Drew v Dibb

REASONS FOR JUDGMENT 1 The respondents hold a licence issued under Part V of the Customs Act 1901 (Cth). The licence permits them to use the premises at 34-38 Pipe Road, Laverton North, for purposes of warehousing goods. Between October 2005 and November 2005 quantities of Affair cigarettes owned by Eastern Enterprises Pty Ltd were placed into storage at the warehouse. The cigarettes had been imported into Australia in February 2004 but had not been entered for home consumption. On 12 November 2006, the cigarettes were stolen. Following the theft, the applicant, a Collector of customs, demanded that the respondents pay to the Commonwealth $127,364.30 as the customs duty payable on the cigarettes at the rate in force at the date of the demand. The demand was not satisfied. This action has been brought to recover the amount. The question is whether the respondents are required to pay that sum. 2 Duty of customs is imposed by the Customs Tariff Act 1995 (Cth). Section 15 relevantly provides that the duty is imposed on "goods imported into Australia on or after 1 July 1996". The Customs Act is also relevant. Section 68 of that Act states that goods that are imported are required to be entered: (a) for home consumption; (b) for warehousing; or (c) for transhipment. Section 132 provides that, subject to irrelevant exceptions, the rate of duty payable on goods is the rate in force when the goods are entered for home consumption. Section 132AA provides that in the case of goods entered for home consumption the "[t]ime by which the duty on the goods must be paid [is the t]ime of entry of the goods for home consumption". Finally, s 153 provides that duties shall constitute debts payable by the owner and are recoverable at any time in any court of competent jurisdiction. 3 The authorities establish that the effect of these provisions is as follows. First, while there is no definition of "importation" in the Customs Act, goods are deemed imported into Australia when they are brought from abroad on board a vessel or ship for purposes of being landed: Chief Executive Officer of Customs v Tony Longo Pty Ltd (2001) 52 NSWLR 458 at [110]. Second, goods are dutiable under the Customs Act on importation: Tony Longo 52 NSWLR 458 at [118]; The Collector of Customs (Vict) v Wilh Wilhelmson Agency Proprietary Limited (1956) 102 CLR 147 at 157. Third, the goods remain dutiable whether or not they are entered for home consumption: Tony Longo 52 NSWLR 458 at [115]‑[118]; Collector of Customs for the State of New South Wales v Southern Shipping Company Limited (1962) 107 CLR 279 at 296. Fourth, and this is a qualification on the third proposition, the obligation to pay the duty is suspended until the goods are entered: Customs Act s 132AA. 4 In the first instance, the obligation to pay customs duty falls on the "owner" of the goods in question. "Owner" is an expression that is given a wide meaning in s 4 of the Customs Act. The owner is not, however, the only person who may be liable for duty. When the Customs Act was first enacted, Part V (comprising ss 78 to 110) dealt with the warehousing of goods. Section 78 provided that dutiable goods might be warehoused in a licensed warehouse. Section 92(4) provided that the licensee of any warehouse shall "[p]ay the duty on all warehoused goods removed from his warehouse except by authority and on all warehoused goods not produced to the officer on demand unless such goods are accounted for to the satisfaction of the Collector". 5 A broader provision, s 35A, was introduced into the Customs Act by Act No 37 of 1957. That section relevantly provides: (1) Where a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to the control of the Customs: (a) fails to keep those goods safely; or (b) when so requested by a Collector, does not account for those goods to the satisfaction of a Collector; that person shall, on demand in writing made by a Collector, pay to the Commonwealth an amount equal to the amount of the duty of Customs which would have been payable on those goods if they had been entered for home consumption on the day on which the demand was made. 6 Section 35A has a greater scope of operation than s 92. First of all, it covers a wider class of persons. Section 92 imposed liability only on the holder of a warehouse licence whereas s 35A deals with the liability of every person entrusted with the care of dutiable goods. Secondly, s 92 was only engaged in the circumstances when: (1) goods were removed from the warehouse without authority; or (2) dutiable goods were not produced to an officer on demand. Section 35A, on the other hand, covers those cases as well cases involving the loss, theft, or destruction of dutiable goods, which may be outside s 92. 7 The respondents put forward three propositions, any one of which, they say, relieves them from liability. Each proposition lacks nothing in ingenuity. Two are somewhat troublesome. 8 First, the respondents contend that whatever be the ambit of s 35A, it was not intended to cover a warehouse licensee, whose liability was dealt with by s 92 alone. This contention is founded on two grounds: (1) the location of s 92 in a division concerned with licensed warehouses; and (2) the unlikelihood that Parliament intended that liability be imposed on a licensee by two potentially overlapping provisions. 9 While the argument is not without its attraction, it cannot be accepted. First of all, the two sections (ss 35A and 92) only partially overlap. More importantly, s 35A is an extremely broad provision which, according to its plain language, will cover the licensee of a warehouse. There is, in my view, no good reason to read it down. 10 I should explain why acceptance of their first proposition is of importance to the respondents. In 1980, s 92 was repealed by Act No 110. It was replaced by other sections which did not repeat s 92(4). The argument put is that following the amendment Parliament intended to eliminate the responsibility of warehouse licensees to pay duty on goods removed from their warehouse without authority. 11 The ordinary place at which imported goods are stored prior to entry for home consumption is a licensed warehouse, and thus to exclude warehoused goods from the scope of s 35A would have a significant negative impact upon customs revenue. As a general rule Parliament is usually concerned with increasing the revenue; thus, in the absence of a clear statement that warehouse licensees are in fact excluded from the statutory regime, I can see no reason to impute this intention to Parliament. Rather, I think it more reasonable in the circumstances to conclude that when s 92 was repealed Parliament did not insert a substitute for s 92(4) because the view was taken that s 35A covered the field. 12 The respondents' second proposition is built primarily on the fact (not in dispute) that when the Affair cigarettes were stolen they were "stale", in that they had passed their "use by" date. Additional support for the proposition is drawn from evidence that the cigarettes were not packaged in conformance with applicable statutes and regulations (ie they could not be legally sold in Australia without repackaging) and are in any event a brand not ordinarily sold within Australia. The argument is that because the cigarettes were stale, improperly packaged, and without an established market in Australia, they had no value and thus could not be dutiable. There is some attraction in a proposition that goods which have no value should not be subject to duty. However, the argument overlooks certain important facts and ignores the structure of the Customs Act. 13 As regards the facts, the cigarettes themselves did have a value when they were imported - they were not then stale. The packaging argument does not change this fact because the packaging of cigarettes is extrinsic to their value; there is nothing to say that the cigarettes could not have been repackaged in conformity with law and then sold. Similarly, the evidence that Affair cigarettes are a brand not ordinarily sold within Australia is not of itself sufficient to establish that they have no market value. Indeed, the very fact that someone thought to import them into this country suggests that they had some value. 14 But there is a more fundamental flaw in the respondents' market value submission. Even if I were to accept that the cigarettes had no value at the time of importation, the duty payable on cigarettes is not an ad valorem duty but a duty imposed at a fixed rate on each individual cigarette, without reference to brand name or market value. If following importation goods diminish in value, provision is made for a refund, rebate or remission of duty. This is dealt with by s 163 of the Customs Act and the Customs Regulations. Regulation 126 sets out the circumstances in which refunds, rebates and remissions may be made. Those circumstances include: (a) where the goods on which duty has been paid or is payable have deteriorated or been damaged, lost or destroyed before they become subject to the control of Customs; (b) where goods on which duty has been paid or is payable have deteriorated or been damaged or destroyed while subject to the control of Customs; and (c) where goods on which duty has been paid or is payable have been lost or stolen while subject to the control of Customs. If this, or any other regulation, is applicable, then an application for rebate may be made; but at the same time, that a rebate or remission may be available is not a defence to an action for the recovery of the duty. 15 In their last submission, the respondents contend that in order to succeed under the facts and circumstances of this case it was incumbent upon the applicant to establish both that the respondents had failed to keep the Affair cigarettes safely (s 35A(1)(a)) and that they had not accounted for the cigarettes to the satisfaction of a Collector (s 35A(1)(b)). The point of this submission is that the object of s 35A is to protect the revenue, and the revenue will not be harmed by the entry into home consumption of valueless cigarettes. Hence, so the argument went, the Collector, having voluntarily sought an accounting, was required as a matter of law to be satisfied the goods had relevantly been accounted for. 16 It may be that the premise that lies behind this argument is that the conditions in s 35A(1) are cumulative and not alternative conditions. But, as the cases say, they are alternative bases for imposing duty: Southern Shipping at 287 and 299, 305; Sidebottom v Giuliano (2000) 98 FCR 579. In other words, it is not a condition precedent to the making of a demand that an accounting first has been sought. 17 Acknowledging this authority, counsel for the respondents made a far subtler argument. First, he quoted the following passage from the reasons of Owen J in Southern Shipping (at 305‑306) (emphases added): The question then arises as to the meaning of the words "does not account for those goods to the satisfaction of the Collector" in par. (b) of the sub-section. The use of the word "or" in introducing the paragraph may at first sight appear to create some difficulty but if the purpose of the section is kept in mind I think that difficulty disappears. If the undoubted fact is that a custodian of goods has failed to keep them safe from the danger of going into consumption without payment of duty as, for example, where readily saleable goods have been stolen, par. (b) need not be called in aid by the Collector. But cases may easily be imagined in which the disappearance of the goods leaves it doubtful whether they may have gone into consumption or that it is likely that they will do so. If so, par. (b) may be invoked and the custodian may be required by the Collector to account for the absence of the goods in such manner as to satisfy him that the revenue has not suffered and, in the absence of an explanation which satisfies the Collector of that fact, the obligation to pay imposed by the latter part of the sub-section may be enforced. In the present case, the explanation given by the defendant for the disappearance of the goods was that they had been stolen and the probabilities were, in these circumstances, that they would go into consumption. The defendant failed to safeguard them against that danger and there was no need, in these circumstances, for the Collector to request the defendant to account for them. Nevertheless he did so and the account was not one upon which he was bound to be satisfied that the revenue had not suffered or would not be likely to suffer. See also Wilh Wilhelmson 102 CLR at 159. 18 The first three sentences of this passage establish, as the respondents accept, that the demand and accounting provisions are alternative. However, counsel placed great reliance on the emphasised portions of the passage distinguishing "readily saleable" goods from those unlikely to go into home consumption. He argued further that even though a Collector may not be required to request an accounting, he may voluntarily do so, in which case his discretion to accept or reject that accounting is not unfettered. 19 I will accept, without deciding the issue, that Owen J's views are correct. I am also prepared to accept for the sake of argument that: (1) even where a Collector is not required to request an accounting, he or she may nevertheless do so, particularly in a case such as this where the goods are not "readily saleable"; and (2) the Collector's discretion to then accept or reject the accounting is not completely unfettered. 20 Arguably, a voluntary request for an accounting was made in this case. The evidence was that on 13 November 2006, a Collector informed agents of the respondents that if they could not account for the goods, then a demand would be made. Prior to making the demand on 3 July 2007, the respondents informed the Collector of facts adverted to earlier, including that the cigarettes were unlikely to enter the home market because they were stale and were a brand not ordinarily sold in Australia. 21 The respondents contend that if this account was, in the words of Owen J, "one upon which [the Collector] was bound to be satisfied that the revenue had not suffered or would not be likely to suffer," then the demand should not have been made. (Strictly speaking, the respondents never explicitly challenged the validity of the demand, but it is tolerably clear that this is the point of their accounting argument.) In oral argument, counsel conceded that the Collector has a discretion whether to accept an accounting and that the only way to show that an exercise of the discretion had miscarried would be to show that the Collector, on the facts before him, had no alternative but to be satisfied that the respondents had suffered. 22 In this case, always assuming for the sake of argument that the views of Owen J represent binding authority, I do not consider that the Collector was bound to be satisfied by the respondents' accounting. The unchallenged evidence was that one Mr Lee, attempting to sell stale and unmarked Affair cigarettes to sailors, managed in the course of 18 months to sell roughly 300 packets at $1.50 per packet. When it was put to counsel that this evidence showed only that the threat to the revenue from the stolen cigarettes was on the light side, but not that there was no threat, he argued that no reasonable Collector would consider it a threat such as to justify rejection of the accounting given. 23 One problem with this submission is that this action is an action for a debt. There is no cross claim to review the reasonableness of the Collector's decision to bring the action. Putting that problem to one side, the only way the respondents could succeed under Owen J's test would be to demonstrate that there was no threat to the revenue. For example, suppose the facts were that, at the time of the theft, the cigarettes were not just stale, but were waterlogged and covered in mould. In those circumstances it might be accepted that, on Owen J's approach, the Collector, having requested an accounting, was bound to be satisfied by the response given. 24 That is not this case, however. Here, the facts were such that it was open for the Collector to consider that there was still some risk of loss to the revenue. Thus he was not bound to be satisfied by the accounting given. 25 Although I need go no further, because it might be said there is some unfairness about the result in this case I ought to say a few words about that topic. First of all, it is distinctly possible that s 35A can produce unfair results. For example, the duty to keep goods safe has been held to be nearly absolute: Southern Shipping at 287 (stating that only force majeure might be an exception to the duty); see also Sidebottom at [11]. Thus, short of a showing that, say, Godzilla had stomped the warehouse, the respondents could not avoid liability for a failure to keep dutiable goods safe, no matter how many precautions they had taken in an attempt to safeguard the cigarettes. Moreover, even under Owen J's approach, a Collector is not required to request an accounting where the duty to keep safe has been breached. Thus, even in the hypothetical of the waterlogged and utterly worthless cigarettes, if a Collector were to simply present a demand without mentioning an accounting, that would be the end of the matter. 26 What then is a person in the position of the respondents, who has failed to keep goods safely but considers that the loss of the goods poses little threat to the revenue, to do? The answer is the second response to the charge of unfairness. The respondents' proper course is to seek a refund, rebate, or remission of the payment under s 163 of the Customs Act and reg 126, on any qualifying basis. If the application for remission is wrongly rejected by the Collector the applicant can then seek merits review of that decision before the Administrative Appeals Tribunal. Alternatively, the applicant may seek judicial review of the decision. 27 I will order that the respondents pay the applicant the amount claimed in the demand together with the costs of this action. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.