In Reversal, CIT Rules That Vessel Lay-up Expenses Not Dutiable

In the review of Horizon Lines, LLC, v. U.S. (Horizon III)ordered by the appeals court, the Court of International Trade ruled that new evidence shows that Horizon’s decision to lay-up the Horizon Crusader in Indonesia was based on its lack of a commercial use for the vessel and that costs of the lay-up were therefore not dutiable under 19 USC 1466(a)¹ as part of the repairs performed later in Singapore.

(After the order by the Court of Appeals for the Federal Circuit, Horizon uncovered new evidence that the Crusader had been laid-up due to the elimination of a new route. The CIT admitted the new evidence, finding there was no attempt to mislead the court and that Horizon had not acted in bad faith by seeking to present the new evidence.)

Lay-up Expenses Were to Protect Equipment While Awaiting Repairs

The Crusader, a U.S.-flag vessel operated by Horizon primarily for trade in the Caribbean, was taken out of service on September 7, 2001 in Indonesia where certain work was performed to both de-activate and protect the vessel’s equipment while awaiting repairs in Singapore. On January 25, 2002, the Crusader was returned to the U.S., and foreign repairs declared.

In August 2002, Customs and Border Protection concluded that the Horizon owed $810,295.99 in duties, which included the cost of the lay-up in Indonesia, as well as the cost of repairs performed in Singapore.

(On November 20, 2007, in Horizon I, the CIT ruled that Horizon had failed to present evidence that the lay-up was not caused, at least in part, by the dry-dock ‘s proximity to Singapore where the repairs were performed. The CIT determined that those expenses that were not necessary solely to deactivate or protect the vessel would be considered expenses associated with the repairs performed in Singapore and should be dutiable.

In Horizon II, the CAFC in 2009 reversed the CIT, reasoning that Horizon’s evidence suggested that the Crusader was laid-up in Indonesia for a variety of reasons, including seasonal considerations, and returned the case for review again by the CIT.)

¹equipment and vessel materials purchased in foreign countries, and vessel repairs occurring in foreign countries, for vessels documented under the laws of the U.S., are dutiable at 50% ad valorem of the cost thereof in such foreign country.

(See ITT’s Online Archives or 01/14/08 news 08011430 for BP summary of Horizon I.)

CIT Slip Op. 10-98 (Horizon II, dated 08/31/10) available here.

CAFC Decision 09-1075 (Horizon III, dated 08/04/09) available here.