14. [2017 ] CCJ 2 (OJ) SM Jaleel & CO LTD & Guyana Beverages INC vs. Guyana PDF

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[2017] CCJ 2 (OJ) IN THE CARIBBEAN COURT OF JUSTICE Original Jurisdiction CCJ Application No TTOJ2016/001 Between SM Jaleel & Co Ltd & Guyana Beverages Inc

Claimants

And The Co-Operative Republic of Guyana

Defendant

JUDGMENT SUMMARY This summary is not intended to be a substitute for the reasons of the Caribbean Court of Justice or to be used in any later consideration of the Court’s reasons.

Environmental Tax – Laches – Limitation Period – Passing On – Reimbursement of Unlawfully Collected Tax – Unjust Enrichment [1]

SM Jaleel & Company Ltd (SMJ), a limited liability company incorporated in Trinidad and Tobago, manufactures and sells beverages contained in nonreturnable containers. These products qualify for Community treatment. SMJ is the holder of all the shares in Guyana Beverages Inc (GBI), a limited liability company incorporated in Guyana. GBI sells and distributes the beverages made by SMJ which are imported into Guyana.

[2]

The Claimants, SMJ and GBI, sought a declaration from this Court that the Cooperative Republic of Guyana breached their rights under the Revised Treaty of Chaguaramas (“the RTC”) as well as an order that Guyana reimburse them the full environmental tax levied and collected from GBI from 1 January 2006, when the RTC took effect, to 7 August 2015, when the tax was last paid. Guyana levied the tax of G$ 10 per beverage container pursuant to section 7A of the Customs Act but that levy ceased when the section was repealed by the Customs Amendment Act

No 6 of 2015. The legislation did not provide for an exemption for non-returnable containers which qualify for Community treatment. There was no similar tax payable in respect of locally made non-returnable containers, thus giving Guyanese manufacturers a clear competitive advantage over other CARICOM manufactures and thereby allowing discriminatory treatment to those CARICOM manufactures. As such, the tax was, essentially, a discriminatory import duty in breach of Article 87 of the RTC. [3]

Given the Court’s decision in Rudisa Beverages & Juices N.V. and Caribbean International Distributors Inc. v The State of Guyana, [2014] CCJ 1 (OJ), (2014) 84 WIR 217, a case with similar facts, SMJ and GBI were prima facie entitled to the declaration and reimbursement by Guyana of the money it should have never collected. In Rudisa, the CCJ held that the imposition of the environmental tax in relation to Community goods was incompatible with Article 87(1) of the RTC. Consequently, to prevent its unjust enrichment, Guyana was ordered to cease collection of the tax on imported non-returnable beverage containers which qualified for Community treatment and to refund to the Rudisa claimants the sums it had collected.

[4]

Guyana, in its Defence to the present claim, alleged that despite the breach, the Claimants would not be entitled to reimbursement. To order reimbursement to the Claimants would unjustly enrich them to the extent that they had passed on the tax burden to their customers. Guyana also argued that the Claimants were barred by laches as they failed to challenge the collection of the tax at the earliest possible time. Guyana filed two Applications in October 2016 to assist it in advancing the passing on defence. The first was an application for disclosure and production by the Claimants of a vast number of documents to prove that they passed on the tax. The second was for Guyana to adduce expert evidence and to put before the Court a report from two named persons.

This summary is not intended to be a substitute for the reasons of the Caribbean Court of Justice or to be used in any later consideration of the Court’s reasons.

[5]

At a Case Management Conference, the Court determined that there were two preliminary matters to be decided . First, whether, as a matter of law, the passing on defence was available to Guyana in the circumstances of this case where the tax was in breach of the RTC and no item relating to the tax appeared on the Claimants’ composite bills paid by their customers. Second, how far back can the Claimants go in their claim for reimbursement? Is there a limited period for such a claim?

[6]

To deal with the alleged passing on defence, the CCJ considered many cases of the European Court of Justice (“the ECJ”). In the EU, national courts make a reference to the ECJ of points concerning EU law. The ECJ then interprets the EU law but leaves it to the national courts to apply the law in the national context but not so as to undermine the effectiveness of EU law. Each of the considered cases concerned national legislation which specifically provided for a passing on defence, which allowed Member States to retain unlawfully collected taxes where the taxpayer would otherwise be unjustly enriched, but what amounted to “unjust enrichment” was left unclear, to be determined by national courts. The EU cases indicated that there must be a direct passing on of the tax to a customer as where a tax had to be itemised separately on bills given to a customer. The Court noted that no legislative passing on regime existed in Guyana, but acknowledged that unjust enrichment principles, the foundation for any passing on defence, are part of Guyanese law.

[7]

The CCJ emphasised that, unlike the ECJ, it had power to apply and interpret its Community’s treaty, the RTC, and had no obligation to defer to national law although it would have regard to principles of international law, including general principles of law as as exist, for example, in national laws and which reflect common values and interests. The Court noted that it was required to take account of fundamental provisions of the RTC that provide guidance as to what may constitute unjust enrichment.

[8]

In light of the Articles in Chapter 5 of the RTC on Trade Policy, the Court held that Guyana had clearly been unjustly enriched at the expense of SMJ and GBI, having

This summary is not intended to be a substitute for the reasons of the Caribbean Court of Justice or to be used in any later consideration of the Court’s reasons.

collected an unlawful tax directly from them in clear breach of its obligations under the RTC. The tax did not promote cross-border trade but, tended to frustrate the free movement of goods, distorted competition and discriminated against the Claimants who should have been protected as belonging to the Community. Accordingly, Guyana had no basis for retaining the unlawfully collected tax : it had been shown that Guyana had been unjustly enriched at the Claimants’ expense.

[9]

Guyana, however, questioned whether the Claimants would be unjustly enriched at the expense of their customers if Guyana could not retain the amount of tax that the Claimants had passed on to their customers. The Court responded: what could be unjust…enrichment…of a trader…in the case of a customer’s bill for bottled beverages containing a composite price that covers all the trader’s hidden costs, including a tax cost, when the customer freely chose to pay the requested price for those beverages rather than other beverages in the market place, taking account of the price and the taste of the bought beverages? Since both parties consented to enter this valid transaction, the trader was beneficially entitled, in full, to the proceeds of the sale of its beverages. Guyana could not be allowed to retain, by way of set off, whatever amount of the tax cost that the trader managed to cover despite being subjected to the unlawful tax. To permit this course of action, would be to allow Guyana to be unjustly enriched by exploiting the trader’s efforts and by making an illegal profit out of legislation known to be unlawful. In the circumstances of this case, there had been no unjust enrichment on the part of the Claimants through the passing on of the G$10 per beverage container. Consequently, no passing on defence was available to Guyana and the two applications, based on the availability of such defence, were dismissed. It was found that, subject to the laches defence, the Claimants would be entitled to judgment without the need for any further hearing.

[10]

The Court then turned to examining whether the defence of laches, also known as extinctive prescription in international law and generally defined as “the bar of claims by lapse of time”, was applicable under the RTC. It was held that the

This summary is not intended to be a substitute for the reasons of the Caribbean Court of Justice or to be used in any later consideration of the Court’s reasons.

principle was recognized in international law, which is the law to be applied in the Court’s original jurisdiction. One of the most pervasive justifications for the principle, the Court stated, is the avoidance of possible injustice to a defendant. Prescription is part of international law as it prevents a State from being indefinitely threatened with international proceedings. [11]

In the CARICOM context, the overarching principle of good faith governs not only the conduct of Member States in complying with their Treaty obligations but also the conduct of those who seek to enforce their Treaty rights. Even those who are the wholly innocent victims of wrongful conduct by a Member State, need to exercise the discretion to seek relief against that State reasonably and in good faith. The rationale is that Community law should not only seek to prevent individual loss and injustice, but als o serve to protect the Community’s economic welfare and prosperity. Accordingly, there is a duty to mitigate any loss or damage suffered as a result of a State’s breach. A corresponding duty is that of being reasonably diligent in enforcing Community rights; such a duty is promoted by limitation laws.

[12]

The Court observed that no limitation period is prescribed by the RTC, but found that it needed to provide a common limitation period for CARICOM in the case of taxes collected unlawfully in breach of the RTC. It was stated, categorically, that a defendant State cannot avail itself of its own laws in an attempt to limit or bar a claimant’s cause of action before the Court. The Court took the view that one of the factors to be considered in determining the permissible length of delay is the general practice among States. Without deciding whether claims, such as the present one, are known to domestic law, the Court held that a comparable domestically recognized cause of action is an action for money had and received. In such cases, the periods in the CARICOM jurisdictions, save Suriname, ranged from 3 years, in Guyana, to 6 years in others. For Trinidad and Tobago, the period is 4 years. Having considered all these matters, the Court held that a 5-year limitation period was appropriate and would protect States from stale claims in respect of which there may be inherent difficulties in trying to produce

This summary is not intended to be a substitute for the reasons of the Caribbean Court of Justice or to be used in any later consideration of the Court’s reasons.

documentary or other evidence. It would, above all, encourage claimants to file suits in a timely manner. [13]

In conclusion, the Court held that actions against Member States for repayment of unlawfully collected taxes must be brought within 5 years of the date that the claimant first acquired, or reasonably should have first acquired knowledge, of the alleged breach of the RTC unless special reasons prevail which justify an extension. There were none here. Accordingly, the five-year period ran from a date five years before the filing of the Claimants’ Special Leave Application on 7 March 2016. The Claimants could therefore only lawfully claim reimbursement of payments made in respect of the environmental tax from 7 March 2011 to 7 August 2015.

[14]

The Court declared that the collection of the environmental tax under s 7A of the Customs Act in relation to Community goods had been incompatible with Article 87 of the RTC. It ordered Guyana to pay to the Claimants the aggregate sum paid by them in environmental tax from 7 March 2011 to 7 August 2015, together with interest at 4% per annum from the date of judgment. Guyana was also ordered to pay 70% of the costs of these proceedings, which are to be taxed, on or before 9 June 2017. It was finally ordered that Guyana file with the Court, on or before 9 December 2017, a report on its compliance with these orders unless the Claimants filed a notice of compliance before. The parties were given liberty to apply.

This summary is not intended to be a substitute for the reasons of the Caribbean Court of Justice or to be used in any later consideration of the Court’s reasons....