CEO of Customs v Camile Trading Pty Ltd & Ors

Supreme Court of NSW|2006-12-19|Before: Kirby J, Camile Trading P

Background. 406 The differing roles of Mr Bartlett and Mr Fletcher in the running of Camile Trading have already been described. Mr Bartlett ran the depot. He was there six days a week and was in close touch with what happened on the seventh day. He recorded deliveries and other information (such as tank dips) in his diary each day (cf Ex A12). In my judgment, with few exceptions, his account of what happened at the depot was reliable. 407 Mr Fletcher had a different role. It was his company (as the 90% shareholder). He dealt with Evenfont and Mr Pullinger. Evenfont and Camile Trading had an extremely close, indeed symbiotic, relationship. Like Camile Trading, Evenfont existed on the fringe of the industry, operating an antiquated refinery at Seven Hills. It produced a number of products, which I will shortly describe. The products, overwhelmingly, were produced for consumption by Camile Trading. They were tailored to meet Mr Fletcher's needs. Mr Pullinger said this: (T785) "Q. Presumably because the products from the plant that were to be supplied to Camile, there was a high degree of consultation, was there not, to ensure that the product being supplied was suitable for what Camile was able to market? A. Consultation between Paul and the operators? Yes. Q. More like you and Mr Fletcher? A. Yes. Q. Or Mr Lucas and you and Mr Fletcher? A. Mainly myself and Les at that time. Q. Because if Mr Fletcher couldn't market what you were producing then presumably he would stop buying it? A. Correct. Q. You would need to know that you were producing products he was able to market? A. That's correct." 408 From time to time there were problems and complaints, although Mr Pullinger said not many. Mr Pullinger added: (T785) "Q. They would be matters which would cause you and Mr Fletcher to have to consider the nature of the product being produced, would you not, and discuss whether it was suitable? A. Yes. Q. I think you mentioned in your affidavit that there was a process of weekly settlements where Mr Fletcher would come to Evenfont's premises and settle up for the previous week? A. Correct. Q. Did that provide opportunities for this process of consultation as to the quality of your products? A. Absolutely. Q. And you had to make yourself aware, did you not, of what Mr Fletcher was doing with the products to ensure that what you were supplying to him was suitable for his purposes? A. Yes." 409 Mr Fletcher was introduced to Mr Pullinger by Ms Marie Wheat, a consultant in customs and excise (Ex EV6 (para 6)). Evenfont was very conscious of the Excise Act and Regulations. The evidence presented an illustration of the way in which it adjusted its operation so that it was arguably within the letter of the law. I have referred to this issue already (supra para [272 ff]). Broadly, Evenfont produced and sold to Camile Trading two products. They were colloquially identified as "green shit" and "white shit". In fact, as will emerge, the "green shit" was produced from a number of different sources, as was the "white shit". One source involved the processing of crude oil from south eastern Queensland. The "green shit" was given a number of different names, COI, COII, TCO and finally HO. The change in name reflected a change in processing, as I already described (supra paras [269 ff]). The changes both in name and processing were made with the Excise Regulations in mind. It will be remembered that before October 1995, the green product from crude oil had been called "topped crude oil" (TCO), which was then subject to excise at the heating oil rate (0.06954 cents per litre). That was to change, as explained in the following Minute by a Customs officer made on 31 January 1996: (Ex EV1) "Evenfont Pty Ltd produce about 1 million litres of product per month. Evenfont Pty Ltd was primarily producing Topped Crude Oil which was sold at the Excise rate of 0.06954 cents per litre. The major purchaser of this product was Camile Trading Pty Ltd (part of the Marina Group of independent fuel distributors). When the excise rate changed, in late October 1995, on Topped Crude as engine fuel to 0.33513 cents per litre Evenfont Pty Ltd began producing what they now call Heating Oil in its place from the same base product (Crude Oil). This is reflected by the entries and excise payments which are made at a lower rate. Camile Trading Pty Ltd remains the major purchaser from Evenfont." 410 A supervising officer added the following comment: (Ex EV1) "The changed administrative arrangements seem to have only the effect of relabelling product." 411 Certainly there was also a change in the method of production after October 1995. Before the change in Regulation, the distillation had been carried out at atmospheric pressure. After it was carried out under a partial vacuum. Mr Lucas said this: (Ex EV7 (23)) "In October 1995, some changes were made to the Seven Hills plant. Evenfont ceased carrying out atmospheric distillation, and instead carried out the steam stripping and distillation process under a partial vacuum. This resulted in the production of a heating oil, as defined by ASTM 396. Annexed hereto and marked 'B' is a copy of that standard. Evenfont sold this product as 'heating oil', and it was always described as such on our invoices. The delivery dockets relating to this product, however, sometimes referred to it as 'HO'." 412 Professor Batts, the expert retained by Evenfont, made the following comment upon the change: (T868) "A. Yes, I did not see the plant recently. I am led to believe that it was subsequently used, or part of it, as reduced pressure -- a slight vacuum . However, ... why would you do that because it would not make a significant difference to the product? Because, if you reduce the pressure, you would reduce the temperature of the stream he was using for stripping. He said it worked, and I accept it. I did not see the plant running under reducing pressure, so I would not want to comment further than what my comment would tell me." (emphasis added) 413 Had Evenfont not changed the method of production, it would truly have been open to the charge that it was simply relabelling the product, as Customs suspected. The production change, coinciding as it did with the change in Regulation, strongly suggested that it was introduced by reason of the legislative change. Nonetheless, as Customs recognised, the product was itself still arguably a heating oil, although (as Professor Batts acknowledged), an atypical heating oil. 414 Mr Bartlett, at Camile Trading's depot, was oblivious to the subtleties of these changes. He simply received a tanker load of "green shit" or "white shit", which he then blended. He said this: (T183) "Q So, you are only familiar with 'white shit' coming out of the Evenfont refinery - you are only (familiar) with 'green shit' and 'white shit' coming out of the Evenfont refinery? A. The one at Seven Hills? Q. Yes? A. That is about the only stuff that I know that came out of there. But, in saying that, the 'green shit', its name had been changed on a number of occasions to suit whatever, but we had waste oil, CO-1, CO-2. It might have been that." 415 Mr Bartlett added: (T183) "Q. So, you don't know why the name of CO-1 or CO-2, CO and HO change? A. Les Fletcher had told me to change the name because we needed to know what name we were going to write down at the time, and it was because of something that was happening with Customs, or an excise thing. But, it coincided with talking with either Pullinger or this Mary Weekes (sic), I think her name was, and we had a name made to suit." 416 It was, as mentioned, Mr Fletcher who dealt with Evenfont and Mr Pullinger, and knew them well. Mr Bartlett had limited contact with either. He said they came to the depot a number of times, Mr Pullinger more frequently than Mr Lucas. Mr Bartlett also said he went to the Evenfont plant at Seven Hills on several occasions. Mr Pullinger and Mr Lucas, in their evidence, both suggested that their level of contact with Mr Bartlett was significantly less than he had suggested. I am inclined to think, although it does not greatly matter, that Mr Bartlett's estimates were rather more reliable than those of Mr Lucas and Mr Pullinger. The aversion which Mr Bartlett had for Mr Pullinger is likely to have been the product of greater contact than Mr Pullinger was willing to acknowledge (cf Bartlett T179; Lucas EV7 (59)). 417 The point is that Mr Bartlett's knowledge of Evenfont was largely gathered from occasional meetings and periodic remarks by Mr Fletcher. His recollection of these matters, after ten years, was far less reliable than his recollection of what he did, day in and day out, managing the depot.

The evidence of Mr Bartlett. 418 It will be remembered that the plaintiff's case against Evenfont and Mr Pullinger in respect of complicity is not concerned with the supply by Evenfont to Camile Trading of heating oil ("green shit"), to be blended with diesel (supra para [9]), It is concerned with the supply of "white spirits" ("white shit"), knowing that it was to be used by Camile Trading in a blend with leaded and unleaded petrol. The plaintiff asserted that the "white shit" was supplied, knowing that Camile Trading had no manufacturing licence, knowing that the provisions of the Excise Act (the completion of an entry for home consumption and supervision by Customs) would be ignored, and knowing that excise duty would not be paid. 419 I believe Evenfont certainly knew that Camile Trading did not have a manufacturing licence (cf Pullinger T823). It may be inferred that Mr Pullinger (and Evenfont) also knew that no duty had been paid on the blend created with products from Evenfont and that the formalities of Customs control had also been ignored. The real issue, as already stated, concerns the nature of the products which Evenfont manufactured for Camile Trading. Mr Bartlett, in his affidavit, described that product as "white spirits". He said this: (Ex A1, p27(55)) "55. Commencing in late 1992, and continuing until late 1996, Camile purchased additional white spirits from Evenfont, initially from its plant at Seven Hills and then later from its plant at Rutherford as well. Over the periiod, Camile purchased two to three 30,000 litre loads of white spirit each week from the Seven Hills plant and, between about August 1996 and November 1996, two 32,000 (approximately) litre loads of white spirit per week from the plant at Rutherford." 420 He added: "56. I did not place orders with Evenfont for the purchase of white spirits. Each week I received telephone calls from an employee at the Seven Hills plant advising that the plant was 'full' with white spirit. These calls were made by the Fourth Defendant, Robert Leonard Pullinger (hereinafter 'Pullinger'), Paul Lucas, or by the yard manager at Seven Hills. On each occasion, the caller told me what quantities of white spirits they wished to be removed from the plant and requested me to send a Camile tanker to collect it. After each call, I dispatched a Camile tanker to collect the white spirits, usually the next day. I never prepared any paperwork in relation to the collection of white spirits from Evenfont nor did I ever give the driver that I dispatched any such paperwork. I simply said to each driver that I dispatched: 'Go to Seven Hills (or Rutherford) and collect a load of white shit.'" 421 Mr Bartlett did not pay for the deliveries with cash from the cash tin (para 58). The "white spirits" were added to tanks 15 and 16, and used for the blending with leaded and unleaded petrol (para 60). These tanks, indeed, were purchased through Evenfont, who arranged for the installation of rotating paddles to assist blending. 422 Mr Bartlett also deposed to two other aspects. They are relevant to the plaintiff's case on complicity. He said that Mr Lucas, as the director of Evenfont with an engineering background (supra para [269]), provided advice to Mr Fletcher concerning blending. Mr Bartlett said this: (Ex A1, p40(92)) "92. On numerous occasions from 1992 onwards, Bob Pullinger and Paul Lucas, sometimes together and sometimes separately, came to the Camile Depot. Paul Lucas was an employee of Evenfont at the time. When they came, they spoke to both Fletcher and myself. Fletcher and I showed them the tanks that were installed at the depot, the system of pipes joining the various tanks, how the blending motors were installed and the associated electrical works. I can recall Fletcher speaking to them about the blending of white spirits, toluene and ethanol with refinery petrols. I cannot now recall the precise words that were said by Fletcher. However, on a number of these occasions he did explain to them both just how the blending was done and the percentages of each product used in the blending at the time that each such conversation occurred. I was present, and heard, on more than one occasion, similar conversations take place between Fletcher and Pullinger and Lucas at Evenfont's premises at Seven Hills." 423 The other aspect (also relied upon to demonstrate complicity) concerned the testing of the various blends. Mr Bartlett mistakenly assumed that Mr Lucas was a chemist. He said this: (Ex A1, p38(86)) "86. I can recall visiting Evenfont, Seven Hills, on various occasions during 1993 to 1996 and watching Paul Lucas a chemist and a director of Evenfont's doing tests in a laboratory situated at their premises on blends of Success heating oil and Mobil diesel that Fletcher and I had taken there. 87. Once supplies of Heating Oil started coming from Evenfonts Rutherfod plant heating oil diesel blends were tested. On 31 October 1996 I saw Fletcher fill three one litre coffee jars with blends of product. One was a 50/50 blend of Rutherford 'HO' and diesel, another was a 60/40 blend of Rutherford HO and diesel and the last was a 75/25 blend of Rutherford HO and diesel. The HO had come [out] of a 20 litre drum and the diesel came out of a tanker. I saw Fletcher mark those jars with numbers 1, 2 and 3 and the word 'sample'." 424 Mr Bartlett's first affidavit, from which this material has been drawn, was sworn on 11 August 2000. He swore a second affidavit on 2 May 2001. The affidavit was clearly directed to the issue of complicity on the part of Evenfont and Mr Pullinger in the blending operation conducted by Camile Trading. Mr Bartlett recounted in greater detail conversations he claimed to have overheard between Mr Fletcher and Mr Pullinger at a time when the relationship between Camile Trading and Evenfont was being formed. Mr Lucas was said to have been present. Mr Pullinger, according to Mr Bartlett, spoke in terms of Evenfont being in a position to supply "a solvent". White spirits, incidentally, are a solvent (Prof Trimm, Ex Z1, p13(34)). According to Mr Bartlett, the following was said either by Mr Pullinger or Mr Lucas: (Ex A2, p3(7)) "The solvent is low cost. You can put 10% in with petrol; more, if you can beef it up with toly." 425 Mr Bartlett continued: (para 8) "8. During this discussion, Pullinger produced a graph. Written on it were the words 'Exxon Graph'. When he did this, Pullinger said: 'Have a look at this.' It showed the octane ratings of different petroleum products, including white spirits and toluene. Lucas said: 'There's the petrol band, and there's the white spirits band. You can see what the octane ratings are.' Lucas also said: 'You should be able to work out percentages from this. We should be able to mix these things to give you your ratings.'" 426 Price was discussed. According to Mr Bartlett, Mr Pullinger said it would be cheaper if cash were paid (Ex A2, p4(9)). 427 Once the relationship had been established, Mr Fletcher regularly tested various blending formulae, enlisting the aid of Mr Bartlett and others to ensure the blend actually worked. They used their own vehicles. Mr Bartlett said this: (Ex A2, p7(15)) "15. ... On some 6 or 7 occasions from about 1994 to November 1996, Fletcher and I together took blends of petrol and white spirits, toluene and ethanol that we had made up at Albion Park to Evenfont's premises at Seven Hills where we handed them to Lucas. Sometimes, these blends were of leaded petrol and, sometimes, they were of unleaded petrol. ..." 428 The samples were taken by Mr Lucas to his laboratory. The outcome was later discussed. Mr Bartlett recounted his conversation with Mr Lucas in these terms: (Ex A2, p7(16)) "16. ... During the conversation, either Lucas or Pullinger said to Fletcher and me: 'The percentages of white spirits are too high. We have to back it off.' Pullinger complained about backing off the white spirits, following which he said: 'We should be able to decrease the petrol and increase the toluene, or even your ethanol, to bring the rating back up.'" 429 The formula was periodically varied to accommodate problems that had been encountered (Ex A2, p8(18)). Mr Bartlett said that there were no invoices or paperwork (Ex A2, p10(25)). He added: (Ex A2, p11(25)) "25. ...I handed amounts of around $100,000 in cash to Pullinger on some of the monthly occasions that he came to Camile's depot. I have also given him similar amounts in cash at times that I have gone to Evenfont's premises at Seven Hills."

Cross Examination of Mr Bartlett. 430 Mr Fletcher denied Mr Bartlett's account, as did Mr Pullinger and Mr Lucas. Mr Bartlett, whilst possessing expertise in the identification of various petroleum products, was not in a position, based upon experience, to determine whether the white or whitish petroleum product from Evenfont, which he knew as "white spirits" or "white shit", was in fact white spirits (supra para [133]). Indeed, clearly it was not, since Evenfont did not have the capacity to distil white spirits, as I have stated. But did Mr Pullinger or Mr Lucas refer to their product as "white spirits"? It was plain that they did not. Mr Bartlett said this: (T171) "Q. Now Pullinger and Lucas, Mr Pullinger and Mr Lucas from Evenfont sometimes referred to the 'white shit' that they produced as 'waste slops', didn't they? A. No it was - as far as I can recall it was either called 'light ends' or 'condensate'. Either 'light ends' or 'condensate'." 431 Mr Bartlett's statements, as set out above, should be understood in this light. I will examine below the nature of the white hydrocarbon that was delivered, the "condensate or light ends", and whether it came within a classification which was exempt under the Excise Regulations. 432 Let me move to the second aspect of Mr Bartlett's evidence, the technical advice as to blending allegedly provided by Mr Lucas and, to a lesser degree, by Mr Pullinger, as well as the testing said to have been undertaken by Mr Lucas. As a generality, I have no doubt that Evenfont, and particularly Mr Lucas, regularly provided technical advice on blending to Camile Trading, including to Mr Bartlett. The two companies worked hand in glove. They were dependent upon each other. Mr Lucas, although not a chemist, was an experienced engineer who had worked with industrial solvents for nine years (Ex EV7, paras 1 to 9). He had acquired considerable expertise in respect of petroleum products. I do not doubt that his advice concerned, amongst other things, the blending of diesel with the heating oil supplied by Evenfont. Problems had been encountered with Evenfont's product, by reason of excessive wax, which tended to block filters especially in certain temperatures. These problems were, according to Mr Lucas, overcome. I accept Mr Bartlett's account that, in a context of the "white shit" supplied by Evenfont, there was similar consultation, advice and adjustment, as problems presented. 433 However, the advice given in the context of blending heating oil and diesel is not relevant to the issues in the Statement of Claim, since the plaintiff does not assert complicity in the context of diesel. The case on complicity arises in the context of advice given by Evenfont as to the blending of Evenfont's "white shit" with leaded and unleaded petrol (and other ingredients). Such advice would only be reprehensible, and a basis for inferring complicity, if the "white shit" from Evenfont was knowingly being blended in circumstances amounting to the manufacture of an excisable blended petroleum product, by a company without a licence and in circumstances where duty was being evaded. As mentioned, Evenfont and Mr Pullinger certainly knew that Camile Trading did not have a manufacturing licence. It may be inferred that they also knew that Camile Trading had not established the regime of a secure bonded area, required in respect of excisable goods (which Evenfont had), and did not pay excise duty on any blend which included the products they supplied. 434 However, Camile Trading and Evenfont (as well as Messrs Fletcher and Pullinger) asserted that the product known as "white shit", which Evenfont supplied, and which Camile Trading blended, was excise paid at the full gasoline rate, or excise exempt. There was no inhibition, in their view, upon blending such products with leaded or unleaded petrol. They asserted that the inclusion of "white shit" in a blend did not create an excisable blended petroleum product (s77G; supra para [42]). 435 I will later examine this contention. However, one must first determine the nature of the "white shit" which Evenfont supplied, and whether it was in fact excise paid or an exempt petroleum product under the Regulations. 436 If what was blended was excise paid or exempt, then advice given by Mr Lucas would furnish no basis for a finding of complicity. Blending petroleum products, as such, was not prohibited. What was prohibited was knowingly assisting in blending in circumstances that gave rise to an excisable blended petroleum product where there was no licence, no submission to Custom's control and an evasion of duty. It was not suggested, or unambiguously suggested, that the advice provided extended beyond the products which Evenfont supplied. 437 Moving to the second aspect relied upon by the plaintiff to prove complicity, did Mr Lucas carry out tests (as opposed to providing advice) on various samples, as alleged by Mr Bartlett? The comments made in the context of advice apply equally to testing. It will be remembered there were problems concerning the heating oil supplied by Evenfont to Camile Trading, when used in diesel engines. There was wax and an excess of water (Ex EV7, para 67). Three or four samples were sent to Seven Hills to be tested (Ex EV7, para 68). In respect of petrol, whether leaded or unleaded, Mr Lucas said this: (Ex EV7, para 69) "69. I am not aware that Fletcher ever gave me a blended product to test. If he did, I would not have been aware that it was blended. This is because the lab at the Seven Hills plant did not have a gas chromatograph between 1994 and 1996. A gas chromatograph is necessary to determine the constituents of a blended petroleum product. The only equipment we had was distillation equipment (to tell us the boiling range), a flashpoint tester, a Karl Fischer water titrater (to tell us water content) and a rudimentary test to determine the cold filter plugging point of our heating oil (the temperature at which the wax within the heating oil will begin [to] solidify and block fuel filters)." 438 Professor Batts gave evidence as to the rudimentary nature of the laboratory at the Seven Hills plant at that time. He said this: (Ex EV11, p7(3.1)) "I was shown the laboratory, the tanks for receiving feed-stock, the pot still and associated boilers, clay bleaching area, filters and storage tanks for finished product. The laboratory was rudimentary. I recall seeing boiling point and flash point apparatus but little else. Over the next couple of years I re-visited the site to discuss the purchase of suitable laboratory equipment, particularly a gas chromatograph. There was no gas chromatography instrument at the time of my first visit." 439 Mr Pullinger, responding to Mr Bartlett's first affidavit (paras 90 and 91), provided the following somewhat contradictory commentary, referring in paragraph 90 to an alleged conversation about blending: (Ex EV6, p6(27)) " Para 90: I deny ever having such a conversation with Fletcher. There would be no point bringing a sample petrol blend to the Seven Hills plant, as we did not have the necessary equipment to obtain any meaningful results. Para 91: I recall Fletcher coming to Seven Hills with samples of Evenfont's product that had had some problems in the market place. Fletcher asked us to have a look at it to see what the story was. I recall this happening approximately 6 or 8 times between 1994 and 1996. I do not recall Fletcher ever coming with any other products. As far as I am aware, Bartlett never came to us with any product to test." 440 I accept that, at the relevant time, the laboratory was rudimentary. I therefore accept that the capacity of Mr Lucas to test samples provided by Camile Trading was limited. However, Mr Bartlett was not an expert observer. I think it likely that he did deliver samples and did witness Mr Lucas perform work in the laboratory. Mr Handcock provided the following evidence, which I accept: (Ex K1, p5(28)) "28. On occasions, Fletcher, the Second Defendant, gave me samples of diesel fuel and HO and instructed me to take these samples to Redline at Seven Hills and to give them to the female chemist that worked there. He said words to me to the following effect: 'Alan, I want you to take these diesel fuel and heating oil samples up to Redline for me and give them to the girl in the laboratory, or if she's not there give them to the yard foreman.' " 441 Evenfont also had a role in arranging more sophisticated tests with other laboratories. Mr Gibb said this, in a passage already quoted, recounting a conversation with Mr Fletcher in late 1995, or early 1996: (Ex AD p6(18)) "18. ... [He said:] 'I have some samples here, can you have these tested at Caltex?' I said: 'Yes we can. What sort of samples are they?' He said: 'These are blending materials that I am considering using. I need to know the octane rating. I am going to use these materials in blends of condensate from South Australia, mineral turps, White Shit and Unleaded Petrol.'" 442 The remaining aspects of Mr Bartlett's account were less reliable, and in some cases his recollection was wrong. He suggested, in the passage set out above, that at the initial meeting in 1992, Mr Pullinger said to Mr Fletcher, in his presence and that of Mr Lucas, that Evenfont could supply a low cost solvent for blending. Mr Pullinger produced a graph from the oil company, Exxon, to illustrate the different octane ratings. By this means he demonstrated how a cheap low octane product, such as white spirits, could be blended with a higher octane product such as toluene, to achieve an octane rating which was acceptable. In cross examination by Mr Horowitz of counsel, for Evenfont, Mr Bartlett said this: (T177/8) "HOROWITZ: Q. Now you gave evidence yesterday that Mr Fletcher produced a graph to you once which showed different octane ratings on it; do you remember that? A. Yes, that's right. Q. Was this a graph from an oil company, do you recall? A. I think it might have been. From memory it was a glossy type thing, so it would have been something that would have been related maybe from an oil company. Or somebody that produced it anyway. Q. I suggest to you that the graph you are referring to was an Exxon graph; do you recall that? A. No, as I said it was a graph. Q. Have you seen a lot of graphs [of] octane ratings in your years in the petroleum business? A. No, never. Q. That was the only one you'd ever seen? A. That was the only one I've ever seen. Q. That was shown to you by Mr Fletcher? A. Yes. Q. When was that? A. Way way early in the piece. It would have been way way early in the piece. Way way. Q. Where did he show it to you? A. In his office. Q. Was there anyone else in his office at the time - A. On his desk. Q. - who saw this graph as well? A. No only him and me there at the time, I would say. That I can recall anyway." 443 Mr Bartlett was then shown his second affidavit, where he had identified Mr Pullinger as producing the graph. The cross examination was in these terms: (T178) "Q. And if you could turn to paragraph 8, which is on the fourth page, at the top there it says: 'During this discussion Pullinger produced a graph. Written on it were the words Exxon graph.' It's not true that Mr Pullinger has ever shown you an Exxon graph is it? A. It would have been - Pullinger would have pulled out a graph I should imagine. I was shown the graph by Les Fletcher opened up, and explained about the different octane ratings of different fuels. Q. You just told us you were alone in the office at Camile? A. I said - Q. Mr Fletcher, and that he showed you the graph, and that you have never seen one anywhere else? A. Never seen. Q. Didn't you? A. I never seen anything before until this, Mr Fletcher showed me the graph in his office. Q. You're making up evidence against Mr Pullilnger to make him a defendant in this lawsuit, aren't you? A. I've got no reason to do that at all with Bob Pullinger. Not true." 444 On that aspect, Mr Bartlett's evidence was unsatisfactory and cannot be accepted. 445 Mr Bartlett's assertion that deliveries by Evenfont were not accompanied by appropriate documentation was also doubtful. There were many Evenfont invoices in evidence, although the source (whether Evenfont or Camile Trading) was not always clear. The arrangement Camile Trading had with Evenfont was unusual. Mr Bartlett, as the person in charge of the depot, would place orders with other suppliers, who would then have them delivered by carriers. However, the arrangement with Evenfont (apparently made by Mr Fletcher) by-passed Mr Bartlett. Evenfont would telephone the depot, indicating that it had their product to deliver (whether "green shit" or "white shit"). Mr Bartlett would then despatch drivers to attend the Seven Hills refinery (and later, Rutherford) to take delivery. Payment would occur between Mr Fletcher and Mr Pullinger at their weekly settlement meetings. Although I have doubts about Mr Bartlett's assertion that there were no documents from Evenfont, I do not see this aspect as bearing adversely upon his credibility. 446 The final matter in respect of Mr Bartlett's testimony, concerned the cash allegedly paid by Camile Trading to Mr Pullinger by Mr Fletcher and, on at least one occasion, by Mr Bartlett. Mr Pullinger denied that he or Evenfont were ever paid in cash. It was an important aspect. Cash is often the hallmark of an illegal operation. Mr Bartlett described the actions of Mr Fletcher as follows: (T104) "Q. Never even any discussion between you and Mr Fletcher about the way in which the supplies from Evenfont were paid for, is that right? A. Yes that's right. Q. No discussion between you at all? A. That's right. Q. Did you ever see Mr Fletcher coming back with wads of cash to throw in this ammunition tin? A. No but I saw Les Fletcher go away with wads of cash to throw in Bob Pullinger's hands. I saw him hand them to him when he came down and visit us from time to time; walked away with big parcels of money. So I saw that. Q. And how often did you see that during the period of - A. Very regular because being the amounts of fuel that were taken out, and Pullinger always wanting his money, and wanting his stuff out, it was regular. Q. You said very regular a minute ago, how frequent is very regular? A. Very regular. Pullinger would have come down at least once a month, and Fletcher was up there every few days. Q. But no discussion ever between you and Mr Fletcher about the amounts of cash that might be transferred between him and Mr Pullinger; never a word about? A. There was no need. Q. But weren't you a director of this company? A. (No answer). Q. Didn't you have an interest in it? A. Yeah I did. One of the things you do is put faith in the people who you are working with, and he done that deal, and that's the way it went, and that's what he did and I accepted that." 447 These observations, recounted more than a decade later, were not set out in those terms in either affidavit sworn by Mr Bartlett, and specifically the second affidavit which dealt with cash. Counsel later returned to this issue. Mr Bartlett gave a rather different account, suggesting that he was relying upon inference and assumption, rather than observation and his own actions. He said this: (T134) "Q. Just in relation to that issue, did I understand you to say yesterday, and correct me if I am wrong, that so far as payments of cash to Evenfont was concerned, that was something that you left to Mr Fletcher? A. Yes, he dealt with Pullinger more than what I ever did. Q. Well it was something that you left to Mr Fletcher, in Fletcher handled the cash transactions between Camile and Evenfont, is that right? A. Yes, that's right. Q. Not you? A. No. I at times I would have stacked it in some envelopes, or something like that. It was on rare occasions that that happened." 448 Mr Bartlett added: (T135) "Q. So I just want to clarify that. You say that was Mr Fletcher's deal. That is what you said? A. Well that's what he did. That was - that's my interpretation of it. It's his deal. He worked with him. All his - everything he did was with Pullinger. It was on rare occasions that I spoke to Pullinger anyway, other than on the telephone to do with ordering and things like that. Q. It was something Mr Mr Fletcher and Mr Pullinger had as a sort of secret between them, and you were more or less kept out of that; is that right? A. No it was no secret, it was just that those two did their operations between themselves." 449 Mr Bartlett was cross examined further about the terms of his affidavit (Ex A2, para 25) where he had suggested that he personally handed Mr Pullinger $100,000 on one occasion. Mr Bartlett retreated from that assertion, saying that he was with Mr Fletcher and saw cash left for Mr Pullinger (T136/7). 450 Again, on this aspect, Mr Bartlett's evidence was contradictory and less than satisfactory. The allegations against Mr Pullinger are plainly serious. Before they could be accepted, I would need to be satisfied at least to the standard suggested in Briginshaw v Briginshaw (1938) 60 CLR 336. On Mr Bartlett's evidence, standing alone, I could not be so satisfied. 451 Mr Hastings QC (for Customs) in his closing submissions, drew attention to certain records, which were invoices from Evenfont relating to the supply of heating oil. They were part of the weekly settlement process. He submitted that a comparison of the invoices presented in a particular period, and the cheque drawn in settlement, showed that a number of invoices were missing. The sequence of invoices and the cheque butt did appear to support that suggestion. The proper inference, on his argument, was that the missing invoices had been paid for in cash (T1102/1104). 452 This late submission prompted a further round of written submissions. On 14 August 2006, Mr Horowitz of counsel (for Evenfont) set out a number of reasons why the inference could not be drawn, or should not be drawn. Customs responded on 18 August 2006 with yet more submissions in support of their original suggestion. 453 The difficulty is that the material available in respect of this issue does not allow a complete audit of the invoices provided by Evenfont and the cheques drawn in payment. The inference is invited upon the basis of incomplete material. I do not feel comfortable in drawing it, even as a matter of probability. I agree with the submission made on behalf of Evenfont that, at the end of the day, there is no corroboration of this aspect of Mr Bartlett's evidence, and his evidence is unsatisfactory. 454 Was Mr Bartlett lying? If he were lying, that would obviously reflect adversely upon other aspects of his testimony. I am not able, however, to reach that view, partly because of another peripheral aspect of the evidence. It was an aspect that appeared to me odd. It also appeared to have great potential for the secret passing of money. I emphasise once more that I make no finding that there were cash payments. 455 One aspect of Evenfont's business, which I will shortly describe, was the collection and processing of waste oil. There was evidence that waste oil was collected and sold in significant quantities to Camile Trading. There were invoices raised in respect of each load. The product was described as waste oil. The charge was 7 cents per litre. Mr Pullinger said that the cost of collecting and delivering the waste oil to Camile Trading was 5 cents per litre. The waste oil was ultimately sold by Camile Trading (either with or without blending) as diesel, for approximately 65 cents a litre, providing a massive profit. Mr Pullinger gave the following evidence: (T794) "Q. It seems a generous price, seven cents a litre, to charge Camile? A. We had to get rid of it." 456 It was Mr Pullinger's expectation that the waste oil would be distributed by Camile Trading in its retail outlets for use in diesel engines (T798). Mr Pullinger asserted (and I will return to this issue) that the waste oil, being impure, was classified for excise purposes as a "waste oil" (Reg 176(2)) and was exempt from excise duty. Hence it could be sold very cheaply. When asked about that assertion in cross examination, Mr Pullinger responded as follows: (T797) "Q. Even though you considered it could have been used in a vehicle engine? A. Correct. Q. Did Customs know that? A. I can't remember if we - logic would say to me that it was a waste oil, so there was a waste oil and, therefore, outside of Customs' control. Q. It was called a waste oil? A. Yes. Q. But, it was still used in a vehicle's engine? A. Anything can be used in a diesel engine. As I say, you can pump sump oil into the diesel. Q. I am not talking about five minutes before the engine blows up, but capable of being used on a regular basis for the purposes of running an engine? A. That's correct." 457 Mr Fletcher was cross examined in respect of the purchase and use of the "waste oil" received from Evenfont. He said this: (T657) "Q. Let me give you a hint, on the invoice or delivery docket I have taken you to for 7 August 1996 the figures 64.9 appear. Would that remind you that you were able to buy a [product] for seven cents a litre and sell it for 64.9 cents a litre? A. You would have to go back to the suppliers to see how they treated it in their books." 458 The cross examination continued: (T657/8) "HASTINGS: Q. I am not asking you about their books I am asking you about the way you treated it in your books and here you are buying a product as waste oil for seven cents a litre and selling it at Forestville for 64.9 cents a litre as diesel fuel and you say it was excise paid, do you? A. I believe so. Q. How much? A. I don't know. Q. What rate of excise on any petroleum product would enable a supplier to pay the excise, produce the product and sell it at a profit and still charge you only seven cents a litre? A. I can only go on what's here." 459 The following was then put: (T659) "Q. You must have thought it was Christmas? A. Yes. Q. It was too good to be true. That doesn't happen in the real world, that you can buy an excise paid petroleum product for seven cents a litre and sell it for 65 cents a litre, that doesn't happen, does it? A. Yes." 460 The plaintiff did not submit there was a cash payment in the context of this product. I repeat that I draw no such inference. Nonetheless, I do not feel myself able comfortably to conclude that Mr Bartlett was deliberately lying. Indeed, I accept that Mr Bartlett believed that Mr Pullinger was paid cash, as were many other suppliers. I think it likely, nonetheless, that his belief was based upon assumption and inference, rather than observation or admission. 461 Let me move from Mr Bartlett's evidence to an explanation of the petroleum products manufactured by Evenfont and supplied to Camile Trading. It is this material, I believe, which holds the key to whether Evenfont was knowingly concerned in the manufacture by Camile Trading of excisable blended petroleum products outside the regime of Customs and without payment of excise duty. The real issue is whether Evenfont was supplying Camile Trading with a white petroleum product (whether a condensate or light ends) which it knew would be blended with leaded and unleaded petrol (and other ingredients) and which it also knew was not duty paid at the gasoline rate.

The Evenfont operation. 462 In 1992 Messrs Pullinger and Lucas (using the corporations Evenfont and Truegain) leased a refinery at Seven Hills. The refinery was old. It had been established in the 1950s. It originally had been the plant of Marefine, a company that recycled and blended lubricating oils. Marefine used the business name, Redline, which was painted on the street front side of the plant. Evenfont continued to use that name. The manufacturing licence it sought from Customs was held by Evenfont, which dealt with all products which were excisable. Where a product was not subject to excise (or so regarded by Evenfont), it was transferred to Truegain (by a book entry) and then sold in almost every case to Camile Trading. 463 There were three aspects to the Evenfont/Truegain operation: * First, it processed crude oil from south east Queensland; * Secondly, through Truegain, it collected and processed waste oils and petrol; * Thirdly, before May 1996, it processed waste slops purchased from Caltex Oil. 464 Each process yielded two products, namely: * the so-called "white shit", which was a white hydrocarbon described as a condensate or light ends. It was not a white spirit. * the other being "green shit", which was ultimately used by Camile Trading for blending with diesel. 465 It will be remembered that the plaintiff's case against the third and fourth defendants is not concerned with the blending of Evenfont products with diesel. It is therefore not concerned with "green shit". The case is concerned with the blending of leaded and unleaded petrol with "white shit". Mr Horowitz of counsel (for Evenfont) produced a diagram as an aid to his final submission, which was most helpful (Ex EV14), and which I reproduce (references omitted). 466 The case brought by the plaintiff against the third and fourth defendants concerns the blending or possible blending of "WS" or "white shit" at the top of the diagram. The crude oil operation 467 In 1994 the purchase and sale of crude oil was brought under Customs control. It had not previously been an excisable product. To trade in crude oil from 1 April 1994, a licence was required. Evenfont became a licence holder. It was obliged to meet certain criteria, as described by Mr Lucas: (Ex EV7, p6(26)) * "Had to have a boundary security fence, including locked gates

Had to nominate the storage tanks and process equipment that would be used to manufacture products from crude oil (known as the 'bonded area'). The bonded area was marked down on a floor plan and provided to customs as part of the licence application process * Had to have a method for measuring the finished products at the point of sale to determine the amounts that had to be entered for home consumption and upon which excise had to be paid * Had to post a security bond with customs."

468 Licence holders, such as Evenfont, were subjected to an audit each year by Customs. I will later refer to the findings of each audit. 469 The changes made by Evenfont in late 1995 to the processing of crude oil (switching from Topped Crude Oil to HO), have already been described (supra para [269 ff]). Evenfont was required to complete an Entry for Home Consumption (which included a statement of operations) in respect of anything that left the bonded area. Such forms were lodged with Customs each week, accompanied by payment of excise. Customs would then clear the product by issuing a receipt (Ex EV7, p6(27)). The product manufactured (the "green shit") (TCO or HO) was ultimately used by Camile Trading as a blend with diesel, as I have described. Excise was paid at the heating oil rate by Evenfont (approximately 6 cents per litre compared to the diesel rate of over 30 cents per litre).

470 The "white" residue which remained after the production of TCO/HO was, according to Mr Lucas and Mr Pullinger, used as feedstock to operate the boilers at the refinery. It was not sold to Camile Trading. It appeared on the Entry for Home Consumption as "waste to boiler" (cf Ex AG, p7). Mr Lucas said that there were two boilers, one with a capacity of 50,000 litres and the other one smaller. The two boilers consumed about 29,000 litres of fuel a week (T828). Since the plaintiff, as I will shortly describe, has suggested that the residue from the processing of crude oil (that is, the "white shit") may have been diverted to Camile Trading for blending with petrol, I should more fully describe the operation. Mr Lucas said this: (T829) "Q. You will see there is an entry in there of 32,920? A. Correct. Q. How is that amount calculated? A. The boiler feed tank had a particular criteria as far as design, diameter, height. We didn't have any measuring transmitters on any of our tanks, they were done by sight and we used to stock take on a daily basis and each one of those tanks, particularly this one, was measured as in height and the contents of the level of the liquid was calculated accordingly. Q. When you talk about this tank, this is the tank that is the boiler fuel tank, is it? A. That's the one that feeds the boilers. Q. You said that it was the condensate or the light ends of the top crude oil process that was used to fuel the boiler? A. Correct. Q. Was that stored immediately after being taken off the crude oil in the boiler fuel tank? A. It was in the process of manufacture. It was actually collected in a separator tank and then from that separator tank, once the water or most of the water had been removed, it was then pumped across to the boiler feed tank. Q. Why is there only one entry on the sheet you are looking at for waste to boiler? A. Because we would only do it in a transfer in a particular time when the boiler feed tank was low and it was easier then to measure the amount we transferred rather than having small amounts which added an inaccuracy to our stock." 471 No excise was payable on feedstock, since it was classed as a "waste oil" (Reg 176(1)(b) of the Excise Regulations), and none was paid.

472 The second product which yielded both "green shit" and "white shit" involved the processing by Truegain of waste petrol, diesel and oil. Mr Lucas described the sources of these waste products in these words: (Ex EV7, p8(37)) * "From service stations whose tanks had become contaminated with water or other petroleum products, or, in the case of diesel, a type of fungus. * From service stations and depots that were being decommissioned. For example, Truegain collected large volumes of waste petrol and waste diesel from the Caltex depot at Balmain as it was being decommissioned during the 1990's. * From waste stations and depots that were being decommissioned. For example, Truegain collected large volumes of waste petrol and waste diesel from the Caltex depot at Balmain as it was being decommissioned during the 1990's. * From waste lubricating oils from motor cars and diesel engines. These waste lubricating oils often contained petrol and diesel fuel which is generated by leakage from the combustion process (known as 'blowby'). * From waste oil from garages, car yards, mines and other industrial companies which carried out their own vehicle repairs. Such waste oil often contained petrol or diesel, as it is a common practice in repair workshops to wash a vehicle's engine pasrts in petrol or diesel. This petrol or diesel would then be dumped into waste oil tanks or drums." 473 The waste products were dewatered and filtered. In the case of waste oils, they would also be steam stripped in the reactor to a temperature of between 150º and 140º C. The waste petrols derived from this processing were described as "low grade", with some only of the fractions ordinarily found in pure petrol. Their use in car engines required blending with other products, to increase the octane rating (Lucas: Ex EV7, p9(41)). 474 Messrs Pullinger and Lucas said these products were sold as waste oil to Camile Trading, the "green shit" being, fundamentally, a contaminated diesel, and the "white shit" being separated and processed petrol fractions within the waste product. According to the third and fourth defendants, the products derived from waste petrol, diesel and oil were not subject to Customs control and not subject to excise. Mr Lucas said this: (Ex EV7, p10(44)) "44. Truegain did not pay any excise on the waste petrols and diesels that it recycled during the period April 1994 to November 1996. This was because waste petrols and diesels have already had excise paid on them (at the time they were entered into home consumption at their refinery of origin), and are therefore not under customs control. Such products did not need to be accounted for on Nature 40 forms." 475 I will shortly deal with the 1996 audit of Evenfont conducted by Customs (in May 1997). The audit papers included a description of Evenfont's operation, including the waste oil operation. It is plain from that description that Customs accepted that the recycling and reprocessing of waste oils and petrol was a non excisable activity. The description in the audit papers included these words: (Ex EV2, fol 51) "There are some non excise related activities at Seven Hills. These being blending and then marketing of lube oils. This operation takes place under the trading name of Redline Lubricants. The other operation is the collection and processing waste oils. Examples of these oils are; used sump oils, transmission oils and transformer oils. This operation is conducted by Australian Waste Oil Refineries a division of Truegain Pty Ltd." 476 The suggestion was that excise had already been fully paid at the gasoline rate (on petrol fractions recovered), or the diesel rate (on diesel fractions retrieved). The plaintiff, in submissions, did not suggest that the use of Evenfont/Truegain products derived from the waste oil/petrol recovery operation gave rise to evasion by Camile Trading (and complicity by Evenfont and Mr Pullinger).

The treatment of waste slops. 477 Caltex has two pipelines, one from Kernell to Banksmeadow and the other from Kernell to Newcastle. Waste slops are a by-product of the transfer of fuels by means of these pipelines. Mr Lucas explained the process in these words: (Ex EV7, p7(32)) "32. ... Caltex would send one petroleum product down the line pushed by a slug of water. The point where the water comes into contact with the petroleum product is called the 'interface'. Mixing of the water and petroleum product occurs at the interface. The interface would be removed at the other end of the line and sent to a slops tank. Another petroleum product would then be sent down the line with another slug of water. The interface for that transfer would then be placed in the same slops tank. Evenfont would pick up the slops once the tanks were full. The slops we picked up always contained a mixture of water, leaded and unleaded petrol, kerosene, heating oil and diesel." 478 Before May 1996, Evenfont purchased waste slops from Caltex. Caltex had not paid excise. The petroleum product which Evenfont was able to derive from the processing of waste slops was therefore subject to excise. The product was whitish in colour and termed "motor spirit" (MS). Evenfont completed an entry for home consumption in respect of its production, paying excise at the full gasoline rate (Lucas: Ex EV7, p7(33)). Mr Lucas said this: (Ex EV7, p8(35)) "35. The motor spirit was a low-grade petrol. The process of removing the motor spirit from the other contaminated material rendered it low grade because the distillation range was not complete. Motor spirit normally has a distillation range starting at 50-70 degrees Celsius and ending at 180-220 degrees Celsius. Evenfont's steam stripping process only removed motor spirit up to a temperature of 135-140 degrees Celsiuis. As a result, the motor spirit was missing most of the heavier ends and would have a lower octane rating. To use this material in a car engine, it is necessary to increase the octane rating by adding enhancers such as ethanol." 479 During the trial, the plaintiff paid some attention to the residue of this process, termed "waste oil slops". This was the "green shit" sold to Camile Trading through Truegain (cf Ex EV14) (supra para [465]). It was regarded by Evenfont (and later Truegain) as a "waste product" because it was contaminated. The plaintiff criticised that characterisation, asserting that it was not a "waste oil" under the regulations. It was sold by Camile Trading and used by it as diesel or a blend with diesel, as Evenfont well knew. 480 Before dealing with the submissions made by the parties, I should describe the audits of Evenfont undertaken by Customs each year after 1994. Evenfont relied upon this material as confirmation of the accuracy of the description provided by Mr Lucas and Mr Pullinger of Evenfont's and Truegain's operations.

The audit evidence. 481 The first audit was conducted in 1994, soon after Evenfont obtained its licence. Those conducting the audit were told by their superiors to approach their task with the following frame of mind: (Ex EV4, p1) "I re-iterate, as discussed this morning, that my main concerns in terms of the audit are that you view the licensees records of receipts and production with healthy scepticism, given the information surrounding Redline Lubricants and their past history, and that you thoroughly check out all sales with the supposed purchasers of the topped crude oil." 482 It was a systems based audit, designed to identify deficiencies in the record keeping of Evenfont and detect "excise leakage". It was conducted at the plant by officers who viewed the operation (cf Coombes T399). It was described by Chief Inspector Glasson, in a letter that followed (dated 31.10.94), as an "in-depth examination of your installation operations" (Ex EV4, p11). The outcome was satisfactory. No duty had been evaded. Three minor recommendations were made and were quickly acted upon by Evenfont (Ex EV4, p13). 483 On 2 December 1994, Evenfont wrote to Customs foreshadowing a change in its operations. It intended to treat waste slops purchased from Caltex (Ex EV3). It undertook to preserve all documentation and keep a statement of operations. 484 By 1995 Evenfont, perhaps because of its association with Camile Trading, was clearly under close scrutiny by Customs. Mr Gerard Coombes, a Senior Inspector Petroleum Operations, was assigned to the audit team. The audit papers were tendered. Mr Coombes gave evidence. He described the audit as "an in-depth examination". Evenfont was required, as part of its record keeping, to complete a statement of operations each week. The statements were closely examined and cross checked with receipts, deliveries and payments. Because Evenfont was a small refinery, the decision was taken to examine all documents rather than simply a sample (Ex EV1, p31 ff). 485 The audit papers noted the suspicious sequence, suggestive of excise evasion, which has already been the subject of comment (supra para [269 ff]) in respect of the switch from the production of topped crude oil to heating oil. A Minute of 3 April 1996 included the following: (Ex EV1, p43) "Evenfont P/L were the licensed manufacturers of topped crude, paid the appropriate Excise for that product and sold to a number of distributors. It is believed that some of these distributors sold quantities of the product as a road fuel. As a result the rate of Excise on topped crude was raised to that of diesel (item 11G2b 23) unless certain conditions laid down in the tariff were met. Within a few weeks of the raising of the Excise on topped crude to that of diesel Evenfont P/L began to produce heating oil. Officer Ferian and I took a sample of this heating oil, on Thursday 22 February 1996 ... " 486 The sample was tested. The audit team received the result, which was included in the papers, and which was as follows: (Ex EV1, p40) "The sample failed to meet either the heating oil or diesel specifications. Additionally the sample was brown in colour which is unacceptable for either heating oil or diesel." 487 However, notwithstanding these results, it was recognised that there was no standard for heating oil and that the product, for classification purposes, was probably a heating oil such that no duty had been evaded. The Customs Minute, responding to the test results, was in these terms: (Ex EV1, p41A) "There is no standard for heating oil that we can find as the ASTM standards group it under fuel oils. To classify this product under the Customs Tariff I believe, from the information supplied by the limited test carried out by Ampol, it would be ruled out as fuel oil 2710.00.30 36 but possibly fit as heating oil 2710.00.30 27 and therefore would be the same under the Excise Tariff. As Evenfont P/L are moving to new premises at Maitland where they are to use new processes I don't believe the cost of further Tests at this stage are worthwhile. This move is to be within 4 weeks they are slowing production and about to transferring (sic) their licence We will test their new product as soon as possible." 488 Again the audit did not reveal the evasion of duty by Evenfont, or other significant issues. 489 With six months of that memorandum, on 26 November 1996 Customs officers searched the premises of Camile Trading and seized documents. At the same time, Customs searched Evenfont, also seizing documents. Evenfont had, shortly beforehand, established its Rutherford plant in August 1996. It sought the transfer of its manufacturing licence from Seven Hills to Rutherford. On 17 December 1996, Mr Coombes recommended that transfer, subject to the following checks, which he intended to conduct: (Ex EV13) "... The existing Receipt, Storage and Production records will be maintained at Seven Hills during this change over period and a new set of records in the same approved format, will be utilised at the new site. At the completion of the transfer period this (sic) I intend to undertake a complete audit of the records of both sites to ensure accountability has been met." 490 Before the 1996 audit (conducted in May 1997), Mr Coombes conferred with Mr O'Malley, the Chief Investigator from Customs in charge of the investigation of Camile Trading and Evenfont. The audit plan identified the gathering of information to assist the investigation as one of its objectives (Ex EV1, fol 51). The audit papers include a description of Evenfont's operation. The description coincided with that given by Messrs Pullinger and Lucas in these proceedings. Two products were produced which were excisable, namely, the processing of crude oil to produce HO, or heating oil, and the processing of waste slops to produce motor spirits (Ex EV2, fol 52). 491 The audit examined both the Seven Hills operation, which closed on 31 January 1997, and made an initial assessment of Rutherford. The audit papers reveal the type of checks or tests that were undertaken. They included: * a comparison between the weekly crude oil receipts and storage and transfer losses to production (fol 54); * a comparison between storage losses against stock (fol 56); * a comparison of weekly losses against production (fol 59); * a comparison of monthly excise payments against monthly invoice sales (fol 62); * a check to ensure the Statements of Operations correctly reported quantities for the relevant periods (fol 65); * a check to ensure that all crude oil receipts were accounted for (fol 57). 492 There were many other checks undertaken, including a check upon the equipment and its accuracy, a check to ensure that all deliveries were accounted for, and so on. Again, the entire operation was examined (rather than sampling), because it was a reasonably small operation and because of the interest of Customs in the company. 493 On 8 May 1997, Customs wrote to Evenfont reporting the outcome. The letter said this: (Ex EV2, fol 69) "Comparisons made between Crude Oil storage and production against the respective loss or gains did not give any conclusive results or trends. This may be attributed to many factors including calibration of the measurement equipment, smaller product batches and differing operator assessments. However, when the losses/gains are converted to a percentage of the base figure averaged over the audit period, the result is within an acceptable range." 494 There were minor problems, which were identified. No duty had been evaded. Indeed, an error had been made resulting in the overpayment of duty in a small amount ($6,000) (Ex EV2, fol 70). The result, overall, was stated in these terms: (Ex EV2, fol 70) "Overall, the outcome of the audit was pleasing and the results were within an acceptable range." 495 Customs, however, did not lose interest in Evenfont. In May 1997 it identified the scope of a more thorough audit of Rutherford to be undertaken that year. Again the audit again involved a one hundred percent check, rather than sampling (Ex EV12, p19). The audit was described by those who conducted it in these terms: (Ex EV12, p20) "This was the initial audit for the Rutherford plant, and Investigations have a very keen interest in the company. Therefore, the audit itself was conducted in a thorough and patient manner." 496 The auditors made reference to a change in legislation which would effect the waste oil recycling operation of Truegain. They said this: (Ex EV12, p20) "At present, not all of the operations at Rutherford are considered excisable. However, it is the intention of the ACS, as part of the Fuel Substitution Minimisation Scheme to broaden the ACS's scope of control. Evenfont would be effected by this at Rutherford. Their waste oil recycling plant would then come under the control of the ACS." 497 In the letter to the company which followed, Customs stated that it was satisfied from its "observations that all excisable production from the plant had been excise paid as appropriate" (Ex EV12, p22). It added: "Overall, the results of the audit are pleasing and the trend analysis indicates that there is a gradual improvement in the efficiency of the plant." 498 When Mr Coobes gave evidence, he affirmed these findings. He nonetheless acknowledged that the audit was not in a position to verify the description given by Evenfont of the product carried to, or taken from, the premises (T424).

Preliminary submission by Evenfont. 499 Counsel for Evenfont drew attention to what he claimed was "a fatal defect" in the plaintiff's claim. The case made by the plaintiff against the third and fourth defendants was unambiguously a case that Evenfont (with the complicity of Mr Pullinger) supplied white spirits to Camile Trading knowing that it was to be blended with petrol (whether leaded or unleaded). The Further Amended Statement of Claim was in these terms: " 685. During each of the 9 periods previously pleaded herein and set forth hereunder (hereinafter referred to as 'the relevant periods'), the Third Defendant supplied white spirits to the First Defendant ... PARTICULARS The supplies of white spirits by the Third Defendant to the First Defendant for each of the 9 relevant periods are: (a) with respect to the blending of unleaded petrol, as pleaded in paragraphs 201(d) and 202(c) ... (b) with respect to the blending of leaded petrol, as pleaded in paragraphs 445(d) and 446(c) ... 686. The Third Defendant supplied such white spirits to the First Defendant knowing, at all material times, that they would be used by the First and Second Defendants by mixing them with unleaded and leaded petrol as pleaded in paragraphs 683 and 684 hereof." 500 The paragraphs incorporated by reference, identified in the particulars, defined the case against the first and second defendants. They did so rather more broadly. They were as follows: " 201. In the said period the First Defendant purchased quantities of White Hydrocarbons, being a petroleum product known as 'White Spirit'. PARTICULARS (d) the First Defendant purchased White Spirit from the Third Defendant that was known to the First, Second and Third Defendant, as 'White Spirit'. 202. In the said period the White Spirit was delivered to the First Defendant's premises. PARTICULARS (c) the White Spirit purchased from the Third Defendant was collected from the Third Defendant's premises and delivered to the First Defendant's premises by servants, agents or employees of the First Defendant." 501 Two things should be noted: first, the inverted commas around the words "white spirits" (in para 201) and, secondly, the uncertainly as to who was said to know the product as "white spirits". 502 Particulars were sought and supplied in these terms: "2. The white spirits referred to in the Statement of Claim are a product known by that name which has a widespread use in our economy. 'White spirits' is a term commonly used in both the petroleum industry and the domestic market to describe a petroleum product that consists of White Hydrocarbons. It is produced in the process of distilling crude oil and it has a number of general uses, one of which is as a cleaning fluid. It is not suitable for use in diesel and petrol engines as a power source for those engines. At present, the Plaintiff is unable to provide you with information as to the chemical composition of white spirits other than as stated. This information will be sought and advised to you, although this will not be possible until after 16 July 2000 when the expert engaged by the Plaintiff has returned from overseas." 503 Mr Horowitz (for Evenfont) then sought to address the plaintiff's arguments. It was not entirely clear from written submissions made on behalf of the plaintiff on 28 June 2006 what was said to be the white hydrocarbon supplied by Evenfont to Camile Trading (with the complicity of Mr Pullinger), knowing that it was to be blended with petrol. Counsel, I think accurately, identified two possibilities from the plaintiff's written submissions, namely, the condensate or light ends which were the by-product of processing crude oil (cf plaintiff's written submissions para 3.4.10), and the white condensate which Evenfont described as motor spirits produced from the processing of Caltex waste slops (cf para 4.2.6 plaintiff's submissions). 504 Counsel for the third and fourth defendants, pointing to the terms of the pleading against Evenfont and Mr Pullinger, said this: "9. The Plaintiff's case against the Third Defendant must fail for the simple reason that neither the 'condensate' produced from the distillation of crude oil, nor the 'residue' remaining from the distillation of waste slops, falls within the definition of 'white spirits'." 505 There was no need, in Mr Horowitz's submission, to go further and to examine the merits. It was common ground that Evenfont could not manufacture white spirits and did not supply white spirits to Camile Trading. Whatever may be the position in respect of the first and second defendants (where the pleading was arguably much wider), the case which Evenfont and Mr Pullinger had to meet, and the only case according to Mr Horowitz, involved the supply of white spirits, nothing else. 506 The issue arose at the end of the trial, during the course of addresses. The question of amendment was then debated. The debate included Camile Trading since, arguably, the same point was available to them. Under s138 of the Excise Act 1905, there was a five year limitation. Attention was drawn to a number of authorities, including the following passage from Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279, where the following was said: (at 286/87) "The function of pleadings is to state with sufficient clarity the case that must be met: Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In Liquidation) (1916) 22 CLR 490 at p517, per Isaacs and Rich JJ. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. See, eg, Browne v Dunn (1893) 6 R, at p76; Mount Oxide Mines , at pp 517-518." 507 The plaintiff, responding to these submissions, asserted that there was no need to amend the Statement of Claim. Its case was, and always had been, that the petroleum product which those at Camile Trading referred to as "white shit" had been supplied by Evenfont with the complicity of Mr Pullinger, knowing that it would be blended with leaded and unleaded petrol. That product was known to Mr Bartlett as "white spirits", even though in truth it was a condensate or light ends, terms which Mr Bartlett also employed. 508 If, contrary to that submission, amendment were thought necessary, it was submitted by Customs that it should be permitted. Attention was drawn to s140 of the Excise Act which was in these terms: " No objections for informality 140 No objection shall be taken or allowed to any information, summons or other originating process for any alleged defect therein in substance or in form or for any variance between such information, summons or other originating process and the evidence adduced at the hearing in support thereof, and the Court shall at all times make any amendment necessary to determine the real question in dispute or which may appear desirable." 509 Mr Hastings QC (for Customs) drew attention to the differences between that provision and what he termed "the conventional provision" such as s15C Crimes Act 1914 (Cth). The difference, he suggested, could be explained by the peculiar nature of a Customs prosecution. It was motivated by the same policy considerations as averments (Baxter v Ah Way (1909) 10 CLR 212 at 216; Chief Executive Officer of Customs v El Hajje (2005) 218 ALR 457). There are obvious difficulties in the prosecution of those who conduct their operations in secret. Customs is obliged to reconstruct, as best it could, what occurred (T1094/5). 510 Mr Byrne SC (for the first and second defendants) and Mr Horowitz (for the third and fourth defendants) opposed any amendment. They asserted that it was statute barred. They had, in any event, been irrevocably prejudiced. The case had been conducted on the pleadings. Witnesses had not been examined or called in respect of some other case which Customs may now wish to bring. 511 Because a considered view of the issue would have been likely to have delayed the trial, I made a number of rulings (T1073/1081). The effect of the rulings was to allow the amendment, subject to the limitation argument. The opportunity to recall witnesses was given to each party, as well as calling additional evidence, if they chose. In the event, none of the defendants asked that any witness be recalled. Nor did they seek to call any additional evidence. 512 Having reflected upon the issue, I believe the amendment was unnecessary in the case against the first and second defendants. The pleading was sufficiently broad to comprehend the case which the plaintiff sought to make (involving a white hydrocarbon which was a condensate or light ends). Although the case against the third and fourth defendants was more tightly pleaded, the paragraphs identified came at the end of a very long Statement of Claim. The draftsman, it may be thought, was using shorthand to some degree, as he or she had throughout the Statement of Claim (as in paras 201 and 202 (supra para [500]), where shorthand (white spirits) was used in para 202, rather than repeating the long winded preamble in para 201). Although paragraphs 685 and 686 used the term "white spirits" without qualification, the Particulars add the qualification. They refer back to the case against the first and second defendants and the broader terminology there employed. None of the defendants was, I believe, in any doubt as to the case he or it was obliged to meet, namely, the use by Camile Trading of the "white shit" which Evenfont supplied. Indeed, it will be noticed that the defence filed on behalf of the third defendant included the following paragraph: "14. The Defendant denies that it sold to the First Defendant or that the First Defendant purchased from it or that the First Defendant's servants, agents or employees collected from the Defendant any white spirit or white hydro-carbons as averred and alleged or that it sold or provided to the First Defendant directly or indirectly any white spirits or white hydro-carbons which were allegedly mixed or combined by the First Defendant as averred. The Defendant does not know and cannot admit the truth of the other allegations and averments contained in paragraphs 198 to 675 inclusive." (emphasis added) 513 No amendment is necessary in the plaintiff's case against the third and fourth defendants. There is no fatal defect in the pleading. 514 There is therefore a need to consider the merits of the plaintiff's case against the third and fourth defendants.

The submissions of the plaintiff. 515 It will be remembered that Evenfont produced, on the one hand, "white shit" and, on the other, "green shit". It did so processing three distinct products, as depicted diagrammatically in Exhibit EV14 (supra para [465]). The three products were: * crude oil; * waste petrol and waste oil; * Caltex waste slops. 516 What then, according to the plaintiff, was the source of the "white shit" supplied by Evenfont (or Truegain) to Camile Trading, which made Evenfont and Mr Pullinger knowingly concerned in the illegal blending operations of Camile Trading? To give rise to complicity, the "white shit" must be excise unpaid at the gasoline rate and not exempt under the Excise Regulations. If it were excise paid (at the gasoline rate) or exempt, its use in a blend would not give rise to an excisable blended petroleum product (cf s77G and s77J Excise Act; supra paras [42] to [44]). 517 The plaintiff, in helpful written submissions, identified the separate operations which Evenfont conducted, in these words: "4.2.3 However, the third and fourth defendants have adduced evidence: (a) that the third defendant manufactured a petroleum product by distillation (heating of crude oil and condensation of vapours therefrom) in the form of heating oil which it sold almost exclusively to the first defendant under the names CO, TCO and HO. This product cannot be regarded as diesel fuel (Professor Batts' affidavit at paragraph 6.2.5); (b) that it also manufactured a petroleum product condensate by distillation which it sold to the first defendant by the name of 'MS'. The evidence describes this product as a 'low grade petrol'. This product was manufactured by heating and distillation (of adulterated petrol and diesel obtained from Caltex) and left a 'residue' after the 'MS' had been removed by distillation. This product cannot be described as petrol (Professor Batts at paragraph 6.2.5); (c) that it sold, through the agency of an associated company known as Truegain Pty Ltd, the residual product of its distillation processes to the first defendant, being a product described as waste oil and known by the name 'WO'; (d) that its distillation of crude oil produced a condensate of hydrocarbon compounds which boiled at below 140 degrees Celsius. The yield of condensate (condensed vapours) from the crude oil input was approximately 10% to 11.5% of the volume of the crude oil (Lucas transcript p 843, 844). It was said that all of this condensate was used by the third defendant to fuel its heating and distillation activities." 518 In truth, again as helpfully depicted in Mr Horowitz's diagram, Exhibit EV14 (supra para [465]) paragraphs (a) and (d) in this description were both aspects of the one operation, that is the processing of crude oil. Two products emerged from that process. One was the heating oil (the "green shit") (which was then blended with diesel by Camile Trading) and a white condensate, WS (the "white shit"), which Mr Lucas (and Mr Pullinger) said was not sold, but used by Evenfont as boiler feedstock. 519 The plaintiff identified its case as involving the supply to Camile Trading of products (b) and (d) above. It said this: "4.2.6 John Bartlett deposed to deliveries of white spirit to the first defendant's depot, from several sources, which were mixed with ULP and LP at the depot. Part of these deliveries, he said, but not all, came from the third defendant. The abovementioned 'condensate' and 'residue' (paragraphs 6.3(b) and (d) above) (sic, renumbered 4.2.3 (b) and (d)) is the source, the plaintiff alleges, of the white spirit obtained by the first defendant from the third defendant that Bartlett deposes to. Bartlett, in evidence, described this product as 'white shit', 'light ends' and 'condensate'. It is beyond doubt that the third defendant's manufacturing processes brought quantities of this condensate and residue into being; it was an inevitable outcome of the heating process." (emphasis added) 520 The plaintiff later alluded to a "third product" (para 4.2.12). However, I believe that there was no basis for that suggestion. The Evenfont operation was repeatedly examined by Customs in yearly audits, which have been described. The operation, as described in the audit papers, does not suggest a "third product". 521 So the Evenfont operations which need to be more closely examined concern the following: * First, the motor spirits (paragraph (b) in the plaintiff's description); * Secondly, the white residue or condensate produced from the crude oil distillation (paragraph (d) in the plaintiff's description). 522 In respect of those operations, the plaintiff posed the following questions: "4.2.7 The questions, therefore, are whether the Court can accept the evidence adduced for the defendants: (a) that none of this 'condensate' (from the distillation of crude oil) was sold or delivered to the first defendant and that it was all used as fuel for their own boilers and (b) that all the said 'residue' (from the distillation of adulterated fuels from Caltex) was in fact residue, rather than condensate, and was waste oil which was used as boiler fuel." 523 The first question raises an issue in respect of the condensate, which is the by-product of crude oil (paragraph (d) in the plaintiff's description above). The second is a reference to motor spirits (paragraph (b) above). 524 The questions, as framed, require amendment. The plaintiff's case on complicity against Evenfont and Mr Pullinger requires that they prove that Evenfont (or Truegain) supplied Camile Trading with a white condensate upon which excise had not been paid at the full gasoline rate, which the company and Mr Pullinger knew would be blended by Camile Trading (not having a licence, or having submitted to Customs control and without the payment of duty). So the issue concerning the nature of the product supplied by Evenfont to Camile Trading concerns an element of the offence. It must be proved beyond reasonable doubt. It is not simply a question of whether the Court can accept the defendants' evidence, as though determining which version was more likely (Mr Lucas or Mr Bartlett). The question is whether there is a reasonable possibility that the description by Messrs Lucas and Pullinger of the Evenfont operation is accurate. 525 What was said to be reprehensible about the supply of these products, giving rise to complicity on the part of Evenfont and Mr Pullinger? The plaintiff appeared to rely upon two arguments. The first concerned an aspect of the cross examination of Messrs Pullinger and Lucas. It was suggested, upon the basis of certain answers provided, that Mr Lucas' evidence should be rejected as unreliable, in which case one would be left with Mr Bartlett's assertion that Evenfont supplied "white shit" which was, by inference, a cheap white condensate where excise had not been paid at the gasoline rate. 526 The second basis involved the construction of the Excise Regulations. The plaintiff appeared to suggest that blending motor spirits with ethanol and petrol (leaded or unleaded) necessarily involved offences where Evenfont and Mr Pullinger knew of the proposed blending and were therefore guilty of complicity. 527 I will now examine each suggestion.

The description "Waste to Boiler". 528 I have described the process undertaken by Evenfont in dealing with waste slops (supra paras [477 ff]). The process involved the separation and treatment by Evenfont of petrol fractions to create a white product, termed motor spirits. That product was subject to excise at the gasoline rate, which was paid. There was also a green residue (representing diesel fractions) which Evenfont regarded as a waste product. No duty was paid. The attack upon Mr Lucas (and Mr Pullinger) concerned that "waste product". So the argument was concerned with an aspect of Evenfont's operation which did not, as such, involve the supply of "white shit" (to be later blended with petrol). Rather, the practices employed by Evenfont in the context of "green shit" were put forward by the plaintiff as a basis for inference in respect of "white shit". 529 It will be remembered that "waste oil" was defined under Reg 176(1) in these terms: " Exempt blended petroleum products 176(1) In this regulation, 'waste oil' means a petroleum product that, because of use or degradation from storage, is no longer useable by itself without reprocessing: (a) for any purpose; or (b) for any purpose except as burner fuel; ..." 530 Here the residue, after processing the waste oil slops, was capable of being used in a diesel engine. Mr Pullinger said this: (T798) "Q. Do I take it that it would not come as a surprise to you that Mr Fletcher was able to distribute it to his Forestville service station and sell it as diesel fuel? A. If that is what he did, I don't know. Q. But, it wouldn't surprise you that he was capable of doing that? A. No. Q. Was that your expectation, that when Truegain supplied waste oil bulk, that Mr Fletcher would distribute it through retail outlets for sale as diesel fuel? A. Yes." 531 Mr Lucas gave much the same evidence. He said this: (T840) "Q. How, if it is a waste product, could it be directly used in motor vehicle engines? A. It was a mixture of three products that were very - quite easily used in internal combustion engines. Q. Therefore, why was it waste? A. Because it was a mixture of three products, unfit for their original use." 532 Mr Lucas added: (T840) "Q. If it could be used in a diesel engine, how could it be unfit? A. That is the terminology that waste oil fits under. Q. I am sure, but could you answer my question. If the product could be used in a diesel engine, how could it be unfit? A. I can't answer that." 533 Mr Pullinger acknowledged that he was not sure that Customs knew the residue could be used in a diesel engine and that that was the intention (T797). Mr Pullinger added in cross examination: (T797) "Q. It was called a waste oil? A. Yes. Q. But, it was still used in a vehicle's engine? A. Anything can be used in a diesel engine. As I say, you can pump sump oil into the diesel. Q. I am not talking about five minutes before the engine blows up, but capable of being used on a regular basis for the purposes of running an engine? A. That's correct. Q. As far as you were concerned, this waste oil slops was capable of doing just that? A. Correct. Q. Even though you had apparently represented to Customs that it was waste oil? A. Sorry, I didn't represent to Customs, I told them exactly what it was and the decision was made, as it was a mixture of three different products, it was classed as waste oil." 534 Although the "green shit", the residue after extracting the motor spirits from waste slops, was clearly an impure product which only partially resembled diesel, the definition of "waste oil" is not framed in terms of purity. It is a definition framed in terms of utility. Here the residue could not be described as "no longer usable without reprocessing for any purpose or any purpose other than as a boiler fuel". It could be used (with or without blending) as diesel to the knowledge of Evenfont and was so used by Camile Trading. 535 The suggestion that Customs may have been mislead as to the true nature of the residue was, according to the plaintiff, underlined by a further aspect. Messrs Pullinger and Lucas were cross examined upon the declaration that they had each made to Customs when completing the Entries for Home Consumption. Mr Pullinger, who gave evidence first, was shown a number of such entries that he had signed. Attached to each entry was a signed statement of operations which was divided into two sections, one headed "Product in Process" and the other "Excisable Product". The section "Product in Process" was, in turn, divided into various columns designed to show in litres what had been produced. One of the columns subtracted from the total was headed "Waste to Boiler", thereby reducing the amount of excisable product. 536 It was apparent during Mr Pullinger's cross examination that the amounts entered in the "Waste to Boiler" column, when processing Caltex waste slops, were very high. They were much higher than would have been used as boiler feedstock, as Mr Pullinger acknowledged. Mr Pullinger said, however, that Mr Lucas was in charge of production. He was the appropriate person to deal with such issues. 537 Mr Lucas then gave evidence. He sought to answer in chief the insinuation that had been made that Customs had been deliberately mislead by describing saleable fuel not destined for the boiler as "Waste to Boiler". Mr Lucas said that when they began processing Caltex waste slops, he used the same form which had already been used in processing crude oil. That form had a column "Waste to Boiler". The residue, after processing motor spirits, was entered in that column. He then said this: (T830) "Q. Was any of the product that is listed in that column used in the boiler itself? A. No. Q. Why was it entered into that column if, in fact, the product wasn't used in the boiler? A. Well, the sheet was a copy of the TCO heating oil sheet and it was probably incorrectly categorised as waste to boiler, it should have been categorised differently. Q. Why didn't you change the form in this respect? A. It was basically because it was a product that didn't come under excise control anyway. Q. What do you mean by that? A. Well, it was a waste product, therefore, did not have excise, was not under the excise regime." 538 When the operation was transferred to Rutherford, the form was changed to identify accurately the waste product which was used as feedstock in the boilers and "waste product" later on-sold. The change was made in the week ending 25 November 1996. Another column was added to the standard form, "Boiler Residue Consumed" (T835; Ex AH). The change was made, according to Mr Lucas, because Rutherford had a continuous process of distillation. It was necessary to adjust the form to reflect accurately that process (T836). The change, as it happened, coincided with the Customs raid upon Camile Trading and Evenfont (26 November 1996). Mr Lucas insisted, nonetheless, that the change had been in contemplation for a number of months. 539 This evidence, as I have said, relates to the "waste" residue of the processing of waste slops, which was one source of the "green shit" used as diesel (with or without blending) (cf Ex EV14). I emphasise again that the plaintiff's claim against Evenfont and Mr Pullinger is not concerned with diesel or the supply of "green shit" or its use in blending. What, then, is the relevance of this material? As I understand the plaintiff's submissions, the exploration of this issue was primarily directed towards the credit of Mr Lucas and the reliability of the statements of operation forms completed by Evenfont in the context of the white condensate, which was a by-product of the processing of crude oil (supra para [465]). In the statements of operation dealing with the production of crude oil, Evenfont asserted that the "white shit" (WS) was used as boiler feedstock (supra para [470]). Customs, in its submissions, questioned the accuracy of that assertion. The proper inference, according to Customs, was that the by-product of the processing of crude oil, which Mr Gibb described as "a condensate" or "light ends", had been diverted to Camile Trading for use with petrol and other products in a blend. Because the residue had been represented as boiler feedstock, no excise had been paid. 540 Such a submission appears to me to draw a long bow. I am not persuaded. Evenfont, at its refinery at Seven Hills, had two boilers, one larger than the other. They required fuel. There was no evidence of any other source of fuel other than that provided by Evenfont, namely the residue after processing crude oil. The evidence was that the boiler consumed about 29,000 litres of fuel a week. There was no evidence that that figure was inaccurate or exaggerated. 541 Accordingly, the condensate (the "white shit") which was the by-product of the processing of Queensland crude oil can be put to one side. I accept, as a matter of probability (and certainly as a reasonable possibility), that it was used as fuel for the boilers at the plant. As such, it was waste oil and exempt from duty (Reg 176(1)(b) Excise Regulations). I do not believe that it was diverted to Camile Trading. It was not a source of the "white shit" delivered to Camile Trading. 542 The remaining issue concerns the white condensate (called motor spirits by Evenfont) which was said to give rise to complicity on the part of Evenfont and Mr Pullinger. The Excise Regulations. 543 The plaintiff's written submissions said this: "4.2.16 The second defendant gave evidence that the first defendant, in fact, mixed a 'motor spirit' obtained from the third defendant with petrol (affidavit paragraphs 27, 78 and 90). He described this as 'WS'. This must have been, at least, the product manufactured and known by the third defendant as 'MS', that is, the 'low grade petrol'. Lucas knew that the first defendant would mix this product with ethanol and '... with other petrol if needs be' (transcript p 850.4). This is sufficient to show that the third defendant supplied petroleum products to the first defendant knowing that they would be blended with refinery petrol by the first defendant." 544 That paragraph appears to suggest that it would be reprehensible (giving rise to offences under the Act, including the evasion of duty and complicity on the part of the third and fourth defendants) to blend the Evenfont product, motor spirits, with ethanol and petrol. That submission raises an issue concerning the construction of the Excise Regulations. I now turn to that issue. 545 The evidence established the following: * First, that the "white shit" supplied by Evenfont to Camile Trading, described as motor spirits, was derived from waste slops purchased by Evenfont from Caltex; * Secondly, that Evenfont and Mr Pullinger knew that motor spirits would be blended by Camile Trading with leaded or unleaded petrol, as well as ethanol; * Thirdly, they also knew that motor spirits was a "low grade petrol", low on octanes, which would require enhancement through toluene or xylene; and * Fourthly, the motor spirits supplied by Evenfont to Camile Trade was excise paid at the full gasoline rate. 546 Would a blend of leaded or unleaded petrol which incorporated these elements be an "excisable blended petroleum product" for the purposes of s77G of the Excise Act (cf supra para [42])? It will be remembered that, to be an excisable blended petroleum product, the petroleum product must not be exempt. The various exemptions provided by Reg 176(2) of the Excise Regulations were analysed in the previous judgment CEO of Customs v Camile Trading Pty Limited (supra para [39]). The mischief which the amending regulation sought to address was identified in these words in the passage previously quoted (supra para [40]) which, for convenience, I repeat: " MR PUNCH: This bill is part of a package of bills introducing the following measures, ... ... there will be amendments to the Excise Act 1901 ... to address substantial revenue loss through the substitution of excise free or low duty products for petroleum fuels. Resolution of this issue involves ensuring certain blended petroleum products and crude oil or condensate delivered for use otherwise than as refinery feedstock are excisable products, and that the excise duty payable on the blend, the crude oil or condensate will be payable at a rate equal to either the diesel rate or the leaded petrol rate, depending upon the composition of the petroleum product." 547 In the previous judgment, the following was said: (para [27]) "27. However, the regulations, according to the plaintiff, had been carefully drawn with the legislative objective in mind. A contrast is made in the subparagraphs of regulation 176(2) between "a blend of a petroleum product" (singular) (or, in the case of paragraph (h), "a blend of gasoline") with subparagraphs (t) and (u) which speak of "blends of petroleum products" (plural). There is a further expression "a blended petroleum product" (singular) used in particular circumstances in subparagraphs (p) and (q), which have no application here. However, where the regulations use the singular, that is the expression "a blend of petroleum product", they do so quite deliberately. Subparagraphs (i), (j) and (m) for instance, contemplate a single petroleum product (such as leaded or unleaded petrol) on which duty at the maximum rate has been paid, with an additional substance, such as performance enhancing additives (176(2)(i)), or ethanol (176(2)(j)) or methanol (176(2)(k))." 548 I accepted that construction (para 29). The blend created by Camile Trading (with the knowledge of Evenfont and Mr Pullinger) should be characterised as "blended petroleum products" (plural), being a mix of a number of petroleum products and of the substance ethanol. The relevant exemption, therefore, is Reg 176(2)(u), dealing with petroleum (as opposed to diesel) blend of a number of products. The regulation is in these terms: "(u) blends of petroleum products containing goods specified under paragraph 11(A)(3) of the Schedule to the Excise Tariff Act 1921, where duty has been paid on all the constituents of the blend at the rate specified in subparagraph 11(A)(3)(b) of the Schedule to the Excise Tariff Act 1921." 549 Since publishing the previous judgement, I have reconsidered Reg 176(2)(j) which, unlike the other regulations referred to, uses the phrase "any petroleum product". On reflection, I believe a combination or blend of petroleum products would come within the phrase "any petroleum product". Hence, the addition of ethanol (which is free of excise) to a combination of petroleum products (such as we have here) would still be exempt, subject to otherwise satisfying the requirements of Reg 176(2)(u). That is, to be exempt under that regulation, each ingredient in the blend must be excise paid at the gasoline rate, that is, the highest rate. 550 Here each ingredient, apart from ethanol (which was excise free), appears to have satisfied that requirement. The leaded and unleaded petrol was excise paid. The "white shit" derived from waste slops (the motor spirits) was excise paid at the full gasoline rate. 551 Toluene and xylene (and other additives within the BTX group) were excise paid at the gasoline rate. There was an exchange of correspondence between the plaintiff and Customs relevant to this issue. On 15 November 1994, at the beginning of Camile Trading's relationship with Evenfont, Mr Fletcher wrote to Customs seeking clarification of the requirements in respect of blending various products with petrol. His letter of 25 November 1994, was in these terms: (Ex N, annex 1) "With reference to our recent discussion on the 14th November 1994 concerning the proposed activities we wish to introduce to our business. As you are aware we have a Customs License for the blending of Ethanol with various fuels. We are now looking toward purchasing various grades of Motor Spirit which we intend adding a small quantity of Octane Enhancer (approx 5-10%). All motor spirit purchased, we are assured, will have the appropriate custom's excise paid prior to delivery to our Depot. It is my understanding that our Company does not require a blending license issued by Customs and that the octane enhancer we are considering using is not subject to excise at this time. I would appreciate it if you would confirm, in writing, at your earliest convenience my understanding, as outlined above is correct and acceptable to you. Should you have any questions regarding this or any other matter please do not hesitate to contact me." 552 Mr Coombes of Customs responded on 29 November 1994 as follows: (Ex N, annex 2) "I refer to your letter of 25 November 1994 in which you requested advice on the licensing requirements for the blending of duty paid motor spirit with an octane enhancer. Regulations within the Fuel Substitution legislation exempt persons from holding a Manufacturer's Licence for the blending of duty paid petroleum products with octane enhancers. Octane enhancers such as the BTX group of chemicals are classified as excisable products and are duty paid at the gasoline rate, unless they qualify for free entry under the excise by-laws. Use of BTX chemicals as octane enhancers in on road fuels does not qualify for free by-law treatment under the Excise tariff. It is therefore expected that appropriate duty would be paid on such octane enhancers by the manufacturer or supplier prior to your receipt. Accordingly the proposed activity as described above, may be undertaken by your company without the necessity to take out an Excise Manufacturer's Licence. Should you require any further information regarding this matter please contact me on the above telephone number." (emphasis added) 553 What about the ethanol, which was also added to the blend, and which was excise free? I have alluded to this issue already (supra para [549]). Where there is a blend of petroleum products, each excise paid at the full gasoline rate, to which ethanol is then added, does the ultimate blend, including ethanol, come within the exemption of Reg 176(2)(j)? I believe it does. 554 First, such a construction does no violence to the objective which the amending regulations were designed to promote. All duty has been paid. It is quite unlike the situation (which occurred in respect of white spirits and other white condensates purchased by Camile Trading from suppliers other than Evenfont), where a cheap product, upon which excise had not been paid at the full gasoline rate, was blended to produce a cheap fuel. 555 Secondly, the combination of leaded or unleaded petrol, toluene and "white shit" from Evenfont (being motor spirits), each excise paid at the full gasoline rate, would be a "blended petroleum product" (as defined s77G) (supra para [42]). It only ceases to be exempt and becomes an excisable blended petroleum product where the ingredients in the blend are not excise paid at the full gasoline rate (cf Reg 176(2)(u) and s77J). If one assumed a two stage process, where a blend of petroleum products was created, each excise paid at the full gasoline rate, such a fuel would be exempt under Reg 176(2)(u). If later ethanol were added, it still would be exempt within Reg 176(2)(j), since the blend would come within the broad words "any petroleum product" to which ethanol was added, such products having been cleared from Customs' control. In my view it makes no difference that the blending occurs in one operation, rather than after a two stage process. 556 Accordingly, in my view, the plaintiff has not proved beyond reasonable doubt that Evenfont and Mr Pullinger were knowingly concerned in the offences of Camile Trading. The blend of their product by Camile Trading (the "white shit") which was motor spirits, which Evenfont and Mr Pullinger must be taken to have contemplated, was a blend which was exempt under the regulations, or rather, the plaintiff has not proved beyond reasonable doubt that it was not exempt. 557 There should be a verdict for the third and fourth defendants with costs. 6. QUANTIFICATION OF DUTY EVADED BY CAMILE TRADING PTY LIMITED 558 At the end of the analysis of the plaintiff's case against Camile Trading and Mr Fletcher, I postponed an issue concerning the quantification of duty evaded by Camile Trading in respect of leaded and unleaded petrol in the period 1 November 1995 to 20 November 1996 (supra para [405]). In view of the findings made concerning Evenfont and Mr Pullinger, is it possible to be satisfied beyond reasonable doubt in respect of the duty evaded on leaded and unleaded petrol during that period? 559 The relevant findings made are these: * First, that leaded and unleaded petrol was blended by Camile Trading in the period 1 November 1995 to 20 November 1996, where the throughput, in total, was approximately 150,000 litres per day. * Secondly, that the formulae used in respect of leaded and unleaded petrol are those set out in Mr Bartlett's spreadsheet relating to tanks 15 and 16 (Ex A7); * Thirdly, that an ingredient in each blend was white spirits or a white hydrocarbon which was a condensate or light ends; * Fourthly, that the suppliers of that product were: S F Bial Gladstone Vic Newland, or Evenfont/Truegain; * Fifthly, that for the reasons provided in paras [386 ff], I am satisfied beyond reasonable doubt in respect of all suppliers, apart from Evenfont/Truegain, that excise had not been paid at the gasoline rate on the white spirits or condensates supplied; * Sixthly, that the "white shit" supplied by Evenfont/Truegain, which was motor spirits, was excise paid at the gasoline rate. 560 Further, the plaintiff does not suggest that complicity arose out of the supply of "white shit" from the waste oil operation. I take that to mean there was nothing reprehensible, in excise terms, in the supply of that product by Evenfont to Camile Trading. 561 To calculate the level of evasion, one would have to know the contribution to throughput by each supplier, or know at least with certainty both the total throughput during the period identified (1 November 1995 to 20 November 1996) and the contribution to that throughput by Evenfont/Truegain. I am not sure, without further assistance, whether the evidence discloses that material. Although the dates I have nominated do not correspond precisely with the period claimed, I assume the total leaded and unleaded petrol can be calculated for the period 1 November 1995 to 20 November 1996. However, my impression is that there is some uncertainty concerning the precise amount of "white shit" which Evenfont is supposed to have supplied to Camile Trading. One would need to isolate and specify the "white shit" supplied by Evenfont (whether motor spirits or waste oils), which should then be subtracted from the total. The duty which was evaded related to other suppliers. My impression is that the evidence does not permit that calculation. 562 If that impression is right, then in respect of all nine periods in the Statement of Claim, the amount of excise evaded is incapable of determination (s120(2)(b)(ii) Excise Act 1905). However, I will reserve this issue for further submissions. 7. ORDERS 563 I make the following orders:

In respect of: * the allegations by the plaintiff relating to the blending of diesel; * the allegations concerning the blending of leaded and unleaded petrol; and * in each case, in respect of each of the nine periods in the Further Amended Statement of Claim, I convict Camile Trading of: * First, an offence under s35 of the Excise Act 1901, in that it manufactured excisable blended petroleum products without a licence under the Act; * Secondly, an offence under s61 of the Excise Act 1901, in that the company moved excisable goods without permission; * Thirdly, an offence under s120(1) of the Excise Act 1901, in that the company intentionally evaded excise duty.

Further, in respect of each such offence, I convict Lesley Ronald Fletcher of having been knowingly concerned in the commission of such offences.

I stand over to a date to be fixed the hearing in respect of penalty for both Camile Trading and Mr Fletcher.

I reserve for further submissions the issues identified in paragraph [381] and paragraph [562].

I reserve the question of costs against the first and second defendants.

I dismiss the plaintiff's case against the third and fourth defendants, with costs.

The matter will be listed for mention at 9.15 am on Tuesday 13 February 2007 to fix a date in respect of outstanding issues. The plaintiff and first and second defendants should prepare, and agree if possible, draft Short Minutes of Orders reflecting these reasons.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : CEO of Customs v Camile Trading Pty Ltd & Ors [2006] NSWSC 1401

CEO of Customs v Camile Trading P/L & Ors [2006] NSWSC 475 Jones v Dunkel (1959) 101 CLR 298 Murray v The Queen (1987) 11 NSWLR 12 Longman v The Queen (1989) 168 CLR 79 CASES CITED : Cramptom v The Queen (2000) 206 CLR 161 Briginshaw v Briginshaw (1938) 60 CLR 336 Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 Baxter v Ah Way (1909) 10 CLR 212 CEO of Customs v El Hajji (2005) 218 ALR 457

At a glance

Court

Decision date

Before

Source

Judgment (21 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (11)

Cited By (2)