CEO of Customs v Camile Trading Pty Ltd & Ors - [2006] NSWSC 1401

No judgment structure available for this case.

CITATION: CEO of Customs v Camile Trading Pty Ltd & Ors [2006] NSWSC 1401

HEARING DATE(S): 26/04/06
01/05/06 - 05/05/06
08/05/06 - 10/05/06
15/05/06 - 18/05/06
05/06/06 - 09/06/06
31/07/06
01/08/06 - 03/08/06

JUDGMENT DATE :
19 December 2006

JURISDICTION: Common Law Division

JUDGMENT OF: Kirby J

DECISION: (1) In respect of the allegations by the plaintiff relating to the blending of diesel; the allegations concerning the blending of leaded and unleaded petrol; and in each case, in respect of each of the nine periods in the Further Amended Statement of Claim - I convict Camile Trading of: First, an offence under s35 of the Excise Act 1901, in that the company manufactured excisable blended petroleum products without a licence under the Act; Secondly, an offence under s61 of the Excise Act 1901, in that the company moved excisable goods without permission; Thirdly, an offence under s120(1) of the Excise Act 1901, in that the company intentionally evaded excise duty; (2) Further, in respect of each such offence, I convict Lesley Ronald Fletcher of having been knowingly concerned in the commission of such offences; (3) I stand over to a date to be fixed the hearing in respect of penalty for both Camile Trading and Mr Fletcher; (4) I reserve for further submissions the issues identified in paragraph [381] and paragraph [562]; (5) I reserve the question of costs against the first and second defendants; (6) I dismiss the plaintiff's case against the third and fourth defendants, with costs; (7) The matter will be listed for mention at 9.15 am on Tuesday 13 February 2007 to fix a date in respect of outstanding issues. The plaintiff and first and second defendants should prepare, and agree if possible, draft Short Minutes of Orders reflecting these reasons.

CATCHWORDS: Action under the Excise Act 1901 and the Excise Tariff Act 1921 - allegations that blending petrol and diesel without a licence - evading duty - elements each offence - construction Excise Act and Regulations.

LEGISLATION CITED: Excise Act 1901
Excise Tariff Act 1921
Director of Public Prosecutions Act 1983
Customs Act 1901
Evidence Act 1995
Trade Practices Act 1974
Crimes Act 1914 (Cth)

CASES CITED: CEO of Customs v Camile Trading P/L & Ors [2006] NSWSC 475
Jones v Dunkel (1959) 101 CLR 298
Murray v The Queen (1987) 11 NSWLR 12
Longman v The Queen (1989) 168 CLR 79
Cramptom v The Queen (2000) 206 CLR 161
Briginshaw v Briginshaw (1938) 60 CLR 336
Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279
Baxter v Ah Way (1909) 10 CLR 212
CEO of Customs v El Hajji (2005) 218 ALR 457

PARTIES: Chief Executive Officer of Customs (Pl)
Camile Trading Pty Limited (1st Def)
Leslie Ronald Fletcher (2nd Def)
Evenfont Pty Limited (3rd Def)
Robert Leonard Pullinger (4th Def)

FILE NUMBER(S): SC 20859/1997

COUNSEL: P S Hastings QC/R B Wilson (Pl)
P Byrne SC/S J Stanton (1st & 2nd Defs)
J Horowitz (3rd & 4th Defs)

SOLICITORS: Aust Govt Solicitor (Pl)
Access Business Lawyers (1st & 2nd Defs)
Horowitz & Bilinsky (3rd & 4th Defs)

I N D E X

Para

1. INTRODUCTION 1

An outline of the Plaintiff's case. 4

Petroleum products. 12

The statutory framework. 32

Elements of each offence. 58

2. MR BARTLETT'S EVIDENCE 66

Mr Bartlett's association with Camile Trading. 66

Diesel and heating oil. 78

Leaded and unleaded petrol. 102

The expertise of Mr Bartlett. 122

Formula for blending. 134

Cross examination of Mr Bartlett. 166

Record keeping of Camile Trading. 177

The search on 26 November 1996. 184

Petrol samples. 213

3 OTHER EVIDENCE RELEVANT TO MR BARTLETT 229

The evidence of Mr Gibb. 229

The evidence of Mr Handcock. 239

Other drivers of Camile Trading. 257

Evidence relating to Evenfont. 268

Mr Fletcher's evidence. 292

4. EVALUATION OF MR BARTLETT'S EVIDENCE AGAINST THE FIRST AND SECOND DEFENDANT 318

Warnings. 318

The context. 320

The documentary and cash trail. 325

Corroboration of Mr Bartlett's account. 336

Mr Bartlett as a witness. 345

Findings in respect of diesel and heating oil. 362

Leaded and unleaded petrol. 382

5. THE CASE AGAINST EVENFONT AND
MR PULLINGER 406

Background. 406

The evidence of Mr Bartlett. 418

Cross examination of Mr Bartlett. 430

The Evenfont operation. 462

The crude oil operation. 467

The waste oil operation. 472

The treatment of waste slops. 477

The audit evidence. 481

Preliminary submission by Evenfont. 499

The submissions of the plaintiff. 515

The description "Waste to Boiler" 528

The Excise Regulations. 543

6. QUANTIFICATION OF DUTY EVADED BY CAMILE TRADING PTY LIMITED 558

7 ORDERS 563

1. INTRODUCTION

1 KIRBY J: By Further Amended Statement of Claim, the Chief Executive Officer of Customs ("Customs") (the plaintiff) has commenced an action under the Excise Act 1901 and the Excise Tariff Act 1921 against four defendants:

The first defendant, Camile Trading Pty Limited ("Camile Trading"), a petroleum wholesaler at Albion Park Rail;
The second defendant, Mr Leslie Ronald Fletcher, a director and shareholder of Camile Trading;
The third defendant, Evenfont Pty Limited ("Evenfont"), the operator of a refinery at Seven Hills and later at Rutherford, New South Wales; and
The fourth defendant, Mr Robert Lenard Pullinger, a director and shareholder of Evenfont.

2 The plaintiff seeks the conviction of each defendant in respect of offences under the Excise Act 1901, namely:

Section 35, which is concerned with the manufacture of excisable goods;
Section 61, which is concerned with the movement of excisable goods; and
Section 120(1)(iv), which is concerned with the evasion of excise duty payable in relation to excisable goods.

3 Customs also seeks the recovery of the unpaid duty and certain penalties.

An outline of the Plaintiff's case.

4 The Amended Statement of Claim is voluminous. It runs to 235 pages. It is accompanied by a series of schedules. The schedules have been compiled from the records of Camile Trading (and others) seized by Customs when it searched the company's depot and other premises on 26 November 1996. The schedules are likewise voluminous. They are the foundation for the plaintiff's claim in respect of the evasion of duty. They deal with the following issues:

Schedule A: Diesel purchases.

5 The action is concerned with the blending of three petroleum products:

First, the blending of diesel and heating oil;
Secondly, the blending of unleaded petrol with a number of different petroleum products and ethanol; and
Thirdly, the blending of leaded (or super) petrol with various petroleum products and ethanol.

6 It is alleged by Customs that the blending of petroleum products occurred during a two and a half year period between 1 April 1994 and 21 November 1996. The action is complicated by the amendment of the Excise Act and Tariff Schedule during that period. The Statement of Claim defines nine separate periods where there were material changes to either the Act or the Schedule. The nine periods are as follows: (Ex H6)

Period 1: 1.4.94 - 10.5.94
Period 2: 11.5.94 - 30.6.94
Period 3: 1.7.94 - 31.7.94
Period 4: 1.8.94 - 31.1.95
Period 5: 1.2.95 - 30.6.95
Period 6: 1.7.95 - 31.7.95
Period 7: 1.8.95 - 31.1.96
Period 8: 1.2.96 - 31.7.96
Period 9: 1.8.96 - 21.11.96

7 The relevant legislation will be examined in detail in a moment. In broad terms, Customs alleges that Camile Trading blended petroleum products and, in doing so, manufactured excisable goods. The manufacture of excisable goods requires a licence (Excise Act 1901, s34). An offence is committed where the manufacturer has no licence (s35) ("the licence offence"). Further, once manufactured, excisable goods are subject to Customs control. They cannot be moved without the permission of the controller. If they are moved, an offence is committed (s61) ("the movement offence"). Here it is said that Camile Trading, having manufactured blended petrol and diesel, moved such fuels from the depot at Albion Park without permission. Finally, Customs assert that Camile Trading blended petroleum products to obtain a price advantage. The ingredients in the blend were either excise free or carried an excise tariff significantly less than the gasoline/diesel rate. The blend of diesel or petrol had therefore been manufactured more cheaply than an equivalent amount of unblended petrol or diesel. The manufacture involved, according to Customs, the evasion of excise duty which is an offence (s120(1)) ("the evasion charge").

8 There was, according to Customs, complicity in each of these offences by Mr Fletcher, the second defendant. Mr Fletcher was a director of Camile Trading. He also owned ninety percent of its shares. There was another director, Mr John Bartlett, who owned ten percent of the shares. He managed the depot at Albion Park. Mr Bartlett gave evidence on behalf of Customs. Before doing so, on 26 April 2006 he was given an undertaking by the Director of Public Prosecutions, in these terms: (Ex A17)

"I, John Edward Thornton, Acting Director of Public Prosecutions of the Commonwealth of Australia, hereby undertake pursuant to section 9(6) of the Director of Public Prosecutions Act 1983 that:

(a) any answer you give, or statement or disclosure you make, in the course of giving evidence in the proceedings specified in the Schedule;

(b) the fact that you disclose or produce a document or other thing in the said proceedings; or

(c) any information, document or other things that is obtained as a direct or indirect consequence of any answer you give, statement or disclosure you make, or a document or thing you disclose or produce in the said proceedings;

will not be used in evidence against you in any criminal or civil proceedings in any federal court, or court of a state or territory other than in proceedings in respect of the falsity of any evidence you may give."

9 Customs also alleges complicity on the part of the third defendant (Evenfont) and fourth defendant (Mr Pullinger, a director of Evenfont), but only in respect of the offences concerning leaded and unleaded petrol. There is no allegation of complicity against the third or fourth defendants concerning diesel. In broad terms, it is alleged that Evenfont and Mr Pullinger were knowingly concerned in the offences of Camile Trading in the following respects:

First, each was involved in the supply of petroleum products to Camile Trading, knowing that they would be used unlawfully in blending and the manufacture of excisable blended petrol, whether leaded or unleaded; and
Secondly, Evenfont and Mr Pullinger provided assistance to Camile Trading in the form of advice concerning blending and the testing of blended products.

10 It will become apparent from the description of Camile Trading's operations, which will be set out below, that Evenfont was also involved in the delivery of heating oil to Camile Trading which, on the plaintiff's case, was later blended with diesel. However, it should be emphasised that no allegation of complicity is made in respect of diesel.

11 Before examining the evidence, it may be useful to describe the nature of the petroleum products blended, and the statutory framework within which the blending of petroleum products may take place.

Petroleum products.

12 The plaintiff's case involves an assertion (made by Mr Bartlett and others) that certain formulae were used to blend diesel and petrol. According to Customs, blended diesel involved a 50/50 blend of the following:

diesel purchased from one of the major oil companies (such of Mobil Oil); and
heating oil.

13 On the plaintiff's case, the blend of leaded and unleaded petrol involved differing proportions of the following:

leaded or unleaded petrol, purchased from one of the major refineries (such as Mobil Oil);
white spirits;
toluene or xylene; and
ethanol.

14 An understanding of the manufacturing process is relevant. It is especially important to an understanding of the allegations made by Customs against Evenfont and Mr Pullinger. Two experts gave evidence concerning the manufacture of petroleum products, Professor David Trimm (called by Customs) and Professor Barry Batts (called by Evenfont). Professor Trimm is the Professor of Chemical Technology at the University of New South Wales. He was, at one time, the Head of the School of Chemical Engineering and Industrial Chemistry. Professor Batts is an Adjunct Professor at Macquarie University in the Department of Chemistry. Both are well qualified. Both had a wide experience in the petroleum industry.

15 Crude oil is the basic feedstock in the manufacture of petroleum products. It is made up of more than a thousand chemical compounds. The compounds comprise different combinations of elements, namely: (Ex Z1: p4(12))

16 Essentially therefore, crude oil consists of compounds which are different combinations of carbon and hydrogen molecules. These compounds are generically known as hydrocarbons (Trimm: Ex Z1: p4/5(13)).

17 The compounds making up crude oil boil at different temperatures, according to their molecular weight. Manufacturing involves the separation of crude oil into "fractions" through distillation. Distillation requires the heating of the crude oil until boiling point fractions or "cuts" appear in the distillation column (Trimm: Ex Z1: p6(15)). Professor Batts described the process in these terms: (Ex EV11: p3(2.3))

"2.3 ... the vapour is condensed and collected. A crude oil and its liquid products will have a range of boiling points, one for every component of the mixture. As the oil is heated, all of any one component will convert to vapour and be distilled off before the temperature rises again to reach the boiling point of the next most volatile compound when it, in turn, will be distilled and collected in the receiving vessel. This process repeats itself continuously as the temperature in the still is raised, until every component in the mixture has been distilled."

18 By this means the crude oil is separated into fractions, the upper and lower limit of each fraction being determined by an assigned boiling point range (Trimm: Ex Z1: p7(17)). A boiling point distribution curve may be plotted based upon the oil or petroleum fractions which may be collected at various temperatures within the range. Professor Batts said this: (Ex EV11: p4(2.3))

"2.3 ... The Initial Boiling Point (IBP) is the temperature at which the very first drop of distillate is collected and the Final Boiling Point (FBT) the temperature at which at the material has distilled."

19 In respect of diesel, there is an Australian Standard for its manufacture (AS 3570-1988) (Ex Z2). It specifies a boiling point range of 190º C to 350º C, as well as a particular "flashpoint", that is, the temperature at which the compound will ignite (Trimm: Ex Z1: p9(21)). Diesel also has a particular "viscosity", that is, a particular consistency measured by the force per unit area resisting uniform flow.

20 Heating oil is a kindred but different compound. There is no Australian Standard in respect of heating oil. It is not uncommon, however, to refer to the American Standard. The boiling point in respect of heating oil overlaps with that of diesel (170 to 270º C) (cf diesel 190º C to 350º C). Professor Trimm said this: (Ex Z1: p8/9(20))

"20 ... The average molecular weight of the heating oil cut is usually less than that which is taken for diesel fuel production. The heating oil cut usually contains lighter hydrocarbons that have a lower boiling point range than those in the cut that is used for diesel. The cut taken for diesel fuel would contain compounds boiling at 190 C and above. It would not contain the lighter ends usually found in heating oil."

21 Mixing heating oil with diesel lowers the flashpoint. Lowering the flashpoint has obvious safety implications. The mixture is more volatile and will ignite at a lower temperature than unmixed diesel fuel (Trimm: Ex Z1: p9(21)).

22 Heating oil is usually used in a burning process so as to produce heat. There are important differences between the viscosity of heating oil and diesel (Trimm: Ex Z1: p10(24)). Professor Trimm said this: (Ex Z1: p9/10(23))

"23 The viscosity of the fuel used in diesel engines is a critical consideration, as such engines are designed to run on fuels with a particular viscosity. If the viscosity of the fuel is too low engine performance is impaired and there is greater wear and tear on the engine."

23 Professor Trimm added this: (Ex Z1: p10(25))

"25 ... diesel fuel may be used for burning to produce heat. However, heating oil should not be used in diesel engines, in part, because its viscosity is usually too low."

24 There is a further difference that can be important. The chemical compounds in diesel and heating oil both contain waxes. They dissolve in warmer temperatures. Professor Trimm said this: (Ex Z1: p10(26))

"26 ... as temperature is lowered, these waxes form and separate out from the product. The temperature at which these waxes commence to do this is referred to as the 'cloud point' of the fuel or oil. At this point, the waxes begin to appear as a cloud or haze in the product."

25 He added: (Ex Z1: p10(28/29))

"28 Diesel fuel contains significantly more waxes than does heating oil. Consequently, the cloud point for diesel is a higher temperature than for heating oil. As temperature is lowered, waxes will separate out of diesel well before they will separate out of heating oil.

29 Diesel engines have been designed to operate with diesel fuel containing the higher wax content and, when temperatures are in the warmer range, the larger amounts of dissolved wax in diesel fuel help to act as an efficient lubricator of the engine. In colder months, when wax formation from diesel fuel can be a problem, the refineries add limited amounts of heating oil or kerosene to the diesel fuel, in specific proportions, so as to prevent the waxing and keep the waxes in solution so that they may perform their lubricating function. The point here is to keep the larger amounts of wax in solution. The Australian Standards contain requirements relevant to this process."

26 Moving from diesel to petrol, again there is an Australian Standard (AS 1876-1990) (Ex Z2). Professor Trimm provided the following definition: (Ex Z1: p11(30))

"30 ... Gasolines are a complex mixture of hydrocarbons having a boiling point range from 100C to 400C (as determined by the ASTM method). Motor gasoline is manufactured by blending components to promote high antiknock quality, ease of starting, quick warm-up, low tendency to vapour-lock and low engine deposits."

27 Professor Trimm added: (Ex Z1: p12(31))

"31 The 'lighter ends' produced during the distillation process, that is, the hydrocarbons with lower boiling points, form the base from which petrol is refined. There are a number of essential measures of motor gasoline which reflect the chemical properties of that product and the efficiency with which it will combust. These essential measures include, but are not limited to, research octane number (RON), motor octane number (MON) and antiknock index, the latter being an average of relevant RON and MON figures. These measures describe the probability of auto-ignition in front of a flame front which, if it occurs, will produce a knocking sound whilst the engine is running. The higher the octane number of a fuel, the more the energy that is produced upon ignition, and the less is the probability that engine knocking will occur. Also, petrol engines are designed to run with fuel with particular octane ratings."

28 Here, there is an issue whether gasoline (leaded or unleaded) was combined with white spirit (which has a low octane rating), and other products designed to "beef up" the fuel (ethanol, xylene or toluene). White spirit is a refined product manufactured from crude oil with a boiling point range of between 140º C and 200º C. It is primarily used as a solvent. It is not suitable for blending with petrol. Professor Batts said this: (Ex EV11: p5(2.8))

"2.8 (a) ... If white spirit is blended with (unleaded petrol) the RON will be markedly lowered and the resultant fuel will cause a car engine to 'ping' with the likelihood that it will suffer damage.

(b) Petrol is a carefully considered mix of components which will allow the engine of a motor vehicle to run under a wide range of conditions from idling at traffic lights to passing a heavy truck whilst travelling uphill and towing a caravan. The engine must also be able to start in both hot weather (Broken Hill in summer) and under freezing conditions (skiing holidays). ... To blend into a petrol a white spirit ... will seriously alter the balance of the components required and result in an inferior performing fuel."

29 To compensate for the low octane rating of white spirit, additives with a high octane rating (the BXT group, which includes toluene and xylene) may be added. However, caution is required. Professor Trimm said this: (E Z1: p13(36))

"36 ... it is difficult to predict how any additives used will function. Toluene, for example, consists of a methyl substituted aromatic and may be used to enhance the octane number. If toluene is added to a petrol/white spirits mixture the increase in octane level of the final mixture will not necessarily be a simple linear increase directly related to the volume of the additive (proportional to the volume of the mixture)."

30 There are other issues (including the meaning of the word "condensate") which were dealt with by Professors Trimm and Batts. They are relevant specifically to the plant and products of Evenfont and are best dealt with in the context of the plaintiff's case against the third and fourth defendants. I will return to these issues below.

31 Let me turn, at this point, to the Excise legislation relevant to this prosecution.

The statutory framework.

32 The prosecution is, of course, concerned with the alleged failure of Camile Trading to conform with the regime established by the Excise Act 1901 and to pay duty on manufactured goods. Fundamental to the prosecution is the need for Customs to prove that Camile Trading was engaged in the manufacture of "excisable goods". A number of definitions appear in the Excise Act which are relevant (s4):

'Excisable goods'

...

'Licence'

'Manufacture'

'Manufacturer'

33 Part IV of the Act is headed "LICENSING OF MANUFACTURERS". The Collector of Customs is given power to grant licenses to manufacture, with or without limitations (s34). The Statement of Claim avers that Camile Trading had no such license (para 6), which the Defence neither admits, nor denies. There is no evidence that Camile Trading had a license. On the assumption that Customs is able to prove the manufacture of excisable goods, it seeks the conviction of Camile Trading in respect of the following provision:

Manufacturers to be licensed

35

Penalty: $5,000."

34 Part VI of the Act carries the following heading:

PART VI - PAYMENT OF DUTY, REMOVAL OF EXCISABLE GOODS FROM FACTORIES, AND EXCISE CONTROL"

35 It contains the following provision:

Liability to pay duty

54

36 A regime is established which is designed to ensure that excisable goods remain under Customs control until permission is given for their movement. There are the following provisions:

"Entry for home consumption etc.

58(1)

(a) Home consumption.

(1A)

(a) shall be made in accordance with an approved form, or in a manner approved by the Comptroller;

(b) shall contain such information as is required by the Comptroller;

(d) shall be lodged with, or transmitted to, the Customs."

37 Where the manufacturer of excisable goods fails to conform with that regime and moves goods without permission, an offence is committed against s61, which is in these terms:

Customs control

61

Penalty: $20,000"

38 The final offence alleged by Customs is concerned with the evasion of duty. It is created by s120 which, relevantly, is in these terms:

Offences

120(1)

(iv) Evade payment of any duty which is payable;

...

(2)

...

(i) where the Court can determine the amount of the duty on goods the payment of which would have been evaded by the commission of the offence if the goods had been entered for home consumption on:

(A) where the date on which the offence was committed - that date; or

(B) where the date is not known to the Court - the date on which the prosecution for the offence was instituted;

a fine not exceeding 5 times the amount of that duty and not less than 2 times that amount; or

(ii) where the Court cannot determine the amount of that duty, a fine not exceeding $50,000; ... "

39 The commencement date for the first of the nine periods in the Statement of Claim (1 April 1994) was selected because it marked the commencement of certain amendments to the Excise Act and Regulations. The amendments were the subject of comment in an earlier judgment in these proceedings (CEO of Customs v Camile Trading Pty Limited & Ors [2006] NSWSC 475). It is convenient that I reproduce in this judgment much of the same material. The Excise Act was amended by inserting a new Part, namely:

"PART VIIB - SPECIAL PROVISIONS RELATING TO BLENDED PETROLEUM PRODUCTS"

40 In the Second Reading Speech, the Minister identified the objective of the amendments relevant to this action in these terms:

" MR PUNCH: This bill is part of a package of bills introducing the following measures ...

... there will be amendments to the Excise Act 1901 ... to address substantial revenue loss through the substitution of excise free or low duty products for petroleum fuels. Resolution of this issue involves ensuring certain blended petroleum products and crude oil or condensate delivered for use otherwise than as refinery feedstock are excisable products, and that the excise duty payable on the blend, the crude oil or condensate will be payable at a rate equal to either the diesel rate or the leaded petrol rate, depending upon the composition of the petroleum product."

41 The excisable goods said to have been manufactured (s35), moved (s61) and in respect of which duty was evaded (s120) were, according to the plaintiff, "excisable blended petroleum products". The new Part included the following provision relating to manufacture:

Blending is to be treated as manufacture

77H(1)

(2)

42 The new Part also included a series of definitions, which are important:

"Definitions

77G

'blended petroleum product'

'excisable blended petroleum product'

'exempt blended petroleum product'

'petroleum product'

(a) any excisable goods classified to item 11 or 12 or to sub-item 17(A) or 17(B) of the Schedule to the Excise Tariff Act 1921; or

(b) any imported goods that would be classified to item 11 or 12 of that Schedule if they were produced in Australia."

43 The classification in the Schedule, referring to "Gasoline" and "Diesel", specified rates. These rates were higher than those attracted by some of the constituents allegedly added to leaded, unleaded petrol or diesel supplied by Camile Trading.

44 The definition of "excisable blended petroleum product" is Part VIIB requires the product manufactured to have two characteristics. First, it must fall within the definition of a "blended petroleum product". Secondly, it must not be an "exempt petroleum product", which is defined by s77J, in these terms:

"Exempt blended petroleum products

77J(1)

(a) it is made by a person who is not a statutory blender; or

(b) it is declared by the regulations to be an exempt blended petroleum product.

(2)

(a) more than 300 litres of blended petroleum products on any day; or

(b) more than 600 litres of blended petroleum products during any continuous period of 30 days; or

(c) more than 3,000 litres of blended petroleum products during any continuous period of 12 months."

45 Therefore, the plaintiff must establish that Camile Trading was not a "statutory blender" and must further establish that the blended petroleum product had not been declared exempt by regulation.

46 I will come to the regulations shortly. It should, however, be noted that a person will not be a statutory blender in two circumstances. The first is where small quantities of petroleum products are blended, as set out in s77J(2). Here, Camile Trading, on the evidence, was blending significantly more than the specified quantities in subsection (2). It could not therefore rely upon that exemption. The second circumstance arises where the petroleum products, which are blended, have been declared exempt under the regulations.

47 Turning to the Excise Regulations, which likewise commenced on 1 April 1994, they were amended to insert the following:

"PART 10 - BLENDED PETROLEUM PRODUCTS"

48 Regulation 175 provided that expressions used in the regulations had the same meaning as in Part VIIB of the Act. Under the heading, "Exempt blended petroleum products", a definition is provided of "waste oil" as follows:

176(1)

'waste oil'

(a) for any purpose; or

(b) for any purpose except as burner fuel; ..."

49 Regulation 176(2) was introduced by the following words:

176(2)

50 Regulations 176(2)(a) to (e) dealt with a blend of waste oil and various petroleum products. These paragraphs are in these terms:

"(a) a blend of waste oil and a petroleum product where duty has been paid on the petroleum product at the rate specified in paragraph 11(E)(3) of the Schedule to the Excise Tariff Act 1921;

(b) a blend of waste oil and diesel fuel where duty has been paid on the diesel fuel at the rate specified in paragraph 11(E)(2) of the Schedule to the Excise Tariff Act 1921;

(c) a blend of waste oil and stabilised crude petroleum oil where duty has been paid on the stabilised crude petroleum oil at the rate specified in paragraph 11(H)(2) of the Schedule to the Excise Tariff Act 1921;

(d) a blend of waste oil and condensate where duty has been paid on the condensate at the rate specified in paragraph 11(J)(2) of the Schedule to the Excise Tariff Act 1921;

(e) a blend of waste oil and an excisable blended petroleum product where duty has been paid on the excisable blended petroleum product at the rate specified in section 6G of the Excise Tariff Act 1921;"

51 The remaining regulations defined particular exemptions. They included the following:

" 176(2)
(h) a blend of gasoline with a product used to enhance its octane rating where duty has been paid on the gasoline at the rate specified in subparagraph 11(A)(3)(b) or (c) of the Schedule to the Excise Tariff Act 1921;

(i) enhance the performance of an internal combustion engine; or

after duty on the petroleum product has been paid at the rate specified in subparagraph 11(A)(3)(b) or (c), or paragraph 11E(2) of the Schedule to the Excise Tariff Act 1921;

(j) a blend of any petroleum product with ethanol after the petroleum product has been cleared from Customs control;"

52 Reference was also made to regulation 176(2)(m):

53 The regulations to this point speak of "a blend of a petroleum product" (singular) with some other substance or, in the case of regulation 176(2)(j), "any petroleum product [singular] with ethanol". In regulations 176(2)(p) and (q) the regulations refer to "a blended petroleum product". Regulations 176(2)(p) and (q) are as follows:

"(p) a blended petroleum product produced in the course of refining crude oil being a product that is not suitable for use as a fuel;

(q) a blended petroleum product produced in a warehouse licensed under section 79 of the Customs Act 1901 if it is entered for home consumption in terms of item 11 of the Schedule to the Excise Tariff Act 1921;"

54 Regulations 176(2)(t) and (u) are important. Both are introduced by the expression "Blends of petroleum products ..." (plural). The regulations are as follows:

"(t) blends of petroleum products not containing goods specified under paragraph 11(A)(3) of the Schedule to the Excise Tariff Act 1921, where duty has been paid on all the constituents of the blend at the rate specified in paragraph 11(E)(2) of the Schedule to the Excise Tariff Act 1921; ... "

55 Paragraph 11(A)(3) deals with gasoline, as set out below. Regulation 176(2)(t) makes reference to paragraph 11(E)(2) of the Schedule to the Excise Tariff Act 1921, which is in these terms, specifying a rate equivalent to the gasoline rate:

11(E)(2)

56 Regulation 176(2)(u) is as follows:

"(u) blends of petroleum products containing goods specified under paragraph 11(A)(3) of the Schedule to the Excise Tariff Act 1921, where duty has been paid on all the constituents of the blend at the rate specified in subparagraph 11(A)(3)(b) of the Schedule to the Excise Tariff Act 1921."

57 The Schedule to the Excise Tariff Act 1921 in clause 11A dealt with gasoline, specifying certain categories (which are not relevant) and then including a catchall provision, "Other" (Clause 11A(3)(b)), where the gasoline rate applied. Hence, in respect of regulation 176(2)(u), where the blend of petroleum products contained gasoline, the blend was exempt if duty had been paid on all the constituents of the blend at the gasoline rate (the highest rate).

Elements of each offence.

58 What, then, must Customs prove to establish each offence? The common element in respect of each alleged offence is the need to prove, beyond reasonable doubt, the manufacture of excisable goods. Here the excisable goods are said to be excisable blended petroleum products. Proof involves Customs demonstrating, beyond reasonable doubt, the following:

First, that the goods handled by Camile Trading at its depot were "petroleum products" as defined (Excise Act s77G), being goods under items 11 and 12 of the Schedule to the Excise Tariff Act 1921 (relevantly gasoline, that is, leaded or unleaded petrol, or diesel fuel).
Secondly, that the petroleum products had been "blended" as defined (Excise Act s77G), namely the gasoline or diesel fuel was in each case the product of blending of a petroleum product (including a petroleum product which itself is a blended petroleum product) with another substance, or other substances, whether or not that other substance, or those other substances, were petroleum products.
Thirdly, that the blended petroleum product was not exempt under s77J(1) of the Excise Act in that:

59 Turning to the first alleged offence, that of manufacture (s35), the following elements must be proved:

First, that Camile Trading is a person for the purposes of the section.
Secondly, that Camile Trading was engaged in manufacturing petroleum products, that is blending (s4, s77H(1) Excise Act).
Thirdly, that the product manufactured was an excisable blended petroleum product (s77G).
Fourthly, that Camile Trading had not been granted a license by the Collector of Customs under s34 of the Act.

60 There is no doubt concerning the first and fourth elements. The contest concerns elements two and three.

61 Turning to the offence under s61, the elements are:

First, that Camile Trading manufactured excisable goods, namely excisable blended petroleum products, at its depot at Albion Park.
Secondly, that in respect of such goods, no entry for home consumption, transhipment or warehousing was made.
Thirdly, that Camile Trading was not authorised by Customs to move the excisable goods from the depot at Albion Park.
Fourthly, that the excisable goods were moved (by mobile tankers from the depot).

62 The Statement of Claim includes averments in respect of the second, third and fourth elements which the Statement of Defence neither admits nor denies. Again the real contest concerns element one. It was Camile Trading's case that it had not manufactured excisable blended petroleum products and therefore there was no occasion to follow the regime contemplated by Part VI of the Act, completing entries for home consumption and seeking the permission of Customs before petroleum products were transhipped from the depot to various retail outlets. There is no doubt in respect of elements two, three and four. The issue for examination in this and other offences concerns the manufacture of excisable goods, namely excisable blended petroleum products.

63 The final alleged offence concerns the evasion of duty said to have been payable by Camile Trading under the Act. To establish that offence, Customs must establish the following elements beyond reasonable doubt (ignoring, for the moment, issues of quantification):

First, that Camile Trading manufactured excisable blended petroleum products.
Secondly, that duty was payable in respect of such goods.
Thirdly, that the duty was not paid.
Fourthly, that duty was evaded in that the failure to pay was intentional.

64 Here the contest concerns elements one and four. If the goods were excisable, then obviously duty was payable (element two). It is averred that it was not paid (element three). There was no suggestion that it had been paid. So far as element four is concerned, the following provision of the Excise Act 1901 is relevant:

Conduct by directors, servants or agents

145A

(1)

(2)

(a) by a director, servant or agent of the body corporate within the scope of his or her actual or apparent authority; or

(b) by any other person at the direction or with the consent or agreement (whether express or implied) of a director, servant or agent of the body corporate, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, servant or agent;

shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.

(3)

(4)

(a) by a servant or agent of the person within the scope of the actual or apparent authority of the servant or agent; or

(b) by any other person at the direction or with the consent or agreement (whether express or implied) of a servant or agent of the first-mentioned person, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the servant or agent;

(5)

65 Against that background, let me turn to the evidence of Mr Bartlett, being the backbone of the plaintiff's case.

2. MR BARTLETT'S EVIDENCE

Mr Bartlett's association with Camile Trading.

66 Mr John Bartlett worked for some years as a truck driver. In 1985, or thereabouts, he worked for Mr Fletcher delivering petroleum products in a tanker. He remained with him for about six months. He thereafter performed the same work for another employer, Mr George Ayoub. Mr Ayoub used the business name, Marina Petrol. In 1989, Mr Bartlett ceased driving so that he could manage Mr Ayoub's business selling and distributing petroleum products. In 1990, the business moved to premises at Albion Park Rail, south of Wollongong. Underground storage tanks and associated equipment were installed, namely: (Statement of Claim, para 16 averment; Bartlett Ex A1: p6/7(11))

"16. At all material times the First Defendant's premises had constructed on it the following storage tanks each of which had the capacity as shown and was used for the storage of the product as shown:

Tank No.	Used for the storage of:	Capacity (in litres)
Tank 1	Leaded petrol	70,000
Tank 2	Unleaded petrol	70,000
Tank 3	Unleaded petrol Blend	70,000
Tank 4	Diesel	70,000
Tank 5	Ethanol	70,000
Tank 6	Solvents	58,000
Tank 7	Leaded petrol Blend	58,000
Tank 8	White Spirit	58,000
Tank 9	Unleaded petrol	45,000
Tank 10	Leaded petrol Blend	45,000
Tank 11	Heating Oil	58,000
Tank 12	Evenfont supplied HO	58,000
Tank 13	White Spirit	14,500
Tank 14	Kerosene	11,000

67 In 1992 the company, Camile Trading, was formed as the vehicle for the ownership of the business, Marina Petrol, and the depot. Mr Bartlett was made a director and given a ten percent shareholding in the company. Shortly after, Mr Fletcher examined the business with a view to purchase. The purchase was consummated in August 1992 (Bartlett: Ex A1: p4(7)). Mr Fletcher replaced Mr Ayoub as a director and purchased his ninety percent shareholding. Mr Bartlett, in his affidavit, made the following statement, referring to Mr Fletcher (which Mr Fletcher did not dispute in his affidavit in reply): (Bartlett: Ex A1: p4(7); cf Ex CT-2A)

"From then on, I took all my instructions from him."

68 Mr Fletcher gave the following evidence: (T637/8)

69 Mr Bartlett remained a director of Camile Trading and continued to hold ten percent of its shares. His function was to run the depot. He was required to organise the delivery of various petroleum products to the depot and to supervise their receipt and storage. He was also engaged in their sale and delivery to retail outlets. He organised the computer system, often working from home after hours using a home computer to which records from the company were transmitted. He said he worked long hours and had few holidays (Ex A1: p1/2(2)).

70 Marina Petrol owned and controlled service stations at Forestville, Tahmoor and Westmead. It had an association with other service stations (some of which carried the name Marina Petrol) which were not owned, but which were controlled (Barrack Heights, Balgownie and Oak Flats). As a wholesaler, it also supplied a number of independent service stations with various petroleum products (Marina Petrol at Nowra, Volume Plus and Truck Stop 31 at Marulan). The storage capacity at the Albion Park depot was significantly increased by the addition of two above ground tanks (tanks 15 and 16). According to Mr Bartlett, they were installed between late 1994 and March 1995. Their capacity was as follows: (Statement of Claim, para 17 averment; Bartlett Ex A1: p6/7(11) and p9(13))

Tank No.	Used for the storage of:	Capacity (in litres)
Tank 15	Leaded petrol Blend	60,000
Tank 16	Unleaded petrol Blend	155,000

71 Pipes connected the tanks to other storage tanks. There was a mechanism on a gantry (with associated valves, stopcocks and a meter to measure the flow volume) to assist the transfer of fuels from one tank to another. Both tanks were fitted with a propeller-like blade to blend the contents (Ex A1: p6(10)). Mr Bartlett asserted that the tanks were procured and installed in the context of large scale blending of both diesel and petrol (leaded and unleaded) and an increasing throughput. They were designed to serve two distinct purposes. The first was concerned with safety. Before their installation, much of the blending was undertaken by drivers manually combining, in the one tanker, various petroleum products. It was a procedure known as "splash blending", where the driver would stand on the back of the tanker, wearing a static belt to minimise the risk of a spark. Tanks 15 and 16 offered the opportunity of large scale blending within the tanks themselves, which was a much safer operation. Secondly, blending in tanks fitted with blades produced a more stable product, where the constituents were less likely to separate (Bartlett: Ex A1: p9(13).

72 Mr Fletcher, responding to this evidence, asserted with some plausibility that, to the best of his knowledge, the tanks were installed in 1995. He referred to an entry in his 1995 diary on 6 September 1995 which related to the larger tank, which was in these terms: (Ex A8)

"140,000.00 litre tank arrived on low loader."

73 On 20 November 1996, Mr Bartlett resigned from Camile Trading and left the company. It is not entirely clear why he resigned. He said that he could no longer work with Mr Fletcher (T42). He described Mr Fletcher as a "control freak" (T43). They were "going down different tracks". He elaborated in the following evidence, referring to disclosures made to Customs investigators in 1997: (T45)

74 On 26 November 1996, a week after Mr Bartlett resigned, Customs executed search warrants upon the depot, upon Marina Petrol outlets and upon the homes of both Mr Fletcher and Mr Bartlett. Documents were seized and samples of petroleum products were taken.

75 In early 1997, Customs approached Mr Bartlett with a view to enlisting his aid in the prosecution of Camile Trading. On 25 February 1997, Mr Bartlett spoke at some length to Mr O'Malley, a Customs investigator. He ultimately agreed to be interviewed and to make an induced statement, which was then undertaken (and video recorded) on 24 March 1997 and 26 March 1997 (T58). The transcripts of each interview were eventually made available to the defendants. The material was lengthy. Aspects of the interviews, although not many, were put to Mr Bartlett in cross examination. Shortly before giving evidence in these proceedings Mr Bartlett was, as mentioned, provided with an undertaking by the Director of Public Prosecutions in the form set out in para [8] above.

76 This being a short description of Mr Bartlett's relationship with Camile Trading and Mr Fletcher, let me now turn to the system of blending employed at the Albion Park Rail depot, as described by Mr Bartlett. I will deal with the following:

First, Mr Bartlett's evidence concerning the blending of diesel with heating oil.
Secondly, his evidence in respect of the blending of leaded and unleaded petrol.
Thirdly, the issues canvassed in cross examination.
Fourthly, evidence of tanker drivers and other witnesses relevant to the issue of blending.

77 Having assembled that material, I will examine the arguments said to support or contradict Mr Bartlett's testimony.

Diesel and heating oil.

78 The excise on diesel (payable at a rate equivalent to the gasoline rate) was significantly more than the excise on heating oil. Using an entry for Home Consumption lodged by Evenfont with Customs in the period November 1995 as an illustration, the gasoline rate at that time was $0.33513, whereas the excise rate for heating oil was $0.06954 (Ex AG).

79 There was some uncertainty before the introduction of Part VIIB of the Excise Act on 1 April 1994 concerning whether the blending of diesel with heating oil could be characterised as the "manufacture" of an excisable blended petroleum product. The terms of s77H of the Act (operating from 1 April 1994) make it clear that the legislature, at least, regarded such blending as "manufacturing" and introduced the amendment for greater certainty (supra para [41]). However, Mr Fletcher having taken advice from Ms Marie Wheat, a Customs Consultant with Price Waterhouse, said that he believed that blending diesel with heating oil was perfectly legal before the amendments (Ex CT-2A, para 64). He therefore blended diesel with heating oil (in roughly equal proportions) before 1 April 1994, but not after (para 68). The prosecution, accepting that there was uncertainty, chose to nominate 1 April 1994 as the commencement date for the first period in the Statement of Claim.

80 It is nonetheless instructive to examine what happened before 1 April 1994. According to Mr Bartlett, the depot blended diesel and heating oil before Mr Fletcher acquired the business in 1992. Indeed, he spoke to Mr Fletcher on this subject when he came to the depot as a prospective purchaser. He told him, according to his affidavit, "we are making a lot of money", adding: (Ex A1: p13(23))

"If we continue blending in this way, we can make a lot of money."

81 Mr Bartlett said that Mr Fletcher came into the business a short time later. Diesel was purchased from Mobil Oil. Tankers with a capacity of 30,000 litres delivered six or seven loads each week (Ex A1: p10/11(18)). Diesel was also purchased from a Mr Topalov, who operated a company BPMA. Six or seven tankers (each with a capacity of about 30,000 litres) would deliver diesel from BPMA each week. The invoices relating to each delivery were given by Mr Bartlett to office staff, including Mrs Brenda Fletcher, the wife of the second defendant. They were entered in the computer system.

82 There was, however, a need for heating oil. According to Mr Bartlett, that issue was discussed with Mr Fletcher a short time after his purchase of the business. The conversation was in these terms: (Ex A1: p14(24))

"Look, we can get hold of a heap of heating oil from Melbourne."

83 Mr Fletcher provided Mr Bartlett with the cost and details of who he should approach. A tanker from Success (a freight company) delivered the heating oil to the depot. A 50/50 blend was created and road tested by Camile Trading road tankers and found to be satisfactory. Arrangements were then made for the regular delivery of heating oil by Success at the rate of three to five tankers per week. Mr Bartlett said this: (Ex A1: p15/16(26))

"... These loads of heating oil were delivered to the depot in tankers used by Success in its business. These mobile tankers were not driven by any employees of Camile. These drivers sometimes gave me a piece of paper in relation to the loads of heating oil that they had delivered. The only thing written on this piece of paper was the volume of product being carried. No formal paperwork, such as delivery dockets was ever given to me by these drivers when delivering heating oil from Success. I was always present at the depot when these deliveries of heating oil arrived. I paid the drivers in cash for each delivery, although about 10% of the time the cash was actually handed to them by Christine Greenshields, a person working in Camile's office. When each load arrived, I checked the load in each tanker, and then directed the drivers to discharge the heating oil from their mobile tankers into tank 11."

84 On the plaintiff's case, the practice of blending heating oil and diesel was, at the very least, questionable before 1 April 1994, absent a license and the payment of excise. There was therefore a need for subterfuge. Hence, payment was made in cash. No record in the computer system was made of each delivery (Ex A1: p18(30)). Mr Bartlett said that he had a need, nonetheless, to keep track of each delivery. He therefore made a record in his diary, annotating those paid for in cash with the letters "O/D" (meaning "off docket") (T266). Mr Bartlett's 1995 diary was seized by Customs in the search on 26 November 1996 (Ex A12). It recorded deliveries of various products and included the annotation against some "O/D". The 1996 diary was not amongst the documents seized by Customs. Mr Bartlett said he last saw it shortly before he left the employ of Camile Trading. It was in a box of documents placed in the back of the car of Jim Stevens, the father-in-law of Mr Fletcher (Ex A1: p18(30)). Mr Stevens died on 26 January 2004. I will later return to Mr Bartlett's diary when I deal with the evidence concerning the search, and the suggestion that Mr Fletcher had been warned of the search.

85 Mr Fletcher, having determined that he would continue to blend diesel with heating oil, established a cash fund, according to Mr Bartlett. It was to be used to purchase heating oil and other petroleum products used in blending. Mr Bartlett said he contributed $60,000. Mr Fletcher put in $40,000. Mr Bartlett suggested that Mr Fletcher said this: (Ex A1: p14(24))

"They can't follow us if there is no paper trail. No dockets, no cheques - no start, no finish."

86 Mr Fletcher, in his affidavit in response to that paragraph, said this: (Ex CT-2A, para 64)

"I have no recollection of any conversation about paper trails and the absence of dockets. As best I can recall, there was no such conversation."

87 After Mr Bartlett resigned in November 1996 his solicitors demanded the repayment of monies he had advanced to the company. The balance of the Loan Account was $35,172 (Annexure LRF-4). Mr Fletcher agreed to repay the money by instalments.

88 Purchases of heating oil, with minor exceptions, were not entered in the Sybiz computer system. Indeed, according to Mr Bartlett, the legitimate need for heating oil in the business was extremely small. He said this: (Ex A1: p19(33))

"Camile received orders for the supply of heating oil from a number of industrial and domestic users of that type of fuel. These orders averaged between 3000 to 4000 litres per week in winter. There were no orders in the other months. To meet these orders, heating oil was taken directly from tank 11 and placed into mobile tankers owned by Camile and driven by Camile employees, and then delivered to the person who had placed the order. These deliveries of heating oil were not mixed with any other petroleum product."

89 Mr Bartlett said that he rang the Marina Petrol controlled service stations and the other associated retail outlets each day to obtain tank dips in order to service their requirements for diesel fuel. He asserted that, with one exception, all diesel that was supplied was a 50/50 blend of diesel and heating oil (Ex A1: p19(35); T88). The exception was the fishing boats at Kiama which were supplied with pure diesel at 20,000 litres per month (Ex A1: p19/20(35 and 36)). Pure diesel was supplied because the company did not wish to run the risk of the fishing vessels breaking down whilst at sea.

90 A number of issues were raised in cross examination. The first and most prominent concerned Mr Bartlett's account of the source of the heating oil. Mr Bartlett said that deliveries of diesel were made by Mobil and BPMA and totalled 12 to 14 tanker loads a week. Success delivered three to five tanker loads of heating oil a week. Yet Mr Bartlett insisted that there was a 50/50 blend. How, then, could there be a 50/50 blend when the number of loads of heating oil did not correspond with the number of loads of diesel? In the context of that issue, the following was put: (T96)

91 The affidavit of Mr Bartlett had a number of headings. There was a section dealing with the blending of diesel oil and heating out (Ex A1: p10(16ff)). The affidavit included a specific subheading: "Heating Oil Delivered by Success" (para 33ff). In Mr Bartlett's detailed description of the system, he made no reference in his affidavit to a source of heating oil other than Success. In this respect his affidavit reflected the Statement of Claim which identified Success as the source of the heating oil (cf para [21]).

92 At first, the cross examination appeared to undermine Mr Bartlett's evidence of a 50/50 blend. However, upon closer examination, it did not do so. Mr Bartlett plainly did not draft the affidavit. It was drawn by a lawyer upon the basis of statements he had made to Customs' investigators. The omission of Evenfont as a source of hearing oil appeared to be a drafting error. Earlier in the same affidavit, in an introductory paragraph, Mr Bartlett referred to placing orders with various suppliers for petroleum products. In the context of Evenfont, he made the following statement: (Ex A1: p4/5(8))

I purchased for Camile, heating oil

93 The material tendered also included invoices from Evenfont in respect of the delivery of heating oil (for instance Ex A18). Mr Pullinger, to whose evidence I will later refer, said that heating oil was delivered to Camile Trading. Accordingly, there can be no doubt on the evidence that Evenfont was a substantial supplier of heating oil to Camile Trading during this period. The drafting error, incidentally, may well explain the omission of any allegation in the Statement of Claim against Evenfont of complicity in respect of the blending of diesel.

94 There is an issue, nonetheless, concerning the volume of heating oil delivered and (on the plaintiff's case) blended. I will later deal with that issue. Over time, the throughput of the depot increased significantly after 1 April 1994. Mr Bartlett's estimates of tanker loads were made to Customs investigators after he had ceased work in November 1997. They no doubt reflected the volume of deliveries towards the end of the period in the Statement of Claim, rather than the beginning.

95 A second issue, which was canvassed at some length in cross examination, concerned the cash accumulated in the "kitty" as a consequence of the system which Mr Bartlett described. Mr Bartlett estimated that there was close to $800,000 in the cash tin at the time he left (T70). He described the green ammunition tin where it was kept. He believed that he was entitled to a share of the net proceeds, after the payment of monies due to carriers, suppliers and others. One of his grievances against Mr Fletcher was that he was not paid that share.

96 Mr Fletcher and others gave evidence concerning the nature of the business and the part cash played in that business. As a petrol wholesaler with retail outlets, the business generated significant cash. The source of that cash was not illegitimate, as suggested by Mr Bartlett. It was ludicrous to suggest that the amount kept in the green tin in the safe ever reached anything like $800,000. The excess cash, after payment of legitimate outgoings, was banked every day or every other day.

97 I will return to these issues in my evaluation of Mr Bartlett's evidence. At the moment I am seeking to describe what he said took place, identifying some (but by no means all) of the issues raised in cross examination, providing comment where the issue readily admits an explanation.

98 A third issue concerned the inference that should be drawn from deliveries which were made to retail outlets. Certain invoices suggested deliveries to service stations which, if combined, would produce less than the 50/50 blend described by Mr Bartlett. However, such invoices did not take account of stock on hand, as revealed by daily dips which were provided to Mr Bartlett. In the case of Evenfont, Camile Trading despatched mobile tankers periodically to the refinery where they picked up the heating oil (known as HO, TCO, CO1 or CO II) and took it directly to retail outlets such as Truck Stop 31. Mr Bartlett, however, said in the context of such deliveries, the system operated in the following way: (T223)

99 He acknowledged that he had made no reference to such a practice in his affidavit. He added that it did not happen often and mainly in winter.

100 I will later describe in greater detail the products of Evenfont, including the heating oil. They will be dealt with in the context of the plaintiff's case against the third and fourth defendants. It will emerge that heating oil from Evenfont (as with heating oils generally) had a different and more limited profile than a diesel fuel which conformed to the Australian Standard. However, because a diesel engine, in its design, is forgiving, it is capable of using heating oil as a fuel, although its prolonged use may generate problems. The heating oil from Evenfont came from Nockatunga Crude Oil from southwest Queensland and was dark green in colour (T256). Its colour would lighten when blended with diesel. Given its limitations as a fuel and its colour (which generated complaints), it would seem unlikely, as a general practice, that it was used as diesel unless blended with pure diesel.

101 A fourth issue raised in cross examination concerned tank 4. Mr Bartlett, in one of his earlier interviews with Customs investigators, suggested that tank 4 was used for pure diesel. It was the source of diesel supplied to the fishing fleet. In another interview, he suggested that tank 4 "copped it", meaning that it was a dumping ground for the remnants of various fuels and was anything but pure. This is but one of a number of contradictions in Mr Bartlett's evidence.

Leaded and unleaded petrol.

102 The Statement of Claim and the Particulars accompanying each paragraph, broadly reflected the evidence of Mr Bartlett, as set out in his affidavit (Exhibit A1). Referring to those paragraphs which deal with unleaded petrol and the first period, the Statement of Claim aserts the following (paraphrasing):

Para 198: Camile Trading purchased quantities of unleaded petrol from the storage facility of Mobil Oil.

Paras199/200:

103 The paragraphs that followed were matters of some controversy and importance. They should be quoted in full. They relate to the petroleum product, white spirits, which the plaintiff contends was used as part of the mix in respect of both leaded and unleaded petrol. Mr Fletcher denied that suggestion. Evenfont denied having supplied white spirits to Camile Trading. Indeed, it denied having manufactured white spirits at its refinery. Professor Batts gave evidence (which was uncontested) that the refinery of Evenfont at Seven Hills was incapable of producing white spirits because it is a fraction with a boiling point range between 140 and 200 degrees C. The distillation plant of Evenfont only had a capacity to heat to 140 degrees C. Counsel for Customs answered this controversy by pointing to the wording of the Statement of Claim, which reflected the uncertainty of the plaintiff as to the precise chemical composition of the white hydrocarbon which Customs alleges was purchased from Evenfont and others and blended by Camile Trading. The Statement of Claim in respect of this issue alleges the following:

201

PARTICULARS

(a) the First Defendant purchased White Spirit from Gladstone;

(b) further, and in the alternative, the White Spirit was purchased by the First Defendant from Success;

(c) the First Defendant purchased White Spirit from S F Bial Pty Limited ('Bial');

(d) the First Defendant purchased White Spirit from the Third Defendant that was known to the First, Second and Third Defendant, as 'White Spirit';

104 The paragraph which followed was rather more definite. It did not use the phrase "white hydrocarbons, being a petroleum product known as white spirit", but simply referred to "white spirit". It was in these terms:

202

PARTICULARS

(a) the White Spirit purchased from Gladstone and or Success was delivered to the First Defendant's premises by tankers owned or operated by Success;

(b) the White Spirit purchased from Bial was delivered to the First Defendant's premises by servants, agents or employees of Bial;

(c) the White Spirit purchased from the Third Defendant was collected from the Third Defendant's premises and delivered to the First Defendant's premises by servants, agents or employees of the First Defendant."

105 The "white spirit" was placed in tanks (para 203). The Statement of Claim continued as follows (again paraphrasing):

Paras 204/206: Camile Trading purchased ethanol, which was likewise delivered to its depot and stored in tanks.

Paras 207/209:

106 Paragraph 210 alleged that these products were then blended. The paragraph was in these terms:

210

107 The Particulars which accompanied that paragraph were as follows:

"PARTICULARS

(a) 2,080,210 litres of Unleaded Petrol was combined with quantities of the White Spirit, Ethanol, Toluene in the following proportions:

(i) 60% Unleaded Petrol

(ii) 22.5% White Spirit

(iii) beginning at approximately 1% ethanol in April 1994 increasing to approximately 10% Ethanol in November 1996.

(iv) 7.5% Toluene.

(b) the principal method of mixing was by mixing the said proportions of Unleaded Petrol, White Spirit, Ethanol and Toluene:

(i) prior to March 1995, by discharging quantities of Unleaded Petrol, White Spirit, Ethanol and Toluene from separate storage tanks on the First Defendant's premises directly into the same storage compartments of mobile fuel tankers; and

(ii) as from about March 1995, in tank number 16."

108 The solicitors for Evenfont sought further and better particulars. The response from the Commonwealth Crown Solicitor, acting for Customs, included these words: (Subs 3 and 4 Defs: Annex A)

"2. The white spirits referred to in the Statement of Claim are a product known by that name which has a widespread use in our economy. 'White spirits' is a term commonly used in both the petroleum industry and the domestic market to describe a petroleum product that consists of White Hydrocarbons. It is produced in the process of distilling crude oil and it has a number of general uses, one of which is as a cleaning fluid. It is not suitable for use in diesel and petrol engines as a power source for those engines. At present, the Plaintiff is unable to provide you with information as to the chemical composition of white spirits other than as stated. This information will be sought and advised to you, although this will not be possible until after 16 July 2000 when the expert engaged by the Plaintiff has returned from overseas."

109 The Statement of Claim was in the same format in respect of leaded ("super") petrol, suggesting the same formula, the same ingredients and the same suppliers.

110 The case for the plaintiff is strengthened if white spirits were used in a blend with leaded or unleaded petrol. White spirit is a petroleum product. It attracts a rate of excise lower than the gasoline rate. It is not listed as an exempt petroleum product in Regulation 176(2). Its use with gasoline would involve the manufacture of an excisable blend of petroleum product, where the full gasoline rate had not been paid on each ingredient of the blend (cf Reg 176(2)(u)) (supra para [56]).

111 Mr Bartlett, in his affidavit and evidence, described the blending process. It was carried out mainly by drivers before the installation of the large blending tanks, 15 and 16. Once they were installed, blending was continuous, producing approximately 150,000 litres each day in total (leaded and unleaded petrol) (T158). Mr Bartlett instructed employees of Camile Trading, including Mr Hennessy and Mr Stevens (the father-in-law of Mr Fletcher), in the method of blending. Mr Stevens worked part time.

112 The Sybiz computer records maintained by Mr Bartlett recorded the purchase of the leaded and unleaded petrol and ethanol (Ex A1: p23(44)). No record was made of the purchase of toluene. Deliveries of toluene were made by S F Bial at the rate of two or three loads (each 30,000 litres) per week. To obscure the paper trail, the invoices of S F Bial were sent to one of the controlled retail outlets, Forestville, for payment (Ex A1: p24(47)).

113 White spirits were also supplied by S F Bial and others. A pure form of white spirits was delivered irregularly and in small quantities (10,200 litres) to service the dry cleaning industry. It was kept separately and was not used for blending. A less pure form, intended for blending, was also delivered by S F Bial. Mr Bartlett produced to the investigators a computer printout of a document headed "All Branch Inventory Report as at July 1996". The document was annotated in Mr Bartlett's handwriting with these words: (Ex A16)

"White Spirits S F Bial. Pay cash from Forestville a/c. 2-3 loads p/w."

114 Mr Bartlett said that the annotation was an instruction given to him by Mr Fletcher as to the manner of payment to S F Bial (T155). His evidence continued: (T155)

"A. It would have been written by me at some stage to remind me. It would have been written many times in different areas including recorded on the order books.

115 Submissions by the first and second defendants suggested that it was plausible that the annotation to Exhibit A18 was added after the search by Customs on 26 November 1996, a form of "verbal" designed to incriminate Mr Fletcher (Subs 1 and 2 Defs: p120(462)). The following was added in the same submissions: (para 463)

"463 ... It is clearly a document that is contrived by Bartlett and in circumstances where it is subsequent to the search and seizure on 26 November 1996 and given, or put across, in circumstances to have the resemblance of it being authentic and, contemporaneous at the time the instruction was allegedly given."

116 That suggestion was not put to Mr Bartlett. It seems to me most unlikely. The note had the appearance of a contemporaneous record. Had it been fabricated, you would have expected something rather less subtle. The note did not refer to Mr Fletcher. It required interpretation, which Mr Bartlett provided in his evidence. His evidence suggested a systematic failure to record in company records products, the use of which would demonstrate that Camile Trading was engaged in manufacturing (that is, blending involving heating oil, white spirits, toluene etc). On his evidence, a number of suppliers of various products were paid in cash. The note (Ex A16), on its face, records one instruction in relation to one supplier and one product. It could hardly be regarded as an effective "verbal". I believe it to be an authentic document made well before 26 November 1996.

117 Mr Bartlett gave evidence that Mr Fletcher identified a further source of white spirit some time prior to 1995. Mr Bartlett said this: (Ex A1: p26(51)

" ... Fletcher said to me: 'We have set up to buy stuff from Central Australia which will be brought into the depot by Vic Newland. You should pay 38.5 cents per litre for the product and 8 cents per litre haulage.'"

118 He added: (Ex A1: p26(52))

"Subsequent to this conversation, I received a 20-litre drum of this white spirit from Vic Newland. Fletcher and I then made up various blends of this white spirit with leaded and unleaded petrol. The blended petrol was then given to Camile's employees to test in their own cars. These tests proved that the blending of petrol and white spirits in the actual proportions used was feasible."

119 After the tests, Camile Trading purchased two loads of white spirit from Vic Newland a week throughout 1995/6. It was delivered by Newland himself. He did not provide documentation and he was paid in cash (Ex A1: p26(53)). The deliveries were not recorded in the records of the company. They were recorded in Mr Bartlett's diary, which he referred to as his "order book".

120 Mr Fletcher, as mentioned, denied the purchase or use of white spirits for the purposes of blending with leaded or unleaded petrol. In the context of Vic Newland, Mr Fletcher said this: (Ex CT-2A: p25(86))

" ... I say that the First Defendant never bought White Spirits from Vic Newland. At no stage was any blending of White Spirit with leaded or unleaded petrol conducted with my knowledge or under my supervision or for that matter, with my consent. I further say that I have no knowledge of blended petrol containing White Spirits being given to any of Camile's employees to test in their cars. I further say, in answer to the paragraph and its contents, that Vic Newland was a carrier not a supplier. He used to collect crude oil from Queensland and take it to the Third Defendant's refinery at Seven Hills."

121 Mr Fletcher likewise denied purchasing white spirits from Evenfont, as asserted by Mr Bartlett (Ex CT-2A: p26(89)).

The expertise of Mr Bartlett.

519 The plaintiff identified its case as involving the supply to Camile Trading of products (b) and (d) above. It said this:

The abovementioned 'condensate' and 'residue' (paragraphs 6.3(b) and (d) above) (sic, renumbered 4.2.3 (b) and (d)) is the source, the plaintiff alleges, of the white spirit obtained by the first defendant from the third defendant that Bartlett deposes to.

520 The plaintiff later alluded to a "third product" (para 4.2.12). However, I believe that there was no basis for that suggestion. The Evenfont operation was repeatedly examined by Customs in yearly audits, which have been described. The operation, as described in the audit papers, does not suggest a "third product".

521 So the Evenfont operations which need to be more closely examined concern the following:

First, the motor spirits (paragraph (b) in the plaintiff's description);
Secondly, the white residue or condensate produced from the crude oil distillation (paragraph (d) in the plaintiff's description).

522 In respect of those operations, the plaintiff posed the following questions:

"4.2.7 The questions, therefore, are whether the Court can accept the evidence adduced for the defendants:

(a) that none of this 'condensate' (from the distillation of crude oil) was sold or delivered to the first defendant and that it was all used as fuel for their own boilers and

(b) that all the said 'residue' (from the distillation of adulterated fuels from Caltex) was in fact residue, rather than condensate, and was waste oil which was used as boiler fuel."

523 The first question raises an issue in respect of the condensate, which is the by-product of crude oil (paragraph (d) in the plaintiff's description above). The second is a reference to motor spirits (paragraph (b) above).

524 The questions, as framed, require amendment. The plaintiff's case on complicity against Evenfont and Mr Pullinger requires that they prove that Evenfont (or Truegain) supplied Camile Trading with a white condensate upon which excise had not been paid at the full gasoline rate, which the company and Mr Pullinger knew would be blended by Camile Trading (not having a licence, or having submitted to Customs control and without the payment of duty). So the issue concerning the nature of the product supplied by Evenfont to Camile Trading concerns an element of the offence. It must be proved beyond reasonable doubt. It is not simply a question of whether the Court can accept the defendants' evidence, as though determining which version was more likely (Mr Lucas or Mr Bartlett). The question is whether there is a reasonable possibility that the description by Messrs Lucas and Pullinger of the Evenfont operation is accurate.

525 What was said to be reprehensible about the supply of these products, giving rise to complicity on the part of Evenfont and Mr Pullinger? The plaintiff appeared to rely upon two arguments. The first concerned an aspect of the cross examination of Messrs Pullinger and Lucas. It was suggested, upon the basis of certain answers provided, that Mr Lucas' evidence should be rejected as unreliable, in which case one would be left with Mr Bartlett's assertion that Evenfont supplied "white shit" which was, by inference, a cheap white condensate where excise had not been paid at the gasoline rate.

526 The second basis involved the construction of the Excise Regulations. The plaintiff appeared to suggest that blending motor spirits with ethanol and petrol (leaded or unleaded) necessarily involved offences where Evenfont and Mr Pullinger knew of the proposed blending and were therefore guilty of complicity.

527 I will now examine each suggestion.

The description "Waste to Boiler".

528 I have described the process undertaken by Evenfont in dealing with waste slops (supra paras [477 ff]). The process involved the separation and treatment by Evenfont of petrol fractions to create a white product, termed motor spirits. That product was subject to excise at the gasoline rate, which was paid. There was also a green residue (representing diesel fractions) which Evenfont regarded as a waste product. No duty was paid. The attack upon Mr Lucas (and Mr Pullinger) concerned that "waste product". So the argument was concerned with an aspect of Evenfont's operation which did not, as such, involve the supply of "white shit" (to be later blended with petrol). Rather, the practices employed by Evenfont in the context of "green shit" were put forward by the plaintiff as a basis for inference in respect of "white shit".

529 It will be remembered that "waste oil" was defined under Reg 176(1) in these terms:

Exempt blended petroleum products

176(1)

'waste oil'

(a) for any purpose; or

(b) for any purpose except as burner fuel; ..."

530 Here the residue, after processing the waste oil slops, was capable of being used in a diesel engine. Mr Pullinger said this: (T798)

531 Mr Lucas gave much the same evidence. He said this: (T840)

532 Mr Lucas added: (T840)

533 Mr Pullinger acknowledged that he was not sure that Customs knew the residue could be used in a diesel engine and that that was the intention (T797). Mr Pullinger added in cross examination: (T797)

534 Although the "green shit", the residue after extracting the motor spirits from waste slops, was clearly an impure product which only partially resembled diesel, the definition of "waste oil" is not framed in terms of purity. It is a definition framed in terms of utility. Here the residue could not be described as "no longer usable without reprocessing for any purpose or any purpose other than as a boiler fuel". It could be used (with or without blending) as diesel to the knowledge of Evenfont and was so used by Camile Trading.

535 The suggestion that Customs may have been mislead as to the true nature of the residue was, according to the plaintiff, underlined by a further aspect. Messrs Pullinger and Lucas were cross examined upon the declaration that they had each made to Customs when completing the Entries for Home Consumption. Mr Pullinger, who gave evidence first, was shown a number of such entries that he had signed. Attached to each entry was a signed statement of operations which was divided into two sections, one headed "Product in Process" and the other "Excisable Product". The section "Product in Process" was, in turn, divided into various columns designed to show in litres what had been produced. One of the columns subtracted from the total was headed "Waste to Boiler", thereby reducing the amount of excisable product.

536 It was apparent during Mr Pullinger's cross examination that the amounts entered in the "Waste to Boiler" column, when processing Caltex waste slops, were very high. They were much higher than would have been used as boiler feedstock, as Mr Pullinger acknowledged. Mr Pullinger said, however, that Mr Lucas was in charge of production. He was the appropriate person to deal with such issues.

537 Mr Lucas then gave evidence. He sought to answer in chief the insinuation that had been made that Customs had been deliberately mislead by describing saleable fuel not destined for the boiler as "Waste to Boiler". Mr Lucas said that when they began processing Caltex waste slops, he used the same form which had already been used in processing crude oil. That form had a column "Waste to Boiler". The residue, after processing motor spirits, was entered in that column. He then said this: (T830)

538 When the operation was transferred to Rutherford, the form was changed to identify accurately the waste product which was used as feedstock in the boilers and "waste product" later on-sold. The change was made in the week ending 25 November 1996. Another column was added to the standard form, "Boiler Residue Consumed" (T835; Ex AH). The change was made, according to Mr Lucas, because Rutherford had a continuous process of distillation. It was necessary to adjust the form to reflect accurately that process (T836). The change, as it happened, coincided with the Customs raid upon Camile Trading and Evenfont (26 November 1996). Mr Lucas insisted, nonetheless, that the change had been in contemplation for a number of months.

539 This evidence, as I have said, relates to the "waste" residue of the processing of waste slops, which was one source of the "green shit" used as diesel (with or without blending) (cf Ex EV14). I emphasise again that the plaintiff's claim against Evenfont and Mr Pullinger is not concerned with diesel or the supply of "green shit" or its use in blending. What, then, is the relevance of this material? As I understand the plaintiff's submissions, the exploration of this issue was primarily directed towards the credit of Mr Lucas and the reliability of the statements of operation forms completed by Evenfont in the context of the white condensate, which was a by-product of the processing of crude oil (supra para [465]). In the statements of operation dealing with the production of crude oil, Evenfont asserted that the "white shit" (WS) was used as boiler feedstock (supra para [470]). Customs, in its submissions, questioned the accuracy of that assertion. The proper inference, according to Customs, was that the by-product of the processing of crude oil, which Mr Gibb described as "a condensate" or "light ends", had been diverted to Camile Trading for use with petrol and other products in a blend. Because the residue had been represented as boiler feedstock, no excise had been paid.

540 Such a submission appears to me to draw a long bow. I am not persuaded. Evenfont, at its refinery at Seven Hills, had two boilers, one larger than the other. They required fuel. There was no evidence of any other source of fuel other than that provided by Evenfont, namely the residue after processing crude oil. The evidence was that the boiler consumed about 29,000 litres of fuel a week. There was no evidence that that figure was inaccurate or exaggerated.

541 Accordingly, the condensate (the "white shit") which was the by-product of the processing of Queensland crude oil can be put to one side. I accept, as a matter of probability (and certainly as a reasonable possibility), that it was used as fuel for the boilers at the plant. As such, it was waste oil and exempt from duty (Reg 176(1)(b) Excise Regulations). I do not believe that it was diverted to Camile Trading. It was not a source of the "white shit" delivered to Camile Trading.

542 The remaining issue concerns the white condensate (called motor spirits by Evenfont) which was said to give rise to complicity on the part of Evenfont and Mr Pullinger.

The Excise Regulations.

543 The plaintiff's written submissions said this:

"4.2.16 The second defendant gave evidence that the first defendant, in fact, mixed a 'motor spirit' obtained from the third defendant with petrol (affidavit paragraphs 27, 78 and 90). He described this as 'WS'. This must have been, at least, the product manufactured and known by the third defendant as 'MS', that is, the 'low grade petrol'. Lucas knew that the first defendant would mix this product with ethanol and '... with other petrol if needs be' (transcript p 850.4). This is sufficient to show that the third defendant supplied petroleum products to the first defendant knowing that they would be blended with refinery petrol by the first defendant."

544 That paragraph appears to suggest that it would be reprehensible (giving rise to offences under the Act, including the evasion of duty and complicity on the part of the third and fourth defendants) to blend the Evenfont product, motor spirits, with ethanol and petrol. That submission raises an issue concerning the construction of the Excise Regulations. I now turn to that issue.

545 The evidence established the following:

First, that the "white shit" supplied by Evenfont to Camile Trading, described as motor spirits, was derived from waste slops purchased by Evenfont from Caltex;
Secondly, that Evenfont and Mr Pullinger knew that motor spirits would be blended by Camile Trading with leaded or unleaded petrol, as well as ethanol;
Thirdly, they also knew that motor spirits was a "low grade petrol", low on octanes, which would require enhancement through toluene or xylene; and
Fourthly, the motor spirits supplied by Evenfont to Camile Trade was excise paid at the full gasoline rate.

546 Would a blend of leaded or unleaded petrol which incorporated these elements be an "excisable blended petroleum product" for the purposes of s77G of the Excise Act (cf supra para [42])? It will be remembered that, to be an excisable blended petroleum product, the petroleum product must not be exempt. The various exemptions provided by Reg 176(2) of the Excise Regulations were analysed in the previous judgment CEO of Customs v Camile Trading Pty Limited (supra para [39]). The mischief which the amending regulation sought to address was identified in these words in the passage previously quoted (supra para [40]) which, for convenience, I repeat:

" MR PUNCH: This bill is part of a package of bills introducing the following measures, ...

... there will be amendments to the Excise Act 1901 ... to address substantial revenue loss through the substitution of excise free or low duty products for petroleum fuels. Resolution of this issue involves ensuring certain blended petroleum products and crude oil or condensate delivered for use otherwise than as refinery feedstock are excisable products, and that the excise duty payable on the blend, the crude oil or condensate will be payable at a rate equal to either the diesel rate or the leaded petrol rate, depending upon the composition of the petroleum product."

547 In the previous judgment, the following was said: (para [27])

"27. However, the regulations, according to the plaintiff, had been carefully drawn with the legislative objective in mind. A contrast is made in the subparagraphs of regulation 176(2) between "a blend of a petroleum product" (singular) (or, in the case of paragraph (h), "a blend of gasoline") with subparagraphs (t) and (u) which speak of "blends of petroleum products" (plural). There is a further expression "a blended petroleum product" (singular) used in particular circumstances in subparagraphs (p) and (q), which have no application here. However, where the regulations use the singular, that is the expression "a blend of petroleum product", they do so quite deliberately. Subparagraphs (i), (j) and (m) for instance, contemplate a single petroleum product (such as leaded or unleaded petrol) on which duty at the maximum rate has been paid, with an additional substance, such as performance enhancing additives (176(2)(i)), or ethanol (176(2)(j)) or methanol (176(2)(k))."

548 I accepted that construction (para 29). The blend created by Camile Trading (with the knowledge of Evenfont and Mr Pullinger) should be characterised as "blended petroleum products" (plural), being a mix of a number of petroleum products and of the substance ethanol. The relevant exemption, therefore, is Reg 176(2)(u), dealing with petroleum (as opposed to diesel) blend of a number of products. The regulation is in these terms:

"(u) blends of petroleum products containing goods specified under paragraph 11(A)(3) of the Schedule to the Excise Tariff Act 1921, where duty has been paid on all the constituents of the blend at the rate specified in subparagraph 11(A)(3)(b) of the Schedule to the Excise Tariff Act 1921."

549 Since publishing the previous judgement, I have reconsidered Reg 176(2)(j) which, unlike the other regulations referred to, uses the phrase "any petroleum product". On reflection, I believe a combination or blend of petroleum products would come within the phrase "any petroleum product". Hence, the addition of ethanol (which is free of excise) to a combination of petroleum products (such as we have here) would still be exempt, subject to otherwise satisfying the requirements of Reg 176(2)(u). That is, to be exempt under that regulation, each ingredient in the blend must be excise paid at the gasoline rate, that is, the highest rate.

550 Here each ingredient, apart from ethanol (which was excise free), appears to have satisfied that requirement. The leaded and unleaded petrol was excise paid. The "white shit" derived from waste slops (the motor spirits) was excise paid at the full gasoline rate.

551 Toluene and xylene (and other additives within the BTX group) were excise paid at the gasoline rate. There was an exchange of correspondence between the plaintiff and Customs relevant to this issue. On 15 November 1994, at the beginning of Camile Trading's relationship with Evenfont, Mr Fletcher wrote to Customs seeking clarification of the requirements in respect of blending various products with petrol. His letter of 25 November 1994, was in these terms: (Ex N, annex 1)

"With reference to our recent discussion on the 14th November 1994 concerning the proposed activities we wish to introduce to our business.

As you are aware we have a Customs License for the blending of Ethanol with various fuels.

We are now looking toward purchasing various grades of Motor Spirit which we intend adding a small quantity of Octane Enhancer (approx 5-10%). All motor spirit purchased, we are assured, will have the appropriate custom's excise paid prior to delivery to our Depot.

It is my understanding that our Company does not require a blending license issued by Customs and that the octane enhancer we are considering using is not subject to excise at this time.

I would appreciate it if you would confirm, in writing, at your earliest convenience my understanding, as outlined above is correct and acceptable to you.

Should you have any questions regarding this or any other matter please do not hesitate to contact me."

552 Mr Coombes of Customs responded on 29 November 1994 as follows: (Ex N, annex 2)

"I refer to your letter of 25 November 1994 in which you requested advice on the licensing requirements for the blending of duty paid motor spirit with an octane enhancer.

Octane enhancers such as the BTX group of chemicals are classified as excisable products and are duty paid at the gasoline rate,

appropriate duty would be paid on such octane enhancers by the manufacturer or supplier prior to your receipt.

Accordingly the proposed activity as described above, may be undertaken by your company without the necessity to take out an Excise Manufacturer's Licence.

553 What about the ethanol, which was also added to the blend, and which was excise free? I have alluded to this issue already (supra para [549]). Where there is a blend of petroleum products, each excise paid at the full gasoline rate, to which ethanol is then added, does the ultimate blend, including ethanol, come within the exemption of Reg 176(2)(j)? I believe it does.

554 First, such a construction does no violence to the objective which the amending regulations were designed to promote. All duty has been paid. It is quite unlike the situation (which occurred in respect of white spirits and other white condensates purchased by Camile Trading from suppliers other than Evenfont), where a cheap product, upon which excise had not been paid at the full gasoline rate, was blended to produce a cheap fuel.

555 Secondly, the combination of leaded or unleaded petrol, toluene and "white shit" from Evenfont (being motor spirits), each excise paid at the full gasoline rate, would be a "blended petroleum product" (as defined s77G) (supra para [42]). It only ceases to be exempt and becomes an excisable blended petroleum product where the ingredients in the blend are not excise paid at the full gasoline rate (cf Reg 176(2)(u) and s77J). If one assumed a two stage process, where a blend of petroleum products was created, each excise paid at the full gasoline rate, such a fuel would be exempt under Reg 176(2)(u). If later ethanol were added, it still would be exempt within Reg 176(2)(j), since the blend would come within the broad words "any petroleum product" to which ethanol was added, such products having been cleared from Customs' control. In my view it makes no difference that the blending occurs in one operation, rather than after a two stage process.

556 Accordingly, in my view, the plaintiff has not proved beyond reasonable doubt that Evenfont and Mr Pullinger were knowingly concerned in the offences of Camile Trading. The blend of their product by Camile Trading (the "white shit") which was motor spirits, which Evenfont and Mr Pullinger must be taken to have contemplated, was a blend which was exempt under the regulations, or rather, the plaintiff has not proved beyond reasonable doubt that it was not exempt.

557 There should be a verdict for the third and fourth defendants with costs.

6. QUANTIFICATION OF DUTY EVADED BY
CAMILE TRADING PTY LIMITED

558 At the end of the analysis of the plaintiff's case against Camile Trading and Mr Fletcher, I postponed an issue concerning the quantification of duty evaded by Camile Trading in respect of leaded and unleaded petrol in the period 1 November 1995 to 20 November 1996 (supra para [405]). In view of the findings made concerning Evenfont and Mr Pullinger, is it possible to be satisfied beyond reasonable doubt in respect of the duty evaded on leaded and unleaded petrol during that period?

559 The relevant findings made are these:

First, that leaded and unleaded petrol was blended by Camile Trading in the period 1 November 1995 to 20 November 1996, where the throughput, in total, was approximately 150,000 litres per day.
Secondly, that the formulae used in respect of leaded and unleaded petrol are those set out in Mr Bartlett's spreadsheet relating to tanks 15 and 16 (Ex A7);
Thirdly, that an ingredient in each blend was white spirits or a white hydrocarbon which was a condensate or light ends;
Fourthly, that the suppliers of that product were:
Fifthly, that for the reasons provided in paras [386 ff], I am satisfied beyond reasonable doubt in respect of all suppliers, apart from Evenfont/Truegain, that excise had not been paid at the gasoline rate on the white spirits or condensates supplied;
Sixthly, that the "white shit" supplied by Evenfont/Truegain, which was motor spirits, was excise paid at the gasoline rate.

560 Further, the plaintiff does not suggest that complicity arose out of the supply of "white shit" from the waste oil operation. I take that to mean there was nothing reprehensible, in excise terms, in the supply of that product by Evenfont to Camile Trading.

561 To calculate the level of evasion, one would have to know the contribution to throughput by each supplier, or know at least with certainty both the total throughput during the period identified (1 November 1995 to 20 November 1996) and the contribution to that throughput by Evenfont/Truegain. I am not sure, without further assistance, whether the evidence discloses that material. Although the dates I have nominated do not correspond precisely with the period claimed, I assume the total leaded and unleaded petrol can be calculated for the period 1 November 1995 to 20 November 1996. However, my impression is that there is some uncertainty concerning the precise amount of "white shit" which Evenfont is supposed to have supplied to Camile Trading. One would need to isolate and specify the "white shit" supplied by Evenfont (whether motor spirits or waste oils), which should then be subtracted from the total. The duty which was evaded related to other suppliers. My impression is that the evidence does not permit that calculation.

562 If that impression is right, then in respect of all nine periods in the Statement of Claim, the amount of excise evaded is incapable of determination (s120(2)(b)(ii) Excise Act 1905). However, I will reserve this issue for further submissions.

7. ORDERS

563 I make the following orders:

the allegations by the plaintiff relating to the blending of diesel;
the allegations concerning the blending of leaded and unleaded petrol; and
in each case, in respect of each of the nine periods in the Further Amended Statement of Claim,
First, an offence under s35 of the Excise Act 1901, in that it manufactured excisable blended petroleum products without a licence under the Act;
Secondly, an offence under s61 of the Excise Act 1901, in that the company moved excisable goods without permission;
Thirdly, an offence under s120(1) of the Excise Act 1901, in that the company intentionally evaded excise duty.

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Citations

CEO of Customs v Camile Trading Pty Ltd [2006] NSWSC 1401

Most Recent Citation

Chief Executive Officer of Customs v Evenfont [2007] NSWSC 431

Cases Citing This Decision

2

CEO of Customs v Camile Trading Pty Limited [2008] NSWSC 716

Chief Executive Officer of Customs v Evenfont [2007] NSWSC 431

Cases Cited

13

Statutory Material Cited

7

CEO of Customs v Camile Trading Pty Ltd [2006] NSWSC 475

Luxton v Vines [1952] HCA 19

Jones v Dunkel [1959] HCA 9

CITATION:	CEO of Customs v Camile Trading Pty Ltd & Ors [2006] NSWSC 1401
HEARING DATE(S):	26/04/06 01/05/06 - 05/05/06 08/05/06 - 10/05/06 15/05/06 - 18/05/06 05/06/06 - 09/06/06 31/07/06 01/08/06 - 03/08/06
JUDGMENT DATE :	19 December 2006
JURISDICTION:	Common Law Division
JUDGMENT OF:	Kirby J
DECISION:	(1) In respect of the allegations by the plaintiff relating to the blending of diesel; the allegations concerning the blending of leaded and unleaded petrol; and in each case, in respect of each of the nine periods in the Further Amended Statement of Claim - I convict Camile Trading of: First, an offence under s35 of the Excise Act 1901, in that the company manufactured excisable blended petroleum products without a licence under the Act; Secondly, an offence under s61 of the Excise Act 1901, in that the company moved excisable goods without permission; Thirdly, an offence under s120(1) of the Excise Act 1901, in that the company intentionally evaded excise duty; (2) Further, in respect of each such offence, I convict Lesley Ronald Fletcher of having been knowingly concerned in the commission of such offences; (3) I stand over to a date to be fixed the hearing in respect of penalty for both Camile Trading and Mr Fletcher; (4) I reserve for further submissions the issues identified in paragraph [381] and paragraph [562]; (5) I reserve the question of costs against the first and second defendants; (6) I dismiss the plaintiff's case against the third and fourth defendants, with costs; (7) The matter will be listed for mention at 9.15 am on Tuesday 13 February 2007 to fix a date in respect of outstanding issues. The plaintiff and first and second defendants should prepare, and agree if possible, draft Short Minutes of Orders reflecting these reasons.
CATCHWORDS:	Action under the Excise Act 1901 and the Excise Tariff Act 1921 - allegations that blending petrol and diesel without a licence - evading duty - elements each offence - construction Excise Act and Regulations.
LEGISLATION CITED:	Excise Act 1901 Excise Tariff Act 1921 Director of Public Prosecutions Act 1983 Customs Act 1901 Evidence Act 1995 Trade Practices Act 1974 Crimes Act 1914 (Cth)
CASES CITED:	CEO of Customs v Camile Trading P/L & Ors [2006] NSWSC 475 Jones v Dunkel (1959) 101 CLR 298 Murray v The Queen (1987) 11 NSWLR 12 Longman v The Queen (1989) 168 CLR 79 Cramptom v The Queen (2000) 206 CLR 161 Briginshaw v Briginshaw (1938) 60 CLR 336 Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 Baxter v Ah Way (1909) 10 CLR 212 CEO of Customs v El Hajji (2005) 218 ALR 457
PARTIES:	Chief Executive Officer of Customs (Pl) Camile Trading Pty Limited (1st Def) Leslie Ronald Fletcher (2nd Def) Evenfont Pty Limited (3rd Def) Robert Leonard Pullinger (4th Def)
FILE NUMBER(S):	SC 20859/1997
COUNSEL:	P S Hastings QC/R B Wilson (Pl) P Byrne SC/S J Stanton (1st & 2nd Defs) J Horowitz (3rd & 4th Defs)
SOLICITORS:	Aust Govt Solicitor (Pl) Access Business Lawyers (1st & 2nd Defs) Horowitz & Bilinsky (3rd & 4th Defs)

Para
1.	INTRODUCTION	1
An outline of the Plaintiff's case.	4
Petroleum products.	12
The statutory framework.	32
Elements of each offence.	58
2.	MR BARTLETT'S EVIDENCE	66
Mr Bartlett's association with Camile Trading.	66
Diesel and heating oil.	78
Leaded and unleaded petrol.	102
The expertise of Mr Bartlett.	122
Formula for blending.	134
Cross examination of Mr Bartlett.	166
Record keeping of Camile Trading.	177
The search on 26 November 1996.	184
Petrol samples.	213
3	OTHER EVIDENCE RELEVANT TO MR BARTLETT	229
The evidence of Mr Gibb.	229
The evidence of Mr Handcock.	239
Other drivers of Camile Trading.	257
Evidence relating to Evenfont.	268
Mr Fletcher's evidence.	292
4.	EVALUATION OF MR BARTLETT'S EVIDENCE AGAINST THE FIRST AND SECOND DEFENDANT	318
Warnings.	318
The context.	320
The documentary and cash trail.	325
Corroboration of Mr Bartlett's account.	336
Mr Bartlett as a witness.	345
Findings in respect of diesel and heating oil.	362
Leaded and unleaded petrol.	382
5.	THE CASE AGAINST EVENFONT AND MR PULLINGER	406
Background.	406
The evidence of Mr Bartlett.	418
Cross examination of Mr Bartlett.	430
The Evenfont operation.	462
The crude oil operation.	467
The waste oil operation.	472
The treatment of waste slops.	477
The audit evidence.	481
Preliminary submission by Evenfont.	499
The submissions of the plaintiff.	515
The description "Waste to Boiler"	528
The Excise Regulations.	543
6.	QUANTIFICATION OF DUTY EVADED BY CAMILE TRADING PTY LIMITED	558
7	ORDERS	563