BETWEEN : CHIEF EXECUTIVE OFFICE OF CUSTOMS BY MALCOLM ROSS PLANT, HIS DULY AUTHORISED DELEGATE

Sentencing - Customs offences - Jurisdiction, practice and procedure - Prosecution for evasion of customs duty and knowingly making false statements - Circumstances caused by errors by employee - Value of goods understated for customs purposes - Agreed statement of facts - Whether actions were intentional or reckless within meaning of Criminal Code Act 1995 (Cth) - Penalty imposed for three evasion charges and false statement charges - Factors to be taken into consideration in fixing appropriate penalty - Defendant a licensed customs broker

Crimes Act 1914, s 21B

Customs Act 1901 (Cth), s 153, s 233AB, s 234(1)(a), s 234(1)(d)(i)

Imposition of penalties for evasion of customs duties and false statement charges and consequential orders

Chief Executive Officer of Customs v Pavlovich [2001] WASC 173

Chief Executive Officer of Customs v Tonmill Pty Ltd & Anor [2001] WASC 77; (2001) 160 FLR 1

Goulding v Penello (1999) 43 ATR 179

Hayes v Weller (No 2) (1988) 50 SASR 182

Kelly Comptroller-General of Customs v JCT Wong & Rizoli Pty Ltd [1998] NSWSC 711; 103 A Crim R 491

L Vogel & Son Pty Ltd v Anderson (1968) 120 CLR 157

Lanham v Brake (1983) 34 SASR 578

Minister for Business and Consumer Affairs v Evans (1984) 54 ALR 128

Minister for Customs and Excise v Aunger Accessories Pty Ltd (1969) 16 FLR 94

Murphy v HF Trading Co (1973) 47 ALJR 198

Proudman v Dayman [1941] HCA 28; (1941) 67 CLR 536

Trade Practices Commission v Allied Mills Ltd (1981) ATPR 40

Walsh v N & M Gangemi Nominees Pty Ltd & Anor [2001] WASC 79

1 SCOTT J: This action commenced by way of writ of summons under the relevant provisions of the Customs Act 1901 (Cth) (the Customs Act") for breaches of certain provisions of that Act.

2 The breaches alleged fall into two groups, namely:

(a) evasion of stamp duty contrary to s 234(1)(a) of the Customs Act, and

(b) knowingly or recklessly making a statement to an officer that is false or misleading in a material particular contrary to s 234(1)(d)(i) of the Customs Act.

3 The matter proceeded by way of a statement of agreed facts and a memorandum of consent orders.

4 At the hearing counsel for the plaintiff indicated that the action in relation to the second and third defendants would not be pursued.

"1. At all material times the first defendant ("Owens") is and was a duly incorporated company carrying on business as a Freight Forwarder and Customs Broker.

2. At all material times the second defendant ("Donaldson") was employed by Owens as it's [sic] State Manager for Western Australia, and the third defendant ("Green") was a director of Owens.

3. In March 1997 Owens was the Customs Broker in relation to the importation from the People's Republic of China of a consignment of clothing by Lin & Teng Trading Co Ltd ("Lin & Teng").

4. The suppliers of the March 1997 consignment of clothing were a Chinese company, China Tuhsu Anhui Tea Import and Export Corp ("China Tuhsu"). That clothing consisted of 238 bales of t-shirts.

5. The goods were entered with Customs by Owens on behalf of Lin & Teng using invoices supplied by Lin & Teng which showed the goods were purchased for USD30,068.26.

6. In May 1997 Owens acted as the Customs Broker on behalf of Lin & Teng in relation to a second consignment of clothing from another Chinese company, Hefei Import and Export Co ("Hefei"). That clothing consisted of 60 bales of t-shirts.

7. The goods were entered with Customs by Owens on behalf of Lin & Teng using invoices supplied by Lin & Teng which showed the goods were purchased for USD14,906.25.

8. Subsequently, an employee of Owens erroneously released a proportion of the goods (110 bales from the China Tuhsu importation) to the importer (Lin & Teng) without the Bill of Lading. As Lin & Teng had not yet fully paid the suppliers for the goods, this should not have been done.

9. Lin & Teng then refused to pay China Tuhsu and Hefei in total for the goods.

10. Discussions and negotiations then took place between Lin & Teng, China Tuhsu & Hefei, the suppliers' freight forwarder ("Eurasia"), and Owens in relation to the goods.

11. Lin & Teng initially refused to pay the suppliers for the imported goods. It then made payment by 3 cheques which were dishonoured. The suppliers threatened legal action against Eurasia, who in turn threatened legal action against Owens.

12. On 5 October 1997 Owens arranged for the exportation of the balance of the goods (60 cartons to Hefei; 128 bales to China Tuhsu) back to the Chinese suppliers. In doing so, an export entry was lodged with Customs declaring the value of the remaining goods to be AUD31,222. Owens contends (but Customs does not accept the contention) that this occurred as a result of a misunderstanding of a communication from Eurasia.

13. The Chinese suppliers refused to take delivery of the goods.

14. At this time Owens was still negotiating with and between Eurasia and the Chinese suppliers. Lin & Teng contended the amount demanded by the suppliers was not the amount owed to them, being more than the amount shown on the invoices given to Owens to enter the goods with Customs.

15. Owens made enquiries of the suppliers in this regard and were provided with documentation which indicated that the invoices provided by Lin & Teng may have understated the value of the goods.

16. Due to the release of the goods without the Bill of Lading through the fault of Owens' employee, in November 1997 Owens agreed to pay to Hefei & China Tuhsu the amounts they claimed were outstanding in respect to the goods. Customs contend the effect of this was that Owens purchased the goods itself from the suppliers for the amounts they stated were outstanding.

17. Owens says it did so to settle the legal action being threatened against them, and with the intention of delivering the goods to Lin & Teng and seeking reimbursement from them. In any case Owens accepts the amount paid is properly a part of the Customs value of the goods.

18. To this end, on or about 11 November 1997 Owens paid to China Tuhsu the sum of AUD35,524.00. For this purpose, Green arranged and authorised the payment of this amount to be made to China Tuhsu on behalf of Owens.

19. On or about 28 November 1997 Owens paid to Hefei the sum of AUD14,000.00. For this purpose, Green arranged and authorised the payment of this amount to be made to Hefei on behalf of Owens.

20. During these negotiations Donaldson arranged on behalf of Owens for the goods to be returned to Australia.

21. On 16 December 1997 Owens imported the balance of the China Tuhsu goods and the Hefei goods into Australia through the Port of Fremantle.

22. On 18 December 1997 Owens lodged with Customs various documents entering the goods ("the Entries"). Owens presented the original invoices to Customs for the purpose of the Entries.

23. The Entries contained, inter alia, express statements that:

(a) The invoice price of the China Tuhsu goods was USD15,979.61, with a corresponding customs value of AUD5,319.92.

(b) The invoice price of the Hefei goods was USD6,330.05, with a corresponding customs value of AUD9,3544.27 [sic].

(c) The goods were all owned by Lin & Teng.

24. These statements were false, in that:

(a) The stated invoice prices of the goods were not the price which Owens had in fact paid in respect to them:

(i) Owens paid the sum of AUD35,524 in respect to the China Tuhsu goods; and

(ii) Owens paid the sum of AUD14,000 in respect to the Hefei goods;

(b) The stated corresponding customs values of the goods were not as stated:

(i) the customs value of the China Tuhsu goods was AUD33,547.90; and

(ii) the customs value of the Hefei goods was AUD12,454.54;

(c) The goods were not owned by Lin & Teng but had become the property of Owens.

25. Owens accepts these statements were made in circumstances where it ought to have known them to be misleading in material particulars, but say they were made recklessly rather than knowingly.

26. Owens paid AUD7,320.32 duty in respect of the China Tuhsu goods. The amount of duty which should have been paid in respect of these goods is AUD11,406.280 [sic]. The duty evaded was therefore AUD4,085.96.

27. Owens paid AUD2,663.74 duty in respect of the Hefei goods. The amount of duty which should have been paid in respect of these goods is AUD3,708.30. The duty evaded was therefore AUD1,044.56.

28. Customs has agreed that the total duty outstanding is AUD4,301.16.

29. Between December 1997 and January 1998 Owens negotiated with Lin & Teng for the importer to accept delivery of the t-shirts and reimburse Owens for the moneys it had paid in respect to them. No settlement was achieved.

30. In February 1998 Owens disposed of the goods by sale at auction. Owens says the proceeds from the sale was AUD8,000."

6 As can be seen from the statement of agreed facts, there is a dispute in relation to agreed facts 12 and 25. I will return to that issue later in these reasons.

7 The general history of the matter is sufficiently outlined in the statement of agreed facts. In summary, a business trading under the name of Lin & Teng Trading Co Ltd ("Lin & Teng") sought to import from China a consignment of clothing. The supplier of the clothing was a Chinese company, China Tuhsu Anhui Tea Import and Export Corp ("China Tuhsu") and the quantity consisted of 238 bales of T-shirts. A second consignment of clothing from another Chinese company, Hefei Import and Export Co ("Hefei"), was also imported by Lin & Teng and that clothing consisted of 60 bales of T-shirts. The first defendant, Owens International Freight (Australia) Pty Ltd ("Owens International"), was the customs broker on behalf of Lin & Teng in relation to both consignments. The consignments were sent to Australia in March and May of 1997.

8 I accept the submission by counsel for the first defendant, that the first defendant, found itself in a very difficult position, because of two errors which were made by its employees, namely:

(a) that the goods were released without the officers of the first defendant viewing the original bill of lading which would have revealed that the shippers in China were asserting claims against Eurasia that they had not been paid in full by Lin & Teng and that Eurasia was making claims against Owens; and

(b) that through a misunderstanding Owens shipped the remaining T-Shirts, being those rejected by Lin & Teng, back to China.

9 The reshipment to China was not accepted upon return and, as a result, they were sent back to Australia.

10 That left the first defendant with the problem of settling the Eurasia claims and with the problem of re-importing the goods into Australia after they were sent back.

11 Nonetheless, in the end result Owens understated the value of the goods for customs purposes, thereby evading customs duty. Owens also made false statements as to the invoice price of the goods which did not reflect the true price which was paid for them.

12 As revealed by the statement of agreed facts, there is a dispute between the parties as to whether Owens' actions were intentional or reckless within the meaning of those terms in the Criminal Code Act 1995 (Cth). As I understand the dispute, the plaintiff maintains that Owens' conduct was intentional because it contends that Owens deliberately became involved in the conduct the subject of the writ. On the other hand, Owens' contention is that its conduct was reckless in the sense that it was aware of a substantial risk that the circumstances existed and took the risk of understating the value of the goods, believing that its conduct was unlikely to be detected.

13 Whilst it is unnecessary to make any final finding on that issue, in my view, Owens should be given the benefit of the position more favourable to it and I have considered its conduct to be reckless rather than intentional.

14 In fixing a penalty, in my view, where the facts are equivocal, the penalty should be fixed on the basis more favourable to the defendant if the facts do not reveal that the plaintiff's claim is established on the balance of probabilities. These are civil proceedings, although quasi-criminal in nature: see Bridal Fashions Pty Ltd v Comptroller-General of Customs and Anor (1996) 140 ALR 681 in the judgment of the Court at 684 and s 247 of the Customs Act. In Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd and Ors [2001] QCA 280 the Queensland Court of Appeal held that the criminal standard of proof applies, but there is a line of contrary authority indicating that the civil standard of proof is appropriate in these circumstances (see Evans v Button (1988) 92 FLR 203; Minister for Business and Consumer Affairs v Evans (1984) 54 ALR 128 and Comptroller-General of Customs v Jayakody, unreported; SCt of Vic (Byrne J); 9 November 93, at pp 22 - 23). I am advised by counsel that the Labrador Liquor case is subject to an application for special leave to appeal to the High Court of Australia.

15 In addition to a statement of agreed facts, I have also been provided with a memorandum of consent orders, the terms of which are:

"1. Declarations that the First Defendant contravened s.234(1)(a) of the Customs Act 1901 on three occasions between 22 December 1997 and 25 February 1999 by evading payment of $4,301.16 duty payable on goods imported into Australia on 16 December 1997.

2. Declarations that the First Defendant contravened s.234(1)(d) of the Customs Act 1901 on three occasions on 18 December 1999 by knowingly or recklessly making statements to a Customs officer in relation to those goods which were false or misleading in material particulars.

3. Convictions be entered against the First Defendant in respect of each contravention mentioned in paragraphs 1 and 2 above.

4. The First Defendant pay to the Plaintiff penalties as determined by this Honourable Court.

5. The First Defendant pay to the Plaintiff the sum of $4,301.16 in unpaid duty in respect of the goods.

6. The First Defendant pay the Plaintiff's costs of the action fixed at the sum of $12,000.00.

7. The action be otherwise dismissed."

16 The matter that falls for determination is the appropriate penalty to be provided for each of the three evasion charges and the appropriate penalty for each of the false statement charges: Comptroller-General of Customs v Kingswood Distillery Pty Ltd, unreported; SCt of NSW (Sperling J); 5 December 1997. With respect to the evasion charges, under s 233AB of the Customs Act the penalty range is not less than two, nor more than five times the amount of duty evaded (being $4,301.16 in total) so that the appropriate total penalty range is between $8,602.32 and $21,505.80. In relation to the false statement charges under s 234(3) of the Customs Act, the penalty range is a maximum fine of $5,000 on each matter, together with a maximum of twice the amount of the duty payable on the goods. The duty payable in this case was $15,114.57.

17 The factors to be taken into account in fixing the appropriate penalty in a case such as this have been set out in this Court on a number of occasions: Walsh v Gangemi Nominees & Anor [2001] WASC 79 where Templeman J said at [7]:

"In various authorities to which I have been referred, and in particular Lanham v Brake (1983) 34 SASR 578 there have been various factors taken into account in relation to offences of this kind. These include the seriousness of the offence, the prevalence of the offence, the obvious difficulty of detecting the breaches, the consequent need to impose deterrent penalties, whether the offences were such as were committed [sic] by persons of generally good character and the legislative policy embodied in the relevant decisions."

18 In addition, it is accepted by the plaintiff that Owens assisted the plaintiff in relation to its investigation into matters involving Lin & Teng which is a factor to be taken into account: Radebe v The Queen [2001] WASCA 254 cited with approval in Scarf v Coflexip [2001] WASC 346.

19 Counsel for the plaintiff has brought to my attention that this case is unusual in that it involves offending behaviour by a licensed customs broker, a party upon whom the plaintiff relies in carrying out its responsibilities under the Customs Act.

20 On the other hand, counsel for the plaintiff also asked the Court to take into account the fact that costs and Court time were saved by reason of the settlement; Owens has given undertakings to the plaintiff to take greater care in relation to its obligations of compliance in the future; the co-operation provided by Owens in relation to the matters involving Lin & Teng; the fact that this was the first offence committed by Owens, a company with a good record and high reputation in the industry, and the fact that this was a one-off incident.

21 Counsel for the first defendant submitted that whilst these acts were unquestionably foolish, they came about by reason of the most unusual set of circumstances, set out earlier in these reasons. Counsel for Owens points out that the difficulty arose because of the two mistakes referred to earlier in these reasons and the problems that arose for Owens in sending the goods back to China in the circumstances as they then applied.

22 I have taken all of those factors into account in determining the appropriate penalty, including the fact that Owens' licence to act as a customs agent has been placed in jeopardy by its conduct.

23 As can be seen by the range of penalties referred to earlier in these reasons, the fines and other monetary amounts to be imposed upon Owens, as shown in the minute of consent orders, will constitute a significant financial impost.

24 With all of those factors in mind, I have come to the conclusion that, in relation to the three charges of evasion, the minimum penalty of two times the amount of duty evaded should be imposed in each of the three cases making a total of $8,602.32 as follows:

25 In relation to each of the false statement matters, I am of the view that an appropriate penalty would be a fine of $1,500 on each matter, being a total of $4,500, with no additional penalty by way of payment of duty. In addition, the defendants should be ordered to pay the outstanding duty of $4,301.16 and the legal costs of $12,000.

26 The financial imposition upon Owens assessed in this way will provide a sufficient deterrent penalty for others in this industry, bearing in mind that this was a first offence.

27 I will invite counsel for the plaintiff to prepare a minute of proposed orders to reflect these reasons. The minute should include the appropriate declarations, convictions, duty payable, penalties and costs. The minute should also reflect the discontinuance of the action in relation to the second and third defendants.