Commissioners of Customs and Excise v Bassimeh
| Jurisdiction | England & Wales |
| Judgment Date | 31 July 1995 |
| Date | 31 July 1995 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Sedley J.
Nigel Pleming QC and Hugh Davies (instructed by the Solicitor for Customs and Excise) for the Crown.
Rupert Baldry (instructed by Barry Phillips & Co) for Mr Bassimeh.
The following cases were referred to in the judgment:
C & E Commrs v Le Rififi Ltd VATVAT[1993] BVC 226 (QBD); [1995] BVC 55 (CA)
C & E Commrs v Peninsular and Oriental Steam Navigation CoVAT[1994] BVC 57
Don Pasquale (a firm) v C & E Commrs VATVAT(1989) 4 BVC 239 (QBD); (1990) 5 BVC 76(CA)
International Language Centres Ltd v C & E Commrs VAT(1983) 1 BVC 545
Pepper (HMIT) v Hart and related appeals ELRTAX[1993] AC 593; [1992] BTC 591
SJ Grange Ltd v C & E Commrs VAT(1978) 1 BVC 191 (QBD), 210 (CA)
Tuck & Sons v Priester ELR(1887) 19 QBD 629
Value added tax - Penalty - Penalty imposed on company for dishonest conduct - Company's liability assessed on director whose dishonesty contributed to company's default - Penalty for individual periods not specified - Whether assessment global - Whether properly assessed and notified - Finance Act 1985, s. 13(1), 21(2),(3) (Value Added Tax Act 1994Value Added Tax Act 1994, ss. 60(1), 76(1),Value Added Tax Act 1994(3)); Finance Act 1986, s. 14(1)-(3) (Value Added Tax Act 1994Value Added Tax Act 1994, s. 61(1)-(3)).Penalty - Apportionment - Penalty apportioned wholly to one director - Whether relative culpability of other directors relevant - Finance Act 1986, s. 14(5)(b) (Value Added Tax Act 1994Value Added Tax Act 1994, s. 61(5)(b)).
This was an appeal against a decision of the VAT tribunal(LON/93/1823) No. 12,662; [1995] BVC 1556 that a notice specifying only the amount of a penalty imposed under the Finance Act 1986, s. 14 was invalid.
B had been one of three directors of a company which carried on business as a restaurant since 1983. In 1990 Customs officers established that the company's liability for VAT was being fraudulently concealed. They also formed the view, which in due course was upheld by the tribunal, that B had taken an active part in running the business and that throughout the relevant period the dishonest conduct of the company had been at least in part attributable to his dishonesty.
On 30 June 1992, some six months after notification of assessment on the company of a penalty of £88,754, two letters were sent to B. The first letter purported to be a notice under the Finance Act 1986, s. 14(2) notifying B of a personal liability in respect of part of the penalty imposed on the company in an amount of £65,304. That was 100 per cent of the penalty for which the company was liable for the period from 1 May 1986 to 31 October 1990.
The second letter, stated to be under s. 13 of the Finance Act 1985 and s. 14 of the Finance Act 1986, notified an assessment of civil evasion penalty apportioned to a director or managing officer of a company. The letter was sent under the Finance Act 1986, s. 14(3) in order to enforce recovery of the penalty made payable by service of the notice contained in the first letter. Only the amount of the penalty was specified, and no reference was made to particular prescribed accounting periods.
B's appeal to the VAT tribunal was allowed. The tribunal held that the assessment was a global assessment covering 18 prescribed accounting periods, and that the assessment was not valid because the provisions of the Finance Act 1985, s. 21, which dealt with assessments of penalty, were not complied with.
The tribunal went on to hold that, if the assessment had been valid, Customs should have considered whether the relative culpability of the other directors was relevant and should have apportioned the penalty assessed on B on that basis. The tribunal would have imposed one-third of the amount assessed up to April 1988 and one-half thereafter, reducing the portion of the penalty for which B was liable to £27,031.83.
Customs contended that once it was established that the company by dishonest conduct had sought to evade tax, a penalty equal to the tax evaded (a single sum) became exigible under the Finance Act 1985, s. 13, and under the Finance Act 1986, s. 14 a portion (which might be the whole) of the same amount became exigible from any named officer of the company to whose dishonesty the company's dishonest conduct had been in whole or in part attributable. No formality was involved in the making of an assessment, and none was required by statute.
B contended that the second letter of 30 June 1992 (under the Finance Act 1986, s. 14(3)) could not stand because it referred to the longer period of the company's liability and because the underlying assessments, although sent to the company, were never sent to B. Further, the first letter, under the Finance Act 1986, s. 14(2), was equally deficient because of its global character.
Customs, although they agreed not to claim more than the one-third of the penalty which the tribunal would have imposed, contended that the relative culpability of others was irrelevant. All the directors involved in the dishonesty of a company were jointly liable in view of the difficulties in attributing a proportion of moral blame to an individual. A person who participated in the dishonesty of a company was responsible for the whole amount of the penalty.
B contended that there was nothing in the language or context of s. 14 of the 1986 Act to limit the ambit of the word "portion" to aspects of time, and in a penalty provision, if there was any doubt about which way the court should lean, it should favour the more lenient construction.
Held, allowing Customs' appeal, but Customs to recover no more than the reduced amount determined by the tribunal:
1. This assessment was not in the objectionable sense a "global" assessment. The company had been assessed by Customs in separate amounts for each of an unbroken series of prescribed accounting periods and the scheduled amounts had been served on the company in full, although not on B.
2. Assessment of a penalty was one function required by the Finance Act 1985, s. 21(2) to relate to prescribed accounting periods. Notification was a separate and subsequent function which called for no more than a communication of the amount assessed as due. By the Finance Act 1985, s. 21(1) Customs were permitted to "assess the amount due by way of penalty" from the person liable and to "notify him accordingly". The reference in the Finance Act 1986, s. 14(3) to assessment and notification under the Finance Act 1985, s. 21 introduced those two distinct functions. The penalties assessed here were related to prescribed accounting periods, and an aggregate sum was then derived from the assessment which, by virtue of the Finance Act 1985, s. 13(1), became the amount of the penalty and by virtue of s. 14(1) of the 1986 Act became exigible in whole or in part from B, who was duly notified of it.
3. While the degree of culpability of an individual was material in fixing his liability, Customs were not obliged to apportion blame between directors. A culpable director might be liable for the total amount of the penalty. However, his liability might be reduced if he could show that he was less culpable than his fellow directors.
Customs appealed against a decision of the London VAT tribunal (chairman Mr Theodore Wallace). The grounds of the appeal were:
(2) the tribunal erred in law by dismissing the appeal on the basis that the penalty assessment was invalid since it was a global assessment rather than an assessment in respect of individual accounting periods as required under the Finance Act 1985, s. 21;
(3) the tribunal had reached a decision which no reasonable tribunal properly directing itself could have reached that the penalty assessments did not comply with the Finance Act 1985, s. 21;
(4) the tribunal erred in law in interpreting the Finance Act1985, s. 21(1) to mean that a penalty assessment was not effective until it was notified;
(5) the tribunal erred in law in concluding that the Finance Act 1986, s. 14(2) imposed on Customs an obligation to notify a company or a named officer of the company of the amount of any penalty only by reference to a prescribed accounting period;
(6) the tribunal erred in law in holding that the Finance Act1986, s. 14(3) required the content of an assessment to be notified rather than the amount only;
(7) the tribunal erred in law in holding that the culpability of an individual relative to other directors was material to the amount of the liability.
Sedley J: Mr Bassimeh, the respondent to this appeal, appealed successfully to the VAT tribunal (Mr Theodore Wallace and Mr H W M Fiske) against the imposition upon him of a penalty of £65,304 under s. 14 of the Finance Act 1986.
Mr Bassimeh had been a director, together with two others, of Al Omaraa Ltd which ran a Lebanese restaurant in Queensway, West London. Mr Bassimeh and his co-director Mr Mohanna were the chefs; the third director, Mr Meghrabi, organised the company's finances. The restaurant opened in 1983. In 1990 Customs officers established that the company's liability for VAT was being fraudulently concealed. They also formed the view, which in due course was upheld by the tribunal, that Mr Bassimeh had taken an active part in running the business and that throughout the relevant period the dishonest conduct of the company had been at least in part attributable to his dishonesty.
On these facts the company's liability in principle to a civil penalty equal to the amount of tax evaded was not and is not contested. Nor is there any challenge to the decision of the tribunal that no mitigation of penalty...
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