BETWEEN : CHIEF EXECUTIVE OFFICER OF CUSTOMS BY ROBERT HARRY WALES, HIS DULY AUTHORISED DELEGATE

Customs - Customs prosecution under Customs Act 1901 (Cth) - Evasion of duty - False statements - "Settlement agreement" - Convictions and declarations by consent - Agreed penalty in full and final satisfaction of penalty imposed by Court - Appropriate penalties

Customs Act 1901 (Cth), s 153, s 234(2)(a), s 234(3), s 245, s 247

Excise Act 1901 (Cth), s 136

Bridal Fashions Pty Ltd v Comptroller-General of Customs (1996) 135 FLR 100

Button v Evans (No 1) (1984) 54 ALR 128

Chief Executive Officer of Customs v Owens International Freight (Australia) Pty Ltd [2002] WASC 128; (2002) 50 ATR 229

Chief Executive Officer of Customs v Pavlovich [2001] WASC 173; (2001) 47 ATR 402

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

Comptroller-General of Customs v Jayakody, unreported; SCt of Vic (Byrne J); 13 December 1993

Comptroller-General of Customs v Kingswood Distillery Pty Ltd, unreported; SCt of NSW (Sperling J); 5 December 1997

Evans v Button (1988) 92 FLR 203

Goulding v Penello (1999) 43 ATR 179

Hayes v Weller (1988) 50 SASR 182

Kelly Comptroller-General of Customs v JCT Wong & Rizoli Pty Ltd [1998] NSWSC 709

Lanham v Brake (1983) 34 SASR 578

Minister for Customs & Excise v Aunger Accessories Pty Ltd [1969] SASR 441

Minister of Customs & Excise v HF Trading Co Pty Ltd (1973) 47 ALJR 198

Scarfe v Coflexip Stena Offshore International SA [2001] WASC 346

Trade Practices Commission v Allied Mills Industries Pty Ltd [1981] FCA 142; (1981) 60 FLR 38

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

1 This action is a "Customs Prosecution" brought by the plaintiff (who I shall simply call Customs) against the defendants pursuant to s 245 of the Customs Act 1901 (Cth) to recover unpaid duty pursuant to s 153 of the Customs Act.

2 So far as the action affects the second and fourth defendants, the action has been listed for final hearing by consent. The action against the other defendants otherwise remains on foot.

3 The nature of a Customs Prosecution has recently been discussed by the High Court of Australia in Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49; (2003) 201 ALR 1.

4 Hayne J observed in Labrador Liquor Wholesalers at [107]:

" ... proceedings on the revenue side had a unique history and should properly be understood as being proceedings distinctly different, not only from proceedings brought in the name of the Crown for punishment of crime, but also from proceedings for the vindication of rights and duties between subjects. That proceedings on the revenue side were different from what might be called ordinary criminal proceedings and ordinary civil proceedings is not only evident from the adoption of different procedures and methods of trial, it is a difference that was maintained, in England, even after the vesting of the jurisdiction of the Court of Exchequer in the King's Bench Division. For many years after the Judicature Acts, revenue practice in the King's Bench remained governed by the Exchequer Rules and the English Information Rules. ... they are differences that reveal the dangers in attempting to force proceedings of this kind into a system of classification in which there are only two classes of proceedings: civil and criminal. To attempt to do that would be to ignore the history of the way in which amounts owing to the Crown, whether for customs duties or for penalties or on other accounts, were treated in England."

"The 'penalties' which may be 'recovered' in a Customs prosecution or an Excise prosecution extend to conviction of the defendant. Orders that convictions be recorded in Customs prosecutions have been made in this Court [footnote omitted] and in other courts [footnote omitted]. Customs prosecutions and Excise prosecutions are proceedings which now go, and always have gone, beyond being actions for debt [footnote omitted]."

6 In consequence of these observations, the Court made it clear that in Customs and Excise prosecutions, Customs bears the onus of proving elements of its case beyond reasonable doubt.

7 However, s 247 of the Customs Act (and s 136 of the Excise Act 1901 (Cth)) require the Court to apply its usual practice and procedure in civil cases with matters of the type before the Court.

The question of compromise of a Customs Prosecution

8 Because Customs Prosecutions have this unusual historical and current status, it is commonly accepted that they may be compromised or resolved on a "commercial basis" without breaching the policy of the Customs Act or in any way detracting from the discretion of the Court with regard to sentencing.

9 Although prior to the High Court's decision in Labrador Liquor Wholesale, in Chief Executive Officer of Customs v Mak & Anor [2002] WASC 235, EM Heenan J, at [5], recently observed as follows:

"It has also been accepted that because such prosecutions may be commenced and proceeded with in accordance with the usual practice and procedure of the court in civil cases it is entirely proper for the parties to settle the proceedings on a commercial basis without, in any way, breaching the policy of the Customs Act or of the administration of the criminal law or in any way detracting from the discretion of the court with regard to sentencing. This conclusion seems to me, with respect, to be independent of and unaffected by, any controversy over what is the correct standard of proof to be applied in such proceedings. The readiness of courts to accept and apply resolutions of such prosecutions agreed by the parties also has a long history of supporting authority including Trade Practices Commission v Allied Mills Ltd [1981] FCA 142; (1981) ATPR 40-241 at 43, 181; Controller [sic]-General of Customs v Kingswood Distillery Pty Ltd, unreported; SCt of NSW (Sperling J) 5 December 1997; Walsh v N & M Gangemi Nominees Pty Ltd [2001] WASC 79 (Templeman J); Chief Executive Officer of Customs v Tonmill Pty Ltd [(2001) [2001] WASC 77; 160 FLR 1]; Chief Executive Officer of Customs v Pavlovich [[2001] WASC 173]; and Chief Executive Officer of Customs v Coflexip Stena Offshore Oil International SA [[2001] WASC 346]."

10 In some ways, it seems odd that legislation designed to facilitate the recovery of sums owed to the Crown in respect of which a "penalty" is prescribed by the legislation in the case of breach of duty to pay Customs duty, may be compromised by Customs agreeing to take a sum less than the penalty prescribed by a Court in the performance of its statutory obligation under the Customs Act. However, there seems to me nothing in principle in the judgments in Labrador that deny the proposition put by EM Heenan J and espoused by other Judges on earlier occasions.

The circumstances in the instant proceeding

11 In this case, Customs and the second defendant and fourth defendant (but not the first defendant or the third defendant) have concluded a "settlement agreement" whereby those two defendants consent to the making of declarations and orders concerning contravention of the Customs Act and agree to "pay a penalty not exceeding $17,109.34 to the ACS in full and final satisfaction of the penalty fixed by the court."

12 By a further clause of the agreement, the two defendants acknowledge that, as a result of the agreement, they are jointly and severally indebted to the ACS in the sum of $50,000, constituting the unpaid duty and other sums in costs and penalties. By that clause, it is agreed that the sum of $50,000 will be paid within 30 days of execution of the settlement agreement.

"5. Upon the fulfilment of paragraphs 1 to 4 above, the ACS undertakes not to enforce any order made in the Action by the Court for the payment of unpaid duty, penalties and costs which is in excess of the amounts payable to the ACS in accordance with the terms of this settlement agreement, however if JONVIE and JONES fail to fulfil paragraphs 1 to 4 above, the ACS may pursue JONVIE and/or JONES for the full amount of the Court's judgment in the Action."

14 Implementation of the settlement agreement awaits the making of the declarations and convictions, and the setting of penalty.

15 In all the circumstances, nothing done by Customs or the second and fourth defendants in concluding the settlement agreement is designed to oust the jurisdiction or the responsibility of this Court to impose the penalties provided for by the Customs Act.

16 The second defendant is an Australian registered company of which the fourth defendant, and his wife, are the sole directors and shareholders.

17 Between 8 June 1997 and 28 October 1999, the defendants imported into Australia a total of 54 motor vehicles in 24 separate shipments.

18 In relation to the second defendant, the importation involved one 1980 Rolls Royce motor vehicle on 8 June 1997.

19 The fourth defendant, however, was personally involved in the importation of another 1980 Rolls Royce on 14 December 1997, as well as a further 50 vehicles in 20 subsequent shipments by the first defendant (Corniche Motors Pty Ltd). The vehicles imported were variously Rolls Royces, Mercedes, Jaguars, Daimlers, BMWs and Porches.

20 For the purposes of each shipment, a Customs broker was employed to enter the vehicles with Customs. Entry involved the lodgement of a document known as a "Nature 10 Entry for Home Consumption" based upon information provided to the broker by the defendants as the importers, or representatives of the importers.

21 The information, required and provided for the purposes of entry, included the invoice price and customs' value of the vehicles, upon which the duty and sales tax owing was calculated.

22 Once paid, the imported vehicles were cleared and released by Customs.

23 For the purposes of entering the first vehicle with Customs, the second defendant caused an "official receipt" to be provided to the Customs broker from the overseas supplier dated 17 May 1997. It evidenced receipt from the second defendant of HK$80,000 "for the full purchase price" of a 1980 Rolls Royce Shadow II.

24 On the basis of the information provided, the Customs broker lodged the entry for home consumption with Customs, declaring the invoice price to be HK$80,000, on which duty and sales tax was calculated at $3076.74 and $4422.31 respectively. These amounts were subsequently paid by the second defendant and the vehicle was released by Customs.

25 Documents seized by the plaintiff in subsequent warrant actions showed that:

(1) the vehicle was in fact purchased for HK$105,000;

(2) two telegraphic transfers were used to pay for the vehicle, the first being the HK$80,000 the vehicle was declared at and the second being the balance of the HK$105,000 purchase price.

26 Similarly, the 21 importations with which the fourth defendant is charged involve the undervaluation upon importation of an additional 51 vehicles. As indicated, one importation relates to the importation by him in his own name, the remainder relate to importations by the first defendant, a company, which commenced in January 1998, and of which the fourth defendant and the third defendants were sole directors.

27 In order to have the vehicles entered with Customs and the duty and sales tax calculated, on each occasion the relevant Customs broker was provided with documents such as invoices, sales contracts and receipts evidencing payments "in full and final settlement of purchase price", telegraphic transfers, and correspondence said to evidence the full purchase price paid for each vehicle.

28 In each case, the invoices, sales contracts and receipts were false and the telegraphic transfers did not in fact evidence the full amounts paid.

29 Again, in relation to each importation, additional documents seized pursuant to the various warrant actions evidenced the true purchase price paid. The paper trail was complex and difficult to analyse. A lengthy analysis of the evidence, and related investigations, revealed a system involving the provision of false documents from the overseas suppliers to be used by the defendants for the purpose of Entry with Customs, and the attempted verification of the declared purchase price by way of an initial telegraphic money transfer for the declared value, followed by a second transfer for the balance to secure the true purchase price.

30 On the basis of the available evidence, Customs accepts the fourth defendant was not as intimately involved with the importation side of the business as the third defendant, who is not affected by the matters presently before me. However, numerous documents were seized from his premises which clearly evidence the dual invoice and payment system and other relevant factors, such as his involvement in conducting the business of Corniche Motors in the third defendant's absence. Seized documents also clearly set out in detailed form the accounting between the third and fourth defendants by which each contributed equally to the costs and shared equally in the profits derived from the importation and sale of each vehicle.

31 In November 2002, the plaintiff and the second and fourth defendants signed an agreement resolving the disputes between them which are the subject of these proceedings. It is the "settlement agreement" to which I have already referred.

32 In negotiating the settlement agreement, Customs says it has given consideration to the following:

(2) the extended length of time over which the offences have been committed;

(4) the cost to the plaintiff and the defendants of proceeding to a full trial of all matters;

(5) the early approach by the fourth defendant following a change in legal representation;

(6) the full and frank admissions provided thereafter; and

(7) the financial position of the second and fourth defendants and the ability of them to repay the revenue and a specific deterrent penalty.

33 It is recognised by the parties before me on this application that the agreed sum set out in the settlement agreement is significantly less than the minimum penalties which must be imposed. Nonetheless, the parties draw to the attention of the Court, for the sake of transparency, the terms of the agreement.

Submissions in relation to orders and penalties

34 In these circumstances, the relevant parties propose I make the declarations and orders in the action between the plaintiff and the second and fourth defendants that are set out in the Memorandum of Consent Orders attached hereto.

35 The penalty provided by s 234(2)(a) of the Customs Act in respect of each evasion charge is a minimum of two times the amount of duty evaded and a maximum of five times that amount. The amount of duty evaded by the second defendant was $943.22. The applicable penalty range is, therefore, $1886.44 to $4716.10.

36 The amount of duty evaded by the fourth defendant was $34,998.05. The applicable penalty range is, therefore, $69,996.10 to $174,990.25.

37 The legislative penalty at the time the offences were committed in respect of each false statement charge was a maximum of $5000 plus two times the duty payable: see s 234(2)(c) and s 234(3) of the Customs Act.

38 The duty payable by the second defendant was $4019.96. The applicable penalty range is, therefore, $0 to $[($5000) plus (2) X $4019.96)], being $13,039.92.

39 The duty payable by the fourth defendant was $77,835.16. The applicable penalty range is, therefore, $0 to $[(21 X $5000) plus (2) X $77,835.16)], being $260,670.32.

40 Customs seek an appropriate penalty in the circumstances of the case, taking into account, in line with the authorities on point, the following matters:

(1) the obvious difficulty of Customs in detecting breaches of the Customs laws and the consequent reliance placed by them on importers to ensure that goods imported into Australia are declared honestly and accurately so that the correct amounts of duty and sales tax/GST are paid;

(2) the recognised need for deterrence, specifically in relation to the defendants to ensure vigorous and careful compliance in the future, but also more generally in relation to others in the business of importing and dealing with Customs as a reminder or warning that due care must be taken in the course of those dealings or significant penalties may be imposed;

(3) the legislative policy embodied in the relevant provisions.

41 In relation to this final consideration, it is usual to acknowledge the legislative policy in the terms explained by Kitto J in L Vogel and Son Pty Ltd v Anderson (1968) 120 CLR 157 at 164, that:

"The Customs laws represent the judgment of Parliament upon an important aspect of the economic organization of the community, and the object of the penal provisions is to make that judgment as effective as possible."

42 Customs also submits that this action does not call for the maximum penalty to be imposed, taking into account in favour of the defendants concerned that:

(1) the secondary involvement of the fourth defendant when compared to the third defendant;

(2) the service to the public interest in respect of the costs which have been saved by the admissions made and the settlement agreement negotiated, which otherwise would have been incurred by complicated and lengthy litigation;

(3) the payment by these defendants of $25,000 in advance of the date required for payment pursuant to the settlement agreement.

43 The second and fourth defendants, by counsel, have recorded their consent to orders being made in terms of the Minute attached to these reasons.

44 In relation to penalty, these defendants seek the minimum penalty available under the Customs Act. Counsel for these defendants draws attention to the admission of guilt and confirms that the defendants have readily admitted contravening the Customs Act and accept the facts alleged against them as set out in the statement of claim filed by the plaintiff in the action and referred to in substance above.

45 In relation to the charge of evasion, where the amount of duty evaded was $943.22, I consider that the minimum penalty of two times the amount of duty evaded should be imposed on the second defendant, that is, a penalty of $1886.44.

46 I consider the minimum penalty should be imposed because: it is a single charge; there has been a plea of guilty with the consequent saving of public revenue in the prosecution of the charge against the second defendant; and the second defendant is not shown to have been engaged previously in such conduct.

47 In relation to the offence of false statement, the penalty prescribed is a maximum of $5000, plus two times the duty payable. For the reasons I have set out above concerning the conduct of the second defendant, I consider the maximum available penalty of $13,039.92 should not be imposed, but that, in all of the circumstances, a penalty of $3000 should be imposed on the second defendant.

48 In relation to the fourth defendant, who is a natural person, the position is different. It is said by Customs and counsel for the second and fourth defendants that the fourth defendant (allegedly with the third defendant) guided the conduct of the first defendant (Corniche Motors Pty Ltd) in respect of the various charges for which I must now impose penalty.

49 The fourth defendant by his actions evaded duty to the value of $34,998.05. Given the 21 individual charges of evasion against the fourth defendant, which he accepts, and given the period over which the scheme of evasion was carried out, but also taking into account the plea of guilty of the fourth defendant and the consequential saving of public revenue in not having to prosecute these charges to trial, and also taking into account that the fourth defendant does not appear previously to have conducted himself in this way, I consider a penalty of three times the duty payable should be imposed, namely, $104,994.15.

50 In relation to the offences for false statement, the applicable maximum penalty is $260,670.32. For the reasons I have set out above concerning the conduct of the fourth defendant, I consider a penalty of $70,000 should be imposed.

51 I will hear from counsel, however the following final orders are indicated:

1. There will be declarations and orders in terms of the Minute of Consent Orders attached to these reasons.

(1) for the evasion offence, I impose a penalty of $1886.44;

(2) for the false statement offence, I impose a penalty of $3000.

(1) for the evasion offence, I impose a penalty of $104,994.15;

(2) for the false statement offences, I impose a penalty of $70,000.