Lego Australia Pty Limited and the Persons Listed In the Application Hereto T/As Ernst and Young v Phillip Paraggio, David Rooney, Comptroller General of Customs, Wendy Elder, Wayne Martin Morrison, Anthony John Emmanuel, P Hilip George Murdoch, Brennan W [1994] FCA 1286

Lego Australia Pty Limited and the Persons Listed In the Application Hereto T/As Ernst and Young v Phillip Paraggio, David Rooney, Comptroller General of Customs, Wendy Elder, Wayne Martin Morrison, Anthony John Emmanuel, P Hilip George Murdoch, Brennan W [1994] FCA 1286 - FCA 1994 case summary — Zoe

[21]

price lists, consignment advices, shipping and other documents, which

related to the purchase of toy products by Lego Australia from Lego

Overseas A/S, Denmark ("Lego Overseas") and to their importation into,

and sale within, Australia by Lego Australia.

(2) There were reasonable grounds for believing that these documents

will afford evidence as to the commission of the following offences

which were suspected on reasonable grounds to have been committed:

"(a) Between December 1977 and January 1988 Lego Australia

Pty Limited contrary to section 29A of the Crimes Act

1914 with intent to defraud by false pretences caused

a benefit to be given by the Commonwealth in that it

falsely represented to the Australian Customs Service

that 'Lego' toy products purchased by it from Lego

Overseas A/S Denmark had been received by it on a

consignment basis thereby attracting a lower customs

valuation and consequently a lower assessment to

customs duty than was rightly payable.

(By s.29A(2) of the Crimes Act, it is provided, inter

alia, that any person who, with intent to defraud, by

any false pretence causes any benefit to be given by

the Commonwealth to any person, shall be guilty of an

offence.)

(b) Between October 1984 and January 1988 Lego Australia

Pty. Limited contrary to section 29D of the Crimes Act

defrauded the Commonwealth of custom duty in that it

falsely represented to the Australia Customs Service

that 'Lego' toy products purchased by it from Lego

Overseas A/S Denmark had been received by it on a

consignment basis thereby attracting lower customs

valuation and consequently a lower assessment duty

than was rightly payable."

(By s.29D of the Crimes Act (a provision which was

added in 1984) it is provided that a person who

defrauds the Commonwealth is guilty of an indictable

offence.)

(3) In 1986, ACS reviewed the valuation method used by Lego Australia

in the following context:

"7. Between 1976 and 1981 the provisions of Division 2 of

Part VIII of the Act had as the basic measure of

'customs value' the price that would be paid for goods

purchased under a notional contract of sale in the

open market between a buyer and seller in an arms-length

transaction. In non-arms-length transactions,

adjustments were made to the contract price to bring

it to an open market level. In 1981 these provisions

of the Customs Act were amended. These amendments had

the effect of varying the system of customs valuation

to impose duty upon the actual or 'transaction' value.

Duty is payable under this system on the actual sale

value of the contract.

8. Under both valuation systems, where a consignment

arrangement exists between the exporter and the

importer, 'customs value' may be established on the

basis of the sale of comparable goods in comparable

circumstances or by the use of actual or expected

realisations. The latter method, known until 1981 as

the 'end-realisation method', and later as the

'deductive method', calculates the 'customs value' of

goods by deducting certain allowable expenses from the

price of the first sale after importation to an

unrelated buyer in Australia.

9. From the time it commenced trading, following

incorporation on 6 December 1977, until 18 January

1988 Lego Australia Pty Limited represented to Customs

that the 'Lego' products imported by it into Australia

were imported on consignment and not pursuant to a

contract for sale. On this basis the 'customs value'

of the goods was accepted by Customs as being properly

calculated in accordance with the 'end-realisation

method' and later the 'deductive method'.

10. In 1986 Customs commenced a review of the valuation

method used by Lego Australia Pty Limited after

Customs noted that the level and range of expense

deducted from domestic selling prices had increased

significantly."

(4) Thereafter correspondence passed between the parties as follows:

"11. On 18 January 1988 the firm of chartered accountants

Ernst and Whinney, chartered accountants, wrote on

behalf of Lego Australia Pty Limited to Customs in

response to a request by Customs that Lego Australia

Pty Limited supply a copy of the consignment agreement

between Lego Australia Pty Limited and Lego Overseas

A/S. The letter stated:

'... there is no formal written consignment

agreement between Lego Australia and Lego

Overseas. The consignment agreement is

reflected in correspondence and consignment

shipping and sales documentation between the two

parties.' (Emphasis added)

12. Ernst and Whinney sought to provide evidence of that

statement in subsequent (annexed) correspondence ...

dated 18 January 1988, 9 September 1988, 19 December

1988, 13 January 1989 and 15 May 1989."

[33]

"SUMMARY:

The original decision on valuation for Lego was made by

Mr Harry Dunner Senior Inspector July 1977, VFD (value for

duty) was established as 41.47% of the wholesale price.

File N85/9683 refers.

Mr Rodda, S.I. Valuation, Central Office, correctly

advised on 9 December 1977 that we were accepting a VFD

which was more than 36% less than what the supplier was

receiving for the goods.

An FOB Price has been established and that price is the

consignment price, and that price is also the amount that is

remitted to Lego Overseas A/S.

This Audit team is of the opinion that if all relevant

facts were presented to the Appraisements Section, in

particular copies of the order and acceptance of post

importation sale, then a correct decision on the price would

have been established. Whilst the current situation can

only benefit the importer as he is only using a 60% figure

of the Consignment Price, the full Consignment Price which

represents the true F.O.B. should be entered.

The failure to disclose this information has led to a

serious shortfall in import duty over the past years e.g.:

One year period 1/5/89 - 30/4/90

Customs Value Entered = (Illegible)

But this represents only (illegible) of true VFD.

True VFD for period = (illegible)

Approximate Duty Rate = 18%

Approximate amount of duty short levied = (illegible)

Whilst it may be said that the ACS has compromised

itself as a result of previous decisions given on file ...

those decisions were based on an incomplete set of documents

and as a result a decision biased in the favour of Lego

Aust. P/L. was obtained.

This file is referred for your most urgent attention and

onforwarding to Investigations in regard to the failure to

disclose. This is not a case of misrepresentation but

rather one of intentional failure to fully represent.")

(7) A claim was made by ACS for customs duty of $1,234,846.55

allegedly short paid; Lego Australia responded to the claim by paying

under protest and seeking review by the Administrative Appeals Tribunal

(paras.16 and 17 of the Information).

(8) A version of events was provided to the Informant by a former

employee of Lego Australia as follows:-

"18. The Informant has since been approached by a former

employee of Lego Australia Pty Limited, who between

1986 and December 1989 occupied a senior position

within the company and had an active involvement in

the importing process. The Informant understands that

the former employee was retrenched by Lego Australia

Pty Limited as a cost cutting measure. The former

employee's position was later filled by someone else

at the same level.

19. The former employee is known to the Informant as a

person who rendered assistance on request to the

Customs audit team during its audit of Lego Australia

Pty. Limited in 1990 and the Informant has confidence

in the reliability and accuracy of the information

provided by him. The former employee has sought

indemnity from prosecution for his part in the

transactions described in this Information.

20. The former employee states that from the time of his

employment in 1986 until December 1989, imports of

'Lego' products into Australia by Lego Australia Pty

Limited were purchased by Lego Australia Pty Limited

from Lego Overseas A/S according to an agreed export

price list. The former employee also states that

there was no consignment arrangement and that title to

the goods was vested in Lego Australia Pty Limited who

paid Lego Overseas A/S its invoice price on 90 day

terms. He understands that this arrangement had

existed since the incorporation of Lego Australia Pty

Limited in December 1977.

21. The former employee says that Lego Overseas A/S

produced two sets of documents for each shipment:

one set of documents for customs clearance

purposes, representing the purported consignment

arrangement and quoting the valuation basis

sales transaction including payment terms; and

one set of documents for internal purposes.

He says that the information contained in the two sets

of documents was essentially the same but differed in

the stated price of the goods. He further states

that:

between 1986 and August 1990 the internal sets

of documents received by Lego Australia

represented the actual import sales transaction

and were never revealed to Customs until the

time of the audit in 1990;

the sets of documents produced to Customs for

entry and clearance purposes were not a

reflection of the commercial reality that exists

between Lego Australia and Lego Overseas.

22. The use of dual documentation as described above

resulted in Lego Australia Pty Limited paying a lesser

amount of customs duty on its imports than it was

obliged to do. The former employee says that when he

expressed disquiet about this situation he was told by

his immediate supervisor, Mr Geoff Moore, who was and

is the financial controller of Lego Australia Pty

Limited, that he was employed to implement policy and

that was all that should concern him. He further says

that in late 1987 Ernst and Whinney alerted Lego

Australia Pty Limited to the proposed new audit powers

of Customs and that, as a consequence, Lego Australia

Pty Limited then abandoned its previous actual

purchase arrangements with Lego Overseas A/S and, on

the advice of Ernst and Whinney, restructured its

overseas ordering and payment system."

(9) The balance of the Information dealt with the possible location of

documents.

[36]

(1) His Honour first analysed, at some length, the evidence with

respect to Lego Australia's dealings with ACS in the period between 1977

and 1981. After considering the amendments made to the Customs Act in

1981 picking up the international agreement known as "Customs Valuation

GATT Agreement", his Honour said (at 158):

"...under the 1981 provisions, a non-arm's length

transaction might be used in the calculation of value.

Whether the transaction should be so used would depend upon

the extent, and reliability, of the information concerning

it that was obtained by ACS. But, of course, in order to

make that assessment, ACS needed to know about the

transaction. Whereas in the past the concealment of a

non-arm's length transaction may have had no practical

effect, after 1981 it prevented the Collector making a

judgment whether to apply the transaction value of the

goods. Concealment might affect the amount of duty."

(2) Wilcox J then described, also in some detail, the evidence as to

the dealings between Lego Australia and ACS in the period 1981-1988,

before describing the evidence in respect of the dispute which developed

between them and the subsequent conduct of the field audit in May 1990.

(3) The primary Judge approached the present matter by classifying the

information in question into two groups: (1) information said to be

actually known to Mr. Paraggio, but not disclosed to Ms. Elder; (2)

information not actually known by Mr. Paraggio, but which he should have

known. After considering the authorities in this area, and in

particular, George v Rockett [1990] HCA 26; (1990) 170 CLR 104 and the Full Federal

Court decision in Karina Fisheries Pty. Ltd. v Mitson [1990] FCA 154; (1990) 26 FCR 473,

Wilcox J said (at 172):

"...failure by an applicant to disclose material information

that is in fact unknown to him/her at the time of seeking a

search warrant invalidates the warrant only in a case where

that information was previously known to the applicant but

forgotten, or where the applicant's ignorance results from

his/her wilful blindness or other bad faith. None of these

matters are suggested in this case."

(4) Turning next to the complaint that Mr. Paraggio failed to disclose

to Ms. Elder information of which he was actually aware, being matters

discussed at a meeting between Messrs. Dunner and Paraggio in October

1991, to which reference will be made later, his Honour said (at 175-6):

"The case put by counsel for the applicants on this aspect

of the matter is that Mr Dunner informed Mr Paraggio as to

the true situation on 25 October; that Mr Paraggio ignored

this new information and withheld it from the magistrate;

and now denies having received the information in the first

place. I do not know what Mr Paraggio would gain by doing

this. More importantly, I cannot reconcile this

suggested course of conduct with my assessment of Mr

Paraggio. I was favourably impressed with Mr Paraggio, from

his performance in the witness box. He seemed to me an

honest, fair-minded and reasonable person. He is obviously

a dedicated and conscientious Customs officer. No doubt,

like everyone else, he is capable of error, but I believe

that he attempted to carry out this investigation in a fair

and professional manner. I cannot attribute to him the

deviousness that this submission entails."

(5) Wilcox J went on to reject a complaint of failure to disclose

other matters and of misrepresentation in the same, or related, areas.

Finally, his Honour held that none of the other grounds for judicial

review of Ms. Elder's decision was in the instant circumstances, made

out.

[41]

(1) The validity of a search warrant is necessarily dependent upon the

fulfilment of the conditions governing its issue. In prescribing

conditions governing the issue of search warrants, the legislature had

sought "to balance the need for an effective criminal justice system

against the need to protect the individual from arbitrary invasions of

his privacy and property" (at 110). Against that background, to insist

on strict compliance with the statutory conditions governing the issue

of search warrants "is simply to give effect to the purpose of the

legislation" (at 111).

(2) The opening words of the legislation - "If it appears to a justice"

(cf. Crimes Act, s.10(1) - "If a Magistrate or Justice of the Peace is

satisfied...") - impose on the justice the duty of satisfying himself

that the conditions for the issue of the warrant have been satisfied (at

111).

(3) Although it is implicit in the legislation that the applicant for

the warrant should entertain the suspicion and belief to which that

section refers, it must "appear" to the justice that there are

reasonable grounds for entertaining the relevant suspicion and belief.

The requirement that facts exist which are sufficient to induce this

state of mind in a reasonable person opens many administrative decisions

to judicial review and precludes the arbitrary exercise of many

statutory powers (at 111-2).

(4) The matters which must be made to appear to a justice must appear

"on complaint made on oath". If the information merely contains a

statement that the deponent suspects something, for which suspicion he

gives no relevant foundation, the court will declare that there was no

ground for the exercise of the magistrate's power to issue the warrant.

The requirement is that the sworn complaint should contain sufficient

facts to found the reasonable suspicion and the reasonable belief. If

that requirement is not satisfied, the information otherwise conveyed to

the justice is immaterial, but, if that requirement is satisfied, the

justice may seek confirmation by inquiry of the complainant (113-4).

[54]

"There is a primary precept governing the administration of

justice, that no man is to be condemned unheard; and

therefore, as a general rule, no order should be made to the

prejudice of a party unless he has the opportunity of being

heard in defence. But instances occur where justice could

not be done unless the subject matter of the suit were

preserved, and, if that is in danger of destruction by one

party, or if irremediable or serious damage be imminent, the

other may come to the Court, and ask for its interposition

even in the absence of his opponent, on the ground that

delay would involve greater injustice than instant action.

But, when he does so, and the Court is asked to disregard

the usual requirement of hearing the other side, the party

moving incurs a most serious responsibility.

...it is the duty of a party asking for an injunction ex

parte to bring under the notice of the Court all facts

material to the determination of his right to that

injunction, and it is no excuse for him to say he was not

aware of their importance. Uberrima fides is required, and

the party inducing the Court to act in the absence of the

other party, fails in his obligation unless he supplies the

place of the absent party to the extent of bringing forward

all the material facts which that party would presumably

have brought forward in his defence to that application.

Unless that is done, the implied condition upon which the

Court acts in forming its judgment is unfulfilled and the

order so obtained must almost invariably fall. I add the

word 'almost' in deference to such an exceptional case as

Holden v Waterlow ... The obligation is stated by Turner

LJ in that case ... to be to 'state their case fully and

fairly,' and so by Sugden LC in Dease v Plunkett ...,

where he said: - 'The plaintiff had not fully and fairly

disclosed the entire facts of the case.' Lord Cottenham

LC in Brown v Newall ..., observes that the power to grant

such an injunction should exist is indispensable, but, from

the liability to injustice, must be exercised with caution.

Then he says ... - 'The Court can have no ground upon which

it can proceed, in granting an ex parte injunction, but a

faithful statement of the case.' The learned Lord

Chancellor distinguishes between mis-statement, or

suppression likely to influence the Court in acceding to the

application, and that which is immaterial.

In the present instance the admitted circumstances are most

material: no order could have been made had they been

stated, without considering and weighing them, and therefore

the order for injunction was improperly obtained. In

Clifton v Robinson ..., even forgetfulness of a material

fact was not a sufficient excuse to prevent the injunction

being dissolved."

At a glance

Court

Decision date

Before

Source

Judgment (157 paragraphs)

Lego Australia Pty Limited and the Persons Listed In the Application Hereto T/As Ernst and Young v Phillip Paraggio, David Rooney, Comptroller General of Customs, Wendy Elder, Wayne Martin Morrison, Anthony John Emmanuel, P Hilip George Murdoch, Brennan W [1994] FCA 1286 (25 August 1994)

Parties

Legislation Cited (6)

Cases Cited (14)