Who’s your Owner? The DIBP finally drops the new Notice

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Tuesday, 20 June 2017

MANY of you will be aware that the term 'Owner' has magical (almost mythical) properties in the Customs Act 1901, which sees it linked to significant obligations and liabilities, most immediately in terms of the liability to pay Customs duty, writes Andrew Hudson.

The term appeared in its current form in section 4 of the original version of the Act and is broad enough to include nearly every party in the supply chain who has control or possession of the goods or has a beneficial interest in the goods.

The importance of the recovery of duty is underlined by the fact that the Act provides that unpaid duty applies to the goods until the duty is paid and that the duty was treated as a debt owing to the Crown (although that latter concept has less significance now with changes to preferences in insolvency laws).

The Act compared to the commercial deal

The breadth of the approach under the Act is different to that which applies under commercial contracts for the sale of goods, where liability between the contracting parties is set out in the relevant contract, which may incorporate (for example) Incoterms which set out the respective liabilities of the parties. The apparent inconsistency between the breadth of the Act and Incoterms arrangements was previously recognised by the Australian Customs Service (which it then was) in an elderly Customs Notice, which reflected the position that if there was a Delivered Duty Paid (DDP) transaction then the duty would be sought from the overseas supplier in a manner which was consistent with the nature of DDP transactions under Incoterms which made the suppliers liable for the duty. At that stage (at least) it appeared that the relevant regulator recognised that to some extent, commercial arrangements would operate to limit what were otherwise unlimited liabilities - and bring a little certainty.

It is also a different arrangement to that which applies to liability for GST which is imposed on the “importer”, giving a much more limited scope of parties with liability.

Once upon a time never lasts forever

For a number of years there seemed to be a degree of certainty on the issue which was disturbed by a notice (ACBPN 2014/50) revoking the original notice for DDP transactions in which the Australian Customs and Border Protection Service (ACBPS) sought to preserve the right to recover duty from any party to a DDP transaction regardless of the terms of the commercial contract. That position was endorsed by the Studio Fashions case in the AAT which confirmed that an Australian purchaser of goods in a DDP transaction could still be subject to liability for underpaid duty on the goods.

The search for certainty

The Customs Brokers and Forwarders Council of Australia (CBFCA), among others, had been pressing for some certainty on the issue for some time, including the extent to which others in the supply chain could be held liable for Customs duty even though they were not party to the commercial contract for the sale and purchase of the goods. Draft notices 2016/13 and 2016/12 were issued for comment in April 2016 which were subject to submissions to the Australian Border Force and commentary at CBFCA CPD sessions and webinars. The issue seemed to then go into hibernation until the release of a further draft of 2016/13 in March this year as a “final draft” which was also the subject of submissions and commentary at the CBFCA State Convention CPD sessions in April and May.

The final Notice is dropped

The final notice on the definition of “Owner” finally “dropped” into the Department of Immigration and Border Protection (DIBP) web site on 7 June as DIBPN 2017/16. It refers to the earlier notices on DDP transactions in ACBPN 2014/50 and also DIBPN 2016/12, which was released in draft in April 2016 although, unfortunately as I write this, DIBPN 2016/12 does not actually appear to have been published.

So – what does the new DIBPN 2017/16 include?

It largely starts with the premise that the DIBP is legally obliged to pursue a debt owing to the Commonwealth ñ which can include issuing a demand for duty on a party that may not be identified as the person responsible for paying duty under a commercial contract (whether incorporating Incoterms or not).

Well, in general terms it reflects what was in the previous draft ñ pretty much everyone in the supply chain could be liable for underpaid Customs duty and the only place to hide may be in indemnities in commercial arrangements or potentially even in insurance against unexpected liability. 

The Notice suggests that such “spread” of liability could arise in a series of circumstances such as where a party cannot pay due to insolvency or where it is “uneconomic” to pursue a party for the debt - such as where a party is based overseas.

The Notice talks to the approach in determining who is liable for duty. First stop would appear to be the importer named in the Full Import Declaration (FID) but thereafter the DIBP spreads a broader net in which it takes into account the positions and actions of parties in determining who should be liable for the Customs duty. Consistent with previous commentary there is specific reference to the fact that a licensed Customs broker could be treated as an “Owner” and held liable for the customs duty. At the same time there is a wide and deep category of parties who could be held liable which is hardly ideal in a revenue statute and in the commercial world.

What does the ‘Notice’ not say?

As important as what the Notice says, is what it does not say (despite pushing from industry) and which is almost more important. Despite requests the Notice does not identify who will not be liable for the Customs duty so there are a few issues which remain open.

- It does not address the issue of penalties, which is very separate (and scary).

- It refers to DIBP 2016/12 on DDP transactions and liability for Customs duty, which at the time of writing has yet to actually be published on the DIBP website.

- It is a separate issue to liability for GST where the legislation imposes liability specifically on the "importer" which could, of course be someone other than the actual importer named in the FID. However in a DDP transaction, it will require the ABF/ATO to seek to recover the GST overseas against the overseas supplier. We could end up with different parties being pursued for GST and Customs duty in relation to the same transaction!

- Will the DIBP seek to recover duty against individuals within companies who could be liable, so could an employee at a licensed Customs broker be held liable and would he or she be covered by the employer? Could the liability be extended to directors and managers of companies, such as liability for amounts equivalent to duty that was extended in the recent AAT decision of Zap Transport?

- Will the approach in the Notice be applied to anti-dumping and countervailing duty as well as basic Customs duty to make a range of parties liable for the significant amounts at stake in those matters?

- There is the associated issue of liability for amounts equivalent to duty under section 35A of the Act where goods are still under Customs control in a licensed premises and have not been "entered for home consumption". There is Federal Court authority that such parties liable under section 35A would not be liable for duty.

- Will the policy in the Notice be treated as applying from the date of publication of the Notice or will it apply retrospectively as merely re-stating old policy not being a new policy?

- What type of information will be provided to recipients of demands for duty who are not the importer on the FID or liable under the relevant commercial contract to explain why they are being held liable?  Will that include sharing the DIBPís views on the conduct of the party receiving the demand compared to that of others involved in the transaction who are not receiving a demand to show why the recipient of the demand is worthy of that liability?

- The Notice does not include a lot of the commentary from the DIBP on its expectations from licensed Customs brokers which were included in the original draft of the Notice. That included reference to the DIBP expecting them to act in a "professional and ethical" manner without actually identifying what it meant by those expectations. However the description of the approach which the DIBP will adopt, taking into account its assessment of the actions of parties could be seen as implicitly making a value judgment on the behaviour of all parties!

A quick fix? Let’s blame the financiers?

It occurs to me that the term "Owner" is so broad that it could be applied to parties who finance the import transaction, whether they are banks or other financial institutions, who make a profit from the underlying commercial deal and who may well claim an interest in the relevant goods. Those financing parties seem to be successful in their commercial endeavours so perhaps the DIBP may consider them as the default party against whom recovery should be sought? That inclination may well increase as financial institutions continue to dictate the terms of commercial deals and how they are documented, such as in the Blockchain environment. Surely that level of control could translate into an obligation to ensure that the commercial deal is done properly including the payment of the correct customs duty? They may seem more worthy of being pursued for the Customs duty than the licensed Customs broker or freight forwarder who merely facilitate the logistics!

What to do?

You need to understand the potential liability and take steps to mitigate the risk. That includes a suite of responses such as tighter terms and conditions of trade, insurance and better work practices. We will be dealing with some of these in a CBFCA webinar next week.

Of course - as always, if pain persists, please consult your lawyer.

By Andrew Hudson, Rigby Cooke Lawyers - Email: This email address is being protected from spambots. You need JavaScript enabled to view it.