Zappia v Comptroller General of Customs

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FEDERAL COURT OF AUSTRALIA

Zappia v Comptroller General of Customs [2017] FCAFC 147

Appeal from: Zaps Transport (Aust) Pty Ltd and Comptroller General of Customs [2017] AATA 202
File number: NSD 363 of 2017
Judges: DAVIES, WHITE AND MOSHINSKY JJ
Date of judgment: 19 September 2017
Catchwords: TAXATION – appellant served notice of statutory demand for amount payable on stolen dutiable goods – liability under Customs Act 1901 (Cth) s 35A for failure to keep dutiable goods safely – AAT found statutory demands were properly made – appeal on question of law from AAT decision – whether appellant ‘has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control’ – meaning of possession – meaning of control – statutory interpretation – appellant could not be found to have been in control of the goods within the meaning of s 35A – appellant’s submission that no liability could arise by reason of Fair Work Act 2009 (Cth) s 326 rejected – appeal allowed.
Legislation:

Administrative Appeals Tribunal Act 1975 (Cth) s 44

Customs Act 1901 (Cth) ss 4(1), 8, 30, 35A, 36, 37, 68, 71C, 71E, 77EB, 99, 132, 132AA(1), 165, 273GA

Customs Tariff Act 1995 (Cth) ss 15, 16, 19AB, 19AC, Ch 24 of Sch 3

Excise Act 1901-1952 (Cth) s 60

Fair Work Act 2009 (Cth) s 326

Income Tax Assessment Act 1936 (Cth) s 264(1)

Business Franchise Licences (Tobacco) Act 1987 (NSW) s 33
Cases cited:

Anderson Group Pty Ltd v Tynan Motors Pty Ltd [2006] NSWCA 22; (2006) 65 NSWLR 400

Australian Securities Commission v Dalleagles Pty Ltd (1992) 36 FCR 350

Batchelor v Commissioner of Taxation [2014] FCAFC 413; (2014)  219 FCR 453

Beckwith v The Queen (1976) 135 CLR 569

Burnett v Randwick City Council [2006] NSWCA 196

Button v Cooper [1947] SASR 286

Byrne v Australian Airlines Ltd (1995) 185 CLR 410

Chief Executive Officer of Customs v John Deere Ltd [2006] FCA 1280; (2006) 155 FCR 208

Collector of Customs (NSW) v Southern Shipping Company Limited (1962) 107 CLR 279

Commissioner of Taxation (Cth) v Australian & New Zealand Banking Group Ltd (1979) 143 CLR 499

Culley v Australian Securities and Investments Commission [2010] FCAFC 43; (2010) 183 FCR 279

Director of Public Prosecutions (Jamaica) v Brooks [1974] AC 862

Drew v Dibb [2008] FCA 1057; (2008) 169 FCR 320

Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499

Goben Pty Ltd v The Chief Executive Officer of Customs (No 2) (1996) 68 FCR 301

Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; (2015) 233 FCR 315

Hedberg v Woodhall (1913) 15 CLR 531

He Kaw Teh v The Queen (1985) 157 CLR 523

Horsley v Phillips Fine Art Auctioneers Pty Limited [1995] NSWSC 78

Hussain v Minister for Foreign Affairs [2008] FCAFC 128; (2008) 169 FCR 241

Kitano v The Queen (1974) 129 CLR 151

McCaskill v Marzo

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Details
Case
[2017] FCAFC 147
Decision Date

CaseChat Overview and Summary

Domenic Zappia appealed against a decision of the Administrative Appeals Tribunal (AAT), which had affirmed statutory demands made against him by the Comptroller General of Customs for duty on stolen cigarettes. The appeal was brought on a question of law only, and concerned the meaning of the word “control” as it appears in the phrase “possession, custody or control” in the context of s 35A of the Customs Act. The appellant submitted that the Tribunal had erred in finding that he had been in control of the goods within the meaning of s 35A. The respondent argued that the Tribunal was correct in its finding that the appellant had “control” of the goods. The court found that the appellant could not be found to have been in control of the goods within the meaning of s 35A. The court considered the meaning of the word “control” in the context of the composite phrase “the possession, custody or control” in s 35A of the Customs Act. The court found that “control” was not intended to bear the same connotation as “possession” or “custody” and that the section was intended to have application to persons wider than persons having (or entrusted with) “possession” or “custody”. The court found that the appellant was not in control of the cigarettes within the meaning of s 35A. The appeal was allowed, the order of the Tribunal was set aside, and the statutory demand was found to be invalid and of no effect. The respondent was ordered to pay the costs of the appeal.

Orders

Orders of the court

1. The appeal is allowed.

2. The order made by the Administrative Appeals Tribunal on 17 February 2017 is set aside.

3. The Statutory Demand dated 27 August 2015 served by the Respondent on the Applicant is invalid and of no effect.

4. Subject to Order 5, the Respondent is to pay the costs of the Applicant of and incidental to the appeal to be taxed in the absence of agreement.

5. Liberty to the parties to apply, within five days, to set aside or vary Order 4.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

An offence against s 36(2) is an offence of strict liability: s 36(3). FACTUAL BACKGROUND The underlying facts were essentially not in dispute and were set out by the Tribunal as follows: The cigarettes in question had been held at a bonded warehouse at Smithfield, New South Wales operated by Zaps Transport (Aust) Pty Ltd (“Zaps” or “the company”). John Zappia, the applicant’s father, was a director of the company at the time and Domenic Zappia was employed as the company’s general manager. Zaps held a warehouse licence issued under Pt V of the Customs Act, which authorised it to store tobacco and tobacco products, and other goods subject to customs control (other than petroleum and like products.) The licence included a condition that the company would inform the Australian Taxation Office (which administers the Customs Act) in writing of any other person “participating in the management or control of the warehouse” and the company had provided the names of both John and Domenic Zappia to the Australian Taxation Office. Zaps had commercial arrangements with a number of companies that imported cigarettes, including with Richlands Express Pty Ltd (“Richlands”). Under the arrangement with Richlands, Zaps held a stock of cigarettes in its warehouse on an ongoing basis. On 15 April 2015, after there had been four thefts of cigarettes stored at the warehouse, the licence was varied by the CEO of Customs so as to withdraw Zaps’ authority to store tobacco products there. Thereafter the only goods that Zaps was authorised to store at the warehouse pursuant to the licence were “goods subject to customs control being alcohol”. Following the change to its licence, Zaps still held a quantity of cigarettes at the warehouse imported by Richlands. Zaps sought permission from Customs under s 71E of the Customs Act to move the Richlands’ cigarettes to other licenced premises, but that permission was not given. In the meantime, Zaps was also negotiating with Richlands over Richlands’ obligation (under commercial arrangements in place between Richlands and Zaps) to reimburse Zaps for liabilities that Zaps had already incurred in respect of prior thefts of Richlands’ stock from the warehouse. Zaps was asserting a warehouseman’s lien over the remaining Richlands’ cigarettes. On 23 May 2015 there was a further break-in at the warehouse during which 400,000 of Richland’s cigarette sticks were stolen. On 27 August 2015 a Collector served a statutory demand under s 35A of the Customs Act on the company and upon each of John and Domenic Zappia for payment of the equivalent amount of duty payable on the stolen cigarettes. The amount demanded was $188,032. The statement of facts and reasons attached to the demand made on Domenic Zappia recited that:1.You are the general manager of [Zaps].2.Zaps operate a warehouse and storage enterprise located at 37-329 Woodpark Road Smithfield NSW 2164.3.[Richlands] entrusted Zaps with tobacco or tobacco products for storage at their premises.4.These tobacco or tobacco products were subject to the control of the CEO of Customs and were not duty paid.5.As General Manager of Zaps, you are a person who has (or has been entrusted with) possession, custody or control over the goods stored at Zaps premises.6.On 23 May 2015 a break-in and theft of 400,000 … cigarettes occurred at Zaps premises …7.The cigarettes stolen on 23 May 2015 from Zaps premises were the goods owned and entrusted to Zaps by Richlands.You have failed to keep dutiable goods safely as required by paragraph 35A(1)(a) of the Customs Act …

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

This appeal from the Tribunal’s decision is brought by Domenic Zappia alone: Zaps is in liquidation and John Zappia is a bankrupt.THE TRIBUNAL DECISION The Tribunal found that the demands under s 35A(1) were all properly made. The Tribunal first considered, and made a finding, that the cigarettes had not been kept safely. At [13]-[14] the Tribunal said:There is no doubt the goods in question were dutiable, and they were not kept safely. While I was provided with evidence about security measures that were implemented at the Zapswarehouse, those measures failed. In any event, nobody was able to account for the dutiable goods when called upon to do so. (An explanation of how one might account for the dutiable goods to the Collector of Customs is set out in s 37 of the Act. Suffice to say nobody did the things referred to in s 37.)Section 35A imposes strict liability. As the High Court explained in Collector of Customs for the State of New South Wales v Southern Shipping Company Limited [1962] HCA 20; (1962) 107 CLR 279, it makes no difference if the responsible person had taken reasonable steps to secure the goods. If something happened to the goods which results in a loss of duty, responsibility for that loss falls on the person or persons ‘entrusted with...the possession, custody or control of excisable goods’: per Dixon CJ at p 287. The Tribunal then considered whether the each of the applicants was a person who, at the relevant time, had, or was entrusted with, the possession, custody or control of the cigarettes. The Tribunal found that Zaps, as the licensee of the warehouse, had, and was entrusted with the possession, custody and control of the cigarettes at the time they were stolen. At [26]-[29] the Tribunal considered and rejected an argument put on behalf of John and Domenic Zappia that s 35A(1) did not apply to them because Zaps held the warehouse licence and it was the contracting party with Richlands. The Tribunal reasoned at [29]: If the section had only referred to possession of the goods, it would be easier to see how the individual applicants could argue their involvement with the goods was purely in their capacity as corporate officers, so that the corporation alone was in possession. But the section casts the net wider to include those who might have custody or control. Corporate officers might exercise control in the relevant sense in the course of discharging their responsibilities. Whether a particular officer or employee exercises control in relation to goods in a given case will be a question of fact. The Tribunal found that John Zappia, “as the person in charge”, both “exercised control over the goods in the relevant sense” and “was entrusted with that control in his capacity as an officer of Zaps”: at [30].The basis for the conclusion (at [27] and [30]) that John Zappia was “the person in charge” is set out at [22]:John was a director of Zaps at all material times. It was clear from the oral evidence of John and Dominic that John was in overall command of the business. John approved the arrangement with Richlands, had overall direction of what happened with the goods, and demanded that the lien be asserted.

Ratio Decidendi

Legal Principle Established

Senior counsel for the Comptroller argued that the meaning of the word “control” as used in the phrase is not informed or limited by the general law concept of “possession”, as the words in the phrase are disjunctive and the section operates where a person has, or is entrusted with, either possession, or custody or control of the subject goods. It was further submitted that to come within the section, a person’s “control” need not be exclusive or amount to “possession” or “custody” but, in each case, whether a person has “control” of dutiable goods is a question of fact. Senior counsel argued that the facts found by the Tribunal established that the applicant had “control” of the subject goods (at [31]) and as the Tribunal found that the goods were not kept safely (at [13]) the Tribunal correctly held that s 35A(1) applied to the applicant. Consideration The issue is the meaning of the word “control” read as part of the composite phrase “the possession, custody or control” appearing in the context of s 35A(1). Where a word forms part of a composite phrase, the approach to construction is to consider the meaning of the word by reference to its context in the composite phrase, not to look at the individual words in isolation from the other words in the phrase: Sea Shepherd Australia Ltd v Commissioner of Taxation [2013] FCAFC 68 at [34] per Gordon J (with whom Besanko J agreed). The construction contended by senior counsel for the applicant does not consider the meaning of “control” in the context of the phrase read as a whole, but focusses only on the meaning of the word “possession” without considering the disjunctive use of the word “control” included as part of the composite phrase. The words “custody” or “control” can be used interchangeably as synonyms for the word “possession” (Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 at 519 (Gibbs ACJ) (“Smorgon’s case”)) but each of the words has varying significations and they are not synonymous in meaning. Whilst “control” is an element of “possession” (Horsley v Phillips Fine Art Auctioneers Pty Limited [1995] NSWSC 78 at [69]-[70]; Hedberg v Woodhall (1913) 15 CLR 531; Smorgon’s case at p 534 (per Mason J)), “possession”, “custody” and “control” are all degrees of some right, power or authority to deal with the goods in question and, in the phrase, they are differentiated by the use of the disjunctive “or”. The use of the disjunctive “or” indicates that the word “control” is not intended to bear the same connotation as “possession” or “custody” and that the section is intended to have application to persons wider than persons having (or entrusted with) “possession” or “custody”. In Smorgon’s case the High Court considered the meaning of the composite phrase “in his custody or control” in the context of s 264(1)(b) of the Income Tax Assessment Act 1936 (Cth). Section 264(1)(b) entitled the Commissioner to require a person by notice in writing to produce all books and documents “in his custody or under his control” relating to the person’s, or any other person’s, income or assessment. In issue was whether documents which the taxpayers had placed into safe deposit boxes at a bank were in the bank’s custody or under its control. The High Court held that the composite expression “in his custody or control” was concerned not with the legal relationship of the person to whom the notice is given to the documents required to be produced but with the ability of a person to produce the documents when requested and even though the bank had bound itself by contract to refrain from exercising the power, it nonetheless had the ability to produce the documents because it had the keys to open the boxes. In the oft cited passage at pp 532-4, Mason J said of the composite expression “in his custody or control” in the context of s 264(1)(b) of the Income Tax Assessment Act 1936 that: The primary definition of "custody" in the Shorter Oxford English Dictionary is "Safe keeping, protection; charge, care, guardianship"…The content of "control" is somewhat different from that of "custody"; however, both are "wide enough to include many types of possession which are not commensurate with full ownership" … Although the use of the composite expression "in his custody or under his control" does not assist us in determining the precise limits of the meaning of "control", it does evidence a legislative intention to employ the words in their widest sense. In the circumstances of this case where the Bank has the actual ability to open the boxes without damage to them, though contractually bound not to do so, and where no box can be opened without the Bank first providing access to it and a key, it is my opinion that the Bank does have "control" over the documents to a sufficient degree to come within the scope of that word as it is used in s. 264 (1) (b). There is to my mind no reason to limit the scope of "custody and control" to "exclusive custody and control"…Even the view that custody, or possession, must reside exclusively in one person at any given time (Paton, Bailment in the Common Law (1952), pp. 6-9) does not relieve the Bank from compliance with a lawful notice to produce documents under s. 264. Whether or not Professor Paton is right in his suggestion that on true analysis the bank in the Dollfus Mieg Case (1949) Ch 369 had exclusive possession yet Tripartite Commission retained control over the disposition of the gold bars, it seems clear that in that case, as in the present case, there was scope for the exercise of some "control" by both the bailor and bailee. In these circumstances the Bank falls, at the least, within the ambit of the exercise of "control" under s. 264 whether or not it also has possession or custody of the documents.