Collector of Customs v Wallace Laboratories Pty Ltd [2002] FCA 659 (30 May 2002)

Last Updated: 30 May 2002

FEDERAL COURT OF AUSTRALIA

Collector of Customs v Wallace Laboratories Pty Ltd [2002] FCA 659

CUSTOMS & EXCISE - admissibility of evidence - form of pleadings.

Excise Act 1901 (Cth)

Avon Downs Pty Ltd v Federal Commissioner of Taxation [1949] HCA 26; (1949) 78 CLR 353 cited

Collector of Customs (Vict.) v Wilh Wilhelmsen Agency Pty Ltd [1956] HCA 74; (1956) 102 CLR 147 applied

Collector of Customs (NSW) v Southern Shipping [1962] HCA 20; (1962) 107 CLR 279 applied

Federal Commissioner of Taxation v Bayley (1952) 86 CLR 507 cited

Federal Commissioner of Taxation v Brian Hatch Timber Co (Sales) Pty Ltd (1972) 128 CLR 29 cited

MIMA v Wu Shan Liang (1996) 185 CLR 2 cited

Sidebottom v Giuliano [2000] FCA 607; (2000) 98 FCR 579 cited

Macquarie Dictionary

COLLECTOR OF CUSTOMS V WALLACE LABORATORIES PTY LIMITED

NO. N 320 OF 2001

BEAUMONT J

30 MAY 2002

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 320 OF 2001

BETWEEN:	COLLECTOR OF CUSTOMS APPLICANT
AND:	WALLACE LABORATORIES PTY LIMITED RESPONDENT
JUDGE:	BEAUMONT J
DATE OF ORDER:	30 MAY 2002
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The proceedings be stood over to a directions hearing at a date to be fixed.

2. Costs to date reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 320 OF 2001

BETWEEN:	COLLECTOR OF CUSTOMS APPLICANT
AND:	WALLACE LABORATORIES PTY LIMITED RESPONDENT

JUDGE:	BEAUMONT J
DATE:	30 MAY 2002
PLACE:	SYDNEY

REASONS FOR INTERLOCUTORY JUDGMENT

(ON OBJECTION TO ADMISSION INTO EVIDENCE OF AFFIDAVIT OF G. B. SHEWAN SWORN 30 NOVEMBER 2001 ("MFI 6"))

BEAUMONT J:

INTRODUCTION

1 By his Further Amended Statement of Claim, dated 25 March 2002, the applicant, the Collector of Customs ("the Collector"), sued the respondent, Wallace Laboratories Pty Limited ("Wallace"), on two causes of action under s 60 of the Excise Act 1901 (Cth) ("the Act"). During the course of the final hearing of the proceeding, Wallace sought to read Mr Shewan's affidavit. The Collector has objected, on relevance, to its reception into evidence. The Collector has further submitted, in the alternative, that, relevance apart, the evidence was also bad in form. At this stage, I have heard argument, and reserved, on the relevance point, one of law, only.

2 In order to understand the nature of the Collector's objection, it will be necessary to explain the relevant legislative scheme, and the issues disclosed by the pleadings.

THE LEGISLATIVE SCHEME

3 The material provisions of s 60 are as follows:

* Where a person who has, or has been entrusted with, the possession, custody or control of excisable goods which are subject to the control of the Customs (a) fails to keep those goods safely; or (b) when so requested by a Collector, does not account for those goods to the Collector's satisfaction, the person shall, on demand in writing made by a Collector, pay to the Commonwealth an amount equal to the amount of the Excise duty which would have been payable on those goods if they had been entered for home consumption on the day the Collector made the demand (s 60(1)).

* An amount payable under s 60(1) shall be a debt due to the Commonwealth and may be sued for and recovered in a court of competent jurisdiction by proceedings in the name of the Collector (s 60(2)).

* In proceedings under s 60(2), a statement or averment in the Collector's claim is evidence of the matters so stated or averred (s 60(3)).

* This section does not affect the liability of a person arising under or by virtue of (a) any other provision of the Act; or (b) a security given under the Act (s 60(4)).

* An application may be made to the Administrative Appeals Tribunal ("the AAT") for review of a demand made by a Collector under s 60 (s 162C(1)(e)).

THE ISSUES THROWN UP BY THE PLEADINGS

4 Any dispute about the relevance of material sought to be put into evidence must, of course, be resolved in the light of the issues emerging from the pleadings.

The Collector's claims

5 The Collector pleads his claim relevantly as follows:

6 First, he avers the following matters by virtue of s 60(3) of the Act (all of which are admitted by Wallace):

"4. At all material times [Wallace] was the holder of an Australian Customs Service ("Customs") Approval to take delivery from CSR Ltd of non-potable undernatured spirit granted pursuant to regulation 142 of the Excise Regulations being Approval no. 199810/004980/A issued January 1996 and valid between 30 October 1995 and 30 October 1998, with approval subject to the spirit being used for the purpose only of manufacture of flavours rubbing alcohol and skin cleanser.

4A. At all material times [Wallace] was the holder of a Customs Approval to take delivery from Bundaberg Distilling Company Pty Limited of non-potable undernatured spirit granted pursuant to regulation 142 of the Excise Regulations being Approval no. 199810/004984/A issued in January 1996 and valid between 30 October 1995 and 30 October 1998, with approval subject to the spirit being used for the purpose only of manufacture of flavours, rubbing alcohol and skin cleanser.

5. Pursuant to Approval no. 199810/004980/A, [Wallace] was authorised to take delivery of an amount of spirit not exceeding 21,400 litres per annum, subject to the spirit being used for purposes only of manufacture of flavours, rubbing alcohol and skin cleanser.

5A. Pursuant to Approval no. 199810/004984/A [Wallace] was authorised to take delivery of an amount of spirit not exceeding 12,200 litres per annum, subject to the spirit being used for purposes only of manufacture of flavours, rubbing alcohol and skin cleanser.

6. Between 6 March 1966 and 22 September 1998 CSR Ltd supplied [Wallace] with 21,600 litres of spirit which had been entered under Item 2M of the Schedule to the Excise Tariff Act 1921 at a free rate of duty.

6A. Between 6 March 1996 and 22 September 1998 Bundaberg Distilling Company Pty Limited supplied [Wallace] with 8,800 litres of spirit which had been entered under Item 2M of the Schedule to the Excise Tariff Act 1921 at a free rate of duty.

7. Between 6 March 1996 and 22 September 1998 [Wallace] took delivery of 21,600 litres of spirit from CSR Limited pursuant to the approvals under regulation 142 referred to in paragraph 4 above, and accordingly these 21,600 litres of spirit remained subject to the control of Customs pursuant to regulation 149 of the Excise Regulations.

7A. Between 6 March 1996 and 22 September 1998 [Wallace] took delivery of 8,800 litres of spirit from Bundaberg Distilling Company Pty Limited pursuant to the approvals under regulation 142 referred to in paragraph 4A above, and accordingly these 8,800 litres of spirit remained subject to the control of Customs pursuant to regulation 149 of the Excise Regulations.

8. By reason of the above [Wallace] was at all material times a person who has, or who has been entrusted with, the possession, custody or control of excisable goods which were subject to the control of the Customs within the meaning of Section 60(1) of the Act."

7 (As has been mentioned, Wallace has indicated to the Court that it admits all of these averments. It should also be noted here that Wallace has not applied to the AAT for review of the Collector's statutory demands.)

8 The Collector then sues upon his first cause of action by this pleading:

"10. By letter dated 24 November 1998 a Collector requested [Wallace] to account for the apparent shortfall of 9,801.16 litres of alcohol pursuant to section 60(1)(b) of the Act.

11. [Wallace] did not account for the 9,801.16 litres of alcohol to the satisfaction of a Collector.

12. By letter dated 21 December 1998, a Collector made a demand in writing pursuant to section 60(1) of the Act that [Wallace] pay to the Commonwealth $374,404.31 being an amount equal to the amount of the excise duty which would have been payable on 9,801.16 litres of alcohol pursuant to Item 2 O of the Schedule to the Excise Tariff Act if they had been entered for home consumption on the day on which the demand was made.

13. On 24 August 2000 [the Collector] revoked the demand referred to in paragraph 12 above and made demand in writing that [Wallace] pay to the Commonwealth $364,701.16 being an amount equal to the amount of excise duty which would have been payable on 9,801.16 litres of alcohol pursuant to Item 2H of the Schedule to the Excise Tariff Act if they had been entered for home consumption on the day on which the demand referred to in paragraph 12 was made.

14. The amount of $364,701.16 is calculated under item 2H of the Excise Tariff Act by multiplying 9,801.16 litres by the duty rate as at the date of the demand referred to in paragraph 12 above of $37.21 per litre of alcohol.

15. The demand made for payment of the sum of $364,701.16 has not been met, nor has any other amount been paid as at the date of commencement of these proceedings.

16. The said sum of $364,701.16 constitutes a debt due to the Commonwealth owed by [Wallace] which may be sued for by [the Collector] pursuant to section 60(2) of the Act."

9 The Collector sues upon his second cause of action by the following pleading:

"18. By letter dated 24 August 2000 a Collector requested [Wallace] to account for ... 835 litres of alcohol ... pursuant to section 60(1)(b) of the Act.

19. [Wallace] did not account for the 835 litres of alcohol to the satisfaction of a Collector.

20. By letter dated 6 March 2001 a Collector made a demand in writing pursuant to section 60(1) of the Act that [Wallace] pay to the Commonwealth $45,557.60 being an amount equal to the amount of the excise duty which would have been payable on 835 litres of alcohol pursuant to Item 2H of the Schedule to the Excise Tariff Act if they had been entered for home consumption on the day which the demand was made.

21. On 7 August 2001 a Collector revoked the demand referred to in paragraph 20 above and made demand in writing that [Wallace] pay to the Commonwealth $43,279.70 being an amount equal to the amount of excise duty which would have been payable on 793.25 litres of alcohol pursuant to Item 2H of the Schedule to the Excise Tariff Act if they had been entered for home consumption on the day which the demand referred to in paragraph 20 was made.

22. The amount of $43,279.70 is calculated under Item 2H referred to in paragraph 20 above by multiplying 793.25 litres of alcohol by the duty rate as at the date of the demand of $54.56 per litre of alcohol.

23. The demand made for payment of the sum of $43,279.70 has not been met, nor has any other amount been paid as at the date of commencement of these proceedings.

24. The said sum of $43,279.70 constitutes a debt due to the Commonwealth owed by [Wallace] which may be sued for by [the Collector] pursuant to section 60(2) of the Act."

10 The Collector then claimed these sums of $364,701.16 and $43,279.70 (a total of $407,980.86) and interest.

Wallace's defence

11 By its amended Defence, Wallace accepts both this Court's jurisdiction to entertain the matter, and the Collector's title to sue. However, Wallace seeks to raise two substantial defences to each of the causes of action alleged by the Collector, as follows.

12 First, in answer to the Collector's claim in each of pars 11 and 19 of the Further Amended Statement of Claim of Wallace's failure to account to the Collector's satisfaction, Wallace pleads:

"5(i) [Wallace] denies that it failed to account therefor.

(ii) In the alternative to (i) any failure to account was due to the failure of the Customs Officers who claimed to have conducted an audit to apprise [Wallace] of full details of the audit so as to enable [Wallace] to identify such error or errors of the Customs Officers as had led them to conclude that there was a suggested shortfall.

(iii) [Wallace] does not know and cannot admit the remainder of [pars] 11 [and 19] relating to the satisfaction or otherwise of a Collector but denies that in all the circumstances it was in any way reasonable for any Collector to conclude than there had been a failure of any kind by [Wallace] to properly discharge its duties so as to warrant a state of dissatisfaction, unsatisfaction or non-satisfaction."

13 Secondly, in answer to the Collector's claim, in each of pars 16 and 24, that a debt was due to the Commonwealth, Wallace pleads:

"10. [Wallace] denies ... [pars] 16 [and 24] of the [Further] Amended Statement of Claim because the amount of Excise duty within the meaning of [s] 60(1) of the Act, claimed by the [Collector] is produced by an assertion as to a shortfall, which is incorrect in fact."

The Collector's reply to Wallace's defence

14 By his Reply, the Collector pleads:

"In answer to paragraph 10 of the Defence to the Further Amended Statement of Claim, the [Collector]:

(a) denies that his claim is for excise duty and says that his claim is for an amount equal to the amount of excise duty that would have been payable on the goods the subject of the request to account pleaded in paragraph 10 of the Further Amended Statement of Claim and the demand pleaded in paragraph 13 of the Further Amended Statement of Claim if those goods had been entered for home consumption on the day of such demand;

(b) denies that the amount so claimed is produced by any assertion on his part of any shortfall and says that his claim is based on the [relevant] allegations and averments [pleaded in] paragraph[s] 14 - 16 of the Further Amended Statement of Claim;

(c) says that it is not open to [Wallace] as a matter of law to put in issue in these proceedings the existence or non-existence in fact of any shortfall; and

(d) further or in the alternative, does not admit the non-existence of a shortfall."

MR SHEWAN'S AFFIDAVIT EVIDENCE

15 In his affidavit ("MFI 6") Mr Shewan says:

"1. I am the Production Manager of Wallace Laboratories Pty Limited (the Respondent).

2. At approximately 6.15am on 22 September 1998, a number of people whom I now know to be Australian Customs Service (ACS) Officers arrived at my home at 9 Brixham Place Chipping Norton where they conducted a search after presenting a search warrant.

3. At approximately 7.15am that day, I arrived at the Respondent's premises at 26 Barry Road Chipping Norton. About 20 ACS Officers were present. They possessed search warrants for some of the units occupied by the Respondent at the time. These were units 1, 2, 4, 5, 8, 10, 14, 15. They did not possess search warrants for units 9 and 11.

4. Before entering and searching each unit for which they had a search warrant, an ACS Officer would read my rights to me and present the search warrant to me.

5. During a conversation with the ACS Officer whom I now know to be Mr Phil Chapman, he said words to the following effect: `If need be I can get a warrant for unit 9 from the city in an hour'.

6. Upon inquiry by an ACS Officer, I indicated to that Officer that units 9 and 11 were used for storage. I also indicated to Mr Phil Chapman that we would not deny access to unit 9 despite the lack of a warrant. To the best of my knowledge and belief no ACS Officers searched units 9 and 11 on that or any subsequent day, nor was any search warrant ever presented to me relating to units 9 and 11.

7. At no time did Mr Chapman or any other ACS Officer who attended advise me, or any other officer of the Respondent to my knowledge, the purpose of the search warrants and in particular no reference was made by any ACS Officer of any intention to audit the quantity of alcohol stored, manufactured and sold by the Respondent.

8. To my knowledge there was a substantial quantity of stock stored in units 9 and 11. I have perused and considered the affidavit of Trevor James Coulter sworn on 30 July 2001 and the annexures thereto and say that to the best of my knowledge and belief the stocktake carried out by ACS Officer McIntosh which is referred to in paragraph 8 in annexure TJC2 of that affidavit did not take into account the stock stored in units 9 and 11 as referred to above.

9. As production manager, I observe products spilling and or overflowing while the bottle filling process is in operation.

10. During the course of setting up a production run I flush the machines with alcohol based product resulting in the waste of that product.

11. In respect of all bottled liquid produced and manufactured by the Respondent, including all bottled products that contain alcohol, the bottles are consistently filled to a level of at least 10 ml over and above the stated capacity of the bottle shown on the label. Thus, our 80 ml bottles contain 90 ml of liquid, our 750 ml bottles contain 760 ml of liquid etc. The purpose of doing so is twofold:-

(a) experience has shown customers are more likely to buy a bottle filled to the bottom level of the cap;

(b) this practice avoids any possibility of contravening State Government weights and measures regulations in respect of the minimum volume of standard size bottles.

12. After each batch of products, I advise Cirila Wray the amount of alcohol used.

13. To my knowledge no alcohol purchased by the Respondent from CSR Limited or Bundaberg Distilling Company Pty Limited was ever used for any purpose other than the manufacture of products to which the concessional excise rate which was paid applied.

14. To the best of my knowledge and belief, if a stocktake had been undertaken of all stock, including the stock which was stored in units 9 and 11, there would have been no material discrepancy in the total volume of alcohol which should have been on the company's premises."

WALLACE'S BASIS FOR THE TENDER OF MR SHEWAN'S EVIDENCE

16 On behalf of Wallace, it is submitted that the provisions of s 60 do not preclude the reception of this evidence. Section 60, it is submitted, does not require that background information of this kind is to be ignored. Specifically, Wallace submits, Mr Shewan's evidence is relevant because it relates to the issues raised by pars 5 and 10 of its Defence.

THE COLLECTOR'S OBJECTION TO THE TENDER

17 The Collector makes the following objection, in principle, to the reception of Mr Shewan's evidence:

* The only issue remaining for determination on each of the causes of action sued upon, is whether Wallace has accounted to the satisfaction of a Collector.

* To "account to the satisfaction of a Collector" is to give an explanation that satisfies the Collector that the goods have been dealt with in accordance with the Act. Reliance is placed upon the relevant dictionary meaning of "account" (i.e. "an explanatory statement of conduct, as to a superior" (Macquarie Dictionary)). Reliance is also placed by the Collector upon the following authorities:

o The Collector of Customs (Vict.) v Wilh Wilhelmsen Agency Pty Ltd [1956] HCA 74; (1956) 102 CLR 147 per Kitto J at 159 - 160.

(It should be explained here that Wilhelmsen was an action for the recovery of customs duty under s 149 of the Customs Act 1901 - 1990 (Cth). It provides:

"If any dutiable goods which are included in the report of any ship ... are not produced to the officer the master or owner of the ship ... shall on demand by the Collector pay the duty thereon as estimated by the Collector unless the goods are accounted for to the satisfaction of the Collector."

In summary (it will be necessary to refer to the reasoning in Wilhelmsen later), it was there held that the clause "unless the goods are accounted for to the satisfaction of the Collector" is a condition for defeasance of liability and is not a condition precedent to its accrual. It was further held that the expression "accounted for to the satisfaction of the Collector" requires that, upon the information which the Collector has, he should reach two conclusions, one being that the material ought fairly to be accepted as establishing certain facts; and the other being that what those facts show as to the history of the goods, is satisfactory from the point of view of one concerned with the due protection of the Crown's interests under the Customs law. The Collector is not bound by any rigid rules but is to make up his mind reasonably on a balance of considerations.)

o Collector of Customs (NSW) v Southern Shipping Co Ltd [1962] HCA 20; (1962) 107 CLR 279 (Dixon CJ, McTiernan, Kitto, Taylor, Menzies, Windeyer and Owen JJ) per McTiernan J at 291; per Owen J at 305.

(Southern Shipping was an action for recovery of an amount under s 60 of the Excise Act 1901 - 1952 (Cth). In summary, it was held that it could not be a satisfactory account of missing goods to say merely that they had been stolen. It was further held that s 60 was a provision for the protection of the revenue, not a primary imposition of taxation.)

o Sidebottom v Commissioner of Taxation [1999] FCA 1328; (1995) 95 FCR 255 per Finkelstein J.

(Sidebottom was a proceeding for judicial review of a decision to request an accounting under s 60(1) of the Act. It was held (at 259), following Dixon CJ in Southern Shipping (at 287) that the obligation is to ensure that goods do not irregularly find their way into home consumption. Accordingly, goods will be accounted for if the person entrusted parted with possession in a manner authorised by the Act. Otherwise the duty to keep the goods appears to be absolute, apart from, perhaps, inevitable accident.)

o Sidebottom v Giuliano [2000] FCA 607; (2000) 98 FCR 579 per Finkelstein J at 581, 583 - 584.

(Giuliano was the final hearing of the previous decision. It was held that s 60(1)(b) may be relied upon by the Collector when there is doubt as to the whereabouts of excisable goods or as to their being kept safely; and that s 60(1)(b) cannot be invoked where it is established as an "undoubted fact" that the person in possession has failed to keep the goods safely. It was further held that the circumstances there did not mean that an accounting would be futile.)

* The structure of s 60(1)(b) makes it clear that an account must, if it is to occur, happen after the Collector's request, and before his demand.

* There is no requirement for the Collector in an action under s 60(1)(b) to prove that the goods have in fact not been dealt with in accordance with the Act. That is the point of providing for the accounting to the (subjective) satisfaction of a Collector. It is also the point of providing in s 162C(1)(e) of the Act that a person upon whom a demand is made has a right to an AAT merits review, whereupon the AAT will stand in the Collector's shoes and will determine, on the evidence before it, whether it has the requisite "satisfaction".

* It is true that it was open to Wallace to seek to provide that it did account to the Collector's satisfaction; and also true that it would suffice to show that a Collector, acting reasonably, could only have been satisfied by the account given. However, Wallace is limited to material given to the Collector before the demand. Reliance is placed by the Collector upon the following authorities:

o Avon Downs Pty Ltd v Federal Commissioner of Taxation [1949] HCA 26; (1949) 78 CLR 353 per Dixon J at 360.

(In Avon Downs, a question arose as to the operation of the provisions of s 80(5) of the Income Tax Assessment Act 1936 that no loss shall be an allowable deduction unless the company established certain facts to the satisfaction of the Commissioner. In a frequently cited passage, Dixon J (at 360) noted that "it is for the [C]ommissioner, not for me, to be satisfied ... [yet] ... [h]is decision, it is true, is not unexaminable". Dixon J went on to explain the circumstances in which the Commissioner's decision might be liable to judicial review.)

o Federal Commissioner of Taxation v Bayley (1952) 86 CLR 507 per Williams J at 510.

(In Bayley, a taxpayer's statutory right to a refund depended upon the Commissioner's satisfaction. William J, as Dixon J had done in Avon Downs, held (at 510) that the decision was not unexaminable.)

o Federal Commissioner of Taxation v Brian Hatch Timber Co (Sales) Pty Ltd [1971] HCA 18; (1972) 128 CLR 28 per Walsh J at 40; per Barwick CJ at 45; per Menzies J at 52; per Windeyer J at 57 - 58; and per Owen J at 59.

(Avon Downs was applied here in a similar taxation context.)

o MIMA v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259.

(The statutory (Migration Act) context in Wu was that the Minister may determine that a person is a refugee if "satisfied" that a person is a refugee. Brennan CJ, Toohey, McHugh and Gummow JJ (at 275) applied Dixon J's "classic dictum" in Avon Downs in this connection.)

18 By way of supplementary submission, the Collector further contends that Mr Shewan's evidence cannot bear upon the issue sought to be tendered by par 10 of Wallace's Defence, purporting to deny par 16 of the Statement of Claim. It will be recalled that par 16 alleged that there is a debt of $364,701.16 due to the Commonwealth; and that par 10 of the Defence states:

"10. The Respondent denies paragraph 16 of the [Further] Amended Statement of Claim, because the amount of Excise duty within the meaning of sub-sec 60(1) of the Excise Act, claimed by the applicant, is produced by an assertion as to a shortfall, which is incorrect in fact."

19 It is submitted for the Collector, relying upon Southern Shipping, that it is incorrect to treat s 60 as imposing a tax.

20 It is further submitted for the Collector that nothing in Mr Shewan's affidavit is logically probative on the issue whether the Collector, acting reasonably, ought to have been satisfied with any account given by Wallace in answer to the request to account. In particular, there is no suggestion in Mr Shewan's affidavit that, at any time before swearing it, he sought to explain to Customs that any of the alcohol the subject of the request for account was stored in either unit 9 or unit 11. Nor did Mr Shewan suggest, at any time before swearing his affidavit, that the use of the alcohol could be explained by reference to the amount of liquid in bottles manufactured by Wallace.

REASONING ON INTERLOCUTORY JUDGMENT

21 This proceeding has already had its adjectival complexities. Without attempting to describe all of the dynamics of the litigation, it should be noticed that the pleadings have, of necessity, been amended several times. Some important amendments have been made during the course of the final hearing itself. Given the nature of the litigation, it is especially important that the pleadings not only accord with the substantive requirements (specifically, not be demurrable), but also be sound process-wise (specifically, provide transparent particulars). As has been said, any consideration of relevant material must be based upon the scope of the issues disclosed by the pleadings. For this reason, and in the exercise of the Court's management powers in any event, before addressing the Collectors' particular objections to Mr Shewan's affidavit, I propose next to examine the pleadings of both parties for the purposes of testing their validity, as pleadings, both substantively and process-wise.

The Collector's statement of his claims

22 In my view, as a pleading in chief, no objection could be (or is) taken to the Collector's Further Amended Statement of Claim filed in Court on 25 March 2002. The pleading follows the language of the statute in both a logical and chronological fashion. The averments of fact made are, as has been noted, legitimised by s 60(3) and are, in any event, admitted. Adequate particulars of each of the requisite statutory ingredients are provided.

Wallace's amended defence

23 As has been seen, several kinds of substantive defence are sought to be raised as follows.

Par 5(i)

24 First, in answer to the claim in par 11 of the Further Amended Statement of Claim, that Wallace "did not account for the 9,801.16 litres of alcohol to the satisfaction of a Collector", Wallace pleads (par 5(i)) a denial of the Collector's claim that it failed to account "therefor" (presumably a reference to the 9,801.16 litres of alcohol).

25 In my opinion, this statement of a defence does not squarely address the thrust of a principal feature of the claim made in par 11. Specifically, it does not, or at least does not properly, address the critical element of the Collector's satisfaction. If, by this defence, Wallace seeks to collaterally challenge the Collector's decision (effectively of "non-satisfaction"), the defence should state the specific basis to justify that type of challenge, assuming for the moment that it is open here. If no collateral challenge on legal grounds is being made, the statement of defence should have addressed the factual element of the Collector's "non-satisfaction", if this is intended to be disputed.

26 At the least, in my view, par 5(i) requires clarification by Wallace. Until it is clarified, the Court cannot be expected to rule properly upon the relevance of the material now sought to be tendered by Wallace.

Par 5(ii)

27 Secondly, and alternatively, Wallace pleads (par 5(iii)) that any failure to account was due to Custom's failure "to apprise [Wallace] of full details of [its] audit so as to enable [Wallace] to identify such error or errors of ... Customs ... as had led them to conclude that there was a suggested shortfall".

28 In my opinion, in the light of the reasoning in Wilhelmsen and Southern Shipping (see below), the precise legal basis for this plea, if indeed available, requires at least clarification by Wallace.

29 In Wilhelmsen, the facts were that the defendant, a shipping agent, did not own the goods, yet by virtue of a statutory definition, was deemed to be the ship's "owner". Two shipments were involved, but in similar circumstances, goods were "missing". The defendant's primary argument in answer to the claim based upon the counterpart of s 60 of the Act was that the section applies only in respect of goods which have been imported; and that in proceedings to recover duty under the section, the burden of proving the fact of importation lies upon the Crown.

30 Kitto J said (at 154 - 155):

"It is conceded that the ship's report affords some evidence, as an admission, against the master or owner who made it, that the goods described in it were in fact imported; but it is said that the evidence as a whole must be regarded, and that if the balance of probability is against the correctness of the admission the claim of the Crown must fail. Accordingly evidence was placed before me (and was admitted subject to objection) which provide that, according to the practice followed by the defendant, reports under s. 64 are made up by transcribing the information contained in documents called original manifests, which the defendant receives from overseas ports by air mail. At the time when this is done, the bills of lading are not yet available. In the case of the Thermopylae and the Kvernaas they were not received until the ship arrived at Melbourne, that is to say until after the report had been sent in to the customs. For this and no doubt other reasons, the reports under s. 64 are often found to be inaccurate, surpluses as well as deficiencies of cargo being frequently discovered when the clerk in charge on the wharf furnishes his out-turn to the customs."

31 His Honour (at 155) referred to the evidence that theft and errors in the loading process etc. are obvious causes of discrepancies between cargo as appearing on the manifests and cargo as produced to the Customs on the wharf.

32 Kitto J said (at 155 - 156):

"But these possibilities being recognized, I was invited to find that the most probable of the various possible explanations of the shortage of the case of wine from the Thermopylae and the case of glass buttons from the Kvernaas was that they had never been taken into those ships, and that it was in error that the reports under s. 64 included them amongst the imported cargo. I should make that finding if it were material to do so, but I do not consider that it is. On the construction of s. 149, I am of opinion that the question whether the goods were imported is not for the Court to decide."

33 Noting that the statute placed upon the master and the shipowner the duty of making the report of the ship's cargo of goods, his Honour said (at 156):

"[The section], taking as its starting point that the responsibility rests upon them to make a correct report, subjects them, in the event of goods not being produced which their report admits have arrived in the ship, to a qualified liability to pay the estimated amount of the duty which, on the footing that the admission accords with the fact, is payable under Tariff. So understood, the section simply carries a step further the policy of the Act in making goods `subject to the control of the Customs' from the time of their importation (s. 30), giving the customs a right of examination (ss. 32, 49(3)), forbidding any movement, alteration or interference except by authority of a Customs officer (s. 33), requiring `for the purpose of securing the due importation of goods' that they be entered and unshipped (s. 49(3)), and making elaborate provisions for ensuring that the unshipping is subject to adequate safeguards for the revenue (ss. 36-41, 68-77)."

34 (In the present context, the provisions of s 61 of the Act should be noted, as follows:

"Customs Control

61. All excisable goods are, until delivered for home consumption or for exportation to a place outside Australia, whichever first occurs, subject to the control of Customs and must not be moved, altered or interfered with except as authorised by this Act.

Penalty: $20,000.")

35 Kitto J went on to say (at 156 - 157):

"[A]lthough the owner of goods, if they have in fact been imported, is personally liable to pay the duty on them (s. 153), his liability may be difficult to enforce in a case where the goods are missing, for rarely will there be, in the absence of the goods themselves, any evidence admissible against him in a court of the fact of importation, and not always will such particulars of the goods be available as are needed for definite determination of the appropriate amount of duty. The master of a ship is in a position to know what cargo the ship brings into a port for discharge there, for, if he wishes, he can have cargo tallied into the ship at ports of loading and tallied out of the ship at intermediate ports. There are, no doubt, practical difficulties which may induce him to abstain from taking these precautions and to accept the risk of his inward manifests being erroneous; but he can make his choice. Through him, persons within the definition of `owner' are in a like position. But the customs have no means of knowing what the imported cargo consists of, so that they may compare it with the cargo later produced from the ship's custody. Again, the master and the `owner' are in the best position to see that, in accordance with s. 74, goods are not unshipped except pursuant to a collector's permit or an entry passed. Accordingly, s. 149, if construed in the sense I have stated, makes a perfectly congruous addition to the scheme of the Act."

36 His Honour then addressed the defendant's reliance upon the qualifying words: "unless the goods are accounted for to the satisfaction of the Collector" the defendant arguing that the clause provided an additional condition precedent to the arising of the liability, namely a condition that the goods are not accounted for to the satisfaction of the Collector "after he has allowed a fair opportunity of accounting for them to his satisfaction, in the relevant sense of that expression").

37 Kitto J said (at 158 - 159):

"I do not read the section as giving the Collector a discretionary power to impose a liability upon the master or owner after considering whether the goods are accounted for to his satisfaction; and I therefore see no room for implying a condition that before making his demand he must give an opportunity of accounting for the goods and must consider whether any accounting that is offered is satisfactory.

What, then, is meant by the expression `accounted for to the satisfaction of the Collector'? It appears to require that upon the information before him the Collector shall have reached two conclusions. One conclusion is that his information ought fairly to be accepted as establishing certain facts. The other conclusion is that what those facts show as to the history of the goods is satisfactory from the point of view of one concerned with the due protection of the interests of the Crown under the Customs law."

38 His Honour went on to say (at 159):

"The Collector is not told specifically what standard he is to apply in deciding whether he should regard as satisfactory that which he finds has happened with respect to the goods, but the language used has no doubt been chosen deliberately in order to give scope for the exercise in each case of a sound judgment based upon practical understanding and good sense. The intention obviously is that the Collector shall not be bound by any rigid rules, but shall apply his mind to the particular facts of the individual case, and form a reasonable judgment upon them in the light of his knowledge of the conditions surrounding the loading and unloading of ships, both abroad and in this country, including, no doubt, the circumstances affecting the likelihood of error in the compilation of inward manifests. The view I have stated, as to what is involved in goods being accounted for to the satisfaction of the Collector, is borne out by a consideration of the purpose to which the section is directed. It deals with goods which presumptively have been imported and therefore presumptively have become `subject to the control of the Customs', but which have not been produced to the officer at the proper time, so that the customs have not been given the full opportunity which the normal procedure affords of enforcing payment of the appropriate amount of duty. But the section does not make the master or owner absolutely liable for what is, after all, only a presumptive loss of that opportunity; it places upon them a qualified liability only, the qualification being made to depend upon a view to be formed by an official whose functions have to do with the protection of the interest which the revenue has in the due observance of the Customs law."

39 Kitto J concluded (at 160):

"[I]f a master or owner is to be held absolved from his prima facie liability for the duty on goods which the report admits have been imported, the Collector must have information about the goods from which he concludes either that there has been no breach of the Customs law which has deprived the Crown of any means of enforcing payment of duty (as where the goods have been included in the report in error and have not in fact been imported in the ship, or where they have been produced to the Customs since the demand was made under s. 149), or that those connected with the ship who were in a position to see that the Customs law was duly observed with respect to the goods ought not in the circumstances to be regarded as responsible for any such breach that has occurred."

40 That is to say, his Honour held (at 160), the concluding words of the provision "do not prescribe an element in the [statutory] cause of action ..., but provide only a ground of defence".

41 The facts in Southern Shipping were that excisable goods the subject of Customs control were stolen from a store on a wharf pending shipment. At the time of the theft, the keys to the store had been lodged with Customs, and were not available to the defendant. It was held by the Full High Court that the placing of the key with Customs was for safe keeping and did not place Customs in possession of the goods instead of the defendant; and (by McTiernan, Menzies and Owen JJ) that it could not be a satisfactory account of the missing goods to say merely that they had been stolen.

42 Dixon CJ (with whom Windeyer J agreed), speaking of s 60(1)(a) of the Act, observed (at 287):

"`Safely' seems to mean safe from loss or destruction: for the subject is excise duty, not the condition of the goods. The provision is pointed at the loss of goods involving the loss of excise duty. The time of payment of excise duty is at or before entry for home consumption. The hypothesis is that by the loss of the goods duty has been escaped. There must be some doubt whether the destruction of the goods was also contemplated but upon the words of the section destruction is certainly covered. It is said, however, for the defendant that `fail' involves some want of care, some neglect or default. Considering the object of the provision and the place it takes, this ground must `fail'. It means to place on the person having possession, custody or control an absolute duty. Having regard to the place of the section it may be that the manufacturer is not included within the section but clearly other persons who are entrusted with the goods, as, for example, under s. 58(b) or (c), fall within s. 60 and incur what may be called an absolute duty to keep the goods safe from loss or destruction. Perhaps the word `absolute' is too strong for it may be conceded that it is possible to except inevitable casualty - what once was called `Act of God'."

43 Turning to s 60(1)(b), Dixon CJ said (at 287):

"Paragraph (b) presents difficulties as an alternative but it would seem that it is pointed at cases where it cannot be shown that the goods were lost or destroyed but at the same time they are not produced and their whereabouts is not disclosed. Oddly enough, in the present case the Collector took the view that the goods had not been accounted for to his satisfaction although it seems clear enough that he accepted the statement that they had been stolen in the manner described. However, this does not matter because the defendant incurred a liability under s. 60(1)(a)."

44 McTiernan J, after expressing a similar view of the operation of s 60(1)(a), said (at 291):

"Paragraph (b) is in my view a drag-net provision. It exposes every person who has or has been entrusted with the possession, custody or control of excisable goods which are subject to Customs' control to the liability of being requested by the Collector to account for them to his satisfaction. The accounting may be done by producing the goods or, if they are missing, by giving an explanation which is satisfactory to the Collector. He has a discretion, which he is bound to exercise reasonably, to reject what is done or stated by way of accounting for the goods. In my opinion it was reasonable for the Collector to reject the defendant's account of what happened to the goods because the reason for their disappearance from Customs' control, namely breaking entering and stealing, justified the Collector in considering that the defendant failed to keep the goods safely. The defendant was in default under par. (a) and that was sufficient to make it liable. Paragraph (b) was not, I think, intended to provide a person who contravenes par. (a) with the opportunity of explaining away his default thereunder."

45 Taylor J (adverting to the defendant's argument that if it satisfied the Collector that the goods had been stolen, this constituted an accounting for the goods within s 60(1)(b)) said (at 294 - 295):

"This, it seems to me, is equivalent to saying that the defendant fulfilled his obligation to account for the goods if, in effect, he established that, without any default on his part, the goods had ceased to be in his possession. No doubt, if he showed that he had parted with them in a manner authorized by the Act, as for example, by delivering them to the manufacturer's bond store in Hobart, this would be an accounting. Such an explanation would trace the goods from his possession to that of the manufacturer in accordance with the provisions of the Act. But merely to establish that he had lost the goods by theft at the hands of some unknown person is not to account for the goods; it is, merely, to account, for their disappearance. If it were otherwise then it seems plain that a person who has been entrusted with the possession of excisable goods might account for them by a recital of facts which showed that he had, within the meaning of s. 60(1)(a), failed to keep them safely."

46 Taylor J observed (at 295):

"The provision [s 60] is not designed to inflict a penalty upon a bailee for some breach of duty imposed by the bailment; it is a provision which is designed to ensure that the excise revenue shall not suffer if excisable goods, by some irregular means, find their way into home consumption. So much is clear from the provisions of the Act itself."

47 Taylor J went on to say (at 296):

"[W]hilst he is in possession of the goods it is his responsibility alone to ensure that the goods do not irregularly find their way into home consumption. It is in this sense that he is bound to keep the goods safely and to account for them. That being so he may escape liability if he is still in possession of the goods or if he can account for them by showing that they did not pass into home consumption from his hands. That he may do by showing that he has parted with possession of them in some authorized manner or, I should think, by showing that the goods whilst in his possession have been destroyed. The agreed facts clearly show a failure on the part of the defendant to keep the goods safely in this sense...."

48 Menzies J said (at 299):

"In many cases the failure to keep the goods safely will inevitably mean that no satisfactory account for them can be given but, notwithstanding this, I do not regard pars (a) and (b) of s. 60(1) as necessarily cumulative provisions. They are expressed as alternatives and goods which might in fact have been kept safely enough may nevertheless not be accounted for satisfactorily merely because the person with, or entrusted with, possession, custody or control simply refuses to account for them at all."

49 Owen J said (at 305 - 306):

"[C]ases may easily be imagined in which the disappearance of the goods leaves it doubtful whether they may have gone into consumption or that it is likely that they will do so. If so, par. (b) may be invoked and the custodian may be required by the Collector to account for the absence of the goods in such manner as to satisfy him that the revenue has not suffered and, in the absence of an explanation which satisfied the Collector of that fact, the obligation to pay imposed by the latter part of the sub-section may be enforced. In the present case, the explanation given by the defendant for the disappearance of the goods was that they had been stolen and the probabilities were, in these circumstances, that they would go into consumption. The defendant failed to safeguard them against that danger and there was no need, in these circumstances, for the Collector to request the defendant to account for them. Nevertheless he did so and the account was not one upon which he was bound to be satisfied that the revenue had not suffered or would not be likely to suffer."

50 As in the case of par 5 (i) of the Defence, this plea (par 5(ii)) is, in my view, obscure, and thus unsatisfactory, to the extent at least that it fails to mention, let alone address, the critical ingredient of the Collector's satisfaction, and, from Wallace's standpoint, the legal status of that satisfaction. As the course of High Court authority teaches, these are matters of importance and complexity which should be, but are not yet, illuminated by this plea. If par 5(ii) is meant to be read as a free-standing defence, it does not go far enough. If, on the other hand, it is to be read as prefatory to par 5(iii), other considerations may apply (see below).

Par 5(iii)

51 The requisite illumination of the relevant issue is, however, to some extent, found in par 5(iii), which purports first, not to know or admit a state of satisfaction, but, secondly, to dispute any rational basis for a conclusion other than satisfaction.

52 In my opinion, as a matter of both form and substance, this is an unsatisfactory plea. By fragmenting its defence in this way, it fails to address the Collector's allegation in par 11 of the Claim, that Wallace did not account to the Collector's satisfaction. It is true that this is an allegation of secondary, not primary, facts. But it does not follow that the plea can avoid a response to the Collector's claim in its entirety. In my view, as a matter of pleading, it was not open to Wallace to avoid addressing the separate factual issue of the Collector's satisfaction in this way. If a relevant issue were to be revealed from the parties' respective pleadings, Wallace could, in its evidence, have disputed that the Collector was, in fact, satisfied. Alternatively, Wallace could have accepted that, in fact, the Collector purported to be satisfied, but that, in law, that state of satisfaction was vitiated by legal error. Instead par 5(iii) says nothing material on the facts, yet seeks to tender an abstract question of law as an issue. Accordingly, this is an unsatisfactory pleading.

Par 10

53 It will be recalled that Wallace here (par 10) purports to deny par 16 of the Collector's claim (that the sum of $364,701.16 constitutes a debt due to the Commonwealth which may be sued for by the Collector pursuant to s 60(2)) because "the amount of Excise duty within the meaning of [s] 60(1) ... claimed by Wallace, is produced by an assertion as to a shortfall, which is incorrect in fact".

54 In his Reply, the Collector first denies that his claim is for duty. In this, in my view, he is, strictly speaking, correct, as High Court authority teaches.

55 In Southern Shipping, a challenge based on s 55 of the Constitution was rejected.

56 Dixon CJ said (at 288 - 289):

"[O]n a complete view of s. 60 it seems rather to be a provision for the protection of the revenue, not a primary imposition of taxation. The distinction between a sum of money which can be made recoverable as protection to the revenue and the actual imposition of tax may appear a fine one, but as Moore v. The Commonwealth ... shows, it is a critical one for the purpose of s. 55 although probably not for any other purpose. Under s. 51(ii.) of the Constitution the power with respect to taxation extends to enable legislation to be passed for the protection of the revenue that arises from the tax imposed. It is immaterial whether this act is ascribed to s. 51(xxxix.) or, as is perhaps preferable, is regarded as necessarily involved in the subject matter of the power itself. It must be remembered that the conditions prescribed by s. 60(1) involved factors which go to safekeeping and to possession, custody and control, and perhaps the movement of the goods from the manufacturer. It is not based on primary notions of liability to tax. It is a secondary liability and is based on the hypothesis that the tax is escaped. It is indeed an ancillary measure and not itself a tax."

57 Similar views were expressed by the other members of the Court (at 291, 292, 297, 302 and 306 - 307).

58 It is not clear to me what, if any, significance Wallace seeks to attach to its pleading in its present form, which could, presumably, be readily amended. But the Collector in sub-pars (b) and (c) raises more fundamental defects in Wallace's plea, and in sub-par (c), seeks to tender an issue of law in the form of a demurrer, relying upon the course of High Court authority previously considered.

59 It follows, in my view, from the dicta in the High Court which I have cited that, although some, at least, of the material in Mr Shewan's affidavit may be, at best, provisionally relevant on one interpretation of pars 5 and 10 of the Defence, I should not rule on relevance, (even provisionally within the meaning of s 57 of the Evidence Act) until a proper issue is tendered by Wallace and the Collector, possibly in the form of a demurrer (see, e.g. the Collector's Reply, par 1(c)). Notwithstanding the complexities of this litigation, I see no reason why the parties, in particular Wallace, cannot frame their pleadings, in the light of the settled course of High Court authority, in a form which will bear directly, rather than, as Wallace has done, indirectly or collaterally (at best), upon the relevance, if any, of the information in Mr Shewan's affidavit.

60 The question then arises for the Court, as a matter of case management: what course, in this unsatisfactory state of affairs, should be adopted in the interests of the fair and efficient resolution of the litigation?

CASE MANAGEMENT ISSUES

61 This is only an interlocutory aspect of the litigation. As a matter of case management, this proceeding could have been conducted, as was done in Wilhelmsen, by receiving Wallace's evidence subject to the Collector's objection to its relevance, and its ultimate significance dealt with in the final judgment (cf now Evidence Act 1995 (Cth) ss 55 - 57). However, this course was not adopted. Instead, the parties, especially the Collector, asked the Court to rule in advance, but finally, on the substantive legal questions, considered earlier in these reasons, in the context of an interlocutory argument on the relevance of material not yet in evidence. There may be circumstances where this is a useful course, but ordinarily only if the pleadings throw up clearly a distinct point of law, for instance on a distinct point of law, such as on a demurrer. It may be that the parties can plead their cases in this way, but that stage has not been reached. The parties need to give these questions further consideration.

62 In the light of the foregoing, so as to afford the parties the opportunity to consider their respective positions, the proceeding will be stood over to a date to be fixed.

63 Costs to date will be reserved.

I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont.

Associate:

Dated: 30 May 2002

Counsel for the Applicant:	Mr S Gageler SC
Solicitor for the Applicant:	Australian Government Solicitor
Counsel for the Respondent:	Mr B Walker SC Mr P Kintominas
Solicitor for the Respondent:	Benjamin & Khoury
Date of Hearing:	25 - 26 March 2002
Date of Judgment:	30 May 2002