The Full Federal Court addresses liability for duty payable on goods in licensed places

We have previously written on the difficult position of those operating and working in premises licensed by the Australian Border Force (ABF) for the holding of goods pending entry into home consumption, which goods are still treated as being subject to ‘customs control’.

Main areas of control and liability for those in licensed premises

There are several areas in which there are controls and liabilities for those in licensed places, such as warehouses, depots and duty–free stores. I have provided a summary of some of the main areas below.

1. Applications to become a licensed place are detailed and prescriptive both as to information regarding the applicant and those working in the licensed places. This includes verification as to whether affected parties are ‘fit and proper’ to be involved with the business.
2. The operation of the licensed premises are subject to extensive conditions imposed both by legislation and as specifically contained in the relevant licences. Failure to observe those conditions can lead to financial penalties as well as suspension or revocation of those licences. Further to the additional conditions imposed on operators of licensed places late in 2021 (see ACN 2021/23 here), the ABF is proposing to impose further new conditions arising from the perceived presence of criminal organisations in the private supply chain. My commentary on those further proposed changes can be found here.
3. The movement of goods under customs control without authority can lead to prosecution and penalties. There are both ‘strict liability’ and ‘proof beyond reasonable doubt’ offences. The strict liability offences give the ABF the option of issuing an Infringement Notice with an associated penalty liability in lieu of prosecution. ABF evidence reflects that the highest numbers of Infringement Notices and associated penalties are issued for breach of the strict liability offences relating to the movement of goods without authority.
4. If goods in the licensed places go missing (stolen, destroyed or otherwise), those operating or working in the licensed places can be liable to duty and excise, which would have been payable on the goods had they entered ‘home consumption’. Liability for these amounts is imposed on an ‘absolute liability’ basis with very few if any, defences. The fact that the goods may have been lost or stolen is not a defence. One Federal Court judge previously observed that the only possible exception to liability would be for ‘acts of Godzilla’. There have been several High Court decisions imposing liability on such a basis (see here). Most recently, the High Court in Zappia found that liability to pay excise in these circumstances could be imposed on the entity operating the licensed places as well as being imposed on individuals who were in control of the goods, whether they were directors, employees and contractors. That decision is here, and the ABF’s comments on the decision are here.
5. In addition to the potential liability mentioned above, those who cannot account for all the goods will be exposed to penalties (equal to the quantum of the duty or excise foregone through the failure to have kept goods under their control safely).

Taken together with the general reductions in duty and excise rates and the inability to keep tobacco in such licensed places, the rationale for retaining licensed places has reduced and the costs and risks to run the licensed premises have increased significantly. It also increases the types of insurance which need to be secured by operators of licensed premises and those working in such places.

The nature of the liability for amounts equivalent to customs duty on ‘missing’ goods has recently been considered again by the Full Court of the Federal Court which ruled against the ABF and has led to the ABF seeking Special Leave to appeal to the Hugh Court.

The decision of the Full Court of the Federal Court in Hurley v Collector of Customs

In recent times, the decision of the Full Federal Court in Hurley v Collector of Customs [2022] FCAFC 92 has created some concern for the ABF leading to the application for Special Leave to appeal to the High Court. The decision of the Full Federal Court followed decisions in favour of the ABF (through the Collector of Customs) in the Administrative Appeal Tribunal and a single judge of the Federal Court.

According to the Full Federal Court

As outlined in the Court’s reasons for judgment, the basic facts may be briefly stated as follows:

‘The relevant goods (being alcohol that had been imported into Australia) were the subject of a number of periodic settlement permissions (each referred to as a PSP in these reasons) given by the Collector to Liquor Traders Australia Pty Ltd (LTA), a company of which Mr Hurley was the sole director, under s 69 of the Customs Act (set out later in these reasons). Pursuant to each PSP, LTA was permitted to deliver the goods into home consumption without entering the goods for home consumption (and thus without first paying the duty on the goods). LTA was required to submit a return in relation to the goods on the day after each settlement period referred to in the PSP, and the duty on the goods was payable by LTA at the time when the return was submitted. The relevant goods were delivered into home consumption pursuant to the PSP, but the duty was not paid by LTA. The Collector served demands for payment pursuant to s 35A(1) on Mr Hurley.’

Mr Hurley accepted before the Tribunal that he had, or had been entrusted with, the possession, custody or control of dutiable goods that were subject to customs control. Accordingly, the Federal Court found:

‘The key issue before the Tribunal, and on appeal, concerns the correct construction of the phrase ‘fails to keep [the] goods safely’ in s 35A(1). Are these words capable of applying in the present circumstances, where the goods were not lost, destroyed or consumed, and there was no failure to pay duty, while the goods were subject to customs control?’

The Full Federal Court came to that conclusion by distinguishing other High Court Cases which have found liability under section 35A of the Act because in those cases, there was no doubt that the goods were held under customs control and there was no doubt that relevant parties had failed to keep the goods safely. The Full Federal Court also found that to have decided otherwise would have detracted from the effect of section 69 of the Act and the PSP process which allowed goods to be delivered for home consumption without being entered for home consumption. That conclusion was supported by the fact that the ABF could have sought a security for the customs duty payable on the goods but had declined to do so.

Other relevant consequences of the decision of the Full Federal Court

As set out above, parties who do not keep goods under control safely and cannot account for those goods can also be exposed to penalties under section 36 of the Act. In this instance, although the Full Federal Court did not need to address that liability, it did comment on its belief that penalties under section 36 of the Act should not apply as it would not be reasonable to impose criminal liability on parties who were not liable under the provisions of section 36 of the Act.

Further, even though the issue of liability under the equivalent provisions of section 60 of the Excise Act was not before the Court, those provisions do operate in a similar manner so it may be assumed that liability under section 60 of the Excise Act would not apply should similar circumstances arise.

The ABF seeking leave to appeal to the High Court

As readers would be aware, other than in Constitutional matters, there is no automatic right of appeal to the High Court and that the High Court must approve for a matter to be heard before it was allowed in the Zappia case and the Pharm–A–Care Laboratories case. In both instances, following a preliminary ‘special leave’ hearing, the High Court held that the issue was of sufficient importance to warrant an appeal to the High Court. The grounds for seeking leave to appeal are not yet public, although no doubt it will include seeking the High Court’s views on what is required to ‘keep goods safely’ and whether the decision on liability was correct.

For advice on all aspects of Australian and international trade and customs obligations, please contact our Customs & Trade team.