Comptroller of Customs and Excise v Solomon Breweries Limited [2001] SBCA 1; CA CAC No 4 of 2001 (25 October 2001)

IN THE SOLOMON ISLANDS COURT OF APPEAL

Civil Appeal No 4 of 2000

BETWEEN

COMPTROLLER OF CUSTOMS AND EXCISE
(Appellant)

AND

SOLOMON BREWERIES LIMITED
(Respondent)

CORAM: Lord Slynn P., Ward JA., Los JA

HEARING: Friday 9^th February 2001

JUDGMENT: Thursday 25^th October 2001

JUDGMENT

By the Foreign Investment Act 1984 a Board known as the Investment Board was established with the functions inter alia of approving foreign investments and technology agreements in the terms of the Act. The Act provided the method by which an application for a foreign investment or technology agreement might be made. Before such an application was approved, the Board was required by section 5 to satisfy itself that "(a) the foreign investment would further the economic development of, or be of benefit to, Solomon Islands", and that citizens of Solomon Islands would be employed and local raw materials and supplies used as far as practicable.

By section 6 of the 1984 Act it was provided:

"In the event that an application is approved by the Board, the Division shall grant a Certificate of Approval which shall set out the terms and conditions of approval in such form as the Board may determine and shall specify

(a).......

(h) Exemption or reduction, if any, from income and corporate tax and such other taxes and duties as may be applicable;"

Consequential provisions are made for the application of the scheme and, for example, for the removal of currency from Solomon Islands after payment of taxes, for the protection of approved foreign investment and approved enterprise from the compulsory acquisition of their rights or interest other than in accordance with the terms laid down.

By a Memorandum of Understanding dated 22 November 1989 between the Minister of Commerce and Primary Industries on behalf of the Solomon Islands Government, and in his capacity as Chairman of the Investment Board of the one part, and by a Director on behalf of Solomon Breweries Limited of the other, the parties set out the result of discussions they had had in connection, with the establishment of a brewery in the Solomon Islands Subject to Solomon Breweries Ltd obtaining a lease of land and satisfactory financing, Solomon Breweries Ltd was to set up the brewery and was to receive certain concessions from the Government. Thus it was to be granted "a tax holiday" for eight years, to receive certain tax exemptions and to be given "protected industry status" for a period of five years from the date of commencing production. Two provisions are relevant to the present dispute which has arisen between Solomon Breweries Ltd and the Comptroller of Customs and Excise. These are:

"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 two and a half times higher than the rate of excise duty payable by the company."

All of these were to help with the project proposed which was very important for Solomon Islands as well as for Solomon Breweries Ltd which was bringing capital into Solomon Islands.

By a Certificate of Approval dated 23 April 1991 pursuant to section 6 of the 1984 Act and given with the authority of the Investment Board, the brewery project was approved with the foreign investment specified. The project was to be for the "production and distribution of beer, aerated waters and non-alcoholic drinks for both local and export markets". By paragraph 8 of the Certificate the "Particulars of Investment Incentives (e.g. exemptions from taxes and duties)" were said to be "As specified in the Memorandum of Understanding signed by the company and the Government in November 1989".

The Investment Act 1990 (c.142) repealed the 1984 Act but provided by section 20(2)

"Notwithstanding such repeal from and after the date of coming into operation of this Act-

(b) Any Certificate of Approval granted under the repeal Act shall continue to be valid on such terms and conditions of approval for the period stipulated therein;

By section 18 of the 1984 Act it is provided that "The provision of this Act shall be supplementary to, but not in derogation of any other law applicable to a foreign investor, foreign investment or his enterprise, and the compliance by a person of the provisions of this Act shall not absolve him from his obligation to comply with the provisions of that other law".

In section 18 of the 1990 Act it is also provided that the provisions of that Act should be supplementary to, but not in derogation of any other Act. The 1990 Act also provided:-

"15. (1) Where any approved enterprise fails to comply with the provisions of this Act or the provisions of the Certificate of Approval, the Board may-

(a) direct the respective Ministries to withdraw, alter or disallow any or all incentives granted; or

withdraw the Certificate of Approval.

(2) Before taking any action under sub-section (1), the approved enterprise shall be informed in writing of the nature of the contravention or non-compliance and be afforded an adequate opportunity to represent its case, and the Board may, if it thinks fit limit an opportunity for the contravention or non-compliance to be corrected".

The Customs and Excise Act (Chapter c.121) provided in section 7

"It shall be lawful for the Minister from time to time by order-

(a) to impose import or export duties of customs upon any goods whatsoever which may be imported into or exported from Solomon Islands and to revoke, suspend, reduce, increase or alter any such duties, and to provide for the importation or exportation of any goods without payment of customs duty thereon;

Provided that all import or export duties of customs and all exemptions from duties of customs set out in the First Schedule shall continue in force until revoked, suspended, reduced, increased or altered in the manner provided in this Act;

(b) To impose excise duties upon any goods whatsoever, manufactured in Solomon Islands and to revoke, suspend, reduce, increase or alter any such duties and to provide for exemptions therefrom."

By section 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 Comptroller, 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 $20.00."

Production of beer duly began and the Protection Period referred to in the Memorandum of Understanding ended on 31 March 1998. It is accepted that the specific rate of excise of $2.40 per litre on beer provided for in paragraph 2.6 of the Memorandum of Understanding ended on that date and no question arises as to that period. The import duty on beer was at relevant times until 3 December 1998 $12.00 per litre but by the Customs and Excise (Duties) Amendment (9) Order 1998, the duty was reduced to $6.00 per litre. If clause 2.7 of the Memorandum of Understanding is applied, Solomon Breweries Ltd contends that the excise duty cannot be more than $2.40 per litre. The appellant contends that pursuant to section 7 (b) of the Customs and Excise Act, the excise duty on locally made beer was at the relevant time fixed at $3.50 per litre.

The issue on the present appeal can thus be shortly stated. Is Solomon Breweries Ltd liable to pay excise duty at the gazetted rate from time to time, which from 1^st January 2000 was $3.50 per litre or is it liable to pay in accordance with the Memorandum of Understanding on the basis that the import duty on beer is at least two and a half times higher than the excise duty, i.e. that the excise duty is no more than 40% of the import duty? Thus if the rate of import duty on beer is $6.00 the excise duty payable is $2.40 per litre. The detailed figures applicable from time to time can easily be ascertained once the principle is established and it is not necessary to consider the detailed amounts of duty payable from time to time.

By writ issued on 6 August 1996 and subsequently amended, Solomon Breweries Ltd contended that the figure of 40% of the import duty was the maximum figure for excise duty and that there should be taken into account remissions of duty given to a company called "Chan Wing Motors Limited" for specific imports producing a figure of $1.556 and 66.8 cents respectively for particular importations.

As appears from the amended writ, Solomon Breweries Ltd was willing to pay and initially did pay excise duty at the rate payable in the Certificate of Approval which was accepted by the appellant without prejudice to its claim that the gazetted amount of excise duty was payable. By letters of 31 May and 1 June 2000, the appellants demanded for the period from January to March 2000 the difference between $2.40 per litre and the gazetted rate of $3.50 per litre having first rejected and then accepted conditionally the sum of $2.40 per litre.

In its defence the appellant contended that although the Certificate of Approval continued valid and in force, the incentives granted in clauses 2.6 and 2. 7 of the Certificate of Approval were contrary to the Protected Industries Act (chapter 175) and the Customs and Excise Act (c.121). The appellant threatened to close the brewery and to prohibit the removal of beer from the brewery unless a bond for the full amount were given and moreover to close the brewery if no licence were obtained by Solomon Breweries Ltd.

By notice of a motion dated 1 June 2000, Solomon Breweries Ltd sought an order that pending final judgment it be allowed to continue to produce and distribute beer from its brewery and to pay excise duty at the 40% rate referred to - that is at $2.40 per litre.

The learned Chief Justice by order of 10 January 2001, ordered that pending final judgment (including the appeal) Solomon Breweries Ltd should be entitled (without interference by the Appellants) to continue to produce and distribute beer from its brewery at Ranadi and that it should pay 40% of the gazetted rate of import duty for imported beer as the proper amount of excise duty. As the import duty was then $6.00 per litre the rate of excise duty he held fell to be paid at $2.40 per litre. He thus decided the two principle issues before him in favour of Solomon Breweries Ltd

On this appeal the Appellants contend that at the end of the protected period, Solomon Breweries Ltd's protection under the Protected Industries Act lapsed and that the Minister has power to impose excise duty under the Customs and Excise Act regardless of what has been approved or agreed in the Certificate of Approval. They say that the learned Chief Justice was wrong to accept, as he appeared to accept, that the new rate of duty must be considered in the light of clauses 2.6 and 2.7 of the Memorandum of Understanding. The Appellants say that those clauses cannot affect the duty fixed under the Customs and Excise Act. The Minister can fix such duties as he considers right regardless of the provisions of the Memorandum of Understanding and the Certificate of Approval. Moreover the provision of $2.40 per litre under the Memorandum of Understanding lapsed on 31 March 1998. Accordingly it is the gazetted rate which applies without qualification. They also argue that in any event two and a half times higher than $2.40 is $8.40 and not $6.00.

In considering these arguments of the Appellant, it has to be remembered that the Certificate of Approval is given under specific statutory authority and that approval is given in the terms of the Memorandum of Understanding which resulted from full negotiation.

The relevant statute is concerned with giving special concessions inter alia to encourage foreign investment. It is well understandable that in view of the size of the foreign investment involved, the long lead time before the brewery could be profitable and the local employment which the brewery would give, the Government and the Investment Board thought it in the interest of Solomon Islands to give the tax concessions which were given. There were indeed others than those specifically in issue in the present appeal - exemption from duty on plant and materials needed for the project, as well as exemption from withholding tax on all monies borrowed by Solomon Breweries Ltd from the German Development Agency for the duration of the loan.

In the judgment of this Court the validity of what is done is to be tested not so much as a matter of contract as of the exercise of powers conferred by statute. If regard is had to clauses 2.6 and 2.7 of the Memorandum of Understanding in the context of the Certificate of Approval which gave effect to the Memorandum, it seems to the Court plain, that the specific provision of excise duty at $2.40 in clause 2.6 is for the protected period and that alone. Article 2.7 does not refer to the protected period or to 5 or 8 years as do clauses 2.1, 2.5, and 3. The fact that no number of years is specified is not conclusive, but it seems to the Court clear that it was not intended that clause 2.7 should come to an end at the end of the protection period. As no other period is specified it continues as long as the Certificate of Approval is current in its present form. It has not been suggested that section 15 of the 1990 Act could be used because of Solomon Breweries Ltd's failure to comply with the provisions of the Act or the Certificate of Approval and in any event the procedure laid down in section 15 (2) has not been followed. Nor does the Court consider that the exercise of powers under the Investment Act in the way it has been done is inconsistent with or in derogation of the Customs and Excise Act or the Protected Industries Act. Nor is what has been done here in breach of Article 3 or 5 of the latter Act as the learned Chief Justice himself accepted. The Minister of Finance or the Appellants can fix a rate of imported beer as they choose and can fix a rate of excise for other beers produced in Solomon Islands.

Moreover it is important to bear in mind that clause 2.7 is not of itself continuing a specific duty of $2.40. For the period following the protected period the arrangement is that the excise duty will be 40% of whatever is fixed as the import duty. It is a coincidence that $2.40 is 40% of $6.00 and if not a coincidence, is a figure directly flowing from the figure deliberately fixed by the respondent as the duty on imported beer.

Whether it is desirable or possible for the Government to re-negotiate the Memorandum of Understanding or to provide by legislation for the Certificate of Approval to be amended or revoked on notice, where there has not been a breach of the obligations of Solomon Breweries Ltd, are not matters which fall for consideration on this appeal.

On the matters raised the Court agrees with the conclusion of the learned Chief Justice that the excise duty payable is at the rate not higher than 40% of the fixed rate of duty for imported beers which at the time of his judgment resulted in a figure of $2.40 being 40% of $6.00.

The appeal is accordingly dismissed. Paragraph l (a) of the learned Chief Justice's order is continued. The costs of this appeal must be paid by the Appellant.

President, Court of Appeal
Judge of Appeal
Judge of Appeal