In Q Ltd v HMRC  EWHC 712 (QB), in considering the balance of risk, the High Court continued an interim injunction pending the outcome of the taxpayer's appeal to the First-tier Tribunal (FTT).
Q Ltd (the taxpayer) was an HMRC authorised warehousekeeper (AW) which enabled it to store goods on which full excise duty had not been paid. A condition of AW approval is that certain measures are in place under Excise Notice 196 (EN196) to identify potential fraud risks.
In 2017, HMRC revoked the taxpayer's duty representative status on the basis that it was not a fit and proper person to hold such authorisation. The taxpayer brought judicial review proceedings on the grounds that EN196 imposed duties on AWs which HMRC should itself be carrying out and EN196 was a breach of EU law. Permission to apply for judicial review was refused and that refusal was appealed to the Court of Appeal. The Court of Appeal granted permission to appeal and the judicial review continued. Whilst the judicial review proceeded, the taxpayer applied to HMRC for temporary registration as a duty representative. This application was refused and the taxpayer appealed to the FTT.
In December 2018, HMRC revoked the taxpayer's AW status, resulting in an appeal to the FTT and the instant application for injunctive relief to prevent HMRC's decision from taking effect.
The High Court granted an interim injunction on 27 December 2018. In January 2019, the taxpayer applied to HMRC for temporary AW registration and this application was refused. The taxpayer appealed to the FTT.
The instant decision concerns the return hearing for a continued injunction to allow the taxpayer to accept duty suspended goods into its warehouse pending the outcome of its appeal to the FTT.
High Court judgment
The parties agreed that the High Court had jurisdiction to grant an injunction pending the outcome of an FTT appeal and that, as a matter of domestic law, an interim injunction cannot be granted in support of an appeal to the FTT. The High Court could not therefore grant an injunction on the basis of domestic law. However, the parties agreed that ABC Ltd v HMRC  EWCA Civ 956, established that in accordance with Article 6, European Convention of Human Rights (ECHR), where in an appeal before the FTT, that tribunal is unable to provide an appellant with a remedy before it is forced out of business, an injunction can be granted.
As confirmed in ABC, documentary financial evidence and a statement from an independent professional who does more than simply reformulate the taxpayer's stated opinion are required. If the evidence is satisfactory the Court will consider the balance of convenience and decide whether to provide a remedy to ensure the effectiveness of an appeal.
The taxpayer claimed that two-thirds of its customers were affected by the AW status revocation and it estimated reputational damage and lost business in the region of 40–60%. HMRC argued that this evidence was speculative and did not prove that the taxpayer would go out of business.
The Court was satisfied that the taxpayer had adequately demonstrated that it would lose significant business, but it had failed to provide reliable evidence of the financial value of such loss. There was also no explanation as to why the taxpayer could not change its client base so as not to rely on AW status. As such, the revocation would not be so fundamentally disastrous so as to leave the taxpayer unable to carry on business before its appeal to the FTT was determined. The application for injunctive relief based on ABC and Article 6 ECHR was refused.
The taxpayer further argued that the judicial review proceedings challenged the incompatibility of EN196 with EU law. Additionally, EN196 implements EU Directive 2008/118/EC. The taxpayer relied on Factortame v Secretary of state for Transport, ex parte Factortame & Ors (No 2)  AC 603, which confirmed that an injunction can be granted as an effective remedy for infringements of EU law. Factortame applied the American Cyanamid Co v Ethicon Ltd  AC 396 principles in considering an injunction, namely: (i) whether there was a serious issue to be tried; (ii) whether there would be an adequate remedy in damages if an injunction was granted; and, (iii) the balance of convenience.
The Court was satisfied that the injunction threshold had been satisfied. Although the Court could not comment on the strength of the EU law arguments, the granting of permission in the judicial review proceedings by the Court of Appeal meant that the Court of Appeal considered the taxpayer's arguments to be sufficiently meritorious so as to justify the granting of permission. The EU law incompatibility argument was not so fanciful or weak that the Factortame threshold was not met.
Taking into account all of the circumstances, the Court decided that injunctive relief should be granted. There was no doubt that the inability to receive duty suspended goods would cause significant commercial damage to the taxpayer. Additionally, the appeal against the refusal to grant temporary authorisation was to be heard by the FTT shortly after the injunctive relief hearing and therefore the period of potential risk for HMRC would be limited.
This judgment provides helpful guidance on when interim relief will be granted when there are on-going proceedings.
The decision also provides useful guidance on the nature and extent of the evidence required in order for injunctive relief to be granted pursuant to ABC. It also highlights the importance of the American Cyanamid principles in determining whether injunctive relief should be granted.