EBN Trading (Pty) Ltd ("EBN") acted as a financier for the importation of video cassette recorders (VCRs) from Korea in April 1995. The goods were ordered by two South African traders (Pick 'n Pay and Tom Distributors) from Daewoo Corporation through a Hong Kong company, Dragon Best Investment Ltd ("Dragon"). EBN arranged irrevocable letters of credit split between Dragon and Daewoo to finance the transactions. The goods entered South Africa through Durban harbour under false bills of entry indicating Zaire as the country of destination, thereby evading customs duty totaling R4,421,837.89. The goods were ultimately delivered to the South African traders who paid EBN. EBN held bills of lading endorsed in blank (documents of title), was named as the "notify party," and invoiced the traders directly. There was no suggestion that EBN was party to the fraud. Customs detained other goods connected to EBN as security under s 114 of the Customs and Excise Act. EBN brought an urgent application for release, arguing it was not an "importer" and therefore not liable for the unpaid duty.
Appeal dismissed with costs, including costs consequent on the employment of two counsel. EBN was held liable as an "importer" for the unpaid customs duty of R4,421,837.89.
A party is "beneficially interested" in imported goods within the extended definition of "importer" in s 1 of the Customs and Excise Act 91 of 1964 where: (1) it holds documents of title (such as bills of lading endorsed in blank) entitling it to possession of the goods; (2) it has contracted to purchase and resell the goods; (3) receipt of the goods serves as security for reimbursement of its financial outlays and exposures; and (4) its interest in the goods is both advantageous and profitable to it. The true nature and substance of the transaction must be determined from the contractual arrangements, and parties cannot escape liability by characterizing themselves as "mere financiers" when the plain words of their contracts and the structure of the transactions demonstrate otherwise. The phrase "beneficial interest" means an interest that provides "advantage, profit, or pecuniary profit," and the qualifying words "in any way whatever" expand rather than limit this meaning. Under s 102(4) of the Act, the onus to prove that duty has been paid rests on the importer.
The court observed that this case differed from the usual revenue case involving tax avoidance or evasion, because the agreements contemplated that customs duty would be paid (by Dragon), not by EBN. Therefore, the contracts should be interpreted acceptingly rather than with a "quizzical eye," expecting them to express the intention their plain words assert. The court noted it was the "very innocence of the documents that proclaims against EBN." The court also observed that there was "much too much" evidence led in the matter. Regarding Mrs. Bennett's evidence that EBN was a "mere financier," the court stated this did not impress either Thirion J in the court below or the Supreme Court of Appeal. The court noted the reason for attaching liability to EBN was presumably the impossibility of pursuing a revenue claim against the foreign company (Dragon) in a foreign court. While the court analyzed various cases on "beneficial interest" in different contexts and jurisdictions, it stated "I do not think any purpose would be served by my following or not following them, approving or not approving them, or distinguishing them. The meaning of the crucial phrase is clear enough. So is its application to the facts."
This case is significant in South African customs and excise law for its interpretation of the extended definition of "importer" in s 1 of the Customs and Excise Act 91 of 1964, particularly the meaning of "beneficially interested in any way whatever in any goods imported." The judgment establishes that a party's beneficial interest must be determined by examining the substance of contractual arrangements, not merely descriptive labels such as "financier." The case demonstrates that where a party's security for financial exposure lies in the imported goods themselves, and where it holds documents of title and stands to profit from the transaction, it will be considered beneficially interested regardless of how it characterizes its role. The judgment also clarifies that s 102(4) places the onus on the importer to prove that duty has been paid. The case is important for revenue collection purposes, particularly where foreign entities cannot be pursued in South African courts, by establishing that parties involved in financing import transactions through letters of credit may bear liability as importers where they structure their affairs so that security lies in the goods themselves.