CEO Customs v AMI Toyota Ltd

[2001] HCATrans 249

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M116 of 2000

B e t w e e n -

CHIEF EXECUTIVE OFFICER OF CUSTOMS

Applicant

and

AMI TOYOTA LIMITED, TOYOTA MOTOR CORPORATION AUSTRALIA LTD AND TOYOTA MOTOR SALES AUSTRALIA LIMITED

Respondents

Application for special leave to appeal

GAUDRON J
KIRBY J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 10 AUGUST 2001, AT 10.00 AM

Copyright in the High Court of Australia

MR G.T. PAGONE, QC:   If the Court pleases, I appear with MS M.M. GORDON for the applicant.  (instructed by Australian Government Solicitor)

MR A.L. CAVANOUGH, QC:   If the Court pleases, I appear with my learned friend, MR H.R. CARMICHAEL, for the respondent.  (instructed by Bartier Perry)

GAUDRON J:   Yes, Mr Pagone.

KIRBY J:   You say it is said that it is not $10 billion involved in this.  It is only $8 million.

MR PAGONE:   Your Honour, there is a lot of money involved in this.

KIRBY J:   And it is not only, as I understand your affidavit, the situation of the present respondents.  It is also other car importers.  Is that the case?

MR PAGONE:   Your Honour, yes, it is.  Not only other car importers but, indeed, any importers.

KIRBY J:   Exactly.

MR PAGONE:   Refrigerators, televisions, anything that has about it a sale of a good that has attached to it a warranty of fitness.  Anything of that kind where the manufacturer, either by law or in fact, warrants the goods will be affected by this decision because an element of what is sold in the Australian marketplace will necessarily have about it a warranty.

KIRBY J:   At some stage, not necessarily now, would you explain how you bring in the World Trade Organisation agreements because I could not quite track that down as to how it becomes relevant to support your theory about the interpretation of the statute.

MR PAGONE:   Your Honour, perhaps I could do that now if that is ‑ ‑ ‑

KIRBY J:   Well, just take your own course but I could see that that would be a very significant consideration in my mind if you can make it good.  But I just could not track it down as to how you make it good.

MR PAGONE:   If your Honour pleases.  Perhaps if I can just momentarily, as it were, go to the beginning and just track, in general principle, how the issue arises so that all the issues including the one that your Honour has put to me can be explained.  As I have said, your Honours, the application concerns the construction and application of what is the key provision, in many respects, of the imposition of customs duty, that is how to determine value for the purpose of the duty to be paid on imported goods.  Goods arrive, plainly enough, on a daily basis and the customs officials who are to determine how duty is to be paid face the problem, on a daily basis, of working out how to calculate the impost.

Your Honour, the imposition of the duty can perhaps be seen if I take the Court to the application book, first of all at page 420 in volume 2.  I understand the Court has been given copies of the legislation but a convenient place may be just to see it from the reasons below and your Honours will see that section 159 of the Act imposes duty upon goods by reference to what is referred to as “their transaction value”.  Your Honours will see at about point 6 on the page:

Unless the contrary intention appears in this Act or in another Act, the value of imported goods for the purposes of an Act imposing duty is their customs value and the Collector shall determine that customs value in accordance with this section.

Subsection (2) then determines it by reference to the “transaction value”.  That, in turn, takes us to section 161, which is at the bottom of the page.  That has a number of defined concepts, a thing called the “adjusted price”, the “import sales transaction” and their price‑related costs.

If I can take a short cut, your Honour, and take the Court to the definition of “price”, which your Honours will see at page 422, two pages in, your Honours will see at the third line the definition of “price”.  That is in section 154(1) and it provides that:

‘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 –

There are a number of subsections.  I might just run through them very quickly, if your Honours please:

(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;

. . . 

in accordance with the contract of sale; and

(b) 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;

. . . 

under any other contract, agreement or arrangement, whether formal or informal, being a contract, agreement or arrangement for the doing of anything to increase the value of the goods or that a Collector is satisfied is so closely connected with the contract of sale referred to in paragraph (a) and to the goods the subject of that contract that together they form a single transaction;

whether the payment is made in money or by letter of credit . . . 

(c) the value, as determined by a Collector, of any goods or services supplied, or to be supplied, by, or on behalf of, the purchaser as part of the consideration passing from the purchaser under the contract of sale referred to in paragraph (a)  ‑ ‑ ‑

CALLINAN J:   Is not that all subject to value unrelated matters?  Do we not have to come to that?

MR PAGONE:   Then one gets to value unrelated matters.

CALLINAN J:   It does not matter what this contains.  We have to deduct value unrelated matters, do we not?

MR PAGONE:   Your Honour, the last bit of what your Honour said to me is undoubtedly true.  It is, with respect, not true to say that no matter what this says your Honour needs to go to value unrelated ‑ ‑ ‑

CALLINAN J:   Everything that appears there is subject, is it not, to the necessary disregarding of value unrelated matters?

MR PAGONE:   That is quite so, your Honour.

CALLINAN J:   So should we not come to value unrelated matters?

MR PAGONE:   Your Honour, I know it sounds tedious but the reason I am doing it this way is that in order to know what you are taking out of contention ‑ ‑ ‑

KIRBY J:   But I think what his Honour is saying is that let it be assumed we will assume that it is within the price but if it is within value unrelated matters you are dead in the water.

MR PAGONE:   On that assumption, your Honour, I am prepared to go straight to value unrelated matter on the next page and your Honour will see the definition of that at about point 10 of the page:

‘value unrelated matter’, in relation to goods the subject of a contract for sale, means:

(a) any rebate of, or other decrease in, the price other than such a rebate or decrease the benefit of which has been received when the price is being determined; or –

and this is the critical bit, your Honour –

any costs, charges or expenses in relation to activities undertaken by the purchaser on the purchaser’s own account in relation to the goods (including any activities of the purchaser relating to advertising or promoting the sale of, or to warranties or guarantees in relation to the goods).”

KIRBY J:   Well, you drop your voice at the end there, but they are the critical words:

or to warranties or guarantees in relation to the goods –

Now, is that not the critical phrase?

MR PAGONE:   Your Honour, I did not mean to drop my voice and no, that is not the critical phrase, your Honour, no, not at all.  Not at all, your Honour.  The critical phrase and the point upon which we lost below was a reference to the words “purchaser’s own account”.

CALLINAN J:   Does that mean exclusively purchaser’s own account?

MR PAGONE:   We would say, your Honour, that it would mean exclusively purchaser’s own account.

CALLINAN J:   It does not say that, does it.

MR PAGONE:   No, your Honour, but what it does say is “purchaser’s own account” so that if it bears the character of being on account of the company that we are importing from then it does not qualify.

CALLINAN J:   But it is disjunctive anyway.  It can come within either.  There is no reason why we have to focus on that.  It could come within that, but it would be excluded, would it not, if it came within the alternative?

MR PAGONE:   Which alternative, your Honour?

CALLINAN J:   Or “warranties or guarantees in relation to the goods”.

MR PAGONE:   No, your Honour, including.

CALLINAN J:   Activities undertaken by the purchaser in relation to.

MR PAGONE:   No, your Honour.

KIRBY J:   You say that the umbrella is any costs undertaken by the purchaser or the purchaser’s own account.

MR PAGONE:   Absolutely.

KIRBY J:   And that it is the warranties or guarantees that must be in relation to the purchaser’s own account.

MR PAGONE:   That is absolutely correct.

KIRBY J:   Because that is the umbrella of the subclause.

MR PAGONE:   Exactly, your Honour.

GAUDRON J:   Does your argument then depend on the fact that the relevant warranties are joint and several?

MR PAGONE:   It, in part, does.  The fact that they are joint and several is, we say, a powerful matter but, your Honours, we say that these warranties are, of their nature, that they go with the manufacturer’s obligation to the goods.  They are a part of the obligation which the manufacturer necessarily has and compels.

GAUDRON J:   But the manufacturer does not, in fact, do the work.

MR PAGONE:   That is true, your Honour.

GAUDRON J:   The manufacturer reimburses the purchaser for the work it does pursuant to its warranty.

MR PAGONE:   Your Honour, the question of the reimbursement is not the issue.

GAUDRON J:   No, but we need to know, do we not, what happens under the terms of their agreement?

MR PAGONE:   Yes, what happens, your Honour  ‑ ‑ ‑

GAUDRON J:   What we are concerned about is the average warranty.

MR PAGONE:   Not warranty expenses, your Honour, no.

GAUDRON J:   No, but the component that is calculated by reference to an estimate of the average warranty costs.

MR PAGONE:   And imposed across the board on all motor cars.  It is effectively, your Honour, one of the many overheads that the manufacturing company assumes that it will have, for good reason.  It manufactures goods.  It sells them.  It will sell them subject to an absolutely essential condition upon the sale of any goods, namely fitness.  If the fitness proves to be not there, the manufacturer will bear the burden, understandably.  What this manufacturer says is, “I wish to spread that overhead, like electricity, costs, secretarial services, any office expense, identify it as part of the price and claim that somehow or other it’s not part of the price”.

KIRBY J:   Yes, in economic analysis it would undoubtedly be part of the price.

MR PAGONE:   Economic analysis, your Honour, and ‑ ‑ ‑

KIRBY J:   The question is whether this legislation is wide enough to pick up that obvious consequence.

MR PAGONE:   And, your Honour, it is for that reason that I began with the definition of “price” to show the breadth of its operation.  Understandably enough, what is evident, we say, from the definition of “price” is that it is, in fact, intended to cover everything that bears upon the price, that anything that in part or forms part of the overall burden to the consumer is to be assimilated into the price.  What is understandably excluded from that category is the consideration of what is referred to as “own account”, that is to say, if it can be said, “No, no, no.  That’s not part of the manufacturer’s obligation that I’m paying.  I’m paying - this is a separate obligation.”  Put advertisement ‑ ‑ ‑

GAUDRON J:   It does not say that, does it?  The definition of “value unrelated matter” does not require it to be a separate item in any relevant way.

MR PAGONE:   Your Honour, we would say that it does because it says purchasers ‑ ‑ ‑

GAUDRON J:   Do not forget we are dealing with a definition and there are well‑established rules of construction with respect to definitions.

MR PAGONE:   Indeed, your Honour, and the words that your Honour must construe are the words “purchaser’s own account” - they are not chosen lightly – “purchaser’s own account” by reference to and in the context of the operation of provisions designed to bring to tax everything bearing upon price and, as it happens, in accordance with international obligations involving the sale of goods internationally.

Customs is a matter that has traditionally been governed by the GATT Agreement, more recently the World Trade Organisation.  The obligation that we have, as part of that system, is to make exigible transactions that are in conformity with that international practice, understandably so, and in that context, it is plain that what is contemplated as being included within price is everything that bears upon the burden that falls upon the purchaser, but excluded from that is that which is truly excluded from that, in other words, an additional obligation separate from that of the manufacturer but can truly be referred to as the purchaser’s own account.

KIRBY J:   Would you give as an example, apart from advertising?

MR PAGONE:   Advertising is one, your Honour, of course.  There is a very good example in the case called LNC.

KIRBY J:   Just tell me what the examples are.

MR PAGONE:   Another example, your Honour, would be additional warranty.  It is perfectly possible that the warranty that would be offered by a vendor in Australia is additional to that ‑ ‑ ‑

KIRBY J:   Additional to the manufacturer’s warranty.

MR PAGONE:   Additional to the manufacturer’s warranty.  Yes, your Honour.  As I am told from time to time occurs, particularly with luxury motor cars that sometimes the warranty that is given covers a whole range of activities that is plainly not intended to be included as part of the obligation of the manufacturer.

KIRBY J:   But you say so entrenched and integrated is the obligation in respect of the manufacturer’s warranty by law and by custom and by commercial forces that that is part of the price and anything in relation to it is not on the purchaser’s account.  It is just part of the manufacturer’s price.

MR PAGONE:   That is correct, your Honour.  That is it.

KIRBY J:   Well, you had better give us the international material because I do not understand how you make that good.

MR PAGONE:   Your Honour, the obligation that we have as a country arises from now the Marrakesh Agreement.  I think we have given to the Court ‑ ‑ ‑

KIRBY J:   They are exhibited to the affidavit of your solicitor, I think, Ms Bates.

MR PAGONE:   They are, your Honour, but it is not entirely clear from the affidavits exactly what they are unless you go back to the affidavit to reason out ‑ ‑ ‑

KIRBY J:   It is an affidavit for the solicitors of both sides, I think.

MR PAGONE:   Yes, your Honour.

KIRBY J:   They are in the application book.

MR PAGONE:   It is in the application book and perhaps I should refer to that, your Honour.  If I can take your Honours first to the affidavit of ‑ ‑ ‑

KIRBY J:   Do you say that the interpretation that the Federal Court has given puts Australia in breach of its obligations under the Marrakesh Agreement?

MR PAGONE:   We do, your Honour, yes, we do, because ‑ ‑ ‑

GAUDRON J:   It may be a question though whether the Act rather than the interpretation puts Australia in breach.

MR PAGONE:   If the Full Federal Court’s decision is right, your Honour, then the Act would put us in breach, is what we would say, and the reason that we say we are not in breach is because the Act, on the construction that I have just put to your Honours, is both clear and sensible and would not ‑ ‑ ‑

KIRBY J:   It is a pretty clear principle, is it not, that this Court has endorsed on several occasions that if there is an ambiguity in one construction, we will ensure that we are conformable to our international obligations and other not, but we would prefer the one that leads to the conformance.

MR PAGONE:   That is so, your Honour, and most recently, perhaps, that proposition was put in the joint judgment - in fact, in all judgments, I think, in the case of Phonographic Company v FACTS (1998) 195 CLR.

KIRBY J:   I think we know the principle anyway so I do not think there is any point delaying over that, but I just do not see how you establish the premise.

MR PAGONE:   Your Honour, we establish the premise by saying that first of all we have obligations under the Treaty.  If I can ask your Honours to go to the material that we handed up - - -

KIRBY J:   Is this contested?  I do not know if Mr Cavanough contests this.  He may say, “Well, I don’t care.  It’s your statute”.  Is it contested that the interpretation – do you understand that the interpretation puts Australia in breach of the Marrakesh Agreement?

MR PAGONE:   I think he does contest that it does do that.

KIRBY J:   I see.  Well, you had better establish it.

MR PAGONE:   The Treaty, your Honour, that operates now, which has taken over from the GATT is the Marrakesh Agreement, which I do not think we have given to your Honours if I am not mistaken, and what it does, however, is to pick up the same kinds of agreements as were in operation under GATT.

GAUDRON J:   Would we not have to look to the treaty or convention upon which the legislation is based?  I mean, it is one thing altogether to say this would put us in breach of the obligations by reference to which the Act was formulated and it is another thing altogether, is it not, to say this would put us in breach of obligations which have taken over those by reference to which the Act was drafted?

MR PAGONE:   That is true, your Honour.  Having made the technical correction may I now explain how it arises under the original agreement?  If I can take you, first of all, to page 467, which is the affidavit of Deborah Bates.  What she does in paragraphs 16, 17 and particularly 18, is to explain ‑ ‑ ‑

CALLINAN J:   You are dropping your voice.  I cannot hear a lot of what you are saying, I am sorry.

MR PAGONE:   I am sorry, your Honour.  I am mindful of not trying to hector but it is hard to know.  I am grateful for your Honour for pointing that out.  In paragraphs 16, 17 and 18, your Honours will see that the deponent gives a brief summary of the relevant agreements and then she exhibits and refers to what she is exhibiting in paragraphs 17 and 18.  That is important, your Honours, because on the basis of economy all we have copied and all we have exhibited are the critical bits of the agreements as in force.  If I may first of all then ask your Honours to note at page 470 Article 1 and that is of the 1979 Valuation Agreement.  It says that:

The customs value of imported goods shall be the transaction value, that is the price actually paid or payable for the goods when sold for export to the country of importation adjusted in accordance with the provisions of Article 8 –

Then I need to mention Article 14.

GAUDRON J:   I think I looked at Article 8 and it says not much at all.  It does not say anything about value and related matter, does it?

MR PAGONE:   No, it does not, your Honour.

GAUDRON J:   No.

MR PAGONE:   Your Honours then go to Article 14, which is at page 473.  It tells the Court that:

The notes at Annex I to this Agreement form an integral part of this Agreement and the Articles of this Agreement are to be read and applied in conjunction with their respective notes.  Annexes II and III also form an integral part of this Agreement.

Then, your Honours, if I can take you to 475, the bottom of the page.  This is a note to the Agreement, which, by Article 14, is made part of it and it is a note to Article 1:

The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods.  The payment need not necessarily take the form of a transfer of money.  Payment may be made by way of letters of credit . . . An example of an indirect payment would be the settlement by the buyer, whether in whole or in part, of a debt owed by the seller.

Activities undertaken by the buyer on his own account, other than those for which an adjustment is provided in Article 8, are not considered to be an indirect payment to the seller, even though they might be regarded as of benefit to the seller.  The costs of such activities shall not, therefore, be added to be price actually paid or payable in determining the customs value.

The customs value shall not include the following charges or costs . . . 

(a) charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation on imported goods such as industrial plant, machinery or equipment –

and so on.  What you then have, your Honours, is the ‑ ‑ ‑

KIRBY J:   Well, the costs of manufacturer’s warranties are not analogous to any of those exceptions.

MR PAGONE:   Exactly, your Honour.  What your Honours then have is the creation of an advisory committee referred to as, for the benefit of economy, the CCC Committee.  If I can go back momentarily to page 468 there is a Technical Committee on Customs Valuation, which is referred to as having been created and what is then exhibited in exhibits 4, 5 and 6 is a commentary, an explanatory note and a case study.

If I may take the Court to page 499 - your Honours, I am reminded that as a matter of completeness I should have mentioned that what I had just done for the 79 agreement, one can do for the 94 agreement.  Your Honours will see that in paragraph 18 of the affidavit and it picks up comparable provisions to the ones that I have just taken the Court to.

KIRBY J:   I do not think we have time for a lot of completeness, but what we need is exactly where you say your best point is.

MR PAGONE:   Exactly, your Honour.  Hence, 499.  499 is the commentary by the Technical Committee, which is established in order to ensure world uniformity of interpretation and application of the ‑ ‑ ‑

GAUDRON J:   Are their reports picked up by Article 14?

MR PAGONE:   It is, your Honour, an explanation of Article 1.

GAUDRON J:   By a technical committee.

MR PAGONE:   An international technical committee, your Honour, yes.

GAUDRON J:   Of customs collectors.

MR PAGONE:   And for that reason, expert in the process, your Honour.  Your Honour will see in paragraph 1:

The note to Article 1, in the paragraphs related to “price actually paid or payable”, stipulates inter alia that the Customs value shall not include charges for maintenance, undertaken after importation on imported goods such as industrial plant . . . 

2.  Since the concept of “maintenance” is not specifically defined in the Agreement –

Paragraph 4, which is about halfway down the page, says:

The question has arisen as to whether the scope of the term “maintenance”, referred to in the Note to Article 1, includes warranty.  This question is examined below.

5.  The difference between “warranty” and “maintenance” is as follows –

and then there is discussion about the difference between maintenance and warranty, the crux being in the fourth‑last line:

Maintenance must always be performed, whereas warranty is only a contingency measure which might be invoked in the case of failure or under‑performance of goods.

6.  There is, therefore, a fundamental difference between the two concepts ‑ ‑ ‑

KIRBY J:   Warranty is inherent and integral to the goods.

MR PAGONE:   That is right, your Honour.

KIRBY J:   Whereas maintenance is something added on.

MR PAGONE:   That is so, your Honour.  And, your Honour can see this from the contracts entered into by the parties because ‑ ‑ ‑

GAUDRON J:   But there is a reference to warranty in the definition of “value unrelated matter”.

MR PAGONE:   Yes, your Honour.

GAUDRON J:   Now, there is no phrase “value unrelated matter” so far as I can tell in the Treaty or the Convention, if it be a convention, in the notes or in the explanatory note, is there?  This is the Parliament’s attempt to give effect to it, to what it understands its treaty obligations to be.

MR PAGONE:   Your Honour, at page 486 there is a reference in the Treaty to “buyer’s own account”.

GAUDRON J:   Yes.

MR PAGONE:   That is in the notes to Article 1 at about line 15:

Activities undertaken by the buyer on the buyer’s own account, other than those for which an adjustment is provided in Article 8, are not considered to be an indirect payment to the seller –

So what your Honours have is an international structure that is designed to exclude, your Honours, what is truly on the purchaser’s own account.

CALLINAN J:   But, Mr Pagone, if you go to those – not definitions – but to the discussion at page 499, in practice, much of what is done under warranty it would be difficult to describe as either maintenance or the undertaking of a contingency measure.  I doubt whether they fall into such neat categories.

MR PAGONE:   Your Honour, my point is a simple point.

CALLINAN J:   Even assuming that we do look at that in view of what some might think is the pretty clear language of the statute itself.

MR PAGONE:   Your Honours, our point is a simple point.  No matter what one does and no matter how one looks at these provisions, what is absolutely plain beyond doubt, is that customs value is supposed to attract everything that bears upon price of goods.

GAUDRON J:   Adjusted price of goods, I am sorry.  When looking at the Act it is the price adjusted in a particular way.

CALLINAN J:   You cannot escape dealing with value unrelated.  It does not matter what you say about the other you have to come to value unrelated.

MR PAGONE:   Your Honours, with respect, if your Honours would let me finish the proposition.  What your Honour has put to me is absolutely true but one starts off with a proposition that what the legislature is plainly designed to achieve is a bringing to tax, a catching within the net, everything that bears truly upon price but it makes an exception.

GAUDRON J:   No, value.  Determine a transaction value.

KIRBY J:   You say the outer circle is a very big ‑ ‑ ‑

MR PAGONE:   Your Honour, that is true.

KIRBY J:   It is created by price and the value unrelated matters have to be taken out of that and in order to see what you take out you have to see the universe.

MR PAGONE:   Exactly, your Honour, and, your Honour, with respect to your Honour Justice Gaudron ‑ ‑ ‑

KIRBY J:   Mr Pagone, this is the old problem.  Is the tumbler half empty or half full?  I see it as half empty.  Others see it as half full.  I think we have the problem and I see a little red light.  It has been glowing for a long while.

MR PAGONE:   What your Honours need to do, your Honours, is to understand the content of the phrase “purchaser’s own account” and when one comes to something like a warranty, one must ask oneself is this warranty, assuming that a warranty can be, on some occasions, a purchaser’s own account, as we accept, is this warranty a warranty that is within that concept and what this Federal Court has done has, in effect, said that every warranty is within the exception.  That, as a matter of law ‑ ‑ ‑

GAUDRON J:   I do not think that is right.  I do not think that is right, Mr Pagone.  It has considered this warranty, the facts of this case, how it applies in practice.

MR PAGONE:   That is strictly true, your Honour, but what the Federal Court has said in respect of this warranty is applicable to almost every warranty.

GAUDRON J:   Well, it may be, in fact, but we cannot tell that.

MR PAGONE:   But your Honours can tell that.

GAUDRON J:   I do not know what the warranties are on BMW, Rovers or any of the others.  I happen to know what the warranty situation is in relation to Toyota vehicles, because I have read the papers.  But I would not know that either had I not read the papers.

MR PAGONE:   But, what your Honour will also know, having read the papers, is that in respect of the Court’s expression of the legal principle the measure is wide and it is very, very wide indeed.  Can I just take your Honours briefly to that to show how wide the ‑ ‑ ‑

GAUDRON J:   Well, you must be very brief now, Mr Pagone.

MR PAGONE:   I am sorry, your Honours.

KIRBY J:   I have never known the Court to be so indulgent.

MR PAGONE:   Your Honours, I must confess I have actually not seen ‑ ‑ ‑

KIRBY J:   It must be the fascination of what you are putting to us.

CALLINAN J:   And it is not as if you have had a lot of questions either, by current standards.

MR PAGONE:   No, your Honour.  The explanation is because I had actually put papers on the red thing and had not seen it.  I apologise to the Court.  Your Honours, I see the time has expired.

GAUDRON J:   No, no.  You have not yet referred to any part of the Full Federal Court’s decision that you wish to challenge and in answer to me you were going to tell me that the principle there expressed was too - - -

MR PAGONE:   Your Honours, there were two steps to the Federal Court’s decision.  They can be seen at pages 433 paragraphs 38 and then 39 and following.  What the Court says at 433 in paragraph 38 is “the task” is “to determine whether” the goods are “the subject of the contract of sale” and then if I can very quickly, your Honours, take your Honours to the bottom of the page, paragraph 39:

The real issue in the present case is whether the average warranty costs are payments “in relation to” activities –

or an account –

The average warranty costs are based on Toyota Japan’s pre‑estimate of the likely cost of the liability undertaken by Toyota Australia in giving and honouring its warranty obligations to customers . . . Thus, the average warranty costs can be seen to relate to activities undertaken by Toyota Australia in relation to warranties it gives or its own account . . . 

The giving and honouring of obligations undertaken by Toyota Australia to its customers is an activity undertaken by Toyota Australia on its own account in relation to the goods.

Now, your Honours, what we say simply is what the court has said is that if it is its obligation that is enough to come within the concept of own account.  We say that is also true about the sale of the motor car, the tyres, the rear‑vision mirror, the lot.

GAUDRON J:   Yes, well I think we understand that, Mr Pagone.

MR PAGONE:   If your Honour pleases.

KIRBY J:   You see how the wind blows, Mr Cavanough.

GAUDRON J:   Yes, Mr Cavanough.

MR CAVANOUGH:   If the Court pleases, we rely on what is in our summary of argument.  The only additional things I would say in response to what my learned friend has said is that this particular set of warranty arrangements is the Toyota set of warranty arrangements.

KIRBY J:   But that is a little unrealistic, is it not?  I mean, there will be differences of detail and it is true a court can only deal with the cases before it but there is an affidavit that says that the principle that is involved here is also raised by a whole set of other manufacturers and importers and that seems likely.  I mean, the reality is that that seems likely, and even you say it is $8 million at stake.

MR CAVANOUGH:   Yes, over four years.  That is $2 million a year.  It is duty at 5 to 15 per cent of 2 per cent of the value of the car so it is very small.

KIRBY J:   Yes, well you can get down to the percentage, but ultimately there is still an awful lot of money at stake and it is not just, as the affidavits point out, manufactured motor vehicles.  It is any goods with warranties.

MR CAVANOUGH:   With respect, your Honour, it is submitted that there is a difference and the Full Federal Court itself noticed the difference between this and potentially every other case in the last paragraph of its judgment.  It pointed out that this decision may have nothing to say whatsoever about any other case because of the special agreed facts in this case.

GAUDRON J:   Could you just take us to that, Mr Cavanough?

MR CAVANOUGH:   Yes.  It is in the judgment of the Full Court at page 437 of the application book, paragraph 49.  I will just allow the Court to read it, if I may.

KIRBY J:   That is a very proper cautionary statement and every case will depend on its own facts, but the reality is that do you put the warranties that are obligatory by our law when you purchase goods, into the box of purchaser’s own account or is it part of the manufacturer’s obligation in respect of the price of the goods?  It just seems self‑evident that it is the latter.

MR CAVANOUGH:   Yes, but, with respect, your Honour, the warranties here are not the statutory warranties or the implied terms warranties that go with the goods.  This is a particular arrangement that is in place as it is ‑ ‑ ‑

KIRBY J:   Yes, that is written against the background of 130 years of law about the obligations of vendors.

MR CAVANOUGH:   It is true that a vendor will compulsorily, by statute now, and previously, under implied terms, owe a warranty to a purchaser.  That is true, but this is dealing with the obligations of a distributor in Australia to third party distributors who, in turn, sell to retail customers and it is the commercial arrangements in place between the Japanese manufacturer, the Australian importer and the distributors and, ultimately, the customers.  It is a particular structure and these warranty arrangements are specially fashioned to deal with that structure and that arrangement and they provide for reimbursements in respect of most, but not all, of the expenditure in question.  These particular payments are calculated precisely by reference to these contractual arrangements and documents, not by reference to the Trade Practices Act or by reference to implied terms.

KIRBY J:   Yes, but in a highly competitive motor vehicle market it is very unlikely that the substantive warranties offered by other manufacturers are different in kind.  They will be different in degree and benefits and so on but it is kind that is the issue.

MR CAVANOUGH:   But there will be differences as to who bears the initial responsibility and who is legally responsible in the first instance for the payment.

KIRBY J:   Anyway, you are right to say we have to concentrate on this particular case.  The Federal Court did.  You lost before the AAT.  You won at both levels and I rather gathered from your affidavit lately filed that if only Mr Pagone had offered to pay your costs you were nodding your head to the special leave application.

MR CAVANOUGH:   I will remember never to put in a supplementary submission.  That is certainly not what we intended.  No, no.  It was just that ‑ ‑ ‑

KIRBY J:   Yes.  Well, I read the affidavit though.  You suggested that if special leave were granted you, Toyota, should have the costs paid by the applicant.

MR CAVANOUGH:   Special leave could only be granted on the theory that the Court accepted that this was a matter of importance to the Commonwealth.  That was the reason for putting in that submission but we submit, with respect, that it is not a matter of sufficient or fundamental importance to the Commonwealth or to the people of Australia because it relates purely to the commercial arrangements in respect of this period in respect of these parties.  My learned friends were vigorously submitting all the way until we reached this Court that there was no question of law involved at all.

KIRBY J:   Yes, that is a good forensic point.

MR CAVANOUGH:   In fact, the special leave application, until it was amended, that was their first point.

KIRBY J:   I think you are well in front at the moment, Mr Cavanough.  All you need to do is sum up.

MR CAVANOUGH:   May I then just sum up by saying there does not seem to have been any challenge at all to the reasoning of the Full Court in 1988 in the LNC Case, which in turn was applied in this case by the Full Court.  There is no suggestion that there is any conflict between cases, there was any difference in the approach that the Federal Court took then to the LNC Company that was importing, only an inconsequential difference in the arrangements and, in my respectful submission, therefore, there is simply insufficient reason to doubt the decision of the Full Federal Court.

GAUDRON J:   Yes, Mr Pagone.

MR PAGONE:   Your Honour, all I really need to say in respect of what my learned friend has said is that to draw a distinction between warranties by statute or law in these warranties is unreal because it is plain when one looks at the warranties in question that they are all encompassing.  Your Honours will see the extent of the warranty at page 331, which is the actual warranty, and you can see it in the agreements beforehand.

My learned friends best point in relation to that is that the warranties are not calculated by reference to, but plainly enough whatever it is they are

calculated by reference to they are all encompassing and include the warranty which is at the heart of the agreement.  It is true that each case turns upon its own fact.  However, what we have here is the application of a general principle to the facts and we say that the general principle that the court applied was simply wrong.

Your Honours, in relation to costs, we certainly are not able to offer what my learned friend wants, but ‑ ‑ ‑

KIRBY J:   That would be a most extraordinary order for the Court to make in a respondent of this magnitude and capacity.  Such orders, as far as I know, are only ever made where, to impose a cost obligation in this Court would be a great burden.  That could not really be said - - -

MR PAGONE:   That is true, your Honour.

KIRBY J:   You either get up on your merits or you do not get up.

MR PAGONE:   That is so, your Honour.

KIRBY J:   Yes.  I think there may be a little difference about where the merits lie.

MR PAGONE:   If the Court pleases.

GAUDRON J:   We will adjourn briefly, gentlemen, to consider the outcome.

AT 10.43 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.46 AM:  

GAUDRON J:   My apologies to Ms Gordon.  That having been said, a majority of the Court is of the view that the Full Federal Court correctly construed and applied the relevant legislative provisions.  Accordingly, by majority, special leave is refused.  It is refused with costs in the ordinary way.  We are indebted to Mr Pagone for his assistance and you should not feel embarrassed about running over time.

MR PAGONE:   Thank you.

GAUDRON J:   Thank you.  The Court will adjourn briefly to reconstitute.

AT 10.47 AM THE MATTER WAS CONCLUDED