Earlier this year Customs was successful in bringing a claim against the manager of a licensed warehouse for a failure to account for dutiable goods. The decision was significant as it meant that employees could be liable when goods are stolen from licensed depots and warehouses despite no allegations of wrongdoing against those individuals.
On appeal to the Full Federal Court, the manager had the decision overturned. The Full Court made the very clear decision that the relevant provisions of the Customs Act apply to the warehouse licensee (usually a corporation) and not employees who work in that warehouse.
This limits the potential liability of senior staff working at licensed premises.
The Facts and AAT Decision
In Zappia v Comptroller General of Customs [2017] FCAFC 147 Full Federal Court had to consider who should be liable for duty on cigarettes stolen from a bonded warehouse. Originally, claims had been made against the company that held the warehouse license, a director of the company, and the director's son, a manager who dealt with the day-to-day operations of the warehouse. The company had gone into liquidation and the Director declared bankrupt. The Administrative Appeals Tribunal (AAT) considered the claim against the manager and found him liable under section 35A(1) of the Customs Act.
Section 35A(1) of the Customs Act 1901 provides that
"(1) Where a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control:
(a) fails to keep those goods safely; or
(b) when so requested by a Collector, does not account for those goods to the satisfaction of a Collector in accordance with section 37;
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."
This is a strict test and liability will be imposed regardless of the adequacy of the security measures taken. The key questions was, had the company, the director or manager been "entrusted with, the possession, custody or control" of the cigarettes. At the original hearing the AAT found each of the corporate warehouse license holder, the director and the manager liable.
The Appeal
Only the manager appealed. The appeal focused on the meaning of the words "the possession, custody or control" and whether an employee could fit into this category.
The majority of the Full Court found that an employee did not have possession, custody or control of the goods and that in this case, the manager was not liable. The majority considered that the reference to possession, custody or control was a reference to "exclusive" control and that an employee did not have this power.
It was found that an employee only exercised "some control". However, an employee still had to act in accordance with the directions of their employer and that there were limitations on how those employees could keep goods safe. For instance, the employee could not select the warehouse, the security measures in place at the warehouse or the staffing of the warehouse. Additionally, employees are only present during their hours of work and do not exercise control at other times.
Considerations
The successful appeal means that a very unfair result is overturned. The decision means that section 35A cannot be used against employees merely because they work in a licensed premises. This of course will not protect employees who assist in a breach nor it will assist an individual that falls within the definition of "owner".
It is also important to note that it was only due to the manager appealing the AAT finding that this unfair decision was overturned. The original AAT decision represents the outcome that Customs desired. Customs maintained its position on appeal and argued strongly that section 35A applied to innocent employees. This approach is consistent with Customs seeking to expand who is liable as an "owner" of goods.
Those involved in international trade should hear the warning that Customs is seeking to extend liability for underpayment of customs duty and take appropriate steps to minimise risk.
Please contact one of our team if you would like assistance.