Sidebottom v Giuliano

[2000] FCA 607

FEDERAL COURT OF AUSTRALIA

Sidebottom v Giuliano [2000] FCA 607

CUSTOMS AND EXCISE – excisable goods subject to control of Customs – request to account for excisable goods – whether request can be made when revenue needs no protection

Excise Act 1901 (Cth) s 60

Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279

RAYMOND SIDEBOTTOM , LESLEY SIDEBOTTOM, AUSTRALIAN PETROLEUM SUPPLIES PTY LTD, GV LIQUID TANKERS PTY LTD and RPM COMMODITIES PTY LTD  v  E GIULIANO, THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA and LIONEL BARRIE WOODWARD, THE CHIEF EXECUTIVE OFFICER OF CUSTOMS

V 179 of 2000

JUDGE:         FINKELSTEIN J
DATE:           12 MAY 2000
PLACE:         MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 179 of 1999

BETWEEN:	RAYMOND SIDEBOTTOM , LESLEY SIDEBOTTOM, AUSTRALIAN PETROLEUM SUPPLIES PTY LTD, GV LIQUID TANKERS PTY LTD and RPM COMMODITIES PTY LTD Applicants
AND:	E GIULIANO, THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA and LIONEL BARRIE WOODWARD, THE CHIEF EXECUTIVE OFFICER OF CUSTOMS Respondents
JUDGE:	FINKELSTEIN J
DATE OF ORDER:	12 MAY 2000
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.   The application be dismissed.

2.   The interlocutory injunction granted on 24 September 1999 be discharged.

3.   The applicant pay the respondents’ taxed costs of the application.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 179 of 1999

BETWEEN:	RAYMOND SIDEBOTTOM , LESLEY SIDEBOTTOM, AUSTRALIAN PETROLEUM SUPPLIES PTY LTD, GV LIQUID TANKERS PTY LTD and RPM COMMODITIES PTY LTD Applicants
AND:	E GIULIANO, THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA and LIONEL BARRIE WOODWARD, THE CHIEF EXECUTIVE OFFICER OF CUSTOMS Respondents

JUDGE:	FINKELSTEIN J
DATE:	12 MAY 2000
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. An investigation by the Australian Customs Service suggests that quantities of petroleum products were transported to a depot in Saxton Street, Numurkah, in the State of Victoria, mixed with other products to produce blended petroleum products and then entered into home consumption without payment of excise duty. Section 54 of the Excise Act 1901 (Cth) requires the manufacturer of excisable goods or, where the owner of goods enters them for home consumption, the owner of those goods, to pay the excise duty imposed on those goods. Certain blended petroleum products are excisable goods for the purposes of the Excise Act: see generally the definitions in s 77G.

2. Mr Giuliano, the first respondent, is a Collector of Customs. He has information that the blended petroleum products (if that is a proper description of the products) were in the possession, custody or control of the applicants who allowed those goods to enter into home consumption. Section 60(1) of the Excise Act provides:

   “Where a person (including a manufacturer) who has, or has been entrusted with, the possession, custody or control of excisable goods which are subject to the control of the Customs:

   (a)fails to keep those goods safely; or

   (b)when so requested by a Collector, does not account for those goods to the satisfaction of a Collector;

   the person shall, on demand in writing made by a Collector, pay to the Commonwealth an amount equal to the amount of the Excise duty which would have been payable on those goods if they had been entered for home consumption on the day on which the Collector made the demand.”

   By letters dated 16 March 1999 Mr Giuliano requested each applicant to account for the petroleum products that had allegedly been in their possession.  He wrote that if the goods were not properly accounted for, it was his intention to formally demand payment of an amount equal to the excise duty allegedly payable on those goods. 

3. The applicants challenge the right of Mr Giuliano to request the accounting and in this action they seek a declaration that his request was of no legal effect. When the action was commenced many grounds were relied upon to challenge the efficacy of the requests, but now only one is pressed. The applicants say that once it appears that the protection of the revenue will not be advanced by a request for an accounting, s 60(1) cannot be utilised by the Collector.

4. To understand this argument it is necessary to explain the purpose of s 60. First, however, I should set out the facts. They are simple and not in dispute. I have already recited them in a judgment given on an interlocutory application: Sidebottom v Giuliano [1999] FCA 1328. The following summary is taken from that judgment.

5. On 29 October 1998 the Chief Executive Officer of Customs (CEO) instituted an excise prosecution against the applicants in the Supreme Court of Victoria.  In his statement of claim the CEO makes the following allegations. The third applicant, Australian Petroleum Supplies Pty Ltd (APS), is a distributor of petroleum products from the depot in Saxton Street, Numurkah, a property that is owned by the fifth applicant, RPM Commodities Pty Ltd (RPM).  Between 1 July 1996 and 1 August 1997 petroleum products were delivered to the depot by the fourth respondent, GV Liquid Tankers Pty Ltd (GV Liquid Tankers).  Those products were blended to create blended petroleum products which are excisable under the Excise Act.  The first applicant and the second applicant, directors of each of APS, RPM and GV Liquid Tankers, were said to have initiated, directed and conducted the blending of petroleum products.  Excisable blended petroleum products were sold as diesel fuel and removed from the depot without being entered for home consumption and without excise being paid.  The amount of excise not paid totals $6,390,000. 

6. It is alleged that each applicant has committed offences against the Excise Act:  manufacturing excisable goods without a licence in contravention of s 35; having in its or his possession, custody or control manufactured excisable goods upon which excise duty had not been paid in contravention of s 117(1); evading payment of duty in contravention of s 120(1)(iv); moving, altering or interfering with goods subject to the control of Customs without authority in contravention of s 61; unlawfully conveying excisable goods upon which excise duty had not been paid in contravention of s 119(1).  Fines and penalties under Part X of the Excise Act and orders for reparation under s 21B of the Crimes Act 1914 (Cth) are sought.

7. Before the excise prosecution was instituted, counsel retained by the Customs Service advised that each applicant should be requested to account for the blended petroleum products pursuant to s 60. It was decided, however, to commence the prosecution and consider the matter again when the applicants had filed their defence in that proceeding. It should be noted that an excise prosecution may be a civil proceeding (s 134) and in most respects is governed by the rules of civil procedure (s 136), though it is penal in nature.

8. If the requests for an accounting are not declared to be invalid and the applicants do not satisfactorily account for the goods, Mr Giuliano is entitled to demand payment of the excise alleged to be due in respect of the blended petroleum products and if that amount is not paid he may commence proceedings to recover that sum as a debt due in a court of competent jurisdiction: s 60(2). To succeed in the action it will be necessary for the Collector to establish that each applicant had possession, custody or control of excisable goods which were subject to the control of Customs. It will also be necessary for the Collector to prove either that each applicant had failed to safely keep those goods or alternatively that each applicant had failed to satisfactorily account for them. Subparagraphs 60(1)(a) and (b) are not cumulative but are alternative provisions.

9. The effect of s 60 of the Excise Act was considered by the High Court in Collector of Customs (NSW) v Southern ShippingCo Ltd (1962) 107 CLR 279. A case had been stated for the consideration of the High Court consisting of facts found upon the trial of an action. The defendant had been entrusted with possession of excisable tobacco. Excise duty had not been paid and the tobacco had not been entered for home consumption. Accordingly the tobacco was “subject to the control of customs”. The tobacco was delivered to the defendant for shipment but pending being placed aboard ship was put into store. The store was broken into and the tobacco was stolen.

10. The Collector requested an accounting under s 60. He then sued the defendant on the basis that it was liable under both paras (a) and (b) of s 60(1) to indemnify the Collector in respect of the stolen tobacco.

11. The High Court held that s 60 was a provision for the protection of the revenue. The obligation that it imposes upon a person who is or has been entrusted with the possession, custody or control of excisable goods is to ensure that the goods do not irregularly find their way into home consumption. Accordingly, goods will be accounted for if the person parted with possession of them in a manner authorised by the Excise Act.  Otherwise the duty to keep the goods safe appears to be absolute except, perhaps, in the case of inevitable accident. 

12. It is worthwhile referring to some passages from the judgments of the members of the Court on the meaning and effect of s 60. Dixon CJ said (at 287):

    “The provision is pointed at the loss of goods involving the loss of excise duty.  The time of payment of excise duty is at or before entry for home consumption.  The hypothesis is that by the loss of the goods duty has been escaped.  There must be some doubt whether the destruction of the goods was also contemplated but upon the words of the section destruction is certainly covered. … Having regard to the place of the section it may be that the manufacturer is not included within the section but clearly other persons who are entrusted with the goods, as, for example, under s 58(b) or (c), fall within s 60 and incur what may be called an absolute duty to keep the goods safe from loss or destruction.  Perhaps the word ‘absolute’ is too strong for it may be conceded that it is possible to except inevitable casualty – what once was called ‘Act of God’.  Paragraph (b) presents difficulties as an alternative but it would seem that it is pointed at cases where it cannot be shown that the goods were lost or destroyed but at the same time they are not produced and their whereabouts is not disclosed.”

    McTiernan J said (at 290-291):

    “The task of keeping goods safely cannot be said to have been fulfilled if the goods are stolen even though reasonable precautions were taken.  Under par. (a) the person concerned is not liable unless he ‘fails’.  The plaintiff contends that that word means ‘does not’ and imposes absolute liability.  ‘Fails’ is a word with various meanings.  I think that in s 60 its appropriate meaning is that the person concerned is to be liable if he comes short of keeping the goods safely, that is preserving them from loss or damage.  The word ‘fails’ in my opinion is not strong enough to impose upon the person concerned so onerous a duty as that of avoiding the unavoidable.  …

    Paragraph (b) is in my view a drag-net provision.  It exposes every person who has or has been entrusted with the possession, custody or control of excisable goods which are subject to Customs’ control to the liability of being requested by the Collector to account for them to his satisfaction.  The accounting may be done by producing the goods or, if they are missing, by giving an explanation which is satisfactory to the Collector.  He has a discretion, which he is bound to exercise reasonably, to reject what is done or stated by way of accounting for the goods.  In my opinion it was reasonable for the Collector to reject the defendant’s account of what happened to the goods because the reason for their disappearance from Customs’ control, namely breaking entering and stealing, justified the Collector in considering that the defendant failed to keep the goods safely.  The defendant was in default under par. (a) and that was sufficient to make it liable.  Paragraph (b) was not, I think, intended to provide a person who contravenes par. (a) with the opportunity of explaining away his default thereunder.”

    Menzies J said (at 299):

    “In this setting it is hardly likely that the words ‘keep … safely’ refer to protecting the goods from damage or destruction or anything of that nature; for the safety with which the section is concerned is that the goods – subject as they are to the control of Customs – do not get out of Customs control into home consumption without the payment of duty; similarly, the account of the goods that is required is an account which shows an authorized relinquishment of possession, custody and control or, despite an unauthorized loss of possession, custody and control, that the goods have not got into home consumption without the payment of duty or that, notwithstanding the failure to keep the goods safely, Customs control over them is still effective.”

13. Southern Shipping does not deal directly with the question at hand, namely whether the Collector can request an accounting from a person whom the Collector knows has not safely kept excisable goods.  However, the position was touched upon by Owen J who said (at 305):

    “The question then arises as to the meaning of the words ‘does not account for those goods to the satisfaction of the Collector’ in par. (b) of the sub-section.  The use of the word ‘or’ in introducing the paragraph may at first sight appear to create some difficulty but if the purpose of the section is kept in mind I think that difficulty disappears.  If the undoubted fact is that a custodian of goods has failed to keep them safe from the danger of going into consumption without payment of duty as, for example, where readily saleable goods have been stolen, par. (b) need not be called in aid by the Collector.  But cases may easily be imagined in which the disappearance of the goods leaves it doubtful whether they may have gone into consumption or that it is likely that they will do so.  If so, par. (b) may be invoked and the custodian may be required by the Collector to account for the absence of the goods in such manner as to satisfy him that the revenue has not suffered and, in the absence of an explanation which satisfies the Collector of that fact, the obligation to pay imposed by the latter part of the sub-section may be enforced.”

14. The object of s 60 is to impose an obligation upon a person in possession, custody or control of excisable goods to ensure that those goods do not find their way into home consumption without the payment of duty. First, the custodian of excisable goods is required to keep them safe, and if he fails to do so then he is liable to pay an amount equal to the excise duty (par 60(1)(a)). Second, the Collector is authorised to request an accounting to discover whether or not there has been a breach of that obligation (par 60(1)(b)). If the “undoubted fact” is that a person in possession, custody or control of excisable goods has failed to keep them safely no purpose would be served by an accounting. The Collector can immediately rely upon par (a) and has no need to resort to par (b) for the purpose of making a demand for an amount equal to the unpaid duty. In that circumstance, in my opinion, par (b) cannot be invoked, and the subsection should be read down to that extent. In my view, par (b) can be relied upon when there is doubt about the whereabouts of excisable goods, or doubt as regards whether they have been kept safely. In those cases it is for the person in possession, custody or control to satisfy the Collector that the goods have not gone into home consumption without payment of duty. His failure to do so will render him liable to pay the debt due to the Commonwealth.

15. What are the facts here?  Is it the “undoubted fact” that, assuming the applicants had possession, custody or control of blended petroleum products as has been alleged, they failed to keep those goods safely? 

16. The Australian Government Solicitor who acts for the respondents has made a concession. He says that Mr Giuliano “had, at the time of making the requests to account, information in his possession, custody or power from which he could determine that the goods the subject of the requests had not been safely kept within the meaning of subsection 60(1)(a) of the Excise Act.”  This points strongly against the authority of Mr Giuliano to request the applicants to account.  But the concession does not, in my opinion, go far enough.  In particular, it does not amount to an acknowledgment that the “undisputed fact” is that each applicant had failed to keep safely the alleged excisable goods. First, I note that no particular applicant is referred to in the concession.  Second, the fact that Mr Giuliano has evidence which might lead him to form the opinion that excisable goods were not kept safely, does not mean that his opinion can be elevated to an “undoubted fact”.  Indeed, I note that in the excise prosecution it is not conceded by the applicants, indeed it is denied by them, that they had possession of excisable blended petroleum products, and that those products were removed from the depot at Numurkah and entered into home consumption without the payment of excise duty. 

17. This is sufficient, in my opinion, to conclude that the revenue may require protection by the exercise by a Collector of the power to request an accounting under s 60(1)(b). Circumstances do not exist for it to be said, with any confidence, that an accounting is futile.

18. It follows, in my opinion, that the application must be dismissed with costs.  It will also be necessary to discharge the interlocutory injunction granted by me on 24 September 1999.

I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate:

Dated:             12 May 2000

Counsel for the Applicant:	Ms B King QC, Mr T Murphy
Solicitor for the Applicant:	Blake Dawson Waldron
Counsel for the Respondent:	Mr T Cavanough QC, Mr G Livermore
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	16 December 1999
Date of Judgment:	12 May 2000