Full Federal Court examines director’s personal liability for non-payment of import duties

The recent decision of Hurley vs. Collector of Customs [2022] FCAFC 92 provides a warning to importers of excise goods. The case was to determine whether Mr. Hurley (a director/shareholder of the importer) had failed to keep the subject goods (alcohol) “safely” within the meaning of the Customs Act of 1901 because no duty had been paid on the imported alcohol.

Background

Mr. Hurley was the sole shareholder and director of the importing company (LTA). LTA imported alcohol, which was subject to excise duty. Once the goods arrived at the port, they were stored in LTA’s licensed “warehouse” (ie licensed under the Customs Act).

Generally, for warehoused goods, companies must pay excise and customs duties, and file declarations to inform the goods regulator, either:

  • before the goods leave the warehouse, or
  • weekly or monthly after the release of the goods, if this person/entity holds a periodic settlement authorization (PSP) issued with authority under the Customs Act.

LTA has obtained a PSP for the alcohol stored on its site. During the relevant period (November 2015 to September 2016), alcohol was released from LTA’s warehouse and entered the domestic market (“domestic consumption”). Under the PSP, LTA was permitted to deliver alcohol to the domestic market without prior payment of duties.

It turned out that the duty was never paid. It appears that LTA had outside administrators appointed in September 2017. As a result, Customs sought recovery of unpaid duties during the relevant period from LTA Director Mr. Hurley.

Section 35A(1) of the Customs Act provides that “[w]here a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs controldoes not keep these goods safe… such person shall, on demand in writing made by a collector, pay to the Commonwealth an amount equal to the amount of customs duty which would have been due on such goods if they had been released for consumption on the day on which the demand was made”.

As a director/shareholder of LTA, Mr Hurley was a person of ‘possession, custody or control’ and therefore potentially liable under customs law for ‘failing to keep the goods safely’ . The phrase “not keeping the goods safe” has a special meaning in the Customs context. Importantly for the facts of this particular case, failure to secure the goods may include the case where duty was not paid on the goods, but only when they remained under “customs control” . In other words, liability to the duty must arise while the goods were still subject to customs control.

Article 30(1) of the Customs Law describes the circumstances under which goods are considered “subject to customs control”. Here, the goods were subject to customs control until they were “…released for domestic consumption in accordance with…an authorization under Article 69”. It is important to note that a PSP is an “authorization” issued under Section 69 of the Customs Act.

Mr. Hurley argued that the obligation to pay the duties only arose after the goods had been validly released for domestic consumption under the terms of the PSP. In addition, when the goods are cleared under the PSP, they are no longer subject to customs control.

Discovery

The Full Federal Court agreed with Mr. Hurley and ruled against Customs, stating to [7] judgment:

‘…in this case, nothing relevant happened to the goods, and there was no loss of duty (because the duty was not yet due), while the goods were under control customs officer. The goods have been delivered for domestic consumption in accordance with the applicable PSP and have therefore ceased to be subject to customs control.’

In many respects, the outcome of this case demonstrates that the mechanism provided by the Free Flow of Trade (PSP) legislation – allowing goods to be released for domestic consumption without prepayment of duty – is the “ very thing” which meant that the unpaid duties could ultimately not be recovered against Mr. Hurley.

As recognized by the Federal Court, the Commonwealth could have required the LTA to provide security for compliance with the terms applicable to the PSP, including the payment of duties under other provisions of the Customs Act .

However, while this is a victory for Mr Hurley, the judgment highlights the personal exposure importers’ managers can potentially have if customs duties are not paid and goods under customs control are not kept in completely safe.

Any appeal of this decision will require an application for special leave to appeal to the High Court and will be required within 28 days of the judgment of the full Federal Court.


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Elaine R. Knight