Chief Executive of the New Zealand Customs Service v Hutchinson t/a Hutchinson Traders

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA32/2020
[2021] NZCA 45

BETWEEN	CHIEF EXECUTIVE OF THE NEW ZEALAND CUSTOMS SERVICE Appellant
AND	PHILIP EDWARD GORDON HUTCHINSON AND NORMA WENDY HUTCHINSON TRADING AS P & W HUTCHINSON TRADERS Respondents

Hearing:	2 December 2020
Court:	Miller, Clifford and Gilbert JJ
Counsel:	P H Courtney for Appellant R L Roff and S W H Fletcher as counsel assisting
Judgment:	5 March 2021 at 3 pm

JUDGMENT OF THE COURT

AThe appeal is allowed.
BThe amended assessment made by the chief executive of Customs on 22 June 2018 of the duty payable is reinstated.
CWe make no order for costs.

____________________________________________________________________

REASONS OF THE COURT

(Given by Gilbert J)

The respondents, Mr and Mrs Hutchinson, are sole traders trading as P and W Hutchinson Traders, Whangārei Motorhomes (the Hutchinsons). In September 2017, the Hutchinsons engaged a shipping agent to make all necessary arrangements for the shipment of seven motorhomes from England, including payment of GST and import duty to the New Zealand Customs Service (Customs) to enable clearance of the motorhomes on arrival in New Zealand. The shipping agent collected the correct amount of GST and import duty from the Hutchinsons as importers. However, the shipping agent provided falsified invoices showing a lesser sum due and paid these lesser sums to a New Zealand customs broker it engaged to make the required import entries and payments to Customs to secure clearance. The shipping agent pocketed the difference (the shortfall). The customs broker made the import entries in accordance with the falsified invoices and paid this amount to Customs. Customs released the goods to the Hutchinsons.
Customs later discovered the deception and underpayments and issued an amended assessment to the Hutchinsons. The Hutchinsons paid the shortfall to avoid penalties but challenged the amended assessment on the basis they did not authorise the 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 behalf and there was no assessment of duty by them capable of being amended under s 89 of the Customs and Excise Act 1996 (the Act).[1] They contended that Customs should seek recovery from the shipping agent or the customs broker, not from them as innocent parties even though they accepted they were jointly and severally liable as importers.[2]
[1]The Customs and Excise Act 1996 was repealed as from 1 October 2018 and replaced by the Customs and Excise Act 2018. The 1996 Act was in force at the relevant time.
[2]Section 86(2).
The Customs Appeal Authority (the Authority) accepted the Hutchinsons’ argument and found that the amended assessment was not valid.[3] This was said to be because of “the absence of any connection between the customs broker and [the Hutchinsons]”.[4] The Authority said “[i]f it were otherwise, customs brokers could trigger assessments of duty against persons who are strangers to them using false information”.[5] The customs broker “had no instructions at all from [the Hutchinsons], instead they relied on instructions from [the shipping agent] who was stealing money from [the Hutchinsons]”.[6] While finding that the chief executive of Customs had power 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 to recover from any particular importer.[7] Instead, she must consider who should properly bear liability and determine whether to seek recovery from the fraudulent shipping agent or the customs broker in order to protect the integrity of the system for assessing and collecting duty.[8] Because the Authority did not have sufficient information to make this determination, it remitted the decision back to the chief executive for such reconsideration.[9]
[3]XXXX v Chief Executive of the New Zealand Customs Service [2019] NZCAA 2 [Authority decision].
[4]At [35].
[5]At [36].
[6]At [37].
[7]At [52].
[8]At [43].
[9]At [48] and [49.8].
The High Court upheld the Authority’s decision in all respects on appeal.[10] The 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 capable of amendment under s 89 of the Act?
(b)Did the Authority exceed its jurisdiction in remitting the decision back to the chief executive to consider who should be assessed for the shortfall?
(c)How is the chief executive required to exercise her discretion in deciding who to assess for the shortfall?

The facts

[10]Chief Executive of the New Zealand Customs Service v Hutchinson [2019] NZHC 3174 [High Court judgment].

The following summary is drawn from an agreed statement of facts and other evidence provided to the Authority.
There was no formal written contract between the Hutchinsons and the shipping agent. The agreement was concluded by email. It is therefore necessary to refer to the relevant passages in the email exchanges to determine what the terms of the agreement were and, in particular, whether the shipping agent had express or implied authority to engage the customs broker.
In early 2017, the Hutchinsons sought rates for the shipment to New Zealand of motorhomes to be purchased from Goodmans Motorhomes Ltd (Goodmans) in England. They engaged with “Seabrook” which they understood to be a reputable company specialising in shipping motorhomes and caravans worldwide. However, the Hutchinsons did not at any stage meet anyone from this company, nor did they visit their supposed local office.
On 2 February 2017, the Hutchinsons received a quote from “Daniela, Sales Dpt. Seabrook Forwarding and Handling” using the email address “[email protected]”. The email was copied to “Seabrook Oceania” and “Seabrook HQ”. This quote provided rates for a port‑to‑port, roll-on/roll-off shipping service from Southampton to Auckland and included customs clearance in the United Kingdom, loading charges and ocean freight to the port of Auckland. Having set out the rates, Daniela advised that assistance with customs clearance in New 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-port
Shipping service: [roll-on/roll-off]
Commodity details:
Motorhomes
Ship from: Southampton, UK
Ship to: Auckland, NZ
Estimated transit time: 40 days
Quotation valid to: 31 Feb 2017
This 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 with 5th of February 2017.
We can also offer you customs clearance and assistance in New Zealand. We are a respectable company specialized in shipping motorhomes and caravans worldwide. If you would like shipping insurance cover, this costs 1% 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:
How do our vehicle rates stack up?
When it comes to service and expertise, I can guarantee you that we are the company to choose!
The following day, “Jordan Caffrey, Import Manager” emailed the Hutchinsons details of the New Zealand charges using the email address “[email protected]”. Mr Caffrey stated that they would guide the whole process and all procedures would be completed in good time to enable prompt release of 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. Customs clearance fee [amount]. 4. Customs Duty for motorhomes is 10% on the purchase value calculated at the Customs Exchange rate at the time of arrival.
5. Customs GST
6. Escort service [amount]
As access in the port is restricted, we use a specialized company to bring the units 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 completed by the time Vessel arrives so you can pick up your unit next working day after vessel arrival.
You will be updated at all stages and also have the possibility to track your shipment online.
Please let us know if you have further questions.
As we have shipment worldwide I am reachable at any time.
Thank you,
Jordan Caffrey
Import Manager
The Hutchinsons subsequently agreed to proceed using Seabrook. Mr Caffrey advised Mr Hutchinson on 15 September 2017 that he would be handling the shipment for the first consignment, comprising two motorhomes, expected to arrive on 16 October 2017 and he requested various details including a Customs client code. This email was sent from “Seabrook HQ” using the email address “[email protected]”. 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 by customs please be so kind to provide it.
…
ETA for your shipment is 16th of October on vessel Talisman CF724-TLI
We always start working in advance on each shipment so we can make sure we have all releases (shipping line release, Customs release, [Ministry for Primary Industries] release) before vessel hits the port.
This way our clients can pick up their units one day after vessel arrival and avoid 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 you or any person designated to handle the follow up of your shipment.
In case you are travelling and you are not reachable, please give us your schedule.
Please let me know if you have any questions.
Thank you,
Jordan Caffrey,
Import manager
Mr Hutchinson provided the requested information by return email that same day.
On 9 October 2017, Mr Hutchinson sent an email to Mr Caffrey attaching copies 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 Seabrook International Ltd which showed an address in Parnell, Auckland and the same email address — “[email protected]”. The invoice showed the correct amount due and this was duly paid by the Hutchinsons.
The next three consignments in respect of the other five motorhomes followed the same pattern of invoicing by Seabrook International Ltd showing the correct amounts due and payment by the Hutchinsons.
We pause here to note that no company by the name of Seabrook International Ltd existed in New Zealand at that time. A company having that name and the same Parnell address had earlier been registered in New Zealand on 17 June 2013, but as an interior design or decorating consultancy service. It had been removed from the New Zealand Companies Register on 19 December 2014, three years before the relevant events took place. Therefore, while it was an agreed fact for the purposes of the appeal to the Authority that the Hutchinsons engaged Seabrook International Ltd as shipping agents, this is not strictly correct. We will refer to the person or persons masquerading as Seabrook International Ltd as “Seabrook”.
Seabrook engaged Lyn Doc Com Ltd (LDC), a registered customs brokerage business in Tauranga, to complete and lodge the required import entries for the 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 on only that portion of the money collected from the Hutchinsons. LDC lodged electronically four import entries with Customs in accordance with these falsified invoices and paid the corresponding amount of GST and duty. The motorhomes were promptly released by Customs to the Hutchinsons.
The discrepancy between the correct invoices presented by Seabrook to the Hutchinsons (reflecting the invoices from Goodmans) and the lesser amount shown on the import entries lodged by LDC was discovered by Customs some seven months later. The total underpayment was $44,663.27. On 22 June 2018, Customs issued an amended assessment notice to the Hutchinsons pursuant to s 89(1) of the Act for 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 shortfall twice.

Was there a valid assessment by the Hutchinsons as importers capable of amendment under s 89 of the Act?

We commence by referring to the relevant statutory provisions.
Entry and accounting for goods is dealt with in pt 4 of the Act. Entry of imported 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 are imported or that are to be imported must be entered by the importer—
(a)in such form and manner (including by electronic means into a computer or other device) as may be prescribed; and
(b)within such time as may be prescribed or such further time as the 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 be prescribed,—
duty becomes due and payable on the goods, and the goods may be sold or otherwise disposed of by the chief executive.
Duties are dealt with in pt 6 of the Act. Section 60 requires the importer to specify 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 imported must, 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 assessment pursuant to subsection (1) must—
(a)keep the documents, records, and information in respect of that entry in such manner and for such period as is required by section 95 and any regulations made for the purposes of that section; and
(b)when required by the Customs, produce those documents, records, and information for the purpose of establishing the accuracy of the assessment.
The chief executive may amend an assessment made under s 60(1) if satisfied the assessment is inconsistent with sch 2 or incorrect for any other reason.[11]
[11]Customs and Excise Act 1996, s 61(1).
The assessment and recovery of duty is dealt with in pt 8 of the Act. Section 86 provides that the duty on imported goods constitutes a debt due to the Crown immediately on importation. The duty is payable by the importer. If there is more than one importer, each importer is jointly and severally liable. The chief executive may 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 on importation 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 jointly and severally by all of them.
…
(6)The chief executive may, subject to such terms and conditions as he or she may impose, approve any person or class of persons as persons who may defer the payment of duty due under this section and, for that purpose, may determine a duty accounting period; and may suspend or withdraw that approval or vary any term or condition under which the approval is given or vary the duty accounting period.
…
Section 88 provides for the assessment of duty. Importantly, it provides that an entry for goods made under the Act is deemed to be an assessment by the importer of the duty payable in respect of the goods. If the chief executive has reasonable cause to suspect that duty is payable by a person who has not made an entry in respect of the goods, she may make the assessment. Because of its central relevance to this appeal, we set this section out in full:
88 Assessment of duty
(1)An entry for goods made under this Act is deemed to be an assessment by the importer or licensee, as the case may be, as to the duty payable in respect of those goods.
(2)If the chief executive has reasonable cause to suspect that duty is payable on goods by a person who has not made an entry in respect of the goods, the chief executive may assess the duty at such amount as the chief executive thinks proper.
(3)The person liable for the payment of the duty shall be advised of the assessment by notice in writing.
(4)A person liable for the payment of the duty who is dissatisfied with a decision of the chief executive under subsection (2) may, within 20 working days after the date on which notice of the decision is given, appeal to a Customs Appeal Authority against that decision.
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 be an assessment by the importer” (the Hutchinsons). The Hutchinsons argue to the contrary that LDC had no authority to act on their behalf and accordingly there was no entry of the goods in terms of s 88.
The chief executive may make amendments to an assessment of duty as she thinks necessary in order to ensure the correctness of the assessment. This section is also 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 make such amendments to an assessment of duty as he or she thinks necessary in order to ensure the correctness of the assessment even though the goods to which the duty relates are no longer subject to the control of the Customs or that the duty originally assessed has been paid.
(2)If the amendment has the effect of imposing a fresh liability or altering an existing liability, notice in writing shall be given by the chief executive to the person liable for the duty.
(3)A person liable for the payment of the duty who is dissatisfied with a decision of the chief executive under this section may, within 20 working days after the date on which notice of the decision is given, appeal to a Customs Appeal Authority against that decision.
Before concluding our review of the relevant statutory provisions, we need to set out the definition of “importer”, which is cast in wide terms. An importer is defined in s 2 as follows:
importer means a person by or for whom goods are imported; and includes the consignee of goods and a person who is or becomes the owner of or entitled to the possession of or beneficially interested in any goods on or at any time after their importation and before they have ceased to be subject to the control of the Customs.
In Daily Freightways Ltd v Collector of Customs, McCarthy P commented on the 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:[12]
I think that it must be accepted that one purpose of the wide definition of importer provided by s 2 is to enable the Collector to call upon any person who at any time after the goods have been imported into New Zealand and before they have ceased to be subject to customs control is the consignee of them or is or was (a) the owner of the goods, or (b) is or was entitled to the possession of the goods, whether as owner or not, or (c) has or had a beneficial interest in the goods. These various qualifying circumstances may be found in one person at any one time or may be spread over a number, but any one is sufficient to make the person in whom it is found qualify. Obviously, such being the position, there may be many who acquire a qualification in the course of the movement of the goods from the ship or aircraft to the point where they are released from customs control.
[12]Daily Freightways Ltd v Collector of Customs [1974] 2 NZLR 704 (CA) at 708.

This Court found that Daily Freightways Ltd, as freight forwarder, was a bailee for reward with possessory rights to the goods at the relevant time in terms of its contract and therefore came within the definition of importer.[13] While that was the conclusion on the terms of the contract there in issue, Richmond J considered that the words “entitled to the possession of” in the definition was “apt only to describe a person who as between himself and the true owner has a legal right to the possession of the goods”.[14]
[13]At 709–710 per McCarthy P (Haslam J concurring) and 712 per Richmond J.
[14]At 712.
It is common ground that the Hutchinsons were importers. Accordingly, by operation of law, they became liable for the duty and GST immediately upon importation of the motorhomes. As the importers, the Hutchinsons were obliged by s 39 of the Act to enter the goods but the lodgement of such an entry was not 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 discharged their obligation to do so through their engagement of Seabrook. The entries made by LDC and relied on by Customs in releasing the motorhomes to the Hutchinsons were deemed by s 88(1) to be an assessment by the Hutchinsons as the importer of the duty payable in respect of those goods. If there was an error in the assessment of duty or tax, the Act provides mechanisms to enable the assessment to be corrected by amendment. That is what happened here.
It follows that whether or not Seabrook was authorised to appoint LDC to make the required import entries has no effect on the Hutchinsons’ liability. The involvement of Seabrook merely enlarged the class of person who could qualify as an importer and from whom the chief executive may have been entitled to seek recovery. In any event, for the reasons set out below, we consider Seabrook was authorised to engage a customs broker in New Zealand (such as LDC) to make the required import entries.
First, we consider this conclusion follows from the express terms of the agreement. Seabrook offered “customs clearance and assistance in New Zealand”. Seabrook subsequently detailed these services and their associated costs and stated it would “guide” “the whole process” and “all procedures will be completed by the time Vessel arrives so you can pick up your unit next working day after vessel arrival”. The “whole process” necessarily included obtaining custom’s clearance and therefore making the required customs entries. Seabrook’s promise to guide the process is not reconcilable with the Hutchinsons’ contention that Seabrook was personally obliged, not just to guide the process, but to perform each of the services comprising it.
Secondly, we consider Seabrook’s authority to engage other parties to perform the services can be implied. The services included loading and unloading, transport by ship, shipping insurance cover, customs clearance in the United Kingdom, escort service in New Zealand and obtaining releases from the shipping line and the Ministry for Primary Industries. The agreement did not expressly require Seabrook to perform any of these services itself. To illustrate, Seabrook did not promise that it would personally load the motorhomes onboard the vessel, sail the 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 using other parties. For example, in offering shipping insurance cover, it is implicit that Seabrook would not itself underwrite the risk but would secure cover with a third party insurer. Further, the agreement specifically contemplated that Seabrook would appoint another (unspecified) company to provide the escort service to bring the motorhomes to the port entrance. The engagement of other parties as necessary to carry out the various services must therefore be taken to have been within the contemplation of the parties at the time the agreement was entered into and impliedly authorised.
Thirdly, Seabrook’s implied authority to engage others to perform specific services under the agreement is also justified by ordinary trade usage. The services Seabrook agreed to provide were those typically provided by a freight forwarder, also known as a forwarding agent. The traditional role of a forwarding agent was described by Rowlatt J in the leading case of Jones v European & General Express Co Ltd as follows:[15]
It must be clearly understood that a forwarding agent is not a carrier. He does not 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 as is necessary, between the ship and the railway or anything else. His liability depends upon his failing to carry out the duties I have just described.
[15]Jones v European & General Express Co Ltd (1920) 4 Ll L Rep 127 (KB) at 127.
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 of a forwarding agent in these terms:[16]
Messrs Brown, Jenkinson & Co. are a firm of brokers in the City and people who are willing to pass the Customs entries and are also willing, if they are asked, to get a contractor to ship goods from the docks either by barge or by lorry. I could not see that their position was any different from that; as I put it, of people like the American Express Company, or somebody like that, who are willing to forward goods for you or to book you to the uttermost ends of the earth. They do not undertake to carry you, and they are not undertaking to do it either themselves or by their agent. They are simply undertaking to get somebody to do the work, and as long as they exercise reasonable care in choosing the person to do the work they have performed their contract.
[16]C A Pisani & Co Ltd v Brown, Jenkinson & Co Ltd (1939) 64 Ll L Rep 340 (KB) at 342. See also EMI (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 of the Freight Forwarder: Some Comparative Reflections on the Disunified Law of Forwarding” (2015) 21 JIML 445 at 449.
We conclude that Seabrook had implied authority to engage LDC to make the required import entries to secure prompt release of the motorhomes. It follows that the entries made by LDC were made on behalf of the Hutchinsons as the importers in terms of s 39 of the Act. The entries were deemed by s 88(1) to be assessments by the Hutchinsons as to the duty payable in respect of the motorhomes. These assessments were correctly amended by the chief executive in the exercise of her powers under s 89(1) of the Act. The chief executive’s power — to assess the duty payable on the goods under s 88(2) as if the Hutchinsons had not made an entry in respect of them — was not engaged.

Disposition

For the reasons given, we differ from the conclusion reached by the Authority and confirmed by the High Court that there was no assessment by the Hutchinsons capable of being amended. There is no dispute about the correctness of the quantum of duty assessed in the amended assessment. The Authority therefore should have confirmed the amended assessment. The present appeal must be allowed, and the amended assessment reinstated. In the light of this conclusion, it is not necessary to consider the other two issues raised by the chief executive on the appeal. This is because no question of the chief executive making a fresh assessment of duty against some other party under s 88(2) arises.

Concluding observations

The Hutchinsons’ primary contention is that the chief executive, as administrator of the system, should seek recovery from the Hutchinsons’ fraudulent agent or from LDC. Shipping agents need not be domiciled in New Zealand and are not licensed by the chief executive. The Hutchinsons understood Seabrook was based in London and they chose to engage them as their shipping agents. They have rights of recourse against Seabrook, for what those rights may be worth. We can see no reason why the chief executive should be required to attempt to track down “Seabrook” and seek recovery from them so as to protect the Hutchinsons from the 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 visit the consequences of the Hutchinsons’ agent’s wrongdoing on LDC. On the evidence available, it appears that LDC did nothing wrong.

Result

The appeal is allowed.
The amended assessment made by the chief executive of Customs on 22 June 2018 of the duty payable is reinstated.
We make no order for costs.

Solicitors:
Crown Law Office, Wellington for Appellant

[2021] NZCA 45

5 March 2021 at 3 pm