Comptroller-General of Customs v Pharm-A-Care Laboratories Pty Ltd

[2019] HCATrans 107

[2019] HCATrans 107

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S23 of 2019

B e t w e e n -

COMPTROLLER‑GENERAL OF CUSTOMS

Applicant

and

PHARM‑A‑CARE LABORATORIES PTY LTD (ACN 003 468 219)

Respondent

Application for special leave to appeal

GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 17 MAY 2019, AT 11.14 AM

Copyright in the High Court of Australia

MS A.M. MITCHELMORE, SC:   If the Court pleases, I appear with my learned friend, MR D.P. HUME, for the applicant.  (instructed by Australian Government Solicitor)

MR S.B. LLOYD, SC:   If it please the Court, I appear with MS J.E. TAYLOR, for the respondent.  (instructed by Clayton Utz)

GAGELER J:   Thank you.  Mr Lloyd, you may as well stay standing.

MR LLOYD:   What we say about the matter – there are, in effect, four topics that we want to address.  The first issue is what I might call the “(section IV) at the end of Note 1(a)” issue.  The Comptroller’s case is that the Full Court’s approach is novel, wrong and likely to have significant juridical and financial impacts.  I will address each of those three things.  We accept that the Full Court’s reasoning was not relied upon by us in the court below and the reason for that is because it did not lead anywhere so it does not affect the result at all, that reasoning.

GAGELER J:   This is the second bracketed reference?

MR LLOYD:   The second bracketed reference which the Full Court says limits the food and beverages to food and beverages in the category of section IV as opposed to food and beverages in other categories.

GAGELER J:   The difficulty for the Comptroller or any revenue authority when a Full Court of the Federal Court has laid down the law is the difficulty of then needing to administer the law in accordance with the law as laid down, whether or not it has been argued and whether or not it might be debated if it came up in another case.

MR LLOYD:   We accept that.  The first point I wanted to make was that in this case the Comptroller only said that the food or beverages fell within two section IV headings anyway so it really was not sort of determinative of the case.  That is the first point.  I accept that that in itself might be enough to persuade the Court not to go ahead. 

That turns then to the question of whether it is novel and whether it was wrong.  The Comptroller says in paragraph 1 of the special leave application that he wants to return “to re‑instate the previously‑prevailing” position ‑ that is how they put it ‑ but they have advanced no case whatsoever that suggests that that was a previously prevailing position. 

The gist of the Full Court’s decision is that the parenthetical provision at the end of the note can either inform or constrain the content of the language that goes before it and the applicant repeatedly in their written submissions describes the approach of the Full Court as making those words redundant or irrelevant.

Now, we say that is just simply wrong because section IV has in it things that are not food or beverages, so in the very big heading to the section is tobacco – tobacco is not a food, it is not a beverage.  So the food or beverages and then the parenthetical – the first parenthetical list of examples all have work to do, so the idea that the approach of the Full Court was to just countermand that is quite wrong.  It still has to be a food or beverage, it is just one that falls into section IV.

So, to that extent, we say it is wrong.  We say the Full Court – they are wrong in saying it leaves the rest with no work to do.  The Full Court was right in saying that section IV does do something and we say that it is consistent with the orthodoxy.  If I can take the Court to the decision of the Full Court in CEO of Customs v ICB Medical, if I could hand that up.

GAGELER J:   As you are doing that, Mr Lloyd, do you know if note 1(a) with which we are primarily concerned is drawn directly from the harmonised tariff?

MR LLOYD:   We believe it is.

GAGELER J:   Thank you.

MR LLOYD:   So this decision of CEO of Customs v ICB was about something called orthotic inserts.  One sees that in paragraph 7.  The issue is whether or not it fell into one of the two categories in paragraph 9, the parts of footwear category or the orthopaedic appliances category.  There was then in paragraph 12 a note - “Note 1 of Chapter 64 relevantly states” and then it sets out what it is.  It says it excludes:

Orthopaedic footwear or other orthopaedic appliances, or parts thereof –

and then similarly has a bracketed text at the end.  The Full Court there says:

The effect of . . . is that the Tribunal first had to consider whether heading 9021 applied –

Then in paragraph 13 there is a note that applied to heading 9021 and that note defines “orthopaedic appliances” in a very particular way; by a particular way I am referring especially to the last paragraph of the definition which allowed for some kinds of “special insoles” to be orthopaedic appliances and some not to be.

The argument advanced by the then CEO of Customs was that the reference to “orthopaedic appliances” in the note 1 does not just mean what orthopaedic appliances means, it picks up a definition.  Now, that definition is only a definition for 9021 so the bracketed language at the end of 9021 actually had work to do to constrain or inform the meaning of “orthopaedic appliances”.

That was the argument advanced on behalf of the Comptroller and one sees that in paragraph 44.  There is a passage that sets out part of the submission and then in the passage after the quote there is a reference there to how it is put, and then over into paragraph 45, the second sentence there:

All goods which satisfy the requirements of Note 6 to Chapter 90 would be classified under 9021, and would be excluded from Chapter 64 by Note 1(e).

Now, we say that the argument advanced there by the Comptroller was that the reference to 9021 in note 1(e) of Chapter 64 brought in – it was not just a vague statement that it might be 9021, it brought in the defined term of “orthopaedic appliances” from 9021 into that earlier definition to make it work.  So that shows that that language can have not just an aid of construction but can actually inform or constrain the content of the note.  That is exactly what the Full Court found in this case.

In their reply submissions the Comptroller says – he could not have appealed against that because he won that case.  That is true but he won that case by advancing that argument.  That was the Comptroller’s argument.  It was accepted by the Full Court.  He now comes to this Court and says that was not the orthodoxy.  We say that the Court should not accept that.  So to the extent that they rely upon the notion that it is novel and wrong, we say it is not wrong, also it is not novel.  The third limb of this issue is said to be that ‑ ‑ ‑

GAGELER J:   So that goes to both sets of brackets, does it, that submission or you are dealing with the second brackets?

MR LLOYD:   I am dealing with the section IV bracket at the moment.

GAGELER J:   Yes.

MR LLOYD:   Then the section IV bracket is said to have significant impacts.  Now, the first impact dealt with in the affidavit of Mr Northcote, which appears in AB 87 at paragraph 20, is to say – well, there is about $100 million worth of imported vitamins and mineral supplements and then he says, quite accurately, that that is the “potential revenue impact of $4‑5 million” on the basis that either a 4 or 5 per cent duty would, on their view, be engaged.

However, what it fails to sort of identify, we think accurately, is that there has already been a case which is referred to in the application book at page 10 in paragraph 26, the case of Kurowski.  So Kurowski dealt with what are called effervescent vitamin tablets.  So effervescent vitamin tablets were ‑ since 2010 I think that case was, certainly for some time ‑ has been classified under heading 3004.  So you have something which already ‑ there is a whole category of vitamins that are already duty‑free.  So to say that there is a potential $4‑5 million really does not tell you anything because we do not know how many are in that category.

This case in a very real sense was to say these vitamin gummies are not, as the Comptroller would have them, lollies.  They say in their submission to the court that they were marketed to children but that is not true, that was not the finding of the Tribunal.  The finding of the Tribunal is they were marketed to adults and some of them were for children, not to children.  So their case was that they were lollies, they should pay the same duty as lollies.  Our case was that they were really just a vitamin delivery system just like the ones you put in the water and bubble up and they should be classified in the same way.  So that was the nature of the dispute.

So we say the Court cannot be satisfied that there is a lot of money directly at stake.  But then it is then put a different way and they say, well, there are foods that are in sections 1, 2 and 3 that on the Full Court’s view might now be able to be in 3004 and they give a couple of examples and probably their best example is margarine with plant sterol, so this is a margarine that is healthier or perhaps less unhealthy than the normal kind of margarine.  They say, well, on the view of the Full Court, note 1(a) would not apply to exclude that kind of margarine from being characterised as a medicament.

We accept that is a consequence but it does not mean that it is classified under 3004.  There would still be a choice ‑ should this margarine with plant sterols fall into the category of margarine, or should it fall into the category of medicament, and we say that the Court should not think that that is such a burningly likely outcome that there is a great deal of risk at stake.  So we say in relation to that ground that it was not novel, it was not wrong and the Court should not accept that there are huge impacts from it.

The next issue goes then to the other bracketed text, the “such as” text.  We say in relation to this, this is also not determinative of the case, so to make that good at AB 17 we have the Tribunal, in paragraph 51, expressing its kind of preferred construction in the second half of paragraph 51, to the effect that food and beverages would only pick up any food supplements that happen to be food or beverages and not any food supplements that were outside of that category without actually necessarily indicating that there would be anything outside the category.

Then in paragraph 53 they recognise that there is a different possible construction and that on that construction the words “foods or beverages” could be expanded to the extent that there are food supplements that are not food.  So in paragraph 54, they, in effect, say we recognise that and in order to take into account that possibility we will also consider whether these things are food supplements.  Then at paragraphs 61 and 62 they say, in any event, they are not food supplements.

So we say there is this question of construction where they say, “such as” means includes and we say it does not mean include, that it is just really limiting – it is just identifying some examples of foods that would be the most likely to be possible medicaments.  That is what we say.  But we say, in any event, the Tribunal went on and made findings on that issue and so whatever the outcome of the construction point should not affect the outcome of the case and then the Court will only be determining what the words “such as” means and we would say that an expression like “such as” the Court could not say something that was meaningful about that expression in every instance, it would only be saying what it meant in note 1(a) and that is not a matter of general importance.

I then move on to the garcinia issues.  Now, the garcinia matter involved less than $12,000 in total on the basis of Mr Northcote’s affidavit.  There is no evidence to suggest that there is a big trade in the product.  The case turned on a very particular finding as to what the essential feature, or essential character, of these garcinia preparations were.  The significance of that finding was that it allowed the product to be classified in effect by downplaying the significance or allowing other things in the product, namely, sugar, to be characterised as excipients.  So that in substance the product could be properly characterised as what I might colloquially call a garcinia delivery system rather than as mostly sugar with a bit of garcinia.  That was the significance of that.  We say that that was a finding that was open.

Then we also say, for what it is worth, that the grounds of review as pleaded at AB 72 do not even include a ground that extends to this essential character point.  What the Tribunal did is, at page 29 – in the first half of paragraph 79 and the first line of paragraph 80 it said that these products are not food or food supplements and so therefore note 1(a) does not exclude the product from category 30.

Then in the second half of paragraph 79, the balance of 80 and pretty much all of 81 through to 85, they say that it does not fall into 3004 and there is no dispute about that.  Then in the first half of 87 they say it does not fall into confectionery and there is no dispute about that.  In the last sentence of 87 they say it does not fall into 2106 food preparations so there is a dispute about that, I will come back to that.  Then they say, having not fallen into any of these three possible categories we are going to do the thing that it is most akin to and they thought it was most akin to 3004 and there is no dispute about that.

So then one looks at what the Full Court did, which is on page 70 in paragraphs 68 and 69, and we would say that it considered that on the particular finding of fact about the essential character of the product the conclusion was not a food preparation and it did not involve – we say that that finding did not involve error.  In doing so their Honours also looked at the content of classification categories in 21 and thought that that – this is in paragraph 70, or 69 – that that also did not involve error and we say that that is right.

Now, it is put against us, well, on that view you could get something like a Weight Watchers meal which they said could be found to have the dominant purpose of being cosmetic, and then on that view a Weight Watchers meal might also be put in as a medicament.  We say that that is completely fanciful because a meal is not like – a gummie is just a delivery system like a tablet or a pill.  A meal is a meal, it is meant to feed you and give you nourishment and nutrition.  We do not think there is any reasonable possibility that anyone would ever say that the primary purposes of a meal is to suppress hunger.  So we say that is fanciful and that whatever view that the Court takes in relation to the first two issues, the sort of the vitamin issues, we say leave should not be granted in relation to the garcinia products.

Then the last point I would address is the question of international significance.  It is put against us that this Convention will have a broad impact, but the material before the Court shows – well, first of all, there are several cases from other countries which are referred to, mostly in the book at 14, 15 and 16 which show that different countries have different wharfside tests.  One of them is bound by the European notes which are different to the HSEN notes and some of them – Canada uses the HSEN notes in different ways.

So it is not like there is any uniformity.  There is a process in the tariff to have what is called additional notes, and so if the Parliament does not like the result of this case, as it has done in relation to many other cases, it can add an additional note to clarify what it thinks the result should be.  We say that that is an appropriate way.  There is not a matter of general importance here.

If the Court were against us, then I would note that the Comptroller has generously and properly indicated that he would be willing to submit to conditions to pay my client’s costs whatever the outcome, and we assume that that would also mean not disturbing any costs order in the court below, and we would ask if there is to be a grant that the grant be made subject to that condition.

GAGELER J:   Thank you, Mr Lloyd.  Ms Mitchelmore, do you adhere to that acceptance of the condition?

MS MITCHELMORE:   Yes, your Honour.

GAGELER J:   All right.  In this matter, there will be a grant of special leave to appeal on the condition that the costs order in the Full Court of the Federal Court not be disturbed and that the applicant pay the respondent’s costs of the appeal irrespective of the outcome.  Would the estimate be half a day?

MR LLOYD:   Yes, I think so.

GAGELER J:   Thank you very much.

AT 11.35 AM THE MATTER WAS CONCLUDED