Date: 20000121
Docket: T-78-94
Between :
KANG QIANG HE (a.k.a. KEN HE), HONG SHING
TRADING COMPANY LIMITED and KIEN CHEONG
TRADING CO. LTD.
PLAINTIFFS
- and -
HER MAJESTY THE QUEEN AND/OR MINISTER OF
NATIONAL REVENUE, CUSTOMS, EXCISE AND TAXATION
DEFENDANT
REASONS FOR JUDGMENT
PINARD, J. :
[1] This is an appeal under section 135 of the Customs Act, R.S.C. 1985, c. 1 (2nd Supp.) (the "Act") of the October 19, 1993 decision of the Minister of National Revenue (the "Minister") confirming the assessment of duty, taxes and penalty against the plaintiffs in the amounts of $12,817.32 and $97,787.17 for goods imported into Canada. The plaintiffs say that the defendant improperly and incorrectly assessed customs, duties and penalties against them and seek to have the latter amounts set aside or reassessed.
[2] The plaintiffs are Hong Shing Trading Company Limited ("Hong Shing"), its president, Kang Qiang He ("Mr. He") and Kien Cheong Trading Co. Ltd. ("Kien Cheong"). Since 1986, the plaintiffs have been in the business of importing herbal remedies and other products into Canada from inland China and Hong Kong. Mr. He was also involved in the management of Kien Cheong and had signing authority on the latter's bank account.
[3] On or about November 25, 1988, a shipment of goods from Hong Kong Sun Sing Hong (a corporation owned and administered in Hong Kong by two of Mr. He's sisters) to the plaintiffs was seized on the basis of misdescribed and/or undervalued goods and labelled as Customs Seizure No. 810-K19-167. This November 1988 seizure is a previous enforcement proceeding taken in respect of Hong Shing. This first seizure was not appealed. Accordingly, the only relevance of that seizure to this proceeding is as a previous enforcement proceeding resulting in a greater penalty factor for the seizures that are in issue, namely the physical seizure dated July 3, 1990, in respect of a May 25, 1990 shipment, and the ascertained forfeiture dated December 19, 1990, in respect of seven individual shipments imported by the plaintiffs between September 1989 and May 1990. One of these seven shipments, which is dated May 25, 1990, was not only subject to the above physical seizure, but was also made the subject of an ascertained forfeiture when it was discovered that the value of the misdescribed goods was greater than originally appraised.
[4] The penalties assessed in the two enforcement actions at issue in these proceedings (the second and third seizures) were determined partly on the basis that the first seizure had occurred on November 25, 1988. The plaintiffs appealed the second and third seizures, but they were confirmed by the Minister by letter or letters dated October 19, 1993.
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[5] This matter raises two issues:
| (i) Did the Minister improperly and/or incorrectly assess duties or penalties against the plaintiffs with respect to the second and third seizures? |
| (ii) Is the plaintiff Mr. He liable under the Act? |
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[6] With respect to the first issue, the uncontroverted evidence is that for each of the seven shipments at issue in these proceedings, two export invoices were issued by Hong Kong Sun Sing Hong and that Mr. He caused the commercial invoice with the lowest total dollar value to be submitted to Canada Customs. The higher dollar value invoices were not shown to Canada Customs who found them on Hong Shing's premises at the time of seizure. Mr. He testified that the discrepancies between the invoices can be attributed to the following factors:
| - the general practice for Hong Kong Sun Sing Hong which shipped the goods to issue the plaintiffs two invoices, the first as a confirmation of the purchase order, and the second as an actual invoice; |
| - the discounts and rebates granted to the plaintiffs by Hong Kong Sun Sing Hong which were not reflected in the non-submitted invoices; |
| - the fluctuations in the exchange rate between the Chinese, Hong Kong and Canadian dollars, and |
| - differences in units of measurement. |
[7] Mr. He finally admitted, however, that the material submitted to Canada Customs in respect of each of the seven shipments at issue was inaccurate. Mr. He recognized that each of the commercial invoices submitted to Canada Customs contained errors related to the description and/or the value of the listed goods. The evidence shows that these errors were not trivial. For example, the September 1 invoice submitted to Canada Customs is admitted by Mr. He to have omitted goods valued at HK$184,621.41. The September 8 invoice declared to Canada Customs is admitted to have omitted goods valued at HK$121,112.03. The December 24 invoice which Mr. He caused to be submitted to Canada Customs did not even accurately reflect the identities of the parties to whom it was directed. The May 25, 1990 shipment was admitted by Mr. He to contain items which were not actually declared. Attributing some of the errors in the invoices submitted to Canada Customs to bad translation from Chinese to English, Mr. He ultimately stated that they were all simply innocent mistakes.
[8] In seizure proceedings such as those at bar, the onus is on the plaintiffs to establish, on a balance of probabilities, that the seizures were unlawful. The issue for the Court is simply whether the goods (or value forfeited in lieu of the goods) were, in fact and law, liable to forfeiture. The Act creates a voluntary reporting legislative framework in which importers must accurately declare all goods, must accurately account for the quantity and value of the goods, and must pay the duty and taxes attracted by all goods imported. Both the importer and the owner of the goods are jointly and severally liable for the duty and taxes attracted by the goods imported (sections 12, 17, 32 and 151 of the Act). Therefore, the Act is contravened when an incorrect declaration is made by or on behalf of an importer. Furthermore, the source of that error is irrelevant. The importer is liable for having failed to meet the obligation to accurately account for the goods which, from the time of the contravention, are forfeit to the Crown. A lack of intention on the part of the importer to evade duty and taxes is irrelevant in a seizure proceeding. Neither the lack of intent to mislead Customs, nor the presence of an inadvertent error in reporting goods, affects the validity of a seizure.
[9] One recent expression of the above well-settled principles is that of Strayer J. (as he then was) in H.B. Fenn & Co. Ltd. v. The Queen (1992), 8 T.T.R. 77 at 87:
| It appears to me that in principle it does not matter whether the importer makes an innocent mistake as to fact or as to law. The system is one of voluntary reporting and strict liability attaches to those who fail to report. The contravention of the Act occurs when an incorrect declaration is made on behalf of an importer and the source of the error is irrelevant. By the same token the importer is liable because he has failed to ensure that a correct report was made, and it matters not whether he made the incorrect report himself or whether he relied on a customs broker, a relative or an unpaid agent to make the report. . . . |
H.B. Fenn relies upon the decision of the Federal Court of Appeal in The Queen v. Letarte, [1981] 2 F.C. 76, wherein Pratte J., interpreting similar relevant provisions of the old Customs Act, stated the following:
| It is clear that paragraph 18(b) of the Customs Act, R.S.C. 1970, c. C-40, was not observed in the case at bar. The decision of the Trial Judge [[1979] 1 F.C. 605] that, despite this fact, the seizure of the undeclared goods was not legally made appears to have been based on the good faith of the truckers, who failed to comply with paragraph 18(b). This reasoning appears to the Court to be without legal validity. Under section 180, a seizure results from failure to comply with section 18, regardless of whether the individuals in question acted in good faith. |
[10] In the case at bar, as I have indicated above, there is an admission by Mr. He, for the plaintiffs, that the material submitted to Canada Customs in respect of each of the seven shipments at issue was inaccurate. Whether or not the errors contained in each of the documents were innocent mistakes made in good faith by Mr. He or the plaintiffs' broker is irrelevant. Consequently, the contravention of the Act occurred when the incorrect declarations were made by or on behalf of the plaintiffs and both the physical seizure dated July 3, 1990 and the ascertained forfeiture dated December 19, 1990 were valid in law.
[11] As to the question of the assessment by or on behalf of the Minister of the penalties, duties and taxes imposed on the plaintiffs, this is an issue which cannot be brought within the ambit of the present appeal, the scope of which is restricted by section 135 of the Act to the question of whether the Act was contravened. In my view, this Court has no discretion to vary a penalty attracted by an otherwise lawful seizure. The jurisdiction of the Court is limited to a determination of whether or not the goods in question were liable to seizure. In this, I fully concur with my colleague MacKay J. in his review of the appeal process set out in the Act, in ACL Canada Inc. v. The Queen in right of Canada et al. (1993), 107 D.L.R. (4th) 736, at pages 755 to 7571:
| The issue of the court's jurisdiction now having been raised directly in this case, I turn to the statute itself as a basis for determining the court's role under s. 135(1). |
| Under s. 123 the forfeiture of goods seized or any money or security held as forfeit in lieu thereof, and under s. 127 the debt due to Her Majesty as a result of a demand for payment in regard to an ascertained forfeiture, are "final and not subject to review or to be restrained, prohibited, removed, set aside or otherwise dealt with except to the extent and in the manner provided by section 129". |
| The last section, s. 129, as we have seen, provides for persons affected by a seizure or an ascertained forfeiture to "request a decision of the Minister under section 131". The latter provides by s. 131(1)(a), in essence, that "the Minister shall . . . having regard to the circumstances, consider and weigh the circumstances of the case and decide", in a case such as this, "whether the Act or the regulations were . . . contravened". |
| Where the Minister decides under s. 131 that there has been a contravention of the Act or the regulations, then s. 133(1) provides that he may return the goods seized on payment of an amount of money as determined under s. 133(2) or remit any portion of any money or security taken. |
| In this case, each of the two decisions of the Minister dated May 6, 1988, contained a decision pursuant to s. 131 that the Act had been contravened, and a decision pursuant to s. 133 that a portion of the amount previously paid by ACLC should be remitted and the balance held as forfeit. Does s. 135, providing an appeal from the decision of the Minister by one who requested a decision under s. 131, preclude appeal of the determination under s. 133, as the defendants here contend? In my opinion, the answer to this question is yes, for the following reasons. In s. 135 Parliament has provided for an appeal in relation to the decision of the Minister made under s. 131, a section which provides for a decision only with respect to the issue of whether there has been a contravention of the Act or the regulations. Moreover, Parliament has provided by ss. 123 and 127 a privative clause precluding review of the forfeiture of goods seized or any money held as forfeit "except to the extent and in the manner provided by section 129" and that provision, s. 129, provides opportunity to request a decision of the Minister under s. 131. These provisions, in my view, clearly limit any appeal, both within the department under s. 129 by requesting a decision of the Minister, and by appeal to the court under s. 135 from a decision by the Minister, to review of the decision specified under s. 131, that is, whether there has been a contravention of the Act or regulations. |
| In my view, Parliament has insulated from appeal the penalty imposed in the event there is found to be a contravention of the Act. That may seem surprising since the penalty will often be the primary concern of the person whose goods are seized under the Act or who is served with a notice and demand of payment under s. 124. Yet that simply carries on a long-standing regime under Customs Acts of the past, at least in relation to goods seized, for the goods are forfeited to Her Majesty at the time of the contravention of the Act (s. 122), and terms of any remission, where the Act or regulations are contravened, have been considered beyond the role of the court to review. Lawson v. The Queen, [1980] 1 F.C. 767 (T.D.), per Mahoney J. at p. 772. |
| This does not mean that the discretion vested in the Minister in relation to penalties is unlimited. The Act and regulations specify maximum penalties, and the termination of a penalty will not be beyond the jurisdiction of the court in terms of remedies for judicial review of administrative decisions, primarily in regard to the duty of fairness. In the result, I am persuaded that, while the court has no jurisdiction under s. 135 to review the penalty imposed where there is an infraction of the Act, it does have jurisdiction, under ss. 18 and 18.1 of the Federal Court Act, R.S.C. 1985, c. F-7, as amended by 1990, c. 8, ss. 4 and 5, to consider whether the discretion to impose penalties, consequent upon a contravention of the Act, has been exercised in accordance with the law. |
| I note in passing that, if my interpretation of the Act is correct, there is an anomalous situation presented for anyone seeking to question the Minister's decisions in relation to seizures and forfeitures. The Act provides for an appeal of a decision of the Minister on the issue of whether there has been a contravention of the Act or regulations and such an appeal may be made by way of an action in this court within 90 days of notice of the decision. The exercise of discretion in imposing the penalty, like any other administrative discretion, even where there is a privative clause, is subject to judicial review in this court, but since amendments to the Federal Court Act effective February 1, 1992, relief must be sought by an application for judicial review, not by an action, to be commenced within 30 days of the decision sought to be reviewed, unless the court grants an extension of time to apply. The person affected by Customs seizures and penalties can only be confused by the two remedial processes Parliament has now provided under the two statutes. Parliament might well consider whether both decisions of the Minister, under ss. 131 and 133, should be subject to review in a single proceeding, by way of an appeal or on application for judicial review. |
[12] With respect to the second issue, whether the plaintiff Mr. He is liable under the Act, it is clearly established by the evidence that Mr. He is the true importer of the goods. Mr. He, who was the only witness to give evidence on behalf of the plaintiffs, detailed his involvement on behalf of each of them and in respect of each of the shipments. Mr. He orchestrated each of the transactions and the corporate plaintiffs were parties designated by him to hold the goods as owner once imported into Canada. Each of the higher value invoices, including the one in respect of the December 24, 1989 shipment for which Kien Cheong is nominally the consignee, was found while executing a warrant at the premises of Hong Shing. Mr. He maintained a ledger in which he himself recorded amounts contained only in the higher value invoices, including the above December 24, 1989 shipment. Mr. He received personal goods in the shipments. Transpacific International Services Inc., the plaintiffs' designated broker in this matter, addressed its invoice in respect of the December 24, 1989 shipment to Qiang He and Kien Cheong. Mr. He, who throughout these proceedings purported to speak on behalf of both Kien Cheong and Hong Shing, admitted that he was involved in the management of Kien Cheong and, as indicated above, that he had signing authority on a Kien Cheong bank account. In any event, although I consider Mr. He as being the true importer of the goods, I agree with the defendant's submission that it is a misnomer to cast the issue of Mr. He's involvement as being one of personal liability. A seizure proceeding is a proceeding in rem against the items themselves which are seized as forfeit under the Act from the time of the contravention of the Act. That is true of physical goods seized as well as of money or security held as forfeit.
[13] For all the above reasons, and given that Mr. He admitted that the plaintiffs' customs declarations were inaccurate, which is enough to justify the seizure and ascertained forfeiture at issue, and that the plaintiffs have consistently cast their pleadings, whether in their appeal to the Minister or in their appeal to this Court, to seek relief only from the penalty component of the enforcement matters at issue, their action, in the result, must fail.
[14] Consequently, the plaintiffs' action is dismissed with costs.
JUDGE
OTTAWA, ONTARIO
January 21, 2000
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1 See also Time Data Recorder International Inc. et al. v. Deputy M.N.R., Customs and Excise (1993), 13 T.T.R. 332 at 343.