayhurst referred us to the FTT Decision at FTT [624], where the FTT recorded the parties’ submissions:

There is typographical error in FTT [624]. The cross-reference to FTT [434] should be to FTT [436], where the FTT recorded the evidence from Ms Myers, an officer in HMRC’s Fraud Investigation Service, who was a witness for HMRC at the hearing. Ms Myers gave evidence, on which she was cross examined at some length, in relation to Operation Banjax, in relation to which Ms Myers was the Lead Disclosure Officer. The FTT said this at FTT [436]:

Mr Hayhurst submitted that, at FTT [624], the FTT overstated the evidence of Ms Myers, as recorded in FTT [436]. In order to make good this submission, we were then taken by Mr Hayhurst to the transcript of Ms Myers’ evidence before the FTT, where Mr Hayhurst drew our attention to the following exchange:

Mr Hayhurst submitted that this evidence had to be seen in the context of a number of other answers given by Ms Myers earlier in her cross-examination, where Ms Myers stressed that the role of the organized crime group in Operation Banjax was to provide paperwork to document fictitious supply chains, the aim being to launder the proceeds of the sale of the illicit alcohol. In that context, he submitted that the answer set out above should have been taken as a reference to the false paperwork provided by the organized crime group and that there was no evidence of the group actually handling goods.

Mr Webster KC, however, took us to other extracts from the evidence of Ms Myers, which appeared to show that Ms Myers did indeed give evidence in which she accepted that significant quantities of alcohol were smuggled into the UK by the participants in Operation Banjax.

FTT [436] replicates the evidence of Ms Myers to which we have referred above. It is reasonable to assume that the FTT had this evidence in mind when they wrote FTT [436]. Having reviewed the extracts from Ms Myers’s evidence to which we have been referred, we can see nothing wrong in the way in which the FTT recorded this evidence in FTT [436] or summarized the positions of the parties at FTT [624]. The suggestion that the FTT overstated the position is untenable, given that the FTT almost directly quoted what Ms Myers had said.

The point is a relatively minor one in the context of the mass of evidence that was before the FTT. However, to our minds, it vividly illustrates the difficulties inherent in this ground of appeal. HMRC’s case is that the evidence of Ms Myers as recorded by the FTT has to be read in the context of the entirety of her evidence and the other evidence in this case. We have no means of properly judging that context. The FTT heard all of Ms Myers’s evidence, and all the other evidence in the case. They were well-placed to decide on the implications of Ms Myers’s evidence in its proper context. We are not. The rival submissions of counsel on this particular point simply demonstrate that it is possible, by taking edited extracts from the evidence, to argue for different versions of that context. All this does is to emphasize the difficulties in arguing that the FTT, who heard all the evidence, should have put a different interpretation on the evidence of Ms Myers, as recorded in FTT [436] and FTT [624].

The final specific point that we will address in relation to this ground of appeal is HMRC’s assertion that the FTT failed to appreciate or engage with the distinction between the cover loads and the mirror loads and, in doing so, failed to appreciate that Adrena was inserted as a buffer company for the purposes only of the cover loads. Mr Hayhurst criticises the FTT for placing considerable weight on the fact that the paperwork for the cover loads that were intercepted by the Border Force named Adrena as the consignor and that it was Adrena that challenged the interception of the goods at the border. Mr Hayhurst says that this focus caused the FTT to ignore the weight of the other evidence – to which we have referred to above – that Global owned the alcohol that comprised the mirror loads.

Even if we were to accept that the FTT made a finding that Adrena supplied the alcohol comprised in the mirror loads in the UK – which we do not – the fact remains that HMRC have failed to address at any stage the issue raised by the respondents that if Adrena was named as the consignor of the cover loads in the relevant paperwork, for the fraud to work, Adrena must also have been named as the consignor on the paperwork for the mirror loads. A firm conclusion that Adrena was not the consignor in relation to the mirror loads would have involved the proposition that the identity of the consignor had changed ex post facto depending upon whether or not an interception had taken place. HMRC failed to provide a coherent answer to that point.

Furthermore, HMRC’s suggestion that the respondents’ acceptance that Global had acquired significant amounts of alcohol in the EU was inconsistent with Global not being the first supplier of the alcohol in the UK was clearly a non-sequitur. Equally, it did not follow that because Adrena supplied some alcohol to Global in the EU, the alcohol imported into the UK was the same alcohol, nor that Adrena was not the supplier of alcohol in the UK. The FTT was fully aware of the supplies in the EU but clearly did not find the argument persuasive. Global purchased alcohol from many sources. The fact that it also purchased from Adrena did not prove that Adrena, the named consignor, was not the importing entity.

Given the above, and the FTT’s clear reservations about the failures of HMRC to engage with the separate personality of the companies involved, the conclusion that Global did not supply alcohol in the UK was one that the FTT was clearly entitled to reach and one with which we cannot interfere.