Collector of Customs v Wallace Laboratories Pty Ltd
[2002] FCA 1341
•31 OCTOBER 2002
FEDERAL COURT OF AUSTRALIA
Collector of Customs v Wallace Laboratories Pty Ltd [2002] FCA 1341
CUSTOMS & EXCISE –whether the respondent failed to “account” to the satisfaction of a Collector under Excise Act 1901 (Cth) s 60 – scope of judicial review – procedural aspects.
Excise Act 1901 (Cth) ss 60; 162C(1)(e)
Avon Downs Pty Limited v The Federal Commissioner of Taxation (1949) 78 CLR 353 applied
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 cited
COLLECTOR OF CUSTOMS V WALLACE LABORATORIES PTY LIMITED
NO. N 320 OF 2001
BEAUMONT J
31 OCTOBER 2002
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 320 OF 2001
BETWEEN:
COLLECTOR OF CUSTOMS
APPLICANTAND:
WALLACE LABORATORIES PTY LIMITED
RESPONDENTJUDGE:
BEAUMONT J
DATE OF ORDER:
31 OCTOBER 2002
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The matter be stood over for further argument at a date to be fixed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
N 320 OF 2001
BETWEEN:
COLLECTOR OF CUSTOMS
APPLICANTAND:
WALLACE LABORATORIES PTY LIMITED
RESPONDENT
JUDGE:
BEAUMONT J
DATE:
31 OCTOBER 2002
PLACE:
SYDNEY
REASONS FOR INTERLOCUTORY JUDGMENT
(ON ISSUES TENDERED BY PARAGRAPH 3 OF THE AMENDED DEFENCE DATED 6 AUGUST 2002)BEAUMONT J:
INTRODUCTION
These reasons should be read in conjunction with my reasons dated 30 May 2002, and those dated 21 and 22 October 2002 (see [2002] FCA 659; [2002] FCA 1339 and [2002] FCA 1340).
The parties have now addressed the issues of fact and law tendered by par 3 of the defence as follows:
“3.In respect of paragraph 11 of the Applicant’s Further Amended Statement of Claim:
(i) The Respondent says as follows:
(a)The quantity of 9,801.16 litres of alcohol referred to in paragraphs 10 and 11 in the Applicant’s Further Amended Statement of Claim was said to be a purported shortfall in the recorded use of the 21,600 litres of spirit supplied to the Respondent and referred to in paragraphs 6 and 7 and the 8,800 litres of spirit supplied to the Respondent and referred to in paragraph 6A and 7A of the Applicant’s Further Amended Statement Of Claim;
(b)The purported shortfall was allegedly arrived at by Compliance Officers from Customs, being servants of the Applicant, who conducted an audit of the records kept by the Respondent on 22 September 1998;
(c)The Respondent by letter dated 29 October 1998 denied any shortfall and, through its solicitors, made several requests for the Applicant to supply particulars of the audit so that the cause of the discrepancy could be ascertained.
(d)In associated proceedings brought by a servant of the Applicant in the Local Court against the Respondent for the retention of certain goods and business records seized by Customs officers during the aforesaid audit, the said servant of the Applicant undertook to the Respondent to supply the particulars of the audit;
(e)Notwithstanding several requests made in writing by the Respondent through its legal advisers, and the undertaking given by the servant of the Applicant, no such particulars were supplied prior to the commencement of these proceedings;
(f)During the audit, the Customs officers seized the Respondent’s invoice books, sales records and other business records. The bulk of these records were not returned until after the Applicant made the demand referred to in paragraph 12 in the Applicant’s Further Amended Statement of Claim.
(ii) The Respondent claims that by virtue of the matters referred to in paragraph 3(i) above, it was not open to the Applicant, acting reasonably on the known facts in the circumstances, to come to the view that the Respondent had failed to account to the Applicant’s satisfaction for the quantity of alcohol referred to.
(iii)The Respondent claims further and in the alternative by virtue of the matters raised in paragraph 3(i) above that the [A]pplicant did not afford the Respondent a reasonable opportunity to comply with the request referred to in paragraph 10 of the Applicant’s Further Amended Statement of Claim prior to the issue of the letter of demand referred to in paragraph 12 of the Applicant’s Further Amended Statement of Claim.
(iv)The Respondent i[n] any event denies failing to account for the said 9,801.16 litres of alcohol.
(v)The Respondent does not in any event admit any state of dissatisfaction, unsatisfaction or non-satisfaction in the Applicant, or any other collector in the Applicant’s employ.
(vi)The Respondent does not in any event admit the rate of Excise duty.”
It will be seen that par 3 raises several questions, some of fact, some of law, others of mixed fact and law.
It will be recalled that par 3 is pleaded in answer to the first cause of action alleged. Paragraph 11 of the defence is pleaded in answer to the second cause of action alleged. Whilst the history of the events said to give rise to these causes of action differ, par 11 raises, to all intents and purposes, the same points of principle as par 3.
THE RELEVANT EVIDENCE
(A) Evidence relied on by the Collector of Customs in chief
Although, as noted on 30 May 2002, the relevant formal averments were not disputed on the pleadings, and although Wallace Laboratories Pty Ltd (“Wallace”), in its own case, tendered all of the correspondence between the parties, in this connection, the Collector of Customs (“the Collector”) relies, by way of background, upon affidavit evidence by Alan Michael Burke, Taxation Officer (Compliance Team Manager, Excise Business Line, assigned to the Australian Taxation Office), to the following effect:
(1) First cause of action
·By permit issued in January 1996, Wallace was given approval by the Australian Customs Service (“Customs”) to take delivery from CSR Ltd of concessional spirit in specified quantities.
·By another permit issued in January 1996, Wallace was given approval by Customs to take delivery from Bundaberg Distilling Co Pty Ltd of concessional spirit in specified quantities.
·By letter to Wallace dated 24 November 1998, Customs wrote about “the need for [Wallace] to account for the usage of the concessional spirit supplied to it”, and referred to Customs’ audit of records taken from Wallace on 22 September 1998 as follows:
“The records were for bulk spirit and packaged products. The audit looked at the opening stocks on hand, receipts, transfers in, transfers out, production usage and stated strengths, cleaning loss, sales and closing stocks and covered the period from 6 March, 1996, to 22 September, 1998, inclusive. The result of the audit showed a shortfall in the recorded use of concessional spirit by the company. It amounts to an apparent discrepancy, overall, of 9,801.16 litres of alcohol, using the stated strengths in the company records.”
(The correspondence mentioned in Mr Burke’s affidavit was also later tendered by Wallace and became Exhibit “2”.)
The letter requested Wallace “to account for the 9,801.16 litres of alcohol, which appear to be unaccounted for in your records, by 7 December, 1998”.
·By letter to Wallace dated 21 December 1998, Customs referred to “the shortage of 9,801.16 litres of alcohol established following [the] audit ... ,” and stated:
“Since no correspondence has been received to explain the shortages ... , I [on behalf of the Regional Director] consider any explanation to be unsatisfactory.”
Having cited the provisions of s 60 of the Excise Ac t 1901 (Cth) (“the Act”), the letter stated:
“Therefore in accordance with the provisions of Section 60(1) of the Excise Act 1901, I demanded payment of $374,404.31 being an amount equal to the Excise Duty payable on the unaccounted for goods if they had been entered for home consumption on this date.
An explanation of how the amount was calculated is attached.”
The letter concluded by mentioning that application may be made to the Administrative Appeals Tribunal for review of the decision.
·By letter to Wallace dated 24 August 2000, Customs stated that it had been recognised that an incorrect Excise Tariff Item (ETI) has been used in calculating the amount demanded in the Custom’s letter dated 21 December 1998, and that demand was revoked, but an enclosed demand for $364,701.16 substituted, applying a different Item. The enclosed demand, also dated 24 August 2000, referred to “the shortage of 9.801.16 litres of alcohol established following an audit of records taken by Customs ... on 22nd September 1998”, and stating that “no satisfactory explanation has been provided to account for the shortages on 24th November 1998”.
(2) Second cause of action
·By letter to Wallace dated 24 August 2000, Customs referred to “an audit conducted of [Wallace’s] use of concessional spirit for the period 22 September 1998 to 16 June 1999”, stating that Wallace’s “bond records were [discovered to be] incomplete ...”; and that “a reconciliation of receipts, production and sales was [then] conducted”; and that several production runs totalling the use of 835 litres of alcohol “cannot be accounted for by sales ...”. Wallace was requested to account for the 835 litres.
·By letter to Wallace dated 6 March 2001, Customs referred to “the shortage of 835 litres of alcohol established following an audit of records taken by Customs ... in June 1998”, and demanded the payment of duty in the amount of $45,557.60.
·By letter to Wallace dated 7 August 2001, Customs, recognising an error in the amount of alcohol, revoked this demand, and made a fresh demand for $43,279.70.
(B) Evidence relied on by Wallace
As has been mentioned, in its case, Wallace tendered the parties’ correspondence. Wallace also relied, in the present connection, upon some evidence given by Mr Burke in cross-examination, explained below. (Although, for immediate purposes, nothing turns on this, it may be noted that some of this evidence related also to the case of Bathox Pty Limited, an associated company, which evidence is relevant in related litigation heard at the same time.)
In order to understand Wallace’s argument in its factual context, it will be necessary to refer to the correspondence exchanged:
·By letter to Customs dated 1 October 1998, Wallace’s solicitors, referring to the search of Wallace’s premises by Customs and the seizure of products and documents, noted that Customs had conducted an audit of Wallace’s operations about two months’ earlier. The Solicitors sought “a copy of such”.
·Customs replied by letter dated 13 October 1998, stating –
“As explained to you and your clients as I was leaving the premises at Barry Road, Chipping Norton on 22 September ’98, you and/or your clients were invited to the opening of the sealed material. Ordinarily you would have been notified of the opening time and date as we were leaving the premises, however when the subject was discussed I was advised by your Mr Khoury that he would seek advise [sic] from his clients and advise whether they wanted to be present at the opening.
To date no such advise [sic] has been forthcoming. I wish to inform you that the sealed documents will be opened on Friday 16 October 1998 at 9 a.m. If you and/or your clients wish to attend the opening please advise this office.”
·By letter to Customs dated 28 October 1998, Wallace’s solicitors stated (by reference to Custom’s letter dated 19 October 1998):
“Our clients dispute the calculations and assessments contained therein. We thus confirm that any process in relation to this matter is to be stayed pending full and proper clarification and agreement by our client.
We have previously sought from you a copy of the working papers and a report which would constitute the audit that you say has taken place. Could you forward this audit to us so that we may peruse, consider and obtain instructions from our clients as to its contents and further communicate with you as to any clarification, miscalculation etc.
It is not possible for these matters to proceed any further pending our receipt of the above working papers and report constituting your audit.”
·By letter to Customs dated 29 October 1998, Wallace’s solicitors said:
“We confirm that we act for Wallace Laboratories Pty Ltd who have received from you notice of Concessional Spirits Permit Numbers 200110/004980/A and 200110/004984/A together with letter dated 19 October 1998.
We note that such letter sights discrepancies as conducted in an audit by you and as a result of the alleged discrepancies you have arbitrarily varied our client’s approvals to take delivery of concessional spirits and issued the amended permits abovementioned.
We are instructed and hereby give you notice that our clients reject the allegation of discrepancies and reject your arbitrary amendment of their concessional permits and ask that their original permits be reinstated in the quantities, amounts and figures as they existed pending final clarification of your alleged discrepancies.
We confirm our prior request for a copy of the alleged audit which has not be [sic] forthcoming neither has there been any indication either to our clients nor ourselves as to its contents. We again state that our clients strenuously dispute any discrepancies and insist on the above re‑instatement immediately.
We hereby give you notice that in the event of such not being attended to and we being advised thereof to the satisfaction of our clients, they will need to take proceedings as they may be advised to protect their rights and businesses, and to effect the reinstatement and to claim damages, losses and expenses against you. We confirm that such will be on an indemnity basis.”
·By letter to Wallace’s solicitors dated 20 November 1998, Customs stated that the “matters raised in your letters [including the letter dated 28 October 1998] are currently being addressed.”
·By fax to Customs dated 22 December 1998, Wallace’s solicitors again requested copies of the audits of Wallace.
·By letter to Wallace’s solicitors dated 23 December 1998, Customs referred to documents and copy documents of Wallace returned to Wallace on 23 November 1998, and explained a process that could be used to identify particular documents.
·By letter to Customs dated 28 May 1999, Wallace’s solicitors stated:
“We confirm that on 22 September 1998 your officers conducted a search of our clients premises and seized a substantial volume of material which has been the subject of varied correspondence and court processes.
We have been advised during the course of such and since that time that a further audit has been or was in the process of being conducted by you in relation to our clients business.
We confirm our understanding that a copy of the audit was to be forwarded to us immediately upon such being, either in a satisfactory draft or completed form.
To date we have received no communication from you in relation to same. We understand that the majority of documentation as seized has now been returned to our clients.
We would thus appreciate receiving a copy of the said audit. We would be grateful to receive such by 14 June 1999.”
·By another letter to Customs dated 28 May 1999, Wallace’s solicitors said:
“We refer to varied prior correspondence and in particular our letter to you [sic] 22 December 1998 to which we note that we have received no reply.
We confirm that this issue was raised in the Local Court proceedings brought by yourselves during the course of seeking an extension of time in retaining our clients documentation. We understood your undertaking at that time that you would produce a copy of the alleged audit together with supporting particulars, documents etc expeditiously. To date we have not received same nor has our client.”
In his cross-examination, Mr Burke accepted that Customs made no (written) response to Wallace’s solicitors’ request for a copy of the audits.
(B) Evidence relied on by Customs in reply
In reply Customs put into evidence:
·Receipt issued by Wallace dated 23 November 1998, acknowledging receipt from Customs of some original, some photocopy documents then specified.
·Receipt issued by Wallace dated 5 May 1999, acknowledging receipt from Customs of documents then specified, but expressed to be “subject to verification”. (No evidence with respect to any “verification” process on Wallace’s part was tendered.)
·A Customs file note dated 7 May 1999 stating:
“Wednesday 5 May 1999 accompanied by Officer Mansfield, fifteen (15) cartons and one (1) envelope containing the remainder of original documents seized on 22 September 1998 were returned to Unit 4/26 Barry Road, Chipping Norton.
An Excel database prepared by Officer Mansfield accompanied the documents, in order for the Wrays to better identify returned documents. A disk containing the database is attached.
Geoffrey Wray and Kathleen Wray accepted the returned documents subject to verification. The attached tape relates to the handing over of the documents.
After the tape was turned off Geoff and Kathleen Wray advised that they (Bathox/Wallace) were experiencing problems with new legislation pertaining to essences being sold at supermarkets. ... ”
The file note continued:
“I ... told them that the Australian Taxation Office now handled these matters. I told them I would inquire what number could be contacted to make inquiries.
Thursday 6 May contacted Bob Harkins, ATO (former Customs Officer) and was advised that Geoff Wray had been sent information by Facsimile the previous week regarding the new changes.”
(Mr and Mrs Wray are officers of Wallace.)
CONCLUSIONS ON THE ISSUES TENDERED BY PARAGRAPH 3
It will be convenient to group these issues into several sections and consider them in turn.
(1) Paragraphs 3(i) and (ii)
As has been seen, par 3(i) proceeds to allege, in essence, a number of matters, namely –
o3(i) (a) and (b) – The “purported shortfall” was arrived at by Customs after an audit on 22 September 1998.
o3(i)(c) – Wallace’s solicitors’ letter dated 29 October 1998 denied any shortfall and requested audit particulars.
o3(i)(d) and (e) – Customs undertook to supply audit particulars, but, despite requests, they were not supplied.
o3(i)(f) – Customs did not return the bulk of Wallace’s records seized on 22 September 1998 until after the statutory demand (dated 21 December 1998).
It is then pleaded (par 3(ii)) that it was not open to the Collector, acting reasonably, to conclude that Wallace had failed to account to his satisfaction.
As has been mentioned in my earlier reasons and, in particular by my adoption here of the classic observations of Dixon J in Avon Downs Pty Limited v The Federal Commissioner of Taxation (1949) 78 CLR 353 (at 360), although the Collector’s decision is not unexaminable, there are well established limits to the scope of judicial review in this kind of statutory context. It will be recalled that one ground for review is, as Dixon J expressed it (at 360):
“If the result appears to be unreasonable on the supposition that he addressed himself to the right question, correctly applied the rules of law and took into account all the relevant considerations and no irrelevant considerations, then it may be a proper inference that it is a false supposition. It is not necessary that you should be sure of the precise particular in which he has gone wrong. It is enough that you can see that in some way he must have failed in the discharge of his exact function according to law.”
It will be noted that Dixon J is here describing a particular kind of flaw, in principle, in the process of reasoning itself, rather than a procedural defect. (Such a defect is, indeed, relied upon in par 3(iii), to be considered below.) Yet the matters pleaded in pars 3(i)(a) – (f) are not only procedural in character, they are extrinsic to the process of reasoning of the Collector on the material question, viz. whether Wallace’s “account” was satisfactory. Indeed, the matters pleaded in pars 3(i)(a) – (f) focus upon the conduct of Customs. They do not purport to address the substantive question for the Collector mentioned.
In my opinion, it cannot be said of the Collector’s decision, that, viewed in terms of its result, or otherwise, it was “unreasonable”. Nor, in my view, is there any basis here for drawing an inference of the false supposition of the kind described by Dixon J. On the contrary, pars 3(i) and (ii) proceed upon the impermissible assumption that the legislation requires that the Collector, rather than Wallace, was obliged to account for his actions.
(The above conclusion applies not only in the case of the first cause of action alleged, but for the second also.)
(2) Paragraph 3(iii)
It will be remembered that Wallace here pleads, in the alternative, by reference to the matters alleged in par 3(i), that Customs did not afford Wallace a reasonable opportunity to comply with the statutory request to account.
It will be recalled that the request was made by letter dated 24 November 1998, and that, although the initial statutory demand for payment was made by letter dated 21 December 1998, this was revoked, and the demand sued upon was made by letter dated 24 August 2000.
It will also be remembered that Customs returned some documents to Wallace on 24 September 1998 and on 23 November 1998; and that on 5 May 1999, “the remainder” was returned.
Given this history, I reject Wallace’s contention that it was not given reasonable time to comply with the request to account. So far as Wallace contends that it was entitled to see Customs’ audit information, there was plainly no such statutory entitlement. As has been said, Wallace had the obligation to account, not Customs.
As has been noted, Wallace contended, in its solicitors’ correspondence, that Customs gave an “undertaking” to provide Wallace with its audit information. There is no evidence of any formal undertaking, and it is unlikely, given the statutory context, that Customs would have done so informally. In the absence of specific evidence that an “undertaking” was actually given, I am not prepared to infer it from the solicitors’ letter alone.
In any event, any such “undertaking” could not detract from the operation of the statutory scheme.
Further, even if Wallace could have made good its contention on the facts, it would not follow that invalidity of the demand had been established (see Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 388 – 393). True, if the requisite facts had been established, the possibility of an application for injunctive relief restraining alleged unlawful conduct, as mentioned in Project Blue Sky (at 393), might have arisen for consideration. It has not been raised here, doubtless because of the difficulty of persuading a Court to exercise its discretion to grant an injunction when Wallace had elected not to pursue its remedy of seeking “merits” review by the Administration Appeals Tribunal under s 162C(1)(e) of the Excise Act 1901 (Cth).
It follows, in my opinion, that par 3(iii) provides no answer to the first cause of action alleged.
(The second cause of action, in principle, is no different.)
(3) Paragraph 3(iv)
This plea takes the form of a simple denial of any failure to account.
As has been said in these and earlier reasons, whilst the Collector’s decision is not unexaminable, the Court cannot be invited, merely to substitute its opinion on the facts for that of the Collector. As Dixon J noted in Avon Downs (at 360) “it is for the [Collector], not for [the Court], to be satisfied ... .”
In my view, par 3(iv) is no answer to the first (or second) cause of action alleged.
(4) Paragraphs 3(v) and (vi)
It will be recalled that here Wallace merely does not admit certain matters, so that these pleas do not provide an answer to the first (or the second) alleged cause of action.
ORDERS
The matter is stood over for further argument at a date to be fixed.
I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont J.
Associate:
Dated: October 2002
Counsel for the Applicant:
Mr S Gageler SC
Mr C O’Donnell
Solicitor for the Applicant:
Australian Government Solicitor
Counsel for the Respondent:
Mr D Grieve QC
Mr P Kintominas
Solicitor for the Respondent:
Benjamin & Khoury
Date of Hearing:
25 – 26 March 2002; 21 – 22 October 2002
Date of Judgment:
31 October 2002
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