J H R Fisk and Ct McCloy v Attorney-General on Behalf of The Comptroller of Customs

• Jurisdiction: New Zealand
• Judge: Brown J
• Judgment Date: 21 March 2016
• Neutral Citation: [2016] NZHC 479
• Docket Number: CIV 2015-485-664
• Court: High Court
• Date: 21 March 2016

Under section 34 of the Receiverships Act 1993

In The Matter of NZ Aerial Mapping Limited (in receivership)

Between

J Hr Fisk And Ct Mccloy

Applicants

and

Attorney-General On Behalf of the Comptroller of Customs

Respondent

[2016] NZHC 479

Brown J

CIV 2015-485-664

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

Application by the receivers seeking confirmation they had priority over the proceeds of sale of an aerial camera — the receivers of the company which owned the camera were appointed by a bank under a General Security Agreement which had attached to the camera on the date of its purchase in 2012 — the Customs Department submitted it had priority pursuant to a charge over the camera under s97(1) Customs and Excise Act 1996 (“CEA”) (duty a charge on goods — the duty on any goods shall constitute a charge on those goods until fully paid) which arose on the date of importation, 23 February 2014 — the value for duty declared for the camera was $438,272 — whether the CEA, read in conjunction with r87 Customs and Excise Regulations 1996 (dispersal of proceeds of sale), continued to confer priority on the Customs Department charge over the Bank's security interest.

Counsel:

T C Stephens and S F Kennedy for Applicants

H W Ebersohn and L S Kean for Respondent

JUDGMENT OF Brown J

Table of Contents
	Paragraph No.
The issue	[1]
The facts	[4]
An overview of the issue	[19]
The particular statutory framework [30]
Charged goods: recovery of unpaid duty	[35]
Dispersal of proceeds of sale [38]
Recovery of unpaid duty where there is no charge	[40]
A broader legislative context	[41]
The parties' contentions	[48]
The applicants' case	[48]
Customs' case	[57]
Analysis	[64]
Principles of statutory interpretation	[64]
The C&E Act	[68]
Section 305	[72]
Points of difference in s 99	[75]
Conclusion	[97]

The issue

1 This case concerns a competition for priority over the proceeds of sale of an aerial camera between:

• (a) the receivers (the applicants) of the camera owner, NZ Aerial Mapping Ltd (NZAM), who were appointed by the Bank of New Zealand (BNZ) under a general security agreement (GSA) which attached to the camera on the date of its purchase on 11 December 2012 (the BNZ's security interest); and

• (b) the Customs Department (Customs) pursuant to a charge over the camera under s 97(1) of the Customs and Excise Act 1996 (the C&E Act) which arose on the date of importation of the camera on 23 February 2014 (the Customs charge).

2 It is common ground that:

• (a) prior to the release of the camera without payment of duty pursuant to a Deferred Payment Scheme, Customs held a possessory lien over the camera, which lien took priority over the BNZ's security interest; 1

• (b) under s 44 of the Personal Property and Securities Act 1999 (the PPSA) BNZ's security interest attached as soon as NZAM purchased the camera and that consequently BNZ's security interest attached to the camera prior to the Customs charge coming into existence;

• (c) despite the release of the camera, Customs had a charge on the camera under s 97(1) until the duty was fully paid.

3 However the applicants contend that from the date of release of the camera

BNZ's security interest ranked in priority to the Customs charge. By contrast, Customs contends that even after release of the camera, the C&E Act, read in

conjunction with reg 87 of the Customs and Excise Regulations 1996 (the C&E Regulations), continued to confer on the Customs charge priority over the BNZ's security interest

The facts

4 On 12 May 2005 NZAM entered into a GSA with BNZ. NZAM granted BNZ a security interest over all NZAM's present and after-acquired property, and over all personal property in which NZAM had rights, whether at that time or in the future.

5 On 6 May 2005 BNZ had registered a financing statement on the Personal Property Securities Register.

6 On 11 December 2012 NZAM purchased the camera from a Canadian company, Optech Incorporated. On that date BNZ's security interest attached to the camera and was perfected by virtue of the pre-existing financing statement. NZAM used the camera as an item of equipment in its business to carry out high-precision aerial surveying.

7 Over a year later, on 23 February 2014, NZAM imported the camera into New Zealand through its agent, DHL Global Forwarding (New Zealand) Ltd.

8 Upon entry into New Zealand, the camera became subject to customs duty. The value for duty declared for the camera was $438,272.00. The amounts declared for insurance and freight were $110.00 and $588.00 respectively. On the basis of these amounts, duty in the form of GST (at the rate of 15 per cent) was payable to Customs in the amount of $65,851.62. An additional Customs' charge of $40.77 brought the total amount of duty payable to $65,892.39.

9 Usually goods are held by Customs until the duty is paid. However NZAM operated a Deferred Payment Account under the Deferred Payment Scheme established by Customs pursuant to s 86(6) of the C&E Act. The Deferred Payment Scheme enables approved importers to obtain release of their goods without paying cash on each import entry. Instead, an approved importer can defer paying duty until the 20th of the month following the month of importation, and then settle all duty due for the preceding month with a single payment.

10 In order to obtain approval for admission to the Deferred Payment Scheme, importers need to supply Customs with various details, including the credit limit required and evidence of the registration of any security in terms of the PPSA. In certain circumstances Customs requires security to be given – typically in the form of a bank guarantee for a sum equivalent to the anticipated deferred charges for any two consecutive months. Customs did not require security from NZAM in establishing NZAM's Deferred Payment Account.

11 Given that the camera was imported into New Zealand on 23 February 2014, the duty on the camera became payable under NZAM's Deferred Payment Account on 20 March 2014.

12 NZAM failed to pay the duty on the due date. At the time NZAM was experiencing cashflow difficulties because of the non-payment of customer invoices relating to contracts in Saudi Arabia. NZAM subsequently made two part-payments of $10,000.00 to Customs on 19 and 23 June 2014.

13 NZAM's cashflow difficulties ultimately led to NZAM being placed into receivership. On 2 July 2014 BNZ appointed the applicants as receivers and managers of the company pursuant to the terms of the GSA.

14 Under s 87(1) of the C&E Act, unpaid duty begins to accrue additional duty from the due date of payment. As at the date of the receivers' appointment NZAM owed a total of $53,521.44 to Customs. As at the date of appointment NZAM also owed $4,192,000.00 to BNZ, the total amount of which was secured by BNZ's GSA.

15 On 4 July 2014 Customs purported to make a preferential claim in NZAM's receivership in respect of the outstanding duty pursuant to Customs' rights under s 101 of the C&E Act and Schedule 7 of the Companies Act 1993. At the same time Customs drew attention to the fact of the Customs charge under s 97(1) over the camera and made inquiry of the receivers about the camera's location.

16 Following discussions between the receivers and Customs, the parties reached an arrangement on 1 August 2014 whereby the receivers would sell the camera and retain the proceeds for whichever party had priority to the camera. On 13 November 2014 the receivers sold the camera to a third party.

17 On 25 August 2015 the applicants filed the present application for directions pursuant to s 34 of the Receivership Act 1993 seeking an order that BNZ's security interest in the camera under the GSA ranked in priority to the Customs charge. The grounds were, in essence, that BNZ's security interest had already attached to the camera and had been perfected at the date on which the Customs charge came into being.

18 Customs' notice of opposition contended that it was evident from the scheme of the Act that the Customs charge prevailed over other security interests, drawing attention in particular to ss 97–102 and 213 of the C&E Act and to s 23(b) of the PPSA.

An overview of the issue

19 One of the objects of the reform by the PPSA of the law relating to security interests in personal property was provision for determination of questions of priority between security interests in such property.

20 The Crown is subject to the PPSA unless in a particular case it can claim an entitlement to priority by statute or agreement. The change in the Crown's position is usefully summarised in The Law of Private Receivers of Companies in New Zealand: 2

All common law priority of the Crown in New Zealand has been abolished by statute in a corporate insolvency. Under a rule of great antiquity the Crown enjoyed a prerogative right, when there were insufficient assets of a debtor to pay all creditors, to receive payment of its unsecured debt before other unsecured creditors of the same class. But s 9 of the Companies Act 1993 now provides that the whole of that Act binds the Crown. Thus Crown claims are subjected to the scheme of priorities in ss 312 and 313 of the Companies Act. These sections incorporate Schedule 7, as it applies to

by s 30(2) of the Receiverships Act. Similarly, s 22 of the Personal Property Securities Act says that that Act binds the Crown. Therefore, unless by statute or by agreement the Crown has a secured position or a priority, it will be an unsecured creditor but with such preferential status as is given by s 30(2) and Schedule 7, and its security interests will rank under the Personal Property Securities Act according to the priority rules of that Act: …

21 By reference to an Alberta Law Review article analysing the Canadian...