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Solomon Breweries Ltd v Comptroller of Customs and Excise [2000] SBHC 97; HCSI-CC 218 of 1996 (2 August 2000)

CC 218 96 HC

IN THE HIGH COURT OF SOLOMON ISLANDS

Civil Case No. 218 of 1996

SOLOMON BREWERIES LIMITED

V

COMPTROLLER OF CUSTOMS AND EXCISE

High Court of Solomon Islands
(Muria CJ)

Civil Case No. 218 of 1996

Hearing: 28 and 29 June 2000
Judgment: 2 August 2000

Sol-Law for Plaintiff
S. Manetoali for Defendant

MURIA CJ: This application raises a number of important legal issues which I shall deal with them in the course of this judgment. In the main, the case is concerned with the proper interpretation of the Memorandum of Understanding (“the MOU”) signed between the plaintiff and the Solomon Islands Government on 22 November 1989, as well as the provisions of the Customs and Excise Act and Protected Industries Act.

Brief Background

The brief background to this case is that following the interest of the plaintiff to invest in Solomon Islands in a brewery project and following negotiations to that effect, the MOU was signed on 22 November 1989 between the plaintiff and the defendant. This MOU was entered into immediately following the approval by the Foreign Investment Board (“the FIB”) granted on 21 November 1989 to the plaintiff to establish and operate the brewery in Solomon Islands. The brewery would produce and distribute beer, aerated waters and non-alcoholic soft drinks. Along with the FIB approval, the plaintiff was also granted certain incentives which are central to the issues now raised before the Court.

Approved Incentives

Before proceeding further in this judgment, I feel it would be helpful to set out the incentives which were granted to the plaintiff following the approval of its operations. The incentives were granted and set out in a letter by the Secretary to the FIB dated 21 November 1989 and marked as Exh. “LC2” to Muagututia Lafaele Ngau Chun’s affidavit. These are:

“1. Eight (8) years tax holiday.

2. Exemption from withholding tax on all monies borrowed by Solomon Breweries Limited from the German Development Agency for the duration of the Loan.

3. A total exemption from the payment of import duty on plant, equipment and materials needed for the construction of the brewery project.

4.A total exemption from the payment of import duty on raw materials including packaging materials for the production and packaging of beer, aerated waters and non alcoholic drinks during the tax holiday period.

5. Protected Industry Status for a period of 5 years from the date of commencing production.

6. No excise duty payable on soft drinks manufactured and the rate payable on beer will not exceed $2.40 per litre during the protection period.

7. Import duties taxable upon all imported beers will be at least 2% times higher than the rate of excise duty payable by the company.”

There were also other concessions granted to the plaintiff and these include matters such as: protection from external competition as long as it does not prejudice the Government’s interest; no restriction on movement of capital, gains, and profits from and to Solomon Islands, inclusive of loan commitments; granting of residency and. work permits for up to 5 expatriates; and opportunity to offer equity participation to local investors including Government Institutions. Both the incentives and the additional concessions were included in the MOU.

The issues

A number of matters were raised by counsel in their argument. However, the main issues seem to be two-fold. Firstly, there is the issue of the appropriate excise duty payable by the plaintiff, that is, whether it is $2.40 or $3.50 per litre. The second issue concerns the protected status of the plaintiff.
The defendant maintains that the protected status of the plaintiff had already expired and so it is obliged to pay the demanded excise duty. The question raised, therefore, is whether the obligation to pay the excise duty as demanded corresponded to the protection period granted under the Protected Industries Act.

It is therefore, obvious that the legal status of the incentives under MOU is central to resolving the dispute now existing between the plaintiff and defendant. Happily, there is no major dispute as to the facts in this case.

Submission by the plaintiff

The basic contention of the plaintiff is that the rate of excise duty it ought to pay is that of 40% of the import duty on imported beers or $2.40 per litre on locally manufactured beer. Mr. Sullivan of Counsel for the plaintiff submitted that the MOU is specific about time limitations placed on the various incentives granted to the plaintiff. As to the incentive under Clause 2.7, Counsel submitted that no time limitation is placed upon that incentive both under the Foreign Investment Act 1984 and Investment Act 1990. Thus the rate of import duty remains payable by the plaintiff is still 2½ times higher than the rate of excise duty.

Clause 2.7, argued Counsel for the plaintiff, must be given a natural construction and no time limitation should be read into it. This is so, submitted Counsel, since Clauses 2.1 to 2.6 have four different time limitations specified in them while Clauses 2.7 to 2.9 have no such limitations. Thus the 5 years protection period has no application to the incentive granted under Clause 2.7.
Submission by the defendant

The defendant’s argument is that the plaintiff only enjoyed the benefits of the incentives granted under the MOU during the protection period of 5 years which was from 1 April 1993 to 31 March 1998. Thereafter the rate of excise duty payable by the plaintiff was no longer the rate specified under the MOU but rather under the rate now fixed by the Minister at $3.50 per litre and not $2.40 per litre as insisted upon by the plaintiff.

The defendant also argued that the terms relied upon by the plaintiff under the MOU are contrary to the provisions of the Protected Industries Act or the Customs and Excise Act. Reliance was made on sections 3 and 5 of the Protected Industries Act which provisions, respectively, empowers the Minister to make an Order declaring any industry to be a protected industry and to review such order every two years.

The defendant contented that the Minister’s letter “SP?” dated 2 May 1990 assuring the plaintiff of renewal of its protected status for a further five years had not been published in the gazette and if there was to be any renewal of protected status then it had to be for 2 years only, not 5 years.

In respect of Customs and Excise Act, the defendant argued that the provisions of the MOU cannot be used to restrict the power of the Minister to impose tax. By relying on the MOU, argued Counsel for defendant, the plaintiff is seeking to restrict the operation of the Act in imposing the appropriate duty payable by the plaintiff, the contention strongly opposed by the plaintiff.

Legal Status of the MOU

At this stage, it would be worth considering the legal position of the MOU which was signed between the plaintiff and the Solomon Islands Government on 22 November 1989. Under the MOU, the plaintiff was allowed to establish a brewery in Solomon Islands and produce and distribute beer, aerated waters and non alcoholic soft drinks. The plaintiff has been carrying out that business since it started operation on 1 April 1993.

The terms under which the plaintiffs business was approved were set out in the MOU and the parties to that document have continued to bide by those terms. It is plain that the written MOU entered into and signed by the parties on 22 November 1989 was made subsequent to the Government’s approval of the plaintiff’s brewery project under the Foreign Investment Act 1984 and followed up extensive discussions and negotiation with the Government. The discussions resulted in certain understanding which the parties had agreed would form part of the terms and conditions upon which the plaintiff would operate its brewery project. Thus the MOU is clearly evidence of the binding contractual relationship between the plaintiff and Government with its terms and conditions expressly set out therein, a relationship obviously established following discussions and negotiations between the parties and made firm by the subsequent signing of the MOU. That is the contract and it is binding on the parties.

Clause 2.7 of the MOU

The construction of clause 2.7 of the MOU is the centre of the contention in this case. In the main, the plaintiff’s argument is that this Clause contains no time limit and as such its operation cannot be limited to the period of protective status granted under the Protected Industries Act. The defendant’s contention to the contrary is that at the expiry of the protection period, the incentives granted to the plaintiff, including those granted under Clause 2.7, also lapsed. The answer to this competing contention now turns on the proper construction of Clause 2.7 and for ease of reference and for the sake of repetition I again set out this Clause here together with clause 2.6 of the MOU:

“2.6 No excise duty will be payable on soft drinks manufactured and the rate payable on beer will not exceed $2.40 per litre during the protection period.

2.7. The import duties taxable upon all imported beers will be at least 2½ times higher than the rate of excise duty payable by the company.”

The submission by Counsel for the plaintiff is that Clause 2.7 must be given its ordinary and natural meaning. I accept that the Clause must be given its ordinary and natural meaning. However, even if our immediate concern is the meaning of Clause 2.7, we cannot help but to consider as well the whole context underwhich the MOU was entered into between the plaintiff and the Government so that the true intention of the parties can be ascertained. Very often the intention of the parties in any particular clause or part of an instrument can only be properly ascertained ex antecedentibus et consequentibus. In the case of N.E.Railyway -v- Hastings [1900] UKLawRpAC 22; [1900] AC 260, 267, Lord Davey succinctly put the position in the following words:

“The deed must be read as a whole in order to ascertain-the true meaning of its several clauses, and the words of each clause should be so interpreted as to bring them into harmony with the other provisions of the deed if that interpretation does no violence to the meaning of which they are naturally susceptible.”

Thus the meaning of Clause 2.7 must be gauged, not only from the words used in that Clause but also from the whole context of the MOU. This entails the consideration of the other Clauses as well, so that we can gather the intention of the parties to the MOU.

When one turns to the MOU, there is to be observed that in Clauses 2.1 to 2.6, limitations are placed upon the operation of those Clauses. In Clause 2.1, the plaintiff is granted 8 years tax holiday; in Clause 2.2, the plaintiff is exempted from withholding tax on borrowed monies for the duration of the loan; in clause 2.3, the plaintiff is exempted from import duty on plant, equipment and materials needed for the construction of the brewery project; in Clause 2.4, the plaintiff is exempted from payment of import duty on raw materials for packaging materials for production and packaging of beer and other drinks during the tax holiday period; in Clause 2.5, the plaintiff was given protected industry status for a period of 5 years from the date of commencement of production and in Clause 2.6, the plaintiff was granted exemption on payment of excise duty on soft drinks manufactured and granted a rate of not more than $2.40 per litre payable as excise duty on beer manufactured during the period the protected status. There were no time limitation specified in Clauses11s 2.7 to 2.9. It is therefore quite natural for the plaintiff to argue that the lack of time limitation in Clause 2.7. is deliberate. Be that as it may, I feel Clause 2.7 cannot be considered in isolation of the other Clauses in the MOU.

It seems to me that having had discussions and negotiations between the parties, it was the clear intention of the parties that the plaintiff was to be allowed to set up the brewery in the country and that the Government was to grant certain incentives to the plaintiff for the risk it was prepared to take toward such a large investment. Those incentives were set out in the MOU. Each of the Clauses in the MOU must, therefore, be interpreted so that the meaning intended by the parties in the various clauses in the document can be put together to bring them into harmony with one another and consistent with the intention of the parties in general under the MOU. See Barton -v- Fitzgerald (1812) 15 East 529; Chamber Colliery Co. -v- Twyerould (1893) reported [1915] 1 Ch 268 n. and N.E. Railway -v- Hastings (above).

There is no issue raised in so far as the other Clauses in MOU are concerned. The dispute with which we are concerned in this case revolves around the interpretation of Clauses 2.6 and 2.7 and the relationship between them. These two Clauses are closely linked with each other since the rate of import duties for imported beers payable under Clause 2.7 is calculated at rate of at least 2½ times higher than the rate of excise duty payable by the company under Clause 2.6. It would, therefore, not be right to ignore Clause 2.6 when Clause 2.7 is considered. The rights and obligations of the parties set out in those two clauses are connected. The rate of excise duty on locally manufactured beer would not exceed $2.40 per litre during the “protection period” (Clause 2.6). The import duty on imported beers would be at 2½% times higher than the rate of excise duty payable on locally manufactured beers (Clause 2.7). So that in our present case, pursuant to Clause 2.6 the plaintiff was paying excise duty at $2.40 per litre. That rate was specifically granted for the period during which the plaintiff was under protected industry status. There is no dispute that the excise duty rate of not exceeding $2.40 per litre was to last during the protection period granted under Clause 2.5 and that it lapsed on 31 March 1998. The plaintiff, however, argued that despite Clauses 2.5 and 2.6, the time limits in those clauses bear no relevant to the operation of Clause 2.7 which stipulates that the import duty payable on import beers is at least 2½% times higher than the rate of excise duty payable by the company. That excise duty, says the plaintiff, is still $2.40 per litre even at the present, despite the Customs and Excise (Duties) (Amendment) (No. 16) Order 1999 made by the Minister of Finance which increased the rate of excise duty to $3.50 per litre. This Order came into force on 4 January 2000. The MOU came into force on 22 November 1989 and the protection period was 1 April 1993 to 31 March 1998. To follow the plaintiff’s argument to its logical conclusion, it will mean that the excise duty payable by the company would be $2.40, maximum, per litre from 1 April 1993 and would continue beyond the protection period and for as long as the company remains in the country manufacturing beers or unless the rate of $2.40 is changed in the MOU. I do not think the parties intended such a result when they negotiated the MOU in 1989. The wordings of Clauses 2.5, 2.6 and 2.7 are purposely put together, one after the other, to bring out the intention of the parties under those clauses. That intention is that the plaintiff was to be given 5 years protected status from the date of commencement of production and that within that period, the plaintiff was to pay excise duty on manufactured beer at the rate of not more than $2.40 per litre and that on import duty on beers, the rate would be at least 2½% times higher than the rate of excise duty payable by the company. In so far as the plaintiff is concerned, that rate of excise duty payable was that referred to in Clause 2.6 which was specifically stated to be so for the duration of the protection period. If that were so, and I am convinced that that is the case, then the $2.40 rate under the MOU had lapsed on 4 January 2000. The right of the plaintiff to rely on the $2.40 rate in MOU ceased at the expiration of the protection period. The obligation to pay excise duty continues but the rate would have to be that imposed under statutory authority and not upon the MOU unless the parties negotiated another rate. In other words, the contractual obligation to pay excise duty at the rate of $2.40 per litre under the MOU lapsed on 31 March 1998 and there is now the statutory obligation to pay at the rate laid down under the Orders made pursuant to the Customs and Excise Act.

It was contented by Counsel for the plaintiff that the new Investment Act (Cap.142) preserves the rights under the incentives granted to the plaintiff under the MOU. That is true but only in so far as those rights which are still in existence. Rights which are no longer in existence, whether under statute or contract, cannot be said to be saved just because the repealing statute says that all rights and obligations under the repealed law are to continue. Of course, rights and obligation still in existence are saved and would continue to have effect but not for those that have ceased to exist.
See Arnold -v- Gravesend Corpn (1856) 2 K&J574; [1856] EngR 417; 69 ER 911; AG -v- Newcastle-on-Tyne Corpn. & N.E. Railway Co. [1889] UKLawRpKQB 137; (1889) 23 QBD 492 See also Shepherd -v- Felt and Textiles of Australia (1931) 45 CLR 359. The privilege of being allowed to pay only $2.40 per litre under MOU as excise duty on manufacture beers in this case, ceased on 31 March 1998.

The rate of excise duty of not exceeding $2.40 under MOU having now lapsed, what is the rate of excise duty “payable” by the company under Clauses 2.7? The argument by the plaintiff is that since no time restriction had been placed on clause 2.7, the rate of excise duty payable by the company effectively remains to be $2.40 per litre. In my judgment, the relationship between Clauses 2.6 and 2.7 is paramount in determining this question. So that it was certain that during the protection period, the rate of excise duty on beer was $2.40 per litre and import duties on beer was charged at at least 2½% times higher than the $2.40 excise duty. It must be noted that the rate of excise duty payable by the company pursuant to the MOU was the then current rate of $2.40 per litre. Equally, it must be noted also that, and I agree with the suggestion that the omission of time limitation in Clause 2.7 was deliberate, was to ensure that the duty concession granted to the company under MOU was only to last for the duration of the protection period and that thereafter the rate of excise duty payable by the company should be the current statutory rate imposed by law and applicable generally to any importer of beers. This interpretation makes sense when one gives the words in Clause 2.7 their ordinary meaning.

If the matter stops there, I feel the case for the defendant would remain on a stronger footing. However, when one turns to LN129/98 (The Customs and Excise (Duties) (Amendment) (No.9) Order 1998, the force of the defendant’s case becomes weakened. That Order, specifically put the rate of import duty on beers at $6.00 per litre. If by virtue of Clause 2.7, the import duty on imported beers is 2½% times higher than the rate of excise duty payable by the company, then logically speaking, 2½% times higher than $3.50 would give $8.75 and not $6.00 as imposed under the Customs and Excise (Duties) (Amendment) NO.9 Order 1998. On the other hand if, as the said Order imposed, the import duty is $6.00 per litre, what would be the figure, 2½% times of which gives $6.00? The answer is $2.40 which is 40% of the import .duty. The position one comes to in this case is that, the Customs and Excise (Duties) (Amendment) No. 16 Order 1999 imposed the excise duty on locally manufactured beer at $3.50 per litre and the Customs and Excise (Duties) (Amendment) (No.9) Order 1998 imposed the import duty on imported beers at $6.00 per litre. When one applies these rates alongside the arrangement reached between the plaintiff and defendant under the MOU, there is to my mind an obvious sense of inconsistency, anomaly and injustice being created, a situation which I feel sure the legislators did not envisage. As such the Court is entitled to prefer the interpretation which grants justice and avoids anomaly and absurdity since the legislature never intended injustice or absurdity when it made the law in the first place. See Mangin -v- Commissioner of Inland Revenue [1971] NZLR 591; Johnson -v- Moreton [1978] 3 WLR 538; Applin -v- Race Relations Board [1974] 2 WLR 541. I need only refer to what Lord Salmon stated in Johnson-v- Moreton where he said:

“If the words of the-statute are capable, without being distorted, of more than one meaning, the Court should prefer the meaning which leads to a sensible and just result complying with the statutory objective and reject the meaning which leads to absurdity or injustice and is repugment to the statutory objective.”

Whilst the two Customs and Excise (duties) (Amendment) Orders are capable of different interpretations, the preferred meaning to be given to those two Orders would be that which leads to a sensible and just result. In the circumstance of this case, when Clauses 2.6 and 2.7 are read together with the two Customs and Excise Duties Amendment Orders, the interpretation which must be preferred ultimately is that which the plaintiff contents for. So that as the import duty on beers imposed under LN 129 of 1998 is still $6.00 per litre, the excise duty on manufactured beer clearly must be $2.40 per litre which is 40% of the import duty. Put another way, 2½% times higher than $2.40, gives $6.00 which is the import duty rate imposed by the Minister under LN129 of 1998. Thus I find the rate of excise duty which the plaintiff is legally obliged to pay at the present is 40% of the import duty on imported beers. In terms of actual figure, this rate of excise duty is $2.40 per litre and not $3.50 as specified in the gazetted (Customs and Excise (Duties) (Amdnement) (No. 16) Order 1999).

Sections 3 and 5 Protected Industries Act.

For the purpose of the questions raised for determination in the present proceedings, I do not feel the need to deal with the issues raised by the defendant regarding sections 3 and 5 of the Protected Industries Act. However as those provisions had been raised in argument, I shall briefly deal with them. Sections 3 and 5 of the Act are set out in the following terms:

3. Where the Minister is satisfied that the development of any industry or proposed industry in Solomon Islands is in the public interest and that such industry cannot be developed or undertaken unless offered protection from competition, he may by Order declare such industry to be protected from comindustry for the purposes of this Act.

4. ..............................

5. Every Order made under the provisions of section 3 shall be reviewed by the Minister after a lapse of two years from the date of such Order and thereafter at intervals of not more than two years, and if, upon such review, the Minister is satisfied that it is not in the public interest that the industry should continue to be protected the Order shall be revoked and notwithstanding any other provisions of this Act all licences issued in pursuance of such Order shall ceased to have effect.

By section 3, the Minister is given power to make an order declaring an industry to be a protected industry. There is no period stipulated in that section but the Minister is clearly given the power to decide whether to grant the protection for whatever period he chooses. He may grant a protected status to an industry for two years or five years and he is entitled to do so under the Act.

The power to review under section 5 of the Act has nothing to do with the granting of the protection period set by the Order made under section 3. The power to review the Order made under section every two years, is simply empower the Minister to re-look at his Order with a view to correcting, improving, modifying or even cancelling it depending on the circumstances arising since the Order was first made. See Crossfield -v- Tanian [1900] UKLawRpKQB 132; [1900] 2 QB 629; see also Builders Licensing Board -v- SpeNvay Constructions (Syd) pty Ltd [1976] HCA 62; (1976) 135 CLR 616. Thus when the Minister granted the five year protection period to the plaintiff, he was acting with his powers under the Protected industries Act.

Section 8 of Customs and Excise Act

I deal briefly with section 8 of the Customs and Excise Act as it had also been raised in argument in these proceedings. Section 8 provides:

“8. The Minister may in any case direct, and the Comptroller may in any case grant, the remission or refund in whole or in part of any duty payable or paid on any goods imported or exported, or manufactured in Solomon Islands, or of any rent, charges, or fees payable or paid to the Comptroller and in directing such remission or refund the Minister or the Comprtroller, as the case may be, may impose such conditions as he may think fit: Provided that in no single case shall the Comptroller grant a remission or refund exceeding twenty dollars.”

The defendant’s argument is that the actions taken pursuant to the Foreign Investment Act resulting in granting the plaintiff concessions and other investment incentives are contrary to the Customs and Excise Act. In short, I agree with the plaintiff’s contention that section 8 of the Customs and Excise Act is not exclusive. Whilst matters of duties’ come under Customs and Excise Act, the Foreign Investment Act (now the Investment Act (Cap. 142)) authorises the granting of concessions and incentives to foreign investors. The Investment Act does not, by implication, repeal section 7 of the Customs and Excise Act as suggested by the Counsel for the Plaintiff, for there is nothing in Investment Act which is wholly inconsistent with the provisions of the Customs and Excise Act. See Goodwin v Philips (1908) 7CLR 1. The incentives granted may well touch upon duties, rates or other matters which are of concern to foreign investors. But this is not to say that the Foreign Investment Board cannot take such matters into account when considering foreign investors investing in the country. The whole government machinery is expected to function as a whole and all those whose actions and decisions are required in executing a government decision would no doubt be consulted including the Ministry of Finance or Customs and Excise Department or the Government’s legal advisers and other relevant authorities. This is clearly borne out by the provisions of section 7 of the Investment Act. The decision reached at the end of the process is a decision made on behalf of the Government. The defendant’s argument on the question of inconsistency with the Customs and
Excise Act cannot be sustained in these proceedings.

Conclusion.

These proceedings are only interlocutory but I feel it is vital to the outcome of the main action in this case. As in many commercial litigations, the outcome of a vital issue in the action may well resolve the dispute between the parties and thus avoid unnecessary costs. In this case, the Court finds the issues raised in favour of the plaintiff and whether that should resolve the disputes between the parties is a matter entirely for them. However, the essence of the dispute between the parties in these proceedings is whether the rate of excise duty payable by the plaintiff on its locally manufactured beer should be 40% as contended for by the plaintiff of the import duty on imported beers or whether it should be the rate of $3.50 per litre as contended for by the defendant. The answer to that question is that the rate of excise duty which the plaintiff is legally obliged to pay at the present time on its locally manufactured beer is 40% of the import duty on imported beers. As the import duty on imported beers presently applicable is $6.00, the rate of excise duty must therefore be $2.40 per litre.

Question answered in favour of the plaintiff.

I will hear the parties on the question of costs, at a time to be fixed, if necessary.

(Sir John Muria)
CHIEF JUSTICE