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

JurisdictionNew Zealand
CourtHigh Court
JudgeBrown J
Judgment Date21 March 2016
Neutral Citation[2016] NZHC 479
Date21 March 2016
Docket NumberCIV 2015-485-664

[2016] NZHC 479

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

Brown J

CIV 2015-485-664

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
Counsel:

T C Stephens and S F Kennedy for Applicants

H W Ebersohn and L S Kean for Respondent

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.

The issue was whether the CEA, read in conjunction with r87 Customs and Excise Regulations 1996 (the Regulations) (dispersal of proceeds of sale), conferred priority on the Customs charge over the BNZ's security interest.

Held: Section 97(1) CEA was a charge created by a statute other than the PPSA. Hence it was a charge beyond the application of the PPSA. In relation to charged goods, under s99 CEA (rights and duties of chief executive in recovery of duty), Customs had options similar to those available to secured creditors under s305 Companies Act 1993 (“CA”)(rights and duties of secured creditors) and s243 Insolvency Act 2006 (“IA”) (secured creditor's options in relation to property subject to charge). Whereas s305(1)(a) CA and s243(1)(a) IA both concluded with the phrase “if entitled to do so”, the power of sale recognised in s99(3)(a) CEA was both certain and broad. Subject to the exception of a purchaser for value with no knowledge that duty was owed and unpaid, the power to take possession and sell may be exercised by the chief executive even where not just possession of but property in the goods has passed to a third party. In the case of liquidations and bankruptcies, the exercise of such a broad right could potentially set the chief executive on a collision course with other secured creditors who might elect to exercise the rights recognised in s305 CA and s243 IA. It was on account of that potential conflict that s98(2) CEA provided that those sections shall not apply in any case to which s99 CEA applied. Section 99(3) CEA may be exercised not only in liquidations and bankruptcies but also in receiverships of the types recognised in s98(1) CEA.

The concluding words in s97(2) CEA stated, the sale of such property was to be “in satisfaction or part satisfaction”. In combination, s97(2) and s98(2) CEA conferred on the chief executive an unqualified power to sell charged goods and to apply the proceeds of sale in whole or part satisfaction of the charge. This was reinforced by s99(6) CEA which provided the CEA mechanism equivalent to s305(3)(b) CA and s246(3) IA. Section 99(6) CEA stated that regulations made under s286(1)(dd) CEA “shall apply to the realisation of property subject to the charge”. The regulations provided for priority of payments which in other contexts was contained in the relevant statute. Parliament had conferred on the chief executive a broad power in relation to charged property to the extent of the unpaid duty in s97(2) CEA.

Section 97(2) CEA made it clear that the right to take possession and to sell the relevant property was only avoided when the property had been acquired by a purchaser for valuable consideration and without knowledge that duty was owing and unpaid. The Customs charge over the camera had priority over the BNZ's GSA, notwithstanding that the GSA attached to the camera earlier in time than the date of creation of the charge. Customs was entitled to the proceeds of the sale of the camera to the extent necessary to satisfy the charge.

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...

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