Air International Pty Ltd v Chief Executive Officer of Customs M62/2002 [2002] HCATrans 628 (13 December 2002)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M62 of 2002

B e t w e e n -

AIR INTERNATIONAL PTY LTD

Applicant

and

CHIEF EXECUTIVE OFFICER OF CUSTOMS

Respondent

Application for special leave to appeal

GLEESON CJ

HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 13 DECEMBER 2002, AT 12.36 PM

Copyright in the High Court of Australia

MR M.A. DREYFUS, QC: If it please the Court, I appear with my learned friend, MR J.H. SLONIM, for the applicant. (instructed by Ian Cunliffe Legal Counsel & Strategy)

MR C.M. MAXWELL, QC: May it please the Court, I appear with my learned friend, MR R.S. NORTHCOTE, for the respondent. (instructed by the Australian Government Solicitor)

GLEESON CJ: Yes, Mr Dreyfus.

MR DREYFUS: Your Honours, this case raises a question of statutory construction from the Customs Tariff.

HAYNE J: Since amended and repealed in an important respect, is it not?

MR DREYFUS: Your Honours, the particular provision of the Customs Tariff has been amended to delete a word - - -

HAYNE J: Namely, "replacement".

MR DREYFUS: Namely, "replacement" - - -

HAYNE J: Upon which much of the argument in this case turned.

MR DREYFUS: But the question of principle on which the case turned, which is how are the words "of a kind" to be construed, is still present and that phrase appears, as our outline of submissions makes clear, your Honours, on several dozen occasions throughout the Customs Tariff which, of course, is the Australian enactment of the Harmonized System.

The importance of the question we would submit, with respect, your Honours, is not lessened by the fact that the particular provision of the tariff on which the decision of the Tribunal and the successive decisions of Justice Weinberg and the Full Federal Court turned has been changed because we would say that phrase "of a kind" continuing, as it does, in many, many places in the Tariff will continue to raise the question which has arisen here.

The question which we would submit which has arisen here is how is classification to take place where the classifier is faced with goods which appear to be physically identical. That is, of course, the position which arose in this case. It is a position which is capable of arising in very many classification instances.

What occurred, your Honours, in this case was that the Tribunal approached the matter disregarding the fact that it might be possible for goods of a physically identical nature to be used either as original components or as replacement components and instead approached the matter solely on the basis that because goods that looked like the goods in question could be used as replacement components, then regardless of the fact that it was the intended purpose of the importer of these goods that they not be used as replacement components but be used as original components, regardless of that intention they were to be so classified as goods of a kind used as replacement components.

HAYNE J: Which rather suggests that the question centres upon the expression "of a kind used", if not, "of a kind used as replacement". You have fastened upon the words "of a kind" as though those are severable from other elements of the classification.

MR DREYFUS: We do not say, your Honours, that the words "of a kind" are severable. We say, indeed, that the whole of the classification or the whole of the term has to be considered as a composite question, but in particular, in answer to your Honour Justice Hayne's question, we would submit that if one is to break it up at all, "of a kind used" is the phrase that would be looked at and it focuses, as many of the decisions make clear, on use. Now, because we would submit it focuses on use, that where it is not possible to make a distinction simply by looking at the physical characteristics of the goods in question necessarily raises an examination of what is the intended use, that is, what use does the importer of the goods propose to put them to upon entry into Australia.

The Tribunal approached this on the basis that it disregarded entirely the intended use of the importer. We would say to your Honours that the approach that Justice Hill, in his Honour's dissenting judgment in the Full Federal Court, makes very clear is the correct approach, that to approach it as the Tribunal did, as the majority in the Full Federal Court did, is an approach which will potentially produce, to use his Honour Justice Hill's phrase, "bizarre results", because if the classification is approached on the basis that some goods of the same kind or the same physical kind can be used as replacement goods, then there will never be a situation in which goods that are absolutely not intended to be used as replacement goods or not imported to be used as replacement goods or always intended to be used for a non-replacement purpose will fall into the category.

That is not, we would say, with respect, your Honours, a proper approach to the construction of this part of the Tariff. It is not a proper approach to the construction of the phrase "of a kind used" and we have drawn the distinction in the outline of submissions to different uses of the phrase "of a kind" where it is linked to such other words as "ordinarily" or "suitable for" and the like. On those occasions it might be possible to engage in the comparison the Tribunal has engaged in but on this occasion where the provision simply focuses on "of a kind used", it is not appropriate to engage in that process.

We say to your Honours, with respect, that the reasoning that his Honour Justice Hill adopted, which is to focus on the situation that arises where goods are physically identical, where the process that the Tariff requires to be engaged in is one which says, where goods are capable of being classified in more than one way, then the most appropriate classification is the one which is to be selected. We would say, with respect, your Honours, that in situations where there is physically identical goods, the only way in which, as his Honour Justice Hill makes clear, that can be achieved is by looking to some other characteristic, namely, the intended use.

We have referred your Honours in the outline to two decisions of the Full Federal Court where the court has in similar contexts looked at intended use. The first of those is in the bundle which we provided to the Court which is Collector of Customs v Savage River Mines. There the contest, your Honours, in terms of the tariff classification process that was being undertaken was to distinguish between "topped crudes" or goods described as "fuel oil". Your Honours will see at page 264 of the decision that in that case Customs were contending that the Tribunal was in error because it had construed the two items in question, topped crude or fuel oil, without reference to the use to be made of the goods. In other words, this was an example where Customs saw it as convenient to be contending that it was a case in which use-based distinctions were to be taken into account.

The joint judgment of the Full Court agreed with the Customs contention and your Honours will see at page 265, at the foot of the page - perhaps I would go back a little bit to line 30, your Honours, where there is an explanation given as to the way in which the interpretive rules for the Customs Tariff are to be applied and then the conclusion is given at the foot of page 265:

However, as fuel oil is oil adapted for use as fuel, ordinarily in a furnace or engine or for heating, a use based distinction may be admitted in the present case. Its importance in the process of characterisation is a matter of evidence. The tribunal was entitled and obliged to consider the evidence to ascertain whether, having regard to such factors as physical and chemical properties and suitability for particular uses, the product in question was "fuel oil" or not.

HAYNE J: Does this case not demonstrate with stark clarity that it is a question to be decided in each classification and what you are really seeking to do is agitate a peculiar question about this classification which may, on one point of view, be nothing more than a question of fact?

MR DREYFUS: We would submit, with respect, your Honour, it is not merely a question of fact. It is, as his Honour Justice Hill explained, a classification question raising a question of law - - -

HAYNE J: What is the point of principle which you say arises?

MR DREYFUS: That in cases, your Honours, where there is physically identical goods and no other means of distinction is possible other than some consideration of the purpose for which the goods are imported, then regard should be had to that purpose. This is a case where that principle arises. The distinction would have, had it been applied - and the Tribunal shut itself out from applying this distinction - the distinction would have enabled the Tribunal to distinguish between goods which were imported for the purpose of being installed as original components and goods which were imported for the purpose of installation as replacement components.

GLEESON CJ: Mr Dreyfus, we are going to adjourn now until 2.00 pm.

MR DREYFUS: If the Court pleases.

AT 12.47 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.02 PM:

MR MAXWELL: My learned friend appears to have been unavoidably delayed, your Honours.

GLEESON CJ: We will give him a couple of minutes, Mr Maxwell. Call matter No 8, please.

AT 2.04 PM THE MATTER WAS ADJOURNED

UNTIL LATER THE SAME DAY

UPON RESUMING AT 2.25 PM:

GLEESON CJ: Yes, Mr Dreyfus.

MR DREYFUS: I apologise for having inconvenienced the Court, your Honours.

GLEESON CJ: Yes, Mr Dreyfus, you have nine minutes to go.

MR DREYFUS: Thank you, your Honour. I had taken your Honours to Savage River Mines, a decision of the Full Federal Court, and would wish to take the Court to the second decision in the bundle of authorities we have provided to the Court, which is another Customs case, Customs v ACI PET Operations Pty Ltd. Again, your Honours, it is an example of the Full Court of the Federal Court acknowledging that in some circumstances it is appropriate to have regard to intended purpose or intended use in the tariff classification area.

The particular passage that we would refer the Court to is at page 366 of this report, which I should say to your Honours is in the Australian Law Reports version rather than the Federal Court Reports version for some reason. There, having referred in the preceding passage to Collector of Customs v Savage River Mines the court, in its conclusion, said this:

In our opinion, Foster J was correct to conclude, as his Honour did, that goods can be classified for taxing purposes in accordance with their intended or actual use. As Morling and Wilcox JJ pointed out in Times Consultants, what gives goods their essential character is a question of fact. In some, but not all, cases, an inquiry as to the use to which goods are to be put may throw light upon the question of what their essential character is.

Our point, your Honours, is that here the Tribunal shut itself out from considering altogether the intended use, the intended purpose of these goods, and that that, as his Honour Justice Hill makes clear in his Honour's dissenting judgment, was the only way in which the classification function could be carried out. I wanted to take your Honours to the Tribunal's decision just to show your Honours how clear it is that the Tribunal shut itself out from considering that "intended use" question. The particular passage appears in the application book at page 20, paragraph 37, line 25, where the Tribunal said:

Applying these principles to the subject goods, we must look not to whether they have been designed or manufactured for particular passenger motor vehicles, whether they have been installed in passenger motor vehicles before or after they leave the assembly line or whether they have been installed by a dealer prior to delivery to the purchaser (even though coming under the umbrella of the manufacturer's warranty) but to whether they belong to a class or genus of goods used as components of passenger motor vehicles.

In the last sentence on the page the Tribunal said:

For whatever purpose a purchaser uses the parts, they are parts that are commonly used -

which was not the test -

as components in passenger motor vehicles and are commonly used as components involved in cooling the temperature in those passenger motor vehicles. They are goods of that kind. So too are the subject goods. They may be intended to be used for a particular purpose by Air International but, even so, they belong to a class or genus of goods used as components in passenger motor vehicles. They are goods of that kind.

What we would say, your Honours, is that the Tribunal in shutting itself out from looking at the intended purpose and taking simply the broadest possible genus, which was to say these are components which are used in motor cars, which is effectively the genus that was adopted, the Tribunal has not focused on the classification task that the Tariff requires of it. That is made clear as well by paragraph 39, which I will not read to your Honours.

Justice Tamberlin, leaping ahead, your Honours, to the majority in the Full Federal Court, equally clearly shut out the possibility of considering the intended purpose, the intended use, and that appears at page 68 of the application book where at paragraph 46 his Honour Justice Tamberlin, with whom Justice O'Loughlin agreed, said:

In answering this question it is necessary to construe the quoted expression as a whole. The intent or purpose of the manufacturer or importer is not the criterion to be applied. Nor is it necessary that the goods should in fact have been used or be used as replacement components.

We would, with respect, your Honours, agree with the second sentence there because this classification process takes place at entry, it is not judged by what happens after entry, but the error in the majority judgment of the Full Federal Court is in the first sentence there, his Honour saying:

The intent or purpose of the manufacturer or importer is not the criterion to be applied.

We, with respect, your Honours, would rely on the reasoning in the closely reasoned judgment of his Honour Justice Hill and, in particular, at application book page 64 we would refer your Honours to the way in which his Honour Justice Hill analysed the error that had been made below by the Tribunal, by Justice Weinberg and, by implication, his Honour's colleagues on the Full Federal Court, saying, as his Honour does at paragraph 33:

with respect to the Tribunal and those who think otherwise, I think that in the present context that is an erroneous approach to the classification required to be made.

The erroneous approach being that to compare to other goods and to ignore the purpose that Air International was importing for. His Honour continued in that paragraph, your Honours, at the end saying that:

If the Tribunal's approach to classification is correct every such component will be classified as a replacement part and attract the rate of customs duty applicable to goods of a kind used as replacement components. No component could ever fall outside the classification applicable to replacement parts. The approach to classification adopted by the Tribunal leads to a result which is, with respect, bizarre.

And his Honour has identified, we would submit, your Honours, that the vice in the Tribunal's approach, which is that by denying the possibility altogether of the one guide to distinction between these goods which are for all intents and purposes identical physically, the Tribunal and the other judges who have looked at this have adopted an approach which ensures that there is no classification process taking place at all. It is just the adoption of some test other than that which the Tariff is directing attention to.

His Honour Justice Hill, we would submit, with respect, has explained with great clarity why it is that it is necessary in order to locate the most particular classification or the best classification, which is what the Tariff directs attention to, it is necessary to go beyond simply that the superficial examination or simply, as the Tribunal did, adopting this broad approach, adopting a broad genus approach, and saying, "These goods look like that or they fall loosely within that. We are not going to inquire further into the matter."

There is not time to take your Honours to the international decisions. We do say that one of the reasons why the point of principle that is raised here, which is whether or not it is appropriate in classification to look at intended purpose, intended use, is that the international decisions show that in applying the Harmonized System there are many occasions on which, in order to engage in the classification process, it will be appropriate to look at intended use. I see my time has expired, your Honours.

GLEESON CJ: Thank you. We do not need to hear you, Mr Maxwell.

This case does not raise an issue suitable for a grant of special leave to appeal, especially having regard to legislative amendments made in 1999. The application is refused with costs.

We will adjourn for a short time to reconstitute.

AT 2.35 PM THE MATTER WAS CONCLUDED