Australia: Who can be held liable for customs duty on goods stolen from a warehouse?

In brief - High Court clarifies range of people who can be considered to possess power or authority in relation to goods

Warehouse keepers have been reminded in a recent decision of the High Court of Australia of the extent of their responsibility for goods which they hold before they are entered for home consumption.

In the case of Comptroller General Customs v Zappia [2018] HCA 54, the High Court allowed an appeal from the decision of the Full Federal Court which had overturned the original decision of the Administrative Appeals Tribunal.

In essence, the decision turned upon whether an employee of the holder of a warehouse licence was within the description "a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control" in section 35A(1) of the Customs Act 1901.

Section 35A(1) provides as follows:

Where a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control:
  1. fails to keep those goods safely; or
  2. when so requested by a Collector, does not account for those goods to the satisfaction of a Collector in accordance with section 37;
that person shall, on demand in writing made by a Collector, pay to the Commonwealth an amount equal to the amount of the duty of Customs which would have been payable on those goods if they had been entered for home consumption on the day on which the demand was made.

Collector serves notice of demand following theft of tobacco products from warehouse operated by Zaps

Zaps Transport (Aust) Pty Ltd (Zaps) operated a warehouse pursuant to which a warehouse licence had been issued. The sole director of Zaps was John Zappia. Domenic, his son, the other party to the proceedings apart from the Comptroller General of Customs, was employed by Zaps as its "General Manager" and its "Warehouse Manager". Zaps had notified the Australian Taxation Office that each of Domenic and his father was a person who participated in the management or control of the warehouse.

The goods, which were subject to the claim for duty, were tobacco products which had been stolen from the warehouse in a break in. The Collector had served a notice of demand under section 35A(1) on each of Zaps, Domenic and his father. Zaps was in liquidation and the father was bankrupt. The appeal from the Tribunal's decision to the Federal Court was only made by Domenic.

Who has "control" under section 35A(1) of Customs Act examined by Court

On behalf of Domenic it was sought to be argued that in determining whether somebody has "control" within the meaning of section 35A(1) it should be construed in context to denote a person who has "paramount control" as distinct from "subordinate control" of dutiable goods. The High Court rejected that narrow construction.

The most significant paragraph in the judgment of the High Court is as follows:

The reference to "the possession, custody or control" of dutiable goods is appropriately construed as a compendious reference to that degree of power or authority which is sufficient to enable a person to meet the obligations both to keep those goods safely and, on request by a Collector, either to show the goods to a Collector or to satisfy a Collector that the goods have been dealt with in accordance with the Act. A person who "has" the possession, custody or control of dutiable goods within the meaning of the section is a person who possesses power or authority in relation to those goods to that degree, irrespective of the manner in which that person might choose to exercise that power or authority.

High Court refers to Southern Shipping Co case

The Court referred to the often quoted decision in the case of Collector of Customs (NSW) v Southern Shipping Co Limited (1962] HCA 20, a 1962 decision of the High Court on the equivalent provision in the Excise Act 1901. In the 1960s and 70s there were numerous situations in which shipping companies were presented with demands by the Collector of Customs under such provisions, Southern Shipping Lines being one of them. In that case, a manufacturer had delivered to a shipping company excisable tobacco products which had not been entered for home consumption and which therefore remained "subject to the control of the Customs". Agents of the shipping company had locked the tobacco in a store on a wharf which was owned by the Maritime Services Board of New South Wales and the key was then handed to the Customs Office. The excisable goods were stolen from it. Payment was demanded from the shipping line or its agents. The High Court held that the shipping company was "a person who had the possession, custody or control" of the excisable goods and "a person who had been entrusted with the possession, custody or control" of those goods.

Another issue for that Court was whether the shipping company had "failed" to keep those goods safely. The High Court had answered in the affirmative. McTiernan J had said in that case "the task of keeping goods safely cannot be said to have been fulfilled if the goods were stolen even though reasonable precautions were taken". However, his Honour did reject an argument made by the Collector of Customs to the effect that "fails" meant no more than "does not" and thereby imposed absolute liability. He held that "the word "fails" in my opinion is not strong enough to impose upon the person concerned so onerous a duty as that of avoiding the unavoidable."

Those with responsibility for dutiable goods within their control should take heed of Comptroller General Customs v Zappia case

Whether or not the warehouse keeper in Zaps had any rights of recovery for any amount which it paid the Controller General of Customs as a result of this decision is not dealt with in the case.

This recent decision by the High Court is a reminder to those who have a responsibility for goods pursuant to licences obtained from the Customs Authorities that their duty is virtually absolute if the goods are lost whilst they are within their control.

Stuart Hetherington
Transport and logistics
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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