CATCHHIORDS Administrative Law - appeal from the Administrative Appeals Tribunal on a question of law - Export Market Development Grants Act 1974 - retainer paid to agent in Japan - to provide incentives for the development of export markets - whether "eligible expenditure" and whether for "primary and principal purpose" - facts to be considered. Export Market Development Grants Act 1974 ss.4,12,13,15,39 Administrative Appeals Tribunal Act 1975 ss.43,44 Federal Court of Australia Act 1976 ss.19,20 McDonald v. Director-General of Social Security (1984) 1 F.C.R. 354 Briginshaw v. Briginshaw (1938) 60 C.L.R. 336 SEA KING PTY. LTD. v. AUSTRALIAN TRADE COMMISSION W.A. No. G 57 of 1986 Northrop, Toohey and Spender JJ. 5 November 1986 Perth FEQERAL COURT \ AUSTRALIA. OF PRINCIPA\ REGISTRY a rE TE a ies rl TT IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY ~ewn re GENERAL DIVISION W.A. No. G 57 of 1986 ON APPEAL FROM THE GENERAL ADMINISTRATIVE DIVISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL CONSTITUTED BY MESSRS. R.K. TODD, DEPUTY PRESIDENT, R.A. PASCOE, MEMBER AND N.J. ATTWOOD, MEMBER. SEA KING PTY. LTD. and AUSTRALIAN TRADE COMMISSION COURT: NORTHROP, TOOHEY AND SPENDER JJ. DATE: 5 NOVEMBER 1986 PLACE: PERTH MINUTES OF ORDER THE COURT ORDERS THAT: - 1. The appeal be allowed with costs. Applicant Respondent 2. The decision of the Administrative Appeals Tribunal made on 30 April 1986 be set aside and the case be remitted to the said Tribunal to be heard and according to law. determined (Settlement and entry of Orders is dealt with in 0.36 of the Rules of Court.) te ee OIE SO ree 'oo we tf . ) ) WESTERN AUSTRALIA DISTRICT REGISTRY 3} W.A. No. G 57 of 1986 ) GENERAL DIVISTON ) ON APPEAL FROM THE GENERAL ADMINISTRATIVE DIVISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL CONSTITUTED BY MESSRS. R.K. TODD, DEPUTY PRESIDENT, R.A. PASCOE, MEMBER AND N.J. ATTWOOD, MEMBER. SEA KING PTY. LTD. Applicant and AUSTRALIAN TRADE COMMISSION Respondent COURT: NORTHROP, TOOHEY AND SPENDER JJ. DATE: 5 NOVEMBER 1986 las] LACE: PERTH REASONS FOR JUDGMENT THE COURT Sea King Pty. Ltd. ("the applicant") appeals, on a question of law, from a decision of the Administrative Appeals Tribunal ("the Tribunal") affirming the decision of the Export Development Grants Board ("the Board") refusing a claim by the applicant for a qrant under the Export Market Development Grants Act 1974 ("the Grants Act"). Since the date of its decision, the Board has been replaced by the Australian Trade Commission; see the Australian Trade Commission Act 1985 (Act No. 186 of 1985) and the Australian wae noose , ae ut a oF , a, oe ree 2 ewe sees + + wt eee > Trade Commission (Transitional Provisions and Consequential Amendments) Act 1985 (Act No. 187 of 1985) and in particular, sections 29, 42 and Schedule 3 of the latter Act. For the sake of clarity, in these reasons, reference will be made to the Board only. One of the policies of the Grants Act 1s to provide incentives for the development of export markets. This policy is made clear by a reference to the long title of the Act, part of which reads "An Act relating to Grants for the purpose of providing Incentives for the Development of Export Markets ...". The Act gives effect to this policy by establishing the Board to hear and determine claims made by persons seeking a grant under that Act. The substantive provisions of the Grants Act relevant to the present matter are somewhat cryptic in form. Under s.15 of the Act, and subject to that Act, "the grant entitlement of a claimant in relation to a grant year is an amount equal to 70% of the eligible expenditure incurred by the claimant during that year." In order to understand that provision, reference must be made to the meaning to be given to a number of words and phrases appearing therein and as defined in s.3. Thus "grant entitlement" has the meaning of the amount equal to 70% of the eligible expenditure incurred by a claimant during a grant year; "a claimant" is a person desiring to obtain a grant; "a grant" is a grant under the Act; "a grant year" is a year commencing onl July of a specified year and "eligible expenditure" has the meaning 4% re a ee str ocrenre - wat ore eo given by s.4. In the present case, the applicant is a claimant and the grant year is the year 1 July 1383 to 30 June 1384. Under s.13 of the Grants Act, a person desiring to obtain a grant must submit a claim to the Board. Sub-sections 13(2), (2A) and (3) contain procedural provisions which need not be considered for present purposes. Under sub-section 12(1), the Board is required to consider every claim "and determine whether the claimant has a grant entitlement and, if 50, the amount of that grant entitlement". Under sub-section 13(4), the Board may refuse to consider a claim unless the claimant supplies further material of the type specified in that sub-section. Under 5.39, a person commits a criminal offence if he knowingly attempts to obtain a grant that is not payable, or makes to the Board a statement that is false or misleading in a material particular. Under sub-section 12(2), where the Board determines that a claimant has a grant entitlement, "there is payable to the claimant a grant equal to the amount of the grant entitlement so determined." Payment of that grant is made out of moneys appropriated by Parliament; see S.42. — Sub-section 4(1) of the Grants Act identifies a wide range of eligible expenditures. For present purposes, reference need be made to one only of that range, namely, that identified in paragraph 4(1)(a) which 1s set out:- "4. (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 manufactured, produced, assembled or processed in Australia; ...". The sub-section then excludes specified types of expenditure, none of which applies to the facts of this appeal. It is observed that eligible expenditure is expenditure that has been incurred "primarily and principally" for a purpose. In the present case, that purpose is for "creating or seeking opportunities, or creating or increasing demand, for" sales for export or export and sale of eligible goods. In this appeal, there is no dispute that the relevant goods are eligible goods Manufactured, produced or processed in Australia. For the purposes of sub-section 441), a defined meaning 15 given to the word "expenditure". That meaning contained in sub-section 4(2). The relevant parts of sub-section are set out:- "(2) For the purposes of this section, 'expenditure' means expenditure to the extent to which it is incurred by a claimant ... by way of- (a) ... payments made to an agent for the purpose of- (i) the carrying out of market research or the obtaining of market information; or (ii) advertising or other means of securing publicity or soliciting business, not being amounts paid or payable ... (none of which are relevant for present purposes) ... but not including- (j) commission or other remuneration, paid or payable otherwise than by way of salary, retainer or fee, in respect of sales or other disposals; Reference should be made to sub-section 3(2) which is follows:- "(2) For the purposes of this Act, where an act is done by an agent on behalf of his principal, it shall be deemed to be done by the principal and not by the agent." that eee ee Co weg ace v "> SET peng ae ' woe re oe ve t i hoe ereneneed Tae { wo are gee oe » At all relevant times, the applicant was engaged, among other things, in the business of processing, exporting and selling Australian rock lobsters. In the early 1980's it began exporting live lobsters to Japan to supply a new market in that country. The techniques employed in the processing of the lobsters for that purpose are skilled and the sales techniques in Japan depend largely on a knowledge and understanding of the market for live lobsters in that country. The applicant claimed and was paid a grant under the Grants Act for the grant year 1982-83. Oni July 1983, the applicant entered into an agreement, subsequently described as the Overseas Representative Agreement ("the agreement"), with a Japanese company named Imai and Company ("Imai"). In the agreement, the applicant is called "the Company" and Imai is called "the Agent". The recitals to the agreement state that:-— "(a) The Company is engaged in the business of processing, exporting and selling Australian Rock Lobsters and all other types of fish and marine products. (b) The Company wishes to appoint Imai and Company its Agent in Japan for the purpose of exploring and carrying out research into the market and promoting the Company's product in that country." Under the agreement, the applicant appointed Imai its agent in Japan. The agreement was to continue for one year but could be terminated earlier on three months notice in writing. Under the agreement, Imai, among other things, agreed as follows:- we ee reapest Ae eae ree ee RO Tere oe ce ee ey <i wew yy ines yaw moe oe wy "(a) To Carry Out Market Research Will carry out research into the size and nature of the market for the Company's product in Japan and regularly report to the Company on its findings in relation to such research and promptly bring to the notice of the Company any information received by it which is likely to be of interest, use or benefit to the Company in relation to the marketing of its product in Japan. {b) To Promote and Extend Sales Will use at all times its best endeavours to promote and extend sales of the product throughout Japan to all potential purchasers thereof and work diligently to obtain orders therefore:— (i) by means of personal visits to and by correspondence with such purchaser; : (ii) by advertising and by the distribution of printed matter." Under the agreement, the applicant agreed to pay to Imai for the performance of its duties a retainer of USS180,000 plus out of pocket expenses. In addition, the parties agreed as follows:- "5. Duties of the Company - The Company HEREBY AGREES with the Agent that it will during the continuance of this agreement:- (a) Fulfil the orders of the Agent for its product with all reasonable despatch but shall not be liable in any way for any loss trade or profit occurring to the Agent in the event of delivery of the product being frustrated or delayed by strikes, riots, lock-outs, trade disputes, acts Or restraints of Government, the imposition of restrictions on exportation of unavailability of the product or from any other cause not within the control of the Company. - (b) To Supply Samples etc At its own expense supply the Agent with such amount of samples, pamphlets, catalogues and advertising material as it considers reasonably sufficient with a view to promoting sales of the products within Japan. (c) To Indemnify Agent To indemnify and save harming the Agent from all claims arising out of or in relation to the sale or advertising or the Company's products." The applicant paid moneys to its agent under and for the purposes of the agreement. The applicant made a claim for a grant under the Grants Act for the grant year 1983-84. The amount of the payments made is not in dispute. The Board, however, had doubts about whether the applicant was entitled to a grant. The doubts arose, apparently, because of the fact that the applicant sold the rock lobsters to Imai which resold the lobsters to other persons in Japan. The fact that the applicant sold the lobsters to Imai is implicit from the terms of the agreement, see paragraphs 5(a) and (b) of the duties of the applicant. The terms of the contract for the sale of lobsters to Imai are not before the Court. It is sufficient to say that the value of the sales by the applicant of lobsters to Japan were increasing. In the grant year 1982-83, the value of the sales by the applicant to Japan was A§739,27Z. In the grant year 1983-84, the value of the sales was AS$1,447,000. The Board sought further information from the applicant. The information sought related to how Imai expended the moneys it received from the applicant under the terms of the agreement. ob eee wr ves ee ke a -_ OT on re gr ee 7 oF ves ee oy ' uo ' Reference will be made later in these reasons to che reaction by Iman to requests Ly the applicant to Imaal for that hh information. In the result, the Board, in January 1585, resolved the claim as rollows:- "Sea King Fisheries Pty Ltd The Board was not preparad to accept the documentation provided by the company to support ats claim for overseas representation expenses in 1383/8384 and disallowed such claimed expenditure, with the 1385/84 claim to be determined accordingly ($107)." Pursuant to s.t0A of the Grants Act, the applicant sought a reconsideration of that decision by the Hoard. In May 1985, the Board resolved the reconsideration as follows:- "Sea King Fisheries Pty Ltd The Board considered the company's appeal against the assessment of the 1983/84 E.M.D.G. claim but was not satisfied that the documents provided by the company were sufficient for it to be able to form the opinion that the claimed expenditure of $205,316 had been incurred for eligible purposes. The appeal was disallowed, with advice to the company in the context of section 40A(5) of the Act." The meaning of that resolution 15 ambiguous since it is not "elear whether the Board was referring to "expenditure" as defined in paragraph 4(2)(a) of the Grants Act or to paragraph 4(1)(a) or (b) of the Act. - ilo - The applicant sought a review by the Tribunal of the reconsideration by the Board of its claim. Under s.43 of the Administrative Appeals Tribunal Act 1975 ("the A.A.T. Act"), the Tribunal was exercising all the powers and discretions conferred upon the Board. The Tribunal was required to consider the claim by the applicant and to determine whether the applicant had a grant entitlement and, if so, the amount of that grant entitlement; see sub-section 12(1) of the Grants Act. In the proceedings before the Tribunal, the applicant and the Board were each represented by counsel. But the fact that the Board was so represented should not be allowed to obscure the nature of the function being performed by the Board} see McDonald Ve Director-General of Social Security (1984) 1 F.C.R. 354 per Woodward J. at pp.356-359 and per Northrop J. at pp.365-366. On 30 April 1986 the Tribunal gave its decision, namely that it affirmed the decision under review. On the same day the Tribunal published its reasons for that decision. The effect of the decision was that the Tribunal decided that the applicant did not have a grant entitlement under the Grants Act. In the result, the Tribunal did not need to determine the amount of any grant entitlement. Under 5.44 of the A.A.T. Act, the applicant appeals to this Court "on a question of law'. The question of law raised on the appeal, as amended during the hearing of the appeal, is:- we ee eee wey woe oh ree eee eek 'denn teatneiaaens Hanae on oni re pe ee ee me ete ey Adem ness armoege Sr ee ee, mopeesn- "4 - LL - "The Tribunal erred in law in that 1t misapplied the phrases 'eligible expenditure' and 'primary and principal purpose' as used in Section 4(l) of the Export Market Development Grants Act 1974." The proceedings before this Court are within its original yurisdiction even though the Court is constituted as a Full Court; see sections 19 and 20 of the Federal Court of Australia Act 1976 and sub-section 44(3) of the A.A.T. Act. In the exercise of the powers conferred upon it to determine whether the applicant had a grant entitlement under the Act, the Tribunal had regard to the terms of the agreement and the fact that the applicant had paid to Imai the retainer of US$180,000 together with out of pocket expenses. The Tribunal went further. It was concerned to ascertain how Imai had expended the moneys it had received from the applicant. Imai was resentful and unresponsive in giving that information to the applicant. It suggested that if the applicant was not satisfied with the results being achieved, it could take its custom elsewhere. Imai said that it was "very heavily involved with the promotion and marketing of your (the applicant's) product" but had to maintain its own business for the whole year. It described the normal type of activities engaged in by persons promoting markets in Japan and which it was doing on behalf of the applicant. The applicant claimed:- fon, - fo ve sri see ws = ete ee 8 oe em einen Ga. * we ape wots ooh we ve ~ Mat Ate Cal ' ae ye apt! ony a"* Pr Get aoe Taree ees aA oo oT sue ay + co) "... that we engaged Ima1 & Co. to promote the sale of our live rock lobster in Japan. We negotiated a fee of $US180,000 for the year which, we thought, would result in sales of the order of $3 million and would be justified in terms of that volume of sales. However these did not eventuate but we still had to pay the $US180,000. We had no control over how that company spent that retainer and we do not know how much profit they made out of the agreement. They, of course tell us that they made little or no profit out of representing us but we have no way of checking the truth of that statement. With the benefit of hindsight it would appear that Imai & Co. received fees which their sales results do not seem to justify. However, our agreement with them was not conditional upon sales levels achieved and we have honoured our contractual obligations to them." The Tribunal found that the retainer "was paid to Imai as a flat amount ... unrelated to the value of the sales made by the applicant to Imai". The Tribunal then considered whether the retainer paid by the applicant to Imai was "expenditure" within the meaning of that word as defined in paragraph 4(2)(a) of the Grants Act. It considered whether the payment of the retainer was expenditure incurred by the applicant by way of payments made to an agent for the purpose of carrying out market research or obtaining market information or advertising or other means of securing publicity or securing business. To that end, the Tribunal was concerned to determine the purposes for which Imai expended the moneys it had received from the applicant. In this respect, the Tribunal said "There is great difficulty 1n isolating what it was that Imai was doing in the character of an agent". The erie Aer prea ee pre te ee ee So may sree es iemeanns niente aie apres - 13- Tribunal assumed that the retainer was paid to Imai as agent for the applicant and posed the question "for what purpose was it paid?". Wath respect to the Tribunal, prima facie the retainer was paid by the applicant for the purpose stated in the agreement. On that basis the payment, quite clearly, was an expenditure by the applicant within paragraph 4(2)(a) of the Grants Act. The applicant was basing its claim on the agreement. The provisions of 5.39 should be remembered. The Tribunal was quite correct in considering whether the agreement was bona fide and truly represented the intention ef the parties to it. However, the Tribunal stated the question as follows:- "The question under s.4(2) is of the quality of an expense, not of its purpose or destination. On this footing we still have the greatest doubt, on the evidence, as to what Imai in fact did, whatever the agreement said." Nevertheless, the Tribunal assumed, for the purpose of its decision, that the requirements of paragraph 4(2)(a) of the Grants Act were satisfied. It then considered whether that expenditure, being the retainer paid under the agreement, had been incurred by the applicant primarily and principally for the purpose of creating or seeking opportunities or creating or increasing demand for the sale by the applicant for export or the export by the applicant and sale by it of the live rock lobsters; see paragraph 4(1)(a) of the Act. rem may CNTR re ps per r at 4 TG coer, wey ee etphe Aatite bana ok * wee mee See, rane iin woos Sree reer es ee vee ff at rp Again, prima facie the retainer was paid by the applicant for the purpose stated in the agreement and on that basis was eligible expenditure under paragraph 4(1)(a). The payment had to be a genuine payment for the purpose stated, but there is no suggestion in the evidence that the agreement was a sham, that the payment by the applicant to Imai was not a genuine payment for the purpose stated in the agreement or that the applicant had offended the provisions of s.39 of the Grants Act. On the facts of this case, the fact that the applicant sold the live rock lobsters to Imai which in turn s0ld them to persons in Japan appears to be immaterial. The retainer paid by the applicant was not based on the volume of sales by the applicant or by Imai. It is clear that an increase in the sale of lobsters in Japan by Imai results in an increase,in the sale of lobsters by the applicant to Imai resulting in the increase of exports of lobsters by the applicant, Despite this, the Tribunal considered what Imai was doing with the retainer paid to it by the applicant pursuant to the agreement. The Tribunal expressed the view that if Imai used the retainer to further the demand for lobsters which it sold, it was not creating demand for the sale for export or the export and sale by the applicant of the live lobsters. The Tribunal held that in those circumstances Imai was creating demand for the sale of lobsters which were its eqn a ox cr yaate ort greeny \ <6 - 15 - property. With respect, that conclusion was not open to the Tribunal. The error arose because of the concentration on how Imai used the retainer paid to 1t by the applicant, rather than the purpose for which the applicant paid the retainer. In its reasons, the Tribunal made no reference to sub-section 3(2) of the Grants Act, but held that the retainer was paid by the applicant to Imai as agent. On the facts of this case, it is not necessary to consider what acts done by Imai should be deemed to be done by the applicant. What is relevant is the purpose of the payment of the retainer by the applicant to Imai as agent and whether that payment is eligible expenditure under paragraph 4(1)(a) of the Grants Act. Unless an attack is to be made on the genuine nature of the agreement and the payment of the retainer, the use of the retainer by the agent is immaterial. That is a matter to be determined between the applicant and Imai. ae wun eal < r y I " a r 47 MOOSE ar ete: wer xe yon ye? , LC 4 ey ay See et emer ' aeey Fy a owas New eee eee - , : Further, the Tribunal directed itself to matters which, on the facts of this case, are irrelevant. Thus the Tribunal said that the Grants Act is "clearly based on performance and not simply on promise". It is clear that a grant entitlement 1s not dependent on there being an increase in demand for the export of eligible qoods; the entitlement 1s dependent upon expenditure primarily and principally for the purpose of creating or seeking opportunities or creating or increasing the export of eligible goods. The fact that the expenditure does not result in that increase is immaterial. But, in the present case, 1t must be remembered that the export sales increased from A$739,272 to ASs1,447,000 over the previous grant vear. In this case, it well may he said that the true test is in the tasting. The essence of the decision by the Tribunal appears from the following paragraph of its reasons for decision:- "21. The only real evidence placed before us of acts done by Imai as agent is the evidence of the promises contained in the agreement. There was no satisfactory substantiation of Imai's activities in pursuance of the agreement, and the available evidence gives rise to the greatest doubt as to the nature and quality of the so-called services. that were performed. In the result we are quite unable to conclude that the applicant has satisfied the requirements of primary and principal purpose laid down by s.4(1). We agree with the submissions made by counsel for the respondent that the only inference which can properly be drawn from the evidence placed before us in support of the applicant's case is that it was the intention of the applicant to increase demand for export and sale by means of the alleged expenditure, and that such intention is not sufficient to establish the we rr are aa ee waa ao nr merges rye oro poor primary and principal purpose within the meaning ot the Act: See Speedo Knitting Mills Pty Ltd v Commonwealth of Australia (1981) 37 A.L.R. 417. We also agree that the proper inference to be drawn from the evidence is that the applicant paid the alleged agent for services which had already been rendered, which was not sufficient evidence to establish primary and principal purpose within the meaning of the Act: See Parker Pen (Aust) Pty Ltd v_Export Development Grants Board (1983) 46 A.L.R. 612 at 622-624." That passage highlights the error made by the Tribunal in looking at the expenditure incurred by Imai and not at the expenditure incurred by the applicant. The nature and quality of the services performed by Imai, except insofar as they might be relevant on any question relating to the genuineness of the agreement and the payment of the retainer, are not in issue. Regard must be had to the expenditure incurred by the applicant and, on the evidence, that expenditure was incurred primarily and principally for the purposes stated in the agreement. The use of the word "intention" in the passage quoted could lead to confusion. The Grants Act contains provisions relating to the purpose of increasing exports. In applying those provisions, it is unwise to substitute the word "intention" for the word "purpose". Further, the facts in the Parker Pen Case are 50 different to the facts of the present case, that it is dangerous to relate that case directly to the facts of this case. Nevertheless, the passage referred to appears to support the applicant's claim. — os — an ae ae ahandeiehediaitenanrtieasislad ammreiiiie anaes ae ' abs tent ete Boose er one - 18 - Further, the Tribunal said that if 1t was wrong ain its reasoning:- ",.. there is much to be said for the view that the expenditure in question was commission or other remuneration paid otherwise than by way of salary, retainer or fee, in respect of sales or other disposals within 5.4(2)(j)." In the present case, it is difficult to see how that paragraph of the Grants Act prevents the payment of the retainer by the applicant to Imai being "expenditure" under sub-section 4(2) of the Grants Act. It will be recalled that under that sub-section, expenditure of certain kinds is expenditure for the purpose of 5.4 but excludes commission or other remuneration paid or payable otherwise than by way of Salary, retainer or fee, in respect of sales or other disposals. Thus paragraph 4(2)(j) contains an exception -to an exclusion. In the present case, there is no- suggestion that the retainer paid by the applicant under the aqreement was commission or other remuneration paid or payable in respect of sales or other disposals so as to be excluded from the meaning of expenditure. If paragraph 4(2)(j) has any application, the retainer comes within the exception to the | exclusion and thus is not excluded from being an expenditure by reason of that paragraph. - It is apparent that the decision of the Tribunal must be set aside. This is a case where the Tribunal has failed to apply correctly the provisions of 5.4 of the Grants Act. In considering whether the applicant has. a grant . eres e spre en ey pe ee me entitlement, tne Tribunal must nave ceygaed co the expenditure uncurred by che applicanc under che aqreement. In this respect, the terms of the agreement are of importance. That agreement does not prevent the Tribunal from considering material which might suggest that it should not rely on the terms of the agreement. On the facts of this case it is not helpful to refer to the issue of onus of proof, but it must be remembered that an attack on the genuineness of the agreement raises allegations of a serious nature against the bona fides of the applicant. Although the principles enunciated in Briginshaw v. Briginshaw (1938) 60 C.L.R. 356 have no direct application, the Tribunal should test any suggestion of impropriety against the applicant very carefully. The appeal should be allowed with costs, the decision of the Tribunal should be set aside and the matter should be remitted to the Tribunal to be heard and deternined according to law. i certify that this and th ' J ES oWtee. preceding pages are a true ey of 22) Reasons io fudement herein of the | 'lonourable Mr, Justices IDorinee Ure} feneuralle Re sash eel preiat a Heroureble Mrlattice: Spat Tee D, . OA te i ated: 5 reveal ween Se lle } ee ap mere rer pene ate sore tren