CUSTOMS SERVICE v HUTCHINSON [2021] NZCA 45

CUSTOMS SERVICE v HUTCHINSON [2021] NZCA 45 [5 March 2021]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA32/2020[2021] NZCA 45BETWEEN CHIEF EXECUTIVE OF THENEW ZEALAND CUSTOMS SERVICEAppellantAND PHILIP EDWARD GORDONHUTCHINSON AND NORMA WENDYHUTCHINSON TRADING ASP & W HUTCHINSON TRADERSRespondentsHearing: 2 December 2020Court: Miller, Clifford and Gilbert JJCounsel: P H Courtney for AppellantR L Roff and S W H Fletcher as counsel assistingJudgment: 5 March 2021 at 3 pmJUDGMENT OF THE COURTA The appeal is allowed.B The amended assessment made by the chief executive of Customs on22 June 2018 of the duty payable is reinstated.C We make no order for costs.____________________________________________________________________REASONS OF THE COURT(Given by Gilbert J)[1] The respondents, Mr and Mrs Hutchinson, are sole traders trading asP and W Hutchinson Traders, Whangārei Motorhomes (the Hutchinsons).In September 2017, the Hutchinsons engaged a shipping agent to make all necessaryarrangements for the shipment of seven motorhomes from England, includingpayment of GST and import duty to the New Zealand Customs Service (Customs) toenable clearance of the motorhomes on arrival in New Zealand. The shipping agentcollected the correct amount of GST and import duty from the Hutchinsons asimporters. However, the shipping agent provided falsified invoices showing a lessersum due and paid these lesser sums to a New Zealand customs broker it engaged tomake the required import entries and payments to Customs to secure clearance.The shipping agent pocketed the difference (the shortfall). The customs broker madethe import entries in accordance with the falsified invoices and paid this amount toCustoms. Customs released the goods to the Hutchinsons.[2] Customs later discovered the deception and underpayments and issued anamended assessment to the Hutchinsons. The Hutchinsons paid the shortfall to avoidpenalties but challenged the amended assessment on the basis they did not authorisethe shipping agent to engage the customs broker and they had no knowledge of this.Consequently, the Hutchinsons argued the import entries were not made on their behalfand there was no assessment of duty by them capable of being amended under s 89 ofthe Customs and Excise Act 1996 (the Act).1 They contended that Customs shouldseek recovery from the shipping agent or the customs broker, not from them asinnocent parties even though they accepted they were jointly and severally liable asimporters.2[3] The Customs Appeal Authority (the Authority) accepted the Hutchinsons'argument and found that the amended assessment was not valid.3 This was said to bebecause of "the absence of any connection between the customs broker and[the Hutchinsons]".4 The Authority said "[i]f it were otherwise, customs brokers couldtrigger assessments of duty against persons who are strangers to them using falseinformation".5 The customs broker "had no instructions at all from [the Hutchinsons],1 The Customs and Excise Act 1996 was repealed as from 1 October 2018 and replaced bythe Customs and Excise Act 2018. The 1996 Act was in force at the relevant time.2 Section 86(2).3 XXXX v Chief Executive of the New Zealand Customs Service [2019] NZCAA 2 [Authoritydecision].4 At [35].5 At [36].instead they relied on instructions from [the shipping agent] who was stealing moneyfrom [the Hutchinsons]".6 While finding that the chief executive of Customs hadpower to issue an assessment to the Hutchinsons as importers under s 88 of the Act,the Authority considered the chief executive does not have an unfettered election torecover from any particular importer.7 Instead, she must consider who should properlybear liability and determine whether to seek recovery from the fraudulent shippingagent or the customs broker in order to protect the integrity of the system for assessingand collecting duty.8 Because the Authority did not have sufficient information tomake this determination, it remitted the decision back to the chief executive for suchreconsideration.9[4] The High Court upheld the Authority's decision in all respects on appeal.10The chief executive now appeals to this Court. The issues on the present appeal are:(a) Was there a valid assessment by the Hutchinsons as importers capableof amendment under s 89 of the Act?(b) Did the Authority exceed its jurisdiction in remitting the decision backto the chief executive to consider who should be assessed for theshortfall?(c) How is the chief executive required to exercise her discretion indeciding who to assess for the shortfall?The facts[5] The following summary is drawn from an agreed statement of facts and otherevidence provided to the Authority.6 At [37].7 At [52].8 At [43].9 At [48] and [49.8].10 Chief Executive of the New Zealand Customs Service v Hutchinson [2019] NZHC 3174[High Court judgment].[6] There was no formal written contract between the Hutchinsons andthe shipping agent. The agreement was concluded by email. It is therefore necessaryto refer to the relevant passages in the email exchanges to determine what the terms ofthe agreement were and, in particular, whether the shipping agent had express orimplied authority to engage the customs broker.[7] In early 2017, the Hutchinsons sought rates for the shipment to New Zealandof motorhomes to be purchased from Goodmans Motorhomes Ltd (Goodmans) inEngland. They engaged with "Seabrook" which they understood to be a reputablecompany specialising in shipping motorhomes and caravans worldwide.However, the Hutchinsons did not at any stage meet anyone from this company, nordid they visit their supposed local office.[8] On 2 February 2017, the Hutchinsons received a quote from"Daniela, Sales Dpt. Seabrook Forwarding and Handling" using the email address"sales@seabrookfandh.com". The email was copied to "Seabrook Oceania" and"Seabrook HQ". This quote provided rates for a port-to-port, roll-on/roll-off shippingservice from Southampton to Auckland and included customs clearance inthe United Kingdom, loading charges and ocean freight to the port of Auckland.Having set out the rates, Daniela advised that assistance with customs clearance inNew Zealand and shipping insurance could also be provided and emphasised that"[w]e are a respectable company specialized in shipping vehicles worldwide":We can offer you the following rates ex Southampton, UK:Quotation type: port-to-portShipping service: [roll-on/roll-off]Commodity details:MotorhomesShip from: Southampton, UKShip to: Auckland, NZEstimated transit time: 40 daysQuotation valid to: 31 Feb 2017This rate incudes:- customs clearance in UK;- loading charges;- ocean freight to Auckland Port, NZ;The rate is based on the 10% BAF [Bunker Adjustment Factor] starting with5th of February 2017.We can also offer you customs clearance and assistance in New Zealand.We are a respectable company specialized in shipping motorhomes andcaravans worldwide. If you would like shipping insurance cover, this costs1% of the value of the vehicle with a EUR 50 admin fee - no excess payable.We are a respectable company specialized in shipping vehicles worldwide.Please feel free to check out our website for more details:http://www.seabrookfandh.comHow do our vehicle rates stack up?When it comes to service and expertise, I can guarantee you that we arethe company to choose![9] The following day, "Jordan Caffrey, Import Manager" emailed the Hutchinsonsdetails of the New Zealand charges using the email address"jordan@seabrookintl.com". Mr Caffrey stated that they would guide the wholeprocess and all procedures would be completed in good time to enable prompt releaseof the motorhomes on arrival:All charges to be paid in NZ per unit are:1. Local charges: [rate x volume]. 2. [Bill of lading] fee [amount]. 3. Customsclearance fee [amount]. 4. Customs Duty for motorhomes is 10% on thepurchase value calculated at the Customs Exchange rate at the time of arrival.5. Customs GST6. Escort service [amount]As access in the port is restricted, we use a specialized company to bring theunits to the port entrance.7. MPI inspection [amount]These are all charges to be paid in NZ plus GST, Except [numbers] 4 and 5.We will guide to [sic] the whole process and all procedures will be completedby the time Vessel arrives so you can pick up your unit next working day aftervessel arrival.You will be updated at all stages and also have the possibility to track yourshipment online.Please let us know if you have further questions.As we have shipment worldwide I am reachable at any time.Thank you,Jordan CaffreyImport Manager[10] The Hutchinsons subsequently agreed to proceed using Seabrook. Mr Caffreyadvised Mr Hutchinson on 15 September 2017 that he would be handling the shipmentfor the first consignment, comprising two motorhomes, expected to arrive on16 October 2017 and he requested various details including a Customs client code.This email was sent from "Seabrook HQ" using the email address"office@seabrookintl.com". Mr Caffrey stated in this email:I will be handling the import of your shipment.If you have imported before into NZ and you have a client code assigned bycustoms please be so kind to provide it.ETA for your shipment is 16th of October on vessel Talisman CF724-TLIWe always start working in advance on each shipment so we can make surewe have all releases (shipping line release, Customs release, [Ministry forPrimary Industries] release) before vessel hits the port.This way our clients can pick up their units one day after vessel arrival andavoid paying extra charges for demurrage.Please be so kind to let me know how do you prefer to be contacted (e-mail,mobile, landline, sms) and provide a phone number where we can reach youor any person designated to handle the follow up of your shipment.In case you are travelling and you are not reachable, please give us yourschedule.Please let me know if you have any questions.Thank you,Jordan Caffrey,Import manager[11] Mr Hutchinson provided the requested information by return email that sameday.[12] On 9 October 2017, Mr Hutchinson sent an email to Mr Caffrey attachingcopies of invoices and sale and purchase agreements for the first two motorhomes.Mr Caffrey responded the following day attaching an invoice in the name of SeabrookInternational Ltd which showed an address in Parnell, Auckland and the same emailaddress — "office@seabrookintl.com". The invoice showed the correct amount dueand this was duly paid by the Hutchinsons.[13] The next three consignments in respect of the other five motorhomes followedthe same pattern of invoicing by Seabrook International Ltd showing the correctamounts due and payment by the Hutchinsons.[14] We pause here to note that no company by the name of Seabrook InternationalLtd existed in New Zealand at that time. A company having that name and the sameParnell address had earlier been registered in New Zealand on 17 June 2013, but asan interior design or decorating consultancy service. It had been removed fromthe New Zealand Companies Register on 19 December 2014, three years beforethe relevant events took place. Therefore, while it was an agreed fact for the purposesof the appeal to the Authority that the Hutchinsons engaged Seabrook InternationalLtd as shipping agents, this is not strictly correct. We will refer to the person or personsmasquerading as Seabrook International Ltd as "Seabrook".[15] Seabrook engaged Lyn Doc Com Ltd (LDC), a registered customs brokeragebusiness in Tauranga, to complete and lodge the required import entries forthe motorhomes. The Hutchinsons were not aware of this engagement at the time.Seabrook provided falsified invoices to LDC showing a lesser sum due and passed ononly that portion of the money collected from the Hutchinsons. LDC lodgedelectronically four import entries with Customs in accordance with these falsifiedinvoices and paid the corresponding amount of GST and duty. The motorhomes werepromptly released by Customs to the Hutchinsons.[16] The discrepancy between the correct invoices presented by Seabrook tothe Hutchinsons (reflecting the invoices from Goodmans) and the lesser amountshown on the import entries lodged by LDC was discovered by Customs some sevenmonths later. The total underpayment was $44,663.27. On 22 June 2018, Customsissued an amended assessment notice to the Hutchinsons pursuant to s 89(1) of the Actfor this amount. The Hutchinsons paid the shortfall on 3 July 2018 to avoid penalties.This left them in the position of having paid the amount representing the shortfalltwice.Was there a valid assessment by the Hutchinsons as importers capable ofamendment under s 89 of the Act?[17] We commence by referring to the relevant statutory provisions.[18] Entry and accounting for goods is dealt with in pt 4 of the Act. Entry ofimported goods is required under s 39. This section relevantly reads:39 Entry of imported goods(1) Subject to any regulations made under section 40, goods that areimported or that are to be imported must be entered by the importer—(a) in such form and manner (including by electronic means intoa computer or other device) as may be prescribed; and(b) within such time as may be prescribed or such further time asthe chief executive may allow.(4) If—(a) default is made in the entry of goods pursuant to this section;or(b) the goods are not claimed within such period as may beprescribed,—duty becomes due and payable on the goods, and the goods may besold or otherwise disposed of by the chief executive.[19] Duties are dealt with in pt 6 of the Act. Section 60 requires the importer tospecify the Customs value of the goods on entry:60 Importer to specify Customs value on entry(1) Every person who makes entry of goods imported or to be importedmust, on making entry, specify the Customs value of the goods,determined in accordance with Schedule 2.(2) Every importer or agent of an importer who makes an assessmentpursuant to subsection (1) must—(a) keep the documents, records, and information in respect ofthat entry in such manner and for such period as is requiredby section 95 and any regulations made for the purposes ofthat section; and(b) when required by the Customs, produce those documents,records, and information for the purpose of establishingthe accuracy of the assessment.[20] The chief executive may amend an assessment made under s 60(1) if satisfiedthe assessment is inconsistent with sch 2 or incorrect for any other reason.11[21] The assessment and recovery of duty is dealt with in pt 8 of the Act. Section 86provides that the duty on imported goods constitutes a debt due to the Crownimmediately on importation. The duty is payable by the importer. If there is morethan one importer, each importer is jointly and severally liable. The chief executivemay defer the payment of duty due from any approved person or class of persons.Section 86 relevantly reads:86 Duty on imported goods a Crown debt(1) The duty on all goods imported constitutes, immediately onimportation of the goods, a debt due to the Crown.(2) Such duty is owed by the importer of the goods, and, if more than 1(whether at or at any time after the time of importation) then jointlyand severally by all of them.(6) The chief executive may, subject to such terms and conditions as heor she may impose, approve any person or class of persons as personswho may defer the payment of duty due under this section and, forthat purpose, may determine a duty accounting period; and maysuspend or withdraw that approval or vary any term or condition underwhich the approval is given or vary the duty accounting period.[22] Section 88 provides for the assessment of duty. Importantly, it provides thatan entry for goods made under the Act is deemed to be an assessment by the importerof the duty payable in respect of the goods. If the chief executive has reasonable causeto suspect that duty is payable by a person who has not made an entry in respect ofthe goods, she may make the assessment. Because of its central relevance tothis appeal, we set this section out in full:11 Customs and Excise Act 1996, s 61(1).88 Assessment of duty(1) An entry for goods made under this Act is deemed to be an assessmentby the importer or licensee, as the case may be, as to the duty payablein respect of those goods.(2) If the chief executive has reasonable cause to suspect that duty ispayable on goods by a person who has not made an entry in respect ofthe goods, the chief executive may assess the duty at such amount asthe chief executive thinks proper.(3) The person liable for the payment of the duty shall be advised ofthe assessment by notice in writing.(4) A person liable for the payment of the duty who is dissatisfied witha decision of the chief executive under subsection (2) may, within20 working days after the date on which notice of the decision isgiven, appeal to a Customs Appeal Authority against that decision.[23] The chief executive contends that each of the entries made by LDC constituted"[a]n entry for goods made under this Act" and therefore was "deemed to bean assessment by the importer" (the Hutchinsons). The Hutchinsons argue tothe contrary that LDC had no authority to act on their behalf and accordingly therewas no entry of the goods in terms of s 88.[24] The chief executive may make amendments to an assessment of duty as shethinks necessary in order to ensure the correctness of the assessment. This section isalso a key provision for the purposes of this appeal, so we set it out in full:89 Amendment of assessment(1) Subject to section 94, the chief executive may from time to time makesuch amendments to an assessment of duty as he or she thinksnecessary in order to ensure the correctness of the assessment eventhough the goods to which the duty relates are no longer subject tothe control of the Customs or that the duty originally assessed hasbeen paid.(2) If the amendment has the effect of imposing a fresh liability or alteringan existing liability, notice in writing shall be given bythe chief executive to the person liable for the duty.(3) A person liable for the payment of the duty who is dissatisfied witha decision of the chief executive under this section may, within20 working days after the date on which notice of the decision isgiven, appeal to a Customs Appeal Authority against that decision.[25] Before concluding our review of the relevant statutory provisions, we need toset out the definition of "importer", which is cast in wide terms. An importer is definedin s 2 as follows:importer means a person by or for whom goods are imported; and includesthe consignee of goods and a person who is or becomes the owner of orentitled to the possession of or beneficially interested in any goods on or atany time after their importation and before they have ceased to be subject tothe control of the Customs.[26] In Daily Freightways Ltd v Collector of Customs, McCarthy P commented onthe purpose of the wide definition of "importer" in s 2(1) of the Customs Act 1966,which was in materially the same terms as the definition in the 1996 Act:12I think that it must be accepted that one purpose of the wide definition ofimporter provided by s 2 is to enable the Collector to call upon any personwho at any time after the goods have been imported into New Zealand andbefore they have ceased to be subject to customs control is the consignee ofthem or is or was (a) the owner of the goods, or (b) is or was entitled tothe possession of the goods, whether as owner or not, or (c) has or hada beneficial interest in the goods. These various qualifying circumstances maybe found in one person at any one time or may be spread over a number, butany one is sufficient to make the person in whom it is found qualify.Obviously, such being the position, there may be many who acquirea qualification in the course of the movement of the goods from the ship oraircraft to the point where they are released from customs control.[27] This Court found that Daily Freightways Ltd, as freight forwarder, was a baileefor reward with possessory rights to the goods at the relevant time in terms of itscontract and therefore came within the definition of importer.13 While that wasthe conclusion on the terms of the contract there in issue, Richmond J considered thatthe words "entitled to the possession of" in the definition was "apt only to describea person who as between himself and the true owner has a legal right to the possessionof the goods".14[28] It is common ground that the Hutchinsons were importers. Accordingly, byoperation of law, they became liable for the duty and GST immediately uponimportation of the motorhomes. As the importers, the Hutchinsons were obliged bys 39 of the Act to enter the goods but the lodgement of such an entry was not12 Daily Freightways Ltd v Collector of Customs [1974] 2 NZLR 704 (CA) at 708.13 At 709–710 per McCarthy P (Haslam J concurring) and 712 per Richmond J.14 At 712.a prerequisite to their liability to pay the correct amount of tax and duty.The Hutchinsons did not make the required import entries themselves but dischargedtheir obligation to do so through their engagement of Seabrook. The entries made byLDC and relied on by Customs in releasing the motorhomes to the Hutchinsons weredeemed by s 88(1) to be an assessment by the Hutchinsons as the importer of the dutypayable in respect of those goods. If there was an error in the assessment of duty ortax, the Act provides mechanisms to enable the assessment to be corrected byamendment. That is what happened here.[29] It follows that whether or not Seabrook was authorised to appoint LDC to makethe required import entries has no effect on the Hutchinsons' liability.The involvement of Seabrook merely enlarged the class of person who could qualifyas an importer and from whom the chief executive may have been entitled to seekrecovery. In any event, for the reasons set out below, we consider Seabrook wasauthorised to engage a customs broker in New Zealand (such as LDC) to makethe required import entries.[30] First, we consider this conclusion follows from the express terms ofthe agreement. Seabrook offered "customs clearance and assistance in New Zealand".Seabrook subsequently detailed these services and their associated costs and stated itwould "guide" "the whole process" and "all procedures will be completed by the timeVessel arrives so you can pick up your unit next working day after vessel arrival".The "whole process" necessarily included obtaining custom's clearance and thereforemaking the required customs entries. Seabrook's promise to guide the process is notreconcilable with the Hutchinsons' contention that Seabrook was personally obliged,not just to guide the process, but to perform each of the services comprising it.[31] Secondly, we consider Seabrook's authority to engage other parties to performthe services can be implied. The services included loading and unloading, transportby ship, shipping insurance cover, customs clearance in the United Kingdom, escortservice in New Zealand and obtaining releases from the shipping line andthe Ministry for Primary Industries. The agreement did not expressly requireSeabrook to perform any of these services itself. To illustrate, Seabrook did notpromise that it would personally load the motorhomes onboard the vessel, sailthe vessel to Auckland, unload the motorhomes on arrival and so on. On the contrary,many of these services were of a nature necessitating performance by Seabrook usingother parties. For example, in offering shipping insurance cover, it is implicit thatSeabrook would not itself underwrite the risk but would secure cover with a third partyinsurer. Further, the agreement specifically contemplated that Seabrook wouldappoint another (unspecified) company to provide the escort service to bringthe motorhomes to the port entrance. The engagement of other parties as necessary tocarry out the various services must therefore be taken to have been withinthe contemplation of the parties at the time the agreement was entered into andimpliedly authorised.[32] Thirdly, Seabrook's implied authority to engage others to perform specificservices under the agreement is also justified by ordinary trade usage. The servicesSeabrook agreed to provide were those typically provided by a freight forwarder, alsoknown as a forwarding agent. The traditional role of a forwarding agent was describedby Rowlatt J in the leading case of Jones v European & General Express Co Ltd asfollows:15It must be clearly understood that a forwarding agent is not a carrier. He doesnot obtain possession of the goods and he does not undertake to deliver them.All he does is to act as agent and make the necessary arrangements, so far asis necessary, between the ship and the railway or anything else. His liabilitydepends upon his failing to carry out the duties I have just described.[33] To similar effect is the often quoted judgment of Goddard LJ in C A Pisani &Co Ltd v Brown, Jenkinson & Co Ltd, in which he characterised the role ofa forwarding agent in these terms:16Messrs Brown, Jenkinson & Co. are a firm of brokers in the City and peoplewho are willing to pass the Customs entries and are also willing, if they areasked, to get a contractor to ship goods from the docks either by barge or bylorry. I could not see that their position was any different from that; as I putit, of people like the American Express Company, or somebody like that, whoare willing to forward goods for you or to book you to the uttermost ends of15 Jones v European & General Express Co Ltd (1920) 4 Ll L Rep 127 (KB) at 127.16 C A Pisani & Co Ltd v Brown, Jenkinson & Co Ltd (1939) 64 Ll L Rep 340 (KB) at 342. See alsoEMI (New Zealand) Ltd v Wm Holyman & Sons Pty Ltd [1976] 2 NZLR 566 (SC) at 572–573;Paul Bugden and Simone Lamont-Black Goods in Transit and Freight Forwarding (3rd ed, Sweet& Maxwell, London, 2013) at [1–021]; and Frank Smeele "Legal Conceptualisations ofthe Freight Forwarder: Some Comparative Reflections on the Disunified Law of Forwarding"(2015) 21 JIML 445 at 449.the earth. They do not undertake to carry you, and they are not undertaking todo it either themselves or by their agent. They are simply undertaking to getsomebody to do the work, and as long as they exercise reasonable care inchoosing the person to do the work they have performed their contract.[34] We conclude that Seabrook had implied authority to engage LDC to makethe required import entries to secure prompt release of the motorhomes. It followsthat the entries made by LDC were made on behalf of the Hutchinsons as the importersin terms of s 39 of the Act. The entries were deemed by s 88(1) to be assessments bythe Hutchinsons as to the duty payable in respect of the motorhomes.These assessments were correctly amended by the chief executive in the exercise ofher powers under s 89(1) of the Act. The chief executive's power — to assess the dutypayable on the goods under s 88(2) as if the Hutchinsons had not made an entry inrespect of them — was not engaged.Disposition[35] For the reasons given, we differ from the conclusion reached by the Authorityand confirmed by the High Court that there was no assessment by the Hutchinsonscapable of being amended. There is no dispute about the correctness of the quantumof duty assessed in the amended assessment. The Authority therefore should haveconfirmed the amended assessment. The present appeal must be allowed, andthe amended assessment reinstated. In the light of this conclusion, it is not necessaryto consider the other two issues raised by the chief executive on the appeal. This isbecause no question of the chief executive making a fresh assessment of duty againstsome other party under s 88(2) arises.Concluding observations[36] The Hutchinsons' primary contention is that the chief executive, asadministrator of the system, should seek recovery from the Hutchinsons' fraudulentagent or from LDC. Shipping agents need not be domiciled in New Zealand and arenot licensed by the chief executive. The Hutchinsons understood Seabrook was basedin London and they chose to engage them as their shipping agents. They have rightsof recourse against Seabrook, for what those rights may be worth. We can see noreason why the chief executive should be required to attempt to track down"Seabrook" and seek recovery from them so as to protect the Hutchinsons fromthe consequences of their appointment of a fraudulent agent. We also do not see why,in order to protect the integrity of the system, the chief executive should visitthe consequences of the Hutchinsons' agent's wrongdoing on LDC. On the evidenceavailable, it appears that LDC did nothing wrong.Result[37] The appeal is allowed.[38] The amended assessment made by the chief executive of Customs on 22 June2018 of the duty payable is reinstated.[39] We make no order for costs.Solicitors:Crown Law Office, Wellington for Appellant