Stretton v Agfa-Gevaert Ltd
[1999] VSC 70
•15 March 1999
SUPREME COURT OF VICTORIA
COMMERCIAL LIST Do not Send for Reporting Not Restricted
No. 2083 of 1997
F4836
| VIRGINIA VALDA STRETTON (in her capacity as Regional Director, Australian Customs Service, Victoria) and THE COMMONWEALTH OF AUSTRALIA | Plaintiffs |
| v | |
| AGFA-GEVAERT LIMITED (ACN 000 404 722) | Defendant |
| - and - | |
| MSAS CARGO INTERNATIONAL PTY LTD (ACN 005 875 196) and MSAS GREEN PTY LTD (ACN 001 292 593) (trading as G.E. GREEN & CO) | Third Parties |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18, 21, 22 and 23 February 1999 | |
DATE OF JUDGMENT: | 15 March 1999 | |
CASE MAY BE CITED AS: | Stretton v Agfa-Gevaert Ltd | |
MEDIA NEUTRAL CITATION: | [1999] VSC 70 | |
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Contract - success fee - fee calculated on sums refunded by Customs - sums refunded but later required to be returned - whether fee earned - whether fee paid is refundable- implied term - contractual limitation period.
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APPEARANCES: | Counsel | Solicitors |
| For the Defendant | Mr P.H. Clark and Mr J.A. Tsalanidis | Russell Kennedy |
| For the Third Parties | Mr H.F. Jolson Q.C. and Ms S. Marks | Ebsworth & Ebsworth |
HIS HONOUR:
In 1990, the business of the defendant, Agfa-Gevaert Ltd (“Agfa”) included the importing into Australia of certain photographic paper. This paper was assessed as dutiable under the Customs Act 1901 and duty was duly paid by Agfa. The third parties, MSAS Cargo International Pty Ltd and MSAS Green Pty Ltd who were in this proceeding referred to collectively as “MSAS”, were customs agents and tariff consultants.
On 12 December 1990 MSAS, put to Agfa a proposal that MSAS would seek to persuade the Australian Customs Service (“ACS”) that the photographic paper fell within a tariff exemption prescribed in two tariff classification orders. The consequence of this would be that Agfa might recover duty paid over the preceding 12 months and, of course, import paper free of duty in the future, at least so long as the tariff classification orders were not changed. MSAS proposed that its fee should be 25% of duty refunded to Agfa plus certain expenses. The proposal was in due course agreed to by Agfa.
MSAS lost no time in setting about its task. On 30 January 1991 it reported to Agfa its success in obtaining from ACS two tariff advices which recorded the decision of ACS that the paper fell within the exempting tariff classification orders. These documents, MSAS said would enable Agfa to begin duty free entry into Melbourne. In due course MSAS obtained a refund from ACS of $864,837.35 which had previously been paid by Agfa as duty on the paper imported in the preceding 12 months. MSAS deducted from this refund its agreed fee, costs and expenses totalling $237,591 and on 12 April 1991 forwarded the balance to its client. Throughout the latter part of the remainder of 1991, then, Agfa proceeded to import the photographic paper duty free. To this point, the arrangement was very satisfactory for both parties.
Then, on 30 September 1991, ACS wrote to MSAS announcing that it had changed its mind. The photographic paper was not within the classification of goods contained in the tariff classification orders and the two tariff advices were void and could not be quoted in future in support of duty free entry. Representations were made to ACS on behalf of Agfa but to no avail. Furthermore, by letters dated 1 January 1992 and 6 February 1992 ACS formally determined that the goods imported in 1990 which had been the subject of the successful refund applications by MSAS were likewise dutiable and it demanded of Agfa pursuant to s.15 of the Act payment of $806,111.44 as duty erroneously refunded. This sum represented most of the duty which had been refunded in April 1991. The difference of $58,726.91 represented duty which had been refunded more than 12 months prior to the demand and was therefore considered not recoverable under this section.
Agfa instituted a challenge to the determination of ACS by paying duty under protest in respect of further importation of the paper in February 1992 and appealing the decision of ACS to accept payment. This appeal was heard in the Administrative Appeals Tribunal, the Federal Court and the High Court with the ultimate result that, in December 1996, the view of ACS as to the impact of the tariff classification orders upon the photographic paper prevailed. This meant that the paper was dutiable.
Nearly 12 months later, the Australian Government Solicitor on behalf of ACS activated its client’s claim to recover the duty refunded in April 1991. On 9 October 1997 it sent to Agfa a letter of demand. Agfa’s response was to commence Proceeding No. 7649 of 1997 in this Court against the Collector of Customs seeking declarations that ACS was not entitled to make its demands of 1 January 1992 and 6 February 1992 and that the tariff advices published in December 1990 were binding. It may be that this proceeding was not pursued, because this same relief was sought by counterclaim in this proceeding which ACS commenced on 3 December 1997 seeking recovery of the $806,111.44 which had been demanded together with interest from the dates of the demands in January and February 1992 respectively and costs. Agfa then joined MSAS as a third party alleging that, in the event that it was found liable to pay these sums, MSAS should disgorge its fee and itself pay Agfa’s costs of the challenge to the imposition of duty which it had taken to the High Court and lost, and Agfa’s costs of defending the ACS claim in this proceeding.
In May 1998 the parties went to mediation. As a result, ACS and Agfa settled. MSAS was not a party to this settlement nor did it approve it as a reasonable compromise. Under its terms Agfa paid to ACS $906,000 in full settlement of its claims for the return of duty refunded including interest and costs.
The third party proceeding, therefore, moved forward to trial. Agfa’s claims for the return of the fee and costs and expenses paid to MSAS, as pleaded in its amended statement of claim filed in June 1998 after the compromise, were put in contract and for money had and received. First, it was said that it was an express term of the contract that no fee, costs or expenses were chargeable in the event that MSAS was unsuccessful in recovering the refund of duty. Second, it was alleged, further and in the alternative, that there was an implied term under which the fee, costs and expenses were repayable in the event that duty was refunded and a claim for its return later made by ACS. It was then put that, following the demands for repayment by ACS and their satisfaction of payment of the agreed $906,000, MSAS is not entitled to retain any fee, costs or expenses and, accordingly, these are repayable as money had and received to the use of Agfa. Then follows a claim for damages. The measure of these damages, as the case was presented, was the sum of $237,591 which had been retained by MSAS for its fee, costs and expenses and the costs incurred by MSAS in defending the ACS claim. It was never entirely clear what was the basis of this damages claim. No breach of contract or other duty was alleged. Agfa’s case, as presented, was put on the basis that the fee was repayable in the performance of the contract rather than for its breach. This had the added consequence that the plea for loss and damage including those for the costs of the duty challenge and the costs of defending the ACS claim were not maintainable and little was heard of them.
The defence of MSAS was set out in its fourth amended defence in the third party proceeding filed on 22 February 1999 by leave granted during the trial. It said, first, that on a proper construction of the agreement its obligation was to obtain tariff advices from ACS to the effect that the photographic paper fell within the exemption provided in the tariff classification orders. This would and did have two favourable consequences for Agfa. First, it was entitled to the refund of duty paid during the preceding 12 months; and, second, it was entitled to import paper duty free in the future. Since duty was refunded and duty on future imports prior to September 1991 was saved, MSAS had earned its success fee. Accordingly, the fee was not refundable. Second, it relied upon its Standard Conditions of Trading which contained a contractual bar on claims made after six months. Third, it argued that it was not obliged to repay that part of its fee which represented the agreed percentage on the refunded duty which was not returned to ACS. This meant that no fee was repayable to Agfa on the $58,726.91 nor on the amount of duty refunded by ACS which was not repaid by Agfa under the May 1998 compromise. In principle, Agfa did not challenge this; it maintained that it had been able to retain only $58,726.91 of the duty refunded in 1991. Fourth, MSAS set up its own implied term under which it was entitled to a fee calculated by reference to the future duty saved by Agfa as a result of its efforts. Fifth, it contended that the compromise achieved by ASC and Agfa was unreasonable so that its obligation to repay any part of its fee should not arise as a result.
1. The Contract
There was no issue that a contract was entered into between Agfa and MSAS. To the extent that the discussions which took place at the meeting held on 12 December 1990 were confirmed by letter sent by MSAS on 14 December 1990, there was no issue as to its terms. The relevant portions of this letter were as follows:
“Dear Sir,
Re: Photographic Paper Refunds/Customs Import Audit
Following our meeting of 12 December, 1990 we wish to confirm details of our discussions covering the above referred subjects. Details are:
Photographic Colour Paper
We propose to submit specifications of your products, along with research evidence uncovered by ourselves, to the Australian Customs Service (ACS). Should their decision verify our findings we will be able to present refund claims for all duty paid during the past 12 months.
This service is offered on a fee for success basis. The fee being 25% of all duties refunded by the ACS. Should our proposal prove unsuccessful there will be no costs to your company whatsoever.
The only other charges involved will be the applicable ACS processing fees plus associated costs incurred. Again these costs will be charged only if successful in our claims.”
It is likely that within a day or so MSAS was given a verbal authority to proceed, but on 20 December 1990 Agfa wrote:
“Dear Sir,
Re: Photographic Paper Refunds
We would like to proceed with your proposal for possible refunds from Australian Customs Service (ACS) for Photographic Colour Paper. We understand that should the submission to ACS not be successful there would be no charge to Agfa-Gevaert. If however the claim is successful your fee would be 25% of duties refunded by ACS.
We believe you have already received technical data from Mr. Prestwich, if you need any further information please contact the undersigned.”
Before I return to the meeting of 12 December it is necessary that I set out aspects of the ACS procedure which were known, to a greater or lesser extent, by both parties at the time of the meeting. As a service to importers, and perhaps as an administrative convenience to itself, ACS published a document entitled Australian Customs Tariff Guide. This guide was updated and changed from time to time. Under its terms, an importer might seek from ACS a tariff advice as to the applicability to certain goods of a tariff concession order. Once obtained, this tariff advice might be lodged at a Customs House and referred to in the Customs Declaration which accompanies an importation. This presumably saved both the importer and ACS the trouble of determining for each shipment whether the tariff concession order applied. A tariff advice had no status under the Customs Act or the regulations, but ACS considered it binding unless reviewed, cancelled or rendered void during its currency.
On 12 December 1990 there occurred a meeting at Agfa’s office. Present on behalf of Agfa were Robert Ross Tutty, its Hazardous Goods Import/Export Controller, John William Butler, its Logistics Manager, both of whom gave evidence and Trevor Prestwich from its technical section who was not called. MSAS was represented by Malcolm John Lawrence Rich, its Senior Customs Consultant and by its Melbourne manager who was not identified. There was little disagreement between the three persons who gave evidence as to what was said. I find that Mr Rich told those present that he had on behalf of another client persuaded ACS that colour photographic paper like that imported by Agfa fell within an exemption contained in two tariff classification orders. He said that, if he could obtain tariff advices for Agfa to the same effect, it could obtain a refund of duty paid in the preceding year and could import paper duty free in the future. Needless to say, the Agfa representatives were very interested in this proposal, notwithstanding that the fee of MSAS would be 25% of duty refunded plus certain costs and expenses. It was made clear to them that the fee was a success fee, in the sense that if no duty was refunded no fee, costs or expenses would be charged. They provided Mr Rich with some details of imports on which duty had been paid in order for him to prepare pro-forma refund applications but they emphasised that, before they would agree to the proposal, they wanted something in writing from ACS to confirm that all was in order. In cross-examination Mr Tutty agreed that what he had in mind in imposing this requirement was a tariff advice. This conversation was confirmed in the exchange of correspondence quoted above.
It is clear that none of those present at the meeting gave a thought to the possibility that ACS would refund the duty and then change its mind. Nothing was said of this at the meeting nor in the correspondence. Likewise it is likely that no one contemplated the possibility that Agfa might find itself embroiled in lengthy and costly litigation in order to establish its entitlement to a refund of duty. It was submitted for Agfa that the form in which the success fee was structured meant, not only that Agfa must obtain the refund of duty, but that it must be permitted to keep it. If it were not permitted to do so, MSAS could not be said to have achieved success for its client. On behalf of MSAS it was put that there were two aspects to its proposal which were of advantage to Agfa, the refund of duty paid and the saving of duty on future imports. In the present case, as things turned out, the efforts of MSAS to obtain refunds were not ultimately successful except for a relatively small sum, but its efforts to save Agfa duty on future imports were successful because ACS respected exemptions obtained for goods imported during the currency of its tariff advices, that is, until September 1991. It did not then seek to recover about $500,000 tariff which would have been payable in respect of those goods had the tariff advices not been issued. This encouraged counsel for MSAS to submit that success should be assessed in terms of its having obtained the tariff advices. Since it had obtained these, it had earned its fee, the amount of which should be measured by reference to the amount refunded, whether or not this refund was subsequently retrieved.
In my opinion attention should not be focused on the “fee for success” aspect of the agreement, but rather on the manner of calculating the fee. It is clear from all of the evidence that Agfa was attracted by the prospect of receiving back a large sum which it had previously considered to have been spent. The fee was fixed by reference to this benefit rather than any other which may have been in the minds of the Agfa representatives. When the negotiators spoke and wrote of duty refunded, the reasonable bystander would take them to be speaking and writing of sums which would be unconditionally and permanently returned by ACS to Agfa. Notwithstanding that the exercise was successful in terms of its other objectives, if no duty was refunded in this sense, no fee would be payable because there was no figure to which 25% could be applied. In this case if the amount of duty permanently refunded was only the sum of $58,726.91 which was not the subject of the demands of ACS, the proper fee payable to MSAS was $14,681.47 plus $1,200 being the lodgement fee on the six entries for which duty refunded was not sought by ACS.
2. Implied Term
This does not, however, dispose of the matter. MSAS is not suing for its fee; the fee was charged and paid when the refunds were obtained. Agfa’s claim is to recover the fee, costs and expenses so paid. Its claim was pleaded as money received by MSAS to the use of Agfa and pursuant to an implied term. The claim for money received had to face the factual difficulty that Agfa had indeed enjoyed part of the success promised inasmuch as duty in the sum of nearly $60,000 which was refunded by ACS was not the subject of the demands and was therefore retained by Agfa. Furthermore, its duty free importations in 1991 were not disturbed. In these circumstances, a total failure of consideration was not suggested. Nor was I asked to undertake an assessment of the relative enrichment or otherwise of the parties as a result of the ACS demands.
The claim of Agfa therefore turned to the implied term which was pleaded as follows:
“3AFurther or in the alternative, it was an implied term or condition of the agreement that, in the event that ACS claimed repayment of any duty refunded to the Defendant and such duty was repaid by the Defendant to ACS or such claim was compromised by a payment from the Defendant to ACS, MSAAS Cargo and GE Green & Co would not be entitled to retain any fee, costs or expenses under the agreement.”
There was no contest that the principles applicable to the implication of a term of this kind are those set out in BP Refinery (Western Port) Pty Ltd v. Shire of Hastings (1977) 180 CLR 266. Counsel for MSAS submitted that none of these requirements for implication was here present. In my opinion the term proposed is certainly reasonable and equitable; it is capable of clear expression and does not contradict any express term. The area of difficulty is whether the term proposed is necessary to give business efficacy to the contract and whether it “goes without saying”.
Counsel for MSAS submitted that it is not sufficient that I conclude that the parties had in their agreement overlooked a particular circumstance; I must be satisfied what precise term they would have inserted to meet that circumstance: Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 at 610, per Lord Pearson, at 614 per Lord Cross; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 355-6, per Mason J and at 375, per Aickin J. In their written submissions they offered five possible terms which the parties may have selected. In paragraph 12A(a) of the MSAS defence, they invited me to imply yet another which they formulated in these terms:
“...that the Defendant would pay the Third Parties a fee of 25% of all duties saved by the Defendant on importation of photographic paper as a result of the Third Parties’ application for a tariff advice on behalf of the Defendant being accepted by ACS.”
I should not be distracted by the events which have occurred in this case after December 1990. My task is to assume the guise of the reasonable bystander at the time the contract was made. I assume the negotiators to be honest men negotiating in good faith. I assume that the bystander at this time drew their attention to the possibility that ACS might refund the duty and later demand the return of all or some of it as a sum erroneously refunded. In those circumstances I have no doubt that Mr Rich and the Agfa representatives would have replied that, in such a case, the duty should not be treated as having been refunded. No fee, costs or expenses incurred in obtaining such a temporary refund would be payable to MSAS and, if paid, they would be repayable to Agfa when the refund was returned to ACS. This is entirely consistent with the decision of the parties to use the amount of the refund as the basis for calculating the fee chargeable. Such a term would have been seen by them as obvious. This is because a provision for the refund of the fee calculated upon duty erroneously refunded would be necessary to give business efficacy to a contract under which a fee is payable upon the amount of duty permanently and unconditionally refunded in circumstances where duty refunded was potentially repayable to ACS within 12 months of an erroneous refund. The alternative was for payment of the fee to be deferred until after the expiry of this period.
I conclude, then, that the contract contained an implied term as follows:
“That, in the event that duty refunded was the subject of a demand under s.157 and paid to ACS, no fee costs or expenses are payable to MSAS in respect of that refund and, if paid, are refundable by MSAS to Agfa.”
It follows, too, that I reject the term proposed by MSAS in its defence.
The application of this implied term to the facts of this case means that the fee, costs and expenses referable to the duty demanded and paid to ACS are payable by MSAS to Agfa. This is subject to the application of the MSAS Standard Terms, a topic to which I now turn.
3. Standard Conditions
Printed at the foot of the MSAS letter of proposal sent on 14 December 1990 appear the following two sentences:
“Consolidated Services are subject to the Company’s Conditions of Contract as printed on the reverse of the Company’s International House Air Waybill if by air or the Company’s Bill of Lading if by sea.
Any other service is subject to the Company’s Standard Trading Conditions copies available on request.”
The sentences are printed in very small typeface and are barely legible on the photocopy of the faxed document received by Agfa. This may have been the explanation for the fact that it did not occur to the lawyers for MSAS to rely upon the standard terms until its third amended defence was filed by leave given on 22 February 1999, some eight years after the contract was entered into. Having themselves overlooked these sentences, they now solemnly assert that Agfa should be taken to have contracted on the basis of these standard trading conditions. The terms were not mentioned at the 12 December 1990 meeting.
A further difficulty was caused by the fact that no copy of the standard terms current in 1990 was able to be produced. This was overcome by the production of a contract made in 1988 between the firstnamed defendant and ICI Australia Operations Pty Ltd, which contract incorporated the then current standard terms. The evidence of Graeme Archibald Walker, a director of another company within the MSAS group in 1988 and 1990, was that the standard terms did not change within that period. I conclude, then, that the standard terms forming part of the ICI contract were identical with the standard terms referred to in the 14 December 1990 letter. These terms which were in evidence as Exhibit 10 were again printed in very small type so that they were scarcely decipherable.
MSAS relied on two clauses in the standard terms. The expression “the Company” in the clauses is defined to mean the firstnamed third party. The clauses provide as follows:
“Save in respect of such loss or damage as referred to at sub-clause (B) above and subject to these Conditions, the Company shall not in any circumstances whatsoever be liable for indirect or consequential loss such as (but not limited to) loss of profits loss of market or the consequences of delay or deviation however caused.
...
The Company shall be discharged of all liability whatsoever howsoever arising in respect of any service provided for the Customer or which the Company has undertaken to provide unless suit be brought and written notice thereof be given to the Company within six (6) months from the date of any event or occurrence alleged to give rise to a cause of action against the Company.”
The first of these clauses clearly has no application to a claim for the return of fees which were not earned. The second is equally inapposite. The claim of Agfa is not to enforce a liability in respect of a service. Moreover, the event which gives rise to the present claim is the repayment to ACS of duty erroneously refunded. This repayment occurred on 11 June 1988.
It follows, then, that even assuming these terms to have been contractual, they do not operate to extinguish or bar the claims presently brought against MSAS.
4. The Compromise
There are two aspects of the compromise which require attention. First, it is said on behalf of MSAS that the payment made pursuant to the compromise was not a payment which Agfa was legally obliged to make. This is, of course, a different case from that pleaded which was that the compromise was unreasonable. The defence of unreasonableness was not pressed but I was addressed on the first point and I shall deal with it. The second aspect is to identify what sum of duty refunded was in fact repaid by Agfa to ACS under the compromise.
Essentially, the argument as to the liability of Agfa to repay the refunded duty boiled down to two points. The first was whether s.157 entitled ACS to recover duty erroneously refunded when the error in question was one of law. The point was decided in favour of ACS by French J in Sandvik Australia Pty Ltd v The Commonwealth (1989) 89 ALR 213. I find, if I may respectfully say so, his Honour’s reasoning in that case persuasive and I agree with his conclusion. I am of opinion that ACS was, pursuant to s.157, entitled to a return of the duty erroneously refunded to Agfa in 1991.
I find the second point of MSAS no more attractive. It was that ACS is estopped from denying that the photographic paper was not dutiable for it had issued the tariff advices in January 1991 and Agfa had acted to its detriment in reliance upon them. Estoppel cannot operate in this way to release an importer from paying customs duty. See South Australia v ATSA Pty Ltd (1980) 24 SASR 66 at 78, per Wells J, at 97 per Williams AJ, King CJ concurring; Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 510, per Deane, Toohey, Gaudron JJ.
I turn finally to the MSAS submission that the payment by Agfa to ACS of $906,000 representing duty, interest and costs was in truth a payment of only 54% of the claim and interest. This calculation assumed that the claimed interest from the date of the demands in January and February 1992 to the date of settlement was $859,314.79. To this should be added the party and party costs of ACS which were estimated at $30,000 by Michael Douglas Main, a member of the firm of solicitors acting for Agfa. He said that the settlement sum of $906,000 represented $806,111.44 being the total duty demanded plus about $100,000 for interest and costs. Allowing $30,000 for the costs, Agfa paid some $70,000 for interest. The rate of interest adopted by counsel for MSAS was 13.2% as representing the appropriate penalty interest rate. At this rate, interest from the date of commencement of this proceeding to the date of payment was a little less than $62,000. Given the statement by ACS in its demand of 6 February 1992, Mr Main was apparently able to persuade ACS to limit its interest claim to the period of the proceeding. I accept his evidence that this was the basis of the settlement. It follows that ACS received the whole of the duty which had been demanded as having been erroneously refunded to Agfa.
5. Conclusion
I conclude, therefore, that Agfa is entitled to a refund of fees, costs and expenses paid to MSAS in respect of refunded duty which it was obliged to and did repay to ACS. The fees component of this is 25% of $806,111.44, that is, $201,527.86. The costs and expenses are $200 for each of the 94 warrants that were amended, that is, $18,800. There was in the MSAS invoice a further expense of $1,382 for airfares, accommodation and research fees. There was no evidence as to how this applied as between the successful applications for refund and those which were ultimately unsuccessful. Agfa has failed to discharge the burden which it bears of showing that some part of this was expended in making the 94 ultimately unsuccessful applications. The total amount which is recoverable by Agfa, therefore, is $220,327.86.
I will stand the matter over to enable counsel to check the mathematics and to enable the parties to make submissions as to interests and costs.
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