Benjimin Frances and Collector of Customs

[2015] AATA 384

[2015] AATA 384 

Division	GENERAL ADMINISTRATIVE DIVISION
File Number	2013/3551
Re	Benjimin Frances
APPLICANT
And	Collector of Customs
RESPONDENT

DECISION

Tribunal	Senior Member Bernard J McCabe
Date	29 May 2015
Place	Brisbane (heard in Sydney)

The decision under review is affirmed.

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Senior Member Bernard J McCabe

CATCHWORDS

CUSTOMS – dutiable cigarettes subject to control of Customs – cigarettes lost – cigarettes in control of applicant – failure to keep goods safely – no satisfactory explanation – failure to account for goods to satisfaction of Collector – decision under review affirmed.

LEGISLATION

Customs Act 1901 (Cth) ss 35A; 37; 273GA

CASES

The King v Lyon (1906) 3 CLR 770

Collector of Customs v Southern Shipping Company Ltd (1962) 107 CLR 279

REASONS FOR DECISION

Senior Member Bernard J McCabe

29 May 2015

1. The Commonwealth imposes duty – a form of tax – on tobacco products sold in Australia. The duty substantially increases the retail price of cigarettes. In order to check a black market in goods that avoid duty, the Customs Act 1901 (“the Act”) imposes obligations on importers of dutiable goods. The Act requires persons handling prescribed goods to keep them safe and account for them when required to do so. If those persons fail to discharge their duties, they might be required to pay to the Collector of Customs an amount equal to the amount of the duty pursuant to s 35A(1) of the Act.

2. These proceedings arise out of a decision by the Collector to serve a statutory demand under s 35A of the Act on Mr Benjimin Frances, a freight forwarder, after the loss of a consignment of dutiable cigarettes in 2012. The Collector says the goods were in

   
   

   Mr Frances’s control, and he must take responsibility for the loss. (The Collector suspects the lost goods made their way into the Australian market for tobacco products.

   
   

   If that is so, the Collector has lost a significant amount of revenue that he now seeks to recover from Mr Frances.)

3. Mr Frances says he had only a limited role to play in the handling of the goods.

   
   

   He denies he was in control of the goods when they were lost, and in any event claims he has given an adequate explanation for his role that should excuse him from any liability. Mr Frances has asked the Tribunal to revisit the Collector’s decision, which was dated

   
   

   27 June 2013.

4. The decision under review should be affirmed. I explain my reasons below.

   What happened?

5. Mr Frances is the sole director and shareholder of a company called Australasian Freight Forwarding Pty Ltd (“Australasian Freight Forwarding”). He is also the registered proprietor of the business name “Specialty Logistics”. Mr Frances carries on a business of freight forwarding, which includes landing, transporting and warehousing imported goods. Like many small businesses, he did not appear to distinguish between activities carried on through his company and those conducted in his personal capacity: his correspondence with clients sometimes refers to the company and sometimes refers to Specialty Logistics, for example. I asked Mr O’Connor, Mr Frances’s representative, whether his client was seeking to shelter behind the corporate veil of Australasian Freight Forwarding Pty Ltd. Mr O’Connor confirmed the applicant was not making that argument. I am satisfied the concession was appropriate. It was clear from the totality of the evidence that Mr Frances was the actor, rather than the company. It is therefore proper that the responsibilities under the Act fall on Mr Frances rather than on a corporate entity that happened to be mentioned in some of the paperwork.

6. Mr Frances provided a short statement but he elaborated on the story in the course of his evidence at the hearing. What follows is gleaned from his evidence and that provided by Mr Ranieri, the customs officer who was, for the purposes of the proceedings, the respondent.

7. Australian Tobacco Importers Pty Ltd (“ATI”) imported a consignment of 10,700,000 cigarettes into Australia in March 2012. The cigarettes were sourced from the Middle East (exhibit one at pp 11 and 12). Mr Khalil, a director of ATI, provided an authorisation to Mr Frances “from Australasian Freight Forwarding to pick up all documents and Air Cargo on my behalf”: exhibit one at p 9. Mr Frances arranged for the collection and transport of the cargo from the port to a licensed warehouse operated by Emo Trans Australia Pty Ltd (“Emo Trans”) where the goods were stored.[1] Mr Frances acknowledged in the course of cross-examination that he arranged for the goods to be held at the warehouse operated by Emo Trans because his own facilities were not secure.

   [1] Emo Trans obtained an authorisation under s 71DJ of the Act to handle the goods. The consignment arrived at the Emo Trans warehouse in Roseberry on or about 30 May 2012 (exhibit two at pp 132 and 133).

8. Mr Frances said in cross-examination that he was familiar with the special requirements that apply to imports of dutiable goods like cigarettes. In particular, he agreed those goods needed to be stored in a licensed secure facility and that his obligation to keep the goods safe continued “from the beginning of their receipt into Australia to either their time out into the public, or, alternatively, up until they left the shores of Australia”: transcript at p 10:35.

9. Mr Frances said in his evidence that he was not aware of the importers’ plans for the cigarettes. His ignorance of their plans was surprising in the circumstances: Messrs Fadi Khalil and Ali Khalil, the directors of ATI, are his cousins. (Mr Frances was formerly known as Bassam Khalil: exhibit 2 at p 170; transcript at p 17.) But the links go further. ATI and Australasian Freight Forwarding were set up at about the same time by the Khalil family’s accountants. Mr Frances acknowledged he was aware other family members were involved in the plan to import tobacco products, although he said he did not know other individuals who might have participated, and denied that he knew the source of the money used to fund the venture: transcript at pp 8-9.

10. In the course of his evidence, Mr Frances said some of the cigarettes were extracted from the consignment to be sold in Australia. He said duty was paid on about 40 or 50 boxes of cigarettes. When the duty was paid, he instructed Emo Trans to release those boxes to him from its warehouse. He subsequently delivered them to his cousins: transcript at

    
    

    pp 13-14. He also said a quantity of the cigarettes were destroyed (transcript at p 26).

11. I have no reason to doubt the applicant’s claim that some of the cigarettes were extracted from the consignment after duty was paid. But after this point the evidence becomes murkier.

12. Mr Frances claimed in his Statement of Facts, Issues and Contentions that he became aware on or about 27 June 2012 that ATI had decided to sell the cigarettes to a buyer in Malaysia. He sent an email to an employee at Emo Trans instructing the warehouse to prepare a total of 20 pallets of cigarettes and shrink wrap them, ready for export: exhibit one at p 16; transcript at p 21; applicant’s affidavit at [5]. The instructions were brief but precise: 432 boxes of ‘Manchester Blue’ brand cigarettes were to be loaded onto

    
    

    12 pallets, 144 boxes of ‘Manchester Red’ brand cigarettes were to be loaded onto

    
    

    4 pallets, and 144 boxes of ‘Manchester Grey’ brand cigarettes were to be loaded onto

    
    

    4 pallets.

13. The precise detail of the packing instructions is interesting because emails from the prospective buyer of the goods reproduced in exhibit one at pp 20-23 suggest the first enquiry from the buyer was not made until 1 July 2012 – some three days after

    
    

    Mr Frances issued instructions to Emo Trans. The order for the goods packed in the precise configuration that Mr Frances had directed was placed early in the morning of

    
    

    1 July 2012. This anomaly was put to Mr Frances in the course of cross-examination.

    
    

    He speculated the order must have been foreshadowed in a telephone conversation between ATI and the buyer prior to 1 July. He went on to say ATI emailed him with what was, in effect, advance notice of the purchase and the packing specifications so he could see to the preparations for export: transcript at pp 21-22.

14. The mystery deepened when it was put to Mr Frances in cross-examination that his cousins had told investigators that the first contact between ATI and the purchaser occurred no earlier than 30 June 2012. If that is so, there is no way ATI could have told the applicant to pack the goods in the precise configuration required by the buyer: transcript at p 22. Mr Frances was unable to explain the anomaly. He was also unable to produce a copy of the email from ATI that contained the instructions he said he subsequently communicated to Emo Trans in his own email of 27 June. He said he no longer had a copy of the email from ATI because his computer hard drive had crashed and he did not have any back-up. He said he did not ask for a copy from ATI’s records even though he knew this was a live issue before the Tribunal: transcript at p 23.

15. Mr Frances emailed Emo Trans on 2 July 2012 to advise he would be arranging for the delivery of an empty container into which the pallets of cigarettes should be stacked. That was done. The applicant said he contracted with Fara Logistics Pty Ltd

    
    

    (“Fara Logistics”), a transport company, to collect the cigarettes from Emo Trans.

    
    

    The Container Packing and Weight Declaration prepared by Emo Trans is dated

    
    

    10 July 2012, when the container was removed from its warehouse. The Declaration noted the serial number of the container, the number of the seal, a description of the container’s contents and the weight of the container: exhibit one at p 31.

16. Investigators were unable to speak with the driver from Fara Logistics who removed the container from the warehouse on 10 July, but this much is known: the driver parked the loaded container on a street in Chullora where it was left unguarded overnight: transcript at p 30-32. The following morning, another driver employed by Fara Logistics collected the container and transported it to the DP World port where it was subsequently loaded onto a ship bound for Malaysia.

17. Mr Frances ultimately agreed he did not tell anyone from Fara Logistics that the container housed a consignment of cigarettes. He said he knew such a large quantity of cigarettes might attract the interest of criminals. He acknowledged he made a mistake when he failed to inform the trucking company of the contents of the load so that appropriate precautions could be taken for the container to be stored in a secure location overnight: transcript at p 24.

18. Mr Ranieri said he was told neither DP World nor the shipping company would have checked the seals when the container was delivered to the port and may not have weighed the container when it was loaded onto the vessel: transcript at p 38. He said the fact the bill of lading from the shipping company recorded the seal number was not proof of anything. He understood the shipping company’s practice was simply to record the information it was provided by Emo Trans. The information in the bill of lading was not independently verified: transcript at p 33.

19. The container was landed in Malaysia and opened by Malaysian Customs on

    
    

    16 August 2012. The seal on the container bore a different number to the seal recorded on the Declaration provided by Emo Trans: see exhibit one at pp 31, 66. Malaysian Customs reported the container was empty. The cigarettes were gone.

20. Mr O’Connor, for the applicant, questioned Mr Ranieri about the information provided by Malaysian Customs. Mr Ranieri agreed the document from Malaysian Customs (exhibit one at p 62) said the inspection occurred on 16 August. But Mr O’Connor pointed out a document prepared by Northport (Malaysia) Bdh (“Northport”), ATI’s shipping agent in Malaysia, included a reference to something occurring on 15 August. Mr O’Connor suggested Northport may have inspected the container on the earlier date.

21. My attention was drawn to a letter from Varmin Resources to Northport. Varmin Resources was acting at the request of ATI: exhibit one at p 60. Northport was asked to examine what had happened to the shipment: exhibit one at p 59. Mr Ranieri said he was unable to establish whether Varmin Resources was a real company: transcript at p 39.  

22. It is unclear what the evidence about the role of Varmin Resources and the possibility of the container being opened on 15 August 2012 is meant to establish. I will return to this issue below.

    Observations on the credit of Mr Frances

23. Mr Frances was a difficult witness. He was unable to satisfactorily explain anomalies in the evidence – in particular, the questions put to him over the timing of the order for export. His answers in cross-examination were occasionally evasive. He denied knowledge of things that he was then forced to concede were within his knowledge.[2]

    
    

    I am satisfied his evidence – and therefore his explanations of what might have happened to the goods – should be treated with caution. 

    [2] E.g., at p 22 of the transcript, when asked about his knowledge of approaches made by investigators to his cousins, the applicant at first claimed he did not know but then demonstrated in a subsequent answer that he was aware of the approaches His answers were evasive and uncooperative.

    THE LEGISLATIVE SCHEME

24. The Customs Act 1901 was one of the first pieces of legislation passed by the Commonwealth parliament after Federation. That is no accident: the regulation of imports and the establishment of a consistent customs regime were thought to be amongst the major responsibilities of the new polity. The priority given to the legislation also reflected the importance of excise as a source of Commonwealth revenue.

25. Collecting duty on imported goods is a tricky business. As the High Court has explained in a series of decisions, it becomes much more difficult to trace goods and exact revenue after the goods are landed and released into the market: see, for example,
    The King v Lyon (1906) 3 CLR 770, 784 per O'Connor J; see also Collector of Customs v Southern Shipping Company Ltd (1962) 107 CLR 279, 289-290 per McTiernan J.
    For that reason, the legislation requires that the duty be paid before the goods are released from Customs’ control. If the duty is not paid before the goods are released, or the goods are lost or dealt with in a way that occasions a loss of revenue, “dragnet” provisions in the legislation permit the Collector of Customs to demand that persons involved in the import and handling processes pay the amount of duty that would otherwise have been collected. These provisions impose a heavy burden on importers and others, but they are thought necessary to protect the revenue.

26. Section 35A(1) is an example of a “dragnet” provision. It provides:

    Where a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to the control of the Customs:

    (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.

27. The Collector says there is no doubt Mr Frances was a person entrusted with the control of dutiable goods. I have already noted the applicant’s concession that Mr Frances was the person in question, rather than his company. I am also satisfied he was the person entrusted with control of the goods. While he may not have had physical possession of the goods that were stored in the Emo Trans facility, he clearly had control within the meaning of the Act because he was able to issue directions to Emo Trans with respect to the goods. Emo Trans was not free to deal with them; Mr Frances was the individual authorised to direct where and to whom they would be released. His authority over the goods – and hence his control - commenced when he arranged for the goods to be collected after they were landed in Australia. It did not cease when the goods were released by Emo Trans to the trucking company that left them on the street overnight.

    
    

    Mr Frances could have countermanded his directions and required that the goods be returned at any point up until they left Australia. (I note he conceded as much in the course of cross-examination: see transcript at p 10.) He certainly billed ATI on the basis that he was in control of the goods: invoices to ATI included a charge for providing warehouse security (exhibit one at p 19) and for other activities connected with the export of the goods (exhibit one at p 45): transcript at p 19. The fact that Mr Frances used contractors to carry out the work is irrelevant.

28. The Collector of Customs says it is possible to make out a case against Mr Frances under either limb of s 35A(1). I will deal with s 35A(1)(a) first. An equivalent provision was discussed by the High Court in Southern Shipping Company. In that case, the Court emphasised the absolute nature of the obligation to keep dutiable goods safe while under Customs’ control. A person entrusted with goods did not discharge his obligation by demonstrating he took reasonable care to prevent loss. While there might be some debate as to whether a person would be held responsible for losses occasioned by an act of God, the fact goods were lost or destroyed would ordinarily be enough to enliven the discretion to send a notice under the section demanding that the person make good the loss to the revenue.

29. The fact the goods were lost after the applicant’s failure to inform Fara Logistics of the contents of the container when it was collected from Emo Trans is properly regarded as a failure to “keep those goods safely”. The container should not have been left unattended overnight on the street. While it is impossible to be sure the goods were lost as a direct consequence of that failure in particular, I am satisfied the discretion to send the statutory notice is enlivened on that basis.

30. The Collector says it is even easier to rely on the second limb, in s 35A(1)(b).
    Section 35A(1)(b) must be read subject to s 37, which says:

    A person accounts for goods or a part of goods to the satisfaction of a Collector in accordance with this section if, and only if:

    (a) the Collector sights the goods; or

    (b) if the Collector is unable to sight the goods--the person satisfies the Collector that the goods have been dealt with in accordance with this Act.

31. The Collector was unable to sight the goods. In those circumstances, it is up to
    Mr Frances to satisfy the Collector (or the Tribunal on review) that the goods have been dealt with in accordance with the Act. He has not done that. At a minimum, he took a lax attitude towards the need to secure the goods. By his own admission, he made a mistake in failing to give proper instructions to Fara Logistics – and the goods were left in a container parked on the side of a road overnight as a consequence. They subsequently disappeared. Mr Frances failed in his duties under the Act, and he was not able to offer a satisfactory account that persuaded me the goods were dealt with in accordance with the Act.

32. The Collector’s decision to issue the statutory demand was plainly reasonable:
    the applicant has not offered a plausible reason why he should not be held responsible.
    The suggestion of foul-play in Malaysia after the container arrived is nothing more than speculation. Having said that, I note the respondent’s argument that a finding under s 37 is not reviewable – and therefore not before the Tribunal – by reason of s 273GA of the Act.

    CONCLUSION

33. The decision under review is affirmed.

I certify that the preceding 33 (thirty-three) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

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Associate

Dated 29 May 2015

Date of hearing	10 February 2015
Solicitors for the Applicant	AJ & Associates Lawyers
Counsel for the Respondent	Mr M Gollan
Solicitors for the Respondent	Australian Government Solicitor