Seventy-Ninth Vibration Pty Ltd & Anor v Chief Executive Officer of Customs [1998] FCA 98 (19 February 1998)

FEDERAL COURT OF AUSTRALIA

ADMINISTRATIVE LAW - decision of the Administrative Appeals Tribunal, as to the classification of goods pursuant to the Customs Tariff Act 1987, and the Customs Tariff Act 1995 (Cth), not containing reasons sufficient to enable an understanding of how it reached its decision - error of law - decision set aside.

Administrative Appeals Tribunal Act 1975 (Cth), ss 43(2), 44,

Customs Tariff Act 1987 (Cth), schedule 3 chapter 57

Customs Tariff Act 1995 (Cth), schedule 3 chapter 57

Re Gissing v The Collector of Customs (1977) 14 ALR 555, applied

Australian Telecommunications v Barker [1990] FCA 489; (1990) 12 AAR 490, followed

Baxter Healthcare v Comptroller-General of Customs [1997] FCA 131; (1997) 72 FCR 467, referred to

Muralidharan v Minister for Immigration and Ethnic Affairs (1996) 62 FCR 402, followed

Commonwealth v The Human Rights and Equal Opportunity Commission and "X", Federal Court, Full Court, 13 January 1998, per Burchett J, applied

SEVENTY-NINTH VIBRATION PTY LTD & Anor

v CHIEF EXECUTIVE OFFICER OF CUSTOMS

QG 88 of 1997

Drummond J

Brisbane

19 February 1998

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG88 of 1997

BETWEEN:	SEVENTY-NINTH VIBRATION PTY LTD First Applicant DRYWASH AUSTRALIA PTY LTD Second Applicant
AND:	CHIEF EXECUTIVE OFFICER OF CUSTOMS Respondent

JUDGE(S):	DRUMMOND J
DATE OF ORDER:	19 February 1998
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The decision of the Tribunal be set aside.

3. The matter be remitted to the Tribunal for redetermination.

4. No order be made as to costs.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG88 of 1997

on appeal from the general administrative division of the administrative appeals tribunal constituted by mr d w muller, senior member

BETWEEN:	SEVENTY-NINTH VIBRATION PTY LTD First Applicant DRYWASH AUSTRALIA PTY LTD Second Applicant
	CHIEF EXECUTIVE OFFICER OF CUSTOMS Respondent

JUDGE(S):	DRUMMOND J
DATE:	19 february 1998
PLACE:	BRISBANE

REASONS FOR JUDGMENT

I have before me appeals brought pursuant to s 44 the Administrative Appeals Tribunal Act 1987 in three related matters from a decision of the Administrative Appeals Tribunal. The Tribunal affirmed the respondent's decisions which classified two lots of the goods in question to subheading 5704.90.10 of the Customs Tariff in the Customs Tariff Act and a third lot of the goods to the corresponding classification in the Tariff in the Customs Tariff Act 1995 .

In the 1987 Tariff, heading 5704 in Chapter 57 - "Carpets and Other Textile Floor Coverings" - relevantly provides:

"5704 CARPETS AND OTHER TEXTILE FLOOR COVERINGS, OF

FELT, NOT TUFTED OR FLOCKED, WHETHER OR NOT

MADE UP:

5704.10 - Tiles, having a maximum surface area of 0.3 m²:

5704.10.10 --- Produced by the needle-loom process

5704.10.90 --- Other

5704.90 - Other:

5704.90.10 --- Produced by the needle-loom process

5704.90.90 --- Other"

Heading 5704 in the 1995 Tariff is not materially different. Note 1 to Chapter 57 in both Tariffs is in the following terms:

"For the purposes of this Chapter, `carpets and other textile floor coverings' means floor coverings in which textile materials serve as the exposed surface of the article when in use and includes articles having the characteristics of textile floor coverings but intended for use for other purposes."

The parties were in agreement on a number of issues at the hearing before the Tribunal: in its reasons, the Tribunal recorded their agreement that "the mats are not carpet tiles" and that therefore classification under subheading 5704.10 was not appropriate (a position once adopted by the respondent), and the parties' further agreement that the mats were "made of felt and that they are not tufted or flocked." The Tribunal in paragraph 7 of its reasons identified the issues for determination as whether the mats were floor coverings (ie whether they were within the expression "other textile floor coverings" in heading 5704 read with Note 1 to Chapter 57) and whether they were produced by the needle loom process (ie the process referred to in sub-heading 5704.90.10, there being a large body of evidence that the mats were produced by a needle punch machine process which the applicants contended was different from the needle loom process). It was this second issue on which attention was focussed at the hearing by the Tribunal. However, it is no longer disputed by the applicants that the Tribunal's conclusion on this issue, in respect of which it made an affirmative finding, was correct.

Having read the written submissions of the applicants to the Tribunal which were put in evidence before me, I think that the Tribunal correctly identified the critical issues for its determination. Complaint was made before me that the Tribunal failed to undertake the task of identifying the goods before proceeding to the question of their classification; but given that, by the time of the Tribunal hearing, the respondent had abandoned its contentions that the goods were any form of carpet tiling and accepted that they were mats, I think that the Tribunal, in saying that the applicants "have been importing door mats and bath mats from a company Beaulieu Real N V, based in Belgium. The mats are made from felted artificial fibre attached to a rubber backing", briefly recorded its conclusion identifying the goods as door mats and bath mats.

In paragraph 13 of its reasons, the Tribunal said that the first issue to be determined is whether it is appropriate to identify these mats as coming within the ambit of Chapter 57 namely "... Carpets and Other Textile Floor Coverings ..." It had earlier said that the first of the two issues for determination was whether the mats were floor coverings. In para 13 of its reasons, it returned to this issue. It is in my opinion clear that, notwithstanding the use by the Tribunal of the word "identify", the Tribunal was here engaged in the task of classifying the goods, which it had already identified as bath and door mats. That is, it here undertook the step subsequent to identification of the goods which is described in Re Gissing v The Collector of Customs (1977) 14 ALR 555 at 557 as "the inquiry whether one or more of the Tariff provisions applies to the entity which has been identified".

After noting the two issues for determination, recording appearances and the parties' various agreements to which I have already referred, including their agreement that the mats are made of felt, the Tribunal observed:

"The felt is produced by a process in which fibres made of polypropylene are intertwined and compressed on each other to produce a carpet. The carpet is then cut into various sizes, appropriate for door mats or bath mats."

The Tribunal went on to describe this process in more detail. It then gave brief reasons for disposing of what it had identified as the first issue for determination, saying:

"13. The first issue to be determined is whether it is appropriate to identify these mats as coming within the ambit of Chapter 57 (set out above), namely, `Carpets and other textile floor coverings'. Door mats and bath mats may not necessarily be regarded as `carpet', nor `floor coverings', but the note to Chapter 57 contains an extended definition, `and includes articles having the characteristics of floor coverings but intended for use for other purposes'

14. The material placed before the Tribunal, in particular the Fehrer booklet, exhibit 9, shows that the needling machines produce the fabric from which the mats are made in large carpet rolls. In fact the booklet boasts that their machines produce `exclusive floor and wall coverings'. The booklet also points out that the `velours' are utilised for the following products: `automotive textiles, marine fabrics, shoe linings, soft toys, hot carpets, hometex'. The door/bath mats are produced by cutting the carpet into appropriate shapes and sizes.

15. I find that the mats in question do have the characteristics of floor coverings even though they are intended for use as door mats or bath mats."

It is clear from this passage that the Tribunal did not consider that these mats were within the expressions "carpets" or "floor coverings" as used in heading 5704 of the Tariff and that it considered that the mats were included within this heading, and in particular within sub-heading 5704.90.10, because, although intended for use for purposes other than as carpets and floor coverings, they had "the characteristics of floor coverings" within the meaning of that term in note 1 to Chapter 57. In Re Gissing it is said at 556 that the process of classification involves two steps, firstly identification of the goods and secondly "by construing the Tariff, to determine which provisions of the Tariff includes the goods so identified". The Tribunal, however, gives no hint in its reasons of the construction it placed upon this phrase in note 1 to Chapter 57 which was critical to its decision (just as it did not explain the meaning it gave to the expressions "carpets" and "floor coverings" in heading 5704.)

The reasons of bodies such as the AAT are not to be scrutinised, on curial review, in pedantic or overly close fashion. But in my opinion, even if full weight is given to this principle it is still impossible to understand how the Tribunal reached the conclusion that these mats were articles that had the characteristics of floor coverings, though intended for use for other purposes, ie it is impossible to properly understand why the Tribunal affirmed the respondent's decision that the mats were classifiable to sub-heading 5704.90.10.

As I have said, the Tribunal only identified the goods in a terse way as door mats and bath mats of felted artificial fibre attached to rubber backing. There was a considerable body of evidence descriptive of these mats and apparently not challenged, that each had the following characteristics: the fibres were in a more coarse assembly than that commonly found in the assembly of fibres of traditional floor coverings and rubber backing was attached in such a way as to enable water to drain through both the felted fibres and backing. The mats each had the further characteristic contributed to, no doubt, by the two I have just mentioned, of being able to absorb dirt and be hosed clean. All these features together were said to give the mats the quality of being suitable for outdoor use (rather than for covering floors). There was also evidence the other way, eg there was opinion evidence that these mats could be regarded as floor coverings and there was in evidence certain Australian and other standards and textile industry handbooks which contained definitions of the term "textile floor coverings" (some of which assisted the respondent but others which emphasised that such a product is one "generally used for covering floors", and so might be thought to favour the applicants' case). But in view of the evidence as to the physical characteristics these mats possessed, to which I have referred, and which appear to differentiate them from materials which would in ordinary speech be described as floor coverings, it was in my opinion essential, if the Tribunal were to give proper reasons for its conclusion, to expose its interpretation of the critical phrase in note 1 to Chapter 57 (assuming it actually formed a view on that, as it should have done) and to explain why it considered that these mats did not have "the characteristics of floor coverings", as it understood that term. Depending on the reasons it were to give in this respect, it might also be necessary for the Tribunal to explain why it rejected the body of evidence that the physical characteristics of the mats differed from those of floor coverings and why it preferred the non-descriptive opinion and other evidence to the contrary.

If the Tribunal had identified the mats in more detail, it may have been possible to glean its process of reasoning to the conclusion it in fact reached on the first issue. But it did not do that. All it offered by way of explanation for its ultimate conclusion on this issue was its reference to some statements in "the Fehrer booklet" and to the mats being cut from rolls. This booklet is produced by the organisation that manufactures machines, including those used in the production of the felt from which these mats are made. It is not a booklet produced by the manufacturer of the mat felt, Beaulieu Real N V, who used those machines. That the machine manufacturer describes three of its machines, the NL11/SE, the NL2000/SLV and the NL2000/LV as used for the manufacture of material "for exclusive floor and wall coverings" and of material "mainly used as floor and wall coverings, or for automotive trunk linings and interior trim" in my opinion does nothing to explain why these bath and floor mats have "the characteristics of floor coverings" within the meaning of that expression in the Note to the Chapter. This is especially so since Mr Nollens of Beaulieu Real N V, in oral evidence said that while his company produced wall to wall carpeting by the same needle punch process it used to produce the mats, it would not make carpeting with fibres as coarse as those it used in mat-production. The Tribunal's reference, without explanation as to what it thought was its significance, to another passage in the Fehrer booklet in which the machine manufacturer discusses its special "superlooper" machine, used to produce velours utilised "for automotive textiles, marine fabrics, shoe linings, soft toys, hot carpets and hometex", in my opinion, further obscures rather than elucidates such reasoning process as the Tribunal may have engaged in to conclude that these mats have the characteristics of floor coverings, especially since the evidence does not show that Beaulieu Real N V ever used this particular machine.

Apart from its references to the machine manufacturer's booklet, none of which in my opinion provide any explanation for the conclusion the Tribunal reached, it relied only on the evidence that the fabric from which the mats are made is itself produced "in large carpet rolls" and that the mats "are produced by cutting the carpet into appropriate shapes and sizes". It is largely a matter of guess-work to identify the significance the Tribunal found in this evidence. But the reasoning implicit in the Tribunal's statements here may be that, simply because the material is initially produced in what are called "large carpet rolls", that is a description which necessarily means that those rolls were (or at least had the characteristics of) floor coverings and that since the mats were cut from those carpet rolls, they too necessarily had those same characteristics. Why the phrase "large carpet rolls" must have such a meaning when, according to a body of unchallenged descriptive evidence not mentioned by the Tribunal, the material in the rolls has features I have referred to which appear to be quite different from those found in floor coverings, at least within the meaning of that term in ordinary language, is nowhere explained by the Tribunal.

The Tribunal Member himself questioned Mr Nollens about the difference between ordinary wall-to-wall carpets and the material from which the mats were made and, in this context, there was brief cross-examination in which Mr Nollens agreed that rolls of matting material could be used to cover an indoor cricket arena but insisted they were far too coarse for use either as domestic or commercial carpeting. The Tribunal may possibly have had this passage of evidence in mind, although it is speculation to make that assumption, given the opaque brevity of what the Tribunal had to say about the material from which the mats were produced taking the form of large carpet rolls. In any event, it is very doubtful whether Mr Nollens' evidence provides any support for the assumption the Tribunal appears to have made, viz that the rolls of source material were or had the characteristics of floor coverings and the mats cut from that material therefore necessarily had those same characteristics.

Further, Note 1 only extends the meaning of "carpets and other textile floor coverings" to "articles having the characteristics of textile floor coverings but intended for use for other purposes" so as to make such articles classifiable accordingly. The articles here in question are the mats. But it was not because the mats were identified as having the characteristics of floor coverings themselves, but because other articles, viz the rolls from which the mats were made were regarded as having the characteristics of floor coverings, that the Tribunal seems to have found that the mats had those same characteristics. This in my opinion is an impermissible approach to the construction of Note 1: it involves an error of law which vitiates the Tribunal's conclusion. This is not to say that the Tribunal, in deciding whether the mats came within heading 5704 read with Note 1, could not properly have regard to any relevant features of the rolls, being features also possessed by the mats. But what it could not do was say, as it appears to have done, that because the rolls have certain of the characteristics of floor coverings, different articles, viz the mats cut from those rolls, must possess those same characteristics, even though they are different in form from the rolls.

Whether the Tribunal has discharged its duty to give reasons does not depend on whether it has sought to explain how it came to its decision at length, rather than briefly: the duty can be properly performed in economical language. But the obligation imposed on the Tribunal to give reasons for its decision is not satisfied by its stating a number of propositions, either concisely or at length, which do not provide an intelligible explanation for how the Tribunal reached its conclusion. In Australian Telecommunications v Barker [1990] FCA 489; (1990) 12 AAR 490, the Full Court said at 492:

"The Tribunal failed to state reasons for that conclusion, to expose its reasoning process. It is an error of law for a Tribunal, which is bound to state reasons for its decision, to fail to express findings and reasons for decision adequate for the purpose of enabling a proper understanding of the basis on which the decision has been reached." (Emphasis added)

In Baxter Healthcare v Comptroller-General of Customs [1997] FCA 131; (1997) 72 FCR 467, Moore J at 490 spoke of "the inadequacy of the reasons" ie reasons not enabling an understanding to be gathered as to why the Tribunal came to its conclusion, as involving a breach by the Tribunal of its statutory duty to give reasons and thus an error of law. Merkel J, in the same case, at 495 - 498 also considered that the Tribunal's decision was infected with error of law because of the same sort of inadequacy in the reasons it gave. If the Tribunal gives what purport to be its reasons for its decision, but they are inadequate to enable an understanding of how it reached its decision to be gathered by the public and the parties, that amounts to a failure to comply with the statutory obligation to give reasons, in view of the rationale underlying this statutory duty. See Muralidharan v Minister for Immigration and Ethnic Affairs (1996) 62 FCR 402 at 414-415.

In addition to making the error of law in construing Note 1 to Chapter 57 which I have mentioned, the Tribunal has, for the reasons I have set out, failed to comply with s 43 (2) of the AAT Act by failing to give reasons for a conclusion critical to its decision, viz that the mats were within heading 5704 because they had "the characteristics of floor coverings" within the meaning of that term in Note 1 to the Chapter. It has therefore made a further error of law in affirming the respondent's classification of the mats.

Ground 4(a) of the Notice of Appeal is made out.

Whatever be the true construction of heading 5704, read with Note 1 to Chapter 57 to the Tariffs, a decision cannot be made on whether the respondent was right in classifying them to sub-heading 5704.90.10 until further facts are found. At the very least, it is necessary for findings to be made as to just what are the characteristics of these mats of possible relevance to whether they are within this heading. That is a task for the Tribunal, not this Court on an appeal under s 44 of the AAT Act. The Tribunal having made an error of law affecting its decision and it being necessary for further facts to be found before it can be determined whether the respondent's classification of the mats is correct, the matter must be sent back to the Tribunal for redetermination. See Baxter Healthcare Pty Ltd v Comptroller-General of Customs at 490-1 and 499; Commonwealth v The Human Rights and Equal Opportunity Commission and "X" Federal Court, Full Court, 13 January 1998, per Burchett J.

Since the matter must go back to the Tribunal, it is unnecessary to deal with the applicants' other grounds of appeal.

I certify that this and the preceding ten (10)

pages are a true copy of the Reasons

for Judgment herein of the Honourable

Justice Drummond

Associate:

Dated: 19 February 1998

Counsel for Applicants: K Varley

Solicitor for Applicants: Carter Green & Co

Counsel for Respondent: J A Logan

Solicitor for Respondent: Australian Government Solicitor

Date of Hearing: 5 February 1998

Date of Judgment: 19 February 1998