Thinking | 27 May 2022

Full Federal Court considers personal liability of director for non-payment of import duty

By Jacqueline McGrath

The recent decision in Hurley v Collector of Customs [2022] FCAFC 92 provides a cautionary tale for importers of excisable goods. The case considered whether Mr Hurley (a director/shareholder of the importer) had failed to keep the relevant goods (alcohol) 'safely' within the meaning of the Customs Act 1901 because there had been no duty 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. After the goods arrived at the port, they were stored at LTA's licensed 'warehouse' (that is, licensed under the Customs Act).

Generally, for warehoused goods, businesses must pay excise and customs duty, and lodge returns to notify the regulator of the goods, either:

  • before the goods are released from the warehouse, or
  • weekly or monthly after the goods are released, if that person/entity holds a periodic settlement permission (PSP) issued with authority under the Customs Act.

LTA was granted a PSP for the alcohol warehoused at its site. During the relevant period (November 2015 to September 2016), alcohol was released from LTA's warehouse and made its way into the domestic market ('home consumption'). By reason of the PSP, LTA had permission to deliver alcohol into the domestic market without prior payment of duty.

As it transpired, the duty was never paid. It appears that LTA had external administrators appointed in September 2017. Accordingly, Customs sought recovery of the unpaid duty over the relevant period from LTA's 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 controlfails to keep those goods safely… 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'.

As the director/shareholder of LTA, Mr Hurley was a person entrusted with the 'possession, custody or control' and thereby potentially liable under the Customs Act for 'failing to keep the goods safely'. The phrase 'failing to keep goods safely', has a particular meaning in the Customs context. Importantly to the facts of this particular case, failing to keep goods safe can include where the duty has not been paid on the goods but only when they remained subject to 'Customs’ control'.  Put another way, the liability to duty must arise when the goods were still the subject of customs’ control.

Section 30(1) of the Customs Act describes circumstances when goods are considered to be 'subject to customs control'. Here, the goods were subject to customs’ control up until they were '…delivered into home consumption in accordance with… a permission under section 69'. Importantly, a PSP is a 'permission' issued pursuant to section 69 of the Customs Act.

Mr Hurley argued that the liability to pay duty arose only after the goods were validly released into home consumption under the terms of the PSP. Further, when goods are released under the PSP, they are no longer subject to Customs’ control.

Finding

The Full Federal Court agreed with Mr Hurley and found against Customs, stating at [7] of the judgment:

'…in the present case, nothing relevantly happened to the goods, and there was no loss of duty (because duty was not yet due), while the goods were subject to customs control. The goods were delivered into home consumption in accordance with the applicable PSP, and thereupon ceased to be subject to customs control.'

In many ways, the outcome of this matter demonstrates that the mechanism within the legislation to facilitate free-flowing trade (the PSP) – allowing the goods to be released into home consumption without the prepayment of the duty – is the very 'thing' that meant the unpaid duty could not ultimately be recovered against Mr Hurley.

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

However, while this was a win for Mr Hurley, the judgment highlights the personal exposure that directors of importers may potentially have if duty is not paid and goods under customs control are not kept safely.

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

Contact

Jacqueline McGrath

Tax lawyer Jacqueline has extensive litigation experience acting for multinationals, enterprises and individuals.

Chris Sacré

Chris is a leading transport and trade lawyer with extensive experience in shipping, international trade and marine insurance.

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