Davies Ferguson Pty Ltd v Comptroller-General of Customs

Re: DAVIES FERGUSON PTY. LIMITED
And: COMPTROLLER-GENERAL OF CUSTOMS; GARY JAMES QUINLIVAN; THE MINISTER OF
STATE FOR INDUSTRY TECHNOLOGY AND COMMERCE
No. G42 of 1987
Administrative Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Gummow J.(1)

CATCHWORDS

Administrative Law - application for a By-Law within Item 19 of Part 1 to Schedule 2 to the Customs Tariff Act 1966 for the admission of flock coated cotton fabric at a reduced rate of duty - application contested by a local manufacturer and trade competitor - application refused - whether failure to take relevant considerations into account - whether decision made in error of law.

Administrative Decisions (Judicial Review) Act 1977 ss. 5, 13.

Customs Tariff Act 1966 Schedule 2 Item 19.

Customs Tariff Act 1982 Schedule 4 Item 19.

Customs Act 1901 Part XVA ss. 271, 272, 273.

Customs Amendment Act 1983.

Customs Tariff Amendment Act (No. 2) 1983.

Customs Tariff Amendment Act (No. 2) 1985.

Customs Administration (Transitional Provisions and Consequential Amendments) Act 1985.

Western Mining Corp. Ltd. v Comptroller-General of Customs

Federal Court 30 July 1987 (unreported) referred to.

Minister for Industry & Commerce v Western Mining Corporation Ltd. (1985) 7 FCR 67 considered.

Peacock v Zyfert (1983) 48 ALR 549 referred to.

Holloway v McFetters (1956) 94 CLR 470 referred to.

W.H. Broadbridge v Stammers Full Court of the Federal Court 11 November 1987 (unreported) referred to.

Minister for Aboriginal Affairs v Peko Wallsend Ltd. (1986) 162 CLR 24 referred to.

Minister for Immigration and Ethnic Affairs v Maitan Full Court of the Federal Court 24 February 1988 (unreported) referred to.

Words and Phrases:
"suitable equivalent"; "significant cross-elasticity of demand".

HEARING

SYDNEY

#DATE 10:3:1988

Counsel for the Applicant: Mr. P. Strasser instructed by Messrs. Landerer & Co.

Counsel for the Respondent: Mr. D.M. Yates instructed by the Australian Government Solicitor.

ORDER

The Second Respondent's decision to refuse to approve the Applicant's application made 13 April 1982 be set aside.

The application be remitted to the Second Respondent for reconsideration according to law.

The Respondents pay the Applicant's Costs.

Note: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

JUDGE1

This is an application for an order of review pursuant to the Administrative Decisions (Judicial Review) Act 1977 ("the ADJR Act").

Flock coated woven cotton fabric is used for wall coverings, furnishing fabrics, and in various types of packaging. The fabric has an appearance suggestive of velvet or leather suede. The applicant ("Davies Ferguson") has engaged for a number of years in the business, inter alia, of the manufacture and sale of jewellery presentation cases. Each jewellery presentation case consists of two parts being two steel shells connected by hinges, the closing of which presents the case. Each shell is covered by a fabric which is affixed thereto by a machine. This wraps the fabric tightly around the shells by use of heat and pressure. The fabric is flock on cotton substrate coated with a heat activated adhesive. The principal competitor of Davies Ferguson in the manufacture and sale of these jewellery presentation cases is Kenneth Ayres (Aust.) Pty. Limited ("Kenneth Ayres").
On 8 August 1986, the second respondent ("Mr. Quinlivan"), as delegate of the first respondent ("the Comptroller-General") notified the interested parties that the Australian Customs Service proposed to advertise in the first available Gazette a Commercial Tariff Concession Order, with effect from 1 July 1985, and in the following terms:

59.12 Fabrics, woven, cotton, flock coated one side, whether or not coated on the reverse side with a heat

activated adhesive.

This was the last in a series of events which had commenced with an application made by Davies Ferguson on 13 April 1982. From about 1970, the goods in question had been imported at concessional rates. The making of the application of 13 April 1982 was in response to the imminent expiry (on 30 June 1982) of the then current concession. The application was for the making of a by-law to permit the admission of goods at a lesser rate of duty as provided for under Item 19 in Part 1 of Schedule 2 to the Customs Tariff Act 1966. The goods sought to be imported were described as "rayosuede plush pile fabric bonded to cotton base and with backing of heat sensitive glue". The specific end use of the goods was described as "manufacture of jewellery cases", the quantity as 50,000 yards and the F.O.B. unit price $2.15 per yard, approximately. The period in respect of which the by-law was sought was 1 July 1981-30 June 1984.
On 26 July 1982, the Bureau of Customs wrote to S.C.D. Freight ("SCD"), the customs agent for Davies Ferguson, a letter including the following:

I refer to your application of 13 April 1982 (reference: G688) requesting, on behalf of Davies Ferguson Pty. Limited, the by-law admission of plush pile fabric.

The by-law provisions of Item 19 in Schedule 2 to the Customs Tariff Act allow a reduction to 2% in the Customs duties otherwise payable where it can be established that suitably equivalent goods are not reasonably available from local production or manufacture.

In the context of Item 19, the term "suitably equivalent" does not mean that Australian goods must be identical in design, composition, quality or price to be regarded as suitably equivalent, but rather that they are broadly capable fulfilling the function for which the goods are required.

An essential element of the by-law provisions is that where imported goods are competitive in the market-place with any locally made goods or their concessional importation could lead directly or indirectly to loss of sales by local producers, by-law admission is not appropriate. Conversely, these provisions are also intended to permit the removal of protective duties where there is no local industry to protect.

On 29 October 1984, after intervening correspondence, Mr. Quinlivan decided that a prima facie case had been established and the proposed concession was advertised in the Gazette of 14 November 1984. This allowed interested parties to comment upon the proposed concession. On 26 November 1984, P.W. Hannah & Associates Pty. Limited ("Hannah"), customs agents, wrote to the Comptroller-General a letter which included the following:

(W)e wish to advise that this company's client, Australian Flock Coatings, a division of Kenneth Ayres (Aust.) Pty. Limited are capable of manufacturing identical goods to those described in the reference and therefore we would strongly object to the creation of any tariff concession . . .

Kenneth Ayres (Aust.) Pty. Limited are themselves manufactures of metal presentation and jewelry boxes and their division Australian Flock Coatings currently has the capability to manufacture at their Victorian Plant flock-coated fabrics on cotton or any other base material and provide it with an adhesive coating on the reverse for adhesion to presentation or jewelry boxes. Australian Flock Coatings are capable of production of the fabric in question at a rate of up to 3,000 metres per week with delivery times being three weeks to one month after order. Fabrics of 138 cm width and any width up to 153 cm can be supplied.

On 4 March 1985, Hannah wrote to SCD stating that Hannah's client was "anxious to receive orders for the fabric in question". The letter also stated:

Our client is prepared to supply the goods in question to specification at the cost of $12.80 per 54 inch linear metre, minimum order 2,000 metres per colour. Discounts are available on the aforestated price for large orders. Our client's trading terms are available on application with first order.

Not only the price of $12.80 per 54 inch linear metre (which in the evidence was treated as converted to a price per square metre), but also the stipulation of 2,000 metres minimum order per colour attracted adverse reaction from Davies Ferguson. That adverse reaction to the terms of the Kenneth Ayres quotation dealing with price and quantity of supply became a significant aspect of the present litigation.

It is necessary to say something of the corporate history of Kenneth Ayres and related companies. In September 1978, a Victorian incorporated company, Alcazar Pty. Limited had changed its name to Australian Flock Coatings Pty. Limited. From September 1978 until 31 December 1980, this company operated the business of flock finishers, applying flock coatings to substrates, including woven cotton substrate. In January 1981, following a fire at its premises, the company transferred its business to Kenneth Ayres, a related company, which had been incorporated in September 1980. In February 1983, Australian Flock Coatings Pty. Limited changed its name to Montford Manufacturing Pty. Limited. On 4 March 1983, Kenneth Ayres became the registered proprietor of a business name, Australian Flock Coatings, pursuant to the Victorian Business Names Act 1962. The references in the evidence to the "Australian Flock Coatings Division of Kenneth Ayres" are to be understood in this sense.
Numerous representations were made to Mr. Quinlivan over a lengthy period by Davies Ferguson and Kenneth Ayres. I do not set out the ebb and flow of those communings.
In para. 16 of his statement of reasons furnished pursuant to s.13 of the ADJR Act, Mr. Quinlivan refers to a visit to the premises of Kenneth Ayres on 1 May 1985. He says:

I established that AFC/KA had the capacity to produce a flock coated fabric using imported cotton substrate and (imported) flock. The imported goods are made into flock coated fabric by AFC/KA using

(backing) adhesive purchased locally. AFC/KA also import some flock coated fabric from Taiwan. Flock coated fabric (whether made by AFC/KA or imported) to be used in the manufacture of presentation boxes is forwarded to Major Combining Pty. Ltd.

("MC") to backspread the fabric with a heat activated adhesive.

I would not attach significance for the present case to the circumstance that MC rather than Kenneth Ayres physically applied the adhesive.

However, by 20 January 1986, Mr. Quinlivan had reached the position where he was not satisfied as to the bona fides of Kenneth Ayres as a local manufacturer and advised the company that he considered that a Tariff Concession Order would be appropriate. He was of the opinion that such an order was appropriate because, in the terms of para. 19 of his s. 13 statement:

(i) There would not be a market of the type AFC/KA were contemplating if the TCO was rejected due to:-

Price - AFC/KA quoted $9.34 against $5.93. Duty inclusive or not there would be no competition between the local and imported goods, that is under sub-s. 269B (4) of the Act. There was no cross-elasticity of demand.

(ii) A reduction of duty on the imported goods would have no effect on the market.

The price differential was between $9.34 per square metre for the locally produced item and $A5.93 per square metre for the imported item. The reasoning which led Mr. Quinlivan to the integers in this comparison are set out in folios 129 and 130 from his file, which was in evidence and which was not seriously called into question on the hearing of the present application.
On 20 January 1986, Mr. Quinlivan wrote to Hannah as follows:

I refer to Davies Ferguson's application for concessional admission of woven cotton fabric, flock coated on one side and heat activated adhesive on the reverse side.

I have examined submissions submitted by both parties together with evidence produced previously and advised that a Tariff concession is appropriate.

The rationale for this decision was based on:

(i) No apparent competition between the adhesive imported fabric and your client's fabric as demonstrated in

price - quoted price indicates (duty inclusive or not) goods not in same market i.e. no cross elasticity of demand.

(ii) From information supplied a reduction in duty on the adhesive backed fabric will have no effect on the market that currently exists.

Accordingly, a tariff concession order will be promulgated as advertised in Gazette No. TC65 of November 1984 under tariff item 59.12.

There is a note in Mr. Quinlivan's file (Folios 128-132), which was dated 16 January 1986. In it he stated that the goods in question had a "history of concessional admission dating back some 15 years". Further, Kenneth Ayres imported flock coated fabric from Taiwan and also maintained its stock levels from its division Australian Flock Coatings, whereas Davies Ferguson imported flock coated fabric with an adhesive backing at a general rate of duty of 4O%. The majority of the market for presentation packaging was held by Kenneth Ayres and Davies Ferguson with a small percentage going to Asia and New Zealand. Mr. Quinlivan also noted that the locally produced product would not compete in economic or realistic terms with the imported product, because the heat seal process applied in Australia by Davies Ferguson would not be serviceable when applied to the Kenneth Ayres product, because it caused crinkling of the fabric. Mr. Quinlivan dealt with the quoted terms for supply of quantities by Kenneth Ayres and the adverse reaction by Davies Ferguson by stating:

Above quote is 2000 m. - apparently this is unrealistic because stocks are not carried due to frequent fashion/colour change.

He also indicated that Kenneth Ayres imported the fabric, rather than obtain local supplies, and had the adhesive added in Australia, with the result that Kenneth Ayres could not be deemed to be a local manufacturer.

The conclusion in the file note dated 16 January 1986 stated that a Tariff Concession Order was considered appropriate by Mr. Quinlivan because, inter alia,

(i) there never had been a market of the type Kenneth Ayres contemplated, because of:

(a) price, there being no cross elasticity of demand, and;

(b) the direct competition between the companies in the sale of jewellery boxes, meaning that Davies Ferguson could not order supplies from its competitor Kenneth Ayres.

(ii) the quotation requirement of 2000/3000 metres per colour was unrealistic; Davies Ferguson would not use this quantity in an average colour run and it did not carry stock because of frequent fashion/colour change, and;

(iii)Kenneth Ayres did not manufacture flock coated fabric with adhesive backing.

As Mr. Quinlivan agreed in cross-examination "his thinking" then was that the concession would be granted with effect from 12 April 1982. The goods were regazetted as a prima facie case for a Tariff Concession Order in the Gazette on 29 January 1986. Again, there was opposition by Kenneth Ayres. A letter to the Assistant Comptroller General of 14 February 1986 from Hannah enclosed a 57 page document described as "Appeal and Submission". Hannah also lodged on Kenneth Ayres' behalf a Tariff Concession Order application for cotton backed imitation suede fabric. This was received on 6 May 1986. Kenneth Ayres claimed that the application was lodged for the purpose of ensuring that the company should not be disadvantaged if an Order were made in such terms that it favoured Davies Ferguson.
On 12 May 1986, Mr. Quinlivan wrote to his superior stating that he was still of the opinion that at the prices quoted there was no cross-elasticity of demand, and also that the quantities quoted were not practical or realistic in the market-place. I shall refer to these considerations as "price and supply differentials". I have earlier indicated the significance in the matter which had attended the provisions of the quotation dealing with price and quantity of supply.
Representations were then made by a member of Parliament on behalf of Kenneth Ayres. On 12 June 1986 two officers of the Tariff Concession Branch visited the premises of Kenneth Ayres to determine whether that company had produced, or had been capable of producing in the normal course of business, adhesive backed flock coated fabric. One of the officers, Mr. Crawford, produced a report dated 23 June 1986. Correspondence followed. The sequence of events appears in paras. 25, 26 and 27 of Mr. Quinlivan's statement under s. 13 of the ADJR Act:

25. I examined Mr. Crawford's report as well as latest correspondence and supporting documents from PHA and was satisfied that until 1.7.85 KA had used flock coated fabric manufactured by AFC, back spread by Major Combining Pty. Limited ("MC") in the manufacture of presentation boxes. Accordingly, cross-elasticity of demand existed between the imported adhesive backed flock coated fabric and the flock coated fabric manufactured or capable of being manufactured by AFC/KA, back spread by MC, suitable for use in the manufacture of presentation boxes.

26. I advised AFC/KA on 6/8/86 that I was not satisfied that they were manufacturing in terms of the legislation after 1.7.85 and a concession would be advertised, with an operative date of 1.7.85 in the following terms:

59.12 Fabrics, woven, cotton, flock, coated one side, whether or not coated on the reverse side with a heat activated adhesive.

27. As there was no local manufacture of flock coated fabric after 1.7.85, the proposed wording was amended to cover goods imported by both the interested parties. Under s. 269B (1), a TCO when issued, is for a particular class or kind of goods and therefore should apply equally to goods imported by both DF and AFC/KA.

Mr. Quinlivan expressed the ultimate conclusion in paras. 30 and 31 of the s. 13 statement. These read as follows:

30. On the evidence produced by AFC/KA, I was satisfied that they are producing or capable of producing the particular goods as defined in sub-s. 269B (1) and that these goods competed in the market with the imported goods in terms of s.269B (4) until 1.7.85. I was also satisfied, subsequent to 1.7.85, that AFC/KA would not accept orders in the normal course of business as defined in s. 269B (7).

31. I therefore advertised the proposed concession to take effect 1.7.85 and to apply to goods imported by both DF and AFC/KA.

In the present proceedings, the complaint by the applicant, in substance, is that the concessional rate should apply, not merely from 1 July 1985, but from the date of the application on 13 April 1982.
The applicant points to the state of affairs that had been reached by Mr. Quinlivan and, indeed, communicated to the agent of the applicant on 20 January 1986, and to the apparent change in his attitude that followed. In particular, the applicant complains that whilst by January 1986 Mr. Quinlivan had formed a view which, on a number of grounds, directed him in favour of making the Order and whilst he apparently still persisted in that view on 12 May 1986, it was a change only in respect of one of these grounds (viz. the existence of local manufacture of flock-coated fabric before 1 July 1985) which led to the conclusion on 6 August 1986 that there should be no Order in respect of the period before 1 July 1985. The applicant points out that the circumstance that in the relevant period there was local manufacture is not necessarily fatal to the success of an application for an Order. Further questions are involved in deciding the fate of the application. Those questions, in the applicant's submission, had been addressed by Mr. Quinlivan when he wrote his letter of 20 January 1986, and the answers had favoured the making of the Order. The applicant submitted that there was nothing to show that Mr. Quinlivan had changed his view concerning those questions in the succeeding months. However, that (as will later appear) is, from the applicant's point of view, something of a double edged sword.
I should say something further as to the price and supply differentials. In cross-examination, Mr. Quinlivan said that at the earlier stage he had indeed had regard to the price and supply differentials to which I have referred. However, at the time of his decision later in 1986, he said he did not consider those prices "as such". Rather, "what I did look at was a price for the completed goods". Mr. Quinlivan expanded his answer as follows:

What I am saying is that the price for the jewellery presentation box that was manufactured by Kenneth Ayres was going into the market-place as opposed to that of Davies Ferguson and that that price was competitive at that stage, which is the end use stage - which is down the track because when I looked at that original price that you have quoted, that was not substantiated and that was as I have said, for my own benefit.

The evidence continued as follows:

You say those two end products competed in price? - Yes.

I see. That led you to your conclusion that, therefore, there were suitably equivalent goods reasonably available in the relevant period? - That is right. You see, they were manufacturing a product for use or to go into the manufacture of presentation boxes that was competing in the market-place with Davies Ferguson, their local product. You are talking about the jewellery presentation boxes? -

The fabric going into it and the presentation box, yes . . . And they were fairly competitive? - They were competitive.

And from that you drew your conclusion that therefore the products were reasonably suitably equivalent and reasonably available - Yes . . .

Later he said:

Well if you look at the price of the jewellery box and it is competitive with Davies Ferguson - right? Yes? - And then if you come back down, if they compete at that level - At the level of selling jewellery boxes? - Selling jewellery boxes, it means they could make the fabric also, a local fabric, at a reasonable price also as compared to the imported one.

I see, that is the inference you make? - I infer that, yes . . .

And you accept, do you not, that is a complaint being made on behalf of Ferguson to K. Ayres, that it is really an excessive quantity to be required to order 2770 square metres per colour - Yes.

That is an unrealistically large quantity per colour? - Per colour, possibly, yes. And you yourself held that view, did you not? - At that stage yes. And continued to hold that view until August 1986? - That is correct . . . And what is being put forward by Davies Ferguson or on behalf of Davies Ferguson, is, that having regard to these figures the duty free import is not likely to have an adverse effect on the local manufacturing market? - That is right. And I think you agreed with that proposition? - I did at that stage. And I think you continued to hold that view until August 1986? - Mm. Your answer is yes? - Yes.

I accept the submissions made by the applicant that by January 1986 Mr. Quinlivan had formed the opinion that the price and supply differentials meant there was no cross-elasticity of demand and that the Order sought by Davies Ferguson was not likely to have an adverse effect on the local manufacturing market. Mr. Quinlivan was directing his conclusions to the terms of Part XVA of the Customs Act 1901. But I agree that it was implicit in his reasoning that a suitable equivalent was not reasonably available under Item 19. (The significance of that distinction will appear later.) I also accept the applicant's submission that the means by which Mr. Quinlivan sought in his oral evidence to support a departure from that view by August 1986 involved comparisons and reasoning processes which show a failure at that stage to address in a proper or real sense the issue of cross-elasticity as he was bound to do. The position is a curious one, since undoubtedly at the earlier stage Mr. Quinlivan had addressed that issue in a proper and sufficient manner. That makes the later treatment of the issue all the more striking.
In order to evaluate further these and other submissions made by the parties, it is necessary to turn to the legislative framework.
The application dated 13 April 1982 sought the making of a by-law so as to bring the goods in question within Item 19 in Part 1 of Schedule 2 of the Customs Tariff Act 1966. Item 19 was expressed as follows:

19. Goods, as prescribed by by-law, being goods a suitable equivalent of which that is the produce or manufacture of Australia is not reasonably available.

Goods, the subject of such a by-law, would, as already indicated, attract a favourable rate of duty. The power to make a by-law of a description satisfying Item 19 was vested in the Minister pursuant to ss. 271 and 272 of the Customs Act 1901. Section 271 provided that where an item of a Customs Tariff is expressed to apply to goods or to a class or kind of goods as prescribed by by-law, the Minister might make by-laws for the purpose of that item. Section 273 empowered the Minister to make a "determination" in respect of an item or a proposed item of a Customs Tariff without making a by-law.
The Customs Tariff Act 1966 was repealed by the Customs Tariff Act 1982, which received the Royal Assent on 22 November 1982, that is to say after the making of the application in question here. The description of "goods" in Item 19 in Schedule 4 of the 1982 Act was in the same terms as under the previous legislation. By the Customs Amendment Act 1983, which came into force on 1 July 1983, there was added to the Customs Act 1901 Part XVA, providing for Commercial Tariff Concession Orders. Sections 271, 272 and 273 were not repealed.
To adapt the customs tariff system to the new provisions of the Customs Act, provision was made in the Customs Tariff Amendment Act (No. 2) of 1983, with effect from 1 July 1983, that is to say the same date upon which the amendments to the Customs Act came into force. The Customs Tariff Act 1982 was amended by including an Item 50 in Part 1 of Schedule 4 providing for a concessional rate of duty of 2% for "goods that a Commercial Tariff Concession Order declares are goods to which this item applies". The rate of 2% was the same rate as had immediately previously applied under the old Item 19. Item 19 remained in the Customs Tariff Act 1982. Later, it was removed with effect from 1 July 1985 by the operation of the Customs Tariff Amendment Act (No. 2) 1985. It will be recalled that the concession proposed in the present case is to take effect from 1 July 1985.
Finally, the effect of the Customs Administration (Transitional Provisions and Consequential Amendments) Act 1985, which commenced on 10 June 1985, was to substitute the Comptroller-General for the Minister as the decision maker in respect of the making of Commercial Tariff Concession Orders under Part XVA of the Customs Act 1901 (as inserted in the legislation by the Customs Amendment Act 1983). It is agreed that Mr. Quinlivan had authority as delegate of the Comptroller-General to make orders under the provisions of Part XVA of the Customs Act 1901 and as delegate of the Minister to make determinations under s. 273 of that Act.
It is necessary to turn now to the terms of Part XVA. Section 269G provides that a person may make an application in writing for a concession order in respect of particular goods specified in the application. Section 269M provides that a concession order shall be published in the Gazette as soon as practicable after it is made and s. 269N provides that a concession order in respect of particular goods shall be deemed to have come into effect on such date before the making of the order as is specified in the order. Sub-s. 269C (1) provides as follows:

Subject to this Part, where the Comptroller, after considering an application under section 269G for the making of an order under this section in respect of particular goods, is satisfied that -

(a) goods serving similar functions to the particular goods are not produced in Australia; and

(b) goods serving similar functions to the particular goods are not capable of being produced in Australia by any person in the normal course of business,

the Comptroller shall make a written order, declaring that the particular goods are goods to which a prescribed item specified in the order applies.

The expression "prescribed item" is defined in s. 269B as meaning an item in Part 1 of Schedule 4 to the Customs Tariff Act 1982 that is expressed to apply to goods that a Commercial Tariff Concession Order declares are goods to which the item applies. Sub-ss. (3), (4), (5), (6) and (7) of s. 269B provide as follows:

(3) For the purposes of this Part, identical goods shall be taken to serve similar functions.

(4) Without limiting sub-section (3), for the purposes of this Part, goods shall be taken to serve similar functions to other goods unless the Comptroller is satisfied that, if both goods were readily available for sale throughout Australia, there would be no significant part of Australia in which there would be significant cross-elasticity demand between the goods.

(5) For the purposes of this Part, goods, other than unmanufactured raw products, shall not be taken to have been produced in Australia unless -

(a) the goods were wholly or partly manufactured in Australia; and

(b) not less than 1/4 of the factory or works cost of the goods is represented by the sum of -

(i) the value of labour in Australia;

(ii) the value of materials of Australia; and

(iii) the factory overhead expenses incurred in Australia in respect of the goods.

(6) For the purposes of this Part, goods shall not be taken to have been partly manufactured in Australia unless at least one substantial process in the manufacture of the goods was carried out in Australia.

(7) For the purposes of this Part, a person shall be taken to be capable of producing goods in the normal course of business if, in the normal course of business, he is prepared to accept orders for the supply of such goods that have been, are being, or have to be, produced by him.

It will be apparent that the application made 13 April 1982 was treated as one made for a Tariff Concession Order in the sense that the decision finally reached was that such an order should be made with effect from 1 July 1985. It was on that date that Item 19 was removed from the Customs Tariff Act 1982. The complaint of the applicant is that it should obtain a Concessional Tariff Order with effect from the application date.
The question then arises as to the identity of the legal regime under which the application in respect of this period is to be considered. In para. 9 of his Statement of Reasons under s. 13 of the ADJR Act, Mr. Quinlivan said:

On 1.7.83 the by-law System was replaced by the tariff concession system and concessions in force at that date (1.7.83) remained valid until their expiry date or conversion to a tariff concession. The legal basis for the above was Item 19 in Part 1 of Schedule 4 to the Customs Tariff Act 1982 which expired on 1.7.85 and the Customs Amendment Act No. 19 of 1983, which inserted in the Customs Act 1901 provision for the new Commercial Tariff Concession system.

Whilst the statement in para. 9 indicates the position as regard by-law concessions that were already in force on 1 July 1983, it does not explain the position with applications which were then current but which had not yet matured into a by-law concession. Item 19 in the customs tariff legislation which was a mainspring of the by-law system remained effective (as Mr. Quinlivan indicates in para. 13) until 1 July 1985. On the face of it, there would have been no reason why the by-law system could not continue to operate up to that time without the need to convert current applications to applications for commercial tariff concessions. A further question might arise as to whether, after the removal of Item 19 with effect from 1 July 1985, it was possible thereafter to grant any concession under the by-law system, even a concession limited to take effect for a period beginning before the commencement of the commercial tariff concession system on 1 July 1983 and expiring with the commencement of that system. These matters were not explored in argument before me and I say no more about them.
What was clear from the argument was that the parties were ready to have the position in the period between the application date, 13 April 1982, and 1 July 1985, considered as if there was no relevant difference in substance between the criteria specified by either system insofar as they applied to the present case.
I thus approach the matter as if it were governed concurrently both by the criteria spelled out in Item 19 and by the requirements in Part XVA.
There has been some discussion of Item 19 in the authorities. In dealing with the expression "suitable equivalent" in Item 19, the Full Court in Minister for Industry & Commerce v Western Mining Corporation Ltd. (1985) 7 FCR 67 at 72 said:

(T)he critical words do not appear to have received any judicial explanation until Davies J. delivered his reasons. His Honour remarked:

Suitability for the applicant's purpose is required. The test is an objective one. The opinion of the applicant or of the manufacturer of the goods cannot be decisive but may be of relevance. To satisfy the test of equivalence, goods need not be identical but they must be readily substitutable, that is to say, they must be commercially interchangeable.

We accept, with respect, the correctness of these views with the exception of the expression "commercially interchangeable". The relevance of that reservation to the facts of this case is that the two types of goods being compared may have certain qualities markedly different from one another yet each be, in all, a suitable equivalent of the other . . . The ultimate question is, taking their various qualities all in all, and considering the purpose to which they were to be applied, could it be said that the Harbeson bricks would not perform their intended function about as well as the Veitschers? We say "about as well" because, having in mind the purpose of the by-law scheme, it is unlikely that precise equivalence was what the legislature had in mind and, indeed, that would seldom be found to exist in practice; questions of degree are necessarily involved.

At pages 73-74 the Full Court continued:

We add two further comments. First, as we understood the argument for the respondent, it was being asserted that the effect of the relevant statutory provisions was that if there were no Australian goods, being "suitably equivalent" and "reasonably available", an applicant for a by-law must necessarily be successful, there being no discretion to refuse an application. Although the matter was but briefly argued, we should say that it is our view that this submission is incorrect and that a discretion remains to refuse an application for a by-law on proper grounds; it is unnecessary, in this case, to determine what matters are relevant to the exercise of that discretion.

Secondly, we understand that no problem arises, in this case, as to the price of the proffered Australian product. When the price of a suitable Australian product exceeds that of the imported product, a question will arise whether the former is "reasonably available", but with that problem we are not concerned.

With regard to the first of these comments, it may be noted that under the commercial tariff concession system, s. 269C of the Customs Act provides that where the Comptroller is satisfied of the factors spelled out in sub-s. (1), he "shall make a written order, declaring that the particular goods are goods to which a prescribed item specified in the order applies". On the other hand, under s. 271, upon which the old by-law system operated, the provision was that the "Comptroller may . . . make by-laws . . ." (italics supplied)
As to the second comment, the price differential between the Australian product and the imported product, in the present case, is, in the applicant's submission, a matter of critical importance.
The applicant pointed to a number of matters in the circumstances leading up to and including the decision in August 1986 to limit the period for which the Order would have effect. These matters show, it is submitted, either or both that there was an improper exercise of power by failure to take relevant considerations into account (sub-s. 5 (1) (e) and sub-s. 5 (2) (b) of the ADJR Act) and that the decision involved errors of law (sub-s. 5 (1) (f)). The alleged errors of law arose from misconstruction of the legislation: Peacock v Zyfert (1983) 48 ALR 549.
In its particulars, the applicant also specified as a ground of complaint that, contrary to the view formed by Mr. Quinlivan and set out in para. 30 of his s.13 statement, Kenneth Ayres did not produce or manufacture the goods in question and was not capable of doing so in commercial quantities between 13 April 1982 and 1 July 1985. Insofar as this was an attempt to draw the Court into an investigation of the correctness of factual findings by the decision-maker, it would fail. I have construed it as an assertion of unreasonableness within the meaning of sub-s. 5 (1) (e) and sub-s. 5 (2) (g) of the ADJR Act. It was, in my view, open from the materials before him for Mr. Quinlivan to draw the inferences and to reach the conclusion reflected in para. 30 of his s.13 statement and there is no footing for a finding of unreasonableness (cf. Holloway v McFetters (1956) 94 CLR 470 at 476-7 per Dixon CJ; W.H. Broadbridge v Stammers, Full Court, 4/11/87, unrep, p. 9). Nor, in my view, was the case one where there was no evidence or other material to justify the decision on this issue (cf. ADJR Act, sub-s. 5 (1) (h)).
I return to the grounds asserting failure to take relevant considerations into account and errors of law. Counsel for the applicant pointed in his opening to the following matters.
First, Item 19 refers to a suitable equivalent being goods "the produce or manufacture of Australia" and under the later system, sub-s. 269C (1) of the Customs Act 1901 requires satisfaction by the decision-maker that goods serving similar functions "are not produced in Australia"; that expression is then expanded and explained in sub-ss. 269B (5) (b) which I have earlier set out. The submission of the applicant is that Kenneth Ayres, as indicated in para. 16 of Mr. Quinlivan's s.13 statement, used imported substrate and flock; the backing adhesive was purchased locally and the fabric was "backspread" with the adhesive in a domestic operation performed for it by another company. The result was said to be that the goods were not "the produce or manufacture of Australia". In my view, this conclusion does not follow. Item 19 directs attention to the goods themselves not what I might call their ingredients, whether they be raw materials or materials already processed. That brings me to the new system, and sub-s. 269B (5). Oral evidence by Mr. Quinlivan at the hearing (elicited by the applicant) showed that the factory or works cost of the Kenneth Ayres produce had a preponderant Australian component. Sub-s. 269B (5) (b) would thus be satisfied. That leaves sub-s. 269B (5) (a) which requires that the goods were "wholly or partly manufactured in Australia", meaning at least "one substantial process in the manufacture of the goods was carried out in Australia" (s. 269B (6)). Plainly, such a substantial process was so carried out. The result is that there is no merit in the first matter relied on by the applicant, even though at one stage Mr. Quinlivan favoured the applicant's submissions on this point.
Secondly, it was submitted that the Kenneth Ayres goods were not a "suitable equivalent" within the meaning of Item 19. It was said that this was so because the Kenneth Ayres fabric could not be applied by Davies Ferguson to its boxes by use of its machinery, operated at its usual rate, without crinkling. Could they perform their intended function "about as well" as the imported goods (see Minister for Industry and Commerce v Western Mining Corporation Ltd. (supra))? The respondent emphasises the "objective" element in answering this question and referred to the judgment of Neaves J. in Western Mining Corp. Ltd. v Comptroller-General of Customs (30 July 1987, unrep. p. 19-20). In my view, the complaint of the applicant concerns the character or quality of its machinery, rather than any inherent character or quality (or lack of it) in the Kenneth Ayres product. The question, as propounded by Davies Ferguson, is not one so much of the function of the goods themselves, as of their adaptability to the particular further manufacturing processes chosen for its business by Davies Ferguson.
In any event, the note in Mr. Quinlivan's file dated 16 January 1986 shows that he regarded the question of crinkling as a factor which weighed in favour of the applicant in reaching his views as then formulated. He was not shown to have discarded the crinkling factor when reaching his later decision, albeit it was then plainly outweighed by the significance attached to the question of the period of production by Kenneth Ayres. That decision was in terms directed to the new system, in particular sub-s. 269B (1), but the point remains.
I would not regard the making of a decision adverse to the applicant in the face of the view he had formed on the crinkling issue as involving the decision-maker in an error of law in the construction of Item 19 or of sub-s. 269B (1) of the Customs Act 1901.
The strong reluctance of Davies Ferguson to buy materials for use in manufacture of its presentation cases from a supplier which is its principal competitor in the market for such cases, was also indicative of a lack of "suitable equivalence" for Item 19 and of "significant cross-elasticity of demand" for sub-s. 269B (1). As the file note of 16 January indicated, the competition between Kenneth Ayres and Davies Ferguson was a matter before Mr. Quinlivan in forming his views at that date. He was not shown to have put it from his later consideration leading to the decision adverse to the applicant. Again, I would not regard a decision adverse to the applicant, despite the presence of this consideration, in terms favourable to the applicant, as involving an error of law in the construction of any applicable legislation. There may still be "suitable equivalence" and "significant cross-elasticity of demand" where other considerations point to that result in the particular case.
Thirdly, the applicant refers to the price and supply differentials between the imported product and the Kenneth Ayres product and to the apparent volte face on this issue by the decision-maker. In my view, the price and supply differentials were a relevant consideration to be taken into account (in the sense given that concept in Minister for Aboriginal Affairs v Peko Wallsend Ltd. (1986) 162 CLR 24 at 39-42) both in deciding whether suitably equivalent goods were not reasonably available within the meaning of Item 19, and in deciding the issue as to significant cross-elasticity of demand which is presented under the new system by sub-s. 269B (4) and sub-s. 269C (1) of the Customs Act 1901.
I have earlier in these reasons set out the evidence on this topic and expressed my conclusion that by August 1986 Mr. Quinlivan had turned back from his earlier course and now, at the crucial stage, did not in any proper or real sense take these considerations into account as he was bound to do (cf. Minister for Immigration and Ethnic Affairs v Maitan (Full Court, 24/2/88, unrep, p. 10). Further, it is to be remembered that what Mr. Quinlivan was doing was (as para. 30 of the s.13 statement shows on its face) deciding whether the facts fell within the meaning of the terms in sub-s. 269B (4) of the Customs Act 1901. In my view, to reach the conclusion he did as to cross-elasticity, in the light of the facts concerning substantial price and supply differentials, was to fall into an error of law: Peacock v Zyfert (1983) 48 ALR 549 at 556, 560-561, 564-565.
It appears from para. 30 that Mr. Quinlivan was not at that stage (August 1986) purporting to apply Item 19. I have already referred to the somewhat awkward stance presented by the parties to this litigation, understandable though it is given the complex legislative history. In response to the arguments presented, I should add that, given the facts as to price and supply differentials, it is unlikely that a decision under Item 19 which construed the expression "a suitable equivalent . . . is not reasonably available" unfavourably to the applicant would have been free from error of law.
The result is that I propose to set aside the decision of the second respondent to refuse to approve the application by the applicant made 13 April 1982, and remit it for reconsideration according to law. In the circumstances, particularly having regard to the legislative history, I do not believe it appropriate to direct the making of a particular decision or determination in favour of the applicant, or to give other relief of a mandatory kind as sought by the applicant.
The respondents should pay the costs of the applicant.

[1988] FCA 92

10 MARCH 1988