Vestas - Australian Wind Technology Pty Limited and Comptroller-General of Customs
[2017] AATA 791
•31 May 2017
Vestas - Australian Wind Technology Pty Limited and Comptroller-General of Customs [2017] AATA 791 (31 May 2017)
Division:GENERAL DIVISION
File Number(s): 2014/3872
Re:Vestas - Australian Wind Technology Pty Limited
APPLICANT
AndComptroller-General of Customs
RESPONDENT
DECISION
Tribunal:Deputy President S A Forgie
Mr Conrad Ermert, MemberDate:31 May 2017
Place:Melbourne
The Tribunal decides to:
set aside the decision of the respondent dated 26 June 2014 made under s 269SH of the Customs Act 1901 (Customs Act) and affirming a decision dated 12 March 2014 made under s 269P that he was not satisfied that the applicant’s application for a tariff concession order (TCO) meets the core criteria; and
substitute for that decision a decision to:
(a)set aside the decision of the respondent dated 12 March 2014 made under s 269P of the Customs Act; and
(b)substitute a decision that the applicant’s application for a TCO meets the core criteria; and
remits the matter to the respondent to make a written order under s 269P(3) of the Customs Act declaring that the goods the subject of the TCO application are goods to which a prescribed item specified in the order applies.
..........[sgd].........................................................
Deputy President S A Forgie
Catchwords – CUSTOMS – TARIFF CONCESSION ORDER – whether application meets core criteria – whether substitutable goods produced in Australia that are put, or capable of being put to a use that corresponds with a use to which the goods the subject of the TCO can be put – inquiry includes hypothetical – no substitutable goods – decision set aside
Catchwords – PRACTICE AND PROCEDURE – EXPERT EVIDENCE – role of expert –expertise on which opinion based must be relevant to an issue to be determined
Legislation
Acts Interpretation Act 1901 s 48
Administrative Appeals Tribunal Act 1975 ss 2A, 33, 40, 43
Administrative Decisions (Judicial Review) Act 1977 s 13
Customs Act 1901 ss 7, 269B, 269C, 269D, 269F, 269H, 269K, 269P, 269Q, 269S, 269SA, 269SC, 269SH
Customs Amendment Act 1996 s 3 and Schedule 1, Item 2
Customs and Other Legislation Amendment (Australian Border Force) Act 2015 Sch 1, s 3, item 26
Customs Tariff Act 1995 s 18, Sch 3 and subheading 8483.40.90, Sch 4 and item 50
Evidence Act 1995 ss 3, 4, 76, 79
Legislative Instruments Act 2003 s 13
National Electricity (South Australia) Act 1996 (SA)
Cases
Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73
Australian Securities and Investments Commission v Rich [2005] NSWSC 149; (2005) 190 FLR 242
Becker Vale Pty Ltd v Chief Executive Officer of Customs [2015] FCA 525
Chief Executive Officer of Customs v Toyota Material Handling Australia Pty Ltd and Another [2012] FCAFC 78; (2012) 203 FCR 129
Collector of Customs v Agfa-Gevaert Limited [1996] HCA 36; (1996) 186 CLR 389; 141 ALR 59; 43 ALD 193; 24 AAR 282
Comptroller-General of Customs v Vestas – Australian Wind Technology Pty Ltd [2015] FCAFC 185; (2015) 236 FCR 499
Dasreef Pty Limited v Hawchar [2011] HCA 21; (2011) 243 CLR 588; 277 ALR 611
Elliott v Ivey [1998] NSWSC 116
HG v The Queen [1999] HCA 2; (1999) 197 CLR 414; 160 ALR 554
King v Jetstar Airways Pty Ltd [2011] FCA 1259
Nufarm Australia Ltd v Dow AgroSciences Australia Ltd (No 2) [2011] FCA 757
Public Service Board of NSW v Osmond [1986] HCA 7; (1986) 159 CLR 656
R v Bartlett [1996] 2 VR 687 [1933] HCA 30; (1933) 50 CLR 228
R v War Pensions Entitlement Appeal Tribunal; ex parte Bott
Re Dow Agroscience Australia Ltd and Chief Executive Officer of Customs and Nufarm Australia [2012] AATA 568
Re Downer EDI Rail Pty Limited and Chief Executive Officer of Customs and United Group Rail Services Limited [2010] AATA 866; (2010) 118 ALD 454
Re Kenso Marketing SDN BHD and Chief Executive Officer of Customs and Nufarm Australia Ltd [2010] AATA 445
Re Vestas - Australian Wind Technology Pty Limited and Chief Executive Officer of Customs [2013] AATA 721
Re Vestas - Australian Wind Technology Pty Limited and Chief Executive Officer of Customs [2015] AATA 348
Re Vulcan Australia Pty Ltd and Comptroller-General of Customs [1994] AATA 150; (1994) 34 ALD 773; 20 AAR 116
Riverwood Cartons Pty Ltd v Chief Executive Officer of Customs [1997] FCA 817; (1997) 77 FCR 493; 25 AAR 382
RW Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd (1991) 34 NSWLR 129
Wainohu v New South Wales [2011] HCA 24; (2011) 243 CLR 181; 278 ALR 1; 85 ALJR 746
Secondary Materials
American National Standards Institute, American Gear Manufacturers Association and American Wind Energy Association
Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers
Expert Evidence, Law, Practice, Procedure and Advocacy, Freckelton and Selby, 3rd edition, 2005, Lawbook Co, Sydney
Second Reading Speech on the Customs Legislation (Tariff Concessions and Anti-Dumping) Amendment Bill 1992
World Trade Organisation Agreement, Australian Treaty Series 1995 No. 8
REASONS FOR DECISION
Deputy President S A Forgie
Mr Conrad Ermert, Member
Vestas - Australian Wind Technology Pty Limited (Vestas) is a company incorporated in Australia in 1999. It is a wholly-owned subsidiary of Vestas Wind Systems A/S, whose head office is located in Denmark, and part of the Vestas Group of companies. Vestas sells, installs and services a wide variety of wind turbines in Australia. As part of its business, it also sells, installs and services a wide range of turbine components including, but not limited to, complete nacelles, gearboxes, and blades. All of the wind turbines Vestas sells have been manufactured either by or for the Vestas Group. Each turbine includes a wind turbine gearbox. The Vestas Group orders those gearboxes from suppliers in large quantities and they are manufactured in production runs.
Vestas applied to the Comptroller-General of Customs (Comptroller-General)[1] for a tariff concession order (TCO) under the Customs Act 1901 (Customs Act) in respect of what might broadly be described as gearboxes for wind turbines. They are goods classified to subheading 8483.40.90 to Schedule 3 to the Customs Tariff Act 1995 (CT Act).[2] In the following paragraphs, we set out the history of its application, its being rejected and then refused by the Comptroller-General, our earlier decisions and of the Comptroller-General’s successful appeal leading to the matter’s being remitted to us for further consideration in light of the reasons of the Full Court of the Federal Court. Having heard further evidence and submissions made on behalf of the parties, we have decided that the TCO application made by Vestas satisfies the core criteria. The effect of our decision is to set aside the Comptroller-General’s decision dated 12 March 2014 and affirmed on 26 June 2014 and to remit the matter to the Comptroller-General to make a written order declaring that the goods the subject of the TCO application are goods to which a prescribed item specified in the order applies.
[1] With effect from 1 July 2015, the Comptroller-General, rather than the Chief Executive Officer of Customs, has had responsibility for the general administration of the Customs Act: repeal and substitution of s 7 of the Customs Act by s 3, Schedule 1, Item 26 of the Customs and Other Legislation Amendment (Australian Border Force) Act 2015.
[2] “8483.40 TRANSMISSION SHAFTS (INCLUDING CAM SHAFTS AND CRANK SHAFTS) AND CRANKS; BEARING HOUSINGS AND PLAIN SHAFT BEARINGS; GEARS AND GEARING; BALL OR ROLLER SCREWS; GEAR BOXES AND OTHER SPEED CHANGERS, INCLUDING TORQUE CONVERTERS; FLYWHEELS AND PULLEYS, INCLUDING PULLEY BLOCKS; CLUTCHES AND SHAFT COUPLINGS (INCLUDING UNIVERSAL JOINTS): … 8483.40 -Gears and gearing, other than toothed wheels, chain sprockets and other transmission elements presented separately; ball or roller screws; gear boxes and other speed changers, including torque converters:… 8483.40.90 8483.40.90 ---Other 5% …”
BACKGROUND
There is no dispute between the parties regarding the general components and operation of a wind turbine. Bearing that in mind and having regard to the evidence of Mr Thomas Murray, who has been Vestas’s Service Director responsible for managing its service and maintenance teams located in Australia and New Zealand since 2008, we find that the main components of a wind turbine include its base, tower, rotor and blade assembly with a nacelle housing, among other items, a gearbox, generator and transformer. Each wind turbine is an extremely large structure. Taking a Vestas V90 3MW as an example, its blades have a diameter of 90 metres, a gearbox weighing in excess of 22 tonnes and, overall, weighing in excess of 235 tonnes. Wind turbines may be classified by reference to the average wind speeds in which they are designed to operate. Class I are designed to operate in average wind speeds of ~ 10 metres/second, Class II in average wind speeds of 8.5 metres/second and Class III in average wind speeds of 7.5 metres per second. Wind turbines are also classified by reference to their power output measured either in kilowatts (kW) or megawatts (MW). In Australia, Vestas installs, in the main, wind turbines classified as either 2MW or 3MW platforms.
Under s 269F of the Customs Act, Vestas applied to the Comptroller-General for a TCO respect of goods (the subject goods) that it defined as:
“GEARBOXES, CAST STEEL, WIND TURBINE NACELLE, where the wind turbines have a capacity NOT less than 3MW, having ALL of the following:
a) helical gears
b) integrated planet bearing races
c) case carbonised external gears
d) nitride, or case carbonised ring gears
e) conforming to ALL of the following requirements/standards:
(i) ANSI/AGMA/AWEA 6006-A03
(ii) ISO-6336-1
(iii) ISO/IEC 81400-4
(iv) GL 2010: Guidelines for the Certification of Wind Turbines
f) integrated main bearing
Op. 14.08.12 - TC 1229970
Stated use:
To convert the high torque power of a large scale wind turbine rotor to low torque power for use by generatorsApplicant: VESTAS – AUSTRALIAN WIND TECHNOLOGY PTY LTD 5%”[3]
[3] T documents; T4 at 136
Vestas lodged its application on 14 August 2012. On 28 August 2012, the Comptroller-General rejected that application under s 269H(1) of the Customs Act on the basis that it did not satisfy the requirements of s 269F. On review, the Tribunal set aside that decision and substituted a decision that Vestas’s application be accepted as a valid application under s 269H(1) of the Customs Act.[4] The Comptroller-General then allocated the number TC 1229970 to the TCO application.
[4] Re Vestas - Australian Wind Technology Pty Limited and Chief Executive Officer of Customs [2013] AATA 721
As required by s 269K of the Customs Act, the Comptroller-General published a notice of the TCO application in the Commonwealth of Australia Gazette (Gazette) No. TC 13/46 dated 20 November 2013. On 12 December 2013, Hofmann Engineering Pty Ltd (Hofmann Engineering) lodged with the Chief Executive Officer of Customs (CEO) a submission objecting to the making of TCO 1229970.
On 12 March 2014, the Comptroller-General decided that the TCO application made by Vestas did not satisfy the core criteria set out in s 269C of the Customs Act. After reconsideration by a different delegate under s 269SH, the decision was affirmed on 26 June 2014 on the same basis.
On review of the Comptroller-General’s decision, we set aside the decision and substituted a decision that the TCO application made on behalf of Vestas satisfied the core criteria set out in s 269C of the Customs Act. We remitted the matter to the Comptroller-General to make a decision under s 269P to make a written order declaring that the goods that are the subject of the TCO application are goods to which a prescribed item specified in the TCO applies.[5] On the Comptroller-General’s appeal, the Full Court of the Federal Court set aside our decision and remitted the matter to us for further consideration in light of its reasons.[6]
[5] Re Vestas - Australian Wind Technology Pty Limited and Chief Executive Officer of Customs [2015] AATA 348
[6] Comptroller-General of Customs v Vestas – Australian Wind Technology Pty Ltd [2015] FCAFC 185; (2015) 236 FCR 499; Jessup, Logan and Perram JJ
LEGISLATIVE FRAMEWORK and AUTHORITIES
The Customs Tariff Act 1995 (CT Act) imposes Customs duty on goods imported into Australia. In order to work out the amount of duty payable on particular goods, reference must be made to the Schedules to the CT Act. The rate of duty applicable to particular goods is determined by the classification to which those goods belong and by reference to the applicable Schedule. In the case of the subject goods in this case, the applicable Schedule is Schedule 3. It classifies goods in accordance with Australia’s international obligations as a party to the World Trade Organisation Agreement.[7] Under Schedule 4, goods imported into Australia in certain circumstances may be subject to a lesser rate of duty than the nominal rate applying under, among others, Schedule 3.[8] Among the goods for which provision is made in Schedule 4 are goods subject to a TCO.[9]
[7] Australian Treaty Series 1995 No. 8
[8] CT Act; s 18
[9] Item 50 of Schedule 4 to the CT Act provides for “Goods that a tariff concession order, under Part XVA of the Customs Act 1901, declares are goods to which this item applies …”. Item 50 then goes on to prescribe the rate of duty as “Free” except in respect of goods classified under certain headings in Schedule 3 to the CT Act.
Part XVA of the Customs Act regulates TCOs. It is clear from the core criteria that must be met by an application for a TCO that it will only be granted if, in summary, Australia does not produce goods that are put, or capable of being put, to the same use as those being imported. The TCO regime is clearly intended to provide some protection to the Australian manufacturing industry. That this is so is underlined by the comment made by the then Minister for Small Business, Construction and Customs, the Hon Mr Beddall, when giving the Second Reading Speech on the Customs Legislation (Tariff Concessions and Anti-Dumping) Amendment Bill 1992: “… The objective of the system is to ensure that industry is not taxed by the tariff where it is serving no protective function. …”.[10]
[10] Hansard, House of Representatives, 7 May 1992 at 2665
Making a TCO
If the CEO is satisfied that the application meets the core criteria, he or she must make a written order declaring that the goods the subject of the TCO application are goods to which a prescribed item specified in the order applies.[11] Every TCO must include a description of the goods that are the subject of the order including a reference to the Customs tariff classification that, in the CEO’s opinion, applies to the goods. It must also include a statement of the day it is taken to have come into force.[12] In a case such as this, that day will be the day on which Vestas made its application for the TCO.[13] Generally, that day is determined by reference to s 269S although s 269SA may also be relevant where goods that are substitutable goods in relation to the goods that are the subject of the TCO application begin to be produced after the TCO application has been lodged.
[11] Customs Act; s 269P(3)
[12] Customs Act; s 269P(4)(a) and (b)
[13] Customs Act; s 269S(1)(a)
Core criteria
The core criteria are the subject of Division 1 of Part XVA of the Customs Act. Section 269C provides:
“For the purposes of this Part, a TCO application is taken to meet the core criteria if, on the day on which the application was lodged, no substitutable goods were produced in Australia in the ordinary course of business.”
It is clear from s 269C that it is imperative to keep firmly in mind the day on which the TCO application was lodged i.e. 14 August 2012 in this case. Other provisions of the Customs Act go on to expand upon each of the criteria that must be met on that day if a TCO application is to meet the core criteria. The criteria are that, on that day, there were (1) no substitutable goods; (2) produced in Australia; (3) in the ordinary course of business.
A. Substitutable goods
The expression “substitutable goods” is defined in s 269B(1):
“.. in respect of goods the subject of a TCO application or of a TCO, means goods produced in Australia that are put, or are capable of being put, to a use that corresponds with a use (including a design use) to which the goods the subject of the application or of the TCO can be put.”
This definition has to be read with s 269B(3) which provides:
“In determining whether goods produced in Australia are put, or are capable of being put, to a use corresponding to a use to which goods the subject of a TCO, or of an application for a TCO, can be put, it is irrelevant whether or not the first-mentioned goods compete with the second-mentioned goods in any market.”
In Re Vulcan Australia Pty Ltd and Comptroller-General of Customs,[14] consideration was given to the focus of the definition of “substitutable goods” which, at that time, excluded the reference of the use to which the locally produced goods are capable of being put and focused solely upon “use” to which they are put. At the time, the definition required the Tribunal to decide whether a use to which the goods produced in Australia were put corresponded with a use (including a design use) to which the goods the subject of the TCO application can be put. The definition now requires consideration to be given to the use to which the Australian produced goods are capable of being put, as well as put,[15] but the approach taken in Vulcan is not affected by the amendment. The goods in relation to which Dimplex Australia Pty Ltd had made a TCO application were described as “HEATERS, space, liquid fuel, domestic portable which do NOT require connection to any external fuel source or electricity supply”. Vulcan Australia Pty Ltd applied for review of the Comptroller-General’s decision to accept the application and make a TCO.
[14] [1994] AATA 150; (1994) 34 ALD 773; 20 AAR 116; Deputy President Forgie and Members Woodard and McLean
[15] Definition of “substitutable goods’ amended by Customs Amendment Act 1996; s 3 and Schedule 1, Item 2
The Tribunal analysed the meaning of “use” and “corresponds with”. It decided that the former should be given its ordinary meaning and continued:
“… The ordinary meaning of ‘correspond’ in that context is that one use conforms with or is in harmony with the other use. It would be reading too much into the words "corresponds with" to say that the function or process of the use of one must conform with or be in harmony with the other. It follows that, we can find no suggestion in the definition that the means by which the goods achieve any such use is of any relevance at all. We consider, therefore, that we should give the word "use" its ordinary meaning.
47. Having done that, we must decide the use (including a design use) to which the goods described in the TCO can be put. We find that they are used for providing domestic space or room heating. In determining their use, we have not included a reference to their use of liquid fuel for that is the means by which they achieve that use and not the use itself. We have reached the same conclusion in respect of their connection to any external fuel although that aspect, in so far as it impinges upon portability, has caused us more concern. We have concluded, however, that the aspect of portability relates essentially to the way in which the TCO goods achieve their overall purpose of providing domestic heating of a space or room rather than to a use to which they can be put.
48. The use to which Vulcan’s goods may be put is also that of domestic space or room heating. They have, therefore, the same use and it is not relevant that the goods achieve that use in different ways. If Vulcan 's goods have the same use, they must have a use "that corresponds with" a use to which the TCO goods can be put. As we have already found that Vulcan‘s goods are produced in Australia, they are substitutable goods within the meaning of the definition.”[16]
[16] [1994] AATA 150; (1994) 34 ALD 773; 20 AAR 116 at [46]-[48]; 775; 126-127
In Riverwood Cartons Pty Ltd v Chief Executive Officer of Customs,[17] Goldberg J said:
“There is no requirement that the substitutable goods have only one use. The definition will be satisfied even if the substitutable goods ... have a number of uses, only one of which corresponds with a use to which the imported goods can be put.”[18]
[17] [1997] FCA 817; (1997) 77 FCR 493; 25 AAR 382
[18] [1997] FCA 817; (1997) 77 FCR 493; 25 AAR 382 at 497; 386
In Chief Executive Officer of Customs v Toyota Material Handling Australia Pty Ltd and Another[19] (Toyota MHAPL), the Full Court of the Federal Court considered whether pedestrian-operated rider-operated reach trucks manufactured in Australia by Crown Equipment Pty Ltd (Crown) are substitutable goods for rider-operated reach trucks, which is a kind of forklift useful for stacking shelves in warehouses and which are imported by Toyota Material Handling Australia Pty Ltd (TCO goods). The Full Court said that:
“ This provision calls for a comparison. The comparison required is not only between actualities but also between potentialities. And so far as the potentialities are concerned what it requires is a focus, on the one hand, on what the goods described in the proposed TCO can be used for and, on the other, the uses to which the suggested local goods can be put. The comparison which the provision calls for between the potential uses of the TCO goods and the local goods is not one, however, in which any conceivable use will suffice. A spoon may be used to dig a trench but Parliament cannot have intended for a spoon to be substitutable goods for an excavator. The potential uses to which the definition adverts are, therefore, only reasonable ones.
What the Tribunal was required to do therefore was to assess the goods the subject of the TCO application for their actual uses or those to which they could reasonably be put and to ask whether any Australian goods were, or could reasonably be, used for any of those purposes.”[20]
[19] [2012] FCAFC 78; (2012) 203 FCR 129; Finn, Gilmour and Perram JJ
[20] [2012] FCAFC 78; (2012) 203 FCR 129 at [4]-[5]; 130-131
A differently constituted Tribunal had found that there were no substitutable goods because the TCO goods were capable of lifting goods weighing at least 1,200 kg to at least five metres. The Crown goods were capable of lifting goods of up to 1,200 kg up to five metres but not beyond either that weight or that height. The fact that the TCO goods could lift a heavier load to a greater height, the Full Court found, could not erase the further fact that both the TCO forklifts and the Crown forklifts could be put to the same use i.e. stack shelves up to five metres in height with loads up to 1,200 kg. This, it concluded, would mean that the Crown goods were substitutable goods in relation to the TCO application unless, as in the example of the spoon and the excavator, it was not reasonable to use the TCO forklift to load shelves up to five metres in height with loads of up to 1,200 kg.[21]
[21] [2012] FCAFC 78; (2012) 203 FCR 129 at [9]; 131
Citing the passage from Riverwood Cartons Pty Ltd v Chief Executive Officer of Customs that we have set out above, the Full Court decided that the definition of “substitutable goods” will be satisfied even if there is only one use of a number of uses that correspond with a use to which the imported goods can be put. It is of no relevance that a use may not be a sensible commercial use but it is relevant that it is a reasonable use.[22]
[22] [2012] FCAFC 78; (2012) 203 FCR 129 at [19]; 133 referring also to [4]; 130
The focus is upon the use to which the goods are put, capable of being put or can be put but not on the manner in which they achieve it. That is consistent with the underlying purpose of the Customs Act to provide some measure of protection to the Australian manufacturing industry. Once a TCO is made, the focus changes from the use to which goods are put, capable of being put or can be put to the description of the goods in that order. As Yates J said in Becker Vale Pty Ltd v Chief Executive Officer of Customs:[23]
“There is a line of authority which holds that, in order to fall within a tariff concession order, the goods must ‘precisely’ meet the description of that order: see, in that regard, the Tribunal’s decision in Brand Developers Aust Pty Ltd v Chief Executive Officer of Customs [2015] AATA 215 at [29]- [44] and, in particular, the cases cited at [31]. Neither party suggested that this line of authority should not be followed in the present case.”[24]
That is also consistent with the objective of ensuring that industry is not taxed by the tariff where it is serving no protective function.
[23] [2015] FCA 525
[24] [2015] FCA 525 at [57]
B. Goods produced in Australia
Section 269D sets out the meaning of the expression “goods produced in Australia”.[25] The general principles are set out in s 269D(1):
“For the purposes of this Part, goods, other than unmanufactured raw products, are taken to be produced in Australia if:
(a) the goods are wholly or partly manufactured in Australia; and
(b)not less than ¼ of the factory or works costs of the goods is represented by the sum of:
(i) the value of Australian labour; and
(ii) the value of Australian materials; and
(iii)the factory overhead expenses incurred in Australia in respect of the goods.”
[25] Customs Act; s 269B(1)
B.1 Goods partly manufactured in Australia
For the purposes of Part XVA of the Customs Act:
“… goods are taken to have been partly manufactured in Australia if at least one substantial process in the manufacture of the goods was carried out in Australia.”[26]
[26] Customs Act; s 269D(2)
The expression “substantial process in the manufacture of the goods” is not defined but s 269D(3) makes it clear that certain operations do not constitute a substantial process in the manufacture of the goods. It provides:
“Without limiting the meaning of the expression substantial process in the manufacture of the goods, any of the following operations or combination of those operations does not constitute such a process:
(a) operations to preserve goods during transportation or storage;
(b)operations to improve the packing or labelling or marketable quality of goods;
(c) operations to prepare goods for shipment;
(d) simple assembly operations;
(e)operations to mix goods where the resulting product does not have different properties from those of the goods that have been mixed.”
B.2Factory or works costs of the goods
The CEO may publish directions in the Gazette that the way the factory or works cost of goods, value of Australian labour, Australian material or factory overhead expenses incurred in Australia in respect of goods are to be determined in a specified manner.[27]
[27] Customs Act; s 269D(4) and see also s 269D(5) providing, in effect, that they are to be interpreted by reference to those rules applicable to regulations. Since the repeal of s 48 of the Acts Interpretation Act 1901 (AI Act), the interpretation of regulations has been determined according to the Legislative Instruments Act 2003. Section 13(1)(a) of that legislation provides that the AI Act applies to their interpretation as if they were an Act.
C. The ordinary course of business
For the purposes of Part XVA other than those of s 269Q, which deals with goods sent out of Australia for repair, s 269E sets out the circumstances in which goods that are substitutable goods are taken to be produced in Australia. Goods other than made-to-order capital equipment are the subject of s 269E(1). It provides:
“For the purposes of this Part, other than section 269Q, goods (other than made-to-order capital equipment) that are substitutable goods in relation to goods the subject of a TCO application are taken to be produced in Australia in the ordinary course of business if:
(a)they have been produced in Australia in the 2 years before the application was lodged; or
(b)they have been produced, and held in stock, in Australia; or
(c)they are produced in Australia on an intermittent basis and have been so produced in the 5 years before the application was lodged;
and a producer in Australia is prepared to accept an order to supply them.”
Section 269E(2) is concerned with made-to-order capital equipment. The expression “capital equipment” means goods, which if imported into Australia, would be goods to which Chapters 84, 85, 86, 87, 89 or 90 of Schedule 3 to the CT Act would apply.[28] Section 269E(2) provides:
[28] Customs Act; s 269B(1)
“For the purposes of this Part, goods that:
(a)are substitutable goods in relation to goods the subject of a TCO application; and
(b)are made-to-order capital equipment;
are taken to be produced in Australia in the ordinary course of business if:
(c) a producer in Australia:
(i)has made goods requiring the same labour skills, technology and design expertise as the substitutable goods in the 2 years before the application was lodged; and
(ii)could produce substitutable goods with existing facilities; and
(d)the producer is prepared to accept an order to supply the substitutable goods.”
The expression “made-to-order capital equipment” is defined in s 269E(3) to mean:
“… a particular item of capital equipment:
(a)that is made in Australia on a one-off basis to meet a specific order rather than being the subject of regular or intermittent production; and
(b)that is not produced in quantities indicative of a production run.”
The “register” in which the statutory criteria are interpreted and evidence considered
In considering whether certain goods fell within a Commercial Tariff Concession Order (CTCO) under the Customs Act and so were free of import duty, the High Court made a general comment regarding the interpretation of a CTCO. As a form of delegated legislation, the interpretation of a CTCO is governed by the rules of statutory interpretation. As such, the High Court decided in Collector of Customs v Agfa-Gevaert Limited[29] (Agfa-Gevaert) that:
“… the speech of Lord Simon of Glaisdale in Maunsell v Olins … [[1975] AC 373 at 391] is a useful starting point in determining the construction of the instruments. His Lordship said:
‘Statutory language, like all language, is capable of an almost infinite gradation of “register” – ie, it will be used at the semantic level appropriate to the subject matter and to the audience addressed (the man in the street, lawyers, merchants, etc). It is the duty of a court of construction to tune in to such register and so to interpret the statutory language as to give to it the primary meaning which is appropriate in that register (unless it is clear that some other meaning must be given in order to carry out the statutory purpose or to avoid injustice, anomaly, absurdity or contradiction). In other words, statutory language must always be given presumptively the most natural and ordinary meaning which is appropriate in the circumstances.’”[30]
[29] [1996] HCA 36; (1996) 186 CLR 389; 141 ALR 59; 43 ALD 193; 24 AAR 282; Brennan CJ, Dawson, Toohey, Gaudron and McHugh JJ
[30] [1996] HCA 36; (1996) 186 CLR 389; 141 ALR 59; 43 ALD 193; 24 AAR 282 at 398; 65-66; 199; 289
In the case of the CTCO considered in Agfa-Gevaert, Agfa-Gevaert had argued that it was impermissible to take account of the trade meaning of certain words in a composite phrase “silver dye bleach reversal process” but that it was permissible to rely on the technological background or context. The High Court rejected this submission saying:
“… However, there seems to be no good reason for denying trade usage a role in determining the meaning of distinct elements of composite phrases where the phrase, taken as a whole, does not have a trade meaning. In an appropriate case, and this is one, such knowledge enables courts and tribunals to tune into the most appropriate ‘register’ … for the purposes of statutory interpretation.
Agfa’s contention demonstrates the danger in relying on the strict rule of statutory interpretation of composite phrases which it seeks to propound. … Such a rigid rule of interpretation seems at odds with the ‘golden rule’ of interpretation propounded by Lord Simon of Glaisdale in Maunsell. …The CTCOs in dispute were addressed to a subject and an audience that was concerned with photographic film processing. That being so, a court or tribunal should strive to give the CTCOs the meaning that the audience would give them.”[31]
[31] [1996] HCA 36; (1996) 186 CLR 389; 141 ALR 59; 43 ALD 193; 24 AAR 282 at 400-401; 67; 200-201; 290-291 (citations omitted)
We have already mentioned that the TCO regime is intended to provide some protection to the Australian manufacturing industry. The Australian manufacturing industry works in an environment in which it meets a need for the manufactured goods that it makes. Therefore, the relevant “register” in which to apply the TCO regime is that of trade and commerce.[32] That means that the relevant “register” in which to consider the “use” to which goods are put, are capable of being put or can be put is that of trade and commerce. That is not to say that regard may be taken of whether a use is a sensible commercial use for we have already noted at [20] above that it cannot. What it is to say is that it is the “register” relevant in considering whether it is a reasonable use for, as the Full Court said in Toyota MHAPL, the potential uses are confined to those that are reasonable uses.
[32] See Nufarm Australia Ltd v Dow AgroSciences Australia Ltd (No 2) [2011] FCA 757 at [51] per Robertson J citing Collector of Customs v Agfa-Gevaert Limited [1996] HCA 36; (1996) 186 CLR 389 at 398-402
The case of Toyota MHAPL illustrates the point. It would not have been commercially sensible to acquire and then use a motorised Toyota rider-operated reach truck to stack shelves with goods weighing less than 1,200 kg at levels lower than five but they could be put to that use. That was a use to which a Crown pedestrian-operated rider-operated reach truck could be put and, indeed, would be limited to as it did not have the range and capacity of the motorised rider-operated reach truck. It was a use that was within the realm of what would be a reasonable use for a motorised Toyota rider-operated reach truck even though it might not be commercially sensible to buy it for that use when a cheaper option was available.
The Toyota MHAPL case also illustrates the point that the “use” to which goods can be put is identified with some degree of specificity. It was true that the Crown goods and the TCO goods in that case could both be used to carry goods and raise them to a height. At that level, both the Crown goods and the TCO goods could be put to the same use. The Federal Court, however, did not find that the Crown goods were substitutable goods on that basis but on the basis that they and the TCO goods could both be put to that use in a common set of circumstances based on the weight of the load and the limits to which they could elevate that load.
ISSUE FOR DETERMINATION
In its judgment, the Full Court of the Federal Court identified six steps that we must follow in resolving this issue:
“(1) Could the Australian producer have produced on the application day a good using its existing facilities which would have been substitutable for the goods the subject of the TCO application within the meaning of the definition of ‘substitutable goods’ in s 269B(1)?
(2)If yes, would the good be an item of capital equipment within the meaning of s 269B(1) and would it have been Australian made under s 269D?
(3)If yes to both questions in (2), would the good have been made on a one-off basis as a result of a specific order, rather than being the subject of regular or intermittent production (s 269E(3)(a))?
(4)If yes, would the good be produced in quantities which were not indicative of a production run (s 269E(3)(b))?
(5)If yes (at which point both s 269E(2)(a) and (b) would be satisfied), has the producer made goods within the last two years requiring the same labour skill etc as the substitutable goods which it could have made (s 269E(2)(c))?
(6)If yes, is the producer prepared to accept an order to supply the hypothetical good (s 269E(2)(d)?”[33]
[33] [2015] FCAFC 185 at [81]
A concession has been made on behalf of the Comptroller-General. It has been variously described. In our earlier reasons, we described it in this way:
“ Before the hearing of Vestas’ application for review of the reconsidered decision, the CEO conceded that Hofmann Engineering has not produced substitutable goods but maintained that alternative basis for his decision founded on s 269E(2). We have decided that the deeming provisions s 269E(2) relate only to the question whether goods that are substitutable goods in relation to the goods that are the subject of a TCO application (TCO goods) have been produced in Australia in the ordinary course of business. They do not deem substitutable goods to have been produced in Australia in the ordinary course of business when there have been none. Therefore, the CEO’s concession that no substitutable goods have been produced in Australia means that the condition specified in s 269E(2)(a) cannot be met and no substitutable goods are deemed to have been produced in Australia in the ordinary course of business. It also means that the core criteria specified in s 269C have been met and the CEO is required by s 269P(3) to make a written TCO”.[34] (emphasis added)
“ Later, the CEO conceded that gear boxes such as these and any others manufactured by Hofmann Engineering either currently or in the past are not substitutable goods in the context of the TCO application. His argument is that this is of no consequence for s 269E(2) is a deeming provision and does not require there to be, or to have been, actual production of substitutable goods in Australia. …”[35] (emphasis added)
[34] [2015] AATA 348 at [3]
[35] [2015] AATA 348 at [20]
It is this latter description of the concession that was adopted by the Full Court.[36] We have gone back to the transcript of the first hearing to find the precise words that Mr Northcote used to frame the then Chief Executive Officer of Custom’s concession. They were:
“… [W]e concede that substitutable goods have not been made in Australia, not actually made. …”[37] (emphasis added)
[36] [2015] FCAFC 185 at [77]
[37] Transcript 26 March 2015 at 269
In view of the definition of “substitutable goods”, that means that the Comptroller-General has conceded that, as at 14 August 2012 when Vestas lodged its TCO application, no goods had been made in Australia that were put, or capable of being put, to a use that corresponds with a use to which the TCO goods can be put. Therefore, it is common ground between the parties that no substitutable goods are taken to be produced in Australia in the ordinary course of business by reason of ss 269E(1) and 269D.
The Comptroller-General’s concession means that the only issue for determination is whether, on 14 August 2012, there were substitutable goods that are taken to be produced in Australia in the ordinary course of business by reason of ss 269E(2) and 269D. That issue is to be resolved in relation to hypothetical goods.
EXPERT EVIDENCE
The submissions
The Comptroller-General has relied, in part, on the evidence of Professor Ian Howard, who is Professor of Mechanical Engineering at Curtin University and who has written two reports. One is dated 14 November 2014 and the other dated 20 December 2016. Professor Howard has been put forward by the Comptroller-General as an expert on the issues that we must decide. On behalf of Vestas, Mr Davies QC with Mr Slonim of counsel submitted that Professor Howard’s specialised knowledge is not relevant to the issues in dispute and his reports do not disclose any reasoned basis for his opinion and conclusions. In light of that and of authorities such as Dasreef Pty Limited v Hawchar[38] (Dasreef), King v Jetstar Airways Pty Ltd[39] and HG v The Queen,[40] his evidence cannot be accepted as opinion evidence as it does not meet two principal criteria. They are that:
(1)the evidence is given by a witness who has specialised knowledge that is relevant to an issue in dispute; and
(2)the opinion must be wholly or substantially based on that knowledge; and
(a)the opinion must be presented in a form which makes it possible for a court or tribunal to decide whether that is so.
[38] [2011] HCA 21; (2011) 243 CLR 588; 277 ALR 611; French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ
[39] [2011] FCA 1259; Robertson J
[40] [1999] HCA 2; (1999) 197 CLR 414; 160 ALR 554; Gleeson CJ, McHugh and Hayne JJ; Gaudron and Gummow JJ dissenting
The issues that Professor Howard was asked to address both focus on the production, from scratch, of a 3MW wind turbine gear box. “Production” includes its design as well as the manufacturing process and testing of the finished product. Professor Howard had acknowledged his lack of familiarity with these necessary aspects of production and his relevant academic expertise is limited to the design and vibration characteristics of gears. His only publication of relevance to the issues that he must decide is entitled “Wind Turbine Gearboxes. Report to Australian Customs and Border Protection Services 2014, 2015”.[41] In developing the submission Mr Davies and Mr Slonim referred to the evidence to which we will return.
[41] Ex 6, Attachment A at 16
On behalf of the Comptroller-General, Mr Millea did not address this issue directly. Rather, he relied on Professor Howard’s experience as set out in his Curriculum Vitae and his experience with Sikorsky Helicopters which have gearboxes that must meet demands similar to those that must be met by wind turbine gearboxes. Mr Millea also submitted that Professor Howard:
“… has visited Hofmann Engineering and seen their facilities over a period of 20-odd years. I think it’s fair to say that the approach that he has taken is to look at, in a global sense, all the skillsets, all the facilities that Hofmann Engineering have, or had at the relevant date, and all the goods that he has looked at and referenced in his reports that have actually been made by Hofmann Engineering, all the design and calculations that he has observed, he’s aware that this is a company which is experienced gearbox manufacturers, and he’s used that global knowledge to form an opinion as to the ability of Hofmann Engineering to product the three megawatt wind turbine gearbox.”[42]
[42] Transcript at 285-286
Mr Millea challenged the evidence of Mr Weir as not being that of an expert. He submitted that Mr Weir’s experience with gearboxes in general and wind turbine gearboxes in particular is extremely limited. He has neither academic nor research experience with wind turbine gearboxes. Mr Weir’s experience is limited to teaching third year undergraduate engineering students on three occasions. He has never visited Hofmann Engineering’s premises at Bassendean in Western Australia. Unlike Professor Howard, who has visited those premises on many occasions over the last 20 years or so, Mr Weir can only give an opinion based on documents provided to him by Vestas and not based on actual observation. Mr Millea further developed his submission pointing to errors and misunderstandings Mr Weir is said to have made.
Consideration
A. Role of expert witness
We will first consider the role of an expert witness for it is relevant in our understanding the parameters within which we may consider the evidence given by such a witness. Before we do that, we acknowledge that an expert witness may play a role in a proceeding that does not require him or her to give evidence. A party engaged in litigation or in a matter that may lead to an application to this Tribunal or that has already led to an application may approach an expert in some field or another for various reasons. Those reasons will ultimately be related to the facts in dispute or potentially in dispute whether it is determining what they are or understanding them. An expert may advise a party and his or her legal advisers during a hearing, comment on the evidence or suggest issues that they may wish to pursue during cross-examination of witnesses called by the other party or to pursue in some other way. They are among the legitimate roles of an expert[43] as is the more administrative role of managing documentary information.[44]
[43] See generally, Expert Evidence, Law, Practice, Procedure and Advocacy, Freckelton and Selby, 3rd edition, 2005, Lawbook Co, Sydney at 4-10
[44] Australian Securities and Investments Commission v Rich [2005] NSWSC 149; (2005) 190 FLR 242; at [119]; 271 per Austin J
If an expert is to be called to give evidence or if an expert’s opinion is to be tendered in evidence, the expert’s role changes. Independence and objectivity become essential. The expert becomes a witness who may be approached by either party before any hearing takes place. The expert must not favour either party or be an advocate for either. It can be expected that the expert will be an advocate for his or her own opinion in the sense that he or she will be expected to explain it, expand upon it and justify it but not to the extent that he or she has a closed mind.
It is not an expert’s role to engage in fact finding. His or her opinion will have been formed on the basis of the material and information provided by the person requesting the opinion. It naturally follows that he or she will bring his or her expertise to analyse different or varied material and information when presented with it. This was described by Sperling J in Elliott v Ivey:
“The capacity of a professional person to give an opinion based on an exclusionary set of assumptions is implicit in this process [of examination and cross examination]. The implication is reasonable because professional men and women are accustomed to forming opinions on assumed facts in the course of their ordinary professional work. It is part of their stock in trade, developed by training and by experience in the practice of their profession.
Thus it is that an expert witness has a much more limited role than that of a solicitor acting for a client. In particular, expert witnesses are not bound to use all information they might previously have obtained. On the contrary, expert witnesses are bound to confine their attention to specified factual assumptions which are made known to the court. The opinion is then only as good as the assumptions are established by evidence to be correct.”
Where an expert has been required to undertake an examination and come to his or her own opinion as to the relevant material or information, or some of it, the expert witness may then become a witness of fact on that particular issue.[45] That aside, however, the position is no different from any other expert witness who has not made his or her own investigations. A situation of this sort might arise in the case of a medical expert who might have examined a plaintiff or applicant who is claiming damages or compensation in respect of an injury. It might happen in the case of a structural engineer engaged by a party involved in a claim arising from a building said to have been built in a way that did not comply with the relevant building code. That he or she has done so does not relieve an expert of the obligation to put aside any conclusions he or she might have reached as a result of such an examination and bring his or her expertise to bear on a different factual hypothesis and to express an opinion. To do otherwise is to become an advocate for his or her own opinion.
[45] Elliott v Ivey [1998] NSWSC 116 per Sperling J
B. The opinion rule and the expert evidence exception
Putting aside various exceptions to it, the general position, or opinion rule, is that:
“Evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed.”[46]
[46] Evidence Act 1995; s 76(1)
The evidence of an expert is necessarily evidence of an opinion held by that expert i.e. evidence of “a belief or judgement which seems likely to be true, but which is not based on proof …”[47] or “a conclusion, usually judgmental or debatable, reasoned from facts”[48] and as “an inference from observed and communicable data”.[49] If the general rule were to apply, that evidence would not be admissible. There are, however, exceptions to the rule. One of them is found in s 79(1) of the Evidence Act 1995 which provides:
“If a person has specialised knowledge based on the person’s training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge.”
[47] Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers
[48] RW Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd (1991) 34 NSWLR 129 at 130 per Giles J
[49] Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73 at 75 per Lindgren J citing JH Chadbourn (ed), Wigmore on Evidence (1978), Vol 7, par 1917.
In analysing these provisions, the High Court considered the framework established by the opinion rule and the exception created by s 79(1) to it in Dasreef:
“ Section 76(1) expresses the opinion rule in a way which assumes that evidence of an opinion is tendered ‘to prove the existence of a fact’. … It does not confine an expert witness to expressing opinions about matters of ‘fact’. Rather, the opinion rule is expressed as it is in order to direct attention to why the party tendering the evidence says it is relevant. More particularly, it draws attention to the finding which the tendering party will ask the tribunal of fact to make. In considering the operation of s 79(1) it is thus necessary to identify why the evidence is relevant: why it is ‘evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding’ …. That requires identification of the fact in issue that the party tendering asserts the opinion proves or assists in proving.
To be admissible under s 79(1) the evidence that is tendered must satisfy two criteria. The first is that the witness who gives the evidence ‘has specialised knowledge based on the person’s training, study or experience’; the second is that the opinion expressed in evidence by the witness ‘is wholly based on that knowledge’. …”[50]
[50] [2011] HCA 21; (2011) 243 CLR 588; 277 ALR 611 at [31]-[32]; 602-603; 620-621 per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ
The position stated in the Evidence Act is consistent with the position at common law as explained by Gaudron J in HG v The Queen:[51]
“…The position at common law is that, if relevant, expert or opinion evidence is admissible with respect to matters about which ordinary persons are unable ‘to form a sound judgment … without the assistance of [those] possessing special knowledge or experience … which is sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience’.”[52]
[51] (1999) 197 CLR 414; 160 ALR 554 at 427; 566
[52] HG v The Queen (1999) 197 CLR 414; 160 ALR 554 at 432, 566; [58] quoting from a judgment of King J in R v Bonython (1984) 38 SASR 45 at 46-47 and see also Clark v Ryan [1960] HCA 42; (1960) 103 CLR 486 at [4]; 491 per Dixon CJ adopting the notes by JW Smith to Carter v. Boehm 1 Smith L.C., 7th ed. (1876) p. 577
C. Identifying an expert
Before a decision can be made as to whether a witness has specialised knowledge of a sort that will bring it within an exception to the opinion rule, it is clear from Dasreef that the fact in issue to which it is directed must be identified. Only then can thought be given to whether a person has specialised knowledge relevant to that issue. Whether or not a specialised field of knowledge or knowledge exists is a question that must be answered first:
“In determining whether or not there is, or is not, a field of knowledge which requires expert assistance, the judge is to a large extent involved in an exercise of personal judgment, for which authority provides little help: see per Blackburn J in Millirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 at 160.”[53]
[53] R v Bartlett [1996] 2 VR 687 at 695 (Vic CA) per Winneke P
The plurality in Dasreef emphasised the need to look to the language of the Evidence Act in the first instance rather than to be distracted by general statements made in earlier cases under the common law and without regard to the context. Their Honours continued:
“… Accepting that to be so, it remains useful to record that it is ordinarily the case, as Heydon JA said in Makita … [Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at 743-744 [85]], that ‘the expert’s evidence must explain how the field of “specialised knowledge” in which the witness is expert by reason of “training, study or experience”, and on which the opinion is “wholly or substantially based”, applies to the facts assumed or observed so as to produce the opinion propounded’. The way in which s 79(1) is drafted necessarily makes the description of those requirements very long. But that is not to say that the requirements cannot be met in many, perhaps most, cases very quickly and easily. That a specialist medical practitioner expressing a diagnostic opinion in his or her relevant field of specialisation is applying ‘specialised knowledge’ based on his or her ‘training, study or experience’, being an opinion ‘wholly or substantially based’ on that ‘specialised knowledge’, will require little explicit articulation or amplification once the witness has described his or her qualifications and experience, and has identified the subject matter about which the opinion is proffered.”[54]
[54] [2011] HCA 21; (2011) 243 CLR 588; 277 ALR 611 at [37]; 604; 622
The issue is not always so easily resolved and this was illustrated by the case of Dasreef itself. The issue was whether Mr Hawchar’s employer was liable for his contracting silicosis from exposure to silica dust. Under s 25(2) of the Dust Diseases Tribunal Act 1989 (NSW), evidence was not admissible before the Dust Diseases Tribunal (DDT) if it would not have been admissible in proceedings in the Supreme Court. The DDT admitted evidence of the opinion of a person qualified as a chartered accountant and professional engineer of the likely level of silica dust in the employee’s breathing zone. The plurality of the High Court said:
“ In order for Dr Basden to proffer an admissible opinion about the numerical or quantitative level of Mr Hawchar’s exposure to silica dust it would have been necessary for the party tendering his evidence to demonstrate first that Dr Basden had specialised knowledge based on his training, study or experience that permitted him to measure or estimate the amount of respirable silica to which a worker undertaking the relevant work would be exposed in the conditions in which the worker was undertaking the work. Secondly, it would have been necessary for the party tendering the evidence to demonstrate that the opinion Dr Basden expressed about Mr Hawchar’s exposure was wholly or substantially based on that knowledge.”[55]
[55] [2011] HCA 21; (2011) 243 CLR 588; 277 ALR 611 at [35]; 603-604; 621
The plurality then considered Dr Basden’s evidence against this standard:
“ Dr Basden gave evidence of his training, study and experience. He did not give evidence asserting that his training, his study or his experience permitted him to provide anything more than what he called a ‘ballpark’ figure estimating the amount of respirable silica dust to which a worker using an angle grinder would be exposed if that worker was using it in the manner depicted in the photograph of Mr Hawchar or a video recording Dr Basden was shown. Indeed, in his written report, Dr Basden had pointed out that he had seen the use of an angle grinder in this way only once before. And he gave no evidence that he had then, or on any other occasion, measured directly, or sought to calculate inferentially, the amount of respirable dust to which such an operator was or would be exposed.
There was in the circumstances, no footing on which the primary judge could conclude that a numerical or quantitative opinion expressed by Dr Basden was wholly or substantially based on specialised knowledge based on training, study or experience.
…
A failure to demonstrate that an opinion expressed by a witness is based on the witness’s specialised knowledge based on training, study or experience is a matter that goes to the admissibility of the evidence, not its weight. … And if … his opinion on that matter lacked reasoning, the absence of reasoning pointed (in this case, inexorably) to the lack of any sufficient connection between a numerical or quantitative assessment or estimate and relevant specialised knowledge.
Dr Basden’s evidence was not admissible to found the calculation made by the primary judge of the level of respirable dust to which Mr Hawchar was exposed.”[56]
[56] [2011] HCA 21; (2011) 243 CLR 588; 277 ALR 611 at [39]-[43]; 604-605; 622-623
D. Rules of evidence do not apply in the Tribunal but remain relevant
The Evidence Act applies to all proceedings in a “federal court”.[57] Section 3 and the Dictionary in the Schedule to the Evidence Act gives an expanded definition to the expression “federal court”. It “… includes a person or body (other than a court or magistrate of a State or Territory) that, in performing a function or exercising a power under a law of the Commonwealth, is required to apply the laws of evidence”. The Tribunal is not such a body because s 33(1)(c) of the Administrative Appeals Tribunal Act 1975 (AAT Act) provides, “The Tribunal is not bound by the rules of evidence and may inform itself on any matter in such manner as it thinks appropriate.” That is consistent with the Tribunal’s being an administrative body and part of the Executive arm of government under the Australian Constitution rather than part of the judicial arm as are the federal courts.
[57] Evidence Act; s 4(1)
Not being bound by the rules of evidence does not equate with an obligation not to have regard to them. It is always open to the Tribunal to have regard to them and it often does so for, in many cases, its essential task differs little from that of a court. That is so even though one or other of the parties in a court proceeding will carry a burden of proof and, in most proceedings in the Tribunal, including this, neither party does so. The Tribunal’s task is not altered by the fact that it may ultimately be required to make a discretionary decision. The path to any discretionary decision must be one that takes account of the range of decisions that may be correctly made having regard to the law and the evidence.
Both a court and the Tribunal must ascertain and apply the law. Both may take evidence on oath or affirmation.[58] Both must make findings on material questions of fact referring to the evidence or other material on which those findings were made. Both must generally give reasons for their decisions. The basis of their doing so differs but the difference in those bases makes no difference to their roles and functions. The Tribunal has obligations based in statute either expressly[59] or impliedly but not generally at common law whether in its duty to act with procedural fairness or otherwise.[60] For a court:
“… there have been many cases… in which it has been held that it is the duty of a judge or magistrate to state his reasons. That does not mean that a judicial officer must give his reasons in every case; it is clear … that there is no ‘inflexible rule of universal application’ that reasons should be given for judicial decisions. Nevertheless, it is no doubt right to describe the requirement to give reasons … as ‘an incident of judicial process’, subject to the qualification that it is a normal but not universal incident….”.[61]
[58] AAT Act, s 40(1)(a)
[59] AAT Act, s 43(2B) and see also the Administrative Decisions (Judicial Review) Act 1977, s 13
[60] Public Service Board of NSW v Osmond [1986] HCA 7; (1986) 159 CLR 656 at 662 per Gibbs CJ, with whom Wilson, Brennan and Dawson JJ agreed and 675-676 per Deane J and approved in Wainohu v New South Wales [2011] HCA 24; (2011) 243 CLR 181; 278 ALR 1; 85 ALJR 746 at [92]; 225 per French CJ and Kiefel J and at [155]; 241; 783 per Heydon J
[61] Public Service Board of NSW v Osmond [1986] HCA 7; (1986) 159 CLR 656 at 666-667 per Gibbs CJ (citations omitted) and see general discussion in Wainohu v New South Wales [2011] HCA 24; (2011) 243 CLR 181; 278 ALR 1; 85 ALJR 746 at [54]-[59]; 213-215; 766-767 per French CJ and Kiefel J
Whether undertaken by a court or by the Tribunal, the ultimate outcome of the consideration must be based on relevant and probative material whether it is described as “evidence”, “evidentiary material” or material generally. As Deane J, with whom Evatt J agreed, said in Minister for Immigration and Ethnic Affairs v Pochi[62] when referring to the duty of a tribunal to make decisions based on evidence reasonably capable of sustaining those decisions:
“… the requirement that findings of material fact of a statutory tribunal must ordinarily be based on logically probative material and the requirement that the actual decision of such a tribunal must, when relevant questions of fact are in issue, ordinarily be based upon such findings of material fact and not on mere suspicion or speculation. Those requirements, like all the ordinarily applicable rules of natural justice, may be modified or abolished by the express words or intendment of the legislation establishing the tribunal or conferring jurisdiction upon it …”[63]
[62] [1980] FCA 85; (1980) 44 FLR 41; 31 ALR 666; 4 ALD 139; Smithers, Evatt and Deane JJ
[63] Minister for Immigration and Ethnic Affairs v Pochi [1980] FCA 85; (1980) 44 FLR 41; 31 ALR 666; 4 ALD 139 at [24]; 67-68; 690; 160 as per Deane J
The rules of evidence, whether in the Evidence Act or developed by common law before its enactment have been developed over many years as a means of testing whether material put forward in support of a party’s case may be regarded as safe to rely on as relevant and probative of the issue it is said to be directed to. This approach sits side by side with the Tribunal’s duty to accord procedural fairness to the parties or, as it has been described from time to time, to act according to substantial justice. Justice Evatt in R v War Pensions Entitlement Appeal Tribunal; ex parte Bott[64] considered the correlation between the rules of evidence and the former War Pensions Entitlement Appeal Tribunal’s duty to act “according to substantial justice”[65] and said:
“… Some stress has been laid by the present respondents upon the provision that the Tribunal is not, in the hearing of appeals, ‘bound by any rules of evidence.’ Neither it is. But this does not mean that all rules of evidence may be ignored as of no account. After all, they represent the attempt made, through many generations, to evolve a method of inquiry best calculated to prevent error and elicit truth. No tribunal can, without grave danger of injustice, set them on one side and resort to methods of inquiry which necessarily advantage one party and necessarily disadvantage the opposing party. In other words, although rules of evidence, as such, do not bind, every attempt must be made to administer ‘substantial justice.’”[66]
[64] [1933] HCA 30; (1933) 50 CLR 228
[65] The AAT Act does not impose a duty upon the Tribunal in those terms but s 2A imposes upon it an obligation requiring it, in part, to “… pursue the objective of providing a mechanism of review that is fair,[and] just …” among other qualities. Pochi [1980] FCA 85; (1980) 44 FLR 41; 31 ALR The difference in expression, I suggest, does not lead to a difference in obligation.
[66] [1933] HCA 30; (1933) 50 CLR 228 at 256
E. Professor Howard
At the request of the Comptroller-General, Professor Howard made two written statements with one dated November 2014[67] and the other 20 December 2016.[68] He was asked to address a number of specific questions. Three of the questions directly aligned with the issues that we must decide being:
“1. Has Hofmann Engineering manufactured one or more goods that are ‘made-to-order-capital equipment’ in the 2 years before 14 August 2012 that require the same labour skills, technology and design expertise as is required to manufacture a good that is substitutable for the 3MW wind turbine gear box described in the TCO?
2.Could Hofmann Engineering as at 14 August 2012 produce a substitutable good for the TCO goods using the existing facilities?
3-17…
18.Assuming that Hoffman Engineering has the same labour skills, technology, design expertise and facilities as inspected by you in October 2014, in your opinion did Hofmann Engineering have the capacity to manufacture a wind turbine [gear box] that is substitutable for a 3MW wind turbine gear box as described in the Tariff Concession Order.”[69]
[67] Exhibit 6
[68] Exhibit 9
[69] Exhibit 6; Letter of Instructions at 4-5
The remaining 15 questions are addressed to particular aspects such as what a gearbox does, the differences between a wind turbine gearbox and other gearboxes including a gearbox used in a Ball Mill, design differences between a wind turbine gearbox producing less than 3MW and another producing more than 3MW, whether a manufacturer must possess any of the certifications listed in the TCO in order to manufacture a wind turbine gearbox in Australia and so on. Professor Howard was invited to visit Hofmann Engineering’s premises, to attach other material necessary to illustrate or support his opinions or to make additional comments as he considered appropriate.
E.1Professor Howard’s specialised knowledge based on his training, study or experience
Attached to Professor Howard’s report was his CV outlining the positions that he has held since completing his undergraduate degree - BE (Hons) – in 1983. They had culminated in his being Associate Professor of Mechanical Engineering at Curtin University from 2004 to the date of his first report. Since December 2016, he has been appointed Professor Mechanical Engineering at the same University. Professor Howard’s Honours thesis had been entitled “Vibration Control in Pipes” and he continued his studies in his doctoral thesis that he submitted on 30 July 1987. It was entitled “A transfer function technique for the prediction of the vibration characteristics of beam-like structures”. His post-doctoral research has also involved investigation of noise and vibration generation in rolling element bearings. While working at the Aeronautical Research Laboratory between 1988 and 1994, Professor Howard worked on the diagnosis and prognosis of seeded faults in an epicyclic gearbox for signal averaging, the detection of bearing deterioration within helicopter transmissions using vibration analysis and a major review of bearing vibration monitoring. Between 1991 and 1993, he worked as a visiting senior scientist at Technology Integration Inc with prime responsibility for the investigation and application of advanced signal processing techniques for bearing fault detection on the SSME High Pressure Oxygen Turbopump. Professor Howard has also published a number of refereed journal articles and presented refereed conference papers regularly since 1986.
In 1987, Professor Howard was engaged by Sound and Vibration Technologies. That company undertook a consultancy for Hofmann Engineering and, as a consequence, Professor Howard was sent to Hofmann Engineering’s premises to undertake a vibration analysis. He attended the premises on five occasions in order to carry out that work but has not undertaken any other consultancy work for Hoffman. Some of his former students have gone on to work for Hofmann Engineering in designing gears.
Professor Howard agreed that he had never been involved in commercial manufacture but said that, over his academic career, many of his students’ projects had involved manufacturing.[70] He himself has never worked for a manufacturing company. Professor Howard said that he had been involved in the manufacture of gearboxes and cited two examples. The first was manufactured for the purpose of the gearbox test rig he used to undertake vibration analysis of a gearbox. He oversaw the requirements of the test bed and then undertook the vibration analysis. Another academic who was a mechanical design expert at Curtin University designed the gearbox and it was sent out to a manufacturer outside the University to be manufactured. Professor Howard thought that it was sent to Hoffman for manufacture. Professor Howard’s second example related to his research on torsional stiffness of gears. He recalled having plastic gears manufactured as well as steel and aluminium gears but could not recall if they were manufactured using the University’s in-house resources or externally.[71]
[70] Transcript 25 March 2015 at 187 and see also Transcript 22 February 2017 at 165
[71] Transcript 22 February 2017 at 165-166
Professor Howard stated that many of his students had undertaken projects requiring the manufacture of test rigs and the University’s expert machine capability was often utilised. In so far as design is concerned, Professor Howard said that he has supervised students who have successfully designed a heavy application gearbox.[72] One of his Masters students has designed a 2MW wind turbine gearbox in 2010-2011 but it has not been put into production. It was not intended for manufacture and, in that research, Professor Howard had not been focused on the gearbox housing or on the interface between the gearbox and the rest of the turbine.[73] If the end view of the research had been to manufacture a gearbox, the student would have been required to address, as a minimum, the requirements or standards related to the gear casing as well as the gears themselves.[74]
[72] See also Transcript 25 March 2015 at 209-210
[73] Transcript 22 February 2017 at 165-166 and Transcript 22 February 2017 at 167-168
[74] Transcript 22 February 2017 at 167-169
Professor Howard did not have direct knowledge of anyone who had successfully transitioned from a heavy application to a wind turbine application.[75] He himself had not designed a wind turbine gearbox of any size through to manufacture. He said that he had “done some design work” and had designed a small non-wind turbine gearbox to manufacture.[76] In his opinion, refurbishment or repair of a gearbox is more difficult than its initial design. That follows from the fact that the repairer has first to understand the initial design, then work out what caused it to fail and then improve the operational mode that caused it to fail. Even with the original design drawings and other materials, it is more difficult to do that than to design from scratch, Professor Howard said.[77]
[75] Transcript 25 March 2015 at 209-210
[76] Transcript 25 March 2015 at 202
[77] Transcript 25 March 2015 at 202
At the second hearing, Professor Howard referred to students whom he had supervised or was supervising in relation to their PhD theses. One had graduated. He had completed his PhD in experimental work focusing primarily on the influence of transient effects from airflow on to wind turbine blades and the resulting impact and effect through the main shaft and associated bearing supports for the gearbox. That required the student to measure matters such as blade strain and shaft deflection with the use of various measuring devices.
A second student is yet to complete his thesis. He is examining finite element modelling of a whole wind turbine system and how loads are transferred from the blades to the main shaft through to the tower. Primarily, he is engaged in finite element modelling work.[78] That reflects one of Professor Howard’s special interests in the development of improved monitoring procedures for wind turbines. A third PhD student is exclusively focused on finite element modelling of wind turbine gear systems and, in particular, of planetary gear systems. That involves an extensive analysis of the non-linear effects of the gears meshing together, the meshing of the gear to the planet and the planet to the ring gear as well as the effect of load. As the gearbox vibrates, the centre of pressure of the meshing gears can change. Professor Howard and the student have developed a non-linear iterative procedure for stimulating that.
[78] Transcript 22 February 2017 at 152, line 47 records Professor Howard as saying that his student is engaged in “… primarily fine element modeling work” but we understand the reference to be to “finite” rather than “fine”.
Professor Howard also referred to two further students who are looking at the control of behaviour of a wind turbine system. Control is necessary to ensure control of the generator frequency. As wind speed increases, torque increases with an accompanying need to change the control point to ensure that the same frequency of electricity is generated. That is a control research thesis.
E.2 Professor Howard’s reports
We refer below to the evidence given by Professor Howard. At this stage, we refer only to his first report in which he replied in the affirmative to the first question he was asked about whether Hofmann Engineering had manufactured ‘made-to-order-capital equipment’ in the 2 years before 14 August 2012 requiring the same labour skills, technology and design expertise as those required to manufacture a good that is substitutable for the 3MW wind turbine gearbox described in the TCO. He referred to his broader discussion at section 11 of his first report where he identified three made-to-order gearboxes that Hoffman had manufactured in the relevant two year period. They were:
“a) 7.5 MW,
3[2][79] stage reduction gearbox for a ball mill application. Two gear drives per assembly, providing a total of 14 MW. Non planetary design where each gearbox was 2 stage but including the girth gear (fitted on the mill) it would be considered a 14 MW 3 stage twin drive gearbox. Attached is a drawing of that that 7.5 MW stage reduction gear box, [2,15].b)2.5 MW Conveyor Drive gearbox for Alcoa. Purchase order and delivery.
2 stage gearbox, non planetary, full design and manufacture. Purchase order sighted, September 2011 [2].c)548 KW Wind turbine gearbox for Windflow NZ.
Two sets manufactured. [Repair and upgrade for two sets.] [80] High precision design having 6 planet gears, flex-pin planet carrier design to minimise misalignment and increase load share equalisation, including a 500 kW hydraulic pump to allow for slippage to minimise the risk with torque transient spikes caused by wind gusts. Integrated main bearing. Drawing provided [1] and discussed during visit [2]. Attached is a copy of that drawing of the Integrated main bearing [15]. Design validated and rated for certification purposes.d)
1.2 MW Tidal Turbine for Atlantis Resources. Full design and manufacture. Delivered mid 2010. I am not sure of the exact date and may have been shortly before or after 15 August 2010. Operation at 30 m submerged depth. Planetary stage. Drawing provided [1] and discussed during visit [2] Attached to this report is a copy of the drawing of the 1.2 MW Tidal Turbine gearbox [15].[81]”[82][79] Corrected in Professor Howard’s second statement dated December 2016: Exhibit 9 at 2
[80] Corrected in Professor Howard’s second statement dated December 2016: Exhibit 9 at 2
[81] Removed from list as the delivery date was April 2010 after Professor Howard gave evidence at hearing on 25 March 2015: Professor Howard’s second statement dated December 2016: Exhibit 9 at 2.
[82] Exhibit 6 at 11
Professor Howard also referred to a fourth item that had been designed and manufactured before August 2010 but that he had included:
“… to demonstrate the long standing sophisticated design and manufacturing expertise that has been available at Hoffman’s.
e)2.5 MW Universal Dig and Dump Dragline gearbox including an integrated slew bearing This included the full design and manufacture. 3 stage reduction gearbox. 2 gearboxes delivered, 2001. Drawing sighted and discussed during visit, [2]. Attached to this report is a copy of the drawing of the 2.5 MW Universal Dig and Dump Dragline gearbox [15].
In my opinion Hofmann Engineering manufactured one or more goods that are ‘made-to-order-capital equipment’ in the 2 years before 14 August 2012 that require the same labour skills, technology and design expertise as is required to manufacture a 3 MW wind turbine gear box as described in the TCO.”[83]
[83] Exhibt 6 at 10
The references to “[1]” are references to the Comptroller-General’s letter of instructions to Professor Howard and those marked “[2]” are to visits to Hofmann Engineering’s premises at Bassendean, which he said at the earlier hearing lasted for three hours. At that meeting, Professor Howard had met first with Mr Rico Nowak and Mr Eckhard Bremer and they had been joined later by Mr Erich Hofmann. Those gentlemen gave him all or most of the information that he received during that visit.[84] Mr Hofmann is the Managing Director of Hofmann Engineering. Mr Nowak was first Hofmann Engineering’s Design Engineer from May 2007 and then, since May 2009, its Design Manager. He has a Degree in Mechanical Engineering from the Technical University in Dresden in Germany and, before joining Hofmann Engineering, worked for Flender AG in Germany in, among other duties, designing planetary gear units. Mr Bremer has been Hofmann Engineering’s Chief Financial Officer since 3 May 2010.
[84] Transcript 25 March 2015 at 177
The reference to “[15]” is a reference to “Correspondence with Rico Nowak, Hofmann Engineering and associated documentation, 7th November 2014”.[85] That correspondence took the form of an email exchange between Professor Howard and Mr Rico Nowak. Omitting the references to downloadable documents attached to Mr Nowak’s response and showing the remaining text of the response in unitalicised font, the exchange read:
[85] Exhibit 6 at 15
“As per the attached draft report I am assembling for Customs, I have been asked to provide specific evidence to support assertions I have made, based on my visit to Hofmann Engineering last week. I know several documents were shown to me during the visit, that could be utilised. If you have particular documents on the following, could you please send me a scanned copy. It doesn’t need to be the full document, but should include dated drawings or the like. If you have further questions, please let me know.
i.Section 9 – Hoffman Wind Turbine Gearbox Design Expertise
a.20 kW wind turbine system at Rottnest – no data found, probably archived
b.2008 review and redesign of a VESTAS 3 MW wind turbine gearbox - …
c.Evidence of VESTAS wind turbine gearbox redesign and rebuilds over period 2006 – 2010 – not required as discussed
d.Vestas certification and audit 2010. (I note the Vestas approved vendor logo appears on the web page. Why is that web page dated 2008?) QA department is still looking for the certificate, unfortunately there was a complete change in staff. However we were able to find the Management Meeting Minutes from 2010. QA Manage Frank Sonntag mentioned a Vestas Audit Rating of 83%. Please refer to … In regards to the date on the web page I believe it is the creation date. I’ll pass it on to our IT department, Thanks for the advice.
e.Gear design experience at Hofmann’s. Erich (28 years), Rico (8 years). Could you please send the CV’s. - …
f.Supporting gear design staff at Hoffman Engineering. Can you provide documentary evidence of these. - …
g.Gear software TBK and Kissoft – what versions did you have running in 2010 -2012. TBK (DOS version from 1992; Windows version from 2001); Kissoft (04/2010) with regular updates; current version 03/2014E)
ii.Section 10 – Hofmann Engineering Manufacturing Capability
a.Integrated planet bearing races – evidence, or dated drawing of 2008 manufacture …
iii.Section 11 – Hoffman Engineering ‘Made to order’ Manufacture in Prior 2 years
a.7.5 MW, 3 stage gearbox for ball mill application – can you please provide a dated drawing …
b.2.5 MW conveyor drive gearbox for Alcoa – please provide a dated drawing …
c.2.5 MW UDDD gearbox, 2001 delivery – can you please provide a dated drawing …”[86]
[86] Exhibit N
Second, we note that the evidence in the Job Progress Reports relating to, among other items, materials, show the source of some items as “PurStk” or “PurNStk”. Other items have a number against them. That may suggest that they have been manufactured by Hofmann Engineering but the references to “PurStk” or “PurNStk” suggest that they may have been purchased. We do not have evidence on which to make a finding on this matter and note that it arises in the case of the two goods that Mr Bremer has assessed as having 0% of imported content as well as that, being the 2.5MW gearbox, which he has assessed as having 8%. The only difference between the 2.5MW gearbox and the other two goods is that the extracts of the Job Progress Report that we have been given is that it also refers to “ManNStk” in addition to “PurNStk”. There is no reference to “PurStk” but the reference to “ManNStk” suggests that it is a reference to stock manufactured by Hofmann Engineering. If we are correct in thinking that as “PurStk” or “PurNStk” is a reference to components acquired by Hofmann Engineering for those jobs, there is no evidence of the source from which they were purchased or whether they could be regarded as “Australian materials”.
It follows that, on the evidence that we have, we are not satisfied that not less than ¼ of the factory or works costs of the hypothetical goods would have been represented by the sum of the value of Australian labour, Australian materials and the factory overhead expenses incurred in Australia in respect of the goods.
Answer to question posed by Step Two
In view of our findings, our answer to the question posed in Step Two is that we are not satisfied that the hypothetical good would have been wholly or partly manufactured in Australia.
STEP THREE:
Question:Would the goods have been made on a one-off basis as a result of a specific order, rather than being the subject of regular or intermittent production within the meaning of s 269E(3)(a)?
Answer:No.
Vestas’s position is that, had Hofmann Engineering manufactured a gearbox for a 3MW wind turbine as at 14 August 2012, its production would have been the subject of regular or intermittent production. It refers to the demand for gearboxes that existed in Australia at the time and to Mr Hofmann’s evidence that Hofmann Engineering would have been capable of producing six to ten each year had it been asked to do so. It was not restricted to one-off production.
The Comptroller-General has submitted that, to suggest that a gearbox for a 3MW wind turbine could be the subject of regular or intermittent production or be produced in quantities indicative of a production run, suggests a market test specifically prohibited by s 269B(3). We have set out s 269B(3) at [14] above.[233] We agree that s 269B(3) prohibits regard from being had to whether goods produced in Australia compete with the subject goods in any market but we agree only in so far as it prohibits regard being had to that in determining whether goods produced in Australia are put, or are capable of being put, to a use corresponding with a use to which the subject goods can be put. Considerations regarding the use to which goods are put, or are capable of being put, play no part in determining whether goods are produced in Australia on a one-off basis to meet a specific order rather than being the subject of a regular or intermittent production or, when we come to it, whether they are produced in quantities indicative of a production line.
[233] Facts and Contentions of the Respondent at [83]
At the first hearing, Mr Hofmann spoke of Hofmann Engineering’s capacity to produce gearboxes in various numbers when questioned by Mr Northcote:
“The gearboxes you make and including June for a two year period between August 2012 and August 2014 do you usually make lots of them or just a few? --- We’d like to get lots of them, but we normally don’t. We’re – we’re like a high performance boutique gearbox manufacturer like the high performance cars. We get the exotics, the very difficult ones, the very big gearboxes, the very high precision gearboxes. We sometimes get batches of 20, but normally it’s 3s, 4s, 5s, 6s, that type of quantity, and that’s both design from scratch and also rebuild and re-engineer out the problems.
You say in paragraph 29 of your statement that … [the Company is] both currently and as at 14 August 2012 prepared to accept an order for TCO goods. Does that remain your evidence? --- Definitely. We’d love to have it in these tough times, love to make a few hundred of them if we could.”[234]
[234] Transcript 25 March 2015 at 111
Mr Davies and Mr Hofmann also had an exchange on this topic:
“If Customs were to suggest that your manufacture of the three megawatt capacity wind turbine gearbox was something that you would do on a one-off basis, that would be incorrect? --- We – at this stage we have only had the opportunity to do two. That’s all we had. And, for example, those two had 12 planets, so that was already what we class as a semi production run producing 12 planets at one hit. So at this stage, we have not had the opportunity to do more than two.
Okay. And in fact, you haven’t been given the opportunity to manufacture a new one at all, have you? --- No.
No. If you were given the opportunity, you would not restrict it as a one-off basis? --- Correct. We would take it open arms to do 100 if we had the opportunity to. [sic]”[235]
[235] Transcript 25 March 2015
At the second hearing, the following exchange took place between Mr Davies and Mr Hofmann:
“MR DAVIES: With the production – I’m now looking at the production of gearboxes as a whole – as a complete unit – the production was so far as Hofmann was concerned done on a regular and continuing basis? --- Production of gearing and gearbox done on a regular continual basis but we don’t do high batch quantities of any particular gearbox. It’s bespoke.
That is because you’ve not received to date an order for a high end quality gearbox other than on a one-off basis? --- We have received many high end quality gearbox orders but you’ve got to remember, these big gearboxes – apart from the windfarms are never done in very large quantities. We normally get – we’re lucky if we get 10 of any particular gearbox order, you know, six, seven megawatt gearboxes but customers order them four or five at a time maximum.
If they order them four or five at a time, you would accept the order? --- Definitely because it’s a job in size ---
Would you then supply according to the order? --- Yes, we would.
If following the end of the supply you got another order for four or five batch, would you supply according to that order? --- Yes, we would.
There’s no reason is there as to why you would refuse such an order because you only did one off jobs for specific orders for example? --- We - I mean we would do – I mean it is a case by case that we go and have a look at it and we look at what tooling and what setup requirements is because there’s a whole different production line if you want to start making 1,000 of the gearbox type.
You’ve given evidence in these proceedings that in August 2012, Hofmann was capable of producing, with existing facilities, a three megawatt gearbox for a wind turbine? --- Hundred per cent.
That’s an accurate description of what you say you’re capabilities were? --- Correct.
It would also be the case would it not – if you’re right about that, that you would be able to produce not one but four? --- Yes.
It would also be the case would it not that on a year by year basis, if you had an order for a year, you would be able to produce four a year? --- Without problem.
Without a problem. So if the evidence were that in August 2012 there was a demand for a – between six to 10 three megawatt wind turbine gearboxes, your case is that Hofmann was capable of producing the gearboxes with existing facilities? --- Correct.
It would accept an order for six to 10 per year? --- Correct. Your quantities are starting to go up. The reality of business is that as the quantities go up, the tooling charge setup and the set up a production line make us less competitive against someone like Hanson that would have a robotic production line setup for doing 1,000 of them. That’s the reality of where we sit.”[236]
[236] Transcript 22 February 2017 at 133-134
Mr Hofmann had prepared a further statement before the second hearing. In it, he expanded upon the response he had given to Mr Davies and that is reproduced at [231] above. He said:
“4. It was put to me in cross examination that the Company does not manufacture with a production run. I responded ‘No, we don’t’ I confirm that evidence. This is true as at 14 August 2012 and to date.
5.I wish to clarify a response I gave during the last hearing before the Tribunal which may cause some misunderstanding.
6.I was asked during cross examination whether given the opportunity to manufacture on my own terms (I assumed the question related to the Company), the Company would do it as a production run and would not restrict the manufacture to ‘a one-off basis’. My response was ‘We would take it open arms to do 100 if we had the opportunity to.’
7.To take up such an opportunity in mid August 2012 the Company would not only have required a firm order for the 100 hypothetical 3 MW gear boxes (which we did not have), we would need to change our business model from bespoke manufacture satisfying specific orders to enable the Company to manufacture a large number of 3 MW wind turbine gearboxes.
8.To do this we would need to change our production processes, take on additional staff and tool-up the existing machines by adding suitable jigs and fixtures to be able to produce a large number of gear boxes efficiently in a production run. Without these changes and additional resources the Company would not in mid August 2012 been able to manufacture 3 MW wind turbine gear boxes in a production run. This would also apply if we were asked to change our business model so we could satisfy regular orders for a 3MW wind turbine gearbox to be able to start and stop production on an on going basis of 3 MW wind turbine gearboxes.
9.As a consequence as at 14 August 2012 the Company would have produced a 3MW wind turbine gearbox in response to a specific order from a customer rather than as part of a production run or as part of a regular or intermittent production.”[237]
[237] Exhibit 7
Mr Davies drew Mr Hofmann’s attention to [4] of his statement and the following exchange took place between them:
“Can I take you to paragraph four. … That paragraph is not correct is not [sic], Mr Hofmann --- That is correct. I mean, I put production runs at 1,000, not six or seven. Six or seven or 10 is done at the job (indistinct) fashion.
So when you’re talking about production run in your witness statement, you’re thinking in terms of production of the (indistinct)? --- M’mm.”[238]
[238] Transcript 22 February 2017 at 134
Mr Hofmann was shown [6] of his statement made on 19 November 2014 when he had said:
“Our business model is to make to order the required machines and machine parts on behalf of our customers either to our own design or the customer’s design. The machines and machine parts are sometimes made as part of a production run but more often in response to a specific order from a customer.”[239]
[239] Exhibit 2
Mr Davies questioned Mr Hofmann at the second hearing about [6] in the earlier statement before returning to [4] and others in his most recent statement:
“… So that paragraph [[6]] is correct, is it not? --- Yes. It’s part of a production run you’re referring to.
Yes. So it is correct that the business model of and the business operations of Hofmann meant that machines and machine parts are sometimes made as part of a production run? --- Correct.
Yes. So your blanket statement in paragraph 4 of the most recent statement is wrong? --- No, it’s not. You were referring to specifically the three megawatt gearbox and building them in very large quantities, which we weren’t set up ---
Mr Hofmann, it’s your statement in paragraph 4. It’s not my statement. It’s your statement and it says that the company does not manufacture with the production run. It makes no reference to three megawatt gearboxes, does it? Now, I invited you just then to have a look at the paragraph and say that it wasn’t correct? --- The statement here refers to general components that we do one off production runs, small items. The statement under 4 which probably needs a bit more clarification there, was referring to the three megawatt gearbox in particular.
Yes, but Mr Hofmann - - -? --- And I apologise if that statement is not clear but that’s where the intent was.
Well, what – well, Mr Hofmann, the difficulty is you can’t put it this way in reading paragraph 4 the way you say, is that first of all the company has never manufactured any three megawatt wind turbine gearbox? --- We have made, as you know, on the two and three megawatt gearboxes, 49 per cent of the parts on it, on two of them.
But - - - ? --- And tested them to one megawatt.
So is the reason why you then have stated in paragraph 4 that the company doesn’t manufacture with a production run, we’re to read that, are we, that it doesn’t manufacture a three megawatt wind turbine gearbox with the production run? --- Of thousands, yes.
Of thousands? --- Of lots. Batches of six – no problem.
Yes. So do we then make the same – or do we then read paragraph 7 with the same understanding that if you were to produce in thousands you would need to change the business model and price in manufacturing facility that is capable of doing, in very large quantities. Because remember the gearbox itself has hundreds of components in it. So you’re making hundreds of very complex components in batch quantities of thousands. And we would have to start a new facility for doing that.
But that observation that you’ve just made is one that’s related to the manufacture of 1,000 units? --- If we made the three megawatt in batches of thousands, yes.
And does the observation that you make in paragraph 7 – is that also to be limited to or is directed at the capacity of Hofmann as a company to produce in batches of 1,000? --- Statement 7 is more referring to – I don’t know if I may read it again?
Yes? --- Yes. That statement, you know, for us to set up a business for doing those three megawatt gearboxes, we would need to price in the type of automotive production lines that you see that our competitors have. And unless Vestas at the time would have a commitment and say we’re going to give you every 100 or 1,000 gearboxes, then there’s no way we could fund and do that.
So my point – I’m just trying to make it clear, is that when you refer to a large number of three megawatt wind turbine gearboxes at the end of that paragraph, you’re referring to 100 or 1,000 or - - - ? --- Well, it’s – in manufacturing and production it gets to the point where when you’re doing in the jobbing sixes to 10s times a few hundred components of this complexity, you can do it in the job type arrangement. If you now go to quantities of 100 or 1,000, it’s a very different kettle of fish. You’re now talking automotive production lines.
So that paragraph relates to production in batches of 100 or 1,000, but - - - ? --- Yes, we would have to have changed - - -
But you would - - - ? --- - - - things enormously.
But you would not have needed to have changed things – let me put it this way. You could have accommodated things – production of a batch of six to 10? --- No problem. We did two, 49 percent of the parts were made on two gearboxes, which wasn’t a problem.
And can I then go to paragraph 8 which deals with the need to change production processes, and I just want to make it clear that that need to change production processes was an observation that you’ve made in relation to the topic as to whether or not you would produce in batches of a hundred to a thousand? --- Correct. You – you know, it’s – it’s like trying to do a one-off or two-off car, or competing with general motors, Holden that does it, you know, hundreds a day. It’s that difference in philosophy in setting up a production line that we’d have to do.
But having regard to your then existing business model and practice, the company could accommodate production of a batch of six to 10? --- No problem.
Again in paragraph 9 you say, having made the references in the previous paragraphs:
As a consequence as at 14 August the company would’ve produced a three megawatt in response to a specific order rather than part of a production run or as part of a regular or intermittent production.
By that statement are you directing the statement to the proposition as to what the company – when you say the company would not have done it as part of a production run, or part of regular intermittent production, you’re there intending to convey the meaning that it wouldn’t have done it as part of a run of a hundred to a thousand? --- Well, it is so product specific where you draw the line; when you get something as complex as the three megawatt gearbox with a few hundred components, then, you know, when we get beyond six to 10 and you get to hundreds of thousands, yes, we wouldn’t have done it unless we had a specific order from a customer saying, ‘Right, we’re going to give you – we want a huge setup and have absolute commitments.’ If a customer didn’t give the commitment we wouldn’t do it, but a commitment for three megawatts, six to 10 a year, no problem.”[240]
[240] Transcript 22 February 2017 at 135-137
While we are dealing with hypothetical goods but, as the Full Court said, the issue is about what Hofmann Engineering “would have done” rather than “could have done” regarding the production of gearboxes for 3MW wind turbines. What it would have done has to be assessed in a hypothetical situation in which it has orders for the gearboxes. That entails its having received an order or orders for the gearboxes.
What is clear from the evidence of Mr Hofmann is that Hofmann Engineering “would have” produced those gearboxes in numbers up to six or ten at a time had it received an order to do so. There was no question in his mind that Hofmann Engineering would have done that. There is equally no question in his mind that, had Hofmann Engineering been asked to make numbers beyond that, it would not have done so because it would have had to adopt a different business model and approach regarding its tooling and facilities. That involved certain risks that Mr Hofmann was not prepared to undertake and that, having regard to the evidence of Mr Bremer, deviated from the costing model that it had previously adopted in its job-shop manufacturing environment.
It follows that, on the evidence of Mr Hofmann we are satisfied that Hofmann Engineering would have made the gearboxes for a 3MW wind turbine ranging from one to ten and we are also satisfied that it would have produced no more than ten each year. That means that Hofmann Engineering was prepared to make the hypothetical goods not only on a one-off basis to meet a specific order but also as the subject of intermittent production. Its doing so would be “production” in the sense that it would be making or manufacturing[241] the gearboxes. That production would be on an “intermittent” basis i.e. “… happening occasionally; stopping for a while and then starting again; not continuous …”[242] during the year. It would, in the hypothetical circumstances in which we are considering the goods, also be “regular” production for we accept Mr Hofmann’s evidence that Hofmann Engineering would be prepared to produce up to ten of the gearboxes each year.
[241] Chambers
[242] Chambers
It follows that the hypothetical goods would be capital equipment but not capital equipment that is made in Australia on a one-off basis rather than being the subject of regular or intermittent production within the meaning of s 269E(3)(a). The question posed in Step Three is answered in the negative.
STEP FOUR:
Question:Would the goods be produced in quantities which were not indicative of a production run: s 269E(3)(b)?
Answer:Yes.
Given our answer to Step Three, there is no need to answer Step 4 for the criteria in ss 269E(3)(a) and (b) are cumulative. If the goods do not meet the description of goods in s 269E(3)(a), as we have found they do not, they cannot be made-to-order capital equipment regardless of whether or not s 269E(3)(b) is satisfied. For the sake of completeness, however, we will address Step 4.
We answer the question it poses in the positive as we are satisfied that the goods would not be produced in quantities indicative of a production run. Certainly, Mr Hofmann gave evidence at the first hearing to the effect that Hofmann Engineering would have produced the gearboxes in quantities indicative of a production line had there been a demand for them. He was speaking with the expansiveness of a businessman wanting to put forward the capabilities of his company in their best light. Having regard to the modifications that Hofmann Engineering would have to make, however, he was not, we suggest, addressing the reality raised by the precise legal issues that we must address as at 14 August 2012. We prefer the evidence he gave in the second hearing. We have set out a fairly lengthy passage of it above to show that he has addressed the issues. His evidence is supported by that of Mr Bremer, who has given evidence from the accounting point of view.[243] We are satisfied that, on their accounting model and facilities, Hofmann Engineering would not have produced gearboxes for a 3MW wind turbine in quantities indicative of a production run. Mr Hofmann recognised this at the second hearing saying, Hofmann Engineering does not “… do high batch quantities of any particular gearbox. It’s bespoke.”[244] The costs of setting up the tooling and a production line would make it less competitive against overseas manufacturers which would have a robotic production line setup for doing 1,000 of them. Indeed, it could not, on Mr Hofmann’s evidence be competitive with other producers who produce gearboxes on a production line.[245]
[243] Exhibit 12
[244] Transcript 22 February 2017 at 133
[245] Transcript 22 February 2017 at 134 and see also 135-137
STEP FIVE:
Question:Has the producer made goods within the last two years requiring the same labour skill etc as the substitutable goods which it could have made: s 269E(2)(c)?
Answer:No.
We agree with the position adopted by both parties that, in answering this question, we may have regard to any goods produced by Hofmann Engineering in Australia and are not limited to gearboxes for 3MW for wind turbines or for any other item. Mr Millea relies on the following goods made by Hofmann Engineering in the two years before 14 August 2012:
(1)7MW gear assembly being the ball mill gearbox;
(2)2.5MW gear assembly being the 2.5MW Conveyor Drive gearbox; and
(3)548kW wind turbine gearbox being the 548kW Windflow wind turbine gearbox.
At an earlier time but outside the two year period, Hofmann Engineering had produced:
(4)1MW underwater turbine gearbox;
(5)goods for hydropower station; and
(6)a bearing race of a slew bearing from a crane.
Professor Howard’s evidence is that (1), (2) and (3) require the same labour skills, technology and design skills as the substitutable goods. He acknowledges that Hofmann Engineering produced the 1MW underwater turbine gearbox at a date earlier than two years before 14 August 2012. We have already found that the gearbox for a wind turbine is unique as is the technology used in them. They must be made to comply with the international standards that we have previously identified: ANSI/AGMA/AWEA 6006-A03, ISO-6336-1, ISO/IEC 81400-4 and GL 2010: Guidelines for the Certification of Wind Turbines. The ball mill gearbox and the 2.5MW Conveyor Drive gearbox must be made according to applicable standards but they are not the international standards with which a gearbox for a wind turbine must comply.[246] Apart from statements made on behalf of Hofmann Engineering, we have no quantitative assessment of its manufacturing and production skills. Professor Howard acknowledged that he had not undertaken such an assessment.[247] In the absence of such an assessment, the production of gearboxes for use in mining and related industries according to standards that are not those applicable to a wind turbine gearbox and that do not draw in those standards does not of itself point to a producer’s having made them using the same labour skills and technology as the hypothetical substitutable goods. We have already found that they do not require the same design skills.
[246] Transcript 23 February 2017 at 194-196
[247] See [204] above.
In relation to the Windflow wind turbine gearbox, we find on the basis of Mr Nowak’s evidence that Hofmann Engineering did not design it from scratch. It reviewed its design to ensure that it met all international standards and did “some minor redesign of the gearbox”. It then made some, but not all of the components for the gearbox.[248]
[248] Exhibit 3 at [35] as amended by Mr Nowak in his Supplementary Statement at Exhibit 4 at [3] and accepted by Mr Hofmann at Transcript 22 February 2017 at 132
None of these three items satisfies us that Hofmann Engineering has made goods with the same labour skills, technology and design skills as the hypothetical substitutable goods in the two years before the TCO application was lodged on 14 August 2012.
STEP SIX:
Question:Is the producer prepared to accept an order to supply the hypothetical good: s 269E(2)(d)?
Answer:Yes
On the evidence of Mr Hofmann, we are satisfied that Hofmann Engineering would have been prepared to accept an order to supply the hypothetical goods on 14 August 2012.
DECISION
For the reasons we have given, we have decided to:
(1)set aside the decision of the Comptroller-General dated 26 June 2014 made under s 269SH of the Customs Act and affirming a decision dated 12 March 2014 made under s 269P that he was not satisfied that Vestas’s application for a TCO meets the core criteria; and
(2)substitute for that decision a decision to:
(a)set aside the Comptroller-General’s decision dated 12 March 2014 made under s 269P of the Customs Act; and
(b)substitute a decision that Vestas’s application for a TCO meets the core criteria; and
(3)remits the matter to the Comptroller-General to make a written order under s 269P(3) of the Customs Act declaring that the goods the subject of the TCO application are goods to which a prescribed item specified in the order applies.
I certify that the two-hundred and forty-seven preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie and Mr Conrad Ermert, Member.
Signed: ………..[sgd].............................
Associate
Dates of Hearing 21, 22, 23 and 24 February 2017
Date of Decision 31 May 2017
Counsel for the Applicant Mr G Davies, QC, and Mr J Slonim
Solicitor for the Applicant Mr Simon Rooke
PricewaterhouseCoopers
Solicitor for the Respondent Mr James Millea
Legal Services Branch, Customs
27
0