|
|
Home
| Databases
| WorldLII
| Search
| Feedback
National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
WS NO. 1658 OF 2018
BETWEEN:
KC2 LIMITED
-Plaintiff-
AND:
IAN HERRING
-First Defendant-
AND:
PAUL RAY
-Second Defendant-
AND:
THE PAPUA NEW GUINEA CUSTOMS SERVICES
-Third Defendant-
AND
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
-Fourth Defendant-
Lae: Dowa J
2021: 18th December
2022: 11th March
2024: 8th July
CIVIL- Claim for damages in negligence-for breach of statutory duty under Customs Act—failing to give notice of intention to detain goods for reassessment-prolonging detention of goods resulting in damage to goods and consequential monetary loss
CUSTOMS ACT-Assessment of import duty-failing to give sufficient time to owner of goods to dispute assessment of duty-Abruptly issuing statutory garnishee notice with no real opportunity to dispute duty assessed
CUSTOMS ACT- Cargo detained as allowed by law pursuant to sections 16,17,18 and 191- no breach of statutory duty -on the contrary -overwhelming evidence of double invoicing and underpayment of duty-plaintiff failing to protest in accordance with section 176 of the Act-plaintiff’s proceeding dismissed.
Cases Cited:
Mathias Goma & 703 others v Protect Security & Communication Ltd (2013) SC1300
Mark Opur v Darbar Enterprises Ltd (2004) N2528
Yooken Paklin v The State (2001) N2212
Counsel:
K. Aisi, for the Plaintiff
F Katu, for the Defendants
DECISION
8th July 2024
1. DOWA J: This is a decision on both issues of liability and damages. The Plaintiff seeks damages against the PNG Customs Services for unlawful detention of their imported goods at the Lae Wharf, premature issue of statutory garnishee, theft of goods and other consequential damages.
FACTS
2. The Plaintiff is a company based in Lae, Morobe Province and conducts import and general merchandising business in Papua New Guinea.
3. Between 3rd November 2015 and 8th December 2015, the Plaintiff imported certain goods from overseas, all shipped in 25 containers to Lae. The PNG Customs officials alleging that the Plaintiff has underpaid import duties of the goods in the said containers, detained the 25 containers at the Lae wharf for periods ranging from 65 to 92 days pending further investigations.
4. The Plaintiff alleges that the first Defendant detained the Plaintiff’s containers without issuing a notice of intention to detain the goods. The Plaintiff alleges the Defendants proceeded to charge the Plaintiff for the underpayment of the import duties without conducting a Record of Interview. The first Defendant imposed a 200% penalty for the underpayment of import duties. The goods were released on 17th February 2016 after payment of the reassessed duty.
5. The Plaintiff alleges that because of the unlawful actions of the PNG Customs officials, the Plaintiff suffered loss in the following:
6. Aggrieved, the Plaintiff filed the current proceedings. The Defendants filed a Defence denying liability.
The Hearings
7. The trial was conducted on 8th December 2021.The parties by agreement tendered their respective affidavits without cross-examination. The matter was then adjourned to 17th February 2022 for submissions. The matter was reserved for decision thereafter.
Evidence-The Plaintiff
9. The Plaintiff relies on the following affidavits:
(1) Affidavit of Mei Lin sworn 4th and filed 5th August 2020
(2) Affidavit of Simon Lin sworn 10th and filed 11th November 2021
(3) Affidavit of Mala Ahi sworn 26th and filed 29th September 2021
10. This is the summary of the Plaintiff’s evidence. The Plaintiff, a company based in Lae, is involved in importing and distributing general merchandising goods throughout Papua New Guinea. Between 3rd November 2015 and 8th December 2015, the Plaintiff imported certain goods from overseas and have them shipped to Lae port in 25 containers. Upon arrival at the Lae wharf, the PNG Customs Services officials alleged that the Plaintiff has underpaid certain import duties for the goods in the said containers, breaching Section 153 of the Customs Act and proceeded to detain the goods in the 25 containers for periods ranging from 65 to 90 days and 220 days for one of the containers. (The full details of the 25 containers are listed in paragraph 7 of the Affidavit of Mei Lin). Ms Lin deposes the Plaintiff was not given notice of intention to detain the containers nor any notice of underpayment of import duty. They were not given the opportunity to explain and make any payments for the underpayment without having to detain their goods for long periods of time. The Plaintiffs deny the allegations of double invoicing, alleging that the computers were altered by the Defendants whilst in the Defendant’s possession.
11. After the detention of the goods, the Defendants proceeded to assess the underpayment and issued notice for payment of duty in the sum of K 248, 694.72 (re-assessed duty) and K 497,338.72 for penalty totalling K 746, 083.08. The Plaintiff pleaded with the Defendants to be lenient on them. As a result, the Defendants allowed the Plaintiff to pay the reassessed underpayment component of the duty only before the goods would be released. The Plaintiff paid the reassessed duty under protest pursuant to Section 176 of the Customs Act on 16th February 2016. The containers were released beginning 17th February 2016.
12. By the time the containers were released, the Plaintiff has already incurred extra charges for demurrage and storage for the period of detention which amounted to K 189,145.00. The Plaintiff paid for those charges.
13. Ms Lin deposes, in addition to the demurrage and storage charges, some of the goods were damaged because of the long period of detention and were condemned by the Food Safety and Health Quarantine Officers from the Department of Health. The loss to the Plaintiff for the damaged goods amounted to K 995, 669.28. The Plaintiff also suffered loss of K 125, 052.32 for goods that were partially damaged and had to be sold half the price.
14. Ms Mei deposes, as a further consequence, the Plaintiff incurred legal and professional costs amounting to K 450,000.00 in defending the proceedings and the actions taken by the Defendants against the Plaintiff and its officers.
15. Ms Mei deposes that on 20th June 2016, the Defendant issued a statutory garnishee notice on the Plaintiff’s bank and had its account debited in the sum of K 497, 388,77 being the penalty charge. As a result, the Plaintiff had to obtain a business loan to keep its business afloat. It incurred loss in bank interest in the sum of K 242,725.72.
16. Apart from the above loss, the Plaintiff says the PNG Customs officials when conducting a raid at their office picked up certain personal and company property which were not returned. The combined value of the lost property is K 27,320.00.
17. Ms Lin deposes that the total amount the Plaintiff lost and claims in these proceedings is K 2,618,387.38
Evidence-The Defendants
18. The Defendants rely on the following Affidavits:
(1) Affidavit of Mosman Keten sworn and filed 7th July 2021
(2) Affidavit of George Kiki sworn and filed 7th July 2021.
(3) Affidavit of Lengi Rumban sworn 6th and filed 7th July 2021
(4) Affidavit of Ian Herring sworn and filed 9th July 2021.
19. This is the summary of the Defendants’ evidence. During a routine computerised monitoring system, the first Defendant noticed an increase in importation of soft drinks for the period between June and September 2015. More specially, the Defendants noticed the Plaintiff, KC2 Limited, and one Christianity Niugini Limited, were declaring lower values for their soft drinks compared to other retailing importers. They also received information that the Plaintiff and Christianity Niugini Limited in association with other companies were smuggling goods into Papua New Guinea and producing false commercial invoices to PNG Customs Services to pay less import duty. Based on this information, the first Defendant with the assistance of Sgt Manuap, (OIC Dugs & Vise) of Lae Police, obtained a search warrant for Customs and Police to search the premises of the Plaintiff to obtain evidence of import documents for comparison and duty payment verification.
20. The Search Warrant was obtained on 11th November 2015. On 13th November 2015, a search party comprising officers from Customs, Police, Immigration and Department of Labour conducted a search at the premises of the Plaintiff, KC2 Limited, at Malahang Industrial Centre, Lae.
21. During the search of the computers at the desk occupied by Simon Lin, the General Manager of KC2, the Customs Officials discovered that the computers contained double invoices which were identical where an excel file would have three sheets, one sheet is named “invoice” and the other had “bao guan” and another as “packing list”. It was noted that the two invoices related to the same products except their values. The values of goods in the sheet ïnv” or “invoice” had much higher value for the goods while the sheet with the name “bao guan” had a much lesser value for the same goods. The first Defendant asked Simon Lin to explain the invoices, but refused saying that “he cannot say anything, but what is there on the computer we can see it for ourselves”.
22. The Defendants then retrieved their records and confirmed that the invoice named “Bao Guan” was presented to the Customs for tax purposes whilst the other invoice not presented to Customs was used to transfer money abroad to the supplier for payment of the goods. “Bao guan” is a Chinese language and translated by google to mean “To Declare at Customs”. A further investigation with the commercial banks confirmed that the invoices with the much higher values that were not presented to Customs were in fact used to transfer money abroad.
23. From the search conducted on 13th November 2015, the defendants discovered that some of the goods imported by KC2 Limited were still at the Lae wharf pending clearance, and so Customs officers immediately checked the values KC2 had declared to Customs through their entry and confirmed that all values used in the entry were grossly undervalued.
24. Based on the information from the search, Customs then detained the 26 containers that KC2 had imported through 10 shipments pending revaluation. The first Defendant did a report summarising the detention of the containers, attaching the entries KC2 had declared to Customs using incorrect and deflated invoices, the correct invoices, the telegraphic transfers and the reassessment. It was concluded that KC2 should have paid K 355,420.81 for the detained containers but paid only K 106,726,45, short paying by K248,694.36. Customs then applied 200% penalty of K 497,388.72. A final demand for payment of K 746,083.08 was served on the Plaintiff on 17th December 2015.
25. Mr. Herring deposes that apart from the underpayment of duty for the goods in the 26 containers, Customs continued with monitoring the imports of KC2 and Christianity Niugini Ltd and uncovered other short payments and tax evasions in other shipments and issued notice for payment on the reassessed duty.
Issues
26. The issues for consideration are:
Submissions of Counsel
27. Mr. Aisi, counsel for the Plaintiff, submits that although Section 16 D and 17 of the Customs Act allows for the Customs officers to seize goods for examination, the defendants in the present case kept the containers for too long resulting in damage to the goods. He submits the Customs officers did not provide a reasonable explanation why they kept the Plaintiff’s containers for too long. He submits that the actions of the Customs Officers were careless and unreasonable and to that extent, it was unlawful. Counsel submits further, the Defendant failed to allow the Plaintiff to protest the reassessed duty pursuant Section 176 of the Customs Act and abruptly issued a Garnishee Notice debiting the Plaintiff’s account within the grace period of six (6) months. Counsel argues that because of the Defendant’s actions, the Plaintiff suffered financial loss for damage to the goods, extra demurrage and storage charges, professional and legal costs, bank interest, loss in business income and loss of property.
28. Mr Katu, counsel for the Defendants, submits that the detention of the Plaintiffs containers was lawful. This was after they have obtained evidence of underpayment of duty by the Plaintiff. The containers were detained to examine and reassess import duty. An assessment was done and confirmed that the Plaintiff underpaid import duty on the goods in those containers. A notice for payment on the reassessed duty was issued. The containers were eventually released after payment of the reassessed duty. Counsel submits that this exercise is allowed under Sections 16, 17,102 and 191 of the Customs Act. He submits, Customs is not responsible for any loss to the Plaintiff occasioned by the detention of the goods, especially damage to the goods pursuant to Section 18 of the Customs Act.
Consideration of the Issues
29. The Plaintiff’s claim is basically for breach of statutory duty under the Customs Act. The Plaintiff has the burden of proof that the Defendants have breached a statutory duty of care. The elements of tort to establish statutory duty of care are settled in the case, Mathias Goma v& 703 others v Protect Security & Communication Ltd (2013) SC1300 and they are:
(a) a statute imposed an obligation on the defendant;
(b) the obligation was breached by the defendant;
(c) the purpose of the statute was to protect a particular class of persons;
(d) the plaintiff was a member of that class of persons;
(e) the plaintiff suffered damage as a result of the breach; and
(f) the Parliament intended to create a private right of action for breach of the statutory obligation.
30. This is my finding on the issues raised. Customs had a reasonable belief that the Plaintiff was involved in smuggling goods and underpaying import duty. They conducted a search on the Plaintiff’s premises at Malahang, Lae after obtaining a search warrant. Upon conducting the search, the Customs Officials uncovered information that the Plaintiff was electronically manipulating the supply invoices by deflating their values and declaring the invoices with lower values to Customs. The defendants noticed that some of the goods imported by KC2 Limited were still at the Lae wharf pending clearance, and so Customs officers immediately checked the values KC2 had declared to Customs through their entry and confirmed that all values used in the entry were grossly undervalued.
31. This necessitated the detention of the containers belonging to the Plaintiff to examine the goods and verify the correctness of the duty paid. A thorough investigation and reassessment on the import duty ensued thereafter. A report was compiled by Ian Herring, the first Defendant. The report contains a summary of the detention of the containers, attaching the entries KC2 had declared to Customs using incorrect and deflated invoices, the correct invoices that was not entered, the telegraphic transfers and the reassessment the amount that KC2 should have paid. The amount reassessed was K 355,420.81 for the detained containers but KC2 paid only K 106,726.45, short paying by K 248,694.36. Customs then applied 200% penalty of K 497,388,72. Mr. Herring concludes his report with the following statement (Refer Annexure F8):
“Documents we impounded reveal massive tax evasion, undervaluation, document fraud and money laundering. Income tax evasion and plain stealing from the State. For such rogue investors, we should not be lenient, if they can’t pay the amount demanded, we should seize the goods. Our officers are working on the document fraud where millions have been evaded through their numerous previous shipments which will amount to millions”
32. On 17th December 2015, the Plaintiff was served notice of the reassessed duty and was given 30 days to pay the reassessed duty and penalty. The Plaintiff defaulted and pleaded for leniency. The Plaintiff was then allowed to pay the underpaid duty of K 248,694.36 first before the goods would be released. The Plaintiff agreed to the arrangement and the goods were released. The Plaintiff paid the reassessed duty of K248,694.36 under protest pursuant to Section 176 of the Customs Act.
33. In respect of the evidence of false declarations of duty, underpayment and reassessment of duty presented by the Customs officials, the Plaintiff has not presented any credible evidence in rebuttal except for bare denials by the deponents, Mei Lin and Simon Lin. This is important because serious allegations are made against the Plaintiff and its officers, and it is incumbent on the Plaintiff to establish why the Court should find that the Customs officials were negligent in the performance of their duties. Afterall, the Plaintiff has the burden to prove liability and damages with credible evidence. Ref: Yooken Paklin v The State (2001) N2212.
34. It is not disputed that the Customs officials detained the containers to examine the goods to reassess the import duty. This is allowed by Section 16 (1) and 17 (1) of the Customs Act which provide that goods are subject to the control of Customs controlled area until delivered for home consumption or exportation and at anytime up to the time of release from the Customs controlled area, Customs officials may examine any of the goods that have been imported.
35. In the present case, the evidence shows the Plaintiff’s goods were detained firstly to reassess the duty paid and thereafter for the payment of the duty on the reassessed duty before the goods could be released. This is also allowed by law under Sections 102 and 191 of the Customs Act. The reassessment revealed there was a short payment of duty. Section 102 places an obligation on a person who has short paid duty to pay the short-paid amount within five years. Section 191 (2) of the Act gives the power to Customs to refuse the release of the goods still under its control unless and until such time the assessed duty or tax ascertained is settled. No time is fixed as to when detained goods can be released. The responsibility falls on the owner of the goods to settle the duty and retrieve its goods in a timely manner once notice for payment is issued.
36. I note the Plaintiff’s contention that the sudden search of its premises without notice and the prolonged detention of its goods is unfair and unreasonable because of the perishable nature of the goods. However, this complaint pales into insignificance when compared with the magnitude of the fraudulent transactions the Plaintiff was involved in. The evidence shows there was a deliberate act of duplicating invoices, a calculated move consciously orchestrated to under value the imported goods thereby gaining from the underpayment of duty. This was a fraudulent act, if not criminal, and the Plaintiff appears to have unfairly gained from the savings, which is a loss to the State and an unfair advantage over its fellow business competitors.
37. The Plaintiff was given notice for the payment of the reassessed duty on 17th December 2015. It made no attempt to settle until 16th February 2016. The Defendants cannot be held responsible for the actions of the Plaintiff in the first place. The Plaintiff chose to undervalue the goods imported resulting in the detention of the goods for reassessing duty. When the reassessed duty was issued, the Plaintiff delayed the payment resulting in the continuous detention. There is no evidence of neglect of statutory duty on the part of the Defendants. If there is anyone to be blamed it is the Plaintiff. If the goods in the containers were damaged due to the prolonged detention, that is a natural consequence of the unlawful actions of the Plaintiff. The blame cannot be shifted to the Defendants.
38. It is important to note that Section 18 of the Customs Act absolves the Customs officers from liability. Section 18 states that “The State is not liable for any loss or damage occasioned, otherwise than by the neglect or wilful act of an officer, to any goods subject to the control of the Customs.” In the present case, there is no evidence of neglect of duty or wilful act of an officer resulting in the alleged loss. The search of the Plaintiff’s premises and subsequent detention of the Plaintiff’s goods were lawful actions brought about by the unlawful conduct of the Plaintiff in undervaluing import duty.
39. Based on these findings and reasons given, I am not satisfied that the detention of the containers containing the Plaintiff’s goods by Customs officials is unlawful. I do not find that the Customs Officers were negligent in the performance of their statutory duties. I find no liability against the Defendants for any monetary loss for any damage to the goods due to the detention.
40. The Plaintiff claims K 189,145.00 for demurrage and storage charges. The Plaintiff argues that due to prolonged detention, it was forced to pay extra demurrage and storage charges. As I have found, the Plaintiff’s goods were detained lawfully as allowed by Sections 16,17 and 191 of the Customs Act. If there was a prolonged detention, it is a natural consequence of the unlawful actions of the Plaintiff. The Plaintiff has brought this upon itself and cannot blame the Defendants. The Defendants are therefore not liable for the alleged extra charges paid by the Plaintiff.
d. Whether the Defendants are liable for the bank loan interest occasioned by the premature issuance of statutory garnishee.
41. The Plaintiff pleads in the statement of claim that it suffered financial loss of K 886,491.00 being interest on a loan it took after Customs abruptly garnisheed their bank account for the penalty interest of K 479, 388.77 in June 2016. The Plaintiff pleaded that it was not accorded the grace period of six months under Section 176 (4) of the Act to lodge a dispute and secondly it had at least five years to pay pursuant to Section 147 (B) of the Act.
42. I have considered the pleadings, evidence and submissions concerning this claim and reject same. Firstly, the statutory garnishee notice was lawfully issued as allowed by law. It was issued on 20th June 2016, more than seven months after the notice for the reassessed duty and penalty was issued. The Plaintiff’s account was not debited until 29th July 2016. There is no evidence of the Plaintiff making a protest by way of appeal against the reassessment. It did not specifically dispute the duty by following the procedures set out in Section 176 of the Act. It did not commence any proceedings in Court challenging the assessment. Even in the current proceedings, the Plaintiff has not disputed the reassessment amount after notice for payment was served on 17th December 2015.It has not brought any evidence disputing that the reassessment by Customs was erroneous.
43. In Mark Opur v Darbar Enterprises Ltd (2004) N2528 Gavara Nanu J said this:
“Section 176 of the Act provides that where there is a dispute as to the duty to be paid on goods, the owner of the goods must pay under protest and write on the entry of goods, the words, "Paid under protest". The grounds of protest must also be stated on the entry including the description of all the goods affected by such protest. The owner or his agent must then sign the entry. And the amount paid under protest will be deemed to be the proper amount, unless another amount is determined by the Court to be the appropriate duty.
After paying the amount in protest, the owner can then institute proceedings in a Court of competent jurisdiction to recover the amount paid either in full or in part.
Section 176 (5) provides that no recovery proceedings can be instituted by the owner for the amount paid in duty, unless the payment is made under protest and the amount paid is the duty payable under the Customs Tariff and that the proceedings are commenced within six months from the date of payment.”
44. Furthermore, the Plaintiff did not give evidence of the loan account details, like the loan agreement, the drawdown and the statements showing the interest charged. Again, if the Plaintiff did take out a loan, that is matter for the Plaintiff in its normal business undertaking and the Defendants cannot be made responsible.
45. The Plaintiff claims K 450,000 for legal and professional costs. Again, for the same reasons, the Defendants are not responsible for these costs. These costs, if incurred at all, are brought on by the actions of the Plaintiff itself and no one else. This claim is rejected.
46. The Plaintiff claims that the Customs officials stole certain electronic items belonging to the Plaintiff and the officers of the Plaintiff to the value K 27,320.00. I reject this claim on the basis that the items, if removed, they were lawfully seized under a valid search warrant. They were used to elicit information which led to the discovery of the fraudulent activities of the Plaintiff and its officers. The properties became subject of criminal investigations and possible Court exhibits. The evidence shows the principal officers of the Plaintiff company and a related company Christianity Niugini Limited; Mei Lin and Simon Lin, were criminally charged under Section 153 of the Customs Act for tax evasion from the information extracted from the electronic items seized. Although the Lins contend that the charges against them were dismissed, the evidence shows the proceedings were terminated because of time bar, a mere technicality and not on the merits.
47. The Plaintiff claims that it suffered loss in business income of K 375,000.00 for paying rent and staff salaries for four months. This claim is rejected for the same reasons repeated above. Furthermore, paying of rent and salaries is the usual and normal business expenses for the Plaintiff.
Conclusion
48. In the end, it must be stressed that the Plaintiff has the burden of proof. It must discharge the burden on the balance of probabilities. I am not satisfied for the reasons given in the judgment that the Plaintiff has proved its claim on the balance of probabilities. On the contrary, as I have found, there is overwhelming evidence brought against the Plaintiff of underpayment of import duty and tax evasion. The allegations were not rebutted by the Plaintiff. It defies common sense and logic as to why the Plaintiff chose to institute the proceedings against the Defendants in the first instance. For the forgoing reasons, the Plaintiff’s proceedings shall be dismissed.
COST
49. The Plaintiff has failed in the proceedings. The Defendants have successfully defended the proceedings and are therefore entitled to cost, to be taxed if not agreed.
ORDERS
50. The Court orders that: -
(1) The Plaintiff’s proceeding is dismissed in its entirety.
(2) The Plaintiff shall pay the Defendants’ costs to be taxed, if not agreed.
(3) Time of entry of these Orders is abridged to take place forthwith upon the Court signing the Orders.
______________________________________________________________
Kelly Naru Lawyers: Lawyers for the Plaintiff
F. Katu In-House Lawyer for PNG Customs: Lawyer for the Defendants
PacLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.paclii.org/pg/cases/PGNC/2024/217.html