FEDERAL COURT OF AUSTRALIA

FEDERAL COURT OF AUSTRALIA Zappia v Comptroller General of Customs [2017] FCAFC 147 Appeal from: Zaps Transport (Aust) Pty Ltd and Comptroller General of Customs [2017] AATA 202 File number: NSD 363 of 2017 Judges: DAVIES, WHITE AND MOSHINSKY JJ Date of judgment: 19 September 2017 Catchwords: TAXATION appellant served notice of statutory demand for amount payable on stolen dutiable goods liability under Customs Act 1901 (Cth) s 35A for failure to keep dutiable goods safely AAT found statutory demands were properly made appeal on question of law from AAT decision whether appellant has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control meaning of possession meaning of control statutory interpretation appellant could not be found to have been in control of the goods within the meaning of s 35A appellant s submission that no liability could arise by reason of Fair Work Act 2009 (Cth) s 326 rejected appeal allowed. Legislation: Administrative Appeals Tribunal Act 1975 (Cth) s 44 Customs Act 1901 (Cth) ss 4(1), 8, 30, 35A, 36, 37, 68, 71C, 71E, 77EB, 99, 132, 132AA(1), 165, 273GA Customs Tariff Act 1995 (Cth) ss 15, 16, 19AB, 19AC, Ch 24 of Sch 3 Excise Act 1901-1952 (Cth) s 60 Fair Work Act 2009 (Cth) s 326 Income Tax Assessment Act 1936 (Cth) s 264(1) Business Franchise Licences (Tobacco) Act 1987 (NSW) s 33 Cases cited: Anderson Group Pty Ltd v Tynan Motors Pty Ltd [2006] NSWCA 22; (2006) 65 NSWLR 400 Australian Securities Commission v Dalleagles Pty Ltd (1992) 36 FCR 350 Batchelor v Commissioner of Taxation [2014] FCAFC 413; (2014) 219 FCR 453 Beckwith v The Queen (1976) 135 CLR 569 Burnett v Randwick City Council [2006] NSWCA 196

Button v Cooper [1947] SASR 286 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Chief Executive Officer of Customs v John Deere Ltd [2006] FCA 1280; (2006) 155 FCR 208 Collector of Customs (NSW) v Southern Shipping Company Limited (1962) 107 CLR 279 Commissioner of Taxation (Cth) v Australian & New Zealand Banking Group Ltd (1979) 143 CLR 499 Culley v Australian Securities and Investments Commission [2010] FCAFC 43; (2010) 183 FCR 279 Director of Public Prosecutions (Jamaica) v Brooks [1974] AC 862 Drew v Dibb [2008] FCA 1057; (2008) 169 FCR 320 Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 Goben Pty Ltd v The Chief Executive Officer of Customs (No 2) (1996) 68 FCR 301 Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; (2015) 233 FCR 315 Hedberg v Woodhall (1913) 15 CLR 531 He Kaw Teh v The Queen (1985) 157 CLR 523 Horsley v Phillips Fine Art Auctioneers Pty Limited [1995] NSWSC 78 Hussain v Minister for Foreign Affairs [2008] FCAFC 128; (2008) 169 FCR 241 Kitano v The Queen (1974) 129 CLR 151 McCaskill v Marzo (1944) 46 WALR 64 Momcilovic v The Queen [2011] HCA 34; (2011) 245 CLR 1 Moors v Burke (1919) 26 CLR 265 Pendlebury v Kakouris [1971] VR 177 Perna v Police [2007] SASC 306; (2007) 99 SASR 151 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 R v Boyesen (1892) 2 All ER 161 R v Seller [2013] NSWCCA 42; (2013) 273 FLR 155 Re Australian Petroleum Supplies Pty Ltd and Givliano [2001] AATA 1050 Repatriation Commissioner v Warren [2008] FCAFC 64; (2008) 167 FCR 511 Sea Shepherd Australia Ltd v Commissioner of Taxation [2013] FCAFC 68 Strange Investments (WA) Pty Ltd v Coretrack Ltd [2014] WASC 281; (2014) 107 IPR 102

Date of hearing: 1 August 2017 Tabe v The Queen [2005] HCA 59; (2005) 225 CLR 418 Victoria v Commonwealth [1975] HCA 39 Ward v Commissioner of Taxation [2016] FCAFC 132; (2016) 153 ALD 433 Water Board v Moustakas (1987) 180 CLR 491 Yates v Hoare [1981] VR 1034 Registry: Division: National Practice Area: Category: New South Wales General Division Taxation Catchwords Number of paragraphs: 138 Counsel for the Applicant: Solicitor for the Applicant: Counsel for the Respondent: Solicitor for the Respondent: Mr RS Angyal SC Hall Partners Mr TM Thawley SC with Ms TL Phillips Australian Government Solicitor

ORDERS NSD 363 of 2017 BETWEEN: AND: DOMENIC ZAPPIA Applicant COMPTROLLER GENERAL OF CUSTOMS Respondent JUDGE: DAVIES, WHITE AND MOSHINSKY JJ DATE OF ORDER: 19 SEPTEMBER 2017 THE COURT ORDERS THAT: 1. The appeal is allowed. 2. The order made by the Administrative Appeals Tribunal on 17 February 2017 is set aside. 3. The Statutory Demand dated 27 August 2015 served by the Respondent on the Applicant is invalid and of no effect. 4. Subject to Order 5, the Respondent is to pay the costs of the Applicant of and incidental to the appeal to be taxed in the absence of agreement. 5. Liberty to the parties to apply, within five days, to set aside or vary Order 4. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT DAVIES J: INTRODUCTION 1 This appeal concerns the proper construction and application of s 35A(1) of the Customs Act 1901 (Cth) ( the Customs Act ). The section renders a person having, or entrusted with, the possession, custody or control of dutiable goods who fails to keep the goods safely or to account satisfactorily for them as required by s 37 of the Customs Act, liable to pay an amount equal to the duty which would have been payable on those goods, had the goods been entered for home consumption. The amount becomes payable on demand by the respondent ( the Comptroller ) and the Comptroller may recover the amount from that person as a debt due and payable to the Commonwealth. 2 An authorised Collector (see s 8 of the Customs Act) applied s 35A(1) to the applicant ( the applicant or Domenic Zappia ) by making a demand on him for payment of an amount equivalent to duty payable on cigarettes that were stolen from a bonded warehouse. Domenic Zappia, at the time, was the general manager of the licensee of the bonded warehouse. He unsuccessfully applied to the Administrative Appeals Tribunal ( the Tribunal ) for review of the Collector s decision to apply s 35A(1) to him (see s 273GA of the Customs Act) and has appealed the Tribunal s decision: Zaps Transport (Aust) Pty Ltd and Comptroller General of Customs [2017] AATA 202. 3 As the appeal is from the Tribunal under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth), the appeal is on, and limited to, a question of law. The Comptroller filed a notice of objection to competency in relation to questions 1, 2, 3 and 5 of the Notice of Appeal but the objection to competency was not pressed. The Comptroller also filed a notice of contention. For the reasons that follow I have concluded that the Tribunal did not apply the correct legal test and would remit the matter to the Tribunal for determination in accordance with the law. In view of my conclusion the notice of contention need not be considered. STATUTORY CONTEXT 4 Cigarettes imported into Australia attract customs duty (Customs Tariff Act 1995 (Cth), ss 15, 16, 19AB, 19AC, Sch 3, Ch 24) and are dutiable goods within the definition of that expression in s 4(1) of the Customs Act. Pursuant to Item 1 in s 132AA(1) of the Customs Act, import duty must be paid at the time of entry of dutiable goods for home consumption.

- 2 - However, importers of dutiable goods are able to store them in bonded warehouses licensed under Pt V of the Customs Act and duty does not become payable until they are entered for home consumption: s 68, 99, 71C of the Customs Act; CEO of Customs v John Deere Limited (2006) 155 FCR 208 at 214, [17]. Whilst warehoused, imported cigarettes in respect of which duty has not yet been paid remain subject to customs control : Customs Act, ss 30(1)(a)(vi) and 30(1B)(b). 5 Section 35A of the Customs Act, at the relevant time, provided: (1) Where a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control: (a) (b) fails to keep those goods safely; or when so requested by a Collector, does not account for those goods to the satisfaction of a Collector in accordance with section 37; that person shall, on demand in writing made by a Collector, pay to the Commonwealth an amount equal to the amount of the duty of Customs which would have been payable on those goods if they had been entered for home consumption on the day on which the demand was made. (2) An amount payable under subsection (1), (1A) or (1B) 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. (4) This section does not affect the liability of a person arising under or by virtue of: (a) (b) any other provision of this Act; or a security given under this Act. 6 Section 37 provides: Accounting for goods A person accounts for goods or a part of goods to the satisfaction of a Collector in accordance with this section if, and only if: (a) (b) the Collector sights the goods; or if the Collector is unable to sight the goods the person satisfies the Collector that the goods have been dealt with in accordance with this Act.

- 3-7 Section 36 of the Customs Act also makes it an offence for a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control to fail to keep the goods safely. Section 36 relevantly provides: (1) A person commits an offence if: (a) (b) (c) goods are subject to customs control; and the person has, or has been entrusted with, the possession, custody or control of the goods; and the person fails to keep the goods safely. Penalty: 500 penalty units. (2) A person commits an offence if: (a) (b) goods are subject to customs control; and the person has, or has been entrusted with, the possession, custody or control of the goods; and (c) the person fails to keep the goods safely. Penalty: 60 penalty units. 8 An offence against s 36(2) is an offence of strict liability: s 36(3). FACTUAL BACKGROUND 9 The underlying facts were essentially not in dispute and were set out by the Tribunal as follows: 10 The cigarettes in question had been held at a bonded warehouse at Smithfield, New South Wales operated by Zaps Transport (Aust) Pty Ltd ( Zaps or the company ). John Zappia, the applicant s father, was a director of the company at the time and Domenic Zappia was employed as the company s general manager. 11 Zaps held a warehouse licence issued under Pt V of the Customs Act, which authorised it to store tobacco and tobacco products, and other goods subject to customs control (other than petroleum and like products.) The licence included a condition that the company would inform the Australian Taxation Office (which administers the Customs Act) in writing of any other person participating in the management or control of the warehouse and the company had provided the names of both John and Domenic Zappia to the Australian Taxation Office. 12 Zaps had commercial arrangements with a number of companies that imported cigarettes, including with Richlands Express Pty Ltd ( Richlands ). Under the arrangement with

- 4 - Richlands, Zaps held a stock of cigarettes in its warehouse on an ongoing basis. On 15 April 2015, after there had been four thefts of cigarettes stored at the warehouse, the licence was varied by the CEO of Customs so as to withdraw Zaps authority to store tobacco products there. Thereafter the only goods that Zaps was authorised to store at the warehouse pursuant to the licence were goods subject to customs control being alcohol. Following the change to its licence, Zaps still held a quantity of cigarettes at the warehouse imported by Richlands. Zaps sought permission from Customs under s 71E of the Customs Act to move the Richlands cigarettes to other licenced premises, but that permission was not given. In the meantime, Zaps was also negotiating with Richlands over Richlands obligation (under commercial arrangements in place between Richlands and Zaps) to reimburse Zaps for liabilities that Zaps had already incurred in respect of prior thefts of Richlands stock from the warehouse. Zaps was asserting a warehouseman s lien over the remaining Richlands cigarettes. On 23 May 2015 there was a further break-in at the warehouse during which 400,000 of Richland s cigarette sticks were stolen. 13 On 27 August 2015 a Collector served a statutory demand under s 35A of the Customs Act on the company and upon each of John and Domenic Zappia for payment of the equivalent amount of duty payable on the stolen cigarettes. The amount demanded was $188,032. 14 The statement of facts and reasons attached to the demand made on Domenic Zappia recited that: 1. You are the general manager of [Zaps]. 2. Zaps operate a warehouse and storage enterprise located at 37-329 Woodpark Road Smithfield NSW 2164. 3. [Richlands] entrusted Zaps with tobacco or tobacco products for storage at their premises. 4. These tobacco or tobacco products were subject to the control of the CEO of Customs and were not duty paid. 5. As General Manager of Zaps, you are a person who has (or has been entrusted with) possession, custody or control over the goods stored at Zaps premises. 6. On 23 May 2015 a break-in and theft of 400,000 cigarettes occurred at Zaps premises 7. The cigarettes stolen on 23 May 2015 from Zaps premises were the goods owned and entrusted to Zaps by Richlands. You have failed to keep dutiable goods safely as required by paragraph 35A(1)(a) of the Customs Act

- 5-15 The demands were challenged in the Tribunal and the applications were all unsuccessful. 16 This appeal from the Tribunal s decision is brought by Domenic Zappia alone: Zaps is in liquidation and John Zappia is a bankrupt. THE TRIBUNAL DECISION 17 The Tribunal found that the demands under s 35A(1) were all properly made. 18 The Tribunal first considered, and made a finding, that the cigarettes had not been kept safely. At [13]-[14] the Tribunal said: There is no doubt the goods in question were dutiable, and they were not kept safely. While I was provided with evidence about security measures that were implemented at the Zaps warehouse, those measures failed. In any event, nobody was able to account for the dutiable goods when called upon to do so. (An explanation of how one might account for the dutiable goods to the Collector of Customs is set out in s 37 of the Act. Suffice to say nobody did the things referred to in s 37.) Section 35A imposes strict liability. As the High Court explained in Collector of Customs for the State of New South Wales v Southern Shipping Company Limited [1962] HCA 20; (1962) 107 CLR 279, it makes no difference if the responsible person had taken reasonable steps to secure the goods. If something happened to the goods which results in a loss of duty, responsibility for that loss falls on the person or persons entrusted with...the possession, custody or control of excisable goods : per Dixon CJ at p 287. 19 The Tribunal then considered whether the each of the applicants was a person who, at the relevant time, had, or was entrusted with, the possession, custody or control of the cigarettes. 20 The Tribunal found that Zaps, as the licensee of the warehouse, had, and was entrusted with the possession, custody and control of the cigarettes at the time they were stolen. 21 At [26]-[29] the Tribunal considered and rejected an argument put on behalf of John and Domenic Zappia that s 35A(1) did not apply to them because Zaps held the warehouse licence and it was the contracting party with Richlands. The Tribunal reasoned at [29]: If the section had only referred to possession of the goods, it would be easier to see how the individual applicants could argue their involvement with the goods was purely in their capacity as corporate officers, so that the corporation alone was in possession. But the section casts the net wider to include those who might have custody or control. Corporate officers might exercise control in the relevant sense in the course of discharging their responsibilities. Whether a particular officer or employee exercises control in relation to goods in a given case will be a question of fact. 22 The Tribunal found that John Zappia, as the person in charge, both exercised control over the goods in the relevant sense and was entrusted with that control in his capacity as an

- 6 - officer of Zaps : at [30]. The basis for the conclusion (at [27] and [30]) that John Zappia was the person in charge is set out at [22]: John was a director of Zaps at all material times. It was clear from the oral evidence of John and Dominic that John was in overall command of the business. John approved the arrangement with Richlands, had overall direction of what happened with the goods, and demanded that the lien be asserted. 23 The Tribunal also found that Domenic Zappia had exercised control of the goods at the relevant time and held that s 35A(1) also applied to him. The Tribunal said at [31]: I am also satisfied Domenic exercised control over the goods, albeit that his control was subordinate to that of his father and ultimately that of the company. The evidence establishes that he was the one who directed what was to happen to the goods on a day-to-day basis. He exercised delegated authority under which he could accept and release the goods. If he gave orders with respect to the goods, the employees followed them. His operational role was underlined by the fact he met with the officers from the ATO on 25 May 2015 to discuss what had happened to the goods. 24 The relevant evidence relating to Domenic s role was earlier set out by the Tribunal at [23]- [26] as follows: Domenic was employed as a manager albeit that Zaps was, in effect, a family business. His role must be understood in the context of the relationship he had with John. Domenic did not simply report to John in the course of a master-servant relationship. John was Domenic s father, which makes for a much richer, more textured relationship. Domenic agreed in his oral evidence that he was employed to oversee operations at the warehouse. In the course of cross-examination, Domenic said he made the operational decisions at the warehouse, albeit that he delegated some matters to staff. Domenic said he attended to the documentation required for customs purposes. He agreed he oversaw what happened to the goods and that he was responsible for what happened although he added he was subject to the direction of his father. He initially said he was not responsible for communicating with the ATO. His father took care of most of that. Domenic subsequently agreed he did handle some of the paperwork and communications with the ATO, but insisted he did so at his father s direction. He also said he did not have any input into the decision to claim a warehousemen s lien over the goods. Domenic explained in his oral evidence that he was subordinate to his father in the business. Domenic said his father gave him operational control, but Domenic was required to refer anything big anything that might require legal advice or have tax implications to his father for resolution. I note Domenic met with officers from the ATO on 25 May 2015 to discuss the break-ins that occurred. He represented the company without his father being present in those dealings. (transcript references omitted)

- 7 - AMENDED NOTICE OF APPEAL 25 At the hearing, the applicant was granted leave to add four additional grounds to the notice of appeal in accordance with a proposed amended notice of appeal that had been filed and served on the Comptroller. Of the amended notice of appeal, grounds 1, 5, 6, 7, 8 and 10 were ultimately were not pressed. The remaining grounds are as follows: 2. The Tribunal should have held that within section 35A the Applicant was not as an employee was a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control. 3. The Tribunal should have held that within section 35A the Applicant as an employee did not have the requisite possession, custody or control of dutiable goods which are subject to customs control. 4. The Tribunal should have held that within section 35A the Applicant as an employee was not entrusted with the requisite possession, custody or possession or control of dutiable goods. 9. In considering the application of section 35A the Tribunal failed to take into account, and excluded from its consideration as relevant, the witness statement evidence, including the stated purposes of the Applicant, when his evidence was uncontested and relevant to a consideration of section 35A that the Applicant was in a master/servant or employer/employee relationship with Zaps Transport (Aust) Pty Ltd as his employer and John Zappia as a director of Zaps Transport (Aust) Pty Ltd. 11. Having found that Zaps had the possession, the custody and the control of the goods and that it had been entrusted with the possession, the custody and the control of the goods, the Tribunal erred in law in finding that the Applicant had the control of the goods, for the reason that, on the proper construction of s. 35A(1), at any time only one person can have the control of the goods. 12. Having found that Zaps had the possession, the custody and the control of the goods and that it had been entrusted with the possession, the custody and the control of the goods, the Tribunal erred in law in finding that the Applicant had the control of the goods, for the reason that Zaps possession of the goods had the consequence as a matter of law that the Applicant did not have control of the goods. 13. The Tribunal erred in law in finding the Applicant liable under s. 35A(1), for the reason that, as an employee of Zaps, he could not be liable under that provision unless a term of his contract of employment with Zaps provided that he had the possession, the custody and the control of the goods and/or that he was entrusted with the possession, the custody or the control of the goods but that, if a term of his contract of employment so provided, s. 326(1)(b) and (c) of the Fair Work Act 2009 (Cth) had the consequence that that term had no effect.

- 8 - (errors and emphasis original.) NOTICE OF CONTENTION 26 In addition to the grounds relied on by the Tribunal, the Comptroller contended that the decision should be affirmed on the ground that: Further or in the alternative to the Tribunal s finding at [31] that the Applicant exercised control over the Goods, the Tribunal also should have found that the Applicant: 1.1 was entrusted with control of the Goods; and 1.2 had, or had been entrusted with, the possession or custody of the Goods. 27 The Comptroller did not press a further ground which it was given leave to advance. GROUNDS 2, 3, 4, 9, 11 AND 12 OF THE APPEAL 28 These grounds can be considered together as they all relate to the proper construction of the phrase the possession, custody or control as used in s 35A(1). The submissions 29 Senior counsel for the applicant argued that the proper reading of the phrase is the possession, the custody or the control as the definite article modifies each of the words. Further, it was said, the meaning and effect intended by the use of the definite article is that at any given time only one person can have, or be entrusted with, the possession or the custody or the control of the subject goods. It was argued that as possession imports control, a person in the possession of dutiable goods necessarily has the control of those goods and, as a result, another person cannot also have the control of those goods at the given time. In further support of this submission, senior counsel referred to the quasi-absolute nature of the liability that the section imposes on a person and argued that because the section imposes absolute liability on such persons, the legislature must have intended that there be no ambiguity as to the identity of the person on whom that liability is imposed. It was submitted that it followed as a matter of law from the finding of the Tribunal that Zaps was in possession of the dutiable goods at the relevant time that Domenic Zappia, as Zaps employee, did not have the control of those goods in the relevant sense. A correlative argument was that Domenic Zappia, as an employee of Zaps, had the right and duty to do only that which his contract of employment required him to do and as a mere employee he

- 9 - did not have the possession, custody or control nor was he entrusted with the possession, custody or control of the cigarettes in question. 30 Senior counsel for the Comptroller argued that the meaning of the word control as used in the phrase is not informed or limited by the general law concept of possession, as the words in the phrase are disjunctive and the section operates where a person has, or is entrusted with, either possession, or custody or control of the subject goods. It was further submitted that to come within the section, a person s control need not be exclusive or amount to possession or custody but, in each case, whether a person has control of dutiable goods is a question of fact. Senior counsel argued that the facts found by the Tribunal established that the applicant had control of the subject goods (at [31]) and as the Tribunal found that the goods were not kept safely (at [13]) the Tribunal correctly held that s 35A(1) applied to the applicant. Consideration 31 The issue is the meaning of the word control read as part of the composite phrase the possession, custody or control appearing in the context of s 35A(1). Where a word forms part of a composite phrase, the approach to construction is to consider the meaning of the word by reference to its context in the composite phrase, not to look at the individual words in isolation from the other words in the phrase: Sea Shepherd Australia Ltd v Commissioner of Taxation [2013] FCAFC 68 at [34] per Gordon J (with whom Besanko J agreed). The construction contended by senior counsel for the applicant does not consider the meaning of control in the context of the phrase read as a whole, but focusses only on the meaning of the word possession without considering the disjunctive use of the word control included as part of the composite phrase. 32 The words custody or control can be used interchangeably as synonyms for the word possession (Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 at 519 (Gibbs ACJ) ( Smorgon s case )) but each of the words has varying significations and they are not synonymous in meaning. Whilst control is an element of possession (Horsley v Phillips Fine Art Auctioneers Pty Limited [1995] NSWSC 78 at [69]-[70]; Hedberg v Woodhall (1913) 15 CLR 531; Smorgon s case at p 534 (per Mason J)), possession, custody and control are all degrees of some right, power or authority to deal with the goods in question and, in the phrase, they are differentiated by

- 10 - the use of the disjunctive or. The use of the disjunctive or indicates that the word control is not intended to bear the same connotation as possession or custody and that the section is intended to have application to persons wider than persons having (or entrusted with) possession or custody. 33 In Smorgon s case the High Court considered the meaning of the composite phrase in his custody or control in the context of s 264(1)(b) of the Income Tax Assessment Act 1936 (Cth). Section 264(1)(b) entitled the Commissioner to require a person by notice in writing to produce all books and documents in his custody or under his control relating to the person s, or any other person s, income or assessment. In issue was whether documents which the taxpayers had placed into safe deposit boxes at a bank were in the bank s custody or under its control. The High Court held that the composite expression in his custody or control was concerned not with the legal relationship of the person to whom the notice is given to the documents required to be produced but with the ability of a person to produce the documents when requested and even though the bank had bound itself by contract to refrain from exercising the power, it nonetheless had the ability to produce the documents because it had the keys to open the boxes. In the oft cited passage at pp 532-4, Mason J said of the composite expression in his custody or control in the context of s 264(1)(b) of the Income Tax Assessment Act 1936 that: The primary definition of "custody" in the Shorter Oxford English Dictionary is "Safe keeping, protection; charge, care, guardianship" The content of "control" is somewhat different from that of "custody"; however, both are "wide enough to include many types of possession which are not commensurate with full ownership" Although the use of the composite expression "in his custody or under his control" does not assist us in determining the precise limits of the meaning of "control", it does evidence a legislative intention to employ the words in their widest sense. In the circumstances of this case where the Bank has the actual ability to open the boxes without damage to them, though contractually bound not to do so, and where no box can be opened without the Bank first providing access to it and a key, it is my opinion that the Bank does have "control" over the documents to a sufficient degree to come within the scope of that word as it is used in s. 264 (1) (b). There is to my mind no reason to limit the scope of "custody and control" to "exclusive custody and control" Even the view that custody, or possession, must reside exclusively in one person at any given time (Paton, Bailment in the Common Law (1952), pp. 6-9) does not relieve the Bank from compliance with a lawful notice to produce documents under s. 264. Whether or not Professor Paton is right in his suggestion that on true analysis the bank in the Dollfus Mieg Case (1949) Ch 369 had exclusive possession yet Tripartite Commission retained control over the disposition of the gold bars, it seems

- 11 - clear that in that case, as in the present case, there was scope for the exercise of some "control" by both the bailor and bailee. In these circumstances the Bank falls, at the least, within the ambit of the exercise of "control" under s. 264 whether or not it also has possession or custody of the documents. 34 In Goben Pty Ltd v CEO of Customs (No 2) (1996) 68 FCR 301, Davies J cited this passage as authority that possession, custody or control for the purposes of that expression as used in s 33 of the Business Franchise Licences (Tobacco) Act 1987 (NSW) need not be exclusive. Senior counsel for the applicant contended that Goben was wrongly decided or distinguishable, arguing that the phrase under consideration in Smorgon s case omitted the word possession. However, as stated, the applicant s construction does not give any work for the words custody or control to do if the phrase is construed as the applicant contended. Furthermore, having regard to the object of s 35A as a section for the protection of the revenue (Collector of Customs (NSW) v Southern Shipping Company Limited (1962) 107 CLR 279 in respect of the cognate provision in s 60 of the Excise Act 1901-1952 (Cth)) there is not a compelling reason why the words in the composite phrase should be construed narrowly in the manner contended for the applicant. 35 The words of limitation appear not in the use of the definite article modifying the three words possession, custody or control (as contended by senior counsel for the applicant) but from the requirements of subparagraphs of s 35A(1), which must be met for liability to attach to a person under s 35A(1). Collector of Customs (NSW) v Southern Shipping Company Limited is authority that the word fail in the context of s 35A only requires proof that the person concerned has not kept the dutiable goods safely or accounted for them when requested and it is not necessary to show fault or neglect on that person s part for liability to attach under the section. Consistent with the statutory purpose, the section operates to place on a person an absolute duty to keep the goods safe from loss or destruction (short of an Act of God): Collector of Customs (NSW) v Southern Shipping Company Limited at 287. As Finkelstein J colourfully stated in Drew v Dibb (2008) 169 FCR 320 at [25] short of showing that, say, Godzilla had stomped the warehouse, the respondents could not avoid liability for a failure to keep dutiable goods safe, no matter how many precautions they had taken in an attempt to safeguard the cigarettes. However, the (almost) absolute nature of the liability does not gainsay the need to show that the control exercised by a person must be such that it can be said that the person concerned failed to keep goods safely or to account for those goods to the Comptroller. The word fails, in this context, connotes some omission on the part of the person concerned to keep the goods safe or to account to the Comptroller: Victoria v

- 12 - Commonwealth [1975] HCA 39; Collector of Customs (NSW) v Southern Shipping Company Limited. Although the word fails in the context of s 35A(1) does not import concepts of fault or default, for a person to fail to keep the goods safely or to account for those goods to the Comptroller in the relevant sense, the person must have some responsibility or obligation to do so. The keeping safe with which s 35A(1)(a) is concerned is ensuring that the goods do not get out of Customs control into home consumption without payment of duty: Collector of Customs (NSW) v Southern Shipping Company Limited. The accounting with which s 35A(1)(b) is concerned is prescribed in s 37. A person accounts for goods to the satisfaction of a Collector in accordance with s 37 if the Collector sights the goods or, if the Collector is unable to sight the goods, the person satisfies the Collector that the goods have been dealt with in accordance with this Act. In either instance, it is not sufficient for liability to attach to the person under the section merely to inquire whether a person is exercising control over the goods, but it is also necessary to consider whether the control exercised by the person extends to control over the safe keeping of the goods or accounting for them as required by s 37 as a person does not fail to meet either of the requirements under s 35A(1)(a) or (b) unless either of those requirements are within the scope of the person s control. This construction is consistent with s 36 which makes non-compliance with the requirements an offence. 36 Whether a person has sufficient control to impute liability for failing to keep the dutiable goods safely or to account for those goods as requested by the Comptroller must depend on the facts in each case, and the answer in each case will depend on the measure of control exercised by the person over the dutiable goods. In an appropriate case the answer may be provided simply by pointing to the fact that the person was acting in his or her capacity as an employee at the time, and under the direction of someone else. But employment is not the test as to whether s 35A(1) does apply and I would not construe s 35A in a way that meant that an employee, acting lawfully, could never be liable under that section. Accordingly, I reject the submission that it must follow from the fact that Domenic Zappia was in an employment relationship with the company that s 35A cannot apply to him. 37 However, the Tribunal only decided the question as to whether Domenic Zappia had control over the goods. Whilst it made the finding that the goods had not been kept safely it did not relate that finding to the nature and degree of control exercised by Domenic Zappia over the goods. By only considering whether Domenic Zappia had control over the goods without also

- 13 - considering how the requirements of subparagraphs of s 35A(1) were engaged in relation to him, the Tribunal erred in law in its approach and did not apply the correct legal test. 38 Moreover, contrary to the Comptroller s submissions, the Tribunal was not bound to find that s 35A(1) applied to the applicant. The reasoning at [23]-[26] and [31] in relation to Domenic Zappia is expressed at such a level of generality that it is not at all clear as to what control Domenic Zappia actually had, or was entrusted with, in respect of the goods in question. The reasons do not elaborate on or explain the operational control exercised by Domenic Zappia in relation to the goods or in what respect he was subject to the direction of his father save that, according to Domenic Zappia, he had to consult his father on anything big anything that might require legal advice or have tax implications. But because the Tribunal did not address the statutory question in its consideration of the evidence, the Tribunal s consideration of the evidence left open the question of whether the operational control exercised by Domenic Zappia was such that s 35A(1)(a) applies to him. 39 On this last point, ground 10 of the notice of appeal, which was ultimately not pressed by the applicant, was in terms that in the absence of a finding that the applicant failed to keep the dutiable goods safely or account for them to the satisfaction of the Collector the Tribunal erred in law in finding the applicant liable under s 35A(1). In answer to that ground of appeal, paragraph 2 of the Comptroller s notice of contention alleged that if the Tribunal did not find that the applicant failed to keep the dutiable goods safely or account for then to the satisfaction of the Collector, the Tribunal should have so found on the proper construction of the provision given its factual findings that: (a) Zaps operated a bonded warehouse in which the goods were stored: at [2], [9]; (b) the Applicant was a manager employed by Zaps who dealt with the day-to-day operations of the warehouse: [24]; (c) the goods were stolen from the warehouse: [9]; (d) (e) the applicant oversaw what happened to the goods in the warehouse and was responsible for what happened to them, subject to the direction of his father: [24]; and the applicant directed what was to happen to the goods on a day-to-day basis and exercised delegated authority under which he could accept and release the goods. 40 In the course of oral argument, senior counsel for the applicant accepted that had the Tribunal addressed its mind to the issue it could have made a finding against the applicant as

- 14 - contended by the Comptroller and, perhaps encouraged by the bench in light of that acknowledgment, did not pursue ground 10 with the consequence that the Comptroller did not pursue para 2 of his notice of contention. Had these matters been pursued, there would not, in any event, have been a different result on the appeal. The inquiry that the Tribunal engaged in about the control exercised by the applicant did not address the statutory requirements for the application of s 35A(1). All the Tribunal did was establish that the applicant exercised control over the goods but the Tribunal failed to consider whether the degree of control was sufficient to enliven subpara (a) in relation to the applicant. The findings made by the Tribunal do not compel a finding that subpara (a) was engaged in relation to the applicant as the Tribunal did not make an unqualified finding in relation to the control exercised by the applicant. 41 As the Tribunal did not address the correct statutory question and erred in law, the appeal should be allowed (though not for the reasons advanced on behalf of the applicant). As the findings do not enable a determination on the correct legal test, the matter should be remitted to the Tribunal for its reconsideration in accordance with the law. Ground 13 of the appeal 42 I have had the benefit of reading the draft decision of White and Moshinsky JJ and agree with their conclusion and reasons on this ground. Notice of contention 43 It is unnecessary to deal with the Notice of Contention in view of my conclusion that the Tribunal was not bound to find that s 35A(1) applied to the applicant based on the findings made. CONCLUSION 44 The appeal should be allowed and the matter remitted to the Tribunal for its reconsideration in accordance with the law. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.

- 15 - Associate: Dated: 19 September 2017

- 16 - REASONS FOR JUDGMENT WHITE AND MOSHINSKY JJ: 45 The principal issue on this appeal on a question of law from the Administrative Appeals Tribunal (the Tribunal) is whether the general manager of a bonded warehouse is, when bonded goods have not been kept safely, liable pursuant to s 35A of the Customs Act 1901 (Cth) to pay to the Commonwealth an amount equal to the duty otherwise payable on those goods. Background circumstances 46 Pursuant to Item 1 in s 132AA(1) of the Customs Act, import duty must be paid at the time of entry into Australia of dutiable goods for home consumption. However, importers of goods are able to store them in bonded warehouses licensed under Pt V of the Customs Act. One effect of imported goods being stored in a bonded warehouse is to defer the time at which the duty becomes payable see ss 68, 71C and 99 of the Customs Act. The duty is payable when the goods are entered for home consumption and at the rate of duty then in force see s 132 of the Customs Act and Chief Executive Officer of Customs v John Deere Ltd [2006] FCA 1280; (2006) 155 FCR 208 at [17]. By s 165 of the Customs Act, duties constitute debts payable by the owner of the goods and are recoverable in any court of competent jurisdiction. 47 By reason of ss 15, 16, 19AB, 19AC and Ch 24 of Sch 3 of the Customs Tariff Act 1995 (Cth), cigarettes imported into Australia attract customs duty and, accordingly, are dutiable goods as defined in s 4(1) of the Customs Act. 48 Zaps Transport (Aust) Pty Ltd (Zaps) operated a bonded warehouse (the Warehouse) in Western Sydney pursuant to Warehouse Licence No 6379 issued under Pt V of the Customs Act (Licence 6379). 49 At material times, John Zappia (John) was a director of Zaps. Zaps employed some 25 employees in the Warehouse, one of whom was his son Domenic Zappia (Domenic), who was the Warehouse manager. Zaps had provided the names of each of John and Domenic to the Australian Taxation Office (the ATO) in accordance with a condition of Licence 6379 which required it to inform the ATO of the persons participating in the management or control of the warehouse.

- 17-50 In 2014 and early 2015, thieves broke into the Warehouse on several occasions and stole cigarettes stored there under bond. Subsequently, on 15 April 2015, the Chief Executive Officer of Customs (the CEO) varied Zaps licence so as to withdraw its authority to store cigarettes in bond. The effect was that thereafter the only goods subject to customs control which Zaps could store at the Warehouse were alcohol products. 51 At the time of the variation, Zaps still held in the Warehouse a large number of cigarettes which had been imported by Richland Express Pty Ltd (Richland). Zaps sought permission from the CEO under s 71E of the Customs Act to move the Richland cigarettes to another licensed warehouse. After an initial refusal, permission to do so was granted on 27 May 2015. In the meantime, on 23 May 2015, another break-in occurred at the Warehouse and a large quantity of the Richland cigarettes (some 400,000) was stolen. 52 On 27 August 2015, the Comptroller General of Customs served notices of statutory demand on each of Zaps, John and Domenic under s 35A of the Customs Act. By those notices, the Comptroller General, relevantly, demanded payment of an amount equivalent to the customs duty which would have been payable on the stolen cigarettes. 53 Section 35A of the Customs Act, as in force at the time of service of the statutory notices, was as follows: 35A Amount payable for failure to keep dutiable goods safely etc. (1) Where a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control: (1A) (a) (b) fails to keep those goods safely; or when so requested by a Collector, does not account for those goods to the satisfaction of a Collector in accordance with section 37; that person shall, on demand in writing made by a Collector, pay to the Commonwealth an amount equal to the amount of the duty of Customs which would have been payable on those goods if they had been entered for home consumption on the day on which the demand was made. Where: (a) (b) (c) dutiable goods subject to customs control are, in accordance with authority to deal or by authority of a permission given under section 71E, taken from a place for removal to another place; the goods are not, or part of the goods is not, delivered to that other place; and when so requested by a Collector, the person who made the entry or to whom the permission was given, as the case may be, does not account for the goods, or for that part of the goods, as the case may

- 18 - (1B) be, to the satisfaction of a Collector in accordance with section 37; the person shall, on demand in writing made by a Collector, pay to the Commonwealth an amount equal to the amount of the duty of Customs which would have been payable on the goods, or on that part of the goods, as the case may be, if they had been entered for home consumption on the day on which the demand was made. Where: (a) (b) dutiable goods subject to customs control are, by authority of a permission given under section 71E, removed to a place other than a warehouse; and the person to whom the permission was given fails to keep those goods safely or, when so requested by a Collector, does not account for the goods to the satisfaction of a Collector in accordance with section 37; the person shall, on demand in writing made by a Collector, pay to the Commonwealth an amount equal to the amount of the duty of Customs which would have been payable on those goods if they had been entered for home consumption on the day on which the demand was made. (2) An amount payable under subsection (1), (1A) or (1B) 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. (3) In proceedings under the last preceding subsection, a statement or averment in the complaint, claim or declaration of the Collector is evidence of the matter or matters so stated or averred. (4) This section does not affect the liability of a person arising under or by virtue of: (a) (b) any other provision of this Act; or a security given under this Act. 54 The statutory notice issued to Domenic recited (relevantly) that the cigarettes stolen from the Warehouse were goods entrusted to Zaps by Richland; that Domenic was a person who has (or has been entrusted with) possession, custody or control over the goods stored at Zaps premises ; that Domenic had failed to keep the cigarettes safely as required by s 35A(1)(a) of the Customs Act, and, accordingly, that Domenic was liable under s 35A of the Customs Act to pay to the Commonwealth an amount equivalent to the customs duty otherwise payable on the stolen cigarettes. The amount claimed in the statutory notice was $188,032. The Tribunal decision 55 In the proceedings in the Tribunal, each of Zaps, John and Domenic sought review of the statutory notices, asserting that they were not liable under s 35A.

- 19-56 The Tribunal found that the statutory demands had been properly made and affirmed the decision to issue each demand: Zaps Transport (Aust) Pty Ltd, Domenic Zappia and John Zappia v Comptroller General of Customs [2017] AATA 202. The Tribunal reasoned as follows: (a) (b) (c) (d) (e) Zaps had been entrusted with possession, custody and control of the Richland cigarettes initially and continued to have possession, custody or control of them after the variation to Licence 6379 on 15 April 2015. It exercised (by its employees) physical control over the cigarettes in the Warehouse; it asserted that control against strangers; it kept the cigarettes under lock and key; and its relationship with Richlands in relation to the cigarettes continued, at [17]; section 35A operates as a drag-net reflecting an almost ruthless determination to protect the revenue and encompasses those who might have custody or control of goods, at [29]; officers of a corporation might exercise control in the relevant sense in the course of discharging their responsibilities, at [29]; whether a particular officer or employee exercises control in relation to goods in a given case is a question of fact, at [29]; John exercised control over the cigarettes in the relevant sense and had been entrusted with that control in his capacity as an officer of Zaps, because all of the evidence pointed to him having been in charge, at [30]; (f) Domenic also exercised control over the cigarettes, at [31]. 57 The Tribunal explained its conclusion concerning Domenic as follows: [31] I am also satisfied Domenic exercised control over the goods, albeit that his control was subordinate to that of his father and ultimately that of the company. The evidence establishes that he was the one who directed what was to happen to the goods on a day-to-day basis. He exercised delegated authority under which he could accept and release the goods. If he gave orders with respect to the goods, the employees followed them. His operational role was underlined by the fact he met with the officers from the ATO on 25 May 2015 to discuss what had happened to the goods. 58 Earlier at [24]-[25], the Tribunal had referred to Domenic s evidence that he had been employed to oversee operations at the Warehouse; that he made the operational decisions at the Warehouse, although delegating some matters to staff; that he attended to the