Johnson & Johnson Medical Pty Limited v Collector of Customs

[1998] HCATrans 137

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S103 of 1997

B e t w e e n -

JOHNSON & JOHNSON MEDICAL PTY LIMITED

Applicant

and

COLLECTOR OF CUSTOMS

Respondent

Application for special leave to appeal

GUMMOW J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 1 MAY 1998, AT 2.40 PM

Copyright in the High Court of Australia

MR J.T. SVEHLA:   I appear for the applicant, your Honours.  (instructed by Michell Sillar, Australian & International Attorneys)

MR P. ROBERTS:   I appear for the respondent, if the Court pleases.  (instructed by the Australian Government Solicitor)

GUMMOW J:   Mr Roberts, if we got to the situation that leave was granted, would you have much to put at the end of the day in favour of the correctness of the decision below?

MRS ROBERTS:   If you got to that position, other than the fact that the rules were applied and that is how the court got to the position in the first place, and having applied the rules, we were then left in the particular 4821.3 and the only question then which arose was whether or no these goods consisted of aseptic paper or not.  If the answer was, yes - they said that it did not - then we won, but that was not a question of construction of rules or the application.  It just did not matter and did not assist.

GUMMOW J:   All right,  We will hear what Mr Svehla says.

MR SVEHLA:   Your Honour, the question which we say this matter raises is the role that the ordinary principles of statutory construction have in construing the tariff legislation for the purposes of classifying goods when imported.  The relevant legislation is the Customs Tariff Act.

GUMMOW J:   I thought your points really appeared in your summary of argument at page 70 at 3.1 and 3.2 and, in particular, 3.4.  Am I right about that?

MR SVEHLA:   Yes, in the light of the codification of Australia’s obligations under the Convention in the interpretative rule.

GUMMOW J:   But am I right in understanding that the Full Court did not refer to the general rules?

MR SVEHLA:   For the purpose of actually engaging in the task of construing what this subheading meant and classifying the goods to that subheading, once it had been decided the particular goods they were dealing with, that is correct, they engaged in a process of applying the noscutur a sociis rule and said that one has to look at this particular subheading in the context of other subheadings and by applying that you find a distinction between discrete goods, such as sheets of aseptic paper or other things which are made-up articles, without any reference to the interpretive rules which require that the process of classification has to be undertaken in accordance with them.  The entire purpose of those rules, as part of the Convention to which Australia is a party, is to ensure that there is a communality of approach between countries for the purposes of international trade.

CALLINAN J:   How much money is involved in this matter?

MR SVEHLA:   Approximately around $500,000, your Honour.  It might not seem significant but - - -

CALLINAN J:   It seems a lot of money to me, Mr Svehla.

MR SVEHLA:   Yes.  

GUMMOW J:   Is there any indication that there are other taxpayers in the same position?

MR SVEHLA:   In respect of this product, no.  But the principle is important, your Honour, because we have here the Full Federal Court in a unanimous decision engaging in this process which we just say is fundamentally flawed.

GUMMOW J:   It is said against you, of course, that the description has now been amended from 1 July 1997.

MR SVEHLA:   Yes.  That might do away with the ability of my clients to, in the future, gain the benefit of this particular item which has a zero rate of tariff but it does not do away with the principle.  This is a principle which is now going to be applied across the country in AAT cases, in the Federal Court and the Full Federal Court, and your Honour has to understand that these - - -

GUMMOW J:   Well, will it be applied as a principle or will not people just understand that this case is flawed?

MR SVEHLA:   That is the most - - -

CALLINAN J:   You say it depends upon whether we say that or not?

MR SVEHLA:   Yes, exactly.  It is a unanimous decision that we just say is fundamentally wrong.  Your Honour has to understand these interpretive rules are the guidebook that the Customs agent at the wharf - - -

CALLINAN J:   And officials all over Australia and Customs agents, they are all referring to them.

MR SVEHLA:   Exactly.

CALLINAN J:   They will have this decision quoted to the.  Is that what you are saying?

MR SVEHLA:   Exactly.  They are meant to be able to say, “Look, this is how we do it”, and this is a commonsense process so that trade can occur and there is a consistency in it.  They are not meant to be having to look and say, “Look, Jesus, should I be applying noscitur a sociis here?”, which is effectively what the Full Federal Court has done.  That is precisely what has happened.

CALLINAN J:   I do not know whether that language has been used but I will take your word for it.

MR SVEHLA:   I guess I have been involved a bit too much in reading the press about what is going on generally in the docks, your Honour, and I have been caught up in it, in that sense.  It also raises the issue, your Honours, of our courts having a totally different approach to the courts of other countries.

GUMMOW J:   Now, it is also said against you that at the root of your submissions is some particular view as to what the AAT was doing.  Point 1 on page 76 says you have got the wrong end of the stick there.

MR SVEHLA:   All I can say, your Honours, is on two occasions the AAT has found that the goods to be identified were made of paper.  That was accepted by Justice Sackville and that was accepted by the Full Federal Court.  One just cannot go behind that.  That is a finding of fact made upon two hearings before the AAT.  It was originally sent back on that submission.  There was a hearing before the AAT many years ago now and Justice Einfeld found that there was not enough evidence to substantiate that finding.  So there was another finding of which there were about four or five paper experts and they came up with that finding.  That then went to Justice Sackville.  He said that finding was open reasonably on the evidence as a finding of fact, no error of law. 

That point was also raised by the respondent before the Full Federal Court and the Full Federal Court also accepted that one could not go behind that.  If one reads their judgment, as they say, the respondent won on, effectively, a minor subsidiary argument, not on the case it really wished to put forward, and one might view the way it has amended the legislation in the context of all of that.  So, we say, your Honours, that there are fundamental issues here, and that then raises how one applies - because you

also have to understand, your Honours, that what was being considered was the tariff classification system in Schedule 3 which, itself, is an importation into Australia of a system of classification agreed.

GUMMOW J:   Yes, we understand that.

MR SVEHLA:   We say that it raises many - - -

GUMMOW J:   How long did this case take to argue in the Full Federal Court?

MR SVEHLA:   It took a day, your Honour, but that was because of all these other issues.  We see it as a much shorter matter.

GUMMOW J:   Half a day at the most.

MR SVEHLA:   Definitely.

GUMMOW J:   All right.  Yes, Mr Roberts.

MR ROBERTS:   Your Honours, we say, with respect, that the issue which has been propounded does not arise at all.  The application of the interpretive rules got us into the position of seeing whether or not this was aseptic paper.  The rules apply where there are two competing provisions in the tariff.  Now, those rules were applied earlier on in the piece when there was a question of whether it was paper or whether it was - - -

CALLINAN J:   Woven material, or something else.

MR ROBERTS:    - - - a woven material.  It then applied again because it was a paper, it consisted of other materials, “Therefore does it go to this heading?---Yes, it does.”  By the time we got to the little narrow point which the Full Federal Court was called upon to answer - - -

GUMMOW J:   Where is that narrow point in their judgment?  Is it page 56?

MR ROBERTS:   The narrow point - at the beginning of the judgments, their Honours refer to the fact that that is the very narrow point, in the first page, at page 51, “this appeal has come down to a quite short point”.

GUMMOW J:   Yes.  Where is it disposed of?  Which passages actually disposes of it?

MR ROBERTS:   Page 54, line 35:

The vital question thrown up by the case is thus purely a question of construction.

We have done all our application of the general interpretive rules.  The only question that remained at this stage was whether the material that had been identified, as to which there was no question, was aseptic paper, and that was a question of construction.  Interpretive rules were not going to assist in relation to that question.  It either was or it was not.  The Full Court said, “This is not aseptic paper.  ‘Aseptic paper’ means ‘aseptic paper’.  These were goods made from aseptic paper.  None of the interpretive rules will help you at all in relation to this.”

Your Honours, this, in our submission, is just a side wind to try to persuade your Honours there is some point of general application when there is none at all.  The reason that the rules were not referred to because it was unnecessary to refer to them because it was such a short issue.  The interpretive rules had been applied.  That was the point that we got to when the question, and the only question was, looking at that part of the Customs tariff, which referred to, “Articles as follows” - I am reading the bottom of page 53 - “(a) aseptic paper”.

The only question for the court was were these articles, which consisted of gowns, and the like, that people wear, made up of various components, and towels ‑ ‑ ‑

CALLINAN J:   Principally paper though.

MR ROBERTS:   Well, I am not even sure “principally paper” would be correct but, certainly, there is no question that they are made of paper and therefore were in the right heading.  So, the only question then is, “Is this aseptic paper?”  The court says, “No, it is not aseptic paper.  The goods are made from aseptic paper”, but this article in the tariff, 4823.90.10, refers to ‑ ‑ ‑

GUMMOW J:   But was the paper itself an article of commerce?

MR ROBERTS:   Well, aseptic paper is an article of commerce, that is what they said.  But, your Honour, it has nothing to do with the interpretive rules at this stage.

CALLINAN J:   Can I just ask you this:  is your response that special leave ought not to be granted because there has been an amendment and because the construction or the approach that the Full Court took will become irrelevant in the future but that you would concede the decision is probably wrong?

MR ROBERTS:   No, not at all.  We say the decision is plainly right.  It was a very narrow question.

GUMMOW J:   I know it is narrow but was it right?

MR ROBERTS:   The fight that has been put up is that this is a special leave question.

CALLINAN J:   No, do not worry about that.  I am trying to find out what you say about the ultimate decision of the court.  Do you say that the decision of the Full Court was correct?

MR ROBERTS:   Yes, plainly correct, we say.  There was no error in not referring to 2 - which is basically all that the argument is - they did not refer to the fact of the interpretive rules.  Well, they did not have to because there was no need to in the circumstances of this case.  Nobody suggested for a minute you do not use the interpretive rules when trying to ascertain what the appropriate item in the Customs tariff is, but that was not the question which faced the Full Court, because that had all been done.  That is why we were there in the first place, because the rules had not been applied.

Your Honours, it has not been put, “Which particular rule would assist in answering this question?”, and I rhetorically ask, “Which one is it?”, because there is not one there that will assist in answering.  The only answer is, “Does it fall within this article or not?”  The court said, “No, it doesn’t because it is not aseptic paper.”  Now, with respect, that is hardly a question of great importance.  It may be important to the parties in this particular case.  And our second argument is, in any event, it is no longer a matter of any argument at this stage because they have changed the tariff.

GUMMOW J:   We understand that.

MR ROBERTS:   But, your Honours, this point just does not simply arise.  That is our point, that the court was plainly correct in what they did, we say.

GUMMOW J:   You say there was no call to apply the general rules?

MR ROBERTS:   Not at all.

GUMMOW J:   There was no particular of one of the general rules that would have helped?

MR ROBERTS:   Not at all, your Honours. 

GUMMOW J:   All right.

MR ROBERTS:   That is what the respondent puts.

GUMMOW J:   That is what it comes down to.

MR ROBERTS:   Yes.  Nobody would dispute that the general rules apply.  I mean, it is fairly obvious that they do, your Honours.  I do not think anybody, looking at this judgment, would think that they did not because they were not referred to.  Yes, thank you, your Honours.

GUMMOW J:   Now, you have heard what has just been said.

MR SVEHLA:   Yes.

GUMMOW J:   You can demonstrate the contrary to it if you can.

MR SVEHLA:   Your Honour, in the bundle of materials that was provided, one of them was the Customs Tariff Act 1987. The simple proposition I wish to make, your Honour, is section 10(1) at page 1227 of the extract - - -

GUMMOW J:   It says they “shall be used”.

MR SVEHLA:   Yes.

GUMMOW J:   Yes, we understand that.  If they had been used, which one would have been used and then the fact ‑ ‑ ‑

MR SVEHLA:   Yes.  Then one looks at the rules themselves on the next page of the bundle which indicates:

Classification of goods in Schedule 3 shall be governed by the following principles. 

Rule 1 indicates that classification is:

determined according to the terms of the headings -

And for “headings” your Honours can read “subheadings” such as 4823.90.10, the one we are concerned with.  There are no section or chapter notes to this issue, “and, provided such heading or” subheading does “not otherwise require”, and it does not:

according to the following provisions.

So, what that is saying that classification is determined according to the terms of the subheading “according to the following provisions”.

GUMMOW J:   I know that, but which one here would have had a determinative - - -

MR SVEHLA:   We say 2(b), that a:

reference in a heading -

in this case to that subheading -

to a material or substance shall be taken to include a reference to  mixtures or combinations of that material or substance with other materials or substances.

So, whenever you read “articles of aseptic paper” it includes that plus a mixture or combination of that with some other material or substance.  The other part of it, that “goods of - - -”

GUMMOW J:   But how would that apply here?  How would it produce a difference result?  That is what you have to get to.

MR SVEHLA:   The ultimate product, your Honour, effectively was found to be a paper which was a drape, something you put over the patient with a slit in it and, basically, had a few extra things attached to it.  There was a hole in it and there was a bit of bacterial chemical compound and a couple of things with that.  It basically was a material which was mixed or combined with other materials or substances.  Alternatively, it was a good “of a given material or substance” and that includes a reference to that good “wholly or partly of such material or substance”.  Now, that is all part of the way one has to construe the very subheading.  You cannot engage in the process without doing that.

GUMMOW J:   Yes, but if it had been done here, what different result would it have achieved?

MR SVEHLA:   The different result, we would say, it would have got classified as “articles of aseptic paper” and would have come in at a duty‑free rate.

GUMMOW J:   That is 2(b).  Then what other rule?

MR SVEHLA:   Yes.The other rule is rule 4, your Honour.  It says:

Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin.

And the thing to which this is most akin, which was this paper which had a few things attached to it, is aseptic paper.  Now, none of that was engaged in.

GUMMOW J:   Yes, but had the court at any stage been directed to these paragraphs, 2(b) and 4?

MR SVEHLA:   It was directed to 2(b).  The way it came at the end of the ‑ ‑ ‑

GUMMOW J:   I do not know - - -

MR SVEHLA:   Most of the appeal dealt with other issues, your Honour, and the way this was ultimately formulated occurred right at the end of the appeal and the 2(b) point was raised.

GUMMOW J:   But not 4?

MR SVEHLA:   No, not 4.  And then this is how the result has turned out.  We have won everything else except this process.  There was no discussion of noscitur a sociis in the way it has arisen in the judgment, and if your Honours will see Justice Sackville’s judgment expressly found that 2(b) applied.  I think at page 46 that was an express finding.  So, we say that the issue is vital and that the decision is plainly incorrect and it is an appropriate vehicle for appeal.

GUMMOW J:   Yes, Mr Roberts, do you wish to add anything, as a special and additional opportunity?

MR ROBERTS:   A special additional opportunity.  Your Honours, 2(b) does not provide the ambit of the particular tariff.  Its application is this:  if you have material such as a gown with pieces of plastic or nylon or whatever it was included within it which we had, then 2(b) would apply, and despite the fact that the goods consist of things other than paper, namely, pieces of plastic and the like, that means it can be included within the paper criteria.  In other words, it allows you to be within 4821, or whatever the particular item - - -

CALLINAN J:   That is what I am not so sure about, you see.  I am not saying you are wrong about that.  I do not think that is clear, you see.

MR ROBERTS:   Your Honour, what these rules are all about is where you have two competing items in a tariff, then it enables you to chose which one is the item.  That is not the situation here.  The only question is does it fall within the ambit of the term “aseptic paper”?  If it does, then they are right, clearly.  If it does not, then we were right.  Now, it is not between two.  It is a question of the ambit of aseptic paper.  Now that is not what these interpretive rules are all about it.  The interpretive rules are all about where you have two items - - -

GUMMOW J:   Where does it say that?

MR ROBERTS:   For example, in Rheem - - -

GUMMOW J:   No, but where in the text is that said?  In the statutory text?

MR ROBERTS:   Rule 3, for example:

When by application of Rule 2(b) or for any other reason, goods - - -

GUMMOW J:   I understand it is in 3 but where is it in 2(b) or 4?

MR ROBERTS:   Yes, but 3 refers to 2(b), if your Honour pleases:

When by application of Rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows -

Your Honour, we are not looking at which heading it goes into.  We are not concerned with the fact that the goods consisted of more than paper, which all of the rules would assist one in saying, “Well, if you have a problem in relation to that, then you apply these rules”, we have done all of that.  The rule that my learned friend refers to does not assist in determining the ambit of the phrase “goods consisting of aseptic paper”.  The rules do not purport to do that.  They assist you in determining which is the appropriate item where there is a conflict or a choice.  Now, we are not in that territory at all.  The rule 2(b) had been applied in getting us to where we started from and it does not affect the ambit of the word “aseptic paper”.  That is purely a matter of construction. 

Your Honours, I did not quite understand what my friend was saying about the appeal.  The appeal before the Full Court only consisted of this question.  It was not some side wind in the Full Court.  I think my friend is

referring to what happened before Justice Sackville, not what happened in the Full Court.  This was the only point there and that is why it was such a narrow point.  That is why the court did not refer to the fact that the rules were irrelevant.  Indeed, this was a submission that had been made by us as the appellant in those proceedings that, having got to the position that Justice Sackville did on appeal - his Honour was wrong in adopting what the AAT had done ‑ ‑ ‑

GUMMOW J:   Anyhow, you say rule 2(b) in terms directs you - the last sentence of 2(b) refers you to 3?

MR ROBERTS:   That is so.

GUMMOW J:   And then 3 operates as it says?

MR ROBERTS:   Yes, where you have a conflict of subheadings or headings, which is just purely a different case from what we are concerned with.  If your Honour pleases.

GUMMOW J:   The Court is of the view that an appeal would be attended with insufficient prospects of success and, for that reason, the application is refused.

Do you have any application for costs?

MR ROBERTS:   We ask for costs, please, your Honour.

GUMMOW J:   Yes, refused with costs.

AT 3.05 PM THE MATTER WAS CONCLUDED