1
DALAM MAHKAMAH RAYUAN MALAYSIA DI PUTRAJAYA
(BIDANGKUASA RAYUAN)
RAYUAN SIVIL NO. W-01(IM)-123-09
ANTARA
5
1.
2.
3.
JABATAN KASTAM DIRAJA MALAYSIA
KETUA PENGARAH KASTAM
KERAJAAN MALAYSIA
…
PERAYUPERAYU
…
RESPONDEN
DAN
10
NIKA SALES MALAYSIA SDN BHD
(NO. Syarikat: 198708-M)
[DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR (BAHAGIAN
RAYUAN DAN KUASA-KUASA KHAS) USUL PEMULA NO. R3-25-03-2004]
15
20
25
30
35
Dalam Perkara Peraturan 5(1)(a)(iv) PeraturanPeraturan Kastam (Kaedah-kaedah Penilaian) 1999;
Dan
Dalam Perkara Seksyen 17 Akta Kastam 1987;
Dan
Dalam Perkara Seksyen 143A, Akta Kastam 1967;
Dan
Dalam Perkara Aturan 55 Kaedah 13, KaedahKaedah Mahkamah Tinggi 1980
Antara
Nike Sales Malaysia Sdn Bhd
…
Penohon/
(No. Syarikat: 198708-M)
Plaintif
Dan
1. Jabatan Kastam Diraja Malaysia …
Responden2. Ketua Pengarah Kastam
Responden/
3. Kerajaan Malaysia
DefendanDefendan
CORAM:
NIHRUMALA SEGARA M.K. PILLAY, JCA
MOHD HISHAMUDIN YUNUS, JCA
ABDUL AZIZ ABDUL RAHIM, J
2
JUDGMENT OF THE COURT
This is the Appellants’ appeal against the decision of the High
Court which decided that the royalty paid by the respondent (Nike
5
Sales Malaysia Sdn Bhd) to Nike International (NIL) is not a
condition of sale as provided under Regulation 5(1)(a)(iv) of the
Customs (Rules of Valuation) Regulations 1999 and therefore
should not be considered when determining the customs duties
and sales tax.
10
The main issue in this appeal is whether the royalty cost should
be included in calculating the customs value of the imported
goods.
15
Under section 2 of the Customs Act 1967 “Value” in relation to
imported goods means customs value as determined under s.142(35B)”
Under s.142(35B) the Minister may make regulations to determine
the customs value of imported goods. Accordingly, the Minister
has made the Customs (Rules of Valuation) Regulations 1999
20
Regulation 4 of Customs (Rules of Valuation) Regulations 1999
states:
“(1) The customs value of imported goods shall be their transaction
value, that is, the price paid or payable for the goods when sold for
25
export to Malaysia, adjusted in accordance with Regulation 5”
Regulation 5(1)(a)(iv) of the Customs (Rules of Valuation) Regulations
1999 clearly provides, inter alia, that royalties and licence fees that the
3
buyer must pay directly or indirectly, as a condition of the sale of
goods for export to Malaysia, is part of the adjustment element that
has to be taken into account in determining the transaction value
(customs value) of imported goods under Regulation 4. For ease of
5
reference
Regulation
5(1)(a)(iv)
Customs
(Rules
of
Valuation)
Regulations 1999, reads:
“5
(1)
In determining the transaction value of imported goods
under regulation 4, the price paid or payable for the goods shall be
10
adjusted (a)
by adding thereto amounts, where such amount is
not already included in the price paid or
payable for the goods, determined on the basis of
sufficient information, equal to:
15
(i)
…
(ii)
…
(iii)
…
(iv)
royalties and licence fees, including
payments for patents, trademarks and
20
copyrights in respect of the goods that
the buyer must pay, directly or indirectly,
as a condition of the sale of the goods
for export to Malaysia, exclusive of
charges for the rights to reproduce the
25
goods in Malaysia;
(vi)
…
(emphasis in bold provided by us)
30
On the factual matrix of this case, we hold that the royalty, which
was to be payable by the respondent after the goods were sold, is
4
to be regarded as an item to be included for adjustment of the
price to be paid or payable.
The contention of the respondent, that the royalty payable on the
5
goods at the point of import cannot be ascertained, because the
amount of royalty can only be determined after the sale of the
goods, is a non issue, and cannot exempt the respondent from not
making a declaration in respect of the royalty at the time of import
in the relevant custom forms, by an appropriate declaration to
10
meet the respondent’s situation. Non declaration gives the
impression that payment of royalty does not arise at all for the
imported goods by the buyer. The absence of any express
provisions in the contractual documents and business transactions
relating to the imported goods, that states the buyer must pay
15
royalties for the goods as a condition for the sale of the goods for
export to Malaysia, does not take the adjustment for royalties for
the imported goods paid after the goods are sold, out of the
equation for the determination by the appellants the customs
value (transaction value) under the Customs Rules of Valuation
20
1999.
Nike Inc is the ultimate holding company of Nike International Ltd
and Nike Sales Malaysia Sdn Bhd (Respondent). Nissho Iwai
American Corporation (NIAC) is a wholly owned subsidiary of
25
Nissho Iwai Corporation (NISSHO). NISSHO is an independent,
unrelated third-party that acts as a buying and trade finance agent.
Manufacturers/Suppliers export the goods to the respondent,
5
through the intermediation of Nike Inc and NISSHO. The
respondent is under an obligation to pay royalty, based on net
invoiced sales to NIL. However, the price, paid or payable by the
respondent to the manufacturers/suppliers for the goods exported
5
to the respondent, is invoiced without taking into consideration the
obligatory royalty element payable to NIL by the respondent,
pursuant to the Intellectual Property License and Exclusive
Distribution Agreement between NIL, as Licensor and the
Respondent, as Licensee. We are unanimous, that under such
10
circumstances, it would be a fallacy not to make an adjustment for
the price paid or payable, merely because it was not expressed
that the respondent must pay the said royalty as a condition of the
sale of the goods for export to Malaysia. Such a proposition
appears to be an ingenious attempt to evade the proper customs
15
duty on the imported goods by the respondent.
In any event, we are in agreement with the decision of the New
Zealand Court of Appeal in Chief Executive of New Zealand Customs
Service v Nike New Zealand Ltd [2004] 1NLZR238 [hereinafter referred to
20
as the “Nike New Zealand case”] where the Court upheld the
decision of the High Court of New Zealand, that royalties payable
by Nike NZ to another subsidiary in the Nike group, NIL, were to
be added to the price of the imported goods, in assessing the
value of the goods for purpose of tariff (customs duty). The factual
25
matrix of the Nike New Zealand case is almost on all fours with the
present appeal before us, a’fortori, the law under consideration in
New Zealand and Malaysia, that is, clause 3(1)(a)(iv) of the
6
Second Schedule to the Customs and Excise Act 1996 of New
Zealand and, Regulation 5(1)(a)(iv) Customs (Rules of Valuation)
Regulations 1999 of Malaysia, are identical.
5
For the purposes of the present appeal, in order to better
understand the position of the imported goods in the business
transactions of the respondent, and the apparent similarity of facts
with the Nike New Zealand case, three (3) pertinent documents
need to be alluded to. They are: 1) Purchase Commission
10
Agreement; 2) Intellectual Property License and Exclusive
Distribution Agreement; and 3) Amended and Restated Buying
Agency and Logistics Services Agreement.
1)
15
The Purchase Commission Agreement (exhibit KA5
page 352-355 Jilid 4 Appeal Record) was an agreement
made between the respondent [NIKE Sales (Malaysia)
Sdn Bhd (Participating Company)], and NIKE Inc., USA
(“NIKE”), the parent company in USA.
20
Under Recital A, the Participating Company is engaged in
the business of marketing and selling NIKE brand
products (“Products”) in Malaysia.
Under clause 1, the Participating Company appoints NIKE
25
as its purchasing agent for such Products as Participating
Company may from time to time request.
7
Under clause 2.1.1, NIKE shall receive purchase order
from the Participating Company for Products and shall
place such orders with its selected foreign manufacturers.
NIKE shall order such Products at favourable prices in
5
accordance
with
the
requirements
of
Participating
Company with respect to type, quality, delivery datelines,
financing
and insurance.
NIKE shall deliver
such
Products, or arrange for their delivery, to such ports as
the parties may from time to time determine. NIKE shall
10
act in its own a name, for the account of Participating
Company, but shall have authority to represent and
bind Participating Company directly vis-à-vis foreign
manufacturers.
15
Under clause 3, NIKE may engage the services of
NISSHO IWAI American Corporation (“NIAC”), a whollyowned subsidiary of NISSHO IWAI Corporation, a
Japanese trading company, to furnish NIKE import and
export expertise and related services, including but not
20
limited to the handling of trade documentation, export
financing and other technical assistance incidental to the
international
transport
of
Products
ordered
by
Participating Company. NIKE may cause NIAC to invoice
Participating Company directly for all products purchased
25
by or on behalf of Participating Company pursuant to this
Agreement
8
2)
Intellectual
Property
License
and
Exclusive
Distribution Agreement (exhibit KA4 page 342-350 Jilid
4 Appeal Record).
5
This agreement was made between NIKE International
Ltd (“LICENSOR”) and the respondent (“LICENSEE”).
Under clause1.8, “Licensed Goods” means Footwear,
Apparel, Accessories and Equipment which bear any of
10
the Trademarks or which incorporate any Other Propriety
Rights.
Under clause 1.9, “Licensed Goods Sold” means (i)
Licensed Goods sold by LICENSEE to a third party that is
15
not an entity within the worldwide NIKE corporate
structure and (ii) Licensed Goods sold by LICENSEE to a
retail outlet owned by an entity within the worldwide NIKE
corporate structure.
20
Under clause 1.10, “Licensed Territory” means Malaysia.
Under clause 1.11, “Net Annual Sales Revenues” means
the gross wholesale invoiced sales revenues from the
sale of all Licensed Goods Sold during the relevant
25
Agreement Year, less deductions for trade or cash
discounts, if any, and goods returned, if any, and
excluding taxes.
9
Under clause 1.14, “Trademarks” means all of the
trademarks owned by the LICENSOR in the Licensed
Territory or licensed to the LICENSOR for use in the
5
Licensed Territory.
Under clause 2.1, Subject to the conditions set forth in
this Agreement, LICENSOR hereby grants to LICENSEE,
for the term of this Agreement:
10
2.1.1, a non-transferable and non-exclusive license to
manufacture or subcontract for the manufacture of
Licensed Goods using the Trademarks and the
Other Propriety Rights, provided that all such
Licensed Goods are sold by LICENSEE in the
15
Licensed
Territory
in
accordance
with
this
Agreement; and
2.1.2, a non-transferable and exclusive license (i) to sell
Licensed Goods in the Licensed Territory and (ii)
to use the Trademarks and the Other Propriety
20
Rights in the Licensed Territory in connection with
the advertising, marketing and sale of Licensed
Goods.
Under clause 2.2, the LICENSOR appoints LICENSEE as
25
its exclusive distributor of Licensed Goods in the Licensed
Territory.
10
Under clause 4.1, the LICENSEE shall use its reasonable
efforts to sell and promote the sale of Licensed Goods in
the Licensed Territory.
5
Under clause 10.1, LICENSEE
agrees to pay
LICENSOR a royalty of six percent (6%) of the Net
Invoiced Sales revenues of all Licensed Goods in the
Licensed Territory.
10
Under clause 10.3, in addition to the royalties provided
under Section 10.1 the parties agree that, in the event
LICENSEE sells any Licensed Goods on account of
which NIKE Inc., NIKE Europe B.V. or any related
company must pay a royalty to a third party, LICENSEE
15
shall pay LICENSOR, or such other entity as may be
designated by LICENSOR, the amount required to be
paid to said third party. Such payments shall be
separately invoiced and shall be made at the same time
that LICENSEE makes its next royalty payment under
20
Section 10.1.
Under clause 10.4, the royalties required under Section
10 shall be invoiced and paid in accordance with such
schedules as are agreed to by the parties from time to
25
time, provided that all royalties for sales made during a
particular Agreement Year shall be paid no later than one
month after the end of such Agreement Year.
11
Under clause 13.1, the LICENSEE shall have the right to
subcontract for the manufacture of Licensed Goods and
shall be free to choose the suppliers with which it so
5
subcontracts. The parties agree that the Licensor shall
impose no restrictions on Licensee’s choice of such
suppliers. The parties further agree that in the event of
non-payment of the royalty provided under Section 10,
Licensor shall not prevent or impede such supplier from
10
selling
to
Licensee Licensed
Goods
manufactured
pursuant to binding orders accepted by such supplier
prior to such supplier’s receipt of notice of termination of
this Agreement; provided, however, that this provision
shall not restrict Licensor from asserting against Licensee
15
any claims that Licensor may have against Licensee
under this Agreement or otherwise.
3)
Amended and Restated Buying Agency and Logistics
Services Agreement Nike Sales Malaysia Sdn Bhd
20
(exhibit KA-15 at page 442-453 Jilid 5 Appeal Record)
was an agreement made between the respondent and
Nissho Iwai American Corporation (“NIAC”).
Under clause 1, in this agreement “Import Goods” shall
25
mean Goods which are sold by NIKE in Malaysia and that
are manufactured or purchased outside of Malaysia and
12
“NIKE Order” shall have the meaning assigned thereto in
Section 4.3
Clause 4 of this agreement provides the Ordering
5
Procedure. Where NIAC is to provide buying agency
services and trade financing the ordering procedure with
respect to Import Goods shall be as follows:
4.1
10
Initiation of Order. NIKE shall determine what
Goods and quantities of Goods that it wishes to
order.
4.2
Negotiation of the Terms. NIKE shall negotiate the
Terms with the Supplier and obtain the Supplier’s
indication that it shall accept an order for the supply
15
of Goods from NIAC on behalf of NIKE. Nike shall
then provide an order confirmation to the Supplier
outlining the Terms that have been negotiated.
4.3
Communication of NIKE Order to NIAC. On a
monthly basis and as far in advance as reasonably
20
practical, NIKE shall transmit to NIAC the respective
purchase orders, which shall include the name and
address of the Supplier and the Terms which have
been negotiated with the Supplier(“the NIKE Order).
4.4
25
Placement of NIAC Order. Relying on the NIKE
Order, NIAC shall (i) forward to the Supplier the
NIAC Order which will contain or refer to the same
Terms as the correspondent NIKE Order (ii) forward
13
to NIKE the NIAC Order confirmation (iii) arrange
the issuance of an L/C to the Supplier and send a
copy to NIKE. NIAC will arrange for NIKE to have
real time access via an electronic banking system of
5
the issuing bank to review all L/C issuances,
amendments and presentments.
4.5
Arrangements for Production and Delivery of
Goods. NIKE shall arrange that the Suppliers shall
produce the Goods and shall be obligated to deliver
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them
as
specified.
Nike
shall
also
arrange
ocean/inland transportation, select the carriers and
negotiate
the
freight
rates
and
direct
the
carriers/forwarders to inform NIAC of expected
shipments and to forward to NIAC appropriate
15
documentation as arranged. NIKE shall indemnify
and hold NIAC harmless from any and all costs
and/or liabilities arising from Supplier’s or carrier/s
failure to deliver the Goods as specified, unless
such failure results from NIAC’s non performance
20
hereunder.
We repeat and, wish to emphasize, that the provisions of the New
Zealand law, that is, Clause 3(1)(a)(iv) of the Second Schedule
25
Customs and Excise Act 1996, is identical to the provisions of our
law under consideration in this appeal, that is, Regulation
5(1)(a)(iv) of the Customs (Rules of Valuation) Regulations 1999.
14
We reproduce below, relevant extracts from the judgment of the
Court of Appeal in the Nike New Zealand case, which illustrates
the similarity of the facts in our case, and highlights the
5
conclusions and observations of the Court, after considering the
submissions and the authorities relied upon by counsel. We are in
full agreement with the judgment, and the views expressed
therein, for reaching the conclusion on the royalty issue before the
New Zealand Court of Appeal.
10
“……..
[4]
NIL, a subsidiary of Nike Inc, is the proprietor of the group’s
intellectual property. During the period of the importations it had
licensed Nike NZ to use in New Zealand and certain Pacific Islands its
15
trade marks, copyrights, designs and other intellectual property rights.
Nike NZ agreed to use its reasonable efforts to sell and promote the
licensed goods in the licensed territory: cl 4. The licence was granted
expressly in relation to two activities. First, it was a non-exclusive
licence to manufacture or “subcontract” (a term which, it is accepted,
20
should in New Zealand context be read as “contract”) for the
manufacture of licensed goods provided that that were sold in the
licensed territory in accordance with the agreement: cl 2.1. Secondly, it
was an exclusive licence to sell the licensed goods in the licensed
territory, in respect of which Nike NZ was appointed the exclusive
25
distributor of licensed goods: cl 2.2.
[49] A royalty of 2.5 per cent of net annual sales revenues of sales in
the licensed territory was required to be paid by Nike NZ to NIL; cl 10.4.
30
[50] The agreement required Nike NZ to obtain written approval from
NIL of samples and specimens of the licensed goods: cl 7. But it was
15
free to choose its suppliers and there was express agreement that NIL
should not impose restrictions on its choice and that, in the event of
non-payment of royalty, NIL would not prevent or impede the supply to
Nike NZ of goods manufactured pursuant binding orders accepted by
5
the supplier prior to the supplier’s receipt of notice of termination of the
agreement; cl 13.1. NIL reserved the right to exercise other rights, such
as termination, in that event.
[51] The Customs Appeal Authority said that it was clear from the
10
documentation and “the true nature of the purchase transactions” that
there was a strong link between the royalty payments and the sale of
the goods for export to New Zealand. Through the various agreements
Nike Inc or NIL could enforce all royalty obligations. It followed that it
controlled the supply of goods for Nike NZ and that supply could be
15
terminated for non-payment of royalties, Payment of royalties was a
condition of sale of the goods by way of export into New Zealand. It was
commercial common sense that there would be no supply of Nike
product to Nike NZ if royalties were not paid.
20
[52] In affirming the Authority’s decision, Williams J, after an extensive
review of prior cases, said that when the agent employed to place Nike
NZ’s orders was itself a branch of the company which, through another
subsidiary, owned the intellectual property utilized in the goods’
manufacture for which the royalty was payable, it must be taken to be
25
the case that the agent would not have accepted and acted on the order
without being assured that the royalty would be met by its principal,
Nike NZ, when the goods were sold. Nike Inc plainly had the capacity to
ensure “all” (that is, the Nike companies) acted so that its subsidiary
met its royalty obligations. Although the evidence showed that Nike NZ
30
had been able to purchase stock even though, at times, its financial
circumstances had meant it had been in arrears of royalty payments,
Nike Inc’s ownership and ultimate control of Nike NZ and its directors
meant that Nike NZ must comply with Nike Inc’s requirements if so
directed. Nike Inc could not import the stock it later sold without
16
incurring a liability for royalty. The Judge preferred to view the word
“condition” in the way described in the decisions of this Court in Adidas
New Zealand Ltd v Collector of Customs (Northern Region) [1999] 1
NZLR 558 and Avon Cosmetics Ltd v Collector of Customs [1999]
5
NZAR 345, rather than viewing it in the way the Supreme Court of
Canada had done in Deputy Minister of National Revenue v Mattel
Canada Inc (2001) 199 DLR (4th) 598. The decision in Mattel might well
be explicable, Williams J said, in terms of its particular contractual
arrangements, but the case nonetheless merited the observation that
10
insistence on a contractual condition for royalties being included for the
transaction to come under cl 3(1)(a)(iv) “simplifies avoidance”. Adidas
and Avon remained the law binding on the High Court and the Judge
saw nothing compelling arising out of the different approach in Mattel to
endeavour to distinguish them.
15
[53] Mr Fardell, for Nike NZ, submitted….
[54] It was also submitted that, even if the Court preferred not to adopt
the Canadian approach, a correct application of Adidas would have led
20
to a different result in this case. ………
[55] Mr Hancock supported the position taken by the Court in Adidas
and Avon on the basis it best ensured the attainment of the object of the
legislation. ….
25
[56] ....
[57] …..
30
[58] …..
[59] …..
[60] In Adidas the Court addressed three questions;
17
(a)
Whether it could be said that royalties calculated by
reference to the resales of product manufactured
for adidas NZ and imported by it into this country,
could be said to be payable “in respect of the
5
imported goods”;
(b)
Whether to fall within the subpara (iv) the royalty
must be payable directly or indirectly to the seller;
and
(c)
10
Whether the royalty was payable “as a condition of
the sale of the goods for export to New Zealand”.
[61] The members of the Court were entirely of the one view
concerning the first two questions. No challenge is made to their
conclusions, with which we agree. In the leading judgment, delivered by
15
Henry J with Thomas J concurring, it was said that even if the payment
was dependent upon distribution, it was unreal to suggest that the
payment was not in respect of the product. It was the product which was
impressed with the royalty obligation: p 564. Blanchard J said it was
unrealistic to contend that royalties were not payable “in respect of the
20
imported goods” merely because they were fixed in relation to the price
at which the importer sold them and because nothing was payable until
and unless they were sold. In practice, royalty payments were almost
invariably calculated on sales by the licensee. Clause 3(1)(a)(iv) must
be directed to the ordinary run of royalty arrangements.
25
[62] On the second question, the Court said there was nothing in the
clause requiring that the royalties must be payable to the party who
sells the goods to the importer.
30
[63] Where Nike NZ says in the present case that the Court in Adidas
erred was in relation to the third question, concerning which the
members of the Court in Adidas did not speak with one voice. Henry J
said that whether the royalty was payable as a condition of the sale for
export seemed to be the critical question. As in the present case, the
18
contractual terms between the New Zealand company and the overseas
manufacturer did not contain any provisions express or implied relating
to royalty payments. Neither did that obligation appear to have featured
in any formal way in the business dealings between adidas NZ and its
5
buying agent, adidas Asia-Pacific, which undertook the negotiations
with the manufacturer. But that was not determinative. For the purposes
of cl 3(1)(a)(iv) the sale must be the transaction or process under which
the importer obtained the product. It was therefore the true nature of
that transaction as evidenced by the relevant documentation which fell
10
for consideration. Under the licence agreement adidas NZ was granted
the right to use the protected property (trade marks, patents, etc) for
manufacture of goods outside New Zealand but only by manufacturers
approved by adidas AG. Accordingly adidas NZ was contractually
restricted in its ability to import manufactured product. The effect of the
15
licence provisions therefore was that adidas NZ could not through its
approved manufacturers import product without incurring a liability to
pay royalty on that product when it was sold. If adidas NZ could not
import the product which it later sold without incurring the liability to pay
royalty, then payment of the royalty was a condition of the sale to it of
20
the product: p 563.
[64] The licence agreement obliging adidas NZ to pay royalty was
closely related to the importation, that is, the sale for export. Adidas
NZ’s right to contract with the manufacturer was governed by the
25
licence agreement. In Henry J’s view the obligation to pay royalty was
undoubtedly closely related to the right of adidas NZ to contract with the
Asian supplier, through another adidas related company, for the
manufacture and its associated purchase or sale for export.
30
[65] Blanchard J placed emphasis not on the ability of the parent
company to control the choice of manufacture but upon the particular
buying practice adopted by adidas NZ. The New Zealand company had
in practice left all the buying arrangements, including the placing of
orders with the manufacturer/seller, in the hands of another member of
19
the adidas group. He said that it was inconceivable that if the New
Zealand company had been under separate ownership and had placed
its orders in this way, the agent would have undertaken such a function
unless satisfied that royalty payments to its parent were being fulfilled
5
by the purchaser. He thought, therefore, that with this control voluntarily
accepted by adidas NZ the situation could properly be seen as one
involving as part of that purchasing arrangement an obligation on
adidas NZ to pay the agreed royalties to the parent company. On that
basis, of course, the present case is indistinguishable.
10
[66] In its judgment in the Mattel case , subsequently reversed by the
Supreme Court, the Canadian Federal Court of Appeal was of the
opinion that the payment of royalties was a condition of the sale of
goods for export first if it appeared as such in the contract of sale
15
between the vendor and the importer and secondly, “if either the
licensor because it owns or controls the vendor, or the vendor when it
holds the trademarks or rights or copyrights, can prevent the importation
of the goods by the purchaser or seriously compromise the ability of the
purchaser to buy the goods for export in cases where he has failed to
20
pay the royalties”. The Court pointed out that the wording of subpara (iv)
does not refer to a “condition for sale” and therefore, it was, in the
opinion of the Federal Court, not a requirement that payment of
royalties be expressly stipulated in the sale contract. The word
“condition” was not considered to have been used in the Act as a term
25
of art carrying the meaning generally ascribed to it in the law of sales.
Rather, the word was used in its ordinary and common sense way to
mean that the payment of royalties had to be made as a perquisite or
requirement for the export of the goods: para [26].
30
[67] That view was not accepted by the Supreme Court, as we have
seen, but, with respect, we find it convincing. It seems to us that for
royalty to come within subpara (iv), there must be a combination of two
features. First, the royalty must be payable to the manufacturer or to
another person as a consequence of the export of the goods to
20
New Zealand, and, secondly, the party to whom the royalty is
payable must have control of the situation going beyond the
ordinary rights of a licensor of the intellectual property and giving
it the ability to determine whether the export to New Zealand can
5
or cannot occur. An ordinary licensor, unrelated to the licensee, may
be able to take steps to prevent future importations if royalties are not
paid in respect of a particular importation of licensed product, but it has
no control over an importation prior to any default. In contrast, where
royalties are payable to a licensor which is member of the same
10
corporate group as the licensee – and where the buying is in
practice conducted through another member of the corporate
group – the situation is throughout under the parent company’s
control exercisable on behalf of the licensor.
15
[68] In the present case the goods bearing the licensor’s trademarks
and utilizing its other intellectual property were able to be exported to
New Zealand only because of the existence of the licence
agreement which required the payment of royalty. Although that
agreement, like the one in Adidas, was not expressly related to the
20
export to New Zealand, it was stated to be for the events which
preceded and followed that event, respectively the manufacture of the
goods and their resale in the licensed territory by the Nike NZ.
Importantly, there was an obligation on Nike NZ under the terms of the
licence agreement to use reasonable efforts to sell the licensed goods.
25
But the manufacturing licence was conditional upon sales occurring only
in the licensed territory. Implicitly, then, the agreement required the
export the goods to New Zealand. If Nike NZ simply left the goods in the
country of manufacture, it would not be making reasonable efforts to sell
them in accordance with the agreement. Implicitly, the licence covers,
30
and royalties are payable for, the right to export the goods to New
Zealand. The royalties may be calculated on sales in the licensed
territory but they are payable, in part, for the right to bring the goods to
New Zealand. Hence, they can be said to be payable as a condition of
that act which is itself a step in fulfillment of an obligation to the licensor.
21
[69] Coupled with this was the overall control which Nike Inc was able
to exercise. It was involved in the purchasing as the agent of Nike NZ
and it had the ability to ensure royalty payments were made pursuant to
5
the licensing agreement with its subsidiary, NIL, through its control of
the board of directors of Nike NZ. There was also a further measure of
control in that NIAC did not take steps to arrange letters of credit on
behalf of Nike NZ without first receiving a copy of an order placed by
Nike Inc. The manufacture of the goods did not occur until a confirming
10
order was received from NIAC.
[70] The factual situation in Mattel was quite different, There the
royalty was payable as a consequence of the export of goods to
Canada but the Licensor X had no ability to exercise control through
15
Mattel US, the exporter. All it could do if royalties were not paid was to
invoke the provisions of the licensing agreement and seek to assert
such rights as it has under the Canadian trade mark legislation in
respect of future importations.
20
[71] We are therefore satisfied that the Customs Appeal Authority and
the High Court were correct when they concluded that payment of
royalty by Nike NZ to NIL was a condition of the sale of the goods
for export to New Zealand in terms of cl 3(1)(a)(iv) of the Second
Schedule.”
25
(emphasis in bold provided by us)
We are unanimous that the High Court fell into a serious error in
holding that royalty payable by Nike Malaysia to Nike International
(NIL) cannot properly be taken as an adjustment item under
30
Regulation 5(1)(a)(iv) of the Customs (Rules of Valuation)
Regulations 1999. We accordingly allow this appeal with costs
and set aside the order of the High Court.
22
Appeal allowed. Costs fixed at RM20,000/- Deposit refunded to
appellants.
5
NIHRUMALA SEGARA A/L M.K. PILLAY
Judge
Court of Appeal
PUTRAJAYA
10
Reference:
Chief Executive of New Zealand Customs Service v Nike New Zealand Ltd
[2004] 1NLZR238
15
Peguam Perayu:
20
Dato’ Nik Suhaimi bin Nik Sulaiman
Peguam Kanan Persekutuan
Bahagian Perundangan
Ibu Pejabat Kastam Diraja Malaysia
Aras 8, Selatan Kompleks Kementerian Kewangan
No. 3, Persiaran Perdana
Presint 2,
62598 PUTRAJAYA
25
Peguam Responden:
30
35
En K. Maniam
Tetuan Skrine
Unit 50-8-1, 8th Floor
Wisma UOA Damansara
50, Jalan Dungun
Damansara Height
50490 KUALA LUMPUR
23
8 March 2011