N3206

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS 434 OF 2003

BETWEEN:

MISIMA MINES LTD
Plaintiff

AND:

THE COLLECTOR OF CUSTOMS,
INTERNAL REVENUE COMMISSION
First Defendant

AND:

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Second Defendant

Waigani: Davani, .J
2007: 11, 21 May
22 June

WORDS AND PHRASES – "…operations connected therewith" – provision in Mining Development Agreement – whether it applies solely to "mining operations" – whether "mining operations" includes all other activities and operations connected with the mine – s. 18 of Mining Act.

CONTRACT – commercial contracts – interpretation of – to be determined objectively – surrounding circumstances known to contracting parties 	– underlying purpose and object of commercial transactions.

EQUITY – situations when equity will arise discussed – estoppel by conduct or representation.

CUSTOMS – recovery of short-levied customs duty – Commissioner of Customs power to demand short-levied customs duty – short-levied 	duty is separate and distinct from customs duty – s.102, s.191 of Customs Act.

CUSTOMS – tax legislation must be strictly interpreted – disputed short-levied duty should not be garnished – s.102, s.191, s.191AA of Customs Act.

Cases cited

Papua New Guinea Cases

Mairi v Tololo [1976] PNGLR 125;
PNG Ready Mix Concrete Pty Ltd v the Independent State of Papua New Guinea and Others [1981] PNGLR 396;
Curtain Brothers (Qld) Pty Ltd and Kinhill Kramer v The Independent State of Papua New Guinea [1993] PNGLR 285;
Odata Ltd v Ambusa Copra Oil Mill Ltd N2106; 
Internal Revenue Commission v Dr Pirouz Hamidian Rad (2002) SC692;
Mathew Petrus Himsa and Napao Namane v Richard Sikani, Commissioner of Correctional Services and the Independent State of Papua New Guinea (2002) N2307;
Misima Mines Pty Limited v Controller of Customs (2002) N2002;
Misima Mines Limited v Collector of Customs Internal Revenue Commissioner and the Independent State of Papua New Guinea (2003)  N2497;	

Overseas Cases

Cape Brandy Syndicate v Internal Revenue Commissioners [1921] 1 KB 6;
Federal Commissioner of Taxation v ICI Australia Ltd (1972) 72 ATC 4213;
Crabb v Arun District Counsel [1975] 3 ALL ER 865;
Codelfa Construction Pty Ltd v State Real Authority (NSW 1982) 149 CLR 337;
Legione and another v Hatley (1983) 152 CLR 406;
Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387;
Toll (FGCT) Pty Ltd v Alphalpharm Pty Ltd (2004) 219 CLR 165; 211 ALR 342; [2004] HCA 52;
Lion Nathan Australia Pty Ltd v Coopers Brewery Limited (2006) 223 ALR 560;

Counsel:

D. Woods, for the plaintiff
P. Bre, for the first and second defendants

DECISION

22 June, 2007

1. DAVANI .J:	 The plaintiff filed an Originating Summons on 8 August, 2003 seeking various orders. On 18 December, 2003, the Court ordered that the proceedings be converted to pleadings and that the plaintiff file a Statement of Claim. As ordered, on 30 August, 2005, the plaintiff filed a Statement of Claim where the plaintiff sought the following orders;

"(a)	A declaration that the plaintiff is liable to pay the reduced rates of duty specified in the notice published by the Head of State in the National Gazette No. G61 dated 11th April 2002 (and as specified in the notices published by the Head of State in the National Gazette prior to (sic) the said notice) for its import of plant, machinery, temporary building structures, vehicles, explosives, fuels, re-agents, supplies and other assets (the items) required for the construction, installation, provision, maintenance or operation of any of the facilities required for the Project Misaim (sic) Mines or otherwise for the purposes of the Project Misima Mines.

(b)	A declaration that the plaintiff is liable to pay the reduced rates of duty referred to in paragraph (a) above for the items imported by the plaintiff and the subject of the first defendant’s claim for K1, 377,010.46 being for duty allegedly short-levied.

(c)	Further or alternatively a declaration that its statements and representations estop the first defendant from garnishing the amount of K1,377,010.46 or from failing or refusing to return the amount of K1,377,010.46 or acting contrary to the plaintiff being liable to reduced rates of duty as referred to in paragraph (a) above.

(d)	A declaration that the first defendant holds the amount of K1,377,010.46 as a constructive trustee for the plaintiff and that the first defendant pay the plaintiff the amount of K1,377,010.46 together with interest accruing on that amount from 18th August 2003 until payment, pursuant to the Judicial Proceedings (Interest on Debts and Damages) Act, Chapter No. 52.

(e)	Alternatively, an order that the first defendant pay the plaintiff the amount of K1,377,010.46 for money had and received to the use of the plaintiff and/or under the principle of restitution together with interest accruing on that amount from 18th August 2003 until payment, pursuant to the Judicial Proceedings (Interest on Debts and Damages) Act, Chapter No. 52.

(f)	Alternatively, an order that the first and/or second defendant pay the plaintiff by way of damages for breach of contract the amount of K1,377,010.46 which constitutes the amount garnisheed by the first defendant from the plaintiff’s Westpac bank account on 18th August 2003 together with interest accruing on that amount from 18th August 2003 until payment, pursuant to the Judicial Proceedings (Interest on Debts and Damages) Act, Chapter No. 52.

(g)	Alternatively, an order that the first defendant pay the plaintiff the amount of K1,264,514.00 together with interest accruing on that amount from 18th August 2003 until payment, pursuant to the Judicial Proceedings (Interest on Debts and Damages) Act, Chapter No. 52.

(h)	The plaintiff claims interest as aforesaid at a commercial rate (or rates) or alternatively at the rate of 8% per annum.

(i)	The first and second defendants pay the plaintiff’s costs of the proceeding.

(j)	Such further or other orders as the Court deems fit.

(k)	That the time for entry of these orders be abridged to the time of settlement by the Registrar which shall take place forthwith."

2.     By joint Defence filed on 28 September, 2005, the defendants deny the plaintiff’s claims and seek that the proceedings be dismissed in their entirety. 

3.     Before proceeding to the issues and the analysis of these issues, I set out below a brief background of this matter.

Background

4.     The plaintiff Misima Mines Limited (‘MML’) was a sole purpose company incorporated specifically for the development and operation of a mine on Misima Island. 

5.     Prior to the operation of Misima Mines Limited as a gold-silver mining and processing facility (‘the Mine’), it held negotiations with the Department of Minerals and Energy (‘DME’), which led to the execution of a Mining Development Agreement (‘MDA’) on 17 December, 1987.

6.     It was during the negotiations with DME that the question of Import Duty was discussed. DME agreed that as the mine did not have a high grade ore body, the level of Import Duty on all goods imported for mining or facilities associated with the mine would be subject to the reduced rate of ten per cent (10%).

7.     Clause 9 of the MDA details the rates and duties applicable to the importation by the plaintiff of plant, machinery, equipment and other assets into and within Papua New Guinea. Clause 9.4 of the MDA states:

 "The State will ensure that any import duty imposed on the importation of any plant, machinery, equipment, temporary buildings and structures, vehicles, explosives, fuels, reagents, supplies or any other assets, any one of which, at the time when such duty is sought to be imposed, is imported solely for the purpose of mining operations or operations connected therewith, will not be in excess of the average rate of duty from time to time payable on the importation into Papua New Guinea of the fourteen (14) items listed in the Description of Goods attached as Schedule II to this Agreement. For the purposes of this Clause import duty means the aggregate of any import duty, levy or tax." (my emphasis)

8.     It was agreed between MML and the second defendant during negotiations prior to the execution of the MDA, and in the terms of the MDA, that the MML would pay a reduced rate of duty of 10 percent on the plant, machinery, equipment and other assets.

9.     The goods listed in Schedule II of the MDA were listed in order to obtain an average import duty rate of 10 percent and Schedule II of the MDA was the mechanism whereby the import duty paid by MML would increase or decrease based on the average rate of duty imposed by the first defendant from time to time on the 14 items listed in Schedule II of the MDA.

10.     In addition and pursuant to Clause 9.4 of the MDA, notices were published under the Customs Tariff Act 1990 in the National Gazette, which detailed the rate at which duty was to be paid on those goods listed in the notices. The notices are particularized in the Statement of Claim filed on 30 August, 2005, namely;

(a)	National Gazette no. G5 dated 29th January, 1988;
(b)	National Gazette no. G94 dated 13th November, 1992;
(c)	National Gazette no. G75 dated 22nd September, 1994;
(d)	National Gazette no. G167 dated December, 2000; and 
(e)	National Gazette no. G61 dated 11th April, 2002.

11.     In a letter from the first defendant to MML dated 12 December, 2001, the first defendant demanded that MML pay the sum of K1,826,993.38 for duty which it claimed that MML had allegedly short-paid.

12.     In a letter from MML to the first defendant dated 23 December, 2001, MML stated that there was no basis for the first defendant to claim that MML was required to make additional payments on the duty already paid.

13.     The first defendant subsequently conducted a further audit and sought a legal opinion from the Office of the State Solicitor. Having sought that advice and acting upon that advice, the first defendant sent a letter to MML dated 21 March, 2003, where it revised its demand from K1,826,993.38 to K1,377,010.46.

14.     On 28 July 2003, the first defendant issued Westpac Bank PNG Ltd (‘Westpac’) (with whom MML held an account), a Statutory Garnishee Notice (‘the Garnishee Notice’) under s. 191AA of the Customs Act for the amount of K1,377,010.46.

15.     On or about 18 August, 2003, Westpac debited the amount of K1,377,010.46 which was the amount specified in the Garnishee Notice, from MML’s account and remitted it to the first defendant.

Analysis of evidence and the law

16.     The plaintiff now seeks orders inter alia, that the first defendant repay the amount of K1,377,010.46 to it. The causes of action relied upon by the plaintiff are;

1.	Breach of contract;
2.	Estoppel;
3.	Constructive trust; and
4.	Money had and received.

17.     I analyse these causes of action together with the issues outlined below.

18.     The issues for determination are as follows;

1.	Whether the goods audited are goods or items purchased for the purpose of mining operations connected therewith. 

2.	 Whether s. 102 of the Customs Act which relates to the Commissioner of Customs power to demand payment of any Customs duty that is short-levied, is limited to 12 months or extended by s. 191 of the Customs Act.

First issue – whether the goods audited are goods or items purchased for the purpose of mining operations connected therewith? 

19.      ‘Mining operations and operations connected therewith’ - This term is set out in Clause 9.4 of the MDA. It follows that if the plaintiff is correct in its assertions that this clause applies to all assets connected with mining operations, that its other claims for breach of contract (par. 23 of Statement of Claim), estoppel (par. 22 of Statement of Claim), constructive trust, (par. 20 of Statement of Claim), and money had and received (par. 21 of Statement of Claim) will be considered within that context. (my emphasis)

20.     Clause 9.4 of the MDA provides that the MML will receive a reduced rate of duty on the importation of any plant, machinery, equipment, temporary building and structures, vehicles, explosives, fuels, reagents, supplies or any other assets solely for the purpose of mining operations or operations connected therewith. Most importantly, there is no dispute as to the legality or validity of the MDA. 

21.     But first, does the Mining Act relate to the MDA? The purpose of the Mining Act 1992 is to regulate the law relating to minerals and mining and for related purposes. Section 18 of the Mining Act states;

"Where the Minister considered, on reasonable grounds, that the size or distribution of a mineral deposit the method of mining or treating it, the infrastructure required for it or financial or economic considerations make a mining development necessary, the Minister may require that mining of that deposit takes place on the special mining lease and under the terms of a mining development contract." (my emphasis)

22.     Therefore the MDA, a mining development contract, would have been executed in accordance with s. 18 of the Mining Act. 

23.     Clause 8 of the MDA imposed obligations on MML to design, construct and operate infrastructure facilities for the mine. It is necessary that I set out Clause 8.1 of the MDA. It reads;

"Clause 8.	Infrastructure facilities

8.1	Substantially in accordance with the approved proposal for development, and at its own costs, the Company shall – 

(a)	design, construct, operate and maintain the Transport, Infrastructure Facilities;

(b)	design and carry out any upgrading of existing public transport facilities needed to meet the requirement of the Approved Proposal for Development;

(c)	Construct, or as the case may be, upgrade the Required Accommodation and Community Facilities;

(d)	Design, construct and pursuant to an order of the Electricity Commission under S. 31 of the Electricity Commission At (Chapter 78), operate the Power Supply Facilities; and

(e)	Construct, Install and commission under the supervision of the Post and Telecommunication Corporation, the Telecommunication Facilities as the same are planned andengineered by that Corporation."

24.     Part C of the MDA provides for "additional undertakings necessary for development". Under this part, is Clause 9, the clause on "rates and duties". Clause 9.1 reads;

"Clause 9	Rates and duties

9.1	Subject to any requirement of defence, the safety of the public and quarantine and to the obligations of the State under multilateral international agreements to which the State is a party, that Company, any Related Company and the agents and the contractors of the Company or of any related Company shall have the right to acquire, import into and move within Papua New Guinea and use any plant, machinery, equipment, temporary buildings and structures, vehicles, explosives, fuels, reagents, supplies and any other assets - 

(a)	required for the construction, installation, provision, extension, maintenance or operation of any of the facilities required for the Project or 

(b)	otherwise for the purposes of the Project; and

to export from Papua New Guinea –

(c)	subject to Clause 21.1 (c), any plant, machinery, equipment, temporary buildings and structures, vehicles, explosives, fuels, reagents, supplies and any other assets imported into Papua New Guinea for the construction, installation, provision, extension, maintenance or operation of any of the facilities required for the Project; and

(d)	subject to Clause 11.1, the Mine Products resulting from the operation of the Project."

25.     Clause 9.4	then goes on to state that any import duty imposed on the importation of "…any plant, machinery, equipment, temporary buildings and structures, vehicles, explosives, fuels, reagents, supplies and any other assets is imported solely for the purpose of mining operations or operations connected therewith, will not be in excess of the average rate of duty, from time to time payable on the importation into Papua New Guinea of the (14) items listed in the description of Goods attached as Schedule II to this agreement…" (my emphasis)

26.     Mr Christopher Trainor, in-house counsel for Placer group of Companies, in his affidavit sworn on 29 March, 2006 and filed on 5 April, 2006, for and on behalf of the plaintiff, deposes that he has been in Placer’s employ since 1987 and that from 1987 until 31 December, 2001 he was general counsel with the overall legal responsibilities for all of Placer’s Australian and Papua New Guinean companies including MML. He deposes that since 1 January, 2001, he was employed by Placer’s Papua New Guinea companies as a Legal Consultant and has held that position till the date of the swearing of his affidavit.

27.     He was involved in the negotiations with DME and the completion of the MDA. He also witnessed the execution of the MDA at the Governor-General’s residence on 17 December, 1987. He deposes that the MDA now before the court, is the first of that type of agreement entered into between the Independent State of Papua New Guinea (‘the State’) and a mining company for the development of a major mine.

28.     In relation to Schedule II of the MDA and the reduced rate of import duty of 10 percent, Mr Trainor deposes that it was during negotiations with the DME that the question of import duty was discussed. He was involved in those negotiations. The DME agreed that as Misima Mine did not have high grade ore body, the level of import duty on all goods for mining or facilities associated with the mine, would be subject to the reduced rate of 10 percent. The reduced rate of import duty was allowed as MML would at best make a marginal or very low profit. But the proposed reduced rate of import duty also created some issues because the MDA required the said rate to vary and be subject to normal fluctuations in line with import duties on other goods brought into the country. Some form of methodology was required to achieve such a result. This was when DME and MML agreed on a procedure whereby 14 separate items which were then subject to import duty, when averaged out, would result in an import duty of 10 percent which would be used to calculate any increases or decreases in the reduced rate of import duty to be paid by MML. A Schedule was then prepared which ultimately became Schedule 11 to the MDA and contained the 14 randomly selected items needed to achieve the required rate of 10 percent. 

29.     Mr Trainor deposes further that due to the difficulties faced in achieving the 10 percent figure, some items, which had no relationship with the mining industry, were included in the schedule. But this was of no concern to either DME or MML as it was purely an arithmetic exercise and had nothing to do with the mining industry. And this fact is not disputed.

30.     At that time, Mr Trainor attended several meetings with members of the Internal Revenue Commission (‘IRC’) and MML employees where it was agreed by senior officials of the IRC that MML is entitled to the reduced rate of import duty. This was demonstrated by the addition of Clause 9.4 in the MDA. It was intended between the parties that as MML would be a marginal mine, that all goods imported into Papua New Guinea for use by MML, would be subject to the reduced rate of import duty. And again, this fact is not disputed. (my emphasis)

31.     The defendants have not put any affidavit material before the court which would demonstrate the intention of the first defendant to impose a higher rate of Customs duty on certain goods imported by MML, at that time. More importantly, the defendants have not filed any affidavits, more particularly by the Commissioner for Customs, which states that MML was or is not entitled to a reduced rate of duty. It was not until this application, that affidavit materials were filed by the IRC in support of its contentions that the reduced rate of duty does not apply to all goods.

32.     The affidavit of Jerry Kaon sworn on 29 July, 2006 and filed on 1 August, 2006 for and on behalf of the defendants deposes that he commenced employment with the first defendant in 1994. The evidence is also that he was not involved in the drafting of the MDA. Although he states at par. 7 of his affidavit that "…the average rate for reduced rates were applicable only to specific goods imported solely for the mining operations", that this appears to be incorrect because the gazettal notices that Mr Kaon refers to do not confine the importation of goods solely for mining operations. It is necessary now to refer to these gazettal notices. 

33.     But before doing that, the evidence is that Mr Kaon, acting Director for Post Clearance Audit section and senior Customs auditor conducted and was involved in the Customs Audit on MML done in 2001. The audit was carried out after alleged discrepancies were found in relation to import duty rates outlined in various gazettal notices applied by MML to specific imported items. This audit report is in evidence before me. The period audited was from 1 January, 1997 to March, 2001. The rate applicable for the period including gazettal notices were 16.08 percent (G25 of 22 September, 1994) and 10 percent (G167 of 28 December, 2000). The audit established that MML was eligible for the reduced rate classified in various gazettal notices (G94 of 13 November 1992, G75 of 22 September, 1994, G5 of 29 January, 1998, G167 of 28 December, 2000 and G61 of 11 April, 2002). The audit also held that the average rates or reduced rate were applicable to only specific goods imported solely for mining operations. This was because the audit concluded that reduced rates cannot be applied to goods that were reoccurring consumable goods or goods that did not have a specific mining application or technical use in the mining operations. The audit team interpreted mining operations to be the actual extraction and processing of raw materials. The audit was also of the opinion that import duty concessions were not intended to reduce State revenue but to provide incentives to MML as the reduced import duty rights were intended for goods not generally available in Papua New Guinea. And this was the basis on which the audit established that the total amount requested was short-paid duty for goods that do not qualify for the reduction rates. Initially, this amount was K1,826,934.98 which was subsequently reduced to K1,377,010.46, after a review demanded by the plaintiffs. That is the amount that was garnished and which is now the subject of this claim.

34.     It is important that I refer also to two letters from the first defendant that were signed by the Commissioner for Customs and sent to MML. These letters were sent at the time of negotiations by the MML and DME in relation to the drafting of the MDA. I set out in full the contents of both letters. These letters are dated 5 March, 1993 and 10 December, 2001.

35.     The 5 March, 1993 letter reads;

"Sub-Collector of Customs,
P.O. Box 49,
MISIMA.

REDUCED RATES – MISIMA MINE

The representative of Misima Mines Mr M.E. Rasmussen visited our office on 2nd and 3rd March, 1993 wherein we discussed the average rate applied on Misima Mine project.

During our discussions, the company gave us a number of correspondence relating to the issue. Having gone through the documents we are convinced that the Gazette Notice No. 04 Schedule 2 relating to Misima Mines covers all items connected with the Mining operation and as such any imports by the said company is subject to reduce rate respectively.

Your letter to the company reference A14-5-006/93 dated 15th January, 1993 refers to Porgera Gold Mine as the Schedule 2 of the said Gazettal Notice relating to Porgera qualifies the company to import specifically designed items for technical use in their mining operations.

We hope this letter will clear your doubts on the issue.

Thank you.

(signed)
DAVID SODE
Ag/Commissioner of Customs"
(My emphasis)

36.     The 10 December, 2001 letter reads;

"10th December 2001

Misima Mines Limited
P O Box 38
Bwagaoia
Misima Island
Milne Bay Province

ATTENTION: MR. M. HOWSE

Dear Sir

MISIMA MINES LIMITED – CONCESSIONAL RATE OF IMPORT DUTY

The letter is to confirm that Misima Mines Limited (MML) is entitled under the Mining Development Agreement (MDA) entered into with the Independent State of Papua New Guinea (the State) on 17 December 1987 to receive a concessional rate of Import Duty on all goods imported into Papua New Guinea. (PNG) for use by the Misima Mines.

It is acknowledged that the concessional rate of Import Duty was agreed to by the State during negotiations on the development of the mine because of the marginal nature of the project. For completeness and the benefit of Customs Officers who have and will deal with MML, we attach copy of the letter of 5 March 1993 from the Acting Commissioner of Customs, which previously addressed the above matter.

Through a copy of this letter, I am directing the Senior Customs Officer on Misima Island to ensure that the correct concessional duty is charged on all items imported by MML for use by the mine.

We note that MML may be due to refund on imported goods previously entered at the full rate.

Yours faithfully

(signed)
MARK OPUR
Commissioner for Customs"
(My emphasis)

37.     In relation to the gazettal notices, the defendants say that the period of the audit relates to gazettal notices G75 and G167. G75 states that MML would pay a reduced rate of duty on;

"Plant, machinery, equipment, temporary buildings and structures, vehicles, explosives, fuels, reagents, supplies or other assets –

(a)	required for the construction, installation, provision, extension, maintenance or operation of any of the facilities required for the Project Misima Mines; or 

(b)	otherwise for the purposes of the Project; and

to export from Papua New Guinea –

(c)	subject to Clause 21.1 (c), any Plant, machinery, equipment, temporary buildings and structures, vehicles, explosives, fuels, reagents, supplies and other assets, at the time when such duty is sought to be imposed is imported by Misima Mines Pty Ltd, solely for the purpose of mining operation or operations connected therewith." (My emphasis)

38.     It is obvious that the MDA does not contain a provision which imposed a higher rate of duty on reoccurring consumable goods. The goods the subject of the audit which are listed in the audit report and which are referred to by Mr Kaon and the first defendant as "reoccurring consumable goods or goods that did not have a specific mining application or technical use in the mining operations", some examples of which are taken from the audit report, are;

"January 2001 – 
-	A4 photocopying paper
-	Safety shower signs
-	Sweat band
-	Wet weather coat

February 2002 – 
-	Assorted colour paints

March 2001 – 
-	leave pads
-	Dust curtains
-	Plastic bottles
-	Dish washer

January 2000 – 
-	Hardener glue
-	Lemon fresh aerosol
-	Request book form

June 1999 – 
-	Paint
-	Packing tape
-	Plastic crates
-	Cable tie

January 1998 – 
-	Toilet rolls
-	CRC aerosol
-	Paper towels
-	Plastic garbage bins
-	Leather gloves

June 1997 – 
-	Masking tape
-	Tape plastic
-	Rubber casing
-	Sanitary bins
…"

39.     Are these supplies and assets imported for the purposes of operations connected with mining operations? To answer that question, I must refer again to the evidence leading up to the drafting of the MDA and Clause 9.4.

40.     Clause 9.4 of the MDA is in very general terms. This is a fact that is not disputed by the defendants. This is reflected in the IRC’s letter to the State Solicitor dated 23 December, 2002 which is in evidence before me. This letter seeks a second opinion from the State Solicitor on the interpretation of Clause 9.4 of the MDA. In that letter, the author Ms P. Bre states that Clause 9.4 of the MDA "is worded in general terms", clearly a concession by the second defendant.

41.     In relation to the gazettal notices, the first defendant’s Regional Director Southern Region’s letter to the plaintiff’s administrative superintendent dated 6 February, 2002 which is the first defendant’s letter of demand to the plaintiff, states that the gazettal notice no. 167 more specifically, schedules 1 and 2 were not intended to reduce the revenue to the State but provide incentives for the plaintiff. He states further that the reduced rates of duty is intended for specific goods not generally available in Papua New Guinea and not to goods of a consumable nature. 

42.     It appears the first defendant although agreeing that Clause 9.4 of the MDA is in general terms thereby seeking a legal opinion, is also of the view that Clause 9.4 only applies to certain goods for specific mining application or technical use in the mining operations and not reoccurring consumable goods, clearly contradicting itself. These goods are also not specifically mentioned in par. 1 and 2 of gazettal notice No. 167 of 28 December, 2000. (see P. Iramu’s letter of 6 February, 2002 attached as an annexure to Jerry Kaon’s affidavit).

43.     Contrary to submissions by the defendant’s lawyer that Schedule 2 of the MDA relates only to goods imported solely for mining operations, Clause 9.4 of the MDA states, on the face of it, in no uncertain terms, that Schedule 2 relates to goods imported for operations connected with mining operations.

44.     This means therefore that the court must look to the legal interpretation of the words "goods imported solely for mining operations or operations connected therewith." 

45.     Both counsel made extensive submissions on the legal interpretation of the words, "mining operations".

46.     Ms Bre referred the Court to Misima Mines Pty Limited v Controller of Customs N2002 dated 2 February, 2002, where His Honour Justice Los applied the ejusdem generis rule to form the opinion that business cards and trophies did not fall within the category of goods referred to in Clause 9.4. His Honour said at pg. 4 of his judgment;

"However, when looking closer it is clear in my mind it is not closely connected with the Misima operation, it is more to do with promotions, wellbeing, moral and social aspect of the mining operation. I will therefore dismiss this part of the claim involving …. business cards and …trophies."

47.     Ms Bre also referred to a number of Australian High Court decisions which courts interpreted the term "mining operations" and which meant generally that it was the actual extraction of the end product. One case she cited was Federal Commissioner of Taxation v ICI Australia Ltd (1972) 72 ATC 4213 which was a case which concerned the recovery of salt and whether or not the recovery of salt by pumping and through a process of natural evaporation constituted mining or quarrying. The High Court held that it constituted mining and therefore the taxpayer was carrying on a mining operation. It held that mining involved "the recovery from below the surface of the earth by effort, human or mechanical of a mineral or a mineral bearing substance" (4217). Gibbs .J at pg. 4227 said this;

"It is true that the expression "mining operations" is a popular, rather than a technical expression and should in accordance with established principles of construction, be understood in its ordinary and natural meaning unless the provisions of the Act indicate that some departure from the mining is intended. However, the expression is one whose ordinary and natural meaning is flexible rather than fixed."

48.     Ms Bre also referred to the definition of the term "mining operations" in the Income Tax Act which is defined in s. 4 (1) (originally in 2000) as - "‘mining operations’ " means the extraction of minerals in Papua New Guinea from their natural site and includes prescribed ancillary activities in Papua New Guinea and exploration activities within a mining lease or special mining lease area.

49.     Ancillary activity is defined at s. 3A of the Income Tax Regulation to mean;

"…the construction of the mine excess road from Kiunga to Tabubil by the North Fly Highway Development Company Proprietary Limited is an ancillary activity."

50.     The definition was amended on 1st January 2002 to read;

" ‘mining operation’ means the extraction of minerals in Papua New Guinea from their natural site and includes the construction and operation of facilities.

i.	to produce the first saleable product from a mine and 
ii.	to transport the first saleable product to a point of delivery."

51.     I accept Ms Bre’s submissions on the definition of a mining operation. However, her submissions do not include the interpretation or definition of the phrase "…or operations connected therewith…". From a general reading, operations connected therewith can be interpreted to mean operations connected with mining operations. And what are the usual operations connected with mining operations, more particularly within the context of the present MDA and the DME of the MML?

52.     The letters from the IRC of 5 March 1993 and 10 December 2001 are of relevance. In the letters of 5 March 1993, the Acting Commissioner of Customs said, "…and as such any imports by the said company is subject to reduced rate respectively." (my emphasis)

53.     In relation to the letter of 10 December 2001, the Commissioner for Customs stated and confirmed that the MML is entitled under the MDA "…to receive a concessional rate of import duty on all goods imported into Papua New Guinea for use by the Misima Mines." (my emphasis) These letters are good evidence before me. The defendants have not filed affidavit material disputing that. The only evidence from the defendants, that of Mr Kaon, cannot be used by the Court to infer that the letters I refer to have a different meaning. This is because only the authors of those letters can give evidence. And they were not brought to court to give evidence. But relying on the understanding reached during negotiations leading to the MDA, and which is good evidence by Mr Trainor, the plaintiff imported items and the first defendant did not charge duty, an exercise which commenced on or about 1993 and which continued through to 2002, when the first defendant issued its letter of demand. I discuss this further under the part on Estoppel. 

54.     In relation to gazettal notices, the relevant gazettal notices are G75 and G167. I have already reviewed the terms of the gazettal notice which state that the rate of import duty is reduced for all operations connected with mining operations.

55.     As it is, I am not convinced that the defendants are correct in their interpretation because there is written evidence before me from the first defendant which states that reduction of duty applies to all goods connected with mining operations, which includes goods of a consumable nature. If that were or is not the case, then both parties or at least the first and second defendants, should seriously consider varying the MDA. But I do not know and have not heard from counsel if this process is available to the parties.

56.     I should also state that I do not agree with my brother Los .J’s interpretation and ruling and I am not bound by it. With respect, Los .J did not consider the background in which the MDA was drafted to fully appreciate both parties intentions, at that time.

57.     Breach of Contract - What is the importance of parties’ intentions when drafting a contract and what is the relevance of parties’ intentions to this dispute? By virtue of the MDA and the gazettal notices, it is clear that it was the intention of the defendants that MML would be charged a reduced rate of duty on all imports. The plaintiff submits that the first defendant breached the MDA when it demanded and garnished the K1,377,010.46. The test relating to whether the first defendant breached the MDA is to be viewed objectively based on the "reasonable person test". Finn .J in Lion Nathan Australia Pty Ltd v Coopers Brewery Limited (2006) 223 ALR 560 at par. 78 said this about being objective when interpreting the terms of a commercial contract;

"it must now be accepted that the meaning of a commercial contract is to be construed objectively by reference to what it conveys to a reasonable person".

58.     On appeal, the full Federal Court (October 2006) adopted Finn .J’s conclusion as to the content of the modern law. Weinberg .J stated at pars. 45 and 46;

"I am satisfied that Finn .J’s statement on the principles that now govern the interpretation of commercial contracts, having regard to Pacific Careers, was correct."

59.     The High Court in Australia has determined that, when construing commercial contracts, the surrounding circumstances or factual matrix may be taken into account. This is so, even if the words at issue are not ambiguous or susceptible of more than one meaning.

60.     Leonard .J in Lion Nathan Australia Pty Ltd (supra) stated that at par. 251;

"It is now clear and settled that the meaning of commercial contracts and documents is to be determined objectively. To determine the objective intention of the parties regard must be had, of course, to the word in the document themselves but regard should also be had on all of the surrounding circumstances which were known to the contracting parties at the time the document was created including the underlying purpose and object of the commercial transactions…".

61.     McLaughlan’s "Objectivity in Contract" (2005) 24 UQLJ 481 states that the construction of a contract normally "requires consideration not only of the text of the documents, but also the surrounding circumstances known to [the parties], and the purpose and object of the transaction."

62.     The same proposition was reiterated by the High Court in Toll (FGCT) Pty Ltd v Alphalpharm Pty Ltd (2004) 219 CLR 165; 211 ALR 342; [2004] HCA 52 at [40].

63.     Kandakasi .J in Mathew Petrus Himsa and Napao Namane v Richard Sikani, Commissioner of Correctional Services and the Independent State of Papua New Guinea (2002) N2307 adopted and reiterated a passage from Chitty on Contracts 24th Edition at pgs. 700 – 701 which reads;

"The object of all construction of the terms of a written agreement is to discover therefrom the intention of the parties to the agreement…the cardinal presumption is that the parties have intended what they have in fact said so that their words must be construed as they stand. That is to say, the meaning of the document or of a particular part of it is to be sought in the document itself; one must consider the meaning of the words used, not what one may guess to be the intention of the parties."

64.     This is why the law has developed to the stage of precluding the parties from calling extrinsic evidence to show what it was that the parties agreed to; (see Odata Ltd v Ambusa Copra Oil Mill Ltd (N2106 dated 6.7.01). Generally, the courts will let the words "employed by the parties in their contracts" speak without the need to call extrinsic evidence. (see Curtain Brothers (Qld) Pty Ltd and Kinhill Kramer v The Independent State of Papua New Guinea [1993] PNGLR 285).

65.     In relation to the matter before me, clause 9.4 of the MDA is very clear. Correspondence exchanged between the parties during negotiations and after and the understanding of the parties reached at that time before the execution of the MDA, and which I have extensively reviewed, demonstrated the intention of the parties at that time, that any imports by MML is subject to the reduced rate. I reiterate again that parties cannot call extrinsic evidence to prove what the intentions of the parties were at the time when the MDA was drafted. The surrounding circumstances and other factors as highlighted above, have established that. 

66.     There is no issue as to whether evidence will be called to assist in the interpretation of the language in the contract. This is because both parties agreed to rely on certain affidavits with no cross-examination of deponents. Mason .J in Codelfa Construction Pty Ltd v State Real Authority (NSW 1982) 149 CLR 337 at 352 said;

"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous and susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning."

67. Clearly, par. 9.4 of the MDA has a plain meaning. And I have canvassed already evidence of the surrounding circumstances leading to the drafting of the MDA and eventual execution (of the MDA).

68.     At par. 23 of the Statement of Claim, the plaintiff alleges further or alternatively that the second defendant breached the terms of the MDA inter alia, that it permitted the first defendant to wrongfully seize the amount of K1,377,010.46. Obviously, when the garnishee notice was issued by the first defendant, it was because it believed that the plaintiff had short-paid the duties. The third defendant assisted in the process by not raising any objections when this amount was garnished. The objections it could have raised would have been in relation to the existing intention of the parties when the MDA was drafted and executed which is that when the defendants entered into discussions with Mr Trainor for the plaintiff, the first defendant had no intention of charging for duty at the rate it now claims that should have been paid.

69.     Estoppel - The plaintiffs claim at par. 22 of the Statement of Claim that the first defendant is estopped from garnishing the plaintiffs bank account, the sum of K1,377,010.46.

70.     With estoppel, the representation must be clear and unequivocal (see Legione and another v Hatley (1983) 152 CLR 406).

71.     In PNG Ready Mix Concrete Pty Ltd v the Independent State of Papua New Guinea and Others [1981] PNGLR 396 at pg. 404, Miles .J relying on Crabb v Arun District Counsel [1975] 3 ALL ER 865 reiterated that;

"Short of an actual promise, if he by his words or conduct, so behaves as to lead another to believe that he will not insist on his strict legal rights – knowing or intending that the other will act on that belief – and he does so act, that again will raise equity in favour of the other, and it is for a court of equity to say in what way equity may be satisfied".

72.     Historically, estoppel by conduct or representation applied in equity as at common law. The purpose was to prevent unconscionable conduct. Such unconscionable conduct consisted in a party inducing another to adopt an assumption or expectation as a basis for action or inaction accompanied by failure to fulfil such assumption or expectation resulting in detriment to the other party.

73.     In Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, Brennan .J set out the relevant conditions as follows;

"In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove (1) the plaintiff assumed that a particular legal relationship that existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption of expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption of expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise."

74.     The statements made by the defendants in the MDA, the gazette notices, the March 1993 letter and the December 2001 letter were clear and unequivocal, which was that MML would receive a reduction in duty on all imports into Papua New Guinea. In addition, the March 1993 letter was so proximate in time to the gazette notices that it is clear that it was the intention of the first defendant that all imports be subject to a reduced rate of duty. This position was confirmed eight (8) years later by virtue of the December 2001 letter. Clearly, the defendants are estopped from enforcing the MDA the way they did and that it is proper that equity intervene for the return of the K1,377,010.46. 

75. Therefore, it is not necessary for the court to consider plaintiff’s submissions on Constructive Trust and Money had and received. However, I provide my reasons in relation to the second issue raised relating to s.102 and s.191 of the Customs Act because it relates to time limitations and when an action can be commenced by the Commissioner of Customs.

Second issue - Whether s. 102 of the Customs Act which relates to the Commissioner of Customs power to demand payment of any Customs duty that is short-levied, is limited to 12 months or extended by s. 191 of the Customs Act.

76.     In relation to this issue, the plaintiff claims this in par. 24 of its Statement of Claim, that the first defendant wrongfully and unlawfully seized the amount of K1,377,010.46, in that part of that amount namely K1,264,514.00, was assessed by the first defendant as being duty short-paid despite the fact that it was calculated on goods imported and duty paid 12 months immediately preceding the first defendants demand. And, or alternatively, the first defendant acted ultra vires and in contravention of s. 102 when it garnished the plaintiffs Westpac Bank Account. 

77.     In its Defence, the first defendant pleads at par. 10 that in respect of par. 24 of the Statement of Claim, s. 102 of the Customs Act is used where the Commissioner for Customs becomes aware of the short-payment within 12 months from when the duty is paid whereas in this case, the first defendant was not aware of the short payment within the 12 months and therefore relied on the general provision under s. 191 of the Customs Act which is that the first defendant can make a claim in a court of competent jurisdiction and relying on the 6 year time period as provided in the Statute of Frauds and Limitation.

78.     Section 102 of the Customs Act (as it then was) reads;

"102.	Short-paid duty

When any duty has been short-levied or erroneously refunded, the person –

(a) 	who should have paid the amount short-levied; or
(b)	to whom the refund has erroneously been made, 

shall pay the amount short-levied, or repay the amount erroneously refunded on demand being made by the collector within 12 months from the date of the short levy or refund."

79.     Section 191 of the Customs Act reads;

"Customs duty is a debt to the State –

(a)	Charged on the goods in respect of which it is payable,

and

(b)	payable by the owner of the goods,

and may be recovered in any Court of Competent Jurisdiction by proceedings in the name of the Commissioner."

80.     In my view, s. 191 of the Customs Act is a general recovery provision for recovery of customs duty owing to the State and relates to claims for "…recovery of customs duties…".

81.     Section 102 relates to duty that is short-paid, I emphasize, specifically for short-paid duty. This case concerns the payment of short-paid duty. The provision is specific, that "…the person, who should have paid the amount short-levied shall pay the amount short-levied…on demand being made by the Collector within 12 months from the date of the short-levy…".

82.     How can this Court interpret this provision?

83.     The Supreme Court in Internal Revenue Commission v Dr Pirouz Hamidian Rad SC 692 dated 22 March, 2002 held that it is settled law that all tax legislation must be strictly interpreted and given their plain and ordinary meaning unless an irrational consequence will result. 

84.     When upholding that principle, the Supreme Court had regard to Mairi v Tololo [1976] PNGLR 125, which held that;

"[We] think it is incumbent upon the court to follow a well-trodden road of interpretation. This path suggests that for the imposition of a charge upon the subject to be legal, a clear and unambiguous intention must be shown in a statute."

85.     Rowlett .J said in Cape Brandy Syndicate v Internal Revenue Commissioners [1921] 1 KB 64 at 71;

"In a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

86.     It is also necessary that I set out in full s. 191AA of the Customs Act Chapter 101. It reads;

"191AA.	Statutory Garnishee

(1)	In this section – 

"Duty" means Customs duties and includes a judgment debt and costs in respect of any such duty, 
"Tax Payer" means any person against …..Commissioner of Customs is entitled to recover any duty or penalty that is due and payable under this Act. 

(2)	The Commissioner of Customs may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner of Customs) require –

(a)	any person by whom any money is due or accruing or may become due to the taxpayer; or

(b)	any person who holds or may subsequently hold money for or an account of the taxpayer; or

(c)	any person who holds or may subsequently hold money on account of some other person for payment to the taxpayer; or

(d)	any person having authority from some other person to pay to the taxpayer,

to pay to the Commissioner of Customs, either forthwith upon the money becoming due or being held or at or within a time specified in the notice (not being a time before the money due or is held) –

(e)	so much of the money as is sufficient to pay the amount due by the taxpayer in respect of any duty and of any fines, penalties and costs imposed upon him under this Act, or the whole of the money when it is equal or less than the amount; or

(f)	such amount as is specified in the notice out of each of any payments that the person so notified becomes liable from time to time to make to the taxpayer, until the amount due by the taxpayer in respect to any duty, penalties, fines and costs imposed upon him under this Act satisfied and the Commissioner of Customs may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment pursuant to the notice.

(3)	A person who fails to comply with a notice under this section is liable to pay –

(a)	the amount specified in the notice; or

(b)	the amount due or held on behalf of the taxpayer,
whichever is the lesser amount, and any amount collected under this subsection shall be applied against the debt of the taxpayer.

(4)	In addition to any amount that he is liable to pay under subsection 3, a person who fails to comply with a notice under this section, is guilty of an offence.

Penalty: Subject to s. 163, 164 and 165, a fine of not less than K1,500.00 and not exceeding K50,000.00.

(5)	The person making a payment in pursuance of this section shall be deemed to have been acting under the authority of the taxpayer and all other persons concerned and is, by force of this subsection indemnified in respect of the payment.

(6)	If the Commissioner of Customs receives a payment in respect of the amount due by the taxpayer before payment is made by the person so notified he shall forthwith give notice of receipt of the payment to that person."

87.     Section 102 of the Customs Act is set out in Division 3 of that same Act which is the division on "Short-paid duty, refunds, remissions, rebate, etc." Section 191AA is set out in part XVIII of the Customs Act, the part on "Miscellaneous".

88.     The present s.102 states that payment must be made within 5 years from the date of short-levy or refund. The provision in existence at the time of the dispute provided for a payment to be made on demand being made by the Collector "within 12 months from the date of the short-levy or refund".

89.     What is obvious is that s.102 must be read as it is written i.e the clear and unambiguous intention as shown in the statute is that s.102 applies to short-paid duty and that any duty that has been short-levied or erroneously refunded must be paid on demand being made by the Collector within 12 months from the date of the short-levy or refund. His Honour Kandakasi .J’s discussion on this issue as set out in his judgment Misima Mines Limited v Collector of Customs Internal Revenue Commissioner and the Independent State of Papua New Guinea N2497 dated 18 September, 2003. He said;

"Clearly, in my view, this provision states the obvious, which is customs duty is a debt to the State, which is chargeable on goods in respect of which the debt is payable by the owners. The Collector of Customs is authorized to recover this debt in any Court of competent jurisdiction by proceedings in the name of the Collector of Customs. I am of the view that s. 191 is there to cover situations such as in the present case where, goods have been released under allegedly short-levy where no demand has been made within 12 months from the date of short-levy. This is reasonable, given that in some instances, the short-levy or erroneous refund could not be easily discovered until some time after the passage of more than 12 months.

What then should be the effect of this ruling? The parties have not addressed that question in their submissions. But based on the views, I have expressed in the foregoing, it would appear that, the IRC has wrongly demanded and forcefully received payment of the amounts in question allegedly for short-levies when there was a dispute over it. The short-levies appeared to date back more than 12 months from when they were first levied. That dispute is yet to be resolved. The judgment of Los .J between the parties in Misima Mines Pty Ltd v Controller of Customs and the State Unreported judgment delivered on 8.2.02, render support for the position taken by the IRC on the demand for the short-levy. Also there is no argument that Misima Mines is progressing to a closing down of its operations. Indeed that is the very reason why Misima Mines was arguing for injunctive orders against the IRC. 

Given the above circumstances, I consider it would be appropriate for the parties to expedite the substantive matter to trial under pleadings. This would, in my view, enable the parties to fully specify their respective positions on the dispute and respond to each other’s position with a view to narrowing down to the real issue or issues for trial and determination. Accordingly, I direct that the parties address the Court on a question of how they wish to expedite a determination of the substantive."

90.     I am of the view that Justice Kandakasi did not make a decision regarding that issue although he did express his opinion or views on this. He in fact, as demonstrated in the last paragraph above, decided that it would be better for the parties to specify their respective positions on the dispute and to narrow down the issues by proceeding to trial on pleadings. This is because the proceedings before him were an Originating Summons No. 434 of 2003. I say this because this is reflected in submissions by both counsel where Ms Bre submits that Justice Kandakasi’s ruling is in the IRC’s favour whereas Mr Woods submits that Justice Kandakasi’s decision is in the MML’s favour, both citing and relying on passages outlined above.

91.     Clearly, s.102 speaks for itself. The demand from the Collector should have been made within 12 months from the date of the short-levy. Accordingly, based on the evidence the first defendant demanded K1,826,993.98 by letter of 12 December, 2001. The letter of demand was for short-paid duty "…on various imports from March 1999 – March 2001, totaling K1,826.993.98".

92.     The first defendant should not have issued the letter of demand on 12 December, 2001, because the letter of demand should have been issued "…12 months from the date of the short-levy…" in this case, March, 2001. The letter of demand should have been issued in January, 2002. So the amount demanded is clearly incorrect. Therefore, the first defendant should not have garnished the plaintiff’s bank account. I find that the first defendant wrongfully seized that amount when there clearly is a dispute over the correct amount owing. And it is not as if the first defendant was not aware of the dispute because this was ably demonstrated by the plaintiff’s letter of 23 December 2001 to the first defendant which is in evidence before me as Annexure ‘I’ to Malcolm Howse’s affidavit sworn on 7 August, 2003 and filed on 8 August, 2003, for and on behalf of the plaintiff. The first defendants letter of 12 December 2001 to Mr Malcolm Howse of the MML, states "find attached an audit report covering duty short-paid on various imports from 1997 – March 2001 totalling K1,826,993.98. You are demanded to pay the stated short-paid duty by lodging with Customs Misima an adjustment entry to the original warrants thereby complying with s. 79 of the Customs Act."

93.     However, to answer the issue posed by both counsel, again s.102 of the Customs Act speaks for itself. Section 191AA is applied if there is "duty" owing to the Commissioner of Customs and it is not disputed. ‘Duty’ under s.191AA means customs duties and includes a judgment debt and costs. In my view, s.191AA should only be applied by the IRC if there is no issue in relation to the amount owing. Section 102 was created specifically for short-paid duty and refunds because obviously, these are payments being demanded because there is a dispute as to the amount owing.

94.     And of course, this was disputed by the plaintiff’s letter of 23 December, 2001.

95.     Therefore, the answers to the second issue based on the reasons given both at law and facts are that;

1.	Sectin 102 is created specifically for short-paid duty or refunds and claims must be made within the period specified in that provision.

2.	Section 191 only applies to duties outstanding and should not be applied towards the recovery or short-paid duty and refunds.

96.     Tax legislation speaks for itself, as is the position at law and as demonstrated above.

Conclusion

97.     No doubt, the law is that if it was the intention of the parties when the MDA or contract was entered into, that a reduced rate of duty be applied to all goods connected with mining operation, then that same rate should be applied until such time the contract or in this case the MDA, is properly varied.

98.     I find that clause 9.4 of the MDA provides that the reduced rate of duty applies to all goods connected with mining operations. I find also that the sum of K1,377,010.46 was wrongfully garnished and should be returned to the plaintiff.

99.     It follows that all relevant declaratory orders in relation to breach of contract and estoppel sought by the plaintiff, are granted with further orders that the first defendant pay the plaintiff the sum of K1,377,010.46.

100.     The first defendant shall also pay interest assessed at 8 percent per annum because I have not heard submissions from both counsel on interest sought at the commercial rate. 

101.     In relation to costs, the first and second defendant shall pay the plaintiffs costs of the proceedings to be taxed if not agreed.

______________________________

Blake Dawson Waldron: Lawyer for the plaintiff
In-House Lawyer, Internal Revenue Commission: Lawyer for the first and  second defendants