LNC (Wholesale) Pty Ltd v The Collector of Customs

[1988] FCA 5

CATCHWORDS

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APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL - Customs -

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valuation of goods - goods paid for In Japanese Yen - forward exchange contracts entered Into by applicant - prlnciples to

be applied in calculating the fair rate of exchange	-
relevance of forward exchange contracts.
Customs Act 1901 (Cth) ss.154, 159, 161B

LNC (WHOLESALE) PTY	LIMITED V. THE COLLECTOR OF CUSTOMS
NSW G307 Of 1987

Sweeney, Davies and Elnfeld JJ.
22 January 1988

Sydney .

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I	IN THE FEDERAL COURT OF AUSTRALIA	)
1	)

NEW SOUTH WALES DISTRICT REGISTRY NO. ~ 3 0 7 of 1987

1. 1

GENERAL DIVISION )

ON APPEAL FROM THE GENERAL

ADMINISTRATIVE DIVISION OF THE

I ADMINISTRATIVE APPEALS
TRIBUNAL

BETWEEN:  LNC (WHOLESALE) PTY

LIMITED	..
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Applicant

AND :  - THE COLLECTOR. OF CUSTOI4S

Respondent

CORAM :	Sweeney, Davies and Einfeld 3J.	!
-	DATE :	22 January 1988	I
PLACE :	Sydney

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MINUTES OF ORDER

THE COURT ORDERS THAT:

1.        The appeal be dismissed.

2 . The applicant pay the respondent's costs.

NOTE :  Settlement and entry of orders 1 s dealt with in
Order 36 of the Federal Court Rules.

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IN THE FEDERAL COURT OF AUSTRALIA	)
NEW SOUTH WALES DISTRICT REGISTRY	) No. G307 of 1987
1
GENERAL DIVISION	)

ON APPEAL FROM THE GENERAL

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ADMINISTRATIVE DIVISION OF THE

ADMINISTRATIVE APPEALS

TRIBUNAL ,..

BETWEEN:	LNC (WHOLESALE)	PTY
LIMITED

Applicant

- AND : THE COLLECTOR OF CUSTOMS

Respondent

CORAM :	Sweeney, Davies and Einfeld JJ.
-	DATE :	22 January 1988
PLACE :	Sydney

REASONS FOR JUDGMENT

Davies and Einfeld JJ: This 1 s an appeal from a decision of

the Administrative Appeals Tribunal with respect to the rate . ..

of exchange to be adopted in the valuation of Subaru motor

vehicles imported by LNC (Wholesale) Pty Limited ("LNC").

Certain of the motor vehicles were exported from Yokohama,

Japan, by the vessel, Andes Highway, on 30 May 1986 and

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certain from the same port on the following day, 31 May 1986

on the vessel, Arabian Breeze.	I .
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Sectlon 161B(1) of the Customs Act 1901 (Cth) ("the ! .

Act") provides:-

"(1) Where an amount that is, In accordance with this

Divislon, required to be taken into account for the

purpose of ascertaining the value of any imported

goods 1 s not an amount in Australian currency, the

amount to be so taken into account shall be the

equivalent in Australian currency of that amount, ascertained accordlng to a falr rate of exchange at

the date of exportatlon	of the goods."
As the prices payable by LNC for the sublect	goods

were prices calculated in Japanese Yen, it was necessary to

convert them into Australian currency according to	a fair rate
o f exchange at the dates of exportation	of the goods.

The issue litigated before the Admlnistrative Appeals

Tribunal was not the determination of the precise rates of	I
exchange, for it was agreed by the parties that the matter
should be remitted to the respondent to calculate the	.'
appropriate rate. What was in dlspute, however, was the principle to be applied In calculatlng the rate. In

I	substance, the respondent contended that the rates to be
adopted were the commercial or market rates prevailing o the

dates of exportation while	LNC contended that the fair rates
of exchange should accord with	or take into account rates
derived from certain forward exchange contracts lnto	which it
had entered.

A somewhat slmilar 1ssue had been considered by an

Administrative Appeals Tribunal in Re Thiess Toyota Pty

i Limited and Collector of Customs, New South Wales, delivered

24 September 1985. In that case, the Trlbunal rejected as a

guide to the rate of exchange on the date of exportation
certain forward exchange contracts which had been entered into

by the importer five days after that date. The Tribunal sald

that those contracts were Irrelevant	and, in fixing a fair
rate of exchange, the Tribunal relied	upon the evidence of a

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senior foreign exchange adviser with Westpac Banking

Corporation as to the state of the Sydney market	on the date
of exportation.	I
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In the present case, LNC had entered into a foreign exchange transaction with Westpac Banking Corporation
("Westpac") whereby Westpac sold to LNC	on 2 June 1986

500 million Japanese Yen for $US 2,474,267.62. That transaction

occurred on 2 December 1985. Subsequently on 23 April 1986, LNC

entered into a further arrangement with Westpac whereby LNC

purchased, on 2 June 1986, $US 1,000,000 for the price of $A

1,379,881.33.	On the same day, LNC agreed to purchase from the
Commonwealth Banking Corporatlon a further	$US 1,000,000 on 2

June 1986. The consideration in Australian dollars was not

expressed but a rate of .7247 was given. On 27 may 1986, LNC

agreed with the ANZ Bank to purchase $US 650,000 on 2 June 1986

for the consideratlon of $A 902,777.70. The result of these

transactrons was that LNC had adequate US dollars available on 2

June 1986 to pay for the purchase of the 500 million Japanese

Yen. The availability of thls sum enabled LNC to meet its

obligations with respect to the prices	of the imported Subaru
vehicles.

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It was the contention of LNC that, from these

arrangements, a rate of exchange could be deduced, that those

arrangements were on foot on the dates of exportatlon wlth a view

to meeting the liabllity for the prices of the Subaru vehicles

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and that the deduced rate of exchange should either be adopted I .

as, o r taken into account in calculating, the fair rate of

exchange with respect to the sublect goods	on the dates of thelr
exportation.

The Administrative Appeals Tribunal concluded:-

"In my opinion, the proper decision on this issue is , L

that the respondent IS correct I n decidlng that a fair rate of exchange is not to be taken as fixed

under forward exchange contracts and that	it is the
duty of the respondent to ascertain	an actual rate of

exchange on the date of exportatlon of the goods.

Section 161B does not speak of parts of the day and

the law does not usually take into account parts of a

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day or date. It will. therefore be necessary to take into account in flxing that rate the viclssitudes	of
the Australian dollar throughout the	day of export.

The rate specified in a forward exchange contract,

being a rate fixed in a currency transaction might in

some cases be a matter to be taken into account in

arriving at that	value."
In our opinion, the Tribunal was correct in the	view

that it expressed.

The applicant's forward exchange contracts did not

provlde a rate of exchange available	on the dates of
exportation.	No doubt the cost of Japanese Yen in terms of

Australian dollars could be ascertained from the contracts and a rate deduced therefrom. But that was not a rate of exchange

l	available or current as at the dates of exportation, 30 and 31
May 1986. We leave on one side the obvious polnt that these
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contracts provlded for settlement on 2 June 1986 and not on
the dates of exportatlon. But that apart, the rate was not a rate of exchange on the dates of exportation. The deduced
rate of exchange resulted from a transaction entered into, so
far as the Japanese Yen were concerned, on 2 December 1985,
and transactions entered into, so far as the US Dollars were
concerned, on 23 April and 21 May 1986. It In no way reflects
!	the rates of exchange prevailing on the dates of exportation.
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The very purpose of a forward exchange arrangement is

to protect the forward purchaser of foreign exchange against

unfavourable fluctuatlons in the exchange rate and therefore to protect against the exchange rate actually prevalling at a

relevant time. The Act, on the other hand, speciflcally

directs that the rate of exchange prevailing at the date which l ,.

the Act prescribes as the relevant date, the date of exportation, is the rate of exchange to be adopted.

As was held in Re Thless Toyota Pty Limited and

Collector of Customs, New South Wales, clted above, s.161B
requires the adoption of commercial or market rate	of
exchange, current on the day of exportation. The rate	chosen

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should be a fair rate having regard to the	sum involved in the
transaction, the nature	of the transaction and the nature of

the importer's business. Thus, Knox C.J. said in Alexander

Stewart & Sons Ltd v. Robinson (1920) 29 C.L.R. 55 at p.59 as

to a precursor of s.1618:- r '

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"I think the phrase 'rate of exchange' when used in an

Act of Parliament prlma facie means, as it does in

ordlnary parlance, the commerclal rate	of exchange,
that is to say, the rate at	which drafts for payment

In a foreign country in the currency of that country

can be purchased for sterling at the relevant date.

Where a debt is payable in foreign currency the

amount of Engllsh currency required to pay	It 'must
be arrived at by taking the real value	in English
currency of the foreign currency where payable	as a

purchasable commodity - i.e., ~n practlce, according to the rate of exchange exlsting at the particular

I time between the currencies' (see per Vaushan

Another example of this concept is found in Atlantlc Shippinq

& Trading Co. v. Louis Dreyfus & Co. and Stathatos & Co. v.

Louis Dreyfus & Co. (1922) 10 L1. L.R. 446, 703 wherein Lord

Sumner, with whom Lord Dunedin and Lord Carson agreed, when

considering the rate of exchange to be applied wlth respect to

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monies payable under a charter-party, said at p.705:-

"The charter is made in London, between partles in
London: It is expressed in English and governed by

English law. In my oplnion the place of payment for

both dispatch money and commission	on freight is
English, the payment is to be made	rn sterling, and
the rate of exchange, at which the amount of dispatch	I
money and commission should be inserted in a ship's account, made out in Buenos Aires, is the commercial rate of exchange of the day for converting English
money lnto Argentine money. The charterers do not
enlarge their rights by	debitmg these sums in an
Argentlne account or in Argentine currency; and they

can claim no more than the actual amount of Engllsh

money due, or the Argentine currency into which It

I	could be turned at the rate of the day."
We see no room for giving to the forward exchange

arrangements into which the applicant entered welght other

than that, if any, whlch the market gave them	on the dates of
exportation.	No doubt the existence of forward exchange

contracts is not a matter entirely irrelevant to the market.

The existence of a futures market and of forward dealings may

well play a part in the establishment	of a price which
prevails in the market on a particular day.	TO the extent to

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which forward exchange transactions do so, they have a

relevance; but that relevance	1 s reflected In the price	which
prevalls on the day.

The facts of the present case are different from

those considered by Marks J. in AMI Toyota Limited v. The -

Comptroller General of Customs and The Commonwealth of

Australia (Supreme Court of Victoria, Nos. CL 70 and CL 71 of

1987, delivered 19 November 1987). In that case, his Honour

noted that "It was assumed ... that the rate of exchange

[deduced from forward exchange contracts]	which the plaintlff
achieved to make payment for	the shipment was available to it

on the date of exportation whatever precise date that was". ..

In the present case, the rate of exchange deduced from the

applicant's	forward exchange contracts was a rate deduced from	.-
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transactions which took place over many months	cornmenclng	L
before and concluding after the relevant
It was not a rate of exchange of the particular days on which	dates of exportation.

exportation occurred.	It is therefore unnecessary to make any
further observations on his	Honour's judgment.

For these reasons, we would dismlss this appeal with

costs.

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I certify that this and the 7

preceding pages are a true copy of	I.
the Reasons for Judgment herein of
the Honourable Mr Justice Davles	I
and the Honourable Mr Justice Einfeld.
Associate: 3- 5d
Date: 22 January 1988	!
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Counsel for the applicant:	Mr M.H. Tobias, Q.C.
with Mr J.S. Hilton
Solicitors for the applicant:	Dunhill Morgan  I

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Counsel f o r the respondent:	Mr C. Darvall, P.C.
wlth Mr G. Rowling
Solicitors for the respondent:	Australian Government Solicitor
Dates o f hearing:	21-22 October 1987

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IN THE FEDERAL COURT OF AUSTRALIA	)
1
NEW SOUTH WALES DISTRICT REGISTRY	) No. G307 of 1987
1
GENERAL DIVISION	1

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	LNC (WHOLESALE) PTY LII-lITED	Appellant
AND	: THE COLLECTOR OF CUSTOIG	Respondent

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THE COURT:  Sweeney, Davies and Einfeld JJ.

!	PLACE : Sydney
DATE
- : 22 January 1988

REASONS FOR JUDGMENT

Sweeney J

This appeal from a decision of the Administrative Appeals

Tribunal ("the Tribunal") turns upon the construction of sub-sec. 161B(1) of the Customs Act, 1901 ("the Act") which provides -

"Where an amount that is, in accordance with this Division, required to be taken into account for the purpose of ascertaining the value of any imported goods is not an amount in Australian currency, the amount to be so taken into account shall be the equivalent in Australian currency of that amount,

ascertained according to a fair rate of

exchange at the date of exportation of the

goods".

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The responl dent ( " t :he Col lector") having ascert ,ained the rate

of exchange in respect of certain Subaru motor vehlcles exported from Japan on account of the applicant ( "LNC") and LNC having appealed against its declsion, the Tribunal affirmed that decision saying -

' I . . . the proper declsion on this issue is that the respondent is correct in deciding that a fair rate of exchange 1s not to be taken as fixed under forward exchange contracts and that it is the duty of the respondent to ascertain an actual rate of exchange on the

date of exportation of the goods. ... the	amount under section 161B(1) of the Act in my
opinion is a question of fact to be
ascertained in accordance with the market value of the foreign currency in Australia at the date of exportation of the goods".

The Tribunal applied the observations of Isaacs and Rich JJ. in Alexander Stewart & Sons Limited v. Robinson (1920) 29 CLR 55 p . 5 3 in relation to the predecessor of the present sub-section, that:-

"The 'fair rate of exchange' from the

standpoint of section 157 is the sum which at
the time of exportation the Australian

importer would, in the circumstances, have to

in sterling In Australia to obtain a

pay
credit in the country of exportation
sufficient to pay the amount of the invoice in
the currency there. That is the practical
method, and, being the practical method, it is
also the legal method (for that, we must take

it, was meant by the Legislature) of

ascertaining what the goods have as a matter
of fact, according to	the invoice, cost the

importer at the port of export".

On 2 December 1985 LNC arranged with Westpac Banking Corporation that it would provide to LNC on 2 June 1986 500

million yen and agreed that on that date it would pay to Westpac

$US 2,414,276.62. The exchange rate was 202.8 yen to one U . S .

dollar.

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On 23 April 1986 LNC purchased through Westpac the sum of $us one mlllion to be available on 2 June 1986 for $A 1,379,881.33. On the same day it purchased through Commonwealth Banking Corporation the sum of $US one million to be available on 2 June 1986; for $A 1,379,881.33. The rate of exchange for each

of these transactions was $A .7247 to one U.S. dollar.

On 27 May 1986 it purchased through Australia and New Zealand Banking Group the sum of $US 650,000 for which it paid $A 902,777.70, at an exchange rate of $A -7200 to one U.S . dollar. It used $us 474,267.62 of that sum of $US 650,000 together with the two sums each of $US one million to produce the total of $US 2,474,267.62.

The vehicles were exported on 30 and 31 May 1986 and on 4 June 1986 sight drafts for a total amount of 552,062,579 yen were negotiated by Citibank, Tokyo, in order to pay the exporter for the vehicles.

When the forward exchange contract for 500 million yen matured on 2 June 1986 some of the money which then became payable was used to meet another commitment of LNC then due, and the remainlng sum of 445,100,157 yen was refinanced by belng placed on

deposit to 9 June 1986. LNC also arranged for a further

106,962,422 yen (being the balance required to put Westpac in funds to reimburse Citibank in full for the amount of the sight drafts) to be financed under a forward exchange contract due on 3 July 1987.

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The total outlay in $A by LNC for the overall transactions i

! was $A 3,934,944 resulting in an average cost to LNC of one

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Australian dollar per 141.20	yen.	L	I
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LNC relied on the two transactions on 23 April, the

transaction on 27 may and the later transactions on o r about 2

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June 1986 as the steps going to establish 141.20/1 as what it	. .
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contended was the "fair rate of exchange at the date of exportation" for the purposes of sub-sec 161B(1) in respect of the importation of the vehicles and the assessment of Customs duty.
The transactions of 2 June 1986 took place after the date of exportation but, according to LNC, should still be taken into account in ascertaining what was the fair rate of exchange at the

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date of exportation.

The exchange rate applied by the Collector, based on the 'spot' rates as at the dates of exportation of the vehicles on 30 and 31 14ay 1986, was 123.44/1.

This resulted in an increase in the value of the vehicles for duty purposes of some $A 562,590 over the amount in Australian

I dollars actually outlaid by LNC. The parties agreed that if the Collector's approach to the questlon were correct, there was no challenge to his use of the rate of 123.44/1.

LNC chose to enter into the purchase of the $US 2 million on

23 April. It could have made this purchase at any other time, when the exchange rate between SUS and SA was different. It seems strange that the decisions made by LNC on the dates of purchase of the $US, selected for its own reasons, should lead to the answer to the question of what the fair rate of exchange was at the date of exportation.

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In any event, up to 2 June 1986, LNC, as its counsel rightly

conceded, was free to decide whether to use any of the $US so purchased to meet its commitment to Westpac to enable it to

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reimburse Citibank in respect of the purchase of the vehicles or

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!	to use any of those dollars for other purposes.
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Following the exportation of the vehicles the letter of

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credit held by Cltibank was used to facilitate payment to the

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i exporter. The moneys available from the first forward exchange

contract were applied at a	slightly later stage to reimburse
Citibank towards reinstating the letter of credit, but LNC was	2.
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free to effect such reinstatement without the use of that forward
exchange contract if it so wished. In fact to meet its full	?

, commitment it had to procure at the tlme additional funds to ‘top

:  up’ the amount available from that forward exchange contract.

In my opinion, sub-section 161B(1) should not be construed so

as to be enable the importer to determine for itself as the rate of exchange which would best suit its purposes, either the average

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cost of its earlier currency purchases or the rate of exchange

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current at the date of exportation (whichever may be preferable),	I. .
as being a “fair rate of exchange at the date of the exportation
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of the goods”. Nor should it be construed so as to permit an

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importer to rely in part upon currency transactions whlch took place after the date of exportation in the process of ascertaining a fair rate of exchange at the date of exportation.

One may compute the eventual cost to LNC in Australian dollars per yen resulting from its arrangement on 2 December 1985 to pay on 2 June $US 2,474,276.62 in return for Westpac's agreement to provide it with 500 million yen on that date, and its

later arrangements to pay the amounts in Australian dollars

necessary at that time to obtain delivery to it of the U.S. dollars to complete its purchase of the 500 million yen, plus the

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provision of additional yen to effect repayment to Citibank of the total export price of the vehicles. However, in my opinion, the

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resulting figure 1s not a rate of exchange in the ordinary meaning of that phrase at all and certainly not "a fair rate of exchange

at the date of the exportation of the goods". It merely

represents a figure arrived at as the result of a series of transactions entered into by LNC showing what was the cost per yen to LNC in Australian dollars. So far from being a fair exchange

rate, in my opinion it is not a	rate of exchange at all.
given day in periods of currency fluctuations, be as many "fair If LNC's submissions were to be accepted, there may, on a	rates of exchange" as there are importers and the differences
between them may be great. Indeed, an individual importer using differing forward exchange facilities in respect of identical batches of goods exported on the one day may be entitled to the application of different rates of exchange in relation to each
batch, all of which are to be regarded as "fair".

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The duty of the Collector under the sub-section, where an amount is expressed in yen, is to determine "the equivalent in Australian currency of that amount, ascertained according to a !

fair rate	of exchange at the date of the	exportation of the
goods".

The Collector is not called upon, and is not entitled, to ascertain the cost at which an importer could purchase the necessary foreign currency by entering into a series of purchases of other currencies, eventually producing that foreign currency. It is notorious that on any particular day a currency fluctuates

I	in different ways against other currencies. The Collector would reach a different result if he calculated, for example, the cost of using Australian dollars to buy Swiss francs to use to purchase
yen or the cost of using Australian dollars to buy U.S. dollars to
use to purchase yen.
In my opinion, it would not have been permissible for the Collector to embark upon such an indirect course even if he used !

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the rates of exchange prevailing between the different currencies

dollars rather than, say, Swiss francs at different dates of its at the date of exportation. intermediate purchases of currencies other than yen, choosing U.S. It was n o t open to LNC to rely upon own selection, as a means of establishing "a fair rate of exchange
at the date of exportation".

After the close of argument, counsel for LNC referred as to

the case of AMI Toyota Llmited and the Comptroller-General of

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Customs and the Commonwealth of Australia (CL70 and CL71 of 1987)

in which Marks J. delivered judgment on 19 November 1987 in

respect of two exportations of Toyota vehicles from Japan to

Australla, the price In each case being expressed in yen.	! ,
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His Honour said:	i -
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"At the date of the Bill of Lading in each case the plaintiff had available to it, under forward exchange contracts, an effective rate of exchange between the Australian dollar and Japanese yen, which was more favourable to it than others then generally available. A1 1

payments of the plaintiff were made at an

effective rate of exchange which was more I '

favourable then the rate which was taken into account and applied by the Comptroller-General of Customs ("the Comptroller") when he demanded and imposed customs duty on the motor vehicles in the shipments. The plaintiff paid the duty so demanded under protest and thus preserved such rights as it had under s.167(2) of the Act.

It was submitted on behalf of the plaintiff

that the rate of exchange which it had

available to it and actually used to make the payments, was the 'fair rate' which the first defendant should have taken into account under s.1618(1).

!	It was submitted on behalf of the defendant
that the 'actual' rate available on the
relevant date was 'the fair rate' within the
meaning of the sub-section and that the rate
obtained by the plaintiff was pursuant to a i
form of insurance only taken out on a much
behalf of the defendant that a rate obtained earlier date. It was therefore submitted on
pursuant to a forward contract was not
contemplated by s.l61B(l) and therefore not
within it" .

His Honour rejected the argument of the defendant and

accepted that of the plaintiff. In doing so, he referred to the

i fact that the parties before him agreed that the importer "obtained in advance an effective exchange rate for Japanese yen

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I	which	was	not	otherwise	available	on the date of payment". In the
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case with which we are concerned the Collector did not agree that

LNC had obtained in advance an effective exchange rate for yen.

The Toyota case may be distinguishable on that ground, but to

the extent that it conflicts with	the opinion I have formed, I
would respectfully disagree with it.

I would dismiss the appeal, with costs.

I certify that this and the eight

preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Sweeney.

Associate:  7

Date :  22 . I . ss

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