The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Supreme Court has delivered another “wake-up call to the Government that they cannot ride roughshod” over the rights of 3,500 Grand Bahama Port Authority (GBPA) licensees, a well-known QC blasted yesterday.

Fred Smith QC, the Callender’s & Co attorney and partner, described Justice Estelle Gray-Evans’s December 1 ruling - which has been six years in the making - as “precedent setting” and one that should bring greater certainty to Freeport’s business environment.

For Justice Gray-Evans, in granting around “80 per cent” of the declarations that Kelly’s (Freeport) had been seeking, upheld the integrity of the city’s ‘over-the-counter’ bonded goods regime and the “legitimate expectations” of all GBPA licensees.

Mr Smith and his wholesale/retail client had initiated Judicial Review proceedings in late 2010 over Customs “unprecedented demand” that it submit a report on monthly ‘over-the-counter’ bonded goods sales to it.

Kelly’s (Freeport) alleged that the demand was made with no prior notice or consultation and, moreover, it had no basis in “lawful authority”.

And Customs’ offence was “compounded” by its decision to detain 11 of Kelly’s (Freeport’s) imported containers, while also refusing to accept or process its documents because it had not submitted the ‘bonded good’ sales report.

Justice Gray-Evans, though, found that the right of Kelly’s (Freeport) - or any other GBPA licensee - to sell ‘over-the-counter’ bonded goods did not depend on submitting a monthly report on such sales to Customs.

And she blasted Customs’ decision to detain Kelly’s (Freeport’s) imported containers, and refusal to process its entries, as having “no lawful basis”.

Justice Gray-Evans then issued a blanket injunction preventing Customs from taking similar action in future against any other GBPA licensee that failed to submit a ‘bonded goods’ sales report - something that was not “sanctioned by law”.

She also ordered Customs to pay Kelly’s (Freeport) damages for the “wrongful detention” of its goods and failure to process its entries, before adding aggravated damages for the Government agency’s “arbitrary and high-handed actions”.

The Freeport-based wholesaler/retailer did not score a total victory, though, as the Supreme Court declined to rule that there was “no lawful basis” for Customs to demand a monthly ‘bonded goods sales’ report.

However, Justice Gray-Evans noted that the amendment cited by Customs as giving it the authority to demand such a report had been repealed since Kelly’s (Freeport) filed its action, thus rendering the issue moot.

Mr Smith told Tribune Business that the Supreme Court had again affirmed that the Government, and its agencies, could not arbitrarily and illegally interfere with GBPA licensees’ legitimate business operations.

While Customs has always possessed powers to investigate evidence/suspicions of wrongdoing, Mr Smith said it could not act outside the law - as it had done in Kelly’s (Freeport’s) case by detaining its containers and refusing to process its paperwork.

“You can’t interfere with the business of licensees,” he explained. “If you want to impose a penalty, you need to prosecute them and deal with them properly, not hold their goods hostage.”

Although the events that gave rise to Kelly’s (Freeport’s) Judicial Review were more than six years old, Mr Smith said the Supreme Court judgment still had significant relevance for the GBPA’s 3,500 licensees - especially the injunction blocking similar Customs enforcement actions in the future.

“This should embolden Freeport licensees to be more assertive in demanding respect for their rights as GBPA licensees,” Mr Smith told Tribune Business.

“Given that the court has issued a permanent injunction on behalf of all licensees, this is clearly sending a message to the Government that the courts are not going to tolerate continuing abuse.”

He added: “This is one of more than a dozen court cases that have succeeded against the Government in Freeport, yet Customs and other regulatory agencies continue to pretend they do not exist.

“This ruling is very precedent setting, and should be a wake-up call to the Government that they cannot ride roughshod over the rights of licensees and the GBPA.

“This should also augur well for business, as it should demonstrate to investors that the rule of law does exist in Freeport if they simply insist on their rights.”

Freeport’s ‘over-the-counter’ bonded goods regime has been a key feature of the city’s business environment for almost three decades, and is now an established practice under the Hawksbill Creek Agreement.

It 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 taxes have to be submitted in a report - together with the full tax owed - to Customs by the 15th of the following month.

While post-paid duty sales have to be reported, there was never been a similar requirements for so-called ‘bonded’ sales, until Customs wrote to Kelly’s (Freeport) on August 5, 2010, warning that its continuing ability to sell ‘bonded’ goods depended on providing such a report.

The company did not comply with Customs demands, and six containers it imported the following month were subsequently detained by the agency at Freeport Harbour.

Kelly’s (Freeport) attempted to import two further containers in late September 2010, but these received the same treatment - detention and the refusal to process entries.

With eight containers in Customs’ possession, attorneys for Kelly’s (Freeport) met with Lincoln Strachan, deputy comptroller of Customs, and other officials on September 29, 2010, to get the containers released.

Customs made clear the containers would not be released without the ‘bonded goods’ sales report, despite being told it could not hold Kelly’s (Freeport) “to ransom”.

The eight containers were eventually released after then-Prime Minister Hubert Ingraham and his minister of state for finance, Zhivargo Laing.

However, Customs then tried a different tactic in October 2010 - refusing to accept Kelly’s (Freeport’s) duty-paid sales report, and $50,504 in accompanying taxes, because the company had not submitted the ‘bonded sales’ report.

This prompted the Judicial Review filing, with Justice Gray-Evans noting Mr Strachan’s admission that the practice of ‘bonded goods sales’ had existed in Freeport since 1989.

Kelly’s (Freeport), though, said Customs did not have the power to tie its rights to sell such goods to the production of such a report - something that was akin to “unilaterally altering the terms” of the Hawksbill Creek Agreement, the city’s founding agreement.

Justice Gray-Evans agreed that Customs had “failed to show” that the production of a ‘bonded goods sales’ report was first required for Kelly’s (Freeport) to be able to sell such goods, finding for the company.

However, she agreed with Customs that 2009 changes to the Customs Management Regulations’ ‘regulation 24’ did impose “a lawful obligation on GBPA licensees” to produce a monthly ‘bonded goods sales’ report.

Justice Gray-Evans, though, noted that these changes were themselves repealed by the amended Customs Management Act and regulations, which took effect in summer 2013, thereby rendering her decision moot.

The judge, though, reserved her harshest language for Customs’ decision to detain Kelly’s (Freeport’s) containers and refusal to process its entries.

“It is clear, however, that the respondent [Customs] ‘took matters into its own hand’ and engaged in ‘self-help remedies’ in an attempt to enforce the applicant’s compliance with ‘regulation 24’,” Justice Gray-Evans found.

“I accept the submissions of counsel for [Kelly’s Freeport] that the respondent’s ‘enforcement actions’ were arbitrary, unreasonable and contrary to the law.”

She added that it was also “unreasonable and unlawful” for Customs to refuse the company’s September 2010 tax payment, and that Kelly’s (Freeport) had suffered “loss and damage” by losing opportunities to sell its detained goods, along with the extra storage fees incurred.

And, in granting aggravated and exemplary damages against Customs, Justice Gray-Evans found: “The respondent’s actions, and those of its subordinate officers in detaining the applicant’s containers and goods ‘as a result of Kelly’s refusal or failure to comply with the regulations’ were indeed arbitrary, and I agree with counsel for the applicant that those actions were calculated to disrupt its business in an attempt to force it to comply, without regard to the legality of such actions.”

The Supreme Court Registrar will now conduct an inquiry to determine the damages that are due to Kelly’s (Freeport), with Justice Gray-Evans taking “full responsibility” for the delays in determining the case.