Beanda International Development (Australia) Pty Limited and Australian Trade Commission
[2000] AATA 934
•26 October 2000
DECISION AND REASONS FOR DECISION [2000] AATA 934
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2000/373
GENERAL ADMINISTRATIVE DIVISION )
Re BEANDA INTERNATIONAL DEVELOPMENT (AUSTRALIA) PTY LIMITED
Applicant
And AUSTRALIAN TRADE COMMISSION
Respondent
DECISION
Tribunal Deputy President J Block
Date26 October 2000
PlaceSydney
Decision The decision under review is affirmed.
..................[J Block]...................
Deputy President
CATCHWORDS
EXPORT MARKET DEVELOPMENT GRANT - grants entry requirements - acquittance in respect of payments
Administrative Appeals Tribunal Act 1975 – section 25
Export Market Development Grants Act 1997 – sections 3, 4, 5, 6, 7, 18, 20, 21, 22, 29, 77, 80, 97, 98, 107
Export Market Development Grants Act 1974 (repealed) – sections 13J, 13K, 13L
Cash Converters Ontario Pty Limited and Australian Trade Commission [1999] AATA 86
REASONS FOR DECISION
26 October 2000 Deputy President J Block
In this matter the Applicant was self-represented by its managing director, Mr Jin Tian (who also uses the name David Jin and is referred to in these Reasons as Mr Jin). Mr M. A. Wigney of Counsel, instructed by the Australian Government Solicitor, appeared for the Respondent. Mr Jin gave evidence on behalf of the Applicant and was assisted by an interpreter in the Mandarin language, notwithstanding the fact that it was clear during the hearing that Mr Jin is fluent in English, even if not always grammatically correct. He used both languages during the hearing. The Tribunal had before it the documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975.
(a) Because the Applicant was self-represented, and with the consent of Mr Jin, I invited Mr Wigney to commence the proceedings by making a statement informing the Applicant as to the case which it would be required meet. Mr Wigney responded by handing to me and to Mr Jin, the Respondent's Written Submissions ("the Submissions"), which had no doubt been prepared for the purpose of his closing submissions. The Submissions, in my view, serve as a clear outline both of the legislative framework which is relevant in this case (and see in this context clauses 1 to 3 inclusive of the Submissions) and also as to the Respondent's outline of the relevant facts and background (and see clauses 4 to 6 of the Submissions) against which the Respondent made and confirmed the decision under review. The Submissions are admirably drawn and extremely helpful and could serve as a model. It is for this reason that I have decided, purely as a matter of convenience, to include the Submissions in full in these Reasons as follows:
RESPONDENT'S WRITTEN SUBMISSIONS
1. The decision under review
1.1 The decision under review ("the Decision") is a decision of the Respondent ("Austrade") under s 98(4) of the Export Market Development Grants Act 1997 ("EMDG Act") to confirm a decision by Austrade under s 20 of the EMDG Act that the Applicant did not meet the grants entry requirements under the EMDG Act. As a result of the Decision, the Applicant was not eligible for a grant under the EMDG Act.
1.2 The Decision is a decision which is reviewable by the Tribunal by reason of ss 97(a) and 98(4) of the EMDG Act and s 25 of the Administrative Appeals Tribunal Act. The EMDG Act and the grants entry requirements
2. The EMDG Act and the grants entry requirements
2.1 The EMDG Act provides for the grant of financial assistance by Austrade to small and medium Australian enterprises to provide incentives for them to develop markets. Section 3 of the EMDG Act provides that the object of the EMDG Act is:
... to bring benefits to Australia by encouraging the creation, development and expansion of foreign markets for Australian goods, services, intellectual property and know-how. It does so by providing for an assistance scheme under which small and medium Australian exporters committed to and capable of seeking out and developing export businesses are repaid part of their expenses incurred in promoting those products.
2.2 To be entitled to a grant, a person must first be found to be eligible under Part 3 of the EMDG Act for a grant in respect of a grant year.
2.3 Part 3 of the Act defines who is eligible for a grant. The underlying principle is stated in ss 5(2) of the EMDG Act as being that:
... only small or medium Australian businesses that:
(a) are developing export markets for eligible products; and
(b) have a prospect of success in their export enterprise;should be eligible for a grant.
2.4 Subsection 6(1) of the EMDG Act provides that, inter alia, a body incorporated under the Corporations Law, is eligible for a grant in respect of a grant year if it satisfies the conditions applicable to it under section 7. Subsection 7(1) of the EMDG Act relevantly provides that a person referred to in subsection 6(1) is eligible for a grant in respect of a grant year if the conditions set out in subsection 7(1) are satisfied. One of the conditions is:
(h) if Division 5 applies to the person:
(i) the person has been registered under section 19; and
(ii) Austrade has decided under section 20 that the person met the grants entry requirements.
2.5 Subsection 18(1) of the EMDG Act relevantly provides that Division 5 applies to a person that intends to apply for a grant in respect of a grant year unless either: (a) the person is a grantee in respect of any previous year; or (b) the person's application for a grant in respect of the immediately preceding grant year is pending. Neither of these provisos applies to the Applicant and therefore Division 5 of the Act applies to him.
2.6 Subsection 20(1) of the EMDG Act, which is part of Division 5, relevantly provides that Austrade must decide whether the person met the grants entry requirements at the time Austrade considers appropriate.
2.7 Subsection 21(1) of the EMDG Act provides that Austrade may determine the grants entry requirements in writing.
2.8 The grants entry requirements applicable to the Applicant in this case are set out in a determination made by Austrade on 8 July 1997 ("the Determination"). The specified requirements are that a first-time Applicant at the time of taking the grants entry test:
must have export activities which are planned - "planned export activities" - (including, as an example only, export activities where the claimant has conducted research into the existence of a potential market);
(ii) must have planned export activities which are not on their face unachievable;
(iii) must have and be likely to continue to have management involved in and with the ability to achieve the planned export activities;
(iv) must have and be likely to continue to have financial resources capable of supporting the planned export activities;
(v) must have and be likely to continue to have a production and supply capacity to support the planned export activities;
(vi) must have export activities which are not on their face unlawful or impractical (including as examples only (a) the planned export of alcohol to a country where the sale of alcohol is prohibited; (b) the planned export from Australia of goods for which consent is necessary for their export and where the consent is unlikely to be given; (c) where raw materials of a product is unavailable; and
(vii) must have planned export earnings which are not on their face unachievable.
2.9 Paragraph 3 of the determination is in the following terms:
3. A first-time Applicant is required to give to Austrade any existing document(s) which contain the information on which the Applicant relies to show that it passes the grants entry test. Where a first-time Applicant has no such document(s) the Applicant is required to prepare and give to Austrade a document setting out in relation to the Applicant the information on which the Applicant relies to establish that it passes the grants entry test as set out in 2 above.
2.10 Section 22 of the EMDG Act provides that before deciding whether a person met the grants entry requirements, Austrade may give the person a written request to give Austrade information about a specified matter and may request the person to provide that information within a specified period of at least 28 days.
3. Brief legislative history of the grants entry requirements
3.1 The Export Market Development Grants Act 1974 ("the 1974 Act"), the predecessor to the EMDG Act, initially contained no requirement that an Applicant for a grant satisfy an entry test. A grants entry test was first introduced in the 1994 (sic) Act in 1996 by the insertion of sections 13J, 13K and 13L in the 1974 Act. In the Second Reading Speech of the amending Act, the Minister stated that the introduction of the grants entry test was intended to "limit the payments of grants to claimants who are least likely to succeed..." and the Explanatory Memorandum to the Bill provided that the grants entry test would focus on the claimant's "preparedness to sustain a successful export drive" and on whether the claimant has, inter alia, "access to adequate resources"
3.2 A determination pursuant to s 13K of the 1994 Act (the equivalent to s 21 of the EMDG Act) which set out a grants entry test was made by Austrade on 26 July 1996. It was in relevantly the same terms as the Determination.
3.3 The 1994 Act was repealed and replaced by the EMDG Act on 1 July 1997. The requirement to satisfy a grants entry test was maintained in the EMDG Act in sections 20 and 21. On 8 July 1997, Austrade made the Determination pursuant to section 21.
3.4 In 1999, sections 20 and 21 of the EMDG Act were amended and the term "grants entry test" was replaced by the term "grants entry requirements". Subsection 12(2) of the amending Act provides that:
12(2) A determination in force under section 21 of the Export Market Development Grants Act immediately before the commencement of this Act also has effect as if it had been made under section 21 of that Act as amended by this Act.
3.5 The result is that the Determination is the operative determination under section 21 of the EMDG Act.
4. Outline of relevant facts
4.1 The applicant, Beanda International Development (Australia) Pty Limited ("BID") is a proprietary company with paid up capital of $100.00. It was incorporated on 18 October 1995 and its principal shareholder and director is Jin Tian (David Jin).
4.2 On 15 October 1999 Austrade received an application by BID for a grant under the EMDG Act for the 1998/99 grant year. The application contained particulars of claimed expenses totalling $87,916 relating to overseas representation ($53,874.00) and marketing visits ($34,042.00). The application also contained particulars of export earnings by BID in the grant year of $145,473.00. These earnings were derived from a single shipment Australian wine sold to a buyer in China.
4.3 The application was accompanied by:
(a) BID financial statements for the year end 30 June 1999;
(b) a cash flow analysis for BID for the 1999/2000 financial year; and
(c) an Export Market Plan Guide for BID;
4.4 The BID financial statements disclose that for the year end 30 June 1999 (the relevant grant year):
(a) BID's income was derived solely from the single shipment of wine to China;
(b) BID made an operating loss of $15,989.57 (having made a loss of $36,707.00 in the previous financial year);
(c) BID's only asset was cash at bank of $49,250.43;
(d) BID owed its director(s) $90,000.00 and had trade creditors totalling $26,324.00;
(e) BID's liabilities exceeded its assets by $67,073.57;
(f) BID had no apparent source of finance, other than loans from directors.
4.5 BID's cash flow analysis discloses that:
(a) it was forecast that BID would continue to have no source of cash revenue other than from its export sales of wine to China - earnings of $75,000 (arising from such sales) were forecast in December 1999 and May 2000;
(b) BID has and was forecast to have no other source of finance;
(c) BID's cash flow is to an extent dependant on the receipt of a grant (presumably the EMDG grant which has not been paid) of $30,000 in November 1999.
4.6 The BID Export Market Plan reveals that the product exported by BID (wine with gold leaf suspended in it and marketed under the name "Zen") is not produced by BID but is purchased from Normans Wines Limited. Whilst the plan refers to a distribution agreement between BID and China National Duty Free Merchandise Corporation, no firm orders from that customer are disclosed. The sales projection refers to sales totalling $150,000 in the year 1999/2000.
4.7 On 15 November 1999, Austrade requested further information from BID pursuant to sections 22 and 77 of the EMDG Act.
4.8 Some material was received by Austrade in response to the request for information. The material received disclosed, inter alia, that:
(a) the approval to export "Zen" wine is held by Normans Wines, not BID;
(b) Normans Wines sold the relevant "Zen" wine (the subject of the single sale of wine by BID to the customer in China) to Lucky Deux Pty Limited, not BID, and at a cost of at least $109,275.00;
(c) the Distribution Agreement between BID and China National Duty Free Merchandise Corporation either has or is about to expire;
4.9 In response to Austrade's request for statements from BID's directors that they are prepared to fund the business and for substantiation that the directors have funds to support the business, BID produced a statement from David Jin and a letter from Lucky Deux Pty Limited. No material was received which established in any way that either David Jin or Lucky Deux had the funds to continue to fund BID. Lucky Deux Pty Limited has now been deregistered.
4.10 No documents containing details pertaining to the $90,000 loan and the trade creditors totalling $26,224 (both disclosed in the BID financial statements) were furnished by BID, notwithstanding the specific request by Austrade for such documents. No documents evidencing further sales or orders of "Zen" wine were furnished by BID, notwithstanding a request by Austrade for details of the future sales expected by BID.
4.11 On 13 December 1999, Austrade determined that BID had not met the grants entry requirements. This was communicated to BID on 14 December 1999. The reason for the decision was expressed to be that BID had not sufficiently demonstrated that it had and would continue to have financial resources capable of supporting the planned export activities (ie. paragraph (iv) of the Determination) and the following was noted:
Information requested in respect of substantiating that the business has the necessary funds / assets available to support its activities has not been sufficiently provided.
It is noted that the liabilities outweigh the assets of the business and as expressed verbally on the day of the audit and in my request for more information, this matter needed to be addressed in some detail. It is not just a matter of stating that you are prepared to support the business financially, but one must be able to demonstrate they have and (sic) likely to have the financial resources capable of supporting activities.
It is also of concern the time span between the initial order and the proposed next order. While the Commission has accepted that future export earnings are achievable, this is an area of concern, also considered one that again would likely have impact on the financial business viability.
4.12 On 12 January 2000, BID requested Austrade to reconsider the decision pursuant to section 98 of the EMDG Act.
4.13 On 2 February 2000, Austrade wrote to BID in relation to the reconsideration of the decision and requested further evidence from BID "addressing the financial capability to support your export endeavour." Austrade specifically requested documents which demonstrated the capacity of Mr Jin and Lucky Deux Pty Limited to continue to fund BID.
4.14 No further documentation was supplied to Austrade by BID and on 10 February 2000, Austrade confirmed the earlier decision that BID had not met the grants entry requirements. BID was advised of this by letter dated 10 February 2000.
4.15 On 8 March 2000, an Application for Review of Decision was filed in the Tribunal by David Jin in relation to the Decision.
4.16 BID has not filed any statements or documents in support of the Application for Review.
5. Austrade's Submissions
5.1 It is submitted that on any view the material which has been furnished by BID to Austrade in support of the grant application fails to demonstrate that BID has and is likely to continue to have financial resources capable of supporting the planned export activities. Indeed, the material positively establishes that BID does not and is unlikely to have such financial resources in the immediate future.
5.2 The primary facts which may be extracted from the material furnished by BID are set out in paragraphs 4.3, 4.4, 4.5 and 4.8 above. It may be concluded from these primary facts that BID is a company which has survived, and continues to survive, only on the basis of financial support provided by its director(s) and possibly another company (ie. Lucky Deux Pty Limited) which has now been deregistered. Without that continuing support, BID would undoubtably be insolvent. As at 30 June 1999, it was in no position to repay the loan(s) from its director(s) of $90,000 from its own resources.
5.3 Without external support and the injection of further funds from its director(s) or another party, BID was in no position as at 30 June 1999 (and, it may be inferred, is in no position now) to order and pay for further wine from Normans Wines to be exported overseas, even assuming that BID received such an order from its one customer. BID has no source of finance from a bank or other financial institution and has no other identifiable source of income or capital. On the materials supplied, it must be highly doubtful that any person, including Normans Wines or any other supplier, would extend any credit to BID. It must also be highly doubtful that any financial institution or independent lender would lend any money to BID.
5.4 There is no evidence that BID has purchased any further stocks of "Zen" wine from Normans or anyone else for the purpose of exporting since December 1998. It may be inferred that this is due to its inability to obtain credit or finance. There is no evidence that BID has made any sales of wine to China since the sale in late 1998. There is no evidence that BID's planned export activities and earnings have been achieved. BID has no other source of income and thus it may be inferred that BID's financial position has worsened since 30 June 1999.
5.5 A willingness on the part of BID's director (or any other third party) to support BID is insufficient to satisfy the relevant grants entry requirement unless it can be demonstrated that the director has the financial resources to provide that support. This has not been demonstrated. Nor has the type of support and the extent of the proposed support been spelt out in any way. There is, for example, clearly no binding obligation on the director to provide funds to BID.5.6 In Cash Converters Ontario Pty Limited v Australian Trade Commission the Tribunal said, in relation to the grants entry test:
The test should be applied on available information and reasonable projections which with hindsight ... one can test their reasonableness. In the Tribunal's opinion, at the time that the test is applied ... there must be available evidence to provide a reasonable inference that the test is met.
5.7 It is submitted that there is no available evidence in this case to provide an inference that the grants entry requirements have been met. The only available inference is that BID does not have the financial resources capable of supporting the planned export activities. The Decision should be affirmed.
5.7 It is also submitted that it would be open to the Tribunal to find on the material before it that BID has failed to meet other paragraphs of the Determination: in particular paragraphs (ii), (vi) and (viii).
6. A subsidiary issue
6.1 Austrade has also decided that the amount claimed by BID for overseas representation is not a eligible expenses under Part 5 of the EMDG Act because BID has failed to demonstrate to Austrade that those expenses were incurred by BID ("the Expenses Decision"). The supporting documentation supplied by BID indicates that the expenses were paid by Mr Jin and no evidence has been furnished by Mr Jin or BID to indicate that the amounts paid by Mr Jin were reimbursed to Mr Jin by BID or taken up in BID's loan account (as a loan by Mr Jin to BID). Nothing in BID's financial statements suggests that these expenses were dealt with in this way.
6.2 If the Decision is affirmed, it is unnecessary for the Tribunal to consider the Expenses Decision. If the Decision is set aside or varied, however, it is submitted that the Expenses Decision should be affirmed.
(b) In fact, and as the evidence before me revealed, the factual aspects of these Submissions proved in the result and in the main to be accurate. However there were certain aspects which were, in certain respects only, inaccurate. I intend to review the evidence given before me by Mr Jin. The evidence as referred to in these Reasons, insofar as they differ from the factual matters contained in the Submissions, naturally takes precedence to the extent of any conflict. For example, the Respondent assumed that $90,000 reflected as 'loans by directors' in the Applicant's accounts meant just that. However, the Respondent was not to know, as the evidence revealed in the hearing, that the accounts were incorrect and the amount of $90,000 was owing, not to directors, but to Lucky Deux Pty Limited.
(c) The decision under review is set out in clause 1.1 of the Submissions. It may be noted that the initial decision, which relates to the 1998/99 grant year (the "relevant grant year"), was made on 13 December 1999 and subsequently confirmed on 10 February 2000. The Applicant's claim related to expenses incurred both in the relevant grant year and also the prior year. This is permissible for a first-time applicant, pursuant to section 29(c)(i) of the EMDG Act. (I note that I intend to use the abbreviations contained in the Submissions).
(d) To complete the background, it is relevant to note that:
(i) There are references in the T Documents to what might prima facie be thought to be a company different from the Applicant, and which is named BID (Australia) Pty Ltd. The evidence given by Mr Jin, however, revealed this is merely another name for the Applicant.
(ii) In the interests of brevity I intend to refer to Norman Wines Limited as "Norman", to China National Duty Free Merchandise Corporation as "China National" and to Lucky Deux Pty Ltd as "Lucky" (see clauses 4.6 and 4.8 of the Submissions).
(iii) The application for the review of the decision (T1) was in fact made by David Jin and not the Applicant. At the hearing, however, the parties treated the application as if it had been made by the Applicant and I intend to treat the application in the same way.
(a) Lucky, which was controlled by one of its managing director, Fumio Kawasoe ("Fumio"), was described by Mr Jin as a partner company to the Applicant. Fumio also controls another company called Crossover National Pty Ltd ("Crossover"). As set out in clause 4.9 of the Submissions Lucky has now been deregistered.
(b) "Zen" wine can be white, red or rose and it has one particularly interesting feature of containing 24 carat gold leaf, although not when sold in casks.
(c) In June 1996, the Applicant sold 200 cases of Zen wine to Xianen Airport Duty Free for a consideration of $12,000. In October 1996, the Applicant sold 800 cases of Zen wine to Tinjin Duty Free for a consideration of $36,000, and subsequently in November 1996, 200 cases of Zen wine were sold by the Applicant to Beijing Duty Free for a consideration of $12,000. Mr Jin said that the Applicant was not aware of the fact that when these sales were made, it was possible for the Applicant to seek a grant under the EMDG Act.(a) In July 1996, Mr Jin attended the Beijing Hotel and Food Show which was sponsored by the Respondent. It was at or about this time that the Applicant commenced the development of a relationship with China National, which (so he said) is the biggest duty free shop in China and which owns or operates 137 shops. After negotiations this resulted in an order in November 1998 by China National for 60,000 litres of wine - some white (chardonnay), some rose and some dry red. The wine came in bottles and casks.
(b) The aggregate price payable by China National was approximately $125,000. (All references to dollars in these Reasons are references to Australian dollars). According to the evidence of Mr Jin, the wine arrived at Tianjin Airport in November 1998, but at that time the weather in northern China was very cold. A sediment appeared in the cask wine, although it disappeared 8 months later in the Chinese summer. Page 81 of the T Documents, refers to a transfer to the Applicant of $109,632.98 into its account with Westpac Banking Corporation ("Westpac account") on 25 June 1999; page 80 refers to an amount of $16,299.53 transferred to the Applicant, again to its Westpac account on 12 July 1999. These two payments were referred to extensively in the evidence given before me by Mr Jin. A third payment of $5,610.67, also transferred to the Applicant's Westpac account on 8 September 1999, appears to have escaped any detailed consideration at the hearing. The payments referred to at pages 80 and 81 of the T Documents totalled approximately $125,000 and throughout the proceedings this was referred to as the amount of the purchase price payable and paid by China National for the 60,000 litres of wine previously referred to in these Reasons. It may be (given that Mr Jin was very confused whenever figures were relevant or referred to) that the purchase consideration was somewhat higher and perhaps in the region of $130,000. T 19 is a contract between the Applicant (referred to as party B) and China National (referred to as Party A). Clause J on page 70 of the documents is entitled "Main Trading Terms" and paragraph 1b of the clause reads as follows:Commission to CNDFMC as advertising and promotion budget:
5% of the total invoice value as commission to CNDFMC to be deducted from payment.
11% of the total invoice value as advertising and promotion budget be deducted from the payment.
CNDFMC is of course a reference to China National. It would appear, having regard to clause J, that China National was entitled in respect of the purchase consideration to deduct a total amount of 16% by way of commission and advertising and promotion expenses. On the basis that China National remitted net of these expenses, it would seem that the gross purchase consideration was indeed in excess of $125,000.
(c) The purchase price of the 60,000 litres of Zen wine was financed by Lucky who provided a loan to the Applicant in an amount of $90,000. Mr Jin stated that Lucky was entitled to 15% commission amounting to approximately $24,000. Indeed, and as is set out in the Submissions, the wine in question was purchased from Norman not by the Applicant but rather by Lucky. Presumably Lucky, having purchased the wine from Norman, then on-sold it to China National, notwithstanding that the relevant sales agreement (T19) dated 1 February 1998 was entered into at Beijing between the Applicant and China National (T19 is an English translation of the Chinese version of the relevant agreement).
(a) Page 25 of the T Documents is the trading account of the Applicant for the relevant grant year. It indicates that its total trading income, and arising from sales, amount to $115,055.11. From that amount was deducted the cost of sales (and being purchases) amounting to $65,000 thus resulting in a gross profit from trading of $50,055.11. Page 25 also contains the prior year figures; in respect of the prior year, sales of $21,500 resulted in a gross profit of $21,500 and in other words, no amount was shown in respect of cost of sales. It would seem then that in the prior year there were no purchases at all by the Applicant.
(b) As to how the amount of $65,000 was arrived at was a complete (and unsolved) mystery. The only purchase in the relevant grant year was the consignment of 60,000 litres. On the assumption that it is proper to treat that purchase as having been made by the Applicant and not by Lucky (even though it was Lucky who was the actual purchaser), the cost of that purchase was at least $90,000, and probably more. In this context it should be bourne in mind that Lucky was entitled to a commission of $24,000. Therefore, the cost of that sale was approximately $114,000. The sale figure of $115,055.11 may conceivably be the net amount payable by China National after deducting its own commission and advertising and promotion budget entitlements. One thing is clear however, if the cost of sales figure is the aggregate of $90,000 and approximately $24,000, the total amount which should have been recorded was approximately $114,000, thus reducing the gross profit commensurately.
(c) Page 26 of the T Documents is a profit and loss account in respect of both the relevant grant year and the prior year figures. It reveals:(i) In the relevant grant year the Applicant incurred a loss of $15,989.57, having incurred a loss of $36,707 in the prior year.
(ii) In the relevant grant year the loss was calculated by reference to a gross trading profit of $50,055.11. If that figure was understated, as set out previously in these Reasons, and as appears to be the case, then the loss sustained by the Applicant was correspondingly greater.
(iii) It is also relevant to note that page 26 of the T Documents does not reflect any entitlements of China National under the head of expenses. Nor for that matter does it appear to reflect Lucky's commission. There is no entry whatever in respect of commission and no amount which would appear to relate to the entitlement of either of these companies.
(d) The balance sheet of the Applicant at 30 June 1999 (and which also reflects the prior year figures) which appears at page 28 of the T Documents, indicates that there was a net deficiency in equity of $67,073.57 as at 30 June 1999, and $51,084 as at 30 June 1998. As at 30 June 1999, the Applicant had only one asset, consisting of cash of $49,250.43. Against that sole asset must be set current liabilities and being accounts payable of $26,324, together with borrowings of $90,000. Note 14 (page 30 of the T documents) indicates that the $90,000 borrowing is referable to "loans from Directors". In fact, the evidence of Mr Jin revealed that that amount referred to a loan by Lucky and not by Mr Jin and it relates to the finance provided by Lucky for the purchase of the 60,000 litres consignment of wine sold to China National in November 1998. The Applicant appears to have issued capital of $100 and no loan capital from its directors. Moreover, and if the gross profit previously referred to was in fact overstated as set out previously in these Reasons, then the deficiency at 30 June 1999 was greatly in excess of $67,073.57, and in all probability was in the region of $100,000.
(e) Page 28 of the T Documents indicates that in the preceding year, the Applicant might be described as having been more or less dormant. As of 30 June 1998, and as appears from page 28 of the T Documents, it had only one asset consisting of cash of $240, no current liabilities and non-current liabilities of $51,324.
(f) As to whether the cash asset of $49,250.43 as at 30 June 1999, (referred to at page 28 of the T Documents) was correct was yet another of the many mysteries surrounding the Applicant's accounts. Mr Jin gave evidence that, within a short period after receiving money from China, the Applicant paid Lucky $114,000, being the amount of $90,000 owed to Lucky plus Lucky's commission of $24,000. Mr Jin was sure that Lucky received the whole amount in one tranche. It is in this context that the cash amount at 30 June 1999 cannot possibly be correct. $109,000 approximately was received towards the end of June 1999. It was not sufficient to enable the Applicant to pay Lucky $114,000. It is conceivable that $114,000 was paid in July 1999 when the second amount of approximately $6,000 was received. This is more probable given that the debt of $90,000 to Lucky was reflected as owing at 30 June 1999. But on this basis, it seems extremely unlikely that the Applicant could have possessed cash of approximately $49,000 at 30 June 1999.
(g) How then, given the evidence before me, did the Applicant come to show $90,000 as a loan by Directors? Mr Jin said that he really was not concerned with the accounts which were just pieces of paper so far as he was concerned. He said that the accounts were framed by the Applicant's accountants in accordance with information provided by him and he could not account for the fact that they were so obviously incorrect, and in so many respects. It is clear that the Applicant was insolvent as at 30 June 1998 and it was even less solvent as at 30 June 1999 and, as set out previously in these Reasons, its financial position at 30 June 1999 was considerably worse even than its accounts reflected.
(a) Mr Jin referred on many occasions to the Applicant's reliance on the support of Lucky. Page 59 of the T Documents is a letter by Lucky dated 30 November 1999 signed by Fumio as its managing director and which is quoted in full as follows:
Lucky Deux P/L is a partner company with BID (Australia)P/L. Lucky Deux P/L was provided financial support for BID export ZEN wine to China. That support was up to $120,000.00 Dollars. Lucky Deux P/L gets commission from BID P/L.
No matter now or future. Lucky Deux P/L will continually support to BID for exporting business.
Acknowledge that BID P/L is the only exporter ZEN gold leaf wine and caskwine to China and Taiwan
(b) Mr Jin acknowledged that he knew that Lucky has been deregistered. He said that he could always rely on the support of Fumio and through his other company Crossover. There was, however, no evidence whatever before me as to any promise of support by either Fumio or by Crossover or as to the capacity of either of them to furnish support. The only support letter referable to Fumio and his two companies is that (couched in rather vague terms) by Lucky dated 30 November 1999, as set out above.
(a) Page 63 of the T Documents contains an expression of support by Mr Jin himself, which reads as follows:
I David Jin Managing Director of BID (Australia) Pty Ltd confirm that: I have been involved with BID (Australia) Pty Ltd since October 1995. During the time been, I had Support and invest to BID (Australia) Pty Ltd, and I am willing continually to support BID (Australia) Pty Ltd from both sides financial and physical.
(b) It should be noted that the letter referred to in subclause (a) refers to "invest to BID (Australia) Pty Ltd". The accounts before me indicate no monies lent by Mr Jin or any other director to the Applicant. Mr Jin did not furnish any evidence whatsoever of any financial support of any description by him to the Applicant, nor indeed did he demonstrate any capacity to do so. He did say that he had property in China, but that he had no intention of bringing any money into Australia, because taxes in Australia are too high.
(a) Page 33 of the T Documents is a business cash flow for the Applicant for the year after the relevant grant year. It indicates that it was reviewed by Mr M J Turnbull (the consultant to the Applicant). Under the head of receipts, it shows a grant receipt of $30,000 in November 1999 and cash revenues of $75,000 in each of December 1999 and May 2000. In fact the Applicant appears to have assumed (incorrectly as it turned out) that it would receive a grant from the Respondent; the cash revenues were optimistic in the extreme, given that after the sale of 60,000 litres of wine to China National referred to previously in these Reasons, the Applicant made no sales of any kind to China National or, for that matter, anyone else.
(b) Mr Turnbull was not called to give evidence. Mr Jin acknowledged that the figures contained in the business cash flow would have been furnished by him to Mr Turnbull.Mr Jin said that the sale of 60,000 litres of wine was concluded on a very low margin in order, hopefully, to bring about further sales to China National. Just how low that margin was was never clear, but there is reason to believe that in fact the sale price was so low that, taking into account expenses and in particular freight, the Applicant may have sustained a loss in consequence of that sale.
(a) Pages 34 to 37 of the T Documents contain the Applicant's export market plan. In clause 2.2 at page 35 the Applicant stated:
BID is not the manufacturer but is the exporter of the wine. BID achieved its first sale of Australian gold leaf wine into China in December 1998. The company has recently received additional orders with the assistance of the Australian Trade Commission in Beijing. The business plan is that up to the year 2004 the sales turnover will be 5 million dollars.
Mr Jin said that it would be desirable and probably necessary to establish a branch office in China which would cost $200,000 per annum by way of outgoings. He said that the opening of such an office would be funded through financial support from the Respondent.
(a) That the Respondent required additional information from the Applicant is abundantly clear from the correspondence contained in the T Documents. The Tribunal refers in this context to a letter by the Respondent to the Applicant dated 15 November 1999 (T11 of the T Documents and referred to in clause 4.7 of the Submissions) and also to a letter dated 14 December 1999, both from Mr John Bernie, special approvals manager of the Respondent, to Mr Jin (pages 93 and 94 of the T Documents). This latter letter read as follows:
I refer to our previous discussion and correspondence in regard to the application by Beanda International Development (Australia) Pty Ltd for a grant for the 1998/99 grant year. As you are aware, first time Applicants are required to pass Grants Entry criteria to be eligible for a grant.
This letter is to advise you, that the application by Beanda International Development (Australia) Pty Ltd has been reviewed, and on the information provided unfortunately does not meet the Grants entry requirements under the EMDG Act 1997. The business is therefore not eligible to receive a grant for 1998/99.
The reason for the decision is that the company has not at this point in time sufficiently demonstrated that it could meet the following element of the Grants Entry:
a) Must have and be likely to continue to have financial resources capable of supporting the planned export activities.
Information requested in respect of substantiating that the business has the necessary funds / assets available to support its activities has not been sufficiently provided.
It is noted that the liabilities outweigh the assets of the business and as expressed verbally on the day of the audit and in my request for more information, this matter needed to be addressed in some detail. It is not just a matter of stating that you're a prepared to support the business financially, but one must be able to demonstrate they have and likely to have the financial resources capable of supporting activities.
It is also of concern the time span between the initial order and the proposed next order. While the Commission has accepted that future export earnings are achievable, this is an area of concern, also considered that again would likely have impact on the financial business viability.
In respect of assessment of expenditure claimed for overseas representation, it has not clearly been shown that the overseas representative payments have been incurred by the company per se, and I regret to advise that this amount has been disallowed. It is pointed out that in the 'Request for additional information' in respect of point number eight details of how payments made by you personally were taken up in the loan account, have not been provided. Such amounts should be shown as a current liability.
Should you have any questions regarding this outcome please do not hesitate to contact me on 02 9585 2971.
(b) The Tribunal refers in addition to a letter dated 2 February 2000, from Mr Colin Wilcox, another special approvals manager of the Respondent, to Mr Jin (pages and 99 and 100 of the T Documents) and which read as follows:
Recently I have been allocated your appeal in relation to the 1998/9 Grants entry Decision assessed by Special Approvals Manager John Bernie. The reasons for the failure to meet one of the criteria has been both explained to you, by letter dated 14/12/1999 and personally in our Hurstville office on 7/1/00.
I have read your appeal letter which outlines your business activities. Prior to finalising the appeal I do require further evidence from you addressing the financial capability to support your export endeavour.
Please provide copies (originals should be available upon request) of any documentation that supports your appeal. These documents may include information that pertains to your current financial position, which may include the current business details, personal savings or investments that may be used as a guarantee or security to continue to fund this activity. A letter from Lucky Deux P/L has been provided that identifies the current arrangement relating to payment details. If Lucky Deux P/L was to financially assist Beanda International Developments (Aust) P/L, as stated in the letter please provided (sic) a full set of accounts relating to both the 1998/9 year and current management accounts to December 1999 for Lucky Duex (sic) P/L.
Furthermore, an issue relating to the expenditure of the overseas representative payments made by David Jin (personal account) have not been appropriately taken up by the company in the grant year. If this is incorrect, please provide clarification from your accountant in the form of a general ledger entries of the loan account and related journals that relate to this issue. Also an updated signed set of accounts for the 1998/99 year with the signed corresponding tax return rectifying this error contained in the set of accounts you have originally provided to Austrade.
If you require any further information or clarification please contact the writer on (02) 9390 2337. Please provide the relevant documentation by COB Thursday 10 February 2000.
(c) Mr Jin admitted that the Applicant did not submit any of the information requested by the Respondent. He said that the Applicant did not have sufficient time within which to do so. However, although it had not furnished the information required, the Applicant nevertheless asked for a review. Mr Jin said in his evidence that he was not prepared to furnish the information requested,because it amounted, as he put it, to an invasion of privacy.
The T Documents indicate that numerous expense amounts were paid by Mr Jin personally by debit to his own credit card account. There was no evidence whatsoever before the Tribunal which would indicate either that those amounts were reimbursed by the Applicant to Mr Jin or that they were credited to him in the books of the Applicant. In fact and as set out previously, the Applicant does not have a loan account or claim against the Applicant, so that as between the Applicant and Mr Jin there was no entry of any kind. Mr Jin said that he regarded himself and the Applicant as one entity and, in practical economic terms, such a statement may well be credible. However the law requires that the Applicant be able to show that it acquitted the relevant expenses, and there was no evidence of any kind before the Tribunal as to the fact that it did so in respect of any of the expenses on which the claim was founded.
(a) The evidence of Mr Jin was for obvious reasons unreliable. He was at times evasive, and on occasions made statements which contradicted earlier statements. Similarly he sought on at least one occasion to retract a statement made a short while before. It is, in the view of the Tribunal, odd that Mr Jin persisted in his belief that the Respondent has treated him unfairly and unreasonably. The whole of his case appears to have been based on a profound misconception. He said that "a father should support a son". By this he meant that he saw the Respondent as occupying the role of a father who should in these circumstances support the Applicant in its export endeavours. As he perceived the situation, the Applicant was seeking to develop an export market in respect of Australian wine to China and should be entitled as of right to receive the financial support which it needed for this purpose from the Respondent. He altogether refused to accept or appreciate that to satisfy the grants entry requirements, the Applicant must comply with certain criteria (and especially as to financial viability and a reasonable likelihood that it could achieve planned export sales). The fact that the Applicant's accounts were so demonstrably wrong, and quite probably fictitious, did not really concern him. Nor, for that matter, was he concerned by the Applicant's failure to make any export sales since November 1998. He was throughout the hearing unfailingly optimistic about the future of the Applicant, although having regard to the accounts, it is impossible to understand why. He said that he had received inquiries from China National about further purchases, but that he could not fulfil them firstly because the proposed margin was too low and secondly because he did not have the support of the Respondent which apparently was a necessary prerequisite, so far as he was concerned, to the acceptance of any orders. Mr Jin did not at any time appreciate that in order to obtain grants the Applicant must first demonstrate financial viability.
(b) Put in colloquial terms, Mr Jin was 'putting the cart before the horse'. Mr Wigney referred in clause 5.6 of the Submissions to the decision of this Tribunal in Cash Converters Ontario Pty Limited and Australian Trade Commission [1999] AATA 86. Applying the relevant test with hindsight the Tribunal notes that the Applicant failed to meet any of the projections.(c)Mr Jin was critical of the Respondent in general and Mr Bernie in particular. The Tribunal considers that, as the correspondence in the T Documents demonstrates, the Respondent treated the Applicant perfectly fairly. The Respondent made it clear that the relevant tests could not be satisfied in the absence of information and evidence of the nature requested. Mr Jin saw these requests as an invasion of privacy and refused to comply.
The Applicant must fail, both because it did not fulfil the grants entry requirements and, indeed it must be said, made little or no real attempt to do so. It may well be that the Applicant was unable to do so, although it was presumably open to Mr Jin, assuming that he does have assets in China (and as to which there was no evidence before the Tribunal), to have realised those assets and used the funds so realised to capitalise the Applicant sufficiently to enable the Applicant to finance further exports to China. Mr Jin was not prepared to capitalise the Applicant appropriately and his strong belief that it was for the Respondent to do so was of course entirely untenable. In addition there was, as previously set out in these Reasons, no evidence before the Tribunal that the Applicant acquitted any of the expenses upon which its claim for a grant is based.
In the circumstances the decision under review must be affirmed.
I certify that the 15 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President J Block
Signed: .........................[Marcus Ryan]..........................
AssociateDate/s of Hearing 18 October 2000
Date of Decision 26 October 2000
Applicant self-represented by its Managing Director, Mr Jin Tian
Counsel for the Respondent M A Wigney
Solicitor for the Respondent Judy Pownall C/- Australian Government Solicitor
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