Liability of warehouse operators: a sobering story of stolen vodka and customs duty

05 May 2010 Topics: Insurance

Pearce v Coynes Freight Management Group Pty Ltd [2010] FCA 320 (April 2010)

Coynes Freight Management Group (Coynes) operated two warehousing businesses. Armik Group Pty Ltd imported vodka from overseas and arranged for its storage at one of the warehouses that was licensed to store underbond goods. The importation of the vodka attracted customs duty. One week after importation, 849 cartons of vodka were stolen from the warehouse.

Pearce (a customs officer / collector), wrote to Coynes pursuant to s 35A(1) of the Customs Act 1901 seeking payment of approximately $216,000, being an amount equivalent to the duty that would have been payable if the goods were ‘entered for home consumption’ on the date of the letter, plus GST.

Section 35A(1) of the Customs Act 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; …
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.

The Customs Regulations allow an ‘owner’ of goods to seek to have duty remitted under certain circumstances including where goods are ‘stolen’ before the goods left the control of customs. In reliance on this regulation, Coynes sought to have the duty remitted arguing that it was an ‘owner’ of the goods within the definition of that term in section 4 of the Customs Act as it was ‘possessed of or beneficially interested in’ or had ‘control of or power of disposition over the goods’.

Customs rejected the request to remit the duty stating that Coynes was not the importer cited on the import entry documents: it was therefore not the ‘owner’ of the vodka and was not liable to pay duty on it. Rather, as a party ‘entrusted with custody of the goods’ it was liable to pay ‘compensation’ (not duty) under section 35A.

An application for review of this decision to Customs was also unsuccessful. Whilst Coynes had custody of the goods, all it could do was to move and store the goods within its warehouse. As such it was found not to be the ‘owner’ of the goods and not liable for duty. Further, section 35A did not seek to impose customs duty but rather to make Coynes liable to pay compensation for the loss of duty and the legislation did not provide for any remission of that liability.

Coynes then sought to appeal to the Administrative Appeals Tribunal (AAT). Pearce, on behalf of Australian Customs, sought declarations from the Federal Court that Coynes was not entitled to seek remission of customs duty for the goods, nor was it entitled apply to the AAT for a review of the decision by the customs officer.

The court held that the conditions in s 35A of the Customs Act 1901 had been satisfied and that the warehouse operator was liable to pay the amount equivalent to the duty that would have been paid on those stolen goods, as claimed in the demand.

Justice Dodds-Streeton noted that:

It is common ground that Coynes had or was entrusted with the possession, custody or control of dutiable goods subject to the control of Customs. As the goods were stolen, it failed to keep them safely in accordance with the practically absolute obligation recognised in relevant authority as independent of fault.

The warehouse owner was not paying the duty, but an amount in compensation for it. Therefore, as ‘only a person liable to pay duty is entitled to a remission’, Coynes was not eligible to seek remission.

This case serves as a warning to warehouse operators – they may be liable to pay an amount equal to the applicable customs duty on imported goods even if goods are stolen without any fault on their part.

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