CATCHWORDS Administrative Law - Export Market Development Grants Act, 1974 - grant for "eligible expenditure" for purpose of promotion of export trade - characterisation of conduct - whether conduct engaged in primarily and principally for stipulated purpose - whether incidental benefit arising from proper performance of contract. Words and Phrases ~ soliciting business. Export Development Grants Board v. Geotfrey Thompson & Growers Co-Operative Company Pty. Ltd. No. VG 34 of 1985. Smithers, Beaumont and Everett, Jd. 24 July 1985 Sydney IN_THE FEDERAL COURT OF AUSTRALIA ) VICTORIA REGISTRY No. VG 34 of 1985 ) ) ) GENERAL DIVISION ' ON APPEAL from the Administrative Appeals Tribunal BETWEEN : EXPORT DEVELOPMENT GRANTS BOARD Applicant AND: GEOFFREY THOMPSON & GROWERS CO-OPERATIVE COMPANY PTY. LTD. Respondent MINUTES OF ORDER Judge making order: Smithers, Beaumont and Everett, JJ. Date order made: 24 July 1985 Where made: Sydney THE COURT GRDERS THAT: l. Order that the appeal be allowed. ty Order that the decision of the Administrative Appeals Tribunal made on 25 January 1985 herein be set aside. 3. Order that the cross-appeal be dismissed. +. Order that the respondent pay the costs of the appellant Board of the appeal and of the cross-appeal. 5. Order that the respondent be aranted a certificate under the Federal Proceedings (Costs) Act, 1981 in respect of the costs of this appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN_THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG No. 34 of 1985 ) GENERAL DIVISION ) Between: EXPORT DEVELOPMENT GRANTS BOARD (Applicant) And: GEOFFREY THOMPSON AND GROWERS CO-OPERATIVE COMPANY PTY. LTD, (Respondent) Coram: Smithers, Beaumont and Everett JJ. Date: 24 July 1985 REASONS FOR JUDGMENT Smithers J.: I have had the advantage of reading the reasons for judgment of Beaumont J. in this matter and express my concurrence in them. I would add the following observations with reference to the respondent's claim for a grant from the Export Development Grants Board based on the contention that the expenditure of $12,215.00 paid by it to Mr. Stokes asa technical consultant for services rendered by him was expenditure incurred by way of soliciting business within the meaning of that expression where it appears in s.4(2) (a)(ii) of the Export Market Development Grants Act 1974 (the Act). 2. The services rendered by Mr. Stokes are set forth in the statement of facts in the reasons of Beaumont J. to which I take the liberty of referring. Expenditure by way of soliciting 1s expenditure incurred in and about an exercise of soliciting. In the collocation of words in sub-para. (ii) of para. (a) of sub-s.2 of s.4 of the Act the dominant notion is that of obtaining business by advertising in public or soliciting in public or private, although one would conclude that the advertising in public or soliciting in private is more in mind. The essential feature of advertising or soliciting is communication of something thought likely to induce another to purchase goods which one wishes to sell. The dictionary meanings most apt in the context are "to entreat or petition a person for, to urge or importune, or to draw on or allure by some specious representation or argument"; see Shorter Oxford Dictionary. There 18 no suggestion in these meanings that soliciting involves giving assurances or making representations that action of some kind will be taken by the party soliciting to back up his entreaties. Yet it would be reasonable to attempt to induce a potential purchaser to buy one's goods by giving assurances that one intends to, or will take action such as to install new or improved machinery to give better service, or to engage in some other action which will operate as an inducement to another party to enter into the purchase that would surely be an exercise of soliciting business. And the expense of communicating such matters of 3. inducement would be an expense of soliciting. It appears that in the transaction under consideration in the present case, assurances were given that services such as those performed by Mr. Stokes would be provided by the respondent. It appears also that but for these assurances the relevant contract for the purchase of fruit would not have been entered into by the purchaser. The question is whether the expenditure involved in carrying out the assurances was expenditure of soliciting. When, in the exercise of soliciting business, one gives assurances or represents that one will do any one of many possible things the prospect of which being done may induce the potential customer to do business, the performance of that which is assured or represented may or may not become a term of the contract. If it becomes a term of the contract then what was initiated as an exercise in soliciting has been converted into negotiation and then into contract. In that case the performance in accordance with the contract is not an exercise of soliciting and the expense of so performing is not an expense of soliciting. It is carrying out business obtained by soliciting. But if what was assured or represented does not become a term of the contract and performance of it rests merely in moral obligation or commercial policy, there may yet bea relationship between that performance and the exercise of soliciting. Circumstances may exist 1n which performance of 4. an assurance given to secure a contract is part of a total exercise of soliciting. Where a potential purchaser from whom business is solicited states, for instance, that he would consider doing business only if the vendor had an agent resident in his city, and the vendor, with the express and only purpose of obtaining the business, appoints the agent, informs the potential purchaser that he has done so and urges that fact as a reason for the purchaser entering into a contract to buy, it might be difficult to say that the whole exercise, including making good the assurance, was not an exercise in soliciting. In such a case expenses of appointing and maintaining the agent or some of them could properly be regarded as expenditure of soliciting. But where what occurs is that in the course of soliciting business a_ trader gives an assurance, not constituting a term of any contract, to a potential purchaser that he will take some step of a kind likely to make a purchase more attractive, then, although that step is actually taken, the process of soliciting ceased when the assurance was given. To carry out the step in question was but to carry on the trader's business. This 1s clear where the step is taken after the hoped for contract of purchase has been entered into. If it is taken before the making of the contract, but the fact that it had been taken is not made known to the purchaser the taking of that step is also not anact of soliciting. It is but an incident in the carrying on of business in an honourable and practical way. 5. It may be thought that the performance of an assurance is so closely connected with the giving of the assurance, that, like it, the performance must be characterised as an act of soliciting. But the distinction between soliciting by way of giving assurances and performing what was assured would be done is akin to that between making a contractual provision and performing it. The making of the contractual promise was an inducement for the promises of the other party. The performance of the promise was quite another matter, divorced from inducement and sounding in the carrying out of obligations and business. Similarly, to perform what one has given assurance would be done is. simply to carry out one's business commitments, even those commitments which are not legally binding. In the present case the situation was that the assurance that activities such as those engaged in by Mr. Stokes at the point of loading and the point of unloading the cargo was given before the contract was made and the contract was entered into by the purchaser under the influence of that assurance. On the findings of the Tribunal from which the appeal is brought, the situation was such that a legal obligation did not arise from the giving of 'the assurance. Performance of that which was the subject of the assurance, namely the rendering of the services of Mr. Stokes, occurred after the contract had been made. It is clear therefore that although the giving of the assurance was an act of soliciting the business, the performance of the services rendered by Mr. Stokes was not. Accordingly, I agree with the orders proposed by Beaumont J. I certify that this and the five (5) preceding pages are a true copy of the Reasons for Judgment of the Honourable Mr. Justice Smithers. Associate Dated: 24 July 1985 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA REGISTRY No. VG 34 of 1985 GENERAL DIVISION ON APPEAL from the Administrative Appeals Tribunal BETWEEN: EXPORT DEVELOPMENT GRANTS BOARD Applicant AND: GEOFFREY THOMPSON & GROWERS CO-OPERATIVE COMPANY PTY. LTD. Respondent Smithers, Beaumont and Everett, JJ. DATED: 24 July 1985 REASONS FOR JUDGMENT BEAUMONT, J.: As its long title indicates, the Export Market Development Grants Act, 1974 ("the Act") makes provision for grants for the purpose of providing incentives Tor the development of export markets. The respondent, Geoffrey Thompson and Growers Co-Operative Company Pty. Limited, an exporter or fresh fruit and vegetables, claims from the applicant, the Export Development Grants Soard ("the Board") a grant for the financial year ended 30 June 1982 in respect of the sum of $12,215.00 paid by it to Mr. Wilf. Stokes, a technical consultant, for services rendered. Since the true character of those services 13 critical to the resolution of the appeal, it will, in due course, be necessary to analyse the facts relevant to that question in some detail. For present purposes, 1t will suffice to say that Mr. Stokes was retained by the respondent as a consultant for the purpose of monitoring the performance of certain contracts for the sale by export of "William Bon Chretien" pears, also known as the "William" pear. Subject to the provisions of the Act, the grant entitlement of a claimant in relation to a "grant year" (as defined in the Act) 13 an amount equal to 70% of the "eligible expenditure" incurred by the claimant during that year (s.15). "Eligible expenditure" 1s defined by 5.4, so far as presently relevant, as follows: "(1) Subject to the succeeding provisions of this section, a reference in this Act to eligible expenditure is a reference to expenditure that, in the opinion of the Board, has been incurred by a _ person primarily and principally for the purpose of creating or seeking opportunities, or creating or increasing demand, for- (a) the sale by that person for export, or the export by that person and sale by him, of eligible goods produced ... in Australia; (2) For the purposes of this section, 'expenditure' means expenditure to the extent to which it 1s incurred by a claimant ... by way of- (a) expenses of, ... or payments made to an agent for the purpose of- (ii) advertising or other means of securing publicity or soliciting business ..." The respondent's claim for a grant was rejected by the Board. An application was made to the Administrative Appeals Tribunal for a review of the Board's decision; the Tribunal set aside that decision and remitted the matter to the Board for reconsideration with a direction that the part of the expenditure in question related to the overseas activities of Mr. Stokes was "eligible expenditure" for the purposes of s.4. The Board now appeals to the Court ona question of law pursuant to 5.44 of the Administrative Appeals Tribunal Act, 1975. The question of law which arises for determination is whether the fees paid to Mr. Stokes and the expenses incurred by him overseas fall within 5.4 of the Act as "expenditure incurred ... primarily and principally for the purpose of creating or seeking opportunities, or creating or increasing demand, for" export sales sisee s.4(1)), being "expenditure ... by way of expenses of, ... of payments made to an agent for the purpose of ... soliciting business" (see s.4(2)(a)(il)). 4. The facts, as found by the Tribunal and not challenged on this appeal, are as follows. The William pear 1s difficult to sell in afresh condition on the export market: 1t has a short season of 6-8 weeks; ait requires very careful packing and rigid temperature controls during transit; and it has a shelf-life, after unloading, of only three weeks. Thus, the condition of the pear on arrival at its destination 1s crucial. Difficulties in this regard were experienced by Australian exporters in the 1980 season. As a step designed to boost the confidence of overseas buyers 1n the respondent's product, its management decided in 1981 to retain Mr. Stokes to perform the consultancy services now in question. His functions were described by the Tribunal as follows: ... the services performed by Mr Stokes were various. His principal function in Australia was 1n monitoring the packing of the pears and stuffing of the containers. When the cartons were put into the container, he was to make sure that the temperatures were correct and that the dunnage (packing materials) allowed a free flow of alr. From the company's viewpoint, we gathered that this was his most important function, because the arrival condition of the pears depended substantially upon the care and skill employed in packing the goods ... It isa necessary expenditure the company would have undertaken regardless of any question of an export grant ... When the goods arrived at their destination, Mr Stokes was expected to be present to see their condition, to deal with any problems attributable either to the shipping company or the condition of the goods ex Australia. From the company's point of view, he was there to verify that the packing and transhipment of the goods had been achieved without damage to the pears. From the purchaser's point of view, however, Mr Garfirth (a director of the respondent) described Mr Stokes' presence on outturn as a 'security blanket' - in other words, as we understood him, Mr Stokes was the physical embodiment of the vendor's confidence in the arrival condition of the product. Mr Stokes was also available, however, to fulfil whatever function the purchaser required. If the purchaser wished to have his advice, 1t was available; if he wanted to complain about the condition or quality of the pears, he was available." Mr. Garfirth gave evidence, which the Tribunal accepted, that in his negotiations with prospective overseas buyers, he indicated that the services of Mr. Stokes would be made available; and that this indication was, in some cases at least, a decisive factor 1n procuring a sale. The Tribunal found that the respondent's purpose in committing itself in 1981 and 1982 to the cost of Mr. Stokes' overseas activities was in order to increase the flagging demand for the William pear and to secure export sales which, without some such special inducement, it probably would not otherwise nave obtained. However, the Tribunal also found that Mr. Stokes would have been engaged, in any event, to Monitor the packing of the goods in Australia. In the result, the Tribunal concluded that the cost of providing 6. Mr. Stokes' overseas services fell within 3.4 as expenditure for the purpose of soliciting export business within the meaning of s.4(2)(a)(ii); but that the cost of Mr. Stokes' services in Australia was not eligible. In order to qualify under the Act, expenditure must first meet the general test prescribed in s.4(1) - it must be "incurred primarily and principally for the purpose of creating or seeking opportunities, or creating or increasing demand, for" export sales. It must also fall within one of the specific situations described in s.4(2)(a) - that 15, in the present case, "expenses of, ... or payments made to an agent for the purpose of soliciting business". In my opinion, the respondent has failed to satisfy the requirements of either limb of 5.4. I turn first to s.4(1). In my view, it 1s not possible to characterise the services rendered by Mr. Stokes as conduct engaged in primarily and principally for the purpose of the promotion of export trade. True it is that the indication by Mr. Garfirth to prospective buyers that those services would be available played a decisive role inthe procurement of at least some of the export contracts. But it does not follow that what Mr. Stokes did can properly be described as something done primarily and principally for the purpose of creating or seeking opportunities or creating or increasing demand for export sales. Rather, in my view, his services should be seen as something done primarily, if not wholly, for the purpose of the due performance of the export contracts in question even if, as a result of his efforts, the prospects of the respondent's procuring future business with overseas buyers were enhanced. In my opinion, any such enhancement was an incidental benefit flowing from Mr. Stokes' activities rather than an indicator of the true character of those activities: that character was something done in the administration or performance of the export contract and expenditure incurred in respect of conduct engaged in for that purpose 1s not eligible under s.4(1) of the Act. In other words, in my view, s.4(1) takes the several activities of any business as it finds them and selects only certain of those activities as qualifying for eligibility. Such activities are those of a kind which themselves have the prescribed primary purpose of promoting the export trade: that 1s their intrinsic character. No doubt 1t can be said that the due performance of a contract may well improve the prospects of a future business relationship. But, in the ultimate analysis, the action of an exporter in the due performance of a contract should be 8. characterised as acts done for that purpose - that is its intrinsic character - rather than acts done to promote trade, even if the promotion of trade 1s an incidental benefit of a proper performance of any such contract. Similar problems confront the respondent under 53.4(2)(a). Here the respondent must show that the expense was incurred for the purpose of soliciting business, or that 1t made a payment to an agent for that purpose. In order to qualify, there must be attributed to the activities of Mr. Stokes the character of something done by way of the solicitation of business. In truth, what Mr. Stokes did could only be described as the monitoring of the due performance of the contract. Any promotion of trade accruing in consequence of his efforts should be seen as an incidental benefit rather than something which 1s determinative of the character of his functions. It 1s hardly necessary to say that there are many methods available to atrader for the solicitation of business. In his explanation of a precursor of 5.4(2)(a)(11i), the then Treasurer instanced, as falling within the prescribed notion, expenditure on negotiations with representatives of overseas enterprises or in maintaining permanent sales representatives overseas (see Australian Federal Tax Reporter (CCH Australia Limited Vol. S, para. 76-000; p.45,492). In those instances, the prime 9. purpose of the activity 1s the solacitation of business. Other examples could be imagined but, in my view, a distinction should be drawn for the purposes of 3.4(2)(a)(il) between, on the one hand, acts which, asa matter of their intrinsic character, constitute something done by way of solicitation of business and on the other hand, acts which are not inherently of that character even 1f there may well flow from such activities, as an incidental matter, the prospect of future trade relations. In my opinion, the subject payments fall into the latter rather than anto the former category. It follows that the respondent has failed to qualify under either s.4(1) or (2). In the result, I would allow the appeal. I would add that I have had the advantage of reading in draft form the reasons for judgment of Smithers, J.. I agree with those reasons, The respondent has cross-appealed from that part of the Tribunal's decision which disallowed the local content of the fees paid to Mr. Stokes. It must also follow that the cross-appeal should be dismissed. The respondent must pay the costs of the appeal and cross-appeal but should have a certificate under the Federal Proceedings (Costs) Act, 1981. 10. I would make the following orders: 1. Order that the appeal be allowed. 2. Order that the decision of the Administrative Appeals Tribunal made on 25 January 1985 herein be set aside. 2. Order that the cross-appeal be dismissed. 4. Order that the respondent pay the costs of the appellant Board of the appeal and of the cross-appeal. S. Order that the respondent be granted a certificate under the Federal Proceedings (Costs) Act, 1981 in respect of the costs of this appeal. ni I Cenuay thitias Yoweectt i'd IN THE FEDERAL COURT OF AUSTRALIA ) VICTORIA DISTRICT REGISTRY ) GENERAL DIVISION ) No.VG34 of 1985 BETWEEN: EXPORT DEVELOPMENT GRANTS BOARD Applicant AND: GEOFFREY THOMPSON AND GROWERS CO-OPERATIVE COMPANY PTY LTD Respondent Coram; Smithers, Beaumont and Everett, JJ Date: 24 July 1985 REASONS FOR JUDGMENT I have had the benefit of considering the reasons for judgment prepared by Smithers J. and Beaumont J. I agree with the conclusions of each and with the reasons expressed for them, I also agree with the orders proposed by Beaumont J. I certify that this page is a true copy of the reasons for judgment herein of His Honour Mr Justice meget Boh aodtacen pated.zy/ £5 Associate