CE OF NZ CUSTOMS SERVICE v KNOWLEDGE CULTURES LIMITED [2019] NZHC 1576

CE OF NZ CUSTOMS SERVICE v KNOWLEDGE CULTURES LIMITED [2019] NZHC 1576 [8 July 2019]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV-2018-419-000209[2019] NZHC 1576BETWEEN CHIEF EXECUTIVE OF THE NEWZEALAND CUSTOMS SERVICEAppellantAND KNOWLEDGE CULTURES LIMITED(FORMERLY WAIPARA RIVER ESTATELIMITED)RespondentHearing: 28 February 2019Appearances: P Courtney for AppellantP Cornege for RespondentJudgment: 8 July 2019JUDGMENT OF HINTON JThis judgment was delivered by me on 8 July 2019 at 12.00 pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors:Crown Law, WellingtonThackeray Chambers, Hamilton[1] This appeal from a decision of the Customs Appeal Authority is about whetherexcise duty should be remitted on wine allegedly produced by the respondent.1 Exciseduty is a domestic consumption tax on certain commodities manufactured inNew Zealand (as distinct from Customs duties on goods entering or leavingNew Zealand).[2] The relevant legislation is the Customs and Excise Act 1996 (the Act).[3] The case raises essentially four questions of law:(a) Whether the Authority erred in determining the appeal before it on thebasis of a concession by counsel that the wine had not come intoexistence, and in finding that accordingly no liability for duty applied;rather than making findings of fact based on the evidence adduced andmaking its decision on a de novo basis, taking into account all theevidence. Alternatively, whether the concession can be withdrawn, inany event.(b) Whether the Authority, if wrongly relying on the concession,incorrectly found that the respondent was not liable for duty.(c) Whether the Authority erred in finding (obiter) that s 103(2) of the Actpotentially excludes remission of duties when goods (including stolengoods) are removed from a customs-controlled area (CCA) withoutduty being paid, rather than that the licensee of the CCA remained liablefor unpaid duty under s 103(3).(d) Whether the Authority erred in finding (again obiter) that for thepurposes of s 113, the words "destroyed, pillaged, or lost" confines theoperation of the section to circumstances where the goods have beendestroyed, and are not available for consumption.1 Waipara River Estate Ltd v Chief Executive of New Zealand Customs Service [2018] NZCAA 2.Background[4] In summary, the respondent makes wine and stores its wine in a CCA licensedunder the Act. In late 2016, the directors of the respondent discovered that 2,500bottles of wine were missing from the CCA. The evidence of the directors was thatthe missing wine was probably stolen by former employees of the respondent.[5] The appellant imposed excise duty on the missing wine under s 73 of the Acton the basis that duty was payable when the wine left the CCA, regardless of why itleft. The respondent applied for remission of the duty under s 113. Remission wasdeclined and the respondent appealed the decision to the Authority.[6] There was evidence before the Authority that would have enabled it to makefindings of fact that the wine did exist and was taken from the CCA:(a) The respondent's directors gave evidence that they identified the winewas missing from their storage facility.(b) This evidence was not contradicted by the Chief Executive's witnesses.Two witnesses accepted that the wine was removed or missing from theCCA. Another noted in his evidence that "there may have been otherthings that could have happened to that wine rather than being stolen",referring to miscounting, but concluded that Dr Peters "was saying itwas stolen, probably stolen" and did not contradict that evidence.(c) The respondent's directors reported the missing wine to the Police, whorecorded the matter as "Theft By Person In Special Relationship".[7] In the hearing before the Authority, then counsel for the Chief Executiveconceded, as recorded in the transcript, that "the wine was probably miscounted, andtherefore the wine did not exist". The Authority concluded the hearing by noting: given the concession, it's inevitable that the appeal must be allowed in [therespondent's] favour because, given that concession, I've got to find that thewine didn't exist and there was no excise duty due in the first place, so thatwill be the decision.[8] The Authority stated:2 " I indicated that [the concession] was not consistentwith my evaluation of the evidence."[9] The Authority also made statements as to the law noted at 3(b) and (c) above,which are obiter, given the basis of the decision, but which the Chief Executive seeksto correct as they involve important points of principle. These points are not disputedand I refer to them subsequently.The concession[10] Ms Courtney, for the Chief Executive, submits that the concession was as toan incorrect matter of law and therefore could not bind the Court.3 I agree as to theproposition, but this was not a matter of law. It was a concession as to fact, which isbinding.4[11] However, the Court may permit a party to resile from a concession "where theinterests of justice so require". 5 Where a party is permitted to resile from a concession,there may be costs consequences.[12] Matters which are relevant to whether the Court will permit a party to resilefrom a concession include whether:(a) the concession was inexplicable or irrational;6(b) the concession carried with it an acknowledgement that particularconsequences would follow;7(c) the concession was unauthorised;82 At [36].3 Commissioner of Inland Revenue v Wilson [2017] NZCA 100, (2017) NZTC 23-009 at [40].4 Walsh v Walsh (1984) 3 NZFLR 23 (CA) at 29.5 GFW Agri-Products Ltd v Gibson [1995] 2 ERNZ 323 (CA) at 327; and Otter v Residual HealthManagement Unit (1999) 13 PRNZ 367 (CA) at [8].6 Collier v Director of Proceedings of the Health and Disability Commissioner [2001] NZAR 91(HC) at [51].7 Walsh v Walsh at 29.8 Collier v Director of Proceedings of the Health and Disability Commissioner at [51] and [52].(d) the other party would have run its case differently if the concession hadnot been made;9 and(e) new facts have come to light which may alter the nature of the case.10[13] As I made clear during the hearing, I am satisfied that, in this case, theconcession can be withdrawn. There are three reasons in particular for that. First,although worded as a concession, it was almost imposed on counsel for theChief Executive by the Authority who, judging by the transcript, became annoyed atthe way counsel was arguing the case. Secondly, as the Authority expresslyacknowledges, the concession did not accord with the evidence, which all pointed tothe wine having existed, so the concession was patently perverse. Third, theconcession made no difference to the way the case was run. Evidence had been calledand cross-examined. The concession was at the end of the case.Liability for duty[14] The correct position in law therefore, having regard to the evidence adduced,is that the wine did exist, but it was removed from the CCA without duty being paidon it. The licensee of the CCA (the respondent) remained liable to pay the duty.[15] Duty is imposed by the Act and, in making an assessment when no entry hasbeen made, the Chief Executive is required to establish that liability for duty appliesand to quantify the amount payable.[16] Section 73(1) requires excise duty to be levied, collected and paid on wine thatis manufactured in a manufacturing area, and domestically-manufactured wine isspecified to be subject to duty under Part A of the Excise and Excise-equivalentDuties Table.11 Given the evidence adduced, the Authority should have found that thewine existed, that the wine had been removed from the CCA, and that the duty due onthe wine had not been received by the Crown.9 Patcroft Properties Ltd v Ingram [2010] NZCA 275, [2010] 3 NZLR 681 (CA) at [14].10 Otter v Residual Health Management Unit (1999) 13 PRNZ 367 (CA) at [7] and [8].11 Section 73(1).[17] Accordingly, the Chief Executive correctly quantified the liability for duty andgave the required notice of the assessment, as entry had not been made when the winewas removed from the CCA. The licensee of the CCA (the respondent) was liable forthe duty under s 103(3).Errors in interpretation of ss 103 and 133 of the Act[18] As noted, although the Authority (wrongly) found that the wine never existed(and therefore that there was no liability for duty), the Authority went on to discussremission of duty.[19] In this regard, both the respondent and the appellant contend that the Authorityerred in holding (obiter) that s 103(2) of the Act potentially excluded remission ofduties when goods (including stolen goods) are removed from a CCA without dutybeing paid. The Authority stated:12On its face, [s 103(2)] excludes the application of s 113 in the present case.At the very least, it demonstrates that it would be an exceptional exercise ofthe discretion to allow remission.[20] Section 113 deals with the remission of duty and provides that, subject toprescribed exceptions, restrictions or conditions, the Chief Executive may refund orremit duty where satisfied that goods have been "damaged, destroyed, pillaged, orlost," or have diminished in value or deteriorated in condition, prior to their releasefrom the control of Customs; or are of faulty manufacture; or have been abandoned tothe Crown for disposal prior to release from control of Customs.[21] Section 103(2) of the Act provides:The licensee shall not be released from liability under this section by virtue ofany other provision of this Act or any other Act.[22] Both counsel say that the Authority's finding at [31], which I have set outabove, is incorrect. That is clearly so. The phrase "released from liability", which isused in s 103(2), refers to the imposition of duty under s 103(1). The imposition ofduty must be distinguished from obtaining payment of the liability, for example12 At [31].through collection, enforcement or settlement. Remission relates to this second stage.It does not release the licensee from liability, but renders the duty no longer due.[23] Both parties also contend, and I agree, that the Authority incorrectly found that,for the purposes of s 113, the words "destroyed, pillaged, or lost" confines theoperation of that section to circumstances where the goods have been destroyed andare not available for consumption.13 On the face of the section that is incorrect.Plainly "pillaged" and "lost" mean something different to "destroyed". The ordinarymeaning of "lost" is missing or unable to be found. One meaning of "pillaged", as theAuthority said itself, is to rob indiscriminately or to take property by force.14 It followstherefore that stolen goods, which may still be "available for consumption", arecovered by the words "destroyed, pillaged or lost", and therefore come within theoperation of s 113.Discretion to remit[24] The respondent is liable for the duty, but the question remains as to whether inthe circumstances of this case the Chief Executive properly exercised their discretionnot to remit.[25] Both parties initially asked that, if I reach this point, I make that decision ratherthan refer the matter back to the Authority.[26] However, I pointed out that I have little, if anything, in the way of submissionsor relevant precedent or guidelines as to how that review is to be conducted. Counselthen agreed that I should refer that point back.[27] I note for the record that while the Chief Executive considers that there wasnegligence on the part of the respondent in the "loss" of the wine, they accept theAuthority's finding that the respondent was not negligent.15 The Chief Executive'sposition seems to be that, unless the "loss" of the goods was in some way Customs'13 At [29].14 At [28].15 As an aside, I note that this finding is wholly inconsistent with the finding the wine never existed.responsibility, there should be no remission of liability. The respondent says on theother hand that, where the loss was not due to its negligence, remission should follow.Conclusion[28] The appeal is allowed, and an order is made quashing the Authority's decision.[29] The issue as to whether the Chief Executive properly exercised his discretionto refuse to remit the duty is referred back to the Authority.[30] Leave is reserved in case there is some point I have overlooked.Costs[31] The appellant has been successful and would normally be entitled to costs.However, there is the question of the concession. Where a Court allows a concessionto be withdrawn, there are usually costs consequences. However, the "concession"here was most unusual for the reasons I have noted. The position is furthercomplicated because, even had the concession not been made, this matter would havehad to go on appeal because of the errors in interpretation on the part of the Authority.Those errors were however not in dispute. Weighing up these matters, I have decidedto award costs in favour of the respondent in the sum of $2,000.------------------------------------------------Hinton J