The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is urging the Supreme Court to dismiss a leading Freeport wholesaler’s Judicial Review action on the basis that the Hawksbill Creek Agreement “cannot trump” Customs laws and regulations.

Using an oft-repeated, and defeated, argument against Kelly’s (Freeport’s) challenge to Customs’ demand that it produce monthly reports on ‘over-the-counter’ bonded goods sales reports, the Attorney General’s Office is arguing that the Hawksbill Creek Agreement “cannot be immune” to 2009 reforms to the Customs legislation.

The case has potentially significant implications for the 3,500 Grand Bahama Port Authority (GPBA) licensees and Freeport’s business climate if the Government wins, as it would force all businesses to submit such monthly reports to Customs.

Apart from the extra expense and inconvenience this would cause, it would also be one of the first occasions that the Government (and Customs) have managed to pierce the Hawksbill Creek Agreement.

This would further add to the uncertainty affecting commerce in Freeport and potentially deter local/foreign investment. While the Government has promised to roll back the new taxes/fees introduced in the 2013-2014 Budget, it has yet to formally state whether it will renew the city’s real property tax exemption and a slew of other business incentives set to expire next year.

Kelly’s action centres around Customs allegedly “unprecedented demand” on August 5, 2010, for it to submit a report on monthly ‘over-the-counter’ bonded goods sales to the revenue agency.

Kelly’s (Freeport), in its June 10, 2014, submissions to the Supreme Court, alleged that the demand was made with no prior notice or consultation and, moreover, it had no basis in “lawful authority”.

Yet the Attorney General’s Office, on Customs’ behalf, is arguing that such monthly reports are “a lawful requirement” under Regulation 24 (3) that accompanies the Customs Management Amendment Act 2009.

It describes this regulation, which sets out the demand for a monthly over-the-counter bonded goods sales report, as “binding” and “a complete answer” to Kelly’s challenge.

“The provisions under the Hawksbill Creek Agreement cannot be immune to, nor trump, lawful procedures and regulations which may be justifiable to ensure and enhance compliance with the terms and spirit of the agreement and, more importantly, in ensuring an overriding compliance with the laws of the Commonwealth of the Bahamas,” the Attorney General’s Office is arguing.

“Until such time as the 2009 Amendment Act is repealed, the applicant is legally bound to comply with same..... The actions of Customs at all material times were lawful.”

Freeport’s ‘over-the-counter’ bonded goods regime allows GBPA licensees to sell goods duty-free (bonded) to fellow companies within the Port area for use in the latter’s own business. But any sales to a consumer or household do attract duty, and these have to be submitted in a report to Customs - together with the full tax owed - to Customs by the 15th of the following month.

But, while post-paid duty sales have to be reported, there has never been a similar requirements for so-called ‘bonded’ sales. This is the crux of Kelly’s (Freeport’s) complaint, which it alleges was “compounded” by Customs decision to detain 11 of its imported containers and refuse to accept its processing documents because it had not submitted the ‘bonded good’ sales report.

Customs, in its defence, is alleging that Kelly’s (Freeport) committed “a clear breach of the law” by failing to submit a monthly bonded goods sales report as required. It added that the detained goods had been released three years ago.

And Customs, through the Attorney General’s Office, argued that its duty “to protect public revenue from abuse” could not be blocked or overridden by the Hawksbill Creek Agreement.

“These objectives cannot be, and are not, we submit, abandoned or abdicated by virtue of the Hawksbill Creek Agreement, particularly in the face of a valid law,” Customs alleged.

“While the Hawksbill Creek Agreement makes certain provisions relative to operations in the Port area, including that for the dealings with bonded goods and duty exemptions, Section 8 of the Customs Management Act makes it clear that all goods imported into the Bahamas are subject to Customs control.”

Kelly’s (Freeport’s) action is rooted in the Hawksbill Creek Agreement taking precedence over all Customs-related laws, something that has been upheld by the courts in numerous other cases involving Freeport. Whether this track record continues is yet to be determined.

“Any lawful request under the provisions of the Customs Management Act and, in particular, the 2009 Amendment Regulation, is not, we submit, inconsistent with the intent and spirit of the Hawksbill Creek Agreement, and no such unlawful or inconsistent act on behalf of Customs has been so demonstrated,” Customs, through the Attorney General’s Office, alleged.

While admitting that “there may have been administrative delays in processing goods”, Customs said this was “not an unreasonable act” given the circumstances surrounding Kelly’s 11 trailers and the demand for its bonded goods sales report.

It alleged that the trailers’ delayed release resulted from Kelly’s (Freeport’s) refusal to comply with the law. “The applicant’s continued refusal to comply with the law prompted heightened legitimate scrutiny and measures to ensure compliance and to protect public revenue,” the Attorney General’s Office argued.

“The applicant’s [Kelly’s] disrespect for his lawful obligation precipitated the events, and was thus the author of the events.”

Kelly’s (Freeport), in its initial court submissions, alleged that there was “no lawful basis” under the Hawksbill Creek Agreement for Customs to make such demands, and the revenue collection agency had made no attempt to justify “the seizing of unrelated goods and refusal to accept unrelated paperwork”.

Kelly’s (Freeport) also described as “plainly wrong” Customs’ suggestion that over-the-counter bonded goods sales were “conditional” on submission of a monthly ‘bonded sales’ report.

It added: “The Hawksbill Creek Agreement makes no provision anywhere for monthly reports of any kind to be given to Customs...... There is therefore no obligation for a licensee to provide the demanded monthly reports unless and until the Hawksbill Cree Agreement is altered.

“As there is no such alteration, there is no obligation. Customs’ demands for the provision of monthly reports of sales of goods in bond is unlawful.”

When it came to the regulations relied upon by Customs to justify its action, Kelly’s (Freeport) alleged that it would not help with revenue-gathering or preventing fraud and abuse.

“This bureaucratic paperwork is not only unlawful, it also appears to be ineffective,” Kelly’s (Freeport) alleged of the ‘bonded goods sales’ report. “This only serves to emphasise that there can be no valid, overriding policy reason for the imposition of this burden.”

Arguing that the demand was also discriminatory, as it did not apply elsewhere in the Bahamas, the wholesaler added: “The new requirements therefore impose an additional burden on the cost of doing business, which only applies to ‘Port Authority licensees....

“The regulations are secondary legislation, and it is trite law that in general, secondary legislation cannot expressly repeal, still less impliedly repeal, primary legislation such as the Hawksbill Creek Agreement... The regulations were not validly made, and cannot be used to justify Customs’ unlawful actions.”

Explaining why his client was continuing with a three year-old action, Fred Smith QC, the Callender’s & Co attorney and partner, told Tribune Business that it was the need to “beat Customs back in its rabbit hole and stop it popping back up”.

Despite Customs having given an October 26, 2010, undertaking that it will not refuse to process Grand Bahama Port Authority GBPA licensee imports if they fail to produce bonded goods sales report, Mr Smith said “principle” demanded that the case be seen through to the end.

He explained that a ruling in Kelly’s (Freeport’s) favour would benefit the other 3,500 GPBA licensees by ensuring that Customs did not take similar action in the future.

Mr Smith told Tribune Business last month: “It’s the principle of it. Customs regularly creates obstacles and breaches in the Hawksbill Creek Agreement.

“Licensees must take every opportunity to beat Customs back into its rabbit hole, so it does not pop back again to harass licensees whenever.”

He added: “For decades, the Government - FNM or PLP - has attempted to cut back on Customs benefits.

“Every single court case has been won by licensees again and again. But Customs keeps on coming up with new tricks out of its hat. A lesson needs to be taught, and hopefully Kelly’s will win.

“It will be a precedent case for all licensees. It is bad for business in Freeport for Customs to behave so brutally without consequence. If they are not beaten back, they will take tougher and tougher steps, as with the Customs Management Act 2013 reforms.