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Federal Court: Customs Department under statutory duty to refer a valid claim under section 128(1)(a) of Customs Act 1967 to a Magistrate

29 January 2024

Executive Summary
 
The case of Sarmiina Sdn Bhd v Gerry Ho & 5 Ors [2023] 6 AMR 237 involves an appeal brought by Sarmiina Sdn Bhd (“Appellant”) against three customs officers, the Johor State Director of Royal Malaysian Customs Department ("RMCD"), the Director General of RMCD (“DG”) and the Government of Malaysia (collectively “Respondents”). The crux of the Appellant’s case revolves around the Respondents’ wrongful and continuous seizure of liquor stored in 17 containers (“goods”) at Port Klang.
 
On 10 July 2023, the Federal Court ruled in favour of the Appellant and found that there was insufficient appreciation of the evidence by both the High Court and the Court of Appeal which amounted to a plainly wrong decision that warranted the intervention of the Federal Court. The Federal Court held that the written claim issued by the Appellant under section 128(1)(a) of the Customs Act 1967 (“CA 1967”) to the investigating officers seeking for the return of the goods was valid. If the DG decides not to release the goods, in the existence of a valid written claim, the claim must be referred to a Magistrate. The Respondents’ failure to do so was a breach of the law which resulted in a deprivation of the Appellant’s property rights which is protected under Article 13(1) of the Federal Constitution.
 
Background Facts
 
On 10 August 2017, customs officers seized 17 containers of imported liquor at the Free Zone in Port Klang, Malaysia. The Appellant claimed to be the buyer/consignee of these goods and requested the release of the same. However, the request was not granted as the consignee named on the bills of lading, No Signboard Too Enterprise (“NSTE”), denied that it was the consignee or owner of the goods. The Respondents claimed that the Appellant had no right to claim for the release of the goods and therefore the goods cannot be released to the Appellant.
 
As a result, the Appellant initiated legal action in the High Court against the Respondents, seeking a declaration that the continuous seizure of the goods was unlawful and claiming a sum of RM2,889,035.30 for special damages, as well as general and exemplary damages.
 
The High Court Decision
 
The High Court Judge dismissed the Appellant’s claim and found that the Appellant’s ownership of the goods and the letters from the consignors appointing the Appellant as their agent were doubtful, and resulted in the Appellant’s lack of locus standi. The grounds of judgment are summarised as follows: 
  1. First, the High Court raised doubts about the Appellant’s ownership claims concerning the goods due to significant inconsistencies in their testimony. On one hand, the Appellant claimed ownership of the goods, but on the other hand, they contradicted this assertion by stating that they were acting as agents for the consignors to secure the release of the goods. 

  2. Second, the Court found that the Appellant’s representation claims were questionable, as all five consignors, hailing from different countries, used identical wordings in their appointment letters designating the Appellant as their agent. This raised suspicions that the appointment letters might have been fabricated as an afterthought to support the Appellant’s claims. 

  3. Third, the Appellant referred to three “No Objection Letters” allegedly issued by NSTE to change the consignee’s name on the “Manifest” form from NSTE to the Appellant which had resulted in the release of eight containers seized in an unrelated incident at West Port, Port Klang, to the Appellant. However, the NSTE director’s testimony directly contradicted the Appellant’s claim, as the NSTE director firmly denied signing the letters. After examination, it was evident that NSTE director’s signature on the police report, the letter to the customs officers and the affidavit were entirely different from the signatures on the “No Objection Letters” submitted by the Appellant. This significant discrepancy clearly indicated that the Appellant relied on fabricated documents to substantiate their claim, which is an offence under Section 133(1)(c) of the CA 1967. 

  4. Finally, the Appellant contended that the purpose of importing the goods into the Free Zone at West Port, Port Klang, was for transit and subsequent re-export to customers overseas. However, documentary evidence, such as trade declarations in all the 'inward manifest' documents, clearly indicated that the consignment was intended for importation into Malaysia, rather than for transit or re-export. This evidence directly contradicted the Appellant’s statement.1 
For the reasons set out above, the High Court dismissed the case. Dissatisfied with the decision, the Appellant appealed.
 
The Court of Appeal Decision2
 
The Court of Appeal was of the view that the finding of fact by the High Court Judge regarding the authenticity of the letters from the consignors was reasonable in the circumstances and accordingly, the Appellant failed to prove that they were the consignors’ agent or owner. The Court of Appeal also concluded that the seizure of the goods was lawful. Thus, Appellant’s appeal was dismissed.
 
The Court of Appeal’s findings can be summarised as follows: 
  1. The Appellant had failed to establish their locus standi to make a claim on the goods. The notices of seizure were sent to NSTE and the consignors, rather than the Appellant. The purported letters from the overseas consignors were found by the judge to be fabricated. As a result, the Appellant has failed to connect the dots to demonstrate that they are the “agent” or “owner” under section 2 of the CA 1967 vis a vis the seized goods. 

  2. The Court of Appeal found that the actions of the Respondents in seizing the goods were lawful in light of the fact that NSTE denied being the true consignee or owner of the seized goods and their disavowal of the authenticity of the purported 'No Objection Letters’. Hence, when the seizure was conducted, the Respondents had reasonable and probable cause for doing so and they were not flippant or reckless in their conduct. 

  3. Accordingly, the Court of Appeal held that there was no error on the part of the trial judge that warranted appellate intervention as the Appellant had failed to prove its claim on the balance of probabilities. 
Issues before the Federal Court
 
Upon further appeal by the Appellant, the issues are as follows: 
  1. Whether by virtue of sections 128(2) and 128(3) of the CA 1967, the Respondents had a statutory duty to refer the claim for the seized goods to the Magistrate’s Court. 

  2. Whether the continuous seizure of the goods by the RMCD was unlawful and invalid. 

  3. Whether the decisions of the High Court and the Court of Appeal were plainly wrong and warranted judicial intervention. 
The Federal Court Decision
 
The Law
 
It is pertinent to note that section 128 of the CA 1967 has been amended vide the Customs (Amendment) Act 2019 from 1 January 2020. As the seizure of the goods in the present case took place on 10 August 2017 and the notices of seizure were issued to the consignors on 10 April 2018 and 15 April 2018, the old section 128 of the CA 1967 is applicable. In the view of the Federal Court, the events material to this appeal would be unaffected by the amendments which in effect, indirectly reinforce the Court’s interpretation of the relevant provisions.
 
The Federal Court stated that the core issue in determining the appeal is the application of section 128(3) of the CA 1967 and the effect of the non-compliance of the said provision.
 
Section 128(1) of the CA 1967 provides, inter alia, that all seized goods, where there is no prosecution, are deemed to be forfeited after one month from the date of the seizure unless the conditions set out in section 128(1)(a), (b), or (c) of the CA 1967 are met. In other words, the goods are not to be deemed forfeited if any of the facts under section 128(1)(a), (b), or (c) of the CA 1967 have been established.
 
If there is a claim under section 128(1)(a) of the CA 1967 as alleged by the Appellant, the claim must be referred to the DG who then has two choices: either to release the goods to the claimant or direct the senior officer of RMCD to refer the claim to a Magistrate for decision as envisaged under section 128(3) of the CA 1967.
 
Whether the Respondents had a statutory duty to refer the claim for the seized goods to the Magistrate’s Court
 
The Federal Court found that an agent is considered an “owner” who may claim for the goods under section 128(2) of the CA 1967. The keywords in section 128(2) of the CA 1967 are "any person asserting that he is the owner of such goods" may claim the release of the seized goods. In this regard, the word "owner" of goods under section 2 of the CA 1967 is given a wide and non-exhaustive definition as follows:
 
“Owner – 
(a) in respect of goods, includes any person (other than an officer of customs acting in his official capacity) being or holding himself out to be the owner, importer, exporter, consignee, agent, or person in possession of, or beneficially interested in, or having any control of, or power of disposition over, the goods; …” 
Following this, the Federal Court was satisfied that the Appellant was the agent of all the consignors as evidenced by the letters dated 25 April 2018 and 4 May 2018 from the five consignors and the oral evidence of the Appellant’s witnesses which clearly stated that the Appellant was appointed as their authorised agent to claim for the release of the seized goods.
 
As written claims were sent to the investigating officers under section 128(1)(a) of the CA 1967 seeking the return of the goods within one month from the seizure date, the goods are not to be deemed forfeited as a valid written claim had been made. Given that the goods were not released to the Appellant and there was no prosecution, the Respondents are under a statutory duty (i.e. section 128(3) of the CA 1967) to refer the claim to a Magistrate.
 
The Respondents’ failure to refer the claim to a Magistrate, even after a lapse of two years from the seizure date, amounted to a failure to discharge their statutory obligation. The Federal Court added that section 128 of the CA 1967 does not impose a requirement for the claimant to prove their ownership of the goods to the Respondents before the claim could be referred to a Magistrate. Instead, the Magistrate is responsible for addressing all relevant issues before determining whether the goods should be forfeited or released to the Appellant as provided in section 128(4) of the CA 1967.
 
Whether the continuous seizure of the goods by the Respondents was unlawful and invalid
 
The Federal Court acknowledged that the seizure of the goods by the Respondents was carried out in accordance with section 114(1) of the CA 1967, as they had reasonable grounds to suspect that there was an offence under the CA 1967, particularly when NSTE disavowed any connection with the goods.
 
Nonetheless, the Federal Court emphasised the critical nature of compliance with section 128(3) of the CA 1967, and highlighted that non-compliance with this provision is fatal as it constitutes a deprivation of a person’s or party’s property rights, which is protected under Article 13(1) of the Federal Constitution which reads: “No person shall be deprived of property save in accordance with law.”
 
As the deprivation of the consignors’ rights to the goods in this case was not in accordance with the requirements of section 128(3) of the CA 1967, the continuous seizure of the goods by the RMCD is unlawful and invalid.
 
Whether the decisions of the High Court and the Court of Appeal were plainly wrong which warranted judicial intervention.
 
The Federal Court found that the trial judge had failed to address the issue of whether there was a valid written claim in compliance with section 128 of the CA 1967 but instead questioned whether the Appellant was the agent of the consignors. The letters from the consignors dated 25 April 2018 and 4 May 2018 were found to be doubtful by the trial judge by reason that similar wordings were used in some parts of the letters. This is against the weight of evidence presented through the content of the letters from the consignors and oral evidence of the Appellant’s witnesses.
 
Further, the trial judge also failed to consider whether the Respondents should refer the claim to a Magistrate as envisaged under section 128(3) of the CA 1967 to determine if there was a valid claim for releasing the seized goods. The assessment of evidence as to the authenticity of the consignors’ letters and other related issues should be made by the Magistrate for his decision as provided under section 128(4) of the CA 1967. The trial judge’s failure to consider section 128 of the CA 1967 resulted in prejudice and a miscarriage of justice to the consignors, who were represented by the Appellant, as their rights to the goods in this case were not deprived in accordance with the law.
 
According to the Federal Court, the Court of Appeal’s rejection of the arguments on the core issue of non-compliance with section 128(3) of the CA 1967 on the ground that the Appellant failed to prove that it is the agent or owner under section 2 resulted in the Court of Appeal affirming the High Court’s decision that the Appellant had no locus standi to claim the goods. In the opinion of the Federal Court, this finding is against the weight of evidence mentioned earlier in this article.
 
In the circumstances, the Federal Court found that there was insufficient judicial appreciation of the evidence by both the High Court and the Court of Appeal, resulting in a plainly wrong decision that warrants the intervention of the Federal Court.
 
Conclusion
 
The decision of the Federal Court not only clarifies the legal requirements under the CA 1967 but also highlights the importance of statutory compliance and due process in cases of seizure of goods. It also reaffirms the fundamental principle that individuals should not be deprived of their property rights except strictly in accordance with the law. In the broader context, this case serves as a precedent for upholding constitutional safeguards and fair legal procedures in Malaysia's customs and excise regulations.
 
Case note by Lim Koon Huan (Partner), Manshan Singh (Partner) and Lim Shu Yi (Paralegal) of the Trade and Customs Practice of Skrine.
 
 
1 The summary of the High Court’s decision is extracted from the Court of Appeal’s decision reported in Sarmiina Sdn Bhd v Gerry Ho & Ors [2023] 1 CLJ 829 (CA).
2 Sarmiina Sdn Bhd v Gerry Ho & Ors [2023] 1 CLJ 829 (CA).

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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