IMSML Website Article 9/2024: Five Sun Trading Sdn Bhd v Muhammad Sallehudin bin Ramli & Ors [2023] 8 MLJ 822, Another Seizure of Containers by Customs

This case concerned the allegedly unlawful seizure of containers by Customs. The matter was heard before Faizah Jamaludin J at the High Court, Shah Alam. This decision is a return to cases reported in 2023 for the IMSML Website Article Series. The backlog of articles on cases from 2022 was completed in the previous website article.

In July 2017, at the Free Zones of Northport and Westport in Port Klang, 20 containers of liquor and cigarettes (hereinafter referred to as ‘the Goods’), were seized by Customs officers. It was alleged that the Plaintiff failed to produce a valid import licence for the goods, purporting to act under the Customs (prohibition of Import) Order 2017, Third Schedule, Para 6(2) of Part 1, see PU(A) 103/2017. Customs then offered the Plaintiff the opportunity to pay RM5,000 compound per container in order to secure their release. The Plaintiff appeal on the quantum of the fine and the State Director of Customs, Selangor, reduced the compound to RM1,000 per container. The State Director also authorised the re-exporting of the goods to Singapore after payment of the compound was settled.

Subsequently, the Plaintiff was surprisingly notified that the goods were forfeited. The reasons for the seizure was apparently that the Plaintiff had not produced an import licence for the goods within 30 days of the date of payment of the compound. The Plaintiff was told that the goods were not released on the directive given by the Director of Investigation Division, at the head office of Customs. The Plaintiff sought various types of damages which flowed from the alleged unlawful continued seizure of the containers.

The Seizure of the Containers in the Free Zone

The Plaintiff argued that the seizure of the containers in the Free Zone was premature. On a reading of the Import Prohibition Order 2017, Regulation 13 together with the Free Zone Act 1990, Sections 2 and 7, the containers had not yet been imported into Malaysia as the goods had not been moved into the principal Customs Area. It was argued that an import licence was not required when the goods were in the free zone area of Westport and Northport. Oh when there was a movement of goods or the importation of goods, is an import licence required under the Import Prohibition Order 2017, see Para [60] and [61].

Faizah Jamaludin J agreed with the Plaintiff’s submission as goods are only deemed to be imported into Malaysia when the goods are taken out of the free zone. As the goods were taken into any part of the principal Customs area by Customs seizing the goods, technically, there had not been importation into Malaysia, see Para [63] and [64]. Hence no need to show a valid import licence for the goods under the Free Zone Act 1900, Section 7(b), and the Import Prohibition Order 2017.

Her Ladyship rejected the argument by Customs that the goods were ‘in transit’ and therefore required an import permit. The phrase ‘in transit’ was deleted from the Customs Act 1967 (as amended in 2019, effective from January 2020). Although the Plaintiff had admittedly brought the liquor and cigarettes into the free zone, they were not brought in for ‘for the sole purpose of being carried to another country’, but rather for the purpose of importation into Malaysia, see Para [69]. Her Ladyship therefore held that the goods were not ‘in transit’ as such a conclusion would be unjust and absurd, see Para [70]. The burden of proving that the goods were ‘in transit’ when it was seized, was on Customs, see Evidence Act 1950, Section 101 and 102. Her Ladyship pointed out that Customs did not produce any evidence during the trial that the goods were ‘in transit’ when they were seized, see Para [71].

Duty of Customs to Release the Containers

After payment of the compound, Customs had a statutory duty under the Customs Act 1967 (as amended), Section 131(3)(b) to release the containers to the Plaintiff. The Proviso to Section 131(3)(b) which gave discretionary power to Customs to release the goods by requiring a licence, was not applicable. Therefore, the liquor and cigarettes did not require an import or export permit, see Para [76]-[77].

The Inherent Powers of the State Director of Customs, Selangor under the Customs Act 1967 to Order the Re-Export of Goods

A reading of the various relevant provisions of the Customs Act 1967, for example Sections 3(1) and 3(3), suggests that the State Director does indeed have such power. This requires a purposive interpretation of the statute, and whether such a construction would or would not promote the purpose and object of the statute, see Interpretation Acts 1948 and 1967, Section 17A. This approach is justified in ‘taxing statutes’, see Palm Oil Research and Development Board Malaysia and Another v Premium Vegetable Oils Sdn Bhd [2005] 3 MLJ 97 per Haidar Mohd Noor CJ (Malaya) at p 105, Steve Shim CJ (Sabah and Sarawak) at p 109 and Gopal Sri Ram JCA at p 129, applying the House of Lord’s decision in Pepper (Inspector of Taxes) v Hart [1993] AC 593 per Lord Griffiths.

Faizah Jamaludin J held that the Customs Act 1967 imposes import duty, export duty, surtax, surcharge and cessation: Defined as ‘Customs Duty’ in Section 2. These duties are imposed statutorily and enforceable by law. Therefore, the Customs Act 1967, is a ‘taxing statute’, see Para [36]. Her Ladyship explained that reading Section 40 of the Customs Act 1967, together with the Interpretation Act, Section 17A, it is implied that the Director General’s superintendence of all matters relating to Customs includes the power to issue directives that seized goods be re-exported upon payment of any compound offered by Customs under the Customs Act, see Para [40].

The Goods were NOT in Transit

The goods were not in transit at the time of seizure by Customs. Hence after payment of the compound, it was unlawful for Customs not to have released the goods. There was no legal requirement for the Plaintiff to produce an import licence within 30 days of payment of the compound, see Para [78].

The Role of the Director of the Investigation Division at Customs Head Office

This was the person that had allegedly cancelled the notices to release the containers. Despite being a material witness to these proceedings, Customs did not produce this individual in court to testify about the fate of those documents. This is a clear failure of Customs to discharge their burden of proving that the notices to release the containers had been cancelled. In the light of this omission, Faizah Jamaludin J at Para 83-89, made an adverse inference against Customs for not calling this witness, see Evidence Act 1950, Section 114(g). The decision to revoke and/or cancel the notices to release the containers was wrongful and unlawful. Hence instruction to the Container Control Unit not to release the containers was unlawful, see Para [94] and [96].

Importation of Goods After a Liquidation Order was Issued Against the Company

It was not illegal for a company to do so explained Faizah Jamaludin J, see Para [104] to [110], as it is trite law a company retains its legal personality until dissolution, see Reigate v Union Manufacturing Co [1918] 1 KB 592. Until this happens, the company’s corporate power was under the liquidator (ie no longer under the Board of Directors), see American International Assurance Bhd v Coordinated Services L Design Sdn Bhd [2012] 1 MLJ 369.

The liquidation order was made on 8 May 2017. On 9 June and 9 October 2017 respectively, the goods were imported into the free zone. The liquidator had the power to carry on the company’s business without having to seek the sanction of the Court or the Committee of Inspection as this happened within 180 days after the date of the liquidation order, see the Companies Act 2016, 12th Schedule, Item I of Part II.

On the facts of the Five Sun Trading case, the liquidation order was cancelled on 27 August 2018. Therefore, the Plaintiff had not been wound up.

Damages for the Unlawful Continued Seizure of the Containers

There are several types of damages which were sought by the Plaintiff. First, damages equivalent to the value of the seized goods in lieu of their return. Faizah Jamaludin J held that the Plaintiff was entitled to this under the Customs Act 1967, Section 132, including other reliefs if the continuous seizure / detention of the goods without reasonable or probable cause, see Para [115] and [117]. Her Ladyship ruled that the Plaintiff was entitled to RM1,533,249.80 since Customs did not dispute the value of the goods seized as invoiced and admitted into evidence, see Para [139].

Second, demurrage and detention charges. Faizah Jamaludin J held that the Plaintiff was also entitled to a sum of RM39,320 as it was incurred as a direct result of Custom’s wrongful and unlawful seizure of the containers, see Para [140], [143] to [145].

Third, container handling charges. Faizah Jamaludin J did not allow claims for this head of damages. Her Ladyship held that these were ‘normal charges’ that was imposed by shipping companies for shipment of goods by containers. These charges were not connected to the seizure by Customs of the containers, see Para [147] and [148].

Fourth, damages for breach of reputation. Once again, Faizah Jamaludin J did not allow claims under this head of damage. At no point did the Plaintiff file an action for defamation against Customs. Hence there was mechanism for damages for a breach of reputation to develop, see Para [149] to [151] and Doris Chua, Defamation Principles and Procedure in Singapore and Malaysia, LexisNexis, 2016.

Fifth, exemplary damages for the unlawful act(s) of Customs. This head of damages was denied by Faizah Jamaludin J. Her Ladyship noted that there was no evidence that Custom’s seizure of the containers was oppressive, arbitrary or unconstitutional. None of the three situations laid down by the House of Lords in Rookes v Barnard [1964] AC 1129, were present on the facts of the Five Sun Trading case. There was no evidence that what Customs did was oppressive, arbitrary or unconstitutional, or profit oriented, see Tenaga Nasional Bhd (TNB) v Evergrowth Aquaculture Sdn Bhd and other appeals [2021] 5 MLJ 937, where the Federal Court said that Rookes v Barnard was ‘accepted and applied by our courts’. Faizah Jamaludin J concluded that although the continued seizure by Customs, although wrongful and unlawful, did not fall within the scope of Rookes v Barnard, see Para [156]. It was the duty of the Plaintiff to show that the conduct of Customs was oppressive, arbitrary or unconstitutional. No such evidence was adduced during the trial, see Para [157].

Thank you for reading IMSML Website Article 9/2024

Stay tuned for the next IMSML Website Article 10/2024: Shin Yang Shipping Sdn Bhd v Ng Yew Loon & Ors [2023] MLJU 297

Signing-off for today,

Dr Irwin Ooi Ui Joo, LL.B(Hons.)(Glamorgan); LL.M (Cardiff); Ph.D (Cardiff); CMILT

Professor of Maritime and Transport Law

Head of the Centre for Advocacy and Dispute Resolution

Faculty of Law

Universiti Teknologi MARA Shah Alam

Selangor, Malaysia

Tuesday, 30 January 2024

Note that I am the corresponding author for the IMSML Website Articles. My official email address is: uijoo310@uitm.edu.my