JTI Polska Sp. Z o.o. v Marek Jakubowski trading as Mark-Trans-Sped Marek Jakubowski and/or trading as Mark-Trans-Sped Transport-Spedycia Marek Jakubowski

Heard on 28 February 2023

Lord Hamblen ( with whom Lord Reed, Lord Hodge, Lord Briggs, Lord Sales, Lady Rose and Lord Richards agree):

The question in this appeal is whether the road carrier is liable for excise duty of £449,557 levied by His Majesty's Revenue and Customs (“HMRC”) on the owner of 289 cases of cigarettes which were stolen at a service station on the M25 during the course of carriage by road from Poland to England.

The road carriage was undertaken subject to the Convention on the Contract for the International Carriage of Goods by Road 1956 (“the CMR”). The CMR has the force of law in the United Kingdom under the Carriage of Goods by Road Act 1965 and its terms are contained in the Schedule thereto. The CMR is a United Nations Treaty which has been adopted by 58 states including all EU member states. CMR is the acronym for the title of the Convention in French: “Convention relative au Contrat de Transport International de Marchandises par Route: CMR”.

Article 23.4 of the CMR provides that in the case of the loss of goods the cargo claimant may claim “carriage charges, Customs duties and other charges incurred in respect of the carriage of the goods”, in addition to the value of the goods. The issue of interpretation raised is whether the excise duty is recoverable as “other charges incurred in respect of the carriage of the goods”.

Courts in CMR jurisdictions have interpreted the phrase “other charges incurred in respect of the carriage of the goods” in article 23.4 in two main but different ways. The “broad interpretation” is that it encompasses charges incurred because of the way that the goods were actually carried and lost, so that the cargo claimant can recover excise duty levied on goods stolen in transit. The “narrow interpretation” is that it is limited to those charges which would have been incurred if the carriage had been performed without incident and so does not include excise duty levied as a result of the loss of the goods in transit through theft.

In James Buchanan & Co. Ltd v Babco Forwarding & Shipping (UK) Ltd. [1978] AC 141 ( Buchanan), another case involving excise duty levied on goods stolen in transit, the House of Lords decided by a 3:2 majority (Lord Wilberforce, Lord Salmon and Viscount Dilhorne) that the broad interpretation should be adopted (Lord Edmund-Davies and Lord Fraser of Tullybelton dissenting). It was held that the words were wide enough to cover charges arising in consequence of the way in which the goods had been carried or miscarried. The decision was handed down on 9 November 1977.

The appellants contend that Buchanan was wrongly decided both as a matter of the natural and ordinary meaning of the words used and because of the structure and purpose of article 23.4 within the compensation regime in chapter IV of the CMR. They submit that the narrow interpretation is to be preferred and that this court should exercise its power to depart from the Buchanan decision pursuant to the Practice Statement (Judicial Precedent) [1966] 1 WLR 1234 (“the 1966 Practice Statement”).

The first appellant (the first defendant in the court below) is a road haulier. He is a sole trader based in Poland. The second and third appellants/defendants are his trading names.

The respondents (the claimants in the court below) buy and sell tobacco products internationally. The first respondent is based in Poland, the second respondent is based in England and the third respondent is based in Switzerland. They are all part of the Japan Tobacco International group of companies.

In March 2019 the parties entered into a contract for the carriage by road of a consignment of 1,429 cases of cigarettes (“the consignment”) from the first appellant's premises in Gostkow, Poland, to the second respondent's premises in Crewe, England.

On 5 March 2019, the first respondent sold the consignment to the third respondent on Free Carrier (‘FCA’) Gostkow terms. On 6 March 2019, the third respondent sold the consignment to the second respondent on Delivered at Place (‘DAP’) Crewe terms (“the sales”).

The consignment was subject to tobacco excise duty when released for commercial consumption. The sales were subject to a European excise duty suspension arrangement. As a result, the application of excise duty was suspended until such time as the consignment was released for commercial consumption, or was deemed to have been released for commercial consumption as in the case of an irregularity occurring during its movement such as non-delivery or partial delivery due to theft.

The appellants' driver accepted the consignment at Gostkow on 5 March 2019. He drove to England, where he parked at Clacket Lane Services on the M25 motorway at about 01:33 on 8 March 2019. Whilst the vehicle was parked there overnight, thieves gained access to the consignment by cutting a hole in the side of the vehicle. They stole 289 cases of cigarettes (“the stolen cigarettes”). The stolen cigarettes were not recovered. They had a market value of £72,512 (excluding excise duty).

HMRC was notified of the theft and on 20 March 2019, HMRC assessed the second respondent as being liable to pay excise duty in the sum of £449,557 (“the Excise Duty”) under section 12A of the Finance Act 1994 in combination with section 116 of the Customs and Excise Management Act 1979. The Excise Duty was levied by HMRC on the basis that the stolen cigarettes were deemed to have entered into circulation within the UK following the theft. The Excise Duty was paid to HMRC by the second respondent on 11 April 2019.

The respondents claimed compensation from the appellants under the CMR. The sums claimed comprised the value of the stolen cigarettes, excluding excise duty (£72,512), the pro rata wasted freight costs (€602.19), survey fees (£1,975) and the Excise Duty (£449,557), together with interest and costs. The parties have settled the claim save as to the Excise Duty. The Excise Duty is claimed by the respondents under article 23.4 of the CMR. For the purposes of this appeal, and without prejudice to the parties' prior settlement of parts of the claim, it is agreed that the respondents have title to sue in respect of any sums recoverable.

The trial of the respondents' claim for the Excise Duty was heard by Judge Pelling KC (“the judge”), sitting as a High Court Judge, on 26 May 2021. The appellants accepted that in light of the Buchanan decision the judge was bound to hold that the Excise Duty was recoverable under article 23.4 of the CMR but they contended that the decision was wrong and should be departed from. They accordingly made an application for a certificate under section 12 of the Administration of Justice Act 1969 that the case was suitable for an appeal directly to the Supreme Court. The judge granted the certificate, principally on the basis of criticism of Buchanan by the leading English commentators on the CMR and the uncertainty created by the decision of the Court of Appeal in Sandeman Coprimar SA v Transitos y Transportes Integrales SL [2003] EWCA Civ 113; [2003] QB 1270 ( Sandeman). In that decision Buchanan was criticised and distinguished and it was stated that the decision should not be “applied any more widely by the courts of this country than respect for the doctrine of precedent requires” (para 38).

On 6 May 2022 the Supreme Court (Lord Kitchin, Lord Burrows and Lady Rose) granted permission to appeal and gave directions, including that submissions be provided as to “the impact, if any, that that decision [in Buchanan] has had on the drafting of contractual terms (eg has there been any ‘contracting round’ the decision) or on the taking out of insurance”.

The parties produced a Joint Statement in answer to this direction, setting out points of agreement and of disagreement. In summary, in relation to contractual terms the parties agreed that:

“The parties to contracts of carriage in the international road haulage market do not refer to Buchanan expressly or seek to avoid its consequences by agreement”.

In relation to insurance it was agreed that:

“…the recovery of excise duty payable on excise goods under article 23.4 of the CMR in addition to the value of the goods as defined in articles 23.1 to 23.3 in some jurisdictions but not others is one of the many variables which might affect the insurer's exposure under a policy covering international carriage of goods by road. Insurers of carriers and cargo interests both recognise the risk that they might be liable for the full value of the cargo, including excise duty (where applicable), and underwrite on that basis”.

The provisions of the CMR which are most relevant to the appeal are set out in the appendix to this judgment.

Chapter IV of the CMR addresses the liability of the carrier for loss, damage or delay to the goods carried. The relevant provisions concerning liability for total or partial loss of the goods may be summarised as follows:

(1) The carrier is liable for total or partial loss of the goods (article 17.1) unless it can show that the loss resulted from the cargo interests' fault, inherent vice or circumstances that the carrier could not avoid and consequences which it could not prevent (article 17.1 and 17.2).

(2) In the event of loss for which the carrier is liable under article 17, the...