Toyota Motor Sales Australia Ltd v Collector of Customs

REASONS FOR JUDGMENT THE COURT: The Appellant, Hyundai Automotive Distributors Australia Pty Limited ("Hyundai") is the Australian importer and distributor of Hyundai passenger motor vehicles. The vehicles are manufactured in Korea, sold to Hyundai by an unrelated company Hyundai Motor Company ("the Manufacturer"),and ultimately sold by Hyundai to retail customers. The appeal concerns the entitlement or otherwise of Hyundai to a refund of customs duty which it has paid on the importation of those vehicles, the entitlement being agreed to be governed by paragraph 126(1)(g) of the Customs Regulations ("the Regulations"), made pursuant to the Customs Act 1901 ("the Act"). THE BACKGROUND FACTS The following statement of the factual background to the appeal is taken largely from the decision of the Administrative Appeals Tribunal constituted by a Deputy President (Mr McMahon). There is no real dispute as to the primary facts, although it was suggested from the bar table by senior counsel for Hyundai that if the matter were ultimately remitted to the Tribunal for reconsideration Hyundai might (no guarantee was given) wish to adduce further evidence. Hyundai did not adduce any evidence in the Tribunal from the Manufacturer, a matter that elicited some comment from the learned Deputy President. The vehicles are purchased by Hyundai pursuant to the terms of a document which is described as the "Importation Agreement". It was entered into on 1 January 1993. In that agreement Hyundai is referred to as the "Importer", while the Manufacturer is described as "HMC". The terms of this agreement are not of great significance in the appeal. It suffices to say that it provides for Hyundai to place orders with the Manufacturer for vehicles which it wishes to purchase and contains terms of payment for them. Delivery of vehicles is to be to an Australian port (cl 6.1) and title and risk of loss are to pass at the time the goods have "effectively passed the ship's rail at any Korean port of shipment": (cl 6.2). Where goods are the subject of marine damage there is provision for repairs to be carried out by Hyundai in consultation with a marine insurer. Clause 6.5 then provides: "All claims for shortages and discrepancies in shipments of HMC Vehicles must be in a form approved by HMC and must be sent to HMC by Importer within 90 days after shipment on which such shortage or discrepancy is claimed, and claims submitted after 90 days have lapsed will not be considered or allowed. And all claims for shortages and discrepancies in shipments of HMC Parts must be in a form approved by HMC and be sent to HMC by Importer within 60 days after the arrival at the port of destination of any shipment on which such shortage or discrepancy is claimed, and claims submitted after 60 days have lapsed will not be considered or allowed." Clause 9.1 of the Importation Agreement provides that the Manufacturer is to extend to Hyundai a limited warranty on vehicles sold to Hyundai under the agreement in accordance with a warranty and claims manual. If there is an increase in warranty coverage such increase is to be effected but the price for affected vehicles is to be increased to reflect the cost of the increase in warranty coverage. Where there is an extended warranty Hyundai is to reimburse the Manufacturer for its cost in extending or causing to be extended the warranty to ultimate users. The Importation Agreement provides for the parties to enter into a separate Warranty Agreement to address the terms and condition of the parties' warranty obligations, to the extent not provided in the Importation Agreement: cl 9.5. The Importation Agreement is to be governed by the laws of the Republic of Korea. It is common ground, Korean law not having been proved at the hearing, that there is no relevant difference between Korean law and Australian law. Particularly it is agreed that, to the extent that there is no express clause to this effect, there is, at the very least, an implied term in the Importation Agreement that the goods sold are of merchantable quality. Accordingly, if there were any defects in the goods, Hyundai would be able to claim damages for breach of the implied term, or if sued for non payment of the unpaid purchase price, to set off any claim for breach of warranty against that price: cf. Mondel v Steel (1841) 151 ER 1288, KCT Sutton, "Sales and Consumer Law", 4th ed (at 670-1), Healing (Sales) Pty Limited v Inglis Electrix Pty Limited (1968) 121 CLR 584, at 601 per Kitto J; at 626-7 per Owen J. There is, however, a dispute between the parties as to whether the situation is, for present purposes, dealt with explicitly, either by cl 6.5 of the Importation Agreement set out above or by cl 6.05 of the separate Warranty Agreement entered into concurrently with the Importation Agreement and contemplated by cl 9.5 of the Importation Agreement. The Warranty Agreement provides that the Manufacturer (referred to in the agreement as "the Company") is to provide a limited warranty on its vehicles in the following terms: "The Company agrees to reimburse the Distributor for repair and/or replacement of any part (except tires) of Company Vehicles manufactured and supplied by the company that is found to be defective in material or workmanship under normal use and maintenance for the time and/or mileage period identified below." The Warranty Agreement then provides that the Manufacturer is to reimburse Hyundai for costs incurred by it in the performance of the Manufacturer's warranty. Clause 6.02, which falls to be construed in this context, is headed "Pre-Delivery Inspection and Conditioning". It is in the following terms: "If requested by the Company, the Distributor shall ensure that each new Company Vehicle will be inspected and conditioned before delivery to a retail customer, at its expense, in accordance with schedules and instructions furnished from time to time by the Company." So far as it matters, this agreement also is to be governed by the laws of the Republic of Korea. There was in evidence, although nothing turned upon it, the warranty manual referred to in the Importation Agreement. On 1 July 1991 an agreement had been entered into between Hyundai and a company called Prixcar Pty Ltd ("Prixcar"), which had facilities throughout Australia. The agreement contemplated that upon landing of vehicles at the port, Prixcar would give them a brief wharfside inspection before the vehicles proceeded to bond. At this stage the vehicles were covered with wax. While the vehicles were in bond the wax was removed and the vehicles given a closer inspection by Prixcar and an independent consultant, Mr Tweedie, whose task was to supervise the Prixcar work on behalf of Hyundai. The purpose was to make the vehicles commercially presentable. It seems that there was some (albeit minor) fault in almost every vehicle inspected. In most cases the defect was in paint or body finish and required no more than a "scuff and buff" to rectify. In rare cases something like a panel on the console or a tool box might be missing. These matters were rectified by Prixcar by agreement with Hyundai. Hyundai paid Prixcar the invoiced cost of rectification. Once the work was done, details of the work and cost were recorded on a claim form. That form was known as the "Hyundai warranty claim form". The same claim form was used for claims by Hyundai against the Manufacturer under the Warranty Agreement. However the form itself was not sent to the Manufacturer. Rather a summary of the information in each claim was sent electronically to the Manufacturer, which checked the detail and then remitted a sum to Hyundai to its bank account held with Standard Chartered Bank. The present case is not concerned with any damage which may have occurred in transit. Nor is it concerned with reimbursement for customer warranty claims. It is concerned only with the work done by Prixcar which related to rectifying defects in vehicles which, it may be assumed, were in that condition at the time they were delivered to the wharf in Korea. It was an agreed fact that the defects diminished the market value of a vehicle by an amount not less than the cost of rectification. Customs duty became payable when the vehicles were entered for home consumption. It is common ground that the duty payable was calculated by reference to the price payable by Hyundai for the vehicles. Hyundai claims, however, and the Australian Customs Service denies, that it is entitled to a refund of a portion of the duty paid by reference to the cost of Prixcar rectifying defects in the cars, not being damage in transit or warranty claims. THE LEGISLATIVE SCHEME The Act is hardly a model of clarity in the way it deals with the payment of duty on importation. Relevant provisions are to be found in Division 2 of Part VIII of the Act. For present purposes it is sufficient to say that, on importation of the vehicles in the present case the duty was to be calculated on what is referred to in s 159(1) as the "customs value". Provided a "transaction value" could be determined, and it could in the present case, "customs value" equated with "transaction value". There is a descending order of methods for the calculation of the "customs value". The first step in this order is the determination of the "transaction value". The mode of calculation descends ultimately to what is referred to as a "deductive value" and a "fall-back value", but nothing in the present case depends upon these more difficult methods of calculation of "customs value". Transaction value is defined in s161(1) as: "an amount equal to the sum of their adjusted price in their import sales transaction and of their price related costs to the extent that those costs have not been taken into account in determining the price of the goods." The "adjusted price" commences with the "price" of the goods and provides for the deduction from that amount of such sums as concern deductible finance, costs payable for assembly, construction, maintenance and technical assistance incurred after importation, if accurately quantified by reference to the import transaction, inland freight and insurance, certain administrative costs, overseas freight and insurance. "Import sales transaction" is defined in s154(1) and falls to be determined by reference to the contract of sale of the relevant goods. "Price" is likewise defined in s 154(1) in a lengthy definition, which in relevant terms includes the following words: "price, in relation to goods the subject of a contract of sale, means an amount determined by a Collector, after disregarding value unrelated matters in relation to those goods, to be the sum of: (a) all payments that have been made, or are to be made, directly or indirectly, in relation to such goods, by or on behalf of the purchaser: (i) to the vendor; (ii) to any person related to the vendor unless a Collector is satisfied that the vendor has not derived and will not derive any direct or indirect benefit from the payment; or (iii) to any other person for the direct or indirect benefit of the vendor; in accordance with the contract of sale." The definition continues to take into account payments under other contracts, agreements or arrangements, formal or informal, if closely connected with the contract of sale. It is not suggested for Hyundai that there are other contracts, agreements or arrangements except as already identified. There are other matters that may be taken into account including the value of services supplied by or on behalf of the purchaser as part of the consideration for purchase under the contract of sale. This and other matters referred to in the definition played no part in the argument. Refunds of duty are provided for in s 163 of the Act. Prior to the commencement of the Customs Regulations circumstances where refunds were available were specified in s 163. As and from the commencement of the Regulations and as a result of Act No 12 of 1971, the circumstances where refunds were available were relegated to the Regulations where they now appear. Regulation 126(1) prescribes a number of circumstances where refunds will be available. It is difficult to see a clear legislative policy operating across all the circumstances prescribed. However, they include cases where the goods on which duty has been paid have, inter alia, been damaged in transit to Australia, (para (a)); where the goods have been landed in a "deteriorated or damaged condition" (para (b)); where the goods have been damaged lost or destroyed while subject to the control of Customs (para (c)) and numerous other circumstances not presently relevant. Relevant, however, to the present appeal is Regulation 126(1)(g) which provides for a refund where: "the price of goods for the purposes of Division 2 of Part VIII of the Act was taken into account in determining under that Division the customs value of the goods and a rebate of, or other decrease in, that price accrues to the importer of the goods by reason: (i) of a fault or defect in the goods; or (ii) that the goods did not conform to contract specifications furnished by the importer to the manufacturer or supplier: and the rebate, or decrease, was not taken into account in determining that customs value." The claim of Hyundai is that the consequences of its reimbursement by the Manufacturer of the amounts which Hyundai initially expends to rectify defects, other than defects in transit or warranty claims, entitles it to a refund under Regulation 126(1)(g) because, in the relevant meaning of that Regulation, the price of vehicles where the damage was rectified was either decreased or there was a rebate in it. The claim having been disallowed, Hyundai appealed to the Administrative Appeals Tribunal. THE DECISION OF THE TRIBUNAL The learned Deputy President formed the view that the liability of the Manufacturer to reimburse Hyundai for the relevant work performed by Prixcar derived from cl 6.02 of the Warranty Agreement. There was indeed some evidence before him that this is the way the matter was perceived by Hyundai, although that would hardly be determinative of construction of the agreements between Hyundai and the Manufacturer. Nonetheless, the Deputy President considered that there was no rebate or other decrease in the price within Regulation 126(1)(g). After referring to the definition of a rebate (extracted from the "Macquarie Dictionary"), the learned Deputy President expressed the view that there was no evidence that the moneys passing from the Manufacturer to Hyundai were treated in accordance with any sense of the defined expression. He said: "The documentation does not support a submission that the reimbursement for each claim was a return of part of an original amount paid for the vehicle. The way in which the refunds were treated indicates, as I have pointed out, that in fact they were not deductions from the total purchase price. They were treated, for reasons which no doubt are good reasons from HMC's point of view, as payments collateral to the principal obligations between the vendor and the purchaser." The Deputy President then considered the decision of a Full Court of this Court in Toyota Motor Sales Australia Ltd v Collector of Customs (1991) 28 FCR 27. He expressed the view that the present case should be viewed in the same light as the facts of that case. The Deputy President concluded as follows: "In the ordinary parlance of commercial life, moneys paid to the applicant's account with Standard Chartered Bank debited, we may assume, to an account other than the vendor purchaser account, and payable for the services which I have outlined, can not fairly be said to be rebates of or decreases in the prices of the relevant vehicles. As this is the only basis upon which, relevantly, a refund can be made in the circumstances it seems to me that the applicant must fail." From this decision Hyundai appealed to this Court. The appeal, brought under s 44(1) of the Administrative Appeals Tribunal Act 1975 is an appeal "on", that is to say limited to questions of law. THE JUDGMENT APPEALED FROM The appeal was heard by Beaumont J. His Honour found it unnecessary to resolve many of the matters which were the subject of submissions on behalf of Hyundai. For example, his Honour thought it unnecessary to decide whether the right of reimbursement arose out of the Importation Agreement, the Warranty Agreement or an implied term. Adopting the test in Toyota as to whether the payments were "collateral to" and thus divorced from the purchase transaction, his Honour said: "In my opinion, it was open to the Tribunal to make a similar finding [that is to say similar to that in Toyota], essentially, as I have said, one of fact in the present circumstances. I note in particular, in this connection, that amongst the present circumstances, is the fact that the subject payments were both in form and in substance, in the nature of unliquidated compensation, which reflected the amount required to rectify the defects. That is to say, the determination of the amount of the payments in question bore no relationship inherently, logically or otherwise, to the amount of the price of the vehicle itself. In this sense, it was open, I think, for the Tribunal to conclude that the subject payments could truly be seen as collateral to the obligation of the applicant to pay the agreed price for the vehicles." From this decision Hyundai appealed to the Full Court of this Court. THE SUBMISSIONS ON APPEAL OF HYUNDAI Hyundai puts its case on the following bases: 1. The Tribunal erred in holding that cl 6.02 of the Warranty Agreement provided the foundation for the refund. 2. The Tribunal and the learned primary judge both erred in holding that there was an insufficient connection between the reimbursement and the contract of sale of the cars. Thus, the decision in Toyota should be distinguished from the circumstances in the present case. 3. The Tribunal was distracted by the fact that the work of rectifying damage was done before the taxing point of entry of the cars into home consumption. In particular, it failed to have regard to the fact that this was a claim for rectification of defects arising out of the contract in respect of damage which affected the market value. The policy of the legislation is to provide for refunds where there is a diminution of that market value on importation. Thus, the Regulations should be construed in accordance with that policy and be applicable to the present case. It was the submission of senior counsel for Hyundai that, since the Tribunal had erred in law, the matter should be remitted to it in circumstances where fresh evidence might be called. It was submitted that because fresh evidence might be led, the Court should not take the view that any error of law was immaterial in the sense that the Tribunal, on the evidence before it, could not have reached any other conclusion. THE SOURCE OF THE RIGHT TO A REFUND As presently advised, we are inclined to think that the right to claim reimbursement for putting the vehicles into a merchantable condition arose neither out of cl 6.02 of the Warranty Agreement, nor cl 6.5 of the Importation Agreement, but rather reflected an implied term in the Importation Agreement that the goods in question would be of merchantable quality at least as at the time the risk in relation to them passed to Hyundai. There are major difficulties, both in construing cl 6.5 of the Importation Agreement (referring as it does to "shortages and discrepancies" and not defects) and in construing cl 6.02 of the Warranty Agreement which in the context of the agreement itself, the Importation Agreement which contemplates it and the warranty manual is directed to the fulfilling of warranties (whether predelivery or post delivery) claimable by customers rather than defects observable on delivery. However, we find it unnecessary to decide this issue. We are prepared to assume for the purposes of the appeal, that in finding that cl 6.02 of the Warranty Agreement applied, the learned Deputy President erred in law. Further, we are content to decide the case on the alternatives that either the matter was governed by cl 6.5 of the Importation Agreement or founded upon an implied term (or other statutory provision such as the Sale of Goods Act ) importing into the contract of sale a warranty of merchantable quality. We shall consider the consequences of that assumed error later. THE MEANING OF THE REGULATION The substantial issue in the appeal is as to the construction of the relevant Regulation and, whether accepting the facts which are undisputed, and accepting the most favourable outcome of the question of construction of cl 6.02 of the Warranty Agreement in favour of Hyundai, Hyundai is entitled to a refund under the Regulation. A useful starting point is the decision of the full Court of this Court in Toyota. In Toyota, the appellant sought a refund under Regulation 126(1)(g) for amounts it had expended and been reimbursed for in respect of customer warranty claims. The reimbursement arose under a document referred to in the judgment as "the Warranty Policy". As in the present case the price payable for cars was regulated by an Importation Agreement and essentially was at prices quoted from time to time by the Manufacturer in respect of goods ordered. The Full Court held that there was no entitlement to a refund. It was conceded by counsel for Toyota that if the amounts reimbursed were repayments of money expended upon warranty claims Toyota could not succeed. Rather, Toyota argued, unsuccessfully, that on the construction of the relevant Importation Agreement, there was a change in the price of the motor vehicle after the price was initially fixed. The Court said this (at 29): "Secondly, we do not think that in the ordinary parlance of commercial life the reimbursements can fairly be said to be rebates of, or decreases in, the prices of the relevant vehicles accruing to Toyota Australia by reason of faults or defects in those vehicles. They were payments made to Toyota Australia under arrangements essentially collateral to the purchase of the motor vehicles pursuant to which Toyota Australia was entitled to claim reimbursement in respect of at least some of the expense incurred in meeting its warranty obligations to owners of Toyota vehicles. The contractual arrangements made between the two companies pursuant to which reimbursements were made were plainly independent of the contractual arrangements pursuant to which the motor vehicles were imported. Thus a claim by Toyota Australia for a reimbursement was not a claim against its parent for a rebate of, or decrease in, the price of a vehicle. Rather it was a claim for reimbursement of the cost of repairs for which it had made itself contractually liable. In these circumstances the reimbursements did not fall within reg 26 (g) (sic)." It is clear that there is a factual difference between the facts of the present case and those in Toyota. In the present case the repairs were carried out while the vehicles were in bond. The repairs were not made pursuant to warranty claims made by end purchasers of the vehicles. Thus it cannot be said in the present case that the repairs were collateral to the sale agreement with the Manufacturer. It is accepted for present purposes too, that the right to reimbursement is to be found either in an express or an implied term of the Importation Agreement. Toyota makes it clear, however, that the question of whether a payment by the Manufacturer to the importer of a vehicle is a rebate of or a decrease in the price will be resolved having regard to the collateral arrangement between the parties. The initial purchase and sale agreement, and any variation thereto, will be very important to, if not determinative of, the question. Rebates affecting price, such as volume rebates, promotional rebates and the like may involve other considerations. The present question is whether, on the facts before the Tribunal, a reimbursement of expenditure effected to remedy defects on goods observable at the time of delivery, although before entry into home consumption, involves either a decrease in the price, or a rebate of the price accruing to Hyundai. Both "price" and "rebate" are ordinary English words, although the former may be thought to have a definite legal connotation. "Price" in its ordinary meaning is concerned with the amount which a vendor obtains from a purchaser under a contract of sale: cf Re Scremby Corn Rents, Ex parte Church Commissioners for England [1960] 1 WLR 1227. That amount will usually be ascertained by reference to the contractual obligations of the parties, including any variations of those obligations. The word "rebate" has, as Helsham CJ in Eq said in Brookton Co-operative Society Ltd v Federal Commissioner of Taxation (1977) 16 ALR 93 at 111, in comments unaffected by the subsequent appeals in that case: "a notion of something paid by way of reduction or return or refund upon what has previously been paid or contributed, a deduction or discount referable to what has been paid." The Macquarie Dictionary, to which the learned Deputy President referred, states that a "rebate" is a return of part of an original amount paid, inter alia, for merchandise, a discount allowed or a deduction. This imports the same notion as that adopted by Helsham CJ in Eq. The customs duty regime operates in international commerce. So it may be expected that its terms, particularly "rebate" are to be construed, as the Full Court said in Toyota, by reference to "the ordinary parlance of commercial life." But that is no warrant to give anything but the natural and commercial meaning to the expression. The contractual documents admit of no conclusion other than that there was neither a reduction in nor a rebate of the price paid for the vehicles and there was no evidence to the contrary. Hyundai had contracted to pay a price for a vehicle. The goods were defective and were restored by Hyundai to merchantable quality. Hyundai was reimbursed for the cost of remedying the defects. The price in no way varied; there was no rebate of it given by the Manufacturer. In the result, for the price initially agreed, Hyundai obtained the vehicle in good condition. The Manufacturer merely paid an amount to ensure that its contractual obligation to sell the goods at that price and in merchantable condition, was satisfied. If one views the transactions other than in a customs setting, that is to say in ordinary commercial life, it would occur to nobody, we think, to say that there has been a rebate or decrease in the price. The Manufacturer's payments concerned something other than price. In that sense, they were "collateral to" the price just as, in a different factual setting, they were in Toyota. Thus, the factual differences, such as they are, do not result in a legal distinction between this case and Toyota. No amount of reference to the statutory scheme leads to any other conclusion. In particular, while it is correct to say that the legislature has fastened upon a broad concept of value at the time of entry into home consumption and in the usual case as between parties at arm's length, has proceeded upon the assumption that contractual price (varied in accordance with certain statutory provision) will give the best indication of that value, ultimately "price" in such a case is the statutory discrimen, not market value. It follows that the agreement between the parties that the defects caused some diminution in market value cannot affect the outcome. WAS ANY ERROR OF LAW A MATERIAL ONE? As we have already indicated we have proceeded upon the assumption that the learned Deputy President erred in law in construing the source of the right to reimbursement received by Hyundai from the Manufacturer. The remaining question is whether that error brings about the result that the appeal should be allowed and the matter remitted to the Tribunal. It is now well accepted that not every error of law discovered by this Court in the reasoning of the Tribunal will result in the matter being remitted. The error in question must be material to the Tribunal's decision before this course will be adopted: Casarotto v Australian Postal Commission (1989) 86 ALR 399 at 401; BTR PLC v Westinghouse Brake & Signal Co (Australia) Ltd (1992) 106 ALR 35 at 41-2 per Lockhart and Hill JJ; Owens (AJ) v Repatriation Commission (1995) 38 ALD 481 at 509; Zhang Jia Qing v Minister for Immigration and Multicultural Affairs (1997) 149 ALR 519 at 531. An error of law may be material if its correct resolution might affect the decision. We say "may" because the application of the correct law to the facts may involve questions of fact and degree which are the province of the Tribunal and not this Court: cf Federal Commissioner of Taxation v Brixius (1987) 16 FCR 358 where a question of fact and degree involved no question of law. It was submitted for Hyundai that we should not look at the matter by reference to the facts before the Tribunal, but having identified an error of law should remit the matter to the Tribunal on the chance that different facts might emerge which might lead to a different conclusion in this case. With respect to the submission an error of law will only justify a matter being remitted to the Tribunal, if on the facts before it, the Tribunal's decision might have been affected. There must be a finality in litigation and this Court is not bound in a case such as the present to take into account the possibility, no matter how remote, that fresh evidence might affect the issue. The Tribunal is the arbiter of facts. It has found them on the case which Hyundai chose to run. If the situation is, as we believe it is, that on such facts there is only one conclusion open, and that is that Hyundai is not entitled to a reduction in duty there is no justification for remitting the matter to the Tribunal. A reconsideration by it on the evidence which Hyundai has chosen to lead would be futile. The appeal is accordingly dismissed with costs. I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment herein of the Honourable Justices Hill, Sackville and Madgwick