Asia Pacific Tanks P/L T/g as PMT Water Engineering and Australian Trade Commission

[2005] AATA 967

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 967

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q2004/617

GENERAL ADMINISTRATIVE DIVISION		)
Re		ASIA PACIFIC TANKS P/L T/G AS PMT WATER ENGINEERING

Applicant

And AUSTRALIAN TRADE
COMMISSION

Respondent

DECISION

Tribunal  Ms M J Carstairs, Member

Date 4 October 2005

Place Brisbane

Decision The Tribunal sets aside the decision under review and substitutes a decision to allow the applicant’s claim for expenditure on services provided by Wayne Hansen of Wara Advisory Services and Products in 2002/2003.  The Tribunal remits the assessment of the claim to the respondent.

.................[Sgd]........................

M J Carstairs
  Member

CATCHWORDS

EXPORT MARKET DEVELOPMENT – whether payment made to consultant qualified for the grant – whether the consultant closely related to the claimant

Export Market Development Grants Act 1997 s37

Export Market Development Grants (Close Relationships – General) Determination 2002 cl 6,7,8

Australian Mutual Provident Society v Chaplin and Another (1978) 18 ALR 385
Hollis v Vabu Pty Ltd [2001] HCA 44
Stevens v Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16

REASONS FOR DECISION

4 October 2005 Ms M J Carstairs, Member

1.      Asia Pacific Tanks Pty Ltd (APT) markets a range of water and storage tanks, products such as dam liners and filtration systems, and provides advice and services to domestic and overseas customers in relation to water and sewage treatment.  The company’s cultivation of overseas markets, particularly in New Guinea and the Pacific, renders it eligible for export market development grants, which are part of the Australian Government's financial assistance program for exporters, particularly small and medium sized Australian businesses engaged in developing export markets.  Successful applicants for grants are reimbursed for up to 50 per cent of export promotion expenses incurred in the previous financial year.

2.      APT has successfully applied for grants in the past and applied again in 2002/2003.  The costs of marketing consultants’ services can be claimed under the legislation, as long as these services are provided by persons who are not closely related to the claimant.  The Australian Trade Commission refused the part of APT’s claim for 2002/2003 that related to marketing consultation services provided by Wayne Hansen, trading under the name Wara Advisory Services and Products.  The Australian Trade Commission considered that Mr Hansen/Wara was too closely related to APT.  Amongst other things, Mr Hansen had been previously an employee of APT. 

THE LEGISLATION

3. The legislation provides that any genuinely incurred expenses related to promotional marketing activities to foreign countries will qualify for the grant. Promotional activities include engaging market research consultants, the expenses of travel and communications that are related to marketing activities, costs associated with participating in trade fairs, international forums or promotional events, and the provision of advertising or promotional literature: s33 of the Export Market Development Grants Act 1997. 

4.      The Act then also provides that these kinds of expenditures will be eligible only if made to persons not closely related to the entity which has claimed the grant.  The Minister for Trade has formulated guidelines known as the Export Market Development Grants (Close Relationships – General) Determination 2002, to assist decision-makers, including this Tribunal, when forming an opinion whether a person (which includes a company, partnership or joint venture) is, or is not, closely related to an applicant.

5.      Clause 6 of the Determination requires that the decision-maker consider:

§   the connection between two entities; and

§  the extent to which one party can exert control or influence over the other.

6.      Clause 7 of the Determination requires me to take into account, when deciding if an entity is likely to be closely related to another, whether one entity is ordinarily employed by the other, or there are close relationships between the two entities, such as the relationship of company director, substantial shareholder, or membership of the board of management.  The only issue that arises in regard to Mr Hansen is whether he should be considered as ordinarily employed by APT. 

7.      As I interpret the Determination, if I answer No to the question Is Mr Hansen ordinarily employed by APT? then the claim for Mr Hansen’s (Wara’s) services in 2002/2003 succeeds.  This is because the two limbs of Clause 6 of the Determination, addressing whether entities are closely related, use the word and between them.   The question of whether Mr Hansen is ordinarily employed by APT refers to one of the possible connections, or relationships between entities identified in Clause 7 of the Determination, addressing whether it is likely that entities are closely related.  If so their relationship warrants further scrutiny, through the two limbs in Clause 6.  If I reach the conclusion that Mr Hansen is not ordinarily employed by APT, it follows that there is no connection of the kind envisaged by Clause 7. 

8.      Clause 8 of the Guidelines provides that a person will be taken as ordinarily employed if the person performs work that benefits an entity directly or indirectly where the relationship is equivalent to employment as identified by a number of factors:

§  regularly using the entity’s business facilities

§  regularly performing work at the entity’s premises

§  the entity exercises control over the work performed

§  the person was previously the entity’s employee

§  whether the person works for other entities

§  the person is employed by another entity that has more than one employee performing services for the entity

§  whether the person performs work that has a specified outcome

§  any other relevant matters

ISSUES

9.      The issue for the Tribunal is:

§  Was the relationship between Mr Hansen and APT equivalent to employment, applying the factors in the Determination?  If so I must conclude that Mr Hansen was ordinarily employed by APT and therefore likely to be closely related.

10.     Mr Hansen and APT acknowledge that Mr Hansen does perform work that benefits APT directly or indirectly, and so meets that part of the test in the Guidelines indicating that a person is ordinarily employed by an entity.  They also acknowledge that Mr Hansen was previously an employee of APT, another part of the test.  But in other respects they say that Mr Hansen (Wara) and APT are not closely related, taking into account the other matters referred to in Clause 8 of the Determination.

BACKGROUND

11.     APT was incorporated in 1993.  Mr Paul Pryor is its managing director.  The company operates from premises at Acacia Ridge.

12.     Mr Hansen was employed as APT’s national sales manager between 1998 and 31 December 2001, when his employment at APT ceased.  In early 2002, Mr Hansen set up an export consultancy service, called, at first, Wara Advisory Services and now called Wara Advisory Services and Products after Mr Hansen extended his operations to include marketing of various products.  In 2002, Mr Hansen leased premises at Alderley and Wara operated from there until 2003 when Wayne Hansen t/a Wara Advisory Services leased new premises in Everton Park.

13.     On 25 January 2002 Mr Hansen, for Wara Advisory Services, and Mr Pryor, for APT, signed a Memorandum of Understanding (MOU) (T9), which consisted of 12 clauses dealing with what they described in their evidence as their expectations of their future working relationship.  

14.     Mr Hansen has provided consultancy services to APT from time to time since then, including in the year 2002/2003 for which the grant was sought. 

THE 2002 MEMORANDUM OF UNDERSTANDING AND THE WORKING RELATIONSHIP BEWEEN MR HANSEN (WARA) AND APT

15.     The evidence about the relationship between Mr Hansen and APT consisted of Mr Pryor’s and Mr Hansen’s written statements (exhibits A1 to A7) and oral evidence.  Mr Pryor said that APT had terminated Mr Hansen’s employment on 31 December 2001 because the company restructured and abolished Mr Hansen’s position of National Sales Manager (exhibit A2).  A new position titled National Sales Executive, was created and filled from 11 March 2002 by Mr B Finucane.  The pay scale for the new position was less than that for its predecessor (exhibit A3).  

16.     Mr Pryor said that Mr Hansen was involved with sales and marketing, primarily within Australia and was not a project manager when he was employed by APT.  Mr Pryor pointed out that the role as National Sales Manager had mostly involved sales within Australia though Mr Hansen had deputised for him from time to time in relation to work in New Guinea during 1999, 2000 and 2001.  Mr Pryor confirmed that after he ceased working for APT at the end of 2001, Mr Hansen was not a director or shareholder of APT or in any way involved with management of the company (exhibit A1).  

17.     I accept Mr Pryor’s evidence concerning Mr Hansen’s role as an employee at APT being primarily within Australia and involving sales and marketing, even though he had four trips to Papua New Guinea in 2000/2001 (exhibit R4).  Mr Pryor and Mr Hansen were in the best position to know what Mr Hansen’s job entailed while he worked for APT and I have no reason not to accept their evidence.

18.     I accept that Mr Hansen ceased as National Sales Manager at APT in December 2001 and whether Mr Hansen resigned voluntarily or his employment was formally terminated as part of a restructure of APT’s business is of no direct significance for the matters that I have to decide.  I accept that Mr Hansen held no formal roles within, or related to, APT as director or shareholder, after he left APT. 

19.     Mr Pryor said that Mr Hansen approached him in early 2002 to discuss whether APT would be interested in utilising Mr Hansen’s new venture of export consultancy services.  Mr Pryor said that he thought that Mr Hansen was trustworthy and his knowledge and experience would be useful to APT. 

20.     Mr Pryor and Mr Hansen drafted the MOU in January 2002 to reflect their understanding of their future business relationship.  Mr Pryor pointed out that the drafting of the MOU was done without legal advice. I note that the MOU was awkwardly expressed in places, and the meaning of some of the clauses would probably be unclear if a dispute arose. 

21.     Mr Pryor said that he did not see the MOU as being a contract, and its terms were departed from in practice. Mr Pryor said that in practice they relaxed the requirement for the detailed reports, including the weekly reports set out in the MOU.  Mr Pryor said that the MOU was not intended to be set in stone (exhibit A3). 

22.     Clause 12 of the MOU set out APT’s and Wara’s agreed objectives to maintain and grow APT’s overseas markets and further productive working relationships with export markets and clients.  Mr Pryor said that he included clause 6, providing At all times consultant to maintain an independent legal entity. Moreover and pass any ATO “test of contractor status” for want of better term/s, so that they would comply with requirements for grants. 

23.     Mr Rangiah, counsel for the Australian Trade Commission, said the arrangement to cease as an employee and commence as an independent contractor was no more than a convenient way to obtain a grant.  I note that there is nothing in the Act that prevents an entity availing itself of the opportunities provided for grants, as long as any services claimed are genuine, as assessed through the consideration provided for in the Determination. Mr Pryor acknowledged in his evidence that he intended to claim for Mr Hansen’s (Wara’s) services, and with this in mind included as part of clause 6 in the MOU: for EMDG purposes the consultant must meet their requirements to be independent consultant or be endeavouring to do so i.e comply.

24.     Other clauses in the MOU provided:

§   That APT pays Wayne Hansen a retainer of $750 per week until 30 June 2002.

§  That Mr Hansen would devote 80% of the working day to APT’s work, measured in time spent on APT’s work, but also as reflected in earnings from other sources not exceeding 20% of Mr Hansen’s gross income.

§  APT was to pay Mr Hansen’s travel expenses and associated costs of accommodation and telephone.

§  Mr Hansen was to give APT weekly reports of work executed; provide a draft task plan monthly in advance, and provide 3-monthly assignment plans.

§  Mr Hansen was required by clause 8 of the MOU to avoid taking other work that had the potential to result in conflict or be commercially harmful to APT.

25.     Mr Pryor said that he thought that the 80/20 requirement of the MOU was observed over the long term, but not necessarily on a day to day basis.  He acknowledged that there were deficiencies in the original MOU and now believes that the demand that other work not exceed 20% might be a restraint of trade.  Mr Pryor said that in any event the 80/20 demand was not adhered to and APT carried out no checks on the percentage of time Mr Hansen spent working for others. 

26.     Under the MOU Mr Hansen also was to receive $50,000, described as One-off fee for special assignment, when contracts were signed for a project with Lae City Water Scheme-Drainage Works.  Mr Pryor said that this related to work undertaken after Mr Hansen left APT.  Mr Hansen agreed, and sought to distinguish the visits he made to Lae as an employee of APT in 2001/2002, from the work on the pipeline project in Lae, which he said was secured after he was trading as Wara in 2002.  Mr Hansen acknowledged that as an employee of APT he would have had some domestic involvement with securing the tanks in Australia that were later used in the Lae pipeline project.

27.     Mr Pryor said that the MOU was renegotiated after 30 June 2002 and APT retained Mr Hansen’s services again.  He said that their current MOU was negotiated on 24 February 2004 and bears little resemblance to the original MOU, however I was not provided with a copy of the more recent MOU so can form no view in regard to it.  He said that after 30 June 2002 APT continued to pay the retainer to Mr Hansen, but not on a weekly basis.  Mr Pryor said that after 30 June 2002 the arrangement for the retainer was subject to immediate termination by APT (exhibit A1).  

28.     Mr Pryor said that the provision of the retainer in the original MOU made commercial sense – there was something in it for both parties, even though it was possible for Mr Hansen to take the retainer and do nothing.  Mr Pryor said that his intention in including the retainer in the MOU was that Mr Hansen had the incentive to exercise his best efforts in pursuing overseas business opportunities for APT. Mr Pryor said that the results demonstrated that Wara’s marketing efforts on behalf of APT were worthwhile.  He said that APT’s export earnings for the 2001/2002 financial year were $50,000 but the earnings for the next financial year increased to $970,120, attributable in part to Mr Hansen’s input.   Clearly the amount of the retainer meant that Mr Hansen was being substantially remunerated by APT for the work undertaken, but I have no reason to think that the arrangement did not make commercial sense to APT.

29.     Mr Pryor and Mr Hansen referred to a number of communiqués of information and proposals provided by Mr Hansen to APT in emails in 2002/2003 (exhibit A1 and exhibit A4).  Mr Hansen said that the communiqués were reports of what he was doing for APT and proposals for future undertakings that APT was free to accept or reject, with APT at times taking the latter course. 

30.     Mr Pryor said that the MOU did not revive the employer/employee relationship that had existed between APT and Mr Hansen.  Mr Hansen was free to undertake other consultancy work, but Mr Pryor said that he expressed an objection to Mr Hansen working for rivals, but Mr Hansen said that he made it plain that he was free to provide services to anyone including APT’s rivals. 

31.     Mr Hansen said that he did provide consultancy services to other companies including to CRS Industrial Water Treatment Systems who were involved with a plant for bottling water.  Mr Hansen said (exhibit A4) that he undertook export consultancy work for CRS from 9 September 2002 to 27 December 2002.  He referred to another offer of services as an export consultant made in August 2002 which was later taken up.  Mr Hansen said that as he was running his own business he had the final say in what work he undertook, but if he were working for APT he would follow their directives about the project itself, because they were entitled to determine what work that they wanted done. 

32.     Mr Pryor said that he understood Wara would undertake other consultancy work, but he wanted to avoid the situation that work undertaken by Mr Hansen would prove commercially harmful to APT.   He said that it was understood that Wara’s services would not be provided exclusively to APT. 

WAS THE RELATIONSHIP BEWEEN MR HANSEN AND APT “EQUIVALENT TO EMPLOYMENT” APPLYING THE FACTORS IN THE DETERMINATION?

33.     In forming a view under the Determination about whether Mr Hansen was ordinarily employed by APT, clause 8(1)(b) requires me to consider:

§  Whether Mr Hansen regularly performed work at APT’s premises? 

34.     Mr Pryor’s evidence was that Wara leased premises separate from APT’s and Mr Hansen did not use APT’s premises to conduct business.  This was confirmed by Mr Hansen’s evidence about his lease arrangements (exhibit A6).  I was satisfied that Mr Hansen did not perform work at APT’s premises.  APT had its own premises separate from Wara’s rented business premises in Alderley from 2002 paying monthly rental of $260, which included high speed internet access and access to a PABX system.  In March 2003 Wara moved to premises in Everton Hills, taking out a 2-year lease, at $520 per month (exhibit A4).  .

§  Whether Mr Hansen regularly used the business facilities of APT?

35.     I was satisfied on the evidence that he did not.  I accept that Mr Hansen/Wara had a separate business name and lodged Business Activity Statements with the Australian Taxation Office.  Wara had a business telephone number; an email address; a separate business mailing address; and the usual office equipment such as fax and computers.  I accept that Mr Hansen did not use APT’s business facilities at any time.  

§  Whether APT exercises control over the work performed by Mr Hansen? 

36.     The case law in respect of identifying whether a person is an employee or an independent contractor points to control as one of the tests.  It is not a sole test, but a factor that must be considered in the context of the overall circumstances.  The question of control has been held to relate to a number of factors including where the work was performed; how it was performed; the amount of supervision; and the manner and designation of the work to be performed. 

37.     In other areas of the law where the question of whether a person is an employee is in issue, it is no longer considered appropriate to focus exclusively on the extent to which the employer exercises (or has authority to exercise) control over the work of the alleged employee: see Hollis v Vabu Pty Ltd [2001] HCA 44. One must have regard to all the facts and circumstances with a view to determining whether or not a person is acting as the servant of another or on his own account: see Stevens v Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16.

38.     I accept that the terms of the MOU might suggest that APT had a capacity to control Mr Hansen, however Mr Pryor is right to say that as the purchaser of the services the element of control is always present and the purchaser has the right to set the terms.

39.     In the circumstances here, and taking into account the provisions of the MOU, I was satisfied that while APT reserved the right to discharge the undertakings in the MOU if Mr Hansen undertook work that was commercially harmful to APT this did not mean that APT was exercising control on a day to day basis in the way that the work was carried out by Mr Hansen, and the MOU specified no blanket limitation on other work.  It is a reasonable expectation that a contractor not carry out work that is commercially harmful to the principal, whether or not this was stated in the MOU.  If anything, the need to include Clauses 6 (avoiding commercial harm to APT), and 7 (safekeeping of all proprietary information), demonstrates the absence of employment status on the part of Mr Hansen.

40.     Clause 11 of the MOU provided that information and proposals would be provided by Mr Hansen to APT but APT was free to accept or reject them.  Mr Hansen provided examples of communications and recommendations made to APT, some of which were rejected (exhibit A4 -WH6).  Mr Pryor provided examples of reports and documents headed Activity Reports, referring to a week’s activity by Mr Hansen.    I considered these were neutral on the question of control.  They are expressed in a very general and summary form, and are no more than one would expect from a contractor providing information on work-in-progress.   

41.     I accept Mr Pryor’s evidence that in practice APT were not monitoring what Mr Hansen was doing.  Mr Hansen offered and communicated his proposals.  But as Mr Hansen said, it was pointless if his proposals for APT were not in accord with directions they wished to pursue.  He pointed to the commercial reality that APT retained the right to determine what work they would pay for. 

42.     Taking into account that Wara operated from its own premises, APT would have limited supervision opportunities.  I concluded that Mr Hansen was left with a degree of discretion and flexibility that was more consistent with him being an independent contractor than an employee.

§  Whether Mr Hansen was formerly an employee of APT?

43.     This point was acknowledged by Mr Pryor and Mr Hansen.

§  Whether Mr Hansen performed work for other entities? 

44.     Mr Hansen’s evidence was that in February 2002 Wara registered with the Australian Agency for International Development (AusAid) as an export consultant, and established a commercial website on the internet to advertise to potential clients.  This evidence, which I accept supports the conclusion that he was offering his services to others.

45.     I also accept Mr Hansen’s evidence that when he commenced his export consultancy business he offered his services to a number of water-related businesses including Watsons Tanks, Ludowici Environmental Pty Ltd and CRS Industrial Water Treatment Systems, and approached these businesses to provide “seed money” for the start up.  Mr Hansen stated that CRS provided $250 per week for four weeks in the period January/February 2002 which was useful for his start up cost including rental of business premises.  Mr Hansen explained that at first his business was slow and he took on other kinds of consultancies including preparing mission statements for the Police Citizens Youth Club, for which he received $4000 payment.  Mr Hansen said that he now provides consultancy services to Ludowici, BushWater, Tradework as well as to APT.

46.     I also accept that APT was the primary client during 2002/2003, given the retainer that had been agreed under the MOU and its continued payment in the subsequent financial year.  Nevertheless the question addressed in the factors at clause 8(b)(v) is whether work is performed for others, not the relative proportions.  I am satisfied that Mr Hansen performs work for others and that this other work is not so minimal that it should be disregarded.

§  Whether the person is employed by another entity that has more than one employee performing services for the entity?

47.     This does not appear to apply. Neither party made submission on this issue.

§  Whether the person performs work that has a specified outcome

48.     Counsel for APT acknowledged that there was a specified outcome that was achieved by the increase in APT’s export income.  It is difficult to see how this criterion usefully assists me to distinguish between who is an employee and who is not. 

§  Other matters 

49.     In regard to other matters, I took into account that APT did not provide Mr Hansen with annual or sick leave or other entitlements expected to be provided to employees but not contractors.  Mr Hansen maintains his own public liability and property insurance.  APT did not supervise the hours Mr Hansen worked, and there is no suggestion that Mr Hansen was working to any agreed hours.  The evidence from Mr Pryor and Mr Hansen suggests that Mr Hansen had the freedom to set the way that work was done, though APT would have the ultimate veto on what work was undertaken – after all, they were buying the services.  There were no clauses in the MOU which prevented Mr Hansen engaging others to complete aspects of the work, or to sub-contract the work that he was engaging in.

50.     I also took into account in other matters that the MOU reflected APT’s and Mr Hansen’s/Wara’s intention that the relationship would be that of independent contractor offering services to APT, with the retainer designed as an incentive to ensure that APT was the prime focus of Wara’s time.   Clause 6 provided that the consultant, Mr Hansen, was to maintain an independent legal entity; he was required to pass the test of contractor status for taxation purposes and be an independent consultant for export market development grant purposes. 

51.     The Privy Council in Australian Mutual Provident Society v Chaplin and Another (1978) 18 ALR 385 highlighted the place that must be given in written agreements to provisions that require maintaining a legal entity, as this requirement would be unusual in an employee relationship. The Privy Council also noted that the expressed intention of the parties should not be disregarded, because their intention can clarify ambiguity, where meaning is unclear. I accept in this case that it is appropriate to take the written expression of APT’s and Wara’s intentions about their relationship in the MOU into account. Their intention was expressed in clause 6, which required Mr Hansen to maintain an independent legal entity, and in their use of the term consultant throughout the MOU.

CONCLUSION

52.     Having weighed up the matters identified in Clause 8 of the Minister’s Determination I am satisfied that in 2002/2003 Mr Hansen was operating independently and with a degree of flexibility more consistent with being an independent contractor than with being an employee.   That is, Mr Hansen was not ordinarily employed by APT within the meaning of the Determination, and it follows from this that Wara Advisory Services was not closely related to APT.  This means that APT can claim the payments made for his services in 2002/2003.

DECISION

53.     The Tribunal sets aside the decision under review and substitutes a decision to allow the applicant’s claim for expenditure on services provided by Wayne Hansen of Wara Advisory Services and Products in 2002/2003.  The Tribunal remits the assessment of the claim to the respondent.

I certify that the 53 preceding paragraphs are a true copy of the reasons for the decision herein of Ms M J Carstairs, Member  

Signed:         Jeff Mills
  Legal Research Officer

Date/s of Hearing  20 June 2005
Date of Decision  4 October 2005
Counsel for the Applicant         Mr P Bickford      
Solicitor for the Applicant          O’Briens Lawyers          
Counsel for the Respondent     Mr D Rangiah
Solicitor for the Respondent     Australian Government Solicitor