Eveready Australia Pty Limited v Collector of Customs

[1992] HCATrans 371

!t

.	•
•	~

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S38 of 1992

B e t w e e n -

EVEREADY AUSTRALIA PTY LIMITED

Applicant

and

COLLECTOR OF CUSTOMS

Respondent

Application for special leave

to appeal

BRENNAN J
DAWSON J

MCHUGH J

Eveready 1 11/12/92

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 DECEMBER 1992, AT 9.35 AM

Copyright in the High Court of Australia

MR R.J. ELLICOTT, QC:  Your Honours, I appear with

MR D.M. YATES for the applicant. (instructed by

Blake Dawson Waldron)

MR D.F. JACKSON, QC: If the Court pleases, I appear with my

learned friend, MR S.J. GAGELER, for the

respondent. (instructed by the Australian

Government Solicitor).

Your Honours, may I hand to the Court copies of an affidavit which was filed this morning,

served on my learned friend earlier, but the Court

does not have copies of it. It is a very short

affidavit.

BRENNAN J:  Yes. Have you anything to say about the

affidavit, Mr Ellicott? Yes, Mr Ellicott?

MR ELLICOTT:  Your Honours, can I hand up some folders that

will have relevant material in them. This is a
matter which we submit does raise a significant
matter of public importance. Although it is in a sense within a very confined area, that is to say

it is a question of statutory construction, it

raises the question as to the circumstances in

which importers are entitled to preferential tariff

in respect of goods imported into Australia from

developing countries.

As Your Honours can appreciate, the

legislation is beneficial in the sense that it is

designed to assist developing countries. On the

other hand, it is obviously of great interest to

importers who import from developing countries.

Twenty-seven per cent of Australia's imports, I am

told, come from developing countries. That

involves about $13 billion of trade. So in terms

of its relevance to trade, it is of some

significance.

If the Full Court decision stands, despite my

friend's affidavit it is our submission that many

importers will be in a position where their imports

are open to attack by Customs who do some sort of

audit, I think, at the moment and importers would

not know whether, under this decision, they have

imported products or goods from developing

countries which would have offended the principles

laid down in the Full Court decision.

If I may give an example: if somebody imports

some toys from Hong Kong, if they are made in Hong

Kong, one suspects that they are entitled to the

developing country preferential tariff. But if

this decision stands, Customs would be entitled to

Eveready 2 11/12/92

say, "Where did the resin come from, where did all

the other things that go to make up the toys come

from into the factory in Hong Kong?" Of course,

although according to ordinary parlance one might

say, "Those toys were manufactured in Hong Kong",

the effect of what has happened under this decision

would be that people would not know, because they

had not been in quite the same position as Eveready

who run a factory in Singapore, the factual

backgrounds of these matters. They would just buy

from some manufacturer in Hong Kong.

The other matter, Your Honours, is that if the

decision stands, then we say it is going to
encourage tax avoidance procedures and other

devices in developing countries, and that is

undesirable. Can I quickly take Your Honours to

the relevant statutory provisions. Those are found

under tab 1 in that folder I handed up. If

Your Honours go to the Customs Tariff Act, it

provides a definition in section 5 - it is under

the second part of I. Section 5 has a definition

of "developing country".	A "Preference Country
means", inter alia "a Developing country".	Then if

Your Honours go to the next tab, section 18 of the

Customs Tariff Act:

For the purposes of this Act, goods are the

produce or manufacture of a country or place

if, and only if, they are, under section 151

of the Customs Act 1901, the produce or

manufacture of the country or place for the

purposes of that Act.

Then if Your Honours go to section 17, that

indicates what a developing country is. If

Your Honours go to the next tab, Your Honours will

see the schedules in which the developing countries

are outlined. Amongst those are many countries in

Asia and the ASEAN region, which our country is

very closely concerned with at the moment, and it

also includes places treated as developing

countries.	They include Hong Kong and Taiwan
Province.

If Your Honours go back to the Customs Act

itself which is under tab A, Your Honours will

notice, having in mind section 18, that it requires

a reference back to that section to determine

whether they are goods of a developing country.
Subsection (2):

Goods are not the produce or manufacture of a country for the purposes of this Act unless

they are such produce or manufacture under

this section. •

Eveready 3 11/12/92

Subsection (5):

For the purposes of this Act, goods are the

produce of a country if they are its

urunanufactured raw products.

The relevant provision is 151(10):

For the purposes of this Act, goods are the
manufacture of a country, being a Developing

Country, if:

(a) the last process in their manufacture was

performed in the country -

that is not in dispute here; they were performed in

Singapore -

(b) not less than 50% of their factory or

works cost is represented by the value of

labour or materials, or of labour and

materials, of one or more of Australia ..... and

Developing Countries.

In this case there was both labour and materials,

and the question arises as to whether the relevant

materials were materials of, in this case,

Singapore, it being a developing country. There is

power in the comptroller by notice in the Gazette -

this is subsection (13) - to:

(a) specify the manner in which the factory or

works cost of goods is to be determined; and

(b) specify the manner in which the value of

labour ..... is to be determined.

Under the last tab in Part I, Your Honours will

find the relevant notice. We say that nothing in

turns on it in this case, but it is there for

Your Honours' consideration.

Your Honours, the primary facts in the matter are not in dispute. Eveready imports alkaline

Eveready brand batteries manufactured, we say, in

Singapore and, according to ordinary parlance,

manufactured in Singapore. The processes of

manufacture: if I could just take Your Honours to

the application book at page 33. This is really a

question, if I can just state it broadly, as to

where manufacture of a battery begins and what is a

battery. Just to say this - I will refer indicates that a battery is made up of an anode and

cathode. You do not really start, we say,

manufacturing a battery until you have an anode and

a cathode.

Eveready 11/12/92

This diagram just very quickly explains what

actually happens within the factory complex of

Eveready in Singapore, but it happens, so far as

anode and cathode manufacture, in quite discrete

buildings administered in those areas. Cathode

manufacture Your Honours will see coming down on

the left-hand side. I will not go into the

details, but it does involve a complex technical

procedure and it ends up in a cathode. In other

words, there is what is called a fluffy cathode,

which is a cathode which is a material made up

through that process, and that is densified.

The little batteries that Your Honours will be

familiar with have steel cans, and that material is

then, as it were, hurled against the wall of that

steel can. Your Honours will see "cathode prefill"

and "cathode moulding". It is at that stage that
you have a cathode. We say that it is on that

line, at the end of that line really, that the

manufacture begins. Then it talks about raw cell

assembly. At the same time anode manufacture is

going on, and that ends up in a:

BLEND TO FORM ZINC AMALGAMATION. THE BLEND

HAS A VIOLENT REACTION WITH THE STEEL MIXER

AND MUST BE REMOVED TO A NEUTRAL CONTAINER

QUICKLY.

They only have a very short life, both the anode

and the cathode. So that under raw cell assembly,

what happens, there is first an asphalt sealant,

and we say that is where battery manufacture

begins, and that first of all the cathode is from

materials of Singapore, they having been

manufactured there, then as one gets to the third

process, after there is inserted a sleeve, as it

were, to keep the anode from the cathode, the anode

material is put in and then by a series of steps

the battery is closed up, it is washed, and then

there is finished cell assembly right through until

they are put into a blister packing and packed in

cartons, et cetera. The purpose of this is just to

indicate to Your Honours the critical matter that

anodes and cathodes are - you do not have a

battery - we say according to the facts, you do not

start making a battery until you have got an anode

and a cathode.

BRENNAN J:  Mr Ellicott, could I just interrupt you for a

moment. Is this the point of the case, looking at

that diagram that you have just shown us: the cost

of converting the raw materials into the anode mix

and the cathode mix are part of your factory costs,

is that right?

MR ELLICOTT: Part of the overall factory costs, yes.

Eveready	11/12/92
BRENNAN J:	The question is whether you can bring in to

factory costs for the purposes of 151(10) not only

those costs, but the costs of the raw materials.

MR ELLICOTT:  Your Honour, the question is whether you can

say that the cathode and the anode are themselves

materials of Singapore because they are

manufactured there because they are what go to make

up a battery, or whether you have to trace the

materials that go into the anode and cathode

mixtures back to their source.	Can I very quickly
take Your Honours to a page - - -

BRENNAN J:  I am not sure that I follow exactly. What is

meant by "factory or works cost" in lSl(l0)(b)?

Your proposition is that it is what, the value of the cathode and the anode mixes?

MR ELLICOTT:  Yes.

BRENNAN J: Including profit, for example?

MR ELLICOTT:  The cost.

BRENNAN J: Cost to whom?

MR ELLICOTT:  The cost to the manufacturer. It is not the

price going out; it is the cost.

BRENNAN J:	To the manufacturer?
MR ELLICOTT:	Yes.
BRENNAN J:	The cost to you was the raw materials plus the

labour.

MR ELLICOTT: Yes, but the question is whether one says they

are materials of Singapore - because we say they

are made in Singapore, they are manufactured there,

the anodes and the cathodes, by a quite discrete

materials that go into the anode and cathode and	and different process - or whether one takes the	say, "They came from Japan" or "They came from the
United States".

BRENNAN J: Exactly, but the difference is the question

whether you can take the value of the raw materials

into the factory costs for the purposes of 151(10).

MR ELLICOTT: It is in a sense that, Your Honour, if by that

Your Honour means that you can trace their source.

BRENNAN J:  No, I do not mean that. I mean if you are

saying factory costs of the anode and cathode mix
consist of raw materials plus labour, on any score

you are entitled to take the labour into account.

Eveready 6 11/12/92

The only question is whether you are entitled to take the raw materials into account.

MR ELLICOTT: Yes, and any other cost of manufacture.

BRENNAN J: Yes.

MR ELLICOTT:  But what the Collector is saying is you look

at where the actual materials came from. Can I

take Your Honours to page 27 to quickly indicate

what I mean. If Your Honours see that table, it

will show the source, that is the immediate source,

of the various compounds, et cetera, that go to

make up, for instance, the cathode mix, the anode

mix, and then later the raw cell assembly. We say

that you do not look at those origins in relation

to cathode mix, anode mix and cathode prefill and

cathode moulding.

We say you do not look at those origins. You

treat the anode and the cathode as materials of looking at the materials, they all had their

origin, apart from water and acetylene black,

outside Singapore, and they are not developing countries and therefore you must - if they are taken into account, you get less than the

50 per cent that is required under section 151(10).

That is the point of it, Your Honours, and that is

the debate between us.

BRENNAN J:  What is wrong with the factory door test,

Mr Ellicott?

MR ELLICOTT:  Your Honour, what is wrong with the factory

door test is that you have got to ask yourself:

what is the factory for the purposes of the making

of the product? That is what is wrong with the

factory door test, because sometimes you might have

a factory door but it relates to a great complex,

as this does, which is not just related, we say, to

the manufacture of this product; that is the

manufacture of the materials which go to make up

the battery. We say that the manufacture of the

battery, because a battery is made up of an anode

and a cathode, it begins at the time when the anode

and the cathode mix, if you like, come into

existence, because that is a separate and discrete

manufacturing process. Unless that happens, you

can never have a battery.

BRENNAN J:  Does that mean that if you assemble the engine

and the chassis of a Mercedes in Singapore, it

would be the produce of a developing country?

MR ELLICOTT:  Not necessarily, no, Your Honour.

Eveready 7 11/12/92

BRENNAN J:	Why not?
MR ELLICOTT:	Because that may not leave the things

different to what they were before, whereas in this

case what is happening is that raw materials come

in from other parts of the world and then they are

put through a process to make something quite

different.

McHUGH J: Supposing it was a brewery and you have got

barley and sugar and all the other products from

all over the world. On your argument, the total

cost of the beer would be entitled to the

preference.

MR ELLICOTT:  Your Honour, if beer is made up of those

various materials, then you look to where they came

from. I am not arguing about that.

McHUGH J: What is the difference in this case? Potassium

hydroxide comes from the United States, teflon

comes from the United States.

MR ELLICOTT:  Your Honour, I am not getting through our

point, and our point is that the cathode and the

anode are distinct and discrete elements in a

battery. You have got to ask the question: what

are the goods? The goods are a battery. What is a

battery made up of?

McHUGH J:  You have got to ask: is 50 per cent of the cost,

the factory or works cost, represented by the value

of labour or materials of one or more of the

developing countries?

MR ELLICOTT: Yes.

McHUGH J:	How can you say that in this particular case?
DAWSON J:	One thing you could say is the Act does draw a

distinction between urunanufactured raw products and

materials.

MR ELLICOTT: Yes, that is right, and it is the definition

of "materials" that is significant. That

definition is important in the context of the

developing country preference. If you buy a suit

in Hong Kong, what does one do?	One goes to, say,
Ah Chuk, the tailor and gets a suit.	The cloth
comes from Italy.	The cloth is made of wool which
comes from Australia.	The suggestion is that you

have to trace, but how far do you go back?

Another reason why the factory door is no

good, Your Honours, in our submission, the factual

factory door, is that imagine that somebody, apart

from Eveready - and this is where you get into

Eveready 11/12/92

possible tax avoidance steps - supposing the fact

was that anodes and cathodes were manufactured in a

separate establishment in Singapore and made in the

same way but by a separate and discrete company

nothing to do with Eveready. They have a short then is just the raw cell assembly and the
life, so they have to be available very quickly.

finishing assembly.

Is one then to say because the facts are

different that for some reason, you get the

preferential tariff in those circumstances? We say

that the factory door is not the right concept for the purposes of defining where it - if you look at

it just factually on the ground. You have to ask

the question - this is what I was saying - yes.
Are they materials of Singapore? What are

materials? Materials are those elements that go to

make up goods. What are the goods? Batteries. In

this case what are the materials? The materials

are the anode and the cathode and the other

elements that go to make up the battery. You do

not start to manufacture a battery until you have

got those two basic elements. Can I very quickly

just take Your Honours to page 7.

DAWSON J: In reality, what you are saying is the

manufacture both the components of the batteries

and the batteries themselves.

MR ELLICOTT: Yes.

DAWSON J:  And for "components", read "materials".

MR ELLICOTT:  Yes, that is exactly it, Your Honour. On

page 7F of the appeal book, the Macquarie History

of Ideas:

Each battery comprises five elements - a

container, a negative electrode known as an

anode, a positive electrode (the cathode), an

electrolytic solution and suitable electrode

separators.

Down the bottom at line V, the Encyclopedia of

Electrochemistry:

Dry cells usually consist of a metal anode, an

aqueous salt electrolyte, and a readily

reducible oxide cathode often mixed with some
type of carbon or metal powder for increased

conductivity.

Then they talk about separators. If Your Honours

look under tab 3, Your Honours will find that

Eveready 9 11/12/92

"materials" is defined in the Shorter Oxford
Dictionary as including:

The elements, constituent parts, or substance of something.

In the Macquarie Dictionary:

1. the substance or substances of which a

thing is made or composed. 2. any constituent

element of a thing. 3. anything serving as

crude or raw matter for working upon or

developing.

Your Honours, under tab 2 the last case there is E

v Australian Red Cross, 99 ALR 601. At page 645,

there is a helpful passage at the bottom at

line 50:  ·

Counsel for the third respondent dispute

two aspects of this formulation. First, they

say that fresh frozen plasma cannot properly

be described as "materials". They cite two

definitions of the word "materials" contained

in the Macquarie Dictionary viz, "anything

serving as crude or raw matter for working

upon or developing" and "articles of any kind

requisite for making or doing something".

I do not read the words "crude or raw

matter" as suggesting that only unprocessed

goods may constitute "materials". To so

suggest would be to overlook the fact that

many items which are habitually called

"materials" are processed goods -

and that is, in effect, with respect, what

Mr Justice Dawson was saying to me -

for example, building materials such as bricks

and concrete pipes or cooking materials such
as flour and butter.	So it does not matter

that fresh frozen plasma is a pro~essed item,

separated from the whole blood by a

centrifugal process and snap-frozen.

Your Honours, we say that is a helpful explanation

of what we are saying about materials.

Your Honours recently - this week, I think - handed down the decision in Kodak. I do not think it adds

anything to this, but I mention it, Your Honours.

That is copied in here under - it is Genex and

Kodak:

It has long been accepted that one is required

to ask whether that which is made is "a

Eveready 10 11/12/92

different thing" from that out of which it is

made.

That is, I think, as helpful as that judgment is

likely to be to this case, but it does contain the

same notion: what is this made of? By definition

and by the evidence - and the facts are not

disputed - a battery is made out of an anode and a

cathode.	What Mr Justice Beaumont said is at 38P
and 39.	I can read that quickly, Your Honours:

As has been said, the instant question

concerns the meaning of the composite

expression "materials of a Developing Country"

in the context of a definition of the location

of manufacture of goods. In that context,
applying the relevant dictionary definitions

already mentioned, I think that the expression

is intended to refer to articles of any kind

requisite for making the subject goods which

articles have a connection or association with the Developing Country. Applying the first of the definitions, the cathode mix and the anode

mix were articles requisite for making the

batteries. Further, in my view, the mixes had
a connection or association with Singapore.
the connection or association arose from the

circumstances that the substantial processes

undertaken to produce the mixes were carried

out in Singapore by a company carrying on its

manufacturing operations there. This is not

to say that any treatment of an article,

however insignificant, will suffice to

establish a connection or association which

would justify the description of materials as

"of" a particular country. Questions of

degree are involved but, in the present case,

the processes undertaken were both significant

and substantial, sufficiently so, I think, to

warrant the attribution of the mixes to the

Republic of Singapore.

Your Honours, we say that that is unexceptionable reasoning in relation to this case.

DAWSON J: Should this Court get involved in questions of

degree?

MR ELLICOTT:  Your Honour, it will get involved if the

matter is a matter of general public importance, in

our submission. It will get involved and exercise

its normal appellate role. The primary facts are

not in dispute and the Court can draw its own

inferences, but it is not a very - although

His Honour has been quite reasonable there and

careful from a judicial point of view in conceding

that there are questions of degree, there really is

Eveready 11 11/12/92

not any debate that once you treat the anode and

the cathode as the materials, that they are of

Singapore. The evidence establishes that

everything was done there except what was used, the

chemicals, came from those countries I have

indicated. On that basis, Your Honours, we would

submit this is a proper case for granting special

leave.

BRENNAN J:  We need not trouble you, Mr Jackson.

The application raises the question of the

true construction of section 151(10) of the Customs

Act 1901 (Cth) in its application to the factory processes of the applicant which manufactures

batteries in Singapore. In so far as the question

depends on the construction of section 151(10), no

error appears in what the Full Court said in the

following passage:

In our view, the AAT did not fall into

error of law in construing the term "the value
of ... materials" in sub-s 151(10) as

meaning those materials brought into the

overall manufacturing process and forming

ingredients of the finished product,

irrespective of what materials have been

yielded by subsidiary processes prior to the

last process in the manufacture of the goods.

In so far as the question depends on the

application of section 151(10) to the applicant's

factory processes, the issue does not justify the

grant of special leave. Accordingly, special leave

should be refused.

MR JACKSON:  I ask for costs of the application.

BRENNAN J: Refused with costs.

AT 10.06 AM THE MATTER WAS ADJOURNED SINE DIE

Eveready 12 11/12/92