In a judgment handed down this morning, the Supreme Court adopted a pragmatic and flexible approach to the scope of HMRC’s powers of interference with property on certain grounds. Reversing the Court of Appeal’s ruling, the Supreme Court found that, while the express statutory power to detain goods on which HMRC originally relied did not empower it to do so on the basis of reasonable suspicion, its actions were nevertheless lawful based on a power implied by its powers of inspection, which was only raised in subsequent legal proceedings.
The issue under appeal in the joined cases R (First Stop Wholesale Limited) v HMRC Commissioners; R (Eastenders Cash and Carry plc and others) v HRMC Commissioners  UKSC 34 was whether the Commissioners’ had the power to detain goods “liable to forfeiture” pursuant to s. 139(1) of the Custom and Excise Management Act 1979 (“CEMA“). The Court of Appeal had held that this section did not empower HMRC to detain goods in order to carry out investigations on the basis of reasonable suspicions. On the contrary, detention would only be lawful were goods were actually liable to forfeiture.
The Supreme Court agreed with this interpretation of s. 139(1) CEMA, but reversed the Court of Appeal’s finding that the HMRC’s detention of the claimants’ goods had been unlawful. Lord Sumption and Lord Reed, with whom the other Justices agreed, noted that the absence of a power to detain goods pending investigations would have “troubling implications” both in terms of the effective implementation of the laws governing custom and excise and of its compatibility with EU and human rights law. In particular, if the detention of goods for investigation was unauthorised by law, it could not amount to a legitimate interference with free movements of goods under EU law and with the peaceful enjoyment of possessions within the meaning of Article 1 of Protocol 1 to the European Convention.
On this basis, the Supreme Court appeared to “reason backwards” to establish an equivalent power outside the framework of the Act. Citing a 19th century case, Jacobsohn v Blake and Compton (1844) 6 Man & G 919, the Court found that a power to detain goods for investigation, while not expressly conferred by the customs and excise legislation, arose by necessary implication from the HMRC’s statutory power to examine goods to determine the duty payable thereon or whether they were liable to forfeiture.
This power had survived alongside those set out in subsequent legislation, including CEMA. The Supreme Court concluded that when Parliament created the power to detain goods liable to forfeiture under the provision that eventually became s. 139 CEMA, it did not intend to impliedly abolish the separate power of detention which had previously been held to arise by implication from statutory powers of examination. The Supreme Court gave the following explanation.
- Temporally, the two powers were distinct, as the process of examination preceded the reaching of a conclusion on whether goods were “liable to forfeiture”.
- It would have been illogical for Parliament to bestow on HMRC a range of intrusive investigative powers wider than those of other public bodies, but at the same time deprive it of a means of preventing goods from being disposed of, pending investigation.
- Nothing in the preparatory documents that led to the adoption of the relevant custom and excise legislation indicated that Parliament intended to restrict existing powers of detention possessed by custom officers.
The Court’s findings in this respect sit awkwardly with the recent amendments to s. 139 CEMA introduced by s. 226 of the Finance Act 2013. If a power to detain goods for investigation based on reasonable suspicion that they may be liable for forfeiture has always existed alongside custom and excise legislation, there would have been little need for Parliament to introduce an express provision to this effect as new s. 139(1A) CEMA. This section, which specifically provides that HMRC officers may detain goods which they “reasonably suspect … may be liable to forfeiture“, entered into force after the events subject to judicial review in First Stop and Eastender, and the Supreme Court therefore deliberately disregarded it in reaching this morning’s ruling.
It is also interesting to note that, following detention of alcoholic goods held by one of the claimants by the HMRC, written notices were provided stating that the goods had been detained “pending evidence of duty status (CEMA 1979, section 139)“. The claimants submitted that it was not therefore open to the Commissioners later to rely on a different power of detention not arising under s. 139 CEMA, since they had expressly referred to this provision as the legal basis of the detention. The Supreme Court rejected this argument, noting that: “the lawfulness of the detention of the goods depends upon whether the Commissioners possessed the power to detain them, not on whether they accurately identified the statutory source of that power“. This conclusion is perhaps surprising in terms of the requirements of fair process, including under Article 1 Protocol 1 of the European Convention.