The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Freeport businesses must “fight the Customs bully” to preserve their rights under the Hawksbill Creek Agreement, a well-known QC citing this as the reason for a major wholesaler’s continuation of a three year-old dispute.

Fred Smith QC, the Callender’s & Co attorney and partner, told Tribune Business the need to “beat Customs back in its rabbit hole and stop it popping back up” was the reason why Kelly’s (Freeport) was persisting with its Judicial Review action against the Department.

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.

Speaking after the Judicial Review’s substantive hearing begun in the Supreme Court on Friday, Mr Smith told Tribune Business: “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.”

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

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”.

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.

“Kelly’s suffered financial loss,” Mr Smith told Tribune Business. “Customs seized 11 of their containers as retaliation for not filling an illegal report, and we had to restrain that.

“Customs’ abuse of power will not be without consequences. Just because they back off doesn’t mean we will leave them alone. We have to fight the bully back.”

Pointing out that Freeport’s duty-free status under the Hawksbill Creek Agreement was its “biggest benefit” to licensees, one that is due to last until 2054, Mr Smith 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, which the Chamber is now challenging.”

That case has similarities with the Kelly’s (Freeport) Judicial Review, as both are seeking to ensure that the Government/Customs never again try to implement certain reforms viewed as breaching the Hawksbill Creek Agreement.

The Government has publicly retreated in both instances, with the Chamber’s case challenging the 1 per cent Customs processing fee, Environmental Levy and application of duty to profit/interest remittances from the Port area.

In the Kelly’s (Freeport) matter, Customs (represented by the Attorney General’s Office) has been given 14 days to file its written submissions with the Supreme Court. The wholesaler will then get an opportunity to reply, with the judge then considering the verdict.

Reaching this point was delayed after the Supreme Court initially dismissed the matter on a technicality that resulted from a legal oversight, but Mr Smith was successfully able to persuade the Court of Appeal to reinstate the case.

Kelly’s (Freeport), in its initial court submissions, alleged that Customs’ took its authority to demand the ‘bonded goods’ sales report from regulations that allegedly came into effect on May 27, 2009.

Yet it countered that there was “no lawful basis” under the Hawksbill Creek Agreement for Customs to make such a demand, 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.”

Kelly’s (Freeport) argued that the ‘over-the-counter’ bonded goods sales regime was long established, and therefore there was no basis for Customs to insist on ‘bonded goods’ sales reports.

And it alleged that the seizure of its containers was “entirely arbitrary, unreasonable and transparently contrary to law. Customs simply took it upon itself to impose an arbitrary penalty of its own choosing”.