[2010] UKFTT 623 (TC)

			
				TC00865

Reference numbers:  LON/2009/8030
								TC/2009/13106

Excise Duty and VAT  -  Liability of Appellant to Excise Duty and VAT if beer and cider despatched for export did not arrive at the recipient bonded warehouse in Calais  -  AAD version 3 documents all returned to the guarantor indicating that the beer and cider  had been duly received  -  whether the actual beer and cider despatched by the Appellant was the beer and cider that had been checked in by the bonded warehouse in Calais  -  whether there had been an “outward diversion fraud”  -  Appeal dismissed

FIRST-TIER TRIBUNAL
TAX CHAMBER

	CHECKPRICE (UK) LIMITED	Appellant
(in administration)

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS 	Respondents

				TRIBUNAL: 	 HOWARD M NOWLAN (Judge)
						 MRS SHAHWAR SADEQUE

Sitting in public at Field House, Breams Buildings, London from 4 to 15 October 2010 

Peter mantel, counsel, on behalf of the Appellant 

Jonathan Holl and Jenny Thelen, counsel, on behalf of the Respondents

© CROWN COPYRIGHT 2010

DECISION

Introduction

1.     This was an Excise Duty and a VAT case in which HMRC had assessed the Appellant for £1,851,189 in Excise Duty and £1,202,702 in VAT.   

2.     The case involved no dispute about the law, and revolved entirely around our need to decide what had happened to 119 lorry loads of beer and cider (mainly beer, and we will refer to the consignments as beer throughout this decision) that had been despatched by the Appellant from its own warehouse near Norwich, which was also an approved Customs warehouse.   These consignments (being duty suspended liquor) were required, in accordance with Excise Duty law, to be delivered to another bonded warehouse, and thus they were destined to be delivered (in the case of all lorry loads except one) to a bonded warehouse in Calais operated by MT Manutention (“MTM”), for the account of a cash and carry customer of the Appellant’s called Boissons Extra SARL (“Boissons”), also located in Calais.  

3.     It was common ground between the parties that, because the Appellant had been the guarantor of the duty-suspended movement from the Appellant’s warehouse to MTM’s Calais warehouse, the Appellant would be liable for both Excise Duty and VAT unless the Appellant could demonstrate that the beer despatched had in fact been delivered to MTM. Whilst the VAT, as distinct from the Excise Duty, was not payable under the guarantee, both parties accepted that if the Appellant could not demonstrate that the consignments had duly arrived at MTM’s warehouse, both Excuse Duty and VAT would be due.     

4.     The sole question for us, thus, was whether the beer had indeed arrived at MTM’s warehouse, or rather (the burden of proof being on the Appellant), whether the Appellant could establish, on the basis of the balance of probabilities, that it had been so delivered. 

5.     When duty-suspended goods leave a Customs bonded warehouse, destined for an equivalent bonded warehouse in another EC jurisdiction, as in this case, the consignor must complete the familiar CMR form, and a 4-copy form, known as an Accompanying Administrative Document (“AAD”).  In the case of the AAD, the consignor retains copy 1 of the form, and copies 2,3 and 4 are then carried with the goods as they are in transit.    On arrival at the destination warehouse, that warehouse is required to check whether the goods delivered correspond to the goods described in the AAD, being the description of the goods at the point of departure, and if they do, the destination warehouse retains copy 2 of the AAD, completes and receipts copy 3 of the AAD and returns that to the despatching warehouse, confirming receipt, and sends copy 4 to the tax authorities in the recipient jurisdiction.    Receipt of copy 3 of this document, when sent by the recipient warehouse back to the consignor, is taken to be very good evidence that the goods have duly arrived and that the party potentially liable under the movement guarantee will have extinguished its liability for Excise Duty and VAT.  In this case, MTM confirmed the receipt of the beer despatched in 118 out of the 119 loads (the last load going to a different destination and being of no great significance).

6.     Notwithstanding the receipt of copy 3 AADs by the Appellant, HMRC contended that the goods despatched had not arrived at MTM’s warehouse.   The burden of proof lay then on the Appellant to prove that, on the balance of probabilities, the consignments had arrived.  It was not particularly material for HMRC to specify what had happened to the goods or why it was suggested that the goods despatched had indeed not arrived.   

7.     We were told that, in the past, common explanations for the fact that the consignments might not have arrived whilst copy 3 AADs appeared to have been received by the consignor, were either that the receipt stamps on the AAD might have been forged, or alternatively that the recipient bonded warehouse might have been party to a fraud.   Neither of these possibilities was disclaimed by HMRC, but neither was seriously advanced either. 

8.     Instead HMRC advanced what is known as the “borrowed loads” version of “outward diversion fraud” as the explanation for the failure of the goods to arrive, whilst MTM had still confirmed their receipt.  In this suggested scenario it is claimed that the tractor portion of the articulated lorry that had left the Appellant’s warehouse with the beer had at some point, whilst still in the UK, detached the loaded trailer which would have been taken by a different tractor to a black-market outlet in the UK without UK duty and VAT being paid.  Simultaneously, the original tractor would have hitched up an empty trailer and crossed the Channel with the empty trailer.    Once in France it was then claimed that the tractor and empty trailer would have gone to a casn and carry warehouse and borrowed a consignment of beer exactly matching the original load. The re-loaded lorry would then have appeared at MTM’s warehouse, where not surprisingly the staff would have noted and confirmed that exactly the categories and brands of beer indicated on the AAD had indeed arrived, so that the copy 3 AADs would have been receipted. 

9.     Since the beer in question had been sold to Boissons, which was a customer not only of the Appellant but also of MTM, the beer would generally have been released from MTM’s warehouse with new transport documentation indicating that it was to be delivered to Boissons.    In this situation the beer would have been checked at MTM’s warehouse without even being unloaded.  Assuming that the fraud alleged by HMRC had occurred, the lorry would then either have returned the “borrowed” beer to the cash and carry from which it had been acquired or, should Boissons itself have made the borrowed load available, the consignment would have been returned to Boissons.    In both those scenarios, the sale to Boissons would thus have been fictitous.   

10.     French duty would have to have been paid by Boissons to MTM before MTM, as a bonded warehouse, would have released the beer for transportation to Boissons.      French duty was at approximately 10% of the amount of UK duty.  Thus the essence of this fraud was that at a cost of about 10% of the UK duty, a trailer load of beer could be diverted in the UK and sent to a black-market outlet (an operation oddly termed “a slaughter”), without UK duty being paid and without the export documentation revealing that the load had not arrived at its destination.  Thus the fraud would have been concealed.

11.      A somewhat similar operation had been claimed by HMRC to have occurred in the case of Abbey Forwarding Limited (in Liquidation) v. Hone & others [2010] EWHC 2029 (Ch).    In that case, where the actual facts were somewhat different, and where the dispute did not directly involve HMRC at all, Mr. Justice Lewinson had described the “borrowed loads” suggestion as merely a “theory”, for which in that case there was no evidence.   Counsel for the Appellant relied on the same proposition in this case, suggesting that HMRC’s contention was mere theory, and speculation. 

12.     In this case, however, the Respondents’ contentions are not mere speculation.    Evidence was given to us that:

•	of 16 loads which had been scanned prior to going through the Channel Tunnel, all 16 had been found to be empty;    
•	whilst there was no indication, either way, in the case of several of those 16 lorry movements of the identity and VRN of the vehicle that subsequently towed a trailer laden with beer, fitting the description in the AAD, into MTM’s warehouse, wherever there was such an indication, the lorry was the very one that had been shown to be empty, when crossing the Channel;  
•	Boissons was clearly fraudulent, and the ostensible owner of the shares, and the only director of Boissons was a UK citizen whose identity had been stolen.     It was suggested that the purpose of this was to enable Boissons to follow the pattern of several other backstreet Calais cash and carries, and default on its later liability to account for French TVA, demonstrating that it was insolvent, and that as its shareholder and director were located outside France, it was pointless for the authorities to pursue the unpaid TVA in any way;
•	extraordinarily curious arrangements between the Appellant, and one Dr. Santry (whose full apparent involvement, of which we were aware, we will explain below), made it simple to see how Boissons could deliberately order from the Appellant the quantities and brands of beer that it, Boissons, would need to provide or procure and load onto empty trailers, in order to match the original loads identified on the AADs and CMRs;
•	all payments received by the Appellant were received in cash, ostensibly brought from Calais, and always brought either by Dr. Santry or by a courier appointed by him and delivered either in boxes or tough plastic bags; and 
•	expert evidence derived from a study of the tachograph equipment on all lorries indicated that for all those vehicle movements analysed (five, and to an extent a further four):-

o	it was possible that there had been a trailer swap in the UK;
o	 it was not possible that each lorry’s first journey in Calais had been to MTM’s warehouse; but 
o	the first journey in Calais could have been to Boisson’s warehouse.

13.     In the light of this evidence, we reach the conclusion without any hesitation that the Appellant has failed to demonstrate that the consignments initially despatched did duly arrive at their required destination, and this appeal is dismissed.    

14.      We should emphasise that it was not part of HMRC’s case that the Appellant itself was a party to any fraud that there may have been.   The Appellant’s liability for both Excise Duty and VAT is simply based on its failure to show that the consignments duly arrived at the required destination, i.e. MTM’s warehouse.

15.      Whilst much of the remainder of this decision will be dedicated to describing the facts, the evidence, and the reasoning underlying our decision, it may be appropriate to say at this stage that we consider that when the Appellant contended that HMRC’s case was based on unfounded speculation, we consider that in this regard the boot was on the wrong foot.  The reality was that the Appellant’s suggested explanations for damaging evidence were the unfounded speculation. 

16.    We might perhaps also observe that, either through lack of staff or to some extent through incompetence and change of personnel, HMRC has hardly acquitted itself in a very favourable light in this case.  

The Evidence, and the conspicuous lack of evidence

17.     There were two rather curious aspects to the evidence in this case.  One was that there was a vast volume of evidence and extensive cross-examination.  Since many of the relevant conclusions to be derived from the evidence seemed to us to be self-evident, and barely to be contentious, one observation on the evidence that was given to us was that most of it seemed to be irrelevant.  

18.     In contrast to this, however, there was a manifest lack of evidence, largely because of the absence of those people who might, and doubtless would, have been able to fill in all the gaps had they either been available to give evidence or had they been called to give evidence.  The result of this is that we are effectively now required to decide this case by inference from what evidence (and, in particular, documentation) that there was, albeit that there is no certain proof as to what precisely happened.       

19.    We can easily explain these points. 
The evidence that we do have and that we will refer to

20.      Much evidence was given on behalf of the Appellant to support the proposition (that we entirely accept) that, disregarding the particular transactions with which we are presently concerned, the Appellant’s business had been impressive, efficient and well run, and that it had at all times complied with its various tax liabilities, and filing requirements.  Equally it was obvious that all of the employees regarded the managing director, Mr. Feneron, as an honest and astute businessman, an impression that we largely shared, if we leave aside the risks taken in embarking on the numerous transactions with Boissons, with which we are presently concerned. 

21.     In due course the only items of evidence that we will summarise in relation to the role of the Appellant itself, aside from acknowledging its otherwise impressive business model,  will be:

•	the poor due diligence of numerous aspects of the Appellant’s dealings with Dr. Santry and his company, Connection Import and Export Limited (“Connection”), and more particularly the poor due diligence in relation to all the Appellant’s dealings with Boissons;
•	the way in which Kelly Garrard, one of the Appellant’s employees,  provided, in a daily early morning phone call with Dr. Santry, a complete and detailed list of the brands and categories of beer that the Appellant had available for sale;
•	the way in which another employee, Ann Bartlett, dealt with the due diligence inquiries in relation to Boissons, in which regard she understandably relied entirely on views that Mr. Feneron had reached on visiting Boissons’ premises;
•	all aspects concerning the way in which all receivables ostensibly owed to the Appellant by Boissons were paid in sterling cash, all being couriered in boxes or tough plastic bags to the Appellant either by Dr. Santry or by unidentified couriers reporting to Dr. Santry; and
•	finally some observations that the warehouse manager, John Westlake, made about the affixing of seals to transport lorries.

22.     We will also summarise some of the matters relating to the relationship between the Appellant and the transport firm, Thompson Haulage (“Thompsons”) run by Eric Thompson, and we will refer to evidence given by Mr. Wright, the only Thompsons’ driver to give evidence. 

23.      As regards the Respondents’ evidence, we consider that the evidence given by Mr. Gorringe, who had left the employment of HMRC by the time of the hearing (but who had initially been the case officer), and the evidence given by Mr. Alan Duxbury, was well informed evidence given by senior men in (or until recently in) the employ of HMRC who had considerable experience in the field.  In terms, however, of establishing what the facts were, we consider it far more relevant to consider the documentation that we do have, rather than to make much reference to the evidence of any of HMRC’s witnesses  

24.     We will also summarise the vital evidence in relation to scans made of lorries preparing to pass through the Channel Tunnel, given in three Witness Statements, and by two of those witnesses in person, all on behalf of Eurotunnel. 

25.     We will also summarise the evidence of Elouise Zappara (“Miss Zappara”), given on behalf of HMRC. 

 26.    We will also summarise some of the tachograph evidence given by the expert witness, Mr. Gordon Humphreys of Foster Tachographs Limited, given on behalf of HMRC.
The evidence that we do not have

27.    The whole of this case relates to the sale of 119 lorry loads of beer, all of which were sold to Boissons and, being duty suspended goods, all but one of which was to be transported to MTM’s bonded warehouse in Calais.   

28.     The actual transport firm that dealt with the movement of every single load of beer was Thompsons. 

29.      Many of the arrangements for the sale of the beer to Boissons were effectively arranged by Dr. Santry, who also dealt with all cash movements. 

30.     The feature of absent evidence in this case results from the fact that, with the exception of one lorry driver, Mr. Wright, absolutely no-one who gave evidence had seen a single can of beer destined for Boissons after the point at which it left the Appellant’s warehouse. The beer had left that warehouse with impeccable documentation, in other words AADs and CMRs giving all the required information.    

31.    No evidence was called for or given by Dr. Santry as to his role. 

32.    Thompsons had been assessed for Excise Duty in relation to claimed irregularities in its transportation of the beer; Thompsons did not appeal;  Eric Thompson was declared bankrupt;  we were told that he had emigrated to Canada, and he certainly gave no direct evidence, albeit that there were some meeting notes of meetings that he had had with HMRC officers.

33.     Miss Zappara, the ostensible shareholder and director of Boissons gave evidence, that we entirely accept, that her identity had been stolen with a view to presenting matters as if she ran Boissons, and as if she signed every single order for beer etc placed by Boissons with the Appellant.   We accept that she had absolutely no knowledge of how Boissons operated. 

 34.    The mastermind behind Boissons, whose business appeared to us to be largely or entirely fraudulent, appeared to be a man called Mohammed Mumtaz Akhter, generally known as Mo-Mo (“Mo-Mo”).   According to Mr. Duxbury’s evidence, Mo-Mo had been behind a number of short-lived, seemingly fraudulent, cash and carries in Calais.    Needless to say, Mo-Mo gave no evidence.

35.    Whilst we were expecting the Managing Director of the large and reputable bonded warehouse company in Calais, MTM, to give evidence, we learnt at the commencement of the hearing that he was not prepared to give evidence in person or by video-link, ostensibly on medical grounds. 

36.      Whilst we were given evidence by two Eurotunnel employees as to their various systems, there was the regrettable fact that the Eurotunnel employee, Mr. Coutts, who had actually provided the evidence to HMRC in relation to the scans of particular vehicles that had passed through the Tunnel on identified dates, had died before the hearing, so that no-one was able to answer several critical questions as to the information that had been provided by Mr. Coutts.

37.     Finally, Mr. Gorringe had left the employment of HMRC by the time of the hearing, albeit that he had been the case officer who had been primarily responsible for preparing the case against the Appellant.  He was summonsed to be cross-examined on certain points, but HMRC expected his replacement officer, Mr. Brown to act and give evidence largely in place of Mr. Gorringe.  This was unfortunate because without meaning to criticise Mr. Brown, it was obvious that Mr. Brown had far less familiarity with the case than Mr. Gorringe had had.  

The Assessments and the Law

38.     There is no need to expand on various points related to the assessments, and the relevant law in this case, which we will simply mention in passing. 

39.      Aside from the oddity that the first assessments were made almost immediately after HMRC had actually reduced the level of security required to be maintained by the Appellant as security for its movement guarantee, the first assessments were defective in two ways.    One was that they listed various specified lorry movements (only about 20), but left it to Mr. Feneron to point out that if assessments were made in respect of the identified lorry movements, then there were many other movements of an identical nature, such that he asked whether they were also to be assessed.   Secondly the VAT had been wrongly assessed as part of the Excise Duty assessment.   

40.      Both of these errors were in due course corrected, and further assessments made, save that once again yet some further lorry movements were omitted.   When Mr. Feneron pointed this out, HMRC eventually responded that no assessment would be made in respect of the few remaining omitted movements.   Mr. Feneron suggested that this revealed a lack of conviction in the presentation of the whole case.   In his evidence Mr. Duxbury said that had he realised that another officer was going to concede that no assessments were to be made in respect of the remaining few movements, he would have countermanded that and insisted that assessments be made. Our surmise is that the final assessments were not made out of sheer embarrassment for the incompetence of having on a second occasion been prompted to correct deficient assessments by the managing director of the Appellant. 

41.    The other point to mention is that whilst the actual assessments are now in respect of 119 lorry movements, dating from the period May to December 2007, there were five movements in July of that period that have been excluded from the assessments that we were required to deal with.   The situation as regards these five is that they all occurred in a 3-day period in which several HMRC officers were present in the scanning office at Eurotunnel’s UK base, actually seeing the Vehicle Registration Numbers (“VRNs”) for lorries expected to be transporting the Appellant’s goods to Calais (such VRNs being flagged up by automatic VRN recognition), and photocopy documents of the scans of the vehicles were taken, retained and shown to us.  We were told that this Tribunal had given directions that the five relevant movements should,for some unexplained reason, be omitted from the main assessment.  We were however given evidence about the five movements, and that evidence is of some relevance in this case. 

42.      As regards assessments, we should also repeat the point that Thompsons had also been assessed for claimed irregular movements;  Thompsons had not appealed against the assessment, and its proprietor, Mr. Eric Thompson, had been declared bankrupt, and had moved to Canada.

43.      We consider it irrelevant to summarise any of the relevant law in this case.    The Excise Duty was owed by virtue of the Appellant being the guarantor of the liability for Excise Duty, were any irregularity in the movement of the consignments to be detected in the UK.  Whilst VAT was not owed under the guarantee, it was common ground between the parties that, were the Appellant unable to establish, on the basis of the balance of probabilities, that the consignments of beer had duly arrived at the consignee warehouse in Calais, i.e. MTM’s warehouse, then the Appellant would be liable for both the Excise Duty and the VAT, the subject of the assessments mentioned in paragraph 1 of this Decision. 

The facts in more detail
The Appellant’s basic business

44.     We have already indicated in the Introduction that the Appellant was conducting a substantial business in trading in various goods, largely alcoholic product, and beer to a considerable extent.  Everything that we heard about the general standards in the administration of the Appellant’s large warehouse near Norwich indicated that the business was an efficient and well-run business.  Plainly all of the employees who gave evidence had a high regard for the managing director, Mr. Feneron, which we found entirely credible.   We will have to criticise many of the aspects of the Appellant’s business in relation to its sales of beer to Boissons, the due diligence ostensibly undertaken in relation to that element of the overall business, and several of the ways in which that business was undertaken, but we still say that at the very least there seemed to be no element of fraud or shady dealing in the Appellant’s general business, and none was alleged by HMRC even in relation to the business with Boissons.   We will in due course expand shortly on that aspect. 

45.     In addition to being a warehouser, and supplier, of alcoholic product, HMRC had approved the Appellant as a bonded warehouse operator, entitled to hold and transport duty-suspended consignments of alcohol. Such duty-suspended alcohol always had to be despatched, when in duty-suspended form, to another UK, or an EU bonded warehouse, or else on being released for consumption in the UK, duty had to be paid.  In the case of the lorry movements that we are concerned with in this case, those movements remained duty-suspended movements because although the beer had actually been sold to Boissons in Calais, the consignee of the beer had always been a French-approved bonded warehouse, MTM, in all but one of the 119 lorry movements. 
The reduction in the deposit required to support the Appellant’s guarantee

46.      We have already mentioned that, not only was the Appellant’s general business seemingly well run, but until the assessments made in this case, the Appellant appeared to have had a good relationship with the UK tax authorities.  We were certainly given no information of any other tax or VAT disputes involving the Appellant, and we have mentioned the anomalous fact that those HMRC officers dealing regularly with the Appellant thought it appropriate to indicate to the Appellant that they were prepared to reduce the required level of security to be given by the Appellant for its potential guarantee liabilities in relation to the movement of duty-suspended goods, only days before the first assessments were made in this case. 
The origin of the dealings with Connection, and via Dr. Santry, with Boissons

47.      We were told that for some time prior to the Appellant’s first sales to Boissons, the Appellant had been selling beer to Dr. Santry’s company, Connection, some or much of that beer then being on-sold by Connection to Boissons, with the transit of the beer to a Calais bonded warehouse being guaranteed by Connection’s movement guarantee.  

48.     Mr. Feneron told us that he had found this business to be entirely satisfactory.   At some point he and Dr. Santry met in a pub, whereupon Dr. Santry informed Mr. Feneron that he had reached the limit of his Excise Duty guarantee for exporting duty-suspended goods to Boissons, and he asked Mr. Feneron whether Mr. Feneron would use the Appellant’s guarantee to cover further Connection exports to Boissons. 

49.     Mr. Feneron was not prepared to allow the Appellant’s guarantee to cover Connections’s sales to Boissons, but he did consider the possibility of the Appellant itself selling directly to Boissons under its own guarantee. 

50.      Dr. Santry and Mr. Feneron obviously discussed this possibility, either at the initial meeting or shortly thereafter, and it was Dr. Santry who provided Mr. Feneron with a copy of the passport of Miss Zappira, seemingly the shareholder and director of Boissons, along with Boissons’ French TVA certificate and its certificate of incorporation.   

Visits to Boissons and “due diligence” in relation to Boissons  

51.     It seems that Mr. Feneron drew some comfort in relation to the prospect of selling directly to Boissons from the fact that the Appellant’s sales of beer to Connection that Connection had on-sold to Boissons had been problem-free.   He accordingly thought that, whilst due diligence would be undertaken in relation to Boissons, as with all prospective suppliers and customers, the satisfactory dealings via Connection would probably mean that there would be little problem in the due diligence undertaken in relation to Boissons. 

52.     On the next occasion when he was in Calais, however, at some time between 18 and 28 May 2007, he visited Boissons’ warehouse, without prior announcement.   He said in his first Witness Statement that he was shown round the “premises” by Mo-Mo, who introduced himself as the warehouse manager.  He said that Mo-Mo confirmed that Elouise Zappara was a director of Boissons, and Mr. Feneron said that he “saw Miss Zappara and was given a copy of [her] passport”.  When, at a slightly later point, Patricia Bartlett, the Appellant’s employee responsible for due diligence, was compiling and filing the due diligence material on Boissons,  she handed Mr. Feneron a copy of the passport, and asked him to sign the wording that she had typed on the bottom of the photocopy of the passport.    The endorsement on the copy of the passport that we were shown, from which incidentally it would have been almost impossible to identify the passport holder from the very poor black and white photocopy said “I certify that I have met Elouise Zappara and seen her passport.    This is a photocopy of that document”.    This Mr. Feneron signed. 

53.      We might observe at this point that it cannot have taken that long to be shown round the Boissons’ premises, as they consisted simply of a narrow and reasonably long windowless corrugated-iron warehouse, accessed through a roller door in the middle of the front of the warehouse.   The door looked (and manifestly must have been) wide enough for a small swing-lift fork-truck to take a pallet of beer through the door, and the warehouse was then presumably wide enough for one pallet to be stored on each side of the central aisle.   We also estimate that it cannot have taken long to be “shown round”, and that since there was no indication that there was any significant separate office accommodation, it was somewhat curious that if Miss Zappara was in the building to be seen, Mr. Feneron did not speak to her

54.      Shortly after this visit, we were told that Boissons placed orders for beer with the Appellant, and the Appellant started supplying beer to Boissons, using its guarantee to secure the Excise Duty on the duty-suspended movements intended to terminate at MTM’s Calais warehouse.  We accept that Mr. Feneron had had other and earlier dealings with MTM, and we accept that MTM had a good reputation as one of the largest bonded warehouses in the Calais area.  We were told that an indication of its standing with the French customs authorities was that it was one of the few bonded warehouses trusted to have, and to affix, actual French customs seals on documents, such for instances as the receipt stamps placed on copy 3s of incoming AADs. 

The Appellant’s due diligence questionnaire, and its part-completion by Boissons
55.     The Appellant sent Boissons two copies of its due diligence questionnaire, the second because the first was not returned, and we can summarise shortly the quality of the information returned in response to the questionnaire, as “appalling”.  Beyond giving the name, address, landline phone and fax numbers for Boissons, and identifying Miss Zappara as the director, and suggesting that it was Miss Zappara who dealt with orders and accounts, the only information given was as follows.  The company was said to conduct a cash and carry beer and wine business, to have been established for “6 month”, to have 6 employees, to have annual sales of £12,000,00 (presumably meant to be £12 million), and to have a French TVA number.  There was no other information.   Boissons requested a credit limit of £100, which was a bit odd in the light of the payment arrangements that we will summarise below. All information requests concerning bank details, accountants and trade references were simply crossed out and in the box asking how Boissons was to discharge its account to the Appellant, the answer given was “Cash”. 

56.     When Patricia Bartlett was asked whether she considered that the due diligence was satisfactory, she understandably replied that she understood that Mr. Feneron had visited the Boissons’ premises, and had met Miss Zappara, and that if Mr. Feneron was satisfied with the integrity of Boissons, that was good enough for her.   We accept that that was a perfectly understandable reply, and we have no doubt that she had complete faith in Mr. Feneron. 

57.      We should add two further facts at this point.   By the time Mr. Feneron wrote his third Witness Statement, it was clear that he accepted that he had neither actually met Miss Zappara, nor seen her actual passport.   He said that when he had signed the endorsement that he signed at the bottom of the copy of her passport, he either failed to look at the precise way in which Patricia Bartlett had expressed the certificate that he would sign, or else he thought that the wording was not particularly inaccurate.   Counsel for HMRC said that he considered that Mr. Feneron had been seeking to mislead in his first Witness Statement, and said that he had lied.  We accept that even the Appellant’s own document stressed in bold type that actual documents, not copies, should be seen in the due diligence process, though we are somewhat inclined to think that if all other aspects of the visit to Boissons had been satisfactory, and if the due diligence material itself had been satisfactory (when neither was), the inaccuracy would have been almost understandable. 

58.      Mr. Feneron made one or two other visits to Boissons, and at one he certainly said that he had seen vans in the vicinity of the warehouse.   We will give, as one of our findings of fact, our own summary of the various reports of whether or not vans, whether UK or French vans, were to be found in the vicinity of Boissons’ warehouse. 

59.      We should finally mention in relation to Mr. Feneron’s visits and contacts with Boissons that towards the end of the hearing, the Appellant’s counsel said that Mr. Feneron had said that the woman that he had once seen in Boissons’ warehouse was not Miss Zappara, in other words not the real Miss Zappara who had given extensive evidence to us. 
Miss Zappara’s evidence, and related HMRC evidence
60.      Miss Zappara’s evidence was very clear and we accepted it without question.    She said that she had been lured to Calais, along with her partner, in a rather extraordinary way in the hope of being given a job as a manager or cashier in a Calais cash and carry.   She had then either been left in a poor hotel bedroom for part of her short stay, or she had been taken in a taxi, accompanied by Mo-Mo, ostensibly to open bank accounts.  When supposedly opening bank accounts, Mo-Mo had taken Miss Zappara’s passport. The relevant passport, the back page of which was obviously photocopied, was somewhat relevantly about to expire, having been issued nearly 10 years before the visit to Calais.  Miss Zappara and her partner left Calais, wanting to have no more to do with Mo-Mo, and nothing whatsoever occurred in relation to the promised job. 

61.      As we have already mentioned, Mr. Duxbury said in his evidence that identities had been stolen for the purpose of operating other of these short-lived companies in Calais.   Prior to Miss Zappara’s case, several UK residents’ identities had been stolen, including one of a churchwarden.   We were told that more recently, people from other countries were being chosen.  

62.     Mr. Duxbury said that HMRC believed (with credibility) that the purpose of arranging for the shares in the short-lived companies to be owned by a non-French resident, and for the only ostensible director of the companies also to be a non-French resident was to ensure that when the companies disappeared without ever making a French TVA return, the French authorities would have no-one to chase for undeclared or unpaid taxes. 

The detail of the method of dealing, via Dr. Santry, including the daily summary of available beer and cider, the signature on all Boissons’ orders, and the cash payment arrangements
63.      From the very start of the Appellant’s dealings with Boissons, the pattern of trade appears to have been along the following lines. 

64.     First, Dr. Santry, who was known to have had a considerable relationship with Boissons, telephoned Kelly Garrard at the Appellant’s office early on every morning and took down a record of the exact brands, descriptions and pallet sizes of beer, and presumably prices, that the Appellant could then supply.

65.      This information was obviously passed on by Dr. Santry to Boissons because invariably Boissons placed an order for items on the available list.  Every order that was faxed to the Appellant was seemingly signed by Miss Zappara.  We accept the evidence given by Miss Zappara that the signature appearing on all these invoices was not her current signature, but instead her signature approximately 10 years ago when the passport that Mo-Mo had obviously copied, had been issued.   This of course was the significance of the fact just recorded that the passport was nearly 10 years old.  It was also perfectly obvious that on every document where we were shown Miss Zappara’s signature (the response to the Appellant’s due diligence questionnaire, and every single faxed order for beer from the Appellant) the signature was absolutely identical.  It was in other words quite clear that one single copy of the out-of-date signature was being affixed to all these documents. 

66.      On every occasion when the Appellant was paid, ostensibly by Boissons, Mr. Feneron in fact received cash in boxes or in tough plastic bags.  It was claimed that UK customers of Boissons regularly bought their beer and paid for it in sterling cash, and that this was why Boissons was able to pay in cash.   It was also suggested that it saved banking charges for the cash not to be paid into banks, which was why Boissons always wished to pay the Appellant in cash.  We were told that over the period of eight months, approximately £5.8 million had been paid in this way. 

67.     Mr. Feneron told us that the cash was never collected from Boissons by himself or any of his employees, but always brought to the UK by either Dr. Santry himself, or fairly occasionally by an unidentified courier in a car, acting for Dr. Santry.     There was a slight discrepancy in Mr. Feneron’s evidence as to where he chose to meet Dr. Santry. We initially understood him to say that on week-days, the cash boxes or bags might be received at the Appellant’s premises, albeit that for security reasons it would never be received at the premises, should Mr. Feneron be present at the premises over the weekend.  Mr. Feneron later said that cash was never received at the premises, but in a McDonalds’ car park or at a number of different places.  

68.     We were told that in the early period, Dr. Santry declared cash when he crossed the Channel into the UK.  On one occasion he was embarrassed by being required to count the cash out, in full view of others, and it was said that after that experience he never declared the cash on entering the UK.  
The Appellant’s transport arrangements

69.     We understand that the Appellant had used Thompsons as its transport firm, or as at least one of its carriers, prior to any sales to Boissons.  All of the 119 (or 124) movements involved in the sales to Boissons were carried by Thompsons.    

70.     Thompsons were a relatively small transport firm, being run by Mr. Eric Thompson, in the north of England.  Its lorries were leased; we understand that it had leased more trailers than tractors, and about ten different Thompson drivers were involved in the transport of loads with which we are concerned.

Thompson’s contract with Norfolkline

71.     The most significant fact in relation to the transportation arrangements with Thompsons was that Thompsons had a very valuable line of business, generally bringing goods in the reverse direction for the company Norfolkline.  Where we learnt of the nature of goods being transported from France to the UK, the goods in question were food, some of which required refrigerated trailers, whilst other food could perfectly easily be transported on the flatbed trailers, with curtain screens, that were most convenient for the carriage of pallets of beer.  The documents obtained by HMRC from Thompsons indicated that it was extremely common for the outwards journeys for the Appellant to be arranged alongside a back-load for Norfolkline. 
Evidence from Thompsons and Mr. Wright

72.     We have already indicated that little evidence was obtained by HMRC from Thompsons, and because Mr. Thompson had gone bankrupt and emigrated to Canada, obviously no evidence was given to us by Mr. Thompson. 

73.     One of the Thompsons’ drivers, Mr. Wright, did however give evidence before us. 

74.     It seems that by good luck or coincidence, whilst Mr. Feneron had been unable for a long time to locate any of the Thompsons drivers, with a view to ascertaining their role in relation to the transport of the Appellant’s beer, Mr. Wright happened to be in the Appellant’s warehouse, having a cup of tea while loading or unloading a consignment of Coke, and Mr. Feneron recognised him. This was how it became possible for Mr. Wright to give evidence before us. 

75.     We were left in some doubt as to the precise roles of Mr. Thompson and Mr. Wright in arranging lorry movements, and in particular the lorry movements for the Appellant, and the back-loads for Norfolkline.  Some evidence seemed to suggest that Mr. Thompson’s role was more in relation to such financial matters as the leasing of tractors and trailers, and that much of the day-to-day allocation of responsibility for selecting drivers for particular loads fell to Mr. Wright. It was clear that Mr. Thompson regarded Mr. Wright as the one of his drivers who perhaps had a better brain than the others, and it was thus obvious that Mr. Wright, whilst still occasionally undertaking actual journeys amongst the 119 with which we are concerned, spent some of his time arranging which driver and tractor should undertake which journey. 

76.     Mr. Wright said in his evidence, which we obviously accept, that trailer swaps were a simple and quick operation.  He also said that they were common in the transport business, and he said that when he had occasionally himself taken beer for the Appellant to Boissons’ premises, he had sometimes effected a trailer swap, because he would have arranged for another driver to bring the load from Norfolk to a convenient point at which to switch trailers, all to save him the two unnecessary journeys, bearing his starting-point in mind, of going to and from the Appellant’s warehouse in Norwich. 

77.     Mr. Wright said that when he had been to Boissons, he considered that there was adequate parking in the vicinity of the warehouse, and he would generally speak to the fork-truck drivers who would unload the beer from his lorry.   He also said in his Witness Statement that on one occasion when he went into the warehouse, he saw customers and noticed that there was a cash register being used to record sales.   Whilst the following point was not mentioned in his Witness Statement, in oral evidence he said that he saw a coach, with a coach load of passengers in the vicinity of Boissons’ warehouse, and some French vans. 

78.     In view of the period of time that had elapsed between mid 2007 and the date when his evidence was called for, Mr. Wright was unable to say on how many occasions he had delivered beer to MTM, and then on to Boissons for the Appellant.     It was his evidence that he had genuinely delivered the beer, though he had probably only been the actual driver on fairly few occasions. 

79.     We will comment below on whether we accept all Mr. Wright’s evidence.    We certainly confirm at this point that he seemed a thoroughly efficient and straight-forward individual, and that there was nothing in his manner, or in the sense of contradictions that led us to think that he was a dishonest witness. 

Tractor registration numbers, trailer numbers and seals (Customs and other) 
General description
80.     We need at this point to explain various points about vehicle registrations (“VRNs”), and other numbers and practices.    

81.      Whilst we understand that the practice may vary on the Continent, in the UK it is the tractor part of an articulated lorry that bears a constant VRN, and whichever trailer is hauled, that trailer carries the tractor vehicle’s VRN.

82.      We understand that there are also individual trailer numbers shown somewhere on the trailers.    These cannot however be as evident as the number that matters, i.e. the number of the tractor vehicle currently towing the trailer. 

83.       Some lorries are sealed.   The method by which seals are attached in the case of the flatbed trailers with curtain sides, which were generally used for transporting beer, is that a steel wire is drawn right round the trailer, and that wire is then affixed with a numbered seal which can only be opened with the correct key.

84.      There seem to be two different uses for seals.  Some, those referred to as Customs’ seals, are affixed by HMRC. These are most likely to be affixed where vehicles are carrying excise goods, and the purpose of these is to enable Customs to check that loads have not been tampered with.    Other seals can apparently be bought, either from B&Q or other outlets, and these can be affixed and locked by the transport firms to prevent theft of loads. 

85.      We were told that if there was a trailer swap, and a sealed trailer was left in a secure or reasonably secure trailer park, with a view to its being collected later by another driver, there were places on the trailer where the keys and numbers etc required to enable the replacement driver to open the seals at the ultimate destination could be left for the replacement driver to collect them. 
Relevant numbers and seals in this case, and information on the AADs, and related MTM checks
86.      The outbound documentation (that is both the CMR and the AAD) prepared by the Appellant always indicated the VRN of the tractor vehicle that left the Appellant’s warehouse, save that if Thompsons had indicated that vehicle A would be collecting for vehicle B, the VRN shown on the CMR and AAD would be that for vehicle B.  

87.      On the assumption that we were correct to say above that all trailers had separate identification numbers, this was of no significance in this case, because there appeared never to be a single example where one of the outbound CMRs or AADs indicated the number of the trailer on which beer was loaded. 

88.      We were very confused by the evidence of Mr. Westlake, the Appellant’s warehouse manager, because at one point he appeared to say that it was common or invariable practice always to affix the B&Q style seals to loads for general security purposes.   We may have misunderstood this evidence because the understanding that we eventually reached was that in no case were the less formal B&Q style seals ever affixed to the loads with which we were concerned. 

89.      In the case of just four of the 119 loads, Customs’ seals were affixed to the loads.   In these four cases, whilst there was no special box in either of the CMR or AAD forms for the detail and number of the Customs’ seals to be recorded, the documentation leaving the Appellant’s warehouse did record the fact that seals were attached in those four cases.  This was simply written on the forms, whilst all other information had been typed. 

90.     Needless to say, even if some B&Q style seals had in fact been attached, this would have been of no significance so far as our present exercise is concerned because the outbound documentation made no mention of such seals.

91.     HMRC officers obviously knew the VRN of the four vehicles to which Customs seals had been affixed, and as we have said, the outbound documentation indicated that the four loads had indeed been sealed.  It followed that if HMRC officers had examined the four lorries as they approached the Channel Tunnel, they would have ascertained either that the tractors were still hauling the four sealed loads, or had there been a trailer swap, they would have been hauling empty trailers.    In the latter event, if the lorries had been searched, and AADs had been found, it would have immediately become clear that a fraud was being perpetrated. This is because the AADs should at all times accompany their related load.

92.     In the event, none of the four sealed vehicles was later either located or checked by HMRC officers. 

93.      When vehicles arrived at MTM’s warehouse, the lorries were taken to one part of the warehouse, whilst the driver took the related documentation to the office.   Without seeing that documentation, MTM employees took forms referred to as blind check-list forms, onto which they wrote down the brand, quantity and pallet numbers of beer that were on the lorry.  At the bottom of the form, there were three lines, requiring information about the VRN, the separate trailer number (possibly of more relevance on Continental practice) and the seal numbers. 

94.      Whilst these blind check-list forms were completed with reasonable care in relation to the categories of beer on the lorries, having looked at the completed forms for the 16 lorries that had been identified as passing through the Channel Tunnel whilst empty, and the four in whose case Customs’ seals had been attached, only two of the 16 forms gave a VRN for the relevant lorry;   perhaps not surprisingly no trailer numbers were ever recorded, and no reference was made on the relevant line on the forms to whether the four relevant lorries had been sealed.   

95.      The AADs for the four lorries that had been sealed were doubtless in the MTM office, being checked in the office, but it appears that no-one at MTM checked whether the indications on the AADs that the relevant loads had been sealed were or were not consistent with the loaded trailers that had appeared in the warehouse. 

96.     In all cases, since the beer had been sold to Boissons, the lorries were left loaded, whilst being checked.  In the office, the MTM employees then filled out CMRs for the onwards short journey to Boissons’ warehouse.   These CMRs indicated the VRN for the relevant lorry to make that further journey, and the driver then signed the CMR.   We will refer to this evidence below but should mention now that many of the copies of these forms that had been obtained by HMRC from Thompsons were illegible, and in the case of the detail of the vehicle VRN, it would not be unknown for the office employees to have recorded the VRN shown on the incoming AAD and CMR from Norwich, onto the CMR for the journey to Boissons’ warehouse, without bothering to check that that actual lorry was the one elsewhere in the warehouse.       
Eurotunnel checks  -  basic procedures and recording

97.      We turn now to the evidence that we consider to be critical in this case. 

98.    For security purposes, Eurotunnel are required to scan at least 25% of the lorries arriving to pass through the Channel Tunnel.   They are looking, in this operation, for items carried on the lorries that might affect the security of the tunnel, and whilst on occasions their information can be of use to HMRC and other government officers, the purpose of the scanning is simply this security purpose. 

99.    Eurotunnel are required to choose lorries for this scanning process on an entirely random basis, unless the employees are specifically instructed to look out for particular lorries. 

100.    We were told that Eurotunnel had two different scanning machines, one referred to as the 2.5 machine, and the other as the 5.0 machine.   They operated in slightly different ways.   The former could scan two lorries simultaneously, and the latter only one lorry at a time. 

101.       When the traffic through the Tunnel was less busy, it was said to be common practice for a greater percentage of lorries to be scanned than the minimum required 25%.    Traffic was generally light around the weekends, including Monday mornings, and it was at its busiest on Tuesday to Thursday.  The busiest times were generally from 3.00 p.m. until late in the evening.

102.      We were unable to identify at what times and on which days the 119 lorries had actually passed through the Tunnel, though it seemed reasonable to assume that they had generally passed at periods that were neither slack nor particularly busy.   It thus seemed reasonable to suppose that the percentage of lorries out of the 119 (or 124) that would have been scanned would have been higher than 25%. 

103.      When lorries were scanned, the scan results appeared in a particular office at the Eurotunnel office.   The VRN of the lorry would have been read by automatic number plate recognition, and this would be displayed along side the image of the scanned lorry.  Elsewhere on the screen, there would be the scan number, where available the name of the owner or operator of the vehicle, the nature of the load, and then “check-in” and “image operator comments”.  Since drivers would know that their lorry was about to be scanned, they would invariably give truthful information about the load or lack of a load on the lorry, it obviously being futile for a driver of an empty lorry to suggest that it was laden, since the scan would immediately reveal the true position.  The result of this was that indications about whether the vehicle was loaded or not might actually appear in the box dealing with the nature of the load, or in the box recording driver comments. 

104.     Whilst this case is very largely concerned with the issue of whether the vehicles that would have been expected to be hauling full loads of beer through the Tunnel were indeed doing so, we repeat that the Eurotunnel checks were solely concerned with Tunnel safety, so that there was no great significance to the fact that a lorry was found to be empty.  Significantly, we were told that about 70% of lorries travelling from the UK to the Continent were indeed empty.  In the light of this, it is not remotely surprising that no lorry found to be empty was searched to see whether its driver might have been carrying an AAD indicating that the lorry should have been hauling a laden trailer. 

105.    The scan images and the information recorded alongside them are both retained on hard disc for a short period.  They are only retained for a short period because they take up considerable space on the hard disc.   There is however a secondary hard disc record, made electronically from the information recorded alongside the scans just referred to.   The information on this secondary disc is a slightly condensed form of the information referred to above, and this information is meant to be retained for a much longer time. 
The checks in this case

106.     In this case, we were shown photocopies of the scan records and the comments alongside the scan pictures for those five lorry movements, referred to above, that HMRC officers witnessed during the 3-day exercise in July. 

107.    By the time HMRC asked Eurotunnel to supply scan details of however many other lorries might have been scanned out of the 119, the scan pictures and the related comments had been deleted from the first hard disc.  At that time, however, the secondary disc remained available, and Mr. Coutts, a Eurotunnel employee, was asked to examine the records for various lorries with identified VRNs, thought to have been travelling on identified dates. This request was not confined just to the VRNs of vehicles that should have been carrying the Appellant’s beer, but included VRNs related to quite different HMRC enquiries having nothing to do with this appeal. 

108.    Whilst we will refer later to an extraordinary error made by HMRC employees in relation to the VRNs that they wanted Mr. Coutts to search for, nevertheless what his hand-written notes revealed was that, ignoring the five lorries scanned during the 3-day exercise, 16 lorries relevant to the present appeal had been scanned, and all had been shown to be empty.     

109.     We will have to refer, in summarising the various contentions of the parties, to a material dispute as to whether Mr. Coutts might in fact have found scan notes for more than 16 lorries, only recording data for the 16 that were found to be empty.

Weakness in the Eurotunnel evidence

110.     Whilst we will defer dealing with the arguments about whether it is possible that more than 16 of the identified Thompsons lorries had been scanned, with Mr. Coutts only recording the results where they were empty, we should immediately state that first Mr. Coutts has died since he produced the relevant records, and secondly the secondary hard disc material has also, and wrongly (but certainly not suspiciously) been deleted by Eurotunnel.   Accordingly insofar as there is doubt about the material that Mr. Coutts actually reviewed, it is now impossible to resolve any doubts with absolute certainty. 
The five movements excluded from the present Assessments

111.     We will refer to the significance of the actual scan records that we were shown in relation to the five cases excluded from the present assessments in due course.    At this point we will simply record that all five trailers being towed by tractors whose VRN details were on the AADs for the relevant five movements were shown to be empty, though two of the five trailers were refrigerated trailers, rather than flatbed trailers with canvas screens. 
Tachograph evidence – basic description

112.     Mr. Gordon Humphreys of Foster Tachographs Limited was requested to give expert evidence by HMRC in relation to the tachograph records obtained from Thompsons in relation to five of the vehicle movements, out of the 119.    

113.     Tachographs are of course the recording devices that EU regulations require to be operated in all significant sized trucks, which are designed to establish whether or not drivers have driven, as they are required to do, for only the permitted hours between rests.  Whilst we were given considerable information about the hours and rests, none of this is of relevance. 

114.    The present significance of the tachograph evidence is that an expert can examine the disc, which is a wax disc that records vehicle movements for a 24-hour period, and he can tell from that disc a considerable amount about when, and at what speeds, a lorry was moving, and whether it stopped for more than a few seconds.     

115.     The reason why HMRC requested the tachograph evidence in this case was that HMRC suspected that lorries had diverted from their most obvious route from Norwich to the Eurotunnel base, and that they had gone to a place called Brandon.     It was there that HMRC suggested that a trailer swap had been effected, with the laden trailers being taken by a different tractor elsewhere in the UK, for the beer to be slaughtered and sold to a black-market operator, and with the original tractor then taking an empty trailer through the Tunnel in order to collect a borrowed load, and check-in with that load at MTM’s bonded warehouse.  

116.     It will sometimes be possible, of course, to use tachograph evidence to suggest precisely where a lorry has travelled.  If a likely route can be identified, and the tachograph evidence suggests that every slow down, and every stop is consistent with the predicted route, and inconsistent with other routes, it may be possible to say where that lorry travelled.  

117.     The limitations of tachograph evidence, in using it for this present purpose for which it is not designed, are the following two factors.  Firstly, it is naturally impossible to say why a vehicle may have stopped or, say, stopped twice at two close intervals.   Such stops could of course be consistent with a tractor unit stopping to detach its trailer, and then manoeuvring in order to pick up a different trailer.    Even then one would have no idea why the trailer swap might have been effected.     Equally significantly, one would not know whether, should there be a nearby café, the driver might have pulled in to the café, and then had to move the vehicle into a slightly different position without detaching the trailer at all. 

118.     The other severe limitation of tachograph evidence is that it is better at illustrating what could not have happened, than what did happen.   In other words, if a lorry was constantly moving at 60 m.p.h. (which the tachograph could indicate) it would be quite obvious that the lorry could not be travelling along back-roads or town roads or going round turns and roundabouts.  If on the other hand a vehicle makes one or many stops that might not seem consistent with a particular route, there is no way of knowing whether the vehicle has been stopped by a farm tractor coming out of a farm entrance, or for any other of countless possible reasons. The tachograph evidence is in other words a fairly blunt method of establishing where a lorry has travelled.    
The relevant evidence in this case

119.     As we have said, Mr. Humphreys was asked to analyse five journeys, and he subsequently did some work on a further four. 

120.    Whilst HMRC’s case had placed some stress on the suggestion that trailer swaps occurred at Brandon, and certainly the tachograph evidence suggested that it was possible that there were trailer swaps at Brandon in several of the movements analysed, it also seemed possible, or more likely in two of the cases, that trailer swaps might have been undertaken at some point close to the intersection of the A11 and the A1307.

121.   Initially, HMRC was more interested in the tachograph evidence for establishing that there had been trailer swaps in the UK.   The evidence was however given as to the first journeys undertaken by the various recorded lorries once in France.    In this regard, the point about tachograph evidence being more significant where it illustrates that a lorry was moving at motorway speed, and that it cannot have been circling round five roundabouts is significant.   For the tachograph evidence on the French side of the Channel illustrates that, for this type of reason, the lorries’ first move in France cannot have been straight to MTM’s warehouse, because they were travelling at motorway speed and would have careered off the road at the first roundabout on the obvious route to MTM’s warehouse.  Again we do not know whether the first journey was to Boissons’ warehouse, or maybe some highly popular stop for breakfast.  But we do know that the first journey was not to MTM’s warehouse. 

122.      We now summarise the only four points that we consider relevant in relation to the tachograph evidence. The first three were Mr. Humphreys’ answers to questions that we put to him, and the fourth is self-evident. 

123.      The points are that:

•	Mr. Humphreys confirmed that in his expert opinion, it was possible in each of the five and the four journeys that he had studied, that there was at least one point where it was quite possible that there had been a trailer swap on the UK side of the Channel;
•	Mr. Humphreys confirmed that it was not possible in any of the journeys considered for the first journey in France to have been a journey straight to MTM’s bonded warehouse;
•	Mr. Humphreys confirmed that it was possible that the first journey in France could have been to Boissons’ warehouse.   It could certainly not be said that the first journey was to that warehouse, but it was always possible; and
•	finally, when we observe that in the case of two out of the five journeys studied by Mr. Humphreys, and in two out of the further four journeys also considered by him, it happens to be the case that Eurotunnel evidence indicates that the lorries travelled empty through the Channel Tunnel, it is obvious in all those four cases that both parties to this dispute had to be contending that there were indeed trailer swaps in the UK, and equally both parties certainly appreciated that it would have been pointless for any of the four empty lorries to make their first French journey to MTM’s warehouse.       Of course the parties advanced different explanations in the four cases for why there were trailer swaps in the UK, but since the tachograph evidence cannot throw any light on this matter, a fair conclusion is that certainly on the UK side of the Channel, the tachograph evidence in four out of the total nine journeys was virtually irrelevant.     
The evidence by HMRC officers

124.    We are principally concerned with the facts in this case, and hard evidence where it is available, so that we place little reliance on evidence given by HMRC officers.  We should, however, mention that we were particularly impressed by Mr. Gorringe and Officer Duxbury, and had no hesitation in accepting their evidence.    Where some of the evidence was generalised, and related to broad points about different types of fraud, we of course accepted that this was of only very limited significance.   Points that we consider it important to record are as follows:

•	On an earlier occasion, having nothing to do with this case, one Officer Steel had identified a lorry driver approaching the UK end of the Channel Tunnel on an outward journey, where the lorry was hauling an empty trailer, but it did carry an AAD indicating that it was carrying a load of beer to be delivered to MTM’s warehouse. The driver admitted that “it was a fair cop”, and described the way in which his instructions were to pick up a borrowed load, check in to MTM’s warehouse, and return the borrowed load to the cash and carry from which it had been borrowed.
•	There was tentative evidence that one driver had said that he estimated that at some time only a relatively small number of frauds had been perpetrated using the borrowed loads technique.  When we asked Mr. Duxbury whether the available supply of slaughtered beer would have exceed the UK black market demand for that quantity, should each one of the 119 loads have been slaughtered in this case, Mr. Duxbury’s regrettable response was that the demand would have considerably exceeded the supply, even on that assumption. 
•	Evidence was given that we have referred to elsewhere, explaining the identity theft perpetrated by Mo-Mo in relation to Miss Zappara, and the various other instances of that identity theft, and why, with the short-lived companies, it was being done to preclude the French authorities from chasing unpaid French TVA.
•	Mr. Duxbury rejected any suggestion in this case (referring to the Appellant’s contention about inwards diversion fraud, mentioned and explained below) that the facts were more consistent with beer being transported to France to facilitate inwards diversion fraud than with any version of outwards diversion fraud.  Mr. Duxbury explained his view by pointing out that what evidence there was showed that the outbound lorries that were scanned had all been shown to be empty, whereas the outbound lorries would logically have been laden in the case of inbound diversion fraud.  Also, on his calculations, outward diversion fraud undertaken on the borrowed loads basis was in fact more profitable than inwards diversion fraud.
•	Mr. Duxbury suggested that on the basis of £5.8 million turnover undertaken with the Appellant alone in an 8-month period, the turnover of the backstreet Boissons had exceeded that of the much more impressive bona fide cash and carries in Calais.
•	Mr. Duxbury suggested what whilst HMRC officers had no evidence of whether there was a cash till in Boissons’ warehouse during the particular period relevant to this appeal, they did have evidence that at both earlier and later times there had been neither a till nor any other indication that the warehouse was equipped to deal with customers.
•	In officer’s notes, our attention was drawn to the fact that Mr. Gorringe had noted a surprisingly small number of lorries, passing at indicated times, had been found (only 16 out of 119), in contrast to the requirement that at least 25% of lorry movements should be scanned.   He asked for confirmation that Mr. Coutts’ list of 16 scans had been a record of all the scans found (it simply happening that all lorries scanned had been scanned empty) rather than just a list of those scans where the lorries were empty, with other detected scans for other lorries being ignored because the other lorries had been found to be loaded.   Mr. Gorringe was informed, in response, that it had been verified that all scans had been recorded, though we cannot say with absolute certainty that this response was authoritative.   We do however know that at this point, Mr. Gorringe was unaware of the extraordinary fact, to which we will refer below, namely that through sheer incompetence elsewhere within HMRC, the actual list of vehicle VRNs and transit dates to be checked for scanning evidence had omitted 30% of the 119 journeys from the list.  Accordingly Mr. Coutts, in searching for scanning evidence, cannot be blamed for having searched for roughly 84, rather than 119 vehicle movements, albeit that this omission is an extraordinary mistake for HMRC to have made in providing the list to Mr. Coutts.     

The contentions on behalf of the Appellant

125.     It was contended on behalf of the Appellant that:

•	we should treat the receipt by the Appellant of returned copy 3 AADs, duly receipted by MTM, as very compelling evidence that the consignments had duly arrived, such that the Appellant’s liability for Excise Duty and VAT was vacated;
•	there was no serious contention that the receipts on the copy 3 AADs had been forged, and so they were genuine;
•	all of the Respondents’ contentions were based on unsupported speculation of the type that had been rejected by Mr. Justice Lewinson in the Abbey Forwarding case referred to above;
•	the borrowed loads theory was only a theory;
•	there had been no surveillance evidence in this case on either side of the Channel, to confirm the borrowed loads theory;
•	trailer swaps were common in the transport industry, and it was perfectly possible that trailers might have been swapped, either on account of breakdowns, or because of drivers’ hours problems in completing either their journeys to Calais or the related back-loads;
•	the wide variety of brands and descriptions on each load of beer, and the variations load by load, would have made it difficult for lorry drivers to have located and matched those brands, when seeking to obtain borrowed loads;
•	a large quantity of beer would have had to have been held in stock to have provided the great diversity of required borrowed loads, and if pallets were used repeatedly, since the pallet loads were only cling-wrapped, multiple movements could have damaged the stock in time;
•	since great quantities of beer sold in Calais by all the cash and carries were sold to UK buyers, often collecting it in white vans, and paying for it in sterling cash, and since there would be banking charges in banking that cash, it was not at all surprising that Boissons had chosen to pay the Appellant, indirectly via Dr. Sanatry, in cash;
•	3-5 times as much profit could be made by inwards diversion fraud, so that this case was inherently far more consistent with inwards diversion than with outwards diversion fraud. The Appellant’s counsel explained inwards diversion fraud along the following lines.   It would commence with the export of, say, seven identical loads of beer, all of which would be moved to a Calais bonded warehouse, and six of which would be released for consumption in France, thus suffering French duty.  These six would be transferred to a company such as Boissons.  The seventh consignment retained in the bonded warehouse would be released for shipment back, on a duty suspended basis, to a UK bonded warehouse, the AAD giving, say, three days for the completion of the movement.   The AAD would then, in fact, be sent with the first of the six consignments, and provided HMRC did not examine the load on arrival in the UK, and stamp the AAD, the load would be slaughtered, and the AAD returned as quickly as possible to France.   The second of the six loads would then be dealt with in a similar way, and this process would continue until the 3-day period had expired or, if the fraudsters were unfortunate, until HMRC examined a load and stamped the AAD.  If that occurred, or in any event when the seventh duty-suspended load was finally transported, the load would have to be taken to the destination UK warehouse, because obviously no more loads could be imported with an AAD that had already been stamped, and in order to conceal the fraud the final load obviously had to arrive at the UK bonded warehouse.   It was contended that for one AAD, fraudsters could import, if lucky, up to six or seven loads of beer that had suffered only French duty, all of which could be slaughtered in the UK, so that there was a multiple efficiency in inwards diversion fraud;
•	even HMRC accepted that it was unsatisfactory to found a case just on the retained Eurotunnel scanned notes, rather than on the actual scans.  In one case reference was made to the fact that this procedure had occasioned some error, though the error was in fact immediately detected; 
•	the distinct possibility existed that Mr. Coutts in fact gave the records only for the journeys where the lorries were empty, and that he omitted to mention anything about those lorries where the scans must have shown that the lorries were laden, this possibility perhaps deriving from confusion resulting from the way in which the original material recorded on the first hard-disc was slightly condensed when it was transferred to the second hard-disc;
•	no-one would have taken the risk of slaughtering loads that had been sealed by HMRC, since absence of seals and an AAD indicating that seals had been affixed should have aroused suspicion when checked by MTM;  
•	the tachograph evidence was inconclusive;
•	no AADs were found on the Thompsons lorries that were found to be empty in the Eurotunnel scanning exercise, though we should add that this is not that significant because it appears that no-one searched the lorries or looked for AADs; 
•	Mr. Wright’s evidence, given without payment, was that he had delivered some genuine loads to MTM’s warehouse, and he confirmed that it was common for lorry drivers to effect trailer swaps; 
•	Mr. Eric Thompson had indicated, in interview, that he thought that none of his drivers had any extra cash which would have suggested that they had received payment from others for diverting loads, and borrowing loads; and
•	finally, since there had been no reported case that had confirmed the borrowed loads theory, “absent surveillance evidence, this Tribunal [was] being asked to venture into new ground”, which it should only do with great hesitation.

The contentions on behalf of the Respondents

126.     It was contended on behalf of the Respondents that:

•	when the Appellant was asked to go beyond the receipt of receipted copy 3 AADs and provide other evidence that countless consignments of beer had genuinely been sold to a purchaser in France, it was not asking very much for the Appellant to demonstrate further evidence.  This, in a bona fide case, ought to be easy since one would expect the genuine buyer to confirm the Appellant’s claims, payment evidence to do the same, the transport firm to be able to produce significant confirmatory evidence that the loads had been delivered, in addition to there being no evidence to undermine those claims;
•	in this case, the scan evidence, the fraudulent nature of Boissons’ operation, the inconceivable feature that Boissons could be conducting a genuine business at the level of the turnover in even just the Appellant’s deliveries, the bankruptcy of the transport firm and its failure to fight the assessment made against it, the tachograph evidence and the sheer improbability of this case involving inwards, rather than outwards, diversion fraud all confirmed HMRC’s case that the loads had been slaughtered, and MTM had been fooled by the drivers acquiring borrowed loads;
•	considerable emphasis was placed on the analysis, done by the Appellant, that in those cases where any evidence could be found of the identity or VRN of the tractor vehicles that brought trailers loaded with beer into MTM’s warehouse, the tractor vehicle in question was the one identified on the original AAD, and the one that had been scanned and shown to be empty when crossing the Channel; and that 
•	since the burden of proof was on the Appellant, the Appellant had failed to demonstrate, on the balance of probabilities, that any of the loads had arrived, and the appeal should be dismissed.

Our decision

General Approach

127.     This case revolves almost entirely around our analysis of the facts.    Since every element of the decision will involve some finding of fact, it would be difficult to divide the decision into two parts, one formally giving findings of fact that we consider to be certain, and another part giving those, often based in part on logic, that are less clear-cut but that nevertheless cumulatively build up to reveal the true picture of what happened, and that we believe justify our decision. 

128.     In the following paragraphs it should generally be clear which facts we consider to be clear-cut, and which are based more on logical deduction, and their significance in the overall picture. 

The significance of the scanning evidence that all loads for which scanning evidence was available had been shown to be “Empty”.

129.     By far the most significant actual evidence that we have in this case is that, whilst various identified Thompsons lorries left the Appellant’s warehouse fully laden with beer, 16 (or 21) of those lorries were scanned by Eurotunnel as part of Eurotunnel’s routine scanning process, and all 16 (or 21) were shown to have had an empty trailer in tow when the identified tractor units crossed the Channel.  HMRC suggests, with some credibility, that this leads to a very considerable suspicion that the loads carried on the laden trailers had been slaughtered in the UK, and that the empty trailers were proceeding to Calais to pick up borrowed loads.    It is of course for the Appellant to advance suggestions, and ideally demonstrate with evidence, that there are other explanations for these findings.    

130.     We can only discount this evidence if either:
•	we conclude that we should reject the whole of the evidence in relation to the survey undertaken by Mr. Coutts; or
•	we conclude that the Appellant has advanced some credible (and ideally compelling argument, based on actual evidence) as to why the scanned lorries were all empty, and how the loads all duly arrived when the original tractor vehicles had all (in the 16 or 21 scanned cases) been found to be  hauling an empty trailer through the Channel Tunnel.

The reliability of Mr. Coutts’ evidence
131.    We have no hesitation in rejecting the first of the possible approaches just canvassed.  Although the Appellant’s counsel argued that we should place very little reliance on Mr. Coutts’ survey, even he stopped short of claiming that we should reject it to the extent of concluding that when Mr. Coutts summarised the scan record for a particular vehicle crossing the Channel on an indicated date, he wrote down “Empty” when he should have written down “Laden with beer”.

132.    In due course we will comment on the point that when Eurotunnel were required to scan 25% of lorries passing through the Tunnel, and often scanned more, it was surprising that only 16 (or 21) transits were scanned out of a total of 119, or 124.    That point, however, has no bearing on the reliability of the evidence in relation to those that were clearly scanned.

133.     We also note the Appellant’s criticism that Mr. Coutts’ Witness Statement contained an inaccuracy in describing the detail of how he must have accessed the scan records.   This may have been because the Witness Statement could have been drafted initially by an HMRC officer, or Mr. Coutts may not have bothered to record the exact detail of how the material might be scanned.   Whatever the explanation this point only relates to background information, and has no bearing on the actual record that Mr. Coutts provided. 
  
134.     We accordingly reject the first possible way of discounting the significance of the scanning evidence.    We have no hesitation in concluding that all of the 16 (or 21) vehicles for which we do have scanning evidence were empty when they crossed the Channel. 
The “trailer swaps” explanation
135.     Turning to the second possible approach, the Appellant suggested that in the transport industry trailer swaps were common, and that there were several possible innocent explanations as to why a loaded trailer might have been detached from the original tractor (whose VRN would have been on the AAD), with a new tractor vehicle (obviously with the tractor and trailer then carrying the VRN for the unidentified new tractor) then hauling the load through the Tunnel.  Since HMRC would self-evidently not have asked Mr. Coutts to produce scan evidence for that unidentified vehicle (should it indeed have carried the load through the Tunnel), none was available.

136.      The first possible explanation for one of these claimed innocent trailer swaps was that the original tractor vehicle might have broken down.   The second was that problems for the driver of the original tractor vehicle in completing his journey, in the light of the restrictions on the number of hours for which a lorry driver could drive, may have explained why that driver would have arranged for another Thompson driver, driving a different tractor vehicle, to complete the journey to Calais with the full load.  A third possibility was suggested by Mr. Wright in his evidence.   Not only did he give evidence that tractor swaps were a simple operation that might take no longer than five minutes, and that they were common (all of which we accept), but he also said that if he was to take a full load of beer to Calais, it would sometimes be more economic (bearing in mind the location of his starting point) for him not to go to Norwich and back, but to arrange to meet another Thompson lorry that would meet him at some convenient point with the full trailer collected from Norwich, so that he could then take the full trailer for the rest of the journey.   Some of the delivery details delivered by Thompsons to the Appellant indeed indicated that Vehicle A would collect the load for Vehicle B, it being implicit that Vehicle B would then be indicated as the carrying vehicle on the AAD.  This obviously contemplated the type of exercise to which Mr. Wright referred. 

137.     We again have no hesitation in rejecting all these possible explanations about trailer swaps.    Indeed we also have no hesitation in saying that when the Appellant’s counsel had repeatedly criticised HMRC’s case for being based on “mere speculation” we consider that the various arguments advanced about trailer swapping by the Appellant’s counsel were themselves somewhere between speculation and fantasy.     We justify that reasonably extreme comment as follows. 

138.   The reasons why we reject all these suggestions, in ascending order of significance, are that:
•	both Mr. Fenelon, and Mr. Thompson (the latter in a meeting with HMRC officers) said that they expected the journeys to be completed without trailer swaps;
•	the contentions about innocent explanations for trailer swaps were not raised until late in the day, which would have been odd if anyone had been aware from the outset that there were such innocent explanations; 
•	it would be unusual for relatively new and regularly serviced tractor vehicles to break down, and if they did break down, they might well have broken down where a trailer swap was difficult to effect, such that Mr. Thompson would have been aware of it and would have had to make last minute arrangements for a different vehicle to take the load;
•	it seems singularly odd that if the tractor vehicles had broken down, whenever this had occurred, instead of the tractor vehicles being left stranded at the roadside, the tractors managed to recuperate and tow an empty trailer through the Channel Tunnel at approximately the time they would have been expected to tow the full trailer through the Tunnel;
•	in the case of “drivers’ hours regulations”, it would seem odd for a driver who would be unable to complete the journey to start it, when the journey in question was a relatively short one and one where the time required for the journey could have been estimated with some accuracy; 
•	it was also decidedly odder still that in every case where we might suppose that a driver had had to shed the full load so that another driver could take it through the Tunnel on account of drivers’ hours concerns, the first driver with the drivers’ hours problem nevertheless always managed to proceed to haul an empty trailer through the Tunnel at approximately the time he would have been expected to be hauling the full load, and indeed, where we have evidence, he managed to haul the back-load as well;
•	whilst this matter is not something that we ourselves now feel qualified to analyse, it does occur to us that the Appellant never contended in any of the four journeys where tachograph evidence was studied, and where Eurotunnel evidence indicated that the original tractor proceeded empty through the Tunnel, that the tachograph evidence gave any credence to the unsupported contention that the driver of the original lorry may have had potential drivers’ hours problems in completing the planned journey and possibly the back-load journey; and
•	as regards the explanation proffered by Mr. Wright, this cannot possibly have explained why all the tractor vehicles on the AADs were hauling empty trailers through the tunnel, and in any event in some cases the AAD had given the detail of the “successor” tractor vehicle in this situation, such that one would have expected the vehicle with the VRN indicated on the AAD to be hauling the full trailer through the Tunnel. 

139.     Our conclusion in relation to whether the Appellant has established, on the balance of probabilities, that one or any combination of these innocent explanations may explain how it is that the initial tractor vehicles were found, in all the cases for which we had scan notes, to have been towing empty trailers through the Channel Tunnel, is that the Appellant has wholly failed to do so.   The feature in particular that the initial tractor vehicle was, on every relevant occasion, found to have passed through the Tunnel at roughly the time it would have been expected to pass through the Tunnel anyway seems to undermine both the break-down and the drivers’ hours suggestions.   Moreover the Appellant’s arguments must be described as “far-fetched speculation”, where not only is there no evidence to support the contentions, but there is evidence to undermine all the various speculative arguments.  For some of that evidence we need to examine the identity of the tractor vehicles that arrived at the MTM warehouse.  Before doing that however, we need to deal with the five other vehicle movements, for which we had information, albeit that they were excluded from the assessments.

The five movements excluded from the present assessments
           
140.     As we mentioned above, five Thompsons lorries were scanned as Empty in a 3-day exercise undertaken by HMRC officers in July in the middle of the period whose lorry movements are the subject of this appeal.   In those five cases, the HMRC officers were actually present in the room where the scanned images appeared.    As we have said, these five cases were excluded from the assessments with which we were concerned, and the appeal in relation to them is to be heard in due course.     One of the differences between the facts in the five cases and the 119 cases with which we are concerned is that it is only in the case of the five that photocopies of the actual scans have been retained.   We were shown those five scans. 

141.    Although the five cases are no direct concern of ours, the five cases are relevant to this case in two different ways.   One we will deal with below in relation to the proportion of vehicles scanned.  The other relevant fact is that on looking at the scans of the five lorries dealt with during the 3-day period where HMRC officers witnessed the process, two of the five empty lorries were clearly refrigerated lorries.

142.    Trailers used for carrying beer will normally be flatbed trailers, with the familiar canvas side-screens that can be pulled back.  When the covers are pulled back, pallets of beer can easily be removed since by moving along each side of the truck a fork-truck can remove the pallets, one by one, with ease.   We were told that the whole operation would take only 15 minutes with two fork-trucks.   We were also told that on account of weight constraints, lorries carrying beer would inevitably only have a single layer of pallets, that two pallets fitted side-by-side across the width of an articulated trailer, and that such a trailer could thus carry 28 pallets. 

143.     The significance of the fact that two of the five lorries for which we actually saw the scans were refrigerated, was that those trucks obviously had immovable thin steel sides, meaning that their contents could only be accessed through the rear doors.   We were told that with a hand-operated moveable jack it was possible to move pallets of beer along the length of the refrigerated lorry by hand, though obviously fork trucks could not access each pallet as they could with the open truck.   We were also told that even adopting the awkward procedure of moving the pallets down the refrigerated lorry, such lorries could still only carry 22 rather than 28 pallets of beer. 

144.     The obvious question raised by the feature in the five excluded cases that two of the lorries hauled refrigerated containers, was that such trailers would not be ideal to take a borrowed load to MTM’s warehouse, and would indeed not be suitable at all if one load of more than 22 pallets was recorded on the AAD, and was thus required to arrive at MTM’s warehouse. 

145.      The explanation for why two of the lorries were hauling refrigerated trailers, whilst the remaining three were hauling open, canvas-sided trailers, was immediately clear when we examined the identity of the back-loads to be carried back from France to the UK by Thompsons for Norfolkline.  Two were to carry perishable goods, whilst three were to carry goods to be kept “at the ambient temperature”.  

146.      This still left us however with the issue that we had no idea whether the 16 scanned lorries with which we were concerned also included refrigerated trailers, and if they did, there emerged the issue of how borrowed loads would then have been carried to MTM’s warehouse.

147.    We conclude that this complication does not affect our conclusion that the borrowed loads contention by HMRC remains sound.  For there are still three perfectly simply ways in which the required borrowed loads could have been transported to MTM’s warehouse even where the outbound empty lorries had been of the awkward refrigerated variety.   

148.     Firstly, there is the possibility that Boissons and Thompsons or the hompsons’ drivers (and Dr. Santry were he also involved) might have ensured that Boissons’ orders would only include 22 pallet loads of beer where only the awkward type of trailer would be available for the journey to MTM’s warehouse.    This seems unlikely because, without having counted every pallet load in the 124 lorry movements, we have not identified one with fewer than 26 pallets.

149.     The other two possibilities would of course be for the Thompsons lorry with the refrigerated trailer, which it would need later in the day for the back-load to the UK, to hitch up another Thompsons flat-bed trailer in Calais for the short run to and from MTM’s warehouse, or alternatively it was even possible that a suitable trailer might have been periodically left outside, or near to,  the Boissons’ warehouse for use in transporting borrowed loads whenever the trailer hauled through the Tunnel empty to take the Norfolkline goods back to the UK was unsuitable to carry the borrowed load. 

150.     We accordingly consider that the feature that two of the five presently irrelevant transportations showed that there were empty refrigerated lorries in tow does not suggest that the borrowed loads theory is undermined in any way. 

Evidence in relation to the identity of tractor vehicles that arrived at MTM’s warehouse
151.     The significance of the evidence about the identity of the tractor vehicles that arrived at MTM’s warehouse is obviously that if the Appellant’s contention is correct that there has been some innocent explanation for a trailer swap in the UK, with a different (and unidentified) tractor then continuing the journey through the Tunnel to MTM’s warehouse, we would expect the vehicle and driver appearing at MTM’s warehouse to be different from the tractor vehicle and driver that left the Appellant’s warehouse, that was identified on the original AAD and CMR, and that was scanned empty by Eurotunnel. 

 152.     We first make the point that we assume that lorry drivers generally remain with “their” tractor vehicles, in other words with the vehicle in whose sleeping quarters all their kit is stored.    This assumption is not critical to all the points that we are about to make, and we add the observation that no-one cast any doubt on this proposition. 

153.      As will already have been clear in summarising the evidence, there were three ways in which we may now be able to identify the tractor vehicle that actually arrived at MTM’s warehouse.  

154.      First there is the feature that when MTM employees checked the make-up of the loads on the trailers that arrived at their warehouse, the blank check-list form that they completed did have at the bottom three lines that one might have expected to be completed, giving the VRN of the tractor, the trailer number, and the seal number, whenever loads were sealed.  The significance of these lines was that in the rare cases when they were filled in, if the VRN of the tractor was given, this was very good evidence that the indicated tractor was indeed the one that had arrived.  This was because the blank check-list form was completed without sight of the original AAD and CMR, so that the person recording the VRN of the vehicle must have looked at the registration plate on the actual vehicle in the warehouse, and cannot have simply written down the VRN, copied from the original AAD without actually looking at the vehicle. 

155.     The other two ways of identifying the tractor vehicle that had arrived are derived from the fact that MTM employees in the office (away from the vehicle) prepared a new CMR for the onward journey of the vehicle, always to Boissons’ warehouse, and that indicated the VRN of the vehicle to make the relevant journey.   We accept that there are sometimes cases where the office staff will not bother to look at the actual registration plate on the lorry elsewhere in the warehouse, and they might carry over the VRN of the vehicle recorded on the “incoming” CMR even if a different vehicle was standing in the warehouse.  However there is the additional point that the driver of the vehicle will have signed the CMR prepared for the outbound journey from the Appellant’s warehouse, and will then sign the new CMR for the short journey to Boissons’ warehouse whilst in MTM’s warehouse, and if the two signatures correspond, then there is a very strong indication that, the drivers being the same man, the tractor vehicles will also be one and the same. 

156.     There were 16 scanned vehicles, amongst those in the assessments with which we are concerned, and five others in the cases for which we had the actual scans.     In those 21 cases the Appellant did not undertake an exercise to demonstrate that any of the three possible indicators referred to above proved that in a single case there was actual evidence that showed that the vehicle arriving at MTM’s warehouse was a different one than the original tractor vehicle, following the supposed innocent trailer swap in the UK, which suggested for one reason or another that the original tractor could not complete the journey.  HMRC, by contrast, did provide, where they were available, the CMRs completed by MTM for the onwards journey to Boissons’ warehouse, and a schedule indicating where in their view there was evidence that the tractor vehicle that had commenced the journey from Norwich, that had lost its load by the time it was scanned, was in fact the vehicle that had the load or a matching load in tow, when it arrived at MTM’s warehouse.   We will now summarise the result of that survey, which we have considered carefully.   We should emphasise some preliminary points.   First a few documents are simply missing.    Others are such poor photocopies that it is impossible to see signatures.   Where signatures can be seen, some look more as if the driver was experimenting to see whether the biro worked.   To the best of our ability, however, the following is a fair summary.    We will use the numbering by which the 119 and the five relevant journeys were indicated, numbering the five, EJ1, EJ2 etc, meaning that that journey was excluded from the present assessments. 

•	1.   The blind check-list did not indicate any VRN.   The VRN for the onwards journey is illegible.   The signature of the driver for the outwards journey and the onwards journey to Boissons could just match.
•	2.   No indication on the blind check-list; no VRN legible on the onwards CMR, but Terry Lewis’ signature is clearly on the outgoing CMR, the onwards one to Boissons, and on the back-load Norfolkline movement, where it is clear that Terry Lewis was still driving the very lorry that left the Appellant’s warehouse, and that had been scanned empty by Eurotunnel.
•	6.   No indication on the blind check-list, and other documents missing. 
•	22.  No indication on the blind check-list, but the onwards CMR clearly shows the same VRN and driver’s signature as on the original documentation. 
•	25.  No indication, and totally unclear.
•	31.  Blind check-list confirmed that the VRN of the incoming vehicle was that of the original, but onwards documentation unclear.
•	34.  Blank check-list confirmed that the VRN of the incoming vehicle was that of the original, and VRN and driver’s signature on the onwards CMR clearly matched the originals.
•	42.   No indication on the blind check-list, but original and on-going signatures could match, and the VRN of the vehicle undertaking the back-load was that of the original tractor.
•	47.   No other indication than a possible match of signatures.
•	98.   Signatures very faint and no other indication. 
•	56.    Signatures match and the signature on the back load also matches, and the back load identifies the same VRN.
•	57.    Very faint signatures that could correspond.
•	59.    Unclear.
•	72.    No documents.
•	109.   Unclear.
•	111.   No indication on the blind check-list but VRN and signatures on the onwards journey are a reasonable match, and similar signature on the back load is clearer.
•	EJ1.   VRN on the onwards CMR (AU04MTK) matches the original.  The faint signatures could match.    Significantly, tractor AU04 MTK left Norfolk loaded with beer, and was hauling an empty refrigerated trailer through the Tunnel.   By the time this tractor vehicle arrived at MTM’s warehouse, the beer was clearly on a flatbed trailer since 26 pallets arrived on the trailer.
•	EJ2.   The VRN and the driver’s signature on the onwards CMR were clearly the same as on the original CMR.
•	EJ3.   This vehicle had towed an empty refrigerated trailer through the Tunnel.    The VRN on the onwards CMR to Boissons was unclear though the faint onwards signature could have matched the original.     More clearly the signature on the onwards CMR to Boissons ( the trailer implicitly being a flatbed trailer with 26 pallets of beer on board at this point), matched the signature on the later Norfolkline back-load of refrigerated goods.
•	EJ4.    No relevant match, though the original tractor was clearly hauling the back load.
•	EJ5.    Details unclear. 

157.     The significance of these findings is of course that if for some reason we were wrong to have cast such doubt on the Appellant’s proposition that there had been some innocent explanation for a trailer swap in the UK, with a different tractor then completing the journey to MTM’s warehouse, and towing the full load through the Tunnel without being scanned, how is it explained (on the hypothesis that all swaps and movements were “innocent”) that the full load, or at least a load that corresponded to the original full load, ended up being hauled by the original tractor into MTM’s warehouse rather than by some different, and previously unidentified, tractor vehicle?   Putting the point the other way round, the Appellant has failed to produce any evidence that a tractor vehicle has broken down in the UK, or that a driver has had to pass the loaded trailer to another driver and tractor because of drivers’ hours problems; there is then no evidence that there is a single instance in the case of the scanned examples where the load has arrived at MTM’s warehouse, drawn by a different vehicle; and indeed there is evidence in all 21 cases that the supposedly broken-down tractor or resting driver have proceeded through the Tunnel with empty trailers and also evidence in many of the cases that the same original vehicle arrived at MTM’s warehouse towing trailers with, by that stage,  identical loads of beer on them.   Since the burden of proof is on the Appellant, the significant conclusion is that there is much evidence that the Appellant’s explanation for UK trailer swaps is pure speculation, and there is not a single piece of evidence that indicates that some previously unidentified tractor vehicle that has “saved the day” in the UK for the original vehicle with one or another problem, actually appeared in MTM’s warehouse. 

158.     There is another observation that we must make in relation to the information derived from the list given in paragraph 156.  The information given in relation to movements EJ1 and EJ3 are of considerable significance in relation to the suggestion that we advanced in paragraph 149, where we suggested two slight variations on the way in which a tractor vehicle that had been hauling an empty refrigerated trailer through the Channel Tunnel might nevertheless manage to arrive with a full load of beer on a flatbed trailer, by the time it arrived at MTM’s warehouse.  In the case of movement EJ1, the CMR indicates that the VRN of the tractor is the same as the one that left the Appellant’s warehouse, and that was hauling a refrigerated trailer through the Tunnel, and the driver’s signatures could be a match.  In the case of EJ3, since the signatures on the onwards CMR to Boissons’ warehouse and on the Norfolkline back-load match, and seem to be the same as those on the original, we certainly know that a tractor hauling a flatbed trailer into MTM’s warehouse was certainly hauling a refrigerated trailer by the time it picked up the back-load.  All of this seems to confirm the otherwise tentative conclusion that the feature that an original trailer was hauling an empty refrigerated trailer in the Tunnel does not in any way undermine HMRC’s borrowed loads theory, in that the tractors seem to have reacquired flatbed trailers to proceed to MTM’s warehouse, and certainly the tractor in EJ3 has reacquired a refrigerated trailer to effect the back-load.  

Other evidence relevant to whether sales to Boissons might have been genuine, or whether, even if Boissons was party to a fraud, the Appellant was right in its contention that in this case the facts were more consistent with “inwards diversion fraud” than with “outwards diversion fraud” and “the borrowed loads” theory

159.     In order to test our decision in a completely different manner, we will address the two questions of whether: 
•	there is any credible basis for concluding that sales to Boissons were genuine sales, with Boissons either selling from its warehouse to the general public, or else selling to other more front-line cash and carries in Calais; or
•	the Appellant’s contention that the facts of this case were more consistent with inwards rather than outwards diversion fraud is sustained by any of the facts or is indeed even tenable. 

Could the sales to Boissons have been genuine?

160.    Leaving aside at this point the separate issue of whether some lorry loads might have been slaughtered whilst others might have duly arrived, we start with the basic question of whether there is any indication that Boissons’ business was genuine, and whether bona fide sales look to be credible.  We also ignore at this point the feature that the conclusions already reached indicate (as they appear to do) that in the case of the 16 loads that were scanned, no beer genuinely arrived in France, and consider only the other evidence surrounding Boissons’ operation. 

161.     One of our clear findings of fact is Boissons’ operation was fundamentally fraudulent.    We say this for the following reasons:
•	the feature that Mo-Mo stole the identity of Miss Zappira, and made her the only shareholder and director of Boissons, and affixed her photocopied signature to every order from the Appellant obviously indicated a fraudulent method of operation;
•	we accept the HMRC evidence that Mo-Mo had been involved with other short-lived companies in Calais, all with shareholders and directors with stolen identities, and all located outside France;
•	we accept HMRC’s contention that the purpose of this structure was to enable the companies to disappear without paying TVA, and in such a way that the French authorities would have no French residents to chase for unpaid TVA;
•	we note in passing that, as the borrowed loads version of outward diversion fraud resulted in additional French duty being paid on loads that would already have been released for consumption and so already have suffered French duty, and as the unpaid TVA would theoretically be owed in respect of transactions that had not really occurred at all, the French exchequer actually benefited from the operations of companies such as Boissons, such that lack of attention to the fraud in France may not be that surprising;
•	anyone unaware of all of the above facts would still find it manifestly implausible that Boissons was selling to the general public from its warehouse because the warehouse was run-down, the access road was in a shocking state, and there was no obvious parking area for customers;
•	some of those who mentioned rather vaguely the presence of vans in the vicinity of Boissons’ warehouse indicated that they saw French vans, and there was so little clear evidence of UK customers that we reject the evidence that customers were seen to be buying beer from the warehouse;
•	with that last observation in mind, and the feature that lorry loads of beer were ostensibly being supplied almost daily by just the Appellant (at least that was what Mr. Feneron and Mr. Austin must both have assumed), a major question was certainly raised as to what was happening to the beer if, as we were told,  two lorry loads of beer would have filled Boissons’ warehouse, even if it had been completely empty before the arrival of the two lorries.;
•	no evidence was advanced to suggest that Boissons was conducting the trade of being some form of “feeder” trader that usually or always on-sold not to the general public, but to other more major cash and carries in the Calais area;  and
•	whilst an explanation was proffered as to why all of Boissons’ payments were made in sterling cash, it hardly enhances the credibility of the transactions claimed to have occurred between Boissons and the Appellant that Dr. Santry was regularly collecting cash in plastic bags and handing that to Mr. Feneron. 

162.     We should add that whilst we have no hesitation in giving a clear finding of fact to the effect that Boissons’ role was fundamentally fraudulent, we do not rule out the possibility that Boissons might have bought some beer genuinely, whether from the Appellant, Connection or from some other supplier.   Some beer plainly had to be used in providing the borrowed loads, and whilst we do not claim to know, and do not need to know, how this was achieved, one possibility is certainly that Boissons might have genuinely acquired some beer. Equally it might have arranged for an accomplice to provide the borrowed loads to Boissons, or it might have instructed the drivers, or even Dr. Santry, to borrow the loads from some other source.  The only material conclusion that we give at this stage is that there was absolutely no evidence, in the light of the compelling evidence to the contrary, that Boissons did genuinely buy beer, or more particularly beer from the Appellant.  Some beer may have been bought or borrowed from someone, but there was absolutely no evidence to demonstrate that, as an exception to the general pattern, some pallet loads of beer from the Appellant were genuinely delivered to Boissons. 
The role of Mr. Wright

163.     We have some difficulty in saying with any certainty whether we accept or reject Mr. Wright’s evidence. 

164.     We did find Mr. Wright to be an intelligent and straightforward witness.    Most of his evidence related to procedures where we accepted his evidence.  We confirm that there was no point at which Mr. Wright contradicted himself or gave some other clear indication of lying. 

165.     We did both, however, find it extremely improbable, as Mr. Wright claimed, that he saw a coach and a coach load of passengers in the vicinity of Boissons’ warehouse, and this claim led both of us to doubt the full integrity of Mr. Wright’s evidence.    We note that Mr. Wright also referred to there being French vans in the vicinity of the warehouse, and we consider that to be more consistent with operations in moving around pallet loads to match AAD descriptions than with the presence of customers.

166.    We certainly agree, with HMRC, that it was highly convenient that Mr. Wright happened to come into the Appellant’s warehouse.    He allegedly volunteered to give evidence, and we were told that he was not paid for giving his evidence.    We also note that by virtue of Mr. Wright having the next most important role, after Mr. Eric Thompson, in dealing with the selection of drivers for the various deliveries of the Appellant’s product, and back-loads for Norfolkline, it was not credible that Mr. Wright could have been “the one innocent driver”.    It seems to us that he must either have been very fully involved in the fraud, or else his evidence must be nearly decisive in rejecting HMRC’s whole case. 

167.     In conclusion, it is our view that whilst we cannot say with certainty that Mr. Wright’s claim that he drove full loads of beer on a few occasions to Boissons’ warehouse is untrue, and whilst we cannot say with certainty that the instructions given by Mr. Wright in his broader role, just mentioned, were instrumental in the fraud, on balance we do reject his evidence.  This is in part because we both considered the claim about the coach load of passengers to be unbelievable, and also because the weight of other evidence, that we do find compelling in support of HMRC’s case, conflicts with Mr. Wright’s evidence. 

The Appellant’s contention that the feature that the loads of beer ordered by Boissons from the Appellant were often made up of between 8 and 12 different brands of beer

168.     The Appellant advanced a strong contention that the feature that there were often between 8 and 12 different categories of beer in each, near daily, order sent by Boissons to the Appellant would have made it very difficult for the Thompson lorry driver with the empty trailer to find a cash and carry from which to borrow exactly the right categories of beer.

169.     We have already said that we do not purport to know how any fraud, and in particular any element of the business of borrowing and returning matching loads of beer, was effected. 

170.     It is however of very great significance that on every morning during the relevant period of sales by the Appellant to Boissons, Dr. Santry phoned Kelly Garrard at the Appellant’s office and took down a list of the exact categories of beer, and quantities, that the Appellant had available for sale.    The information provided went down to the detail, where for instance one brand of beer might be available in different pallet sizes, as to which pallet size the Appellant had in stock. 

171.     It seems self-evident that Dr. Santry must have passed this information on immediately to Boissons, because Boissons always managed to order beer that was available.    Whether Dr. Santry might have been involved with the slaughter of loads, and thus might have been concerned to ascertain the categories of beer that the fraudulent UK black-market buyer of beer might have wished to acquire as well we do not know, though that seems possible. 

172.     So far as Boissons was concerned, once it knew what categories of beer were available, it would have been relatively easy to choose the items on the “available” list that it would find easiest to match, when itself acting as the “lending” cash and carry, or procuring such loads from others. 

173.      As we have said, it is not for us to identify precisely how the fraud was effected, but since there were a string of run-down warehouses adjacent to Boissons’ warehouse, it is quite possible that others might have been in league with Boissons in providing matching loads for the “lending” operations.    Equally Boissons might have had an arrangement with one of the larger cash and carries, under which it was able to access the stock required for these operations.

174.     Whatever the detail of the operation, the salient fact is that Boissons could plainly have chosen beers from the “available” list which it knew that it could easily match and either provide, or “access” in some way so as to generate the borrowed loads required on the following day.      

175.     We therefore reject the Appellant’s argument that it would have been difficult to match loads, because of the various brands and quantities of beer.    The daily provision of the “available” list by Kelly Garrard to Dr. Santry, and the obvious significance of that information, undermines the Appellant’s argument.    

Is there any support for the Appellant’s proposition that the facts in this case are more consistent with “inward diversion fraud” than with “outward diversion fraud” and the “borrowed loads” theory?
176.     We will now examine the Appellant’s argument that the facts of this case, even if Boissons’ operation was fraudulent, were more consistent with inwards diversion fraud than with outwards diversion fraud, effected on the borrowed loads basis.   We have already described above, in relation to the Appellant’s contentions, the basic way in which inwards diversion fraud operated.  The significance of the Appellant’s contention is of course that if the Appellant was in fact delivering beer to MTM’s warehouse, and thereafter Boissons was expecting to use it in some inwards diversion fraud, the delivery of the beer to MTM’s warehouse would have vacated the Appellant’s liability under the guarantee, and the similar liability to VAT. 

The competing arguments

177.      In this context, the Appellant had argued that there was some form of multiple benefit in inwards diversion fraud in that one genuine AAD might enable six or seven loads of beer to be brought across the Channel, in the 3-day period for completion of the duty-suspended movement, without the AAD being stamped by HMRC at entry, with the result that six or seven loads of beer could be slaughtered, when just one would eventually be delivered, with the AAD, to a UK bonded warehouse.  The Appellant also argued that the quantities and varieties of beer that would have to be stocked and handled to facilitate the borrowed loads operation would be vast.

178.     In response HMRC argued that this case could not involve inwards diversion fraud because all the scanned lorries were shown to be empty, whilst they would have been loaded had the case been one involving inwards diversion fraud.    Also HMRC suggested that inwards diversion fraud was potentially less profitable than outwards diversion fraud because the transport costs were higher. 
Our conclusion

179.      We again reject the Appellant’s arguments. 

180.      The fundamental point is that the scanned lorries crossed the Channel with empty trailers.     Whilst we were told that the common method of operating inwards diversion fraud was to transport beer first from the UK to Calais, and then bring it back, and whilst we see no critical reason why the “outwards” journey was inevitably required, in the present case, the feature that the Appellant was purportedly supplying beer to Boissons, which the Appellant suggests that Boissons was going to use in effecting inwards diversion fraud, does obviously mean that beer should have been on the Thompson lorries on their outbound journeys, and in all the scanned journeys the lorries were empty. 

181.      We also reject all the Appellant’s arguments about the multiple efficiency of inwards diversion fraud.   It is wrong to regard the use of the one AAD as if that is the cost of the implementation of the frauds, such that the fraudsters get six or seven frauds for one investment.  The right equation is that with seven transportations across the Channel in each direction (i.e. 14 movements), one transportation will result in the beer being back in a UK bonded warehouse (whereupon UK duty will be paid), whilst six might be successfully slaughtered.   The costs of the six slaughters will then be six imposts of French duty and 14 transport costs, plus the perhaps negligible costs of getting the AAD back from the UK to France on every occasion when it had not been stamped by HMRC on entry. 

182.      By contrast outwards diversion fraud is potentially more lucrative because even if empty lorries have to cross the Channel for each operation, at least the transporter might reduce the transport costs (as Thompsons did in this case) by arranging to carry genuine back-loads on the return journey.   The cost, then, of each slaughtered load is one impost of French duty, and one transportation cost. 

183.     We also reject the Appellant’s argument about the vast quantities and varieties of beer required to implement the borrowed loads theory.   We repeat that it is not for us to decide how precisely Boissons provided or procured the borrowed loads but if some of the operators of the equally dismal-looking warehouses attached to Boissons’ warehouse had been cooperating together, with French vans or lorries moving loads around as required in the ample time available, the operation would have seemed to be relatively simple.   By contrast, there are equivalent, if not greater, difficulties with the implementation of inwards diversion fraud, in that the perpetrators would have, on the example used above, to ensure that they would have not just one load that would match the list on the AAD, but seven identical loads in Calais, all lined up ready to be transported across the Channel, each one waiting for the AAD to be returned to Calais on each occasion when the AAD had not been stamped by HMRC on the previous importation. 

184.     A related point of which no mention was made in the hearing is the feature that inwards diversion fraud would require seven identical loads to be lined up in Calais, ready to be transported across the Channel.  The loads would have to be identical or else, in the unlucky event of Customs inspecting a load at Dover, the fraud would immediately be detected unless the load in question exactly corresponded to the one load described on the AAD accompanying the lorry.   This feature of the seven loads having to be identical appears to be totally inconsistent with the very feature that the Appellant stresses about the Appellant’s supplies, i.e. the point that they constantly varied.
 
185.      In short, we reject the Appellant’s general argument about the relative profitability of the two frauds, and the argument based on practicalities, albeit that the fundamental reason for rejecting the whole argument about inwards diversion fraud is that lorries that should have been loaded with beer, on their outward leg, were in fact empty. 

The tachograph evidence
186.     We attach relatively little significance to the tachograph evidence in this case.    The relevant conclusion that we draw from it is that it does go some way to supporting HMRC’s case that loads were slaughtered in the UK, and that borrowed loads of beer were collected in Calais and then transported to MTM’s warehouse.    

187.    We have already summarised the difficulties of relying on tachograph evidence to prove what journey and stops were made by a particular lorry.     

188.      In drawing conclusions from the tachograph evidence, we observe first that it was largely obtained by HMRC in order to indicate lorry stops in the UK, in order to substantiate the case of trailer swaps in the UK, and less attention was given initially to the short journeys in Calais.  Furthermore, HMRC’s case had initially concentrated, somewhat oddly, on the unnecessary point of suggesting that trailer swaps had generally been undertaken at a place called Brandon.   This suggestion was advanced without anyone knowing very much about Brandon, and whether and where it might be feasible or easy to effect a trailer swap.   Additionally of course it was irrelevant where in the UK trailer swaps might have been effected, provided at least that in each case analysed by Mr. Humphreys there was some point in the UK part of the outward journey where a trailer swap could have taken place. 

189.     The other odd feature to the arguments between the parties about tractor swaps in the UK part of the journey is that because two of the five lorry movements that Mr. Humphreys studied, and two of the additional four that he considered in less detail.    All involved lorry movements where the Eurotunnel scanning evidence demonstrated that the relevant lorries had been scanned Empty, so that it was necessarily common ground between the parties that in those four journeys (the 2 out of the 5, and the 2 out of the further 4), there would inevitably have been a trailer swap.  Thus the tachograph evidence for four out of the nine journeys was largely superfluous since it only appeared to confirm what both parties essentially had to accept was obvious. 

190.    There is no need for us to re-summarise the conclusion that we have drawn from the tachograph evidence.    We summarised this in paragraph 123 above, and in particular in the first three bullet points in that paragraph.   Those we decide are the relevant conclusions to be drawn now. 

191.    It follows that the tachograph evidence is far from decisive, though it is consistent, on both sides of the Channel, with the case advanced by HMRC, and it does nothing to assist the Appellant or to undermine HMRC’s case.
The payment mechanics
192.    We have summarised the way in which all payments received by the Appellant, ostensibly from Boissons, were delivered in sterling cash. The deliveries were allegedly made in boxes or strong plastic bags and were always collected by Mr. Feneron himself.   Dr. Santry usually made the deliveries himself, though sometimes a courier in a car (not from one of the well-known courier companies) might bring the cash instead. 

193.      We have also recorded how, in the early period, Dr. Santry declared the cash as he entered the UK, though we were told that he ceased to do that when he had on one occasion been asked to count out the cash in full view of others at the point of entry.   We were not told when his practice changed. 
194.      The only observations that we make about these cash payments are that:
•	the very feature that all payments were made in cash does lead to suspicion and also means that the Appellant is actually unable to demonstrate that the cash came from Boissons, as distinct from some black market UK outlet, following the slaughter of the load;
•	the previous point is somewhat reinforced by the HMRC evidence that Boissons’ turnover with the Appellant, if genuine, actually means that a short-lived company operating from a back-street corrugated-iron warehouse would have had a greater turnover than the major bona fide Calais cash and carries; 
•	once Dr. Santry ceased to declare the cash brought into the UK, there is actually no way of knowing whether the cash ever even crossed the Channel from France to the UK; 
•	finally, there was a shift in Mr. Feneron’s evidence as to whether he ever received the cash at the Appellant’s premises.  We had initially understood that he never received it at the Appellants’ premises at weekends but might have done so during the working week. We later gathered that he never received it at the premises at any time.  We were surprised by this seeming change in the evidence since it would seem to be difficult to forget where one picked up plastic bag-fulls of cash.  The very business of counting many thousands of pounds of cash, and £5.8 million of cash in 8 months would have made the whole exercise fairly memorable. 

195.     In conclusion, in relation to the cash payments, they obviously raise or reinforce suspicions.   Secondly they preclude the Appellant from demonstrating an honest payment from the supposed customer to itself.

The proportion of vehicle movements scanned by Eurotunnel

196.      We have already indicated that, for tunnel security reasons, Eurotunnel is required to scan 25% of lorry movements through the Channel Tunnel.    At times, and in particular at less busy times, it was reasonable to assume that it might have scanned a greater percentage. 

197.      This fact immediately leads to the question of why, when HMRC was thought to have indicated the VRNs and travel dates for 119 lorries, whose state HMRC was interested in, only 16 emerged on the Eurotunnel record as having been scanned.     Statistically one would have expected about 30 to have been scanned, and quite possibly several more.  

198.     This feature led the Appellant to contend that perhaps Mr. Coutts had only recorded the scan results for the vehicles that had been shown to be empty, failing to record the others that had been scanned  but that had been found to be loaded with beer.  

199.     The significance of this point is of course that if there is some credible evidence for saying that instead of scanning just 16 (or 21) lorries, Eurotunnel must have scanned say 30 or 40, or indeed even more compellingly still if there is evidence that the additional 9 or 19 lorries must actually have been scanned and shown to be laden with beer, HMRC’s case  becomes more doubtful.   For the notion of then saying that because each and every lorry for which we have scanning evidence was scanned as empty, we should conclude that every single lorry in all 119 movements was likely to have been empty is either thrown into doubt, or indeed undermined.  

200.     The numerical gap, summarised in paragraph 197 above, was immediately narrowed by the extraordinary revelation (of which it appeared that some of the HMRC officers present at the hearing were unaware until it was revealed during the hearing) that through an incredible administrative slip-up between different sections of HMRC, the direct HMRC contact with Eurotunnel omitted from the list of VRNs and dates to be checked, those applicable to about 30% of the 119 movements.    Accordingly, at this point the correct comparison becomes one between 16 scan records, and approximately 21 expected scan results if precisely 25% of lorries were scanned out of 83 (119 X 70%).

201.      There is then another unknown.   We know that an additional five lorries were scanned empty, but excluded from the assessment of the 119.  The invariable Eurotunnel practice is that selection for scanning should be completely random, unless the Eurotunnel employees are directed to scan particular vehicles.   We do not know in this case whether the normal practice was followed in relation to the five excluded loads, or whether they were singled out for scanning because the HMRC officers were present, and these officers were obviously looking out for vehicles with the relevant VRNs.   Assuming the former, then the total number scanned goes up from 16 to 21, whereas the total vehicle movements only go up from 119 to 124, and the statistically expected number of scans moves to 87 (124 X 70%) X 25%, or roughly 22, whilst 21 will actually have been scanned. 

202.     The gap will of course re-increase if the five scanned during the special exercise had been selected for scanning, and also because many of the vehicle movements were at a time when the Tunnel traffic was less busy than at peak times, such that the expected scanning percentage may have risen above the 25% figure. 

203.      In the light of the two facts that Mr. Coutts, who undertook the exercise of listing the scan results, has died, and that the material from which he worked has been deleted, it is impossible to be certain whether the explanation for what remains, at the very least, a worryingly low percentage of scan results, is that Mr. Coutts only recorded scan results for empty vehicles, and not laden ones. 

204.      There are, however, two factors that suggest that Mr. Coutts provided all the scan results, such that all the vehicles that he was asked to scan as regards the Appellant’s deliveries were empty.    The first is that the list that HMRC provided of VRNs and movement dates included several vehicles other than the ones carrying, or supposedly carrying, the Appellant’s consignments.    Very few of these other lorries were laden, but significantly some were laden, and when they were laden, Mr. Coutts indicated what the load was.  This obvious suggests that Mr. Coutts was recording all results, and not just those that were found to be empty.    In this context it is significant that the list of VRN’s to be searched did not sub-divide, distinguishing those relevant to the supposed transport of the Appellant’s goods from the others.    The list simply gave all the VRNs and dates.    

205.     The second point is that HMRC notes indicate that Mr. Gorringe specifically asked for confirmation that all scan results had been revealed and not just those for empty trailers, and he was told (perhaps not terribly convincingly) that all scan results had been recorded. 

206.      We might add that, since HMRC’s list for scan results for particular vehicles, passing at particular times and dates,was specifically targeted at movements where vehicles were suspected of moving empty trailers, the fact that only a few lorries were recorded, in Mr. Coutts’ total list, as being loaded, is not terribly surprising

207.      The decision that we must now make is whether we should conclude that, because each of the vehicle movements for which we have scan results in the 119 (i.e. the 16) was scanned empty, or that each of the 21 out of 124 was scanned empty, we should conclude that the Appellant has failed to demonstrate that any single lorry movement crossed the Channel loaded with beer.  Or should we conclude that because 21 have been shown to be empty, whereas on the basis of a scanning of 25%, 30% and 40%, one would have expected to have records for 22, 27 and 35 lorries, we should jump to the assumption that the balance were scanned, and shown to be laden, and thus left off Mr. Coutts’ list. 

208.      We consider it lamentably unsatisfactory that: 

•	first, HMRC managed to drop 30% of the relevant VRNs and movement dates off the list sent to Mr. Coutts;
•	there are only actual scan print-outs for the five loads with which we are not strictly concerned;
•	with these doubts about the number of vehicles actually scanned, it is singularly unfortunate that Eurotunnel has lost data that it is meant to retain for some years, being the data from which Mr. Coutts worked; and
•	it is even more unfortunate that HMRC failed to verify these doubtful points at a much earlier date, when the secondary evidence remained available, such that everyone could have been satisfied with the results before the Eurotunnel data was deleted. 

209.     However unsatisfactory that may be, we acknowledge that there is a real statistical doubt as to whether we were given just the scan results for empty vehicles, or alternatively for all vehicles (it simply happening that they were all empty).    However, on some bases of calculation the gap is sufficiently narrow to be explained by the normal variation in random sampling results, and because the burden of proof is on the Appellant to show that some vehicles were laden when crossing the Channel, we have again to decide against the Appellant on this point.   The Appellant has certainly shown that there is something marginally odd about the size of the reported scan sample, but we are simply unable to say, in the light of the damaging evidence in every other respect, that the Appellant has demonstrated to the standard of reasonable probability that some relatively few loads of beer duly arrived at MTM’s warehouse, as they should have done. 

Our overall decision

210.      Our decision in this case is that the Appeal is wholly dismissed.     

211.     This is not simply on the basis that the Appellant has, as indeed it has, failed to surmount the burden of proof in establishing that the consignments of beer duly arrived.    The following point is not strictly relevant, but it is also our conclusion that HMRC has established, not that it needed to do so, that this case involved outward diversion fraud, and the borrowing of loads in Calais to conceal that fraud from MTM, and thus from the authorities. 

212.      We base our conclusion principally upon the Eurotunnel evidence.     All the other points that we have just mentioned support the conclusion derived from the Eurotunnel evidence, but the features of the Eurotunnel evidence that we consider decisive are that:
•	it is the case that every one of the 21 lorry movements for which we have evidence from scan notes, indicates that the lorry was empty when scanned by Eurotunnel;
•	the feature that the original tractor vehicles always managed, in the 21 cases, to proceed through the Channel Tunnel roughly when intended, albeit without the load, goes a very long way to undermining any conceivable innocent explanation for the UK trailer swap;  and
•	the evidence, where available, as to whether the beer arriving at MTM’s warehouse was hauled by a different tractor vehicle than the one shown on the AAD (as would have been the case, with an innocent trailer swap) or by the one found to be empty when passing through the Tunnel, confirms  HMRC’s contentions.

213.     Our conclusion is that the Appellant has failed to demonstrate its case by a very considerable margin. 

The participants in the fraud
214.      We have indicated throughout this case, that liability of the Appellant is in no way dependent on any fault or complicity in the irregular movement that we have decided must have occurred to the consignments of beer that left the Appellant’s warehouse.   Since we have heard considerable evidence about the role of the various parties, we consider it appropriate to add a few comments about the roles of the various parties involved. 

The Appellant

215.      We have indicated that in most respects the Appellant appeared to have been conducting an efficient and honest business.  Indeed we recorded the somewhat perverse fact that the HMRC officers directly concerned with the Appellant had reduced the level of security that the Appellant was required to give in support of its potential guarantee liabilities, only a matter of days before different officers within HMRC raised the assessments that are the subject of this appeal. 

216.      HMRC’s counsel had not contended that the Appellant, or Mr. Feneron as its managing director, were directly implicated in the fraud that we conclude had been perpetrated, though counsel had suggested that by having changed his evidence as to whether he had just seen, or thought he had seen, as distinct from having “met” Miss Zappira, and as to whether he had seen her passport, or merely a copy of it, Mr. Feneron had been lying. 

217.      In this regard, and fortunately these points are not directly relevant to our decision, we find the correct summary difficult to make.   We regarded Mr. Feneron as a smart, seemingly effective and efficient businessman, and in giving his evidence we had no occasion to doubt his honesty.    We were not surprised that each member of the Appellant’s staff made it clear that they respected him, and if he said that he had verified the standing of Boissons, they regarded this as understandably “good enough for them”. 

218.      At the same time, the facts that Mr. Feneron actually knew left one bewildered that, if he was not some sort of party to the fraud that was perpetrated, he must have turned a blind eye to facts that made some form of very odd dealings fairly obvious.   Albeit that he may not have realised that Kelly Garrard was giving a daily list of available product to Dr. Santry, Mr. Feneron knew that he was relying to some extent on the judgment of Dr. Santry, whose business premises he had never visited; he had seen the hardly impressive premises of Boissons, from which Boissons’ turnover in just the purchases from the Appellant apparently exceeded that of the glossy Calais cash and carries;  he must have been able to judge that two lorry loads of beer would have filled Boissons’ warehouse, and he must have wondered what was then happening to that beer;  and he must have had some qualms about receiving all the gross takings in strong plastic bags.   Finally, whilst his staff can legitimately claim to have relied on him, when they received “due diligence” responses from Boissons, which were neither “diligent”, nor were they what was remotely “due”, Mr. Feneron can only have treated the feeble answers, where there were answers, as ground for further concern.    

219.      At the very least, we endorse the remark of HMRC’s counsel that the level of due diligence exhibited by Mr. Feneron means that the Appellant’s liability in this case, largely based on its guarantee liability, is not that undeserved an outcome.

MTM

220.       We were told that MTM was, and still is, the well-respected operator of a very large bonded warehouse, and HMRC certainly advanced no suggestion that MTM was in any way party to any fraud.   There was, however, considerable criticism that Mr. Austin refused to give evidence, even by video link, and there was a suggestion that the claim that he had suffered a nervous breakdown might have been over-played. 

 221.    We have little doubt that all the checks that MTM employees made of consignments arriving on Thompson lorries were genuine.  We also accept that failures to record VRNs on blind check lists were no indication of any role in any fraud. 

222.      The only feature of the evidence given in writing by Mr. Austin that caused us some hesitation was his readiness to confirm that Boissons was a perfectly normal bona fide-looking cash and carry business. Since he had periodically visited Boissons, and was doubtless aware of the vast apparent turnover being generated through a small and fairly jaded-looking warehouse, we consider that it is just possible that Mr. Austin may have suspected the way in which Boissons was, in our judgment, operating.    Since other fairly similar operators had come and gone in the same area, this is a further factor of which he may have been aware.    We are of course unable to say that we concluded that Mr. Austin was actually turning a blind eye to these features since he refused to appear or to be cross-examined in any way.   It is however possible, and were it so it might explain at least some of the reluctance on the part of Mr. Austin to be cross-examined.  

223.     Were there anything in these vague suspicions (and we put them no higher than that), it is possible that others involved in the fraud might have known that MTM would plainly require the borrowed loads to correspond to those shown on the AAD, they may have suspected that MTM would be somewhat lax in recording VRNs on the blind check-list forms and, more significantly, they might have expected there to be no communication between the office staff and those checking the actual vehicles, as to whether seals had been affixed to outbound lorries.     We naturally repeat that there was no evidence of this, though it is certainly odd that details required to be included on a very simple form were almost invariably omitted. 
Boissons and Thompson and the Thompson drivers
224.     It was clear to us that Boissons’ operation had been fraudulent.   The type of fraud that we conclude had been perpetrated necessarily required either the transport firm or its drivers to have been involved in the fraud.   Thompsons had been assessed for the irregularities in the movements, had seemingly not appealed, and had gone bankrupt, with Mr. Thompson having apparently emigrated to Canada.  Of the drivers, only Mr. Wright gave evidence.  As with Mr. Feneron, we are undecided what his role may have been.  We have no hesitation in saying that he was an impressive witness, and until both of us immediately disbelieved his evidence when he said that a coach load of British passengers were seemingly buying or about to buy beer from Boissons’ warehouse, we did not doubt his evidence.

225.     The essential reason why we have effectively had to reject Mr. Wright’s evidence is that we consider that it is undermined by virtually all the remaining evidence, which we consider to be conclusive.

Dr.  Santry

226.     There is apparently a pending appeal involving Connection, Dr. Santry’s company, and so it would be inappropriate for us to speculate too much as regards Dr. Santry’s role in the facts of this case.  By virtue of being involved in the initial ordering process, by virtue of his having had numerous dealings through his own company with Boissons, and by virtue of him dealing with all the cash handling, Dr. Santry obviously had a fairly central role.   On the basis that the loads of beer in this case were slaughtered, such that the real buyer would have been a UK black-market operator and not Boissons at all, with the cash movements somehow reflecting this reality, it is difficult to see that Dr. Santry cannot have been aware of some oddities at the very least.  In the absence of any evidence from him, it would be wrong and indeed basically impossible, to speculate further.     

Costs

227.     Both parties accepted that the costs regime was, or at least could be, the relevant costs regime prevailing before the VAT and Duties Tribunal.  Before that Tribunal the convention would have been that HMRC would not apply for costs and none would be awarded unless the case involved significant amounts of money, or was of equal complexity to a High Court case. 

228.     We consider that HMRC is right in its contention that the present case is one where it would have been open to HMRC to apply for their costs, as in fact they have done, and where in the ordinary way we would have awarded HMRC their costs. 

229.     Counsel for the Appellant asked us to defer dealing with costs, were HMRC to win this appeal, until after further representations had been made on behalf of the Appellant.     We are minded to respect this request, but in the interests of saving time and hearings, our decision is that HMRC are awarded their reasonable costs, unless within 56 days of the release of this decision, the Appellant indicates that it wishes to address us, i.e.the original Tribunal that heard the case, in relation to costs. 

230.     We are able to appreciate that there may be respects in which the Appellant criticises HMRC for its conduct of the appeal, and those points may indicate that our reversible award of costs is inappropriate.    In the event, however, that the Appellant accepts our reversible award of costs, there will be no need for any further hearing. 

Right of Appeal

231.     This document contains full findings of fact and the reasons for our decision.    Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) Tax Chamber Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

HOWARD M NOWLAN
TRIBUNAL JUDGE

RELEASE DATE: 1 December 2010