Buchan and Dairy Adjustment Authority
[2002] AATA 644
•30 July 2002
CATCHWORDS – DAIRY ADJUSTMENT SCHEME – whether entitled to anomalous circumstances payment right – whether held an eligible interest in a dairy farm enterprise – operating one farm and developing another – whether old and new farm managed as one business or as separate entities – decision affirmed.
Dairy Structural Adjustment Program Scheme ss. 3, 4, 5, 6, 9, 10, 11, 21 to 24, 25, 26, 27, 28, 29, 30, 31, 32, 33 and 49; Part 4, Part 5 and Part 6
Dairy Product Act 1986 ss. 3 and 125A; Schedule 2
Dairy Industry Adjustment Program cll. 1, 2, 6, 7, 10, 12 to 23, 30 and 31
Acts Interpretation Act 1901 s. 46
Buchan and Dairy Adjustment Authority [2002] AATA 644
DECISION AND REASONS FOR DECISION [2002] AATA 712
ADMINISTRATIVE APPEALS TRIBUNAL )
) V2001/563 & V2001/564
GENERAL ADMINISTRATIVE DIVISION )
ReLEIGH and RONALD FORD
Applicants
AndDAIRY ADJUSTMENT AUTHORITY
Respondent
DECISION
Tribunal: Miss S A Forgie (Deputy President)
Mr C Ermert (Member)
Dr P D Fricker (Member)
Date: 21 August, 2002
Place: Melbourne
Decision:The Tribunal affirms the decisions of the respondent dated 7 February, 2001 as confirmed by further decisions dated 20 April, 2001.
S A FORGIE
Deputy President
REASONS FOR DECISION
On 15 May, 2001, the applicants, Mr Ronald David Ford and Mrs Leigh Ford, lodged applications for review of decisions made by the respondent, the Dairy Adjustment Authority ("DAA") on 7 February, 2001. Those decisions had been confirmed by further decisions of the DAA dated 20 April, 2001 and, pursuant to s. 49(7) of the Dairy Structural Adjustment Program Scheme 2000 ("the Scheme"), are reviewable by this Tribunal. The effect of the decisions is that, while Mr and Mrs Ford are eligible for a standard payment right, neither was eligible for an anomalous circumstances payment right.
At the hearing, the documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 ("T documents") were admitted in evidence in relation to both applications. We will refer to those admitted in Mrs Ford's matters. Also admitted were a statement by Mr Ford, the licences for Mr and Mrs Ford's "new" and "old" farms, the whole farm plan and a dairy plan and Mr and Mrs Ford's applications. Oral evidence was given by Mr Ford. Mr Golonbek represented Mr and Mrs Ford and Mr Pizer represented the DAA.
THE ISSUES
The issue in this case is whether Mr and Mrs Ford are entitled to an anomalous circumstances payment right. In the circumstances of this case, resolution of that issue depends upon whether or not they pass the standard DSAP test as at 28 September, 1999 and whether they held an "eligible interest" in a "dairy farm enterprise" as at that date and during the whole or part of the base year.
BACKGROUND
There was no dispute between the parties as to the facts in this case. In light of that and on the basis of the evidence, we have made the findings of fact that we have set out in the following paragraphs.
Mr Ford has been a dairy farmer for 20 years. On 6 June, 2000, he and Mrs Ford applied for a standard payment right in respect of the dairy farm that they have owned for the previous 13 years. They hold a dairy farm licence numbered 2030276 issued by the Victorian Dairy Industry Authority ("Vic DAA") in respect of that dairy farm. We will refer to it as the "old farm" (Exhibit D). On 28 November, 2000, the DAA decided that both Mr and Mrs Ford were entitled to a standard payment right in respect of the old farm.
On the basis of the evidence of Mr Ford, we are satisfied that he and his wife decided that they needed to become more efficient dairy farmers if they were to survive de-regulation of the dairy industry. Their plan to achieve improved efficiency was to improve their herd, pastures, irrigation layout and management and dairy and to increase the quantity of irrigation water used. These improvements could only be achieved by investing a significant amount of capital. At the same time, they needed to continue to operate as dairy farmers. Carrying out the improvements on an operating dairy farm would prove difficult as there would be a need to work around land that could not be used whilst it was being improved.
With their plan in mind, Mr and Mrs Ford purchased a neighbouring property in May, 1998. That property, which is 48.7 hectares or 120.3 acres in area, had been operated as a dairy farm for the previous 50 years. We will refer to that as the "new farm". It was purchased as a going concern with all the necessary equipment to operate a small dairy farm. Mr and Mrs Ford hold a dairy farm licence numbered 2030210 (Exhibit C) issued by the Victorian DAA in respect of that dairy farm. The purchase price paid by Mr and Mrs Ford for the new farm reflected its value as dairy farming land and not its value as an out block. Milk deliveries from the new farm under its previous owners, who had worked with a sharefarmer to milk their cows, were 467,835 and 442, 180 litres in 1995/96 and 1996/97 respectively and 271,445 litres in 1997/98 to the date of Mr and Mrs Ford's acquisition. Mr and Mrs Ford believed that they would be able to achieve two or three times this yield once they had effected their improvements.
The new farm is located across the road from the old farm but, on the basis of Mr Ford's evidence, we are satisfied that its close proximity to the old farm is a benefit to Mr and Mrs Ford in the execution of their plan but was not the main factor in their deciding to purchase it. We find that, as soon as they paid the deposit on the new farm, they started on a detailed plan for its upgrading. An integral part of that plan was to improve the pasture as improved pasture leads to improved milk. The plan was completed in August, 1998 and the total cost of its implementation is in the order of $130,000 to $140,000. It required a new lay out of the property and for its paddocks to be laser graded in order to make it both water and labour efficient. As laser grading necessitates the re-sowing of paddocks, re-sowing necessarily follows. At the time of the hearing, all but 3.23 hectares or 8 acres had been laser graded and sown to pasture. The next step is to re-build the new farm's irrigation system. Mr and Mrs Ford plan to increase the amount of water available to the new farm for its irrigation. This may perhaps be achieved by moving water rights from the old farm to the new farm or by purchasing water rights on the open market. Both farms hold separate water rights. Financial considerations will largely dictate the choice that will be made.
The new farm had an operating dairy when Mr and Mrs Ford purchased it and they used it for a day or two. They had difficulties in finding labour to operate two dairies and stopped operating the dairy on the new farm. When they subdivided the land on which the farm house stood, they could no longer use the dairy on the new farm. That arose from the fact that they had to disconnect the electricity to the dairy as the line carrying that electricity passed over the subdivided land and that was not permitted. Consequently, the dairy could no longer be operated. The whole of the new farm was closed for a period from approximately May to November, 1998 while the laneways, channels and fences were established. Cows were not kept on the new farm at this time.
In October, 1998, plans were submitted to Mr and Mrs Ford for two dairies: a 40 unit rotary parlour and a 20 swingover dairy. They had commissioned the plans when they purchased the new farm. They now plan to construct a rotary dairy on the new farm. That will cost in the order of $200,000 and will be used only in relation to the new farm. Mr and Mrs Ford plan to milk 450 cows on the new farm rather than the 200 cows they currently milk on their old farm.
Mr and Mrs Ford have purchased some cattle on a lease arrangement over three years for the old farm. They purchased some cows belonging to the previous owners of the new farm when they purchased that property. In addition, they are raising more heifers in order to build up a herd for the new property.
Mr and Mrs Ford have not delivered milk from the new farm at any time since they purchased it in May, 1998. They have, however, milked cows from the new farm in the dairy of the old farm and delivered their milk with milk from the cows from the old farm to the processor. Apart from growing hay and grazing cows from the old farm, they have not used it for any other purpose such as growing grain
or meat or wool production. It has not been used as an out block for their old farm.
When the new farm is fully developed, Mr and Mrs Ford plan to sell the old farm as part of their re-financing their operations and to operate the new farm.
LEGISLATIVE FRAMEWORK
On 1 July, 2000, the dairy industry was deregulated. A package, known as the Dairy Industry Adjustment Package was developed to assist the dairy industry to adjust to deregulation. The Dairy Produce Act 1986 ("the Act") provides for one element of that package. It is the Dairy Industry Adjustment Program ("Program") and it is set out in Schedule 2 of that legislation (s. 125A). Clause 1 of Schedule 2 sets out a simplified outline of the Program:
"This Schedule and Part 9C of the Farm Household Support Act 1992 provide a framework for the implementation of the Dairy Industry Adjustment Program.
The main object of the Dairy Industry Adjustment Program is to help the dairy industry adjust to deregulation by providing for 2 types of grants, as follows:
(a)DSAP payments (made under this Schedule);
(b)dairy exit payments (made under Part 9C of the Farm Household Support Act 1992).
Generally, DSAP payments are calculated by reference to 1998-1999 milk deliveries at a rate of 46.23 cents per litre for market milk and national average rate of 8.96 cents per litre for manufacturing milk.
Dairy exit payments are available for farmers who choose to leave agriculture.
The Dairy Adjustment Authority will administer DSAP payment rights.
The Dairy Industry Adjustment Program will be funded by a dairy adjustment levy on milk products.
The levy will be paid into a Dairy Structural Adjustment Fund, and DSAP payments and dairy exit payments will be paid out of that Fund."
Taking a DSAP payment first, it is a payment under the Scheme (Program, cl. 2). The Program contemplates that the Scheme will be formulated in writing by the Minister for the grant of payment rights to entities holding an eligible interest in a dairy farm enterprise at 6.30pm on 28 September, 1999 and satisfying other requirements set out in the Scheme (Program, cl. 10(a)). The Scheme must also provide for the division of payment rights into units, the registration of those units and the making of payments by the Australian Dairy Corporation ("Corporation") to registered owners of units (Program, cll. 10(b) to (d) and see also Act, s. 3(1)). The Scheme must be directed towards ensuring the achievement of the policy objectives set out in cll. 12 to 23 of the Program. Those policy objectives specify the types of payment rights, the basic eligibility criteria for each payment right and the circumstances in which a payment is payable to a person who is eligible to receive it. Other policy objectives are concerned with matters such as the adjustment or eligibility for payment rights in certain situations and the administration of the scheme generally.
The Scheme came into operation on 14 April, 2000. There was no suggestion in this case that it is not consistent with the policy objectives set out in the Act. The Scheme establishes three types of payment rights: standard payment rights, exceptional events supplementary payment rights and anomalous circumstances payment rights (Scheme, ss. 9 to 11 and see also Program, cl. 12(2)). The basic eligibility criteria for each payment right are:
standard payment right:
"(1) An entity is eligible to be granted a standard payment right in respect of a dairy farm enterprise if:
(a)the entity held an eligible interest in a dairy farm enterprise at 6.30pm on 28 September 1999; and
(b)the enterprise delivered milk during the base year." (Scheme, s. 9)
exceptional events supplementary payment right
"(1) An entity is eligible for an exceptional events supplementary payment right in respect of a dairy farm enterprise if:
(a)the entity has been granted a standard payment right in respect of the enterprise; and
(b)the DAA is satisfied that:
(ii)the enterprise was affected by 1 or more exceptional events; and
(iii)as a result of 1 or more of those events, the volume of market milk and manufacturing milk delivered by the enterprise in the base year was less than 70% of the average annual volume of market milk and manufacturing milk delivered by the enterprise in the 1997-1998, 1996-1997 and 1995-1996 financial years.
(2)An entity may be eligible for an exceptional events supplementary payment right in respect of a dairy farm enterprise even if it has already been granted 1 or more exceptional events supplementary payment rights in respect of the enterprise, but the combined face value of the payment rights granted to the entity must not exceed the amount worked out under section 25.
NoteEven if an entity is eligible for an exceptional events supplementary payment right, the DAA has a discretion whether or not to grant the payment right: see subsection 18(9)." (Scheme, s. 10)
anomalous circumstances payment right
"(1) An entity is eligible for an anomalous circumstances payment right if:
(a)the entity did not pass the standard DSAP test; and
(b)the entity held an eligible interest in a dairy farm enterprise during the whole or a part of the base year; and
(c)the entity is taken under subsection (1A) to have been affected by anomalous circumstances.
(1A)An entity is taken to have been affected by anomalous circumstances if the entity held an eligible interest in a dairy farm enterprise at 6.30 pm on 28 September 1999 but that enterprise did not deliver milk during the base year.
(1B)For the purposes of this section, an entity passes the 'standard DSAP test' if, and only if:
(a)the entity held an eligible interest in a dairy farm enterprise at 6.30pm on 28 September 1999; and
(b)either or both of the following conditions are satisfied:
(i)during the base year, the dairy farm enterprise delivered market milk;
(ii)during the base year, the dairy farm enterprise delivered manufacturing milk.
(2)An entity may be eligible for an anomalous circumstances payment right even if it has already been granted 1 or more anomalous circumstances payment rights, but the combined face value of the payment rights granted to the entity must not exceed the amount worked out under section 26." (s. 11)
The expression "dairy farm enterprise" is not defined in the Scheme. As the Scheme is formulated under cl. 10 of Schedule 2 of the Act, expressions used in the Scheme have, unless the contrary intention appears, the same meaning as in the Act (Acts Interpretation Act 1901, s. 46). Clause 2 of the Program, which is in Schedule 2 of the Act and so forms part of it, defines the expression "dairy farm enterprise" as "… a business in Australia that delivers market milk and/or manufacturing milk" (Program, cll. 2 and 6).
In certain instances, two or more businesses are to be treated as a single business. The first of these concerns a situation in which, under the Scheme, an arrangement is taken to be an eligible dairy sharefarming arrangement and the arrangement involves two or more businesses (Program, cl. 6(2)). Under the Scheme, an eligible dairy sharefarming arrangement must meet two conditions. The first is that there is an arrangement between two or more entities under which each entity is entitle to a fixed percentage share of the milk revenue of a dairy farm enterprise or a fixed percentage of the milk revenue of a dairy farm enterprise in relation to the sale of each type or amount of milk produced by the enterprise. The second is that at least one of the entities has no proprietary interest in the land on which a milking shed used by the enterprise is situated and the quota under which the enterprise delivers market milk (Scheme s. 6(1)). A dairy farm enterprise is subject to an eligible dairy sharefarming arrangement if the milk revenue of the enterprise is shared under the arrangement (Scheme, s. 4(2)). An entity is a party to an eligible dairy sharefarming arrangement if the entity is entitled to a share of the enterprise's milk revenue under the arrangement (Scheme, s. 4(3)).
If, under the Scheme, an arrangement is taken to be an eligible dairy leasing arrangement and involves two or more businesses, those businesses are treated as a single business. Under the Scheme, a dairy farm enterprise is subject to an eligible dairy leasing arrangement in one of two situations (Scheme, s. 5(1)). The first occurs if quota was required for the delivery of market milk by the enterprise in the base year, and the owner of quota used by the enterprise leases some or all of the quota used by the enterprise to one or more other entities for the purpose of delivering milk produced by the enterprise. The second occurs if quota was not required for the delivery of market milk by the enterprise in the base year and the owner of land on which a milking shed used by the enterprise is situated leases the land to one or more other entities for the purpose of producing milk. Sections 5(2), 5(3) and 5(4) of the Scheme recognise that quota or the land used for producing milk may be leased or sub-leased for that purpose. An entity is a party to an eligible dairy leasing arrangement if the entity is the lessor or lessee of quota or land mentioned in s. 5 of the Scheme (Scheme, s. 5(2)). If the quota or land is sub-leased, the sub-lessee is taken, for the purposes of s. 5(2) to be the lessee of the land or quota (ss. 5(3) and (4)).
Clause 6(4) of the Program provides that, for its purposes, "… the continuity of a business or a dairy farm enterprise is not affected by; (a) any change in the identity of the entity or entities who carry on the business or enterprise; or (b) any change in the ownership of the business or enterprise."
Returning to the definition of a "dairy farm enterprise", the business must deliver market milk and/or manufacturing milk. The term "manufacturing milk" is defined to mean "… manufacturing milk (within the meaning of section 103) in respect of which a domestic market support payment has been paid under section 108A." (Program, cl. 2) The expression "market milk means milk on which levy was imposed by whichever of the following is applicable … paragraph 5(1)(a) of the repealed Dairy Produce Levy Act (No. 1) Act 1986 and paragraph 6(1)(a) of the Primary Industries (Excise) Levies Act 1999." (Program, cl. 2) The "base year" to which reference is made is the financial year beginning on 1 July, 1998 (Scheme, s. 3).
An entity's entitlement to a standard payment right is predicated in part upon its having held an eligible interest in a dairy farm enterprise at 6.30pm on 28 September, 1999 and in part upon its having delivered milk during the base year. An entity holds an "eligible interest in a dairy farm enterprise" if:
"(a) both:
(i)under the DSAP scheme, the enterprise is not taken to be subject to an eligible dairy sharefarming arrangement or an eligible leasing arrangement; and
(ii)the entity carries on the enterprise (whether alone or together with one or more other entitles); or
(b)both:
(i)under the DSAP scheme, the enterprise is taken to be subject to an eligible dairy sharefarming arrangement; and
(ii)under the DSAP scheme, the entity is taken to be a party to that arrangement; or
(c)both:
(i)under the DSAP scheme, the enterprise is taken to be subject to an eligible dairy leasing arrangement; and
(ii)under the DSAP scheme, the entity is taken to be a party to that arrangement.
(2)For the purposes of this Schedule, if:
(a)an individual had an eligible interest in a dairy farm enterprise at 6.30 pm on 28 September 1999; and
(b)the individual dies after that time, but before making a claim for a payment right;
this Schedule has effect as if the trustee of the deceased individual's estate had held that interest at that time." (Program, cll. 2 and 7)
The face value of an entity's right is calculated in accordance with Part 4 of the Scheme. The method of calculating the face value of a standard payment right varies according to whether a dairy farm enterprise is subject to a sharefarming arrangement, a leasing arrangement, to both or to neither (Scheme, ss. 21 to 24). In the case of a dairy farm enterprise that is not subject either to a sharefarming arrangement or a leasing arrangement and only one entity has an eligible interest in that dairy farm enterprise, the face value of a standard payment right is equal to the overall enterprise amount (Scheme, s. 21(2)).
The "overall enterprise amount":
"… in relation to a dairy farm enterprise, means the sum of:
(a)the amount calculated at the rate of 46.23 cents per litre of market milk delivered by the enterprise in the 1998-1999 financial year; and
(b)the amount calculated at the rate of 76.03 cents per kilogram of the milk fat content of manufacturing milk delivered by the enterprise in the 1998-1999 financial year; and
(c)the amount calculated at the rate of 178.77 cents per kilogram of the protein content of manufacturing milk delivered by the enterprise in the 1998-1999 financial year." (Program, cl. 2)
The Scheme may provide for an adjustment of eligibility rights where there has been a transfer of the whole or part of market milk delivery rights or in relation to an abnormal market milk pool distribution (Program, cll. 30 and 31). The Scheme has done so in ss. 29 and 30. An adjustment is made in relation to the amount of milk actually delivered if, between 1 July, 1998 and 28 September, 1999, an entity with an eligible interest in a dairy farm enterprise transferred quota to another entity, surrendered quota, acquired quota by transfer from another entity or received quota from the dairy industry authority of a State or Territory. An adjustment is made if, in the base year, one or more dairy farm enterprises in a pooling jurisdiction did not receive payment at the market milk rate for the same proportion of their milk deliveries as other dairy farm enterprises in the jurisdiction.
If an entity is granted an exceptional events supplementary payment right in respect of a dairy farm enterprise, the total face value of the payment, any other exceptional events supplementary payment right granted to the entity in respect of the dairy farm enterprise and the standard payment right granted to the entity in respect of the dairy farm enterprise must not:
"… be more than the amount that would have been the face value of the entity's standard payment right if:
(a)the volume of market milk delivered by the enterprise during the base year had been the same as the average annual volume of market milk delivered by the enterprise in the previous 3 financial years; and
(b)the volume of manufacturing milk delivered by the enterprise during the base year had been the same as the average annual volume of manufacturing milk delivered by the enterprise in the previous 3 financial years." (Scheme, s. 25)
The total face value of an anomalous circumstances payment right is calculated in accordance with s. 26 of the Scheme. Except in the circumstances set out in s. 28 of the Scheme, the total face value of payment rights granted to an entity in respect of a particular dairy farm enterprise must not be greater than $350,000 (s. 28).
Having calculated the face value of any exceptional events supplementary payment right or anomalous circumstances payment right to which an entity is eligible in respect of a dairy farm enterprise, the DAA must have regard to s. 27 of the Scheme. That section directs that it:
"… must not grant an exceptional events supplementary payment right or anomalous circumstances payment right to an entity in respect of a dairy farm enterprise unless satisfied that the face value of the right proposed to be granted, together with the face value of all other exceptional events supplementary payment rights and anomalous circumstances payments granted or proposed to be granted by the DAA is less than or equal to the money available for payments for exceptional events supplementary payment rights and anomalous circumstances payment rights.
Note:The total face value of these rights cannot exceed the amounts worked out under section 25 or 26, whichever is relevant.
(2)If it is not enough, the DAA must determine the face value of the exceptional events supplementary payment right or anomalous circumstances payment right having regard to:
(a)the amount of money available for payments for exceptional events supplementary payment rights and anomalous circumstances payment rights; and
(b)the number of claims and anticipated claims for such rights; and
(c)the operation of sections 25 and 26; and
(d)such other matters as the DAA considers relevant.
(3)In this section:
money available for payments for exceptional events supplementary payment rights and anomalous circumstances payments rights means the amount of money in the Diary Structural Adjustment Fund, or expected to be credited to the Dairy Structural Adjustment Fund under clause 78 of Schedule 2 to the Act, that would have been required to cover the standard payment rights that would be granted under the scheme if:
(a)every standard payment right for which an entity is eligible were claimed under section 15; and
(b)the cap mentioned in section 28 did not apply to any entity; and
(c)no units were cancelled under section 38;
plus the total value of milk delivered by dairy farming enterprises that would have been taken into account in working out the face values of standard payment rights of entities that would have been eligible to be granted a standard payment right (see section 9) if they had held eligible interests in the dairy farming enterprise enterprises at 6.30 pm on 28 September 1999, less the amount actually required to cover the standard payment rights that:
(d)are granted under section 18; or
(e)are claimed under section 15 and will be granted under section 18 if the entity complies with the rules in subsection 17(2) before the end of 12 months after the end of the DSAP claim period."
Each payment right consists of a number of units worked out in accordance with s. 31 of the Scheme. In essence, the face value of the payment right is divided by 32 to reflect the number of quarters in the eight year period of the Scheme from 1 July, 2000. Units are recorded in a Register maintained by the DAA (Scheme, s. 33) and may be transferred (Scheme, s. 32). Units may be cancelled in the circumstances set out in Division 5.2 of Part 5 of the Scheme. Payments are made in accordance with Part 6 of the Scheme.
CONSIDERATION
Mr Golonbek submitted that Mr and Mrs Ford did not pass the standard DSAP test for, although they had an eligible interest in a dairy enterprise, that dairy enterprise did not deliver market milk or manufacturing milk in the base year. The dairy farm enterprise in which they had that eligible interest as they carried on the enterprise was the new farm and no regard need be had to the milk deliveries from the old farm in considering an anomalous circumstances payment right. The new farm continued to be a business despite the fact that it was not delivering milk and had not done so since May, 1998. Section 11(1A) of the Scheme contemplates that a dairy farm enterprise will continue to be such an entity even though milk is not delivered by it during the whole of the base year. In support of his submission, he referred to a passage from a document prepared by the DAA and entitled "Dairy Structural Adjustment Program An initiative of the Commonwealth Government An invitation to apply" (Exhibit B). That passage reads:
"Dairy Farm Enterprise Details
In Section 3 you are asked to fill in your dairy farm name, dairy licence number, locality and postal address.
The name of the dairy farm is most likely to be your business, company or operating name. It could be, for example – Mr and Mrs E. Dairyfairmer, or Green Pastures Dairy Pty Ltd, or Middleton Dairies Inc, or The Eligible Dairy Partnership, etc.
The State diary licence number uniquely identifies your dairy farm enterprise. The DAA will use it to process your application. If you do not know your licence number, contact your State Dairy Industry Authority.
The locality means the roadside address of your farm, such as RMB 24 Lochaber Road, Stewarts Range, SA, 5271, or simply Boltons Lane, Forbes, NSW, 2871. This is important information as it allows the right processes to be put in place to manage issues that are specific to each State – milk quota, for example." (Exhibit B, page 7)
Mr Pizer submitted that Mr and Mrs Ford did pass the standard DSAP test because, as at 28 September, 1999, they had an eligible interest in a dairy farm enterprise and that enterprise delivered market or manufacturing milk during the base year. In order for Mr and Mrs Ford to succeed, the old farm and the new farm must be regarded as two separate dairy farm enterprises. They were not separate in his submission. If that were not accepted, Mr Pizer continued, there were two further bases upon which the new farm could not be regarded as a dairy farm enterprise. The first is that Mr and Mrs Ford did not continue with the dairying operations carried on by the previous owners of the new farm. The second is that any business of the new farm was managed with the business of the old farm.
At the heart of this case lies a consideration of the business conducted by Mr and Mrs Ford. Are they conducting a business that delivers market milk and/or manufacturing milk? If so, are they conducting such a business from the old farm and another from the new farm or are they conducting such a business from both farms? This is quite apart from their activities on the leased farm that they operate and was not part of the proceedings. Identification of the business or businesses carried on by Mr and Mrs Ford is essential for a "dairy farm enterprise" is defined as a "business in Australia that delivers market milk and/or manufacturing milk". In the recent decision of Buchan and Dairy Adjustment Authority [2002] AATA 644, the Tribunal (Deputy President Forgie) set out its understanding of the sense in which the word "business" is used in that definition. It said:
"27. As was said by the High Court in Re Australian Industrial Relations Commission and Others ex parte Australian Transport Officers Federation and Others (1990) 96 ALR 513 (Mason CJ, Gaudron and McHugh JJ):
'Of all words, the word "business" is notorious for taking its colour and its content from its surroundings: see FCT v Whitfords Beach Pty Ltd (1982) 150 CLR 355 at 378-9; 39 ALR 521. Its meaning depends upon its context.' (page 519)
Consequently, in certain circumstances, it may be interpreted as applying to activities that are not carried on for profit and do not have a commercial character (e.g. Re Australian Industrial Relations Commission and Others ex parte Australian Transport Officers Federation and Others and Australian Health Insurance Association Ltd v Esso Australia Pty Ltd (1993) 116 ALR 253). In others, profit or a commercial character is an essential element (e.g. O'Brien and Another v Smolonogov and Another (1983) 53 ALR 107 (Fox, Sheppard and Beaumont JJ)).
28. Before regard can be had to the chameleon like qualities of the word "business", I should have regard to its ordinary meanings. In so far as they are relevant, they are:
"1. one's occupation, profession, or trade. 2. Econ. the purchase and sale of goods in an attempt to make a profit. 3. Comm. a person, partnership, or corporation engaged in this; an established or ongoing enterprise or concern: to be in business. 4. volume of trade; patronage. 5. one's place of work. 6. that with which one is principally and seriously concerned. …" (The Macquarie Dictionary, 2nd edition, 1991)
"… II The object of concern or activity. 6 The object of serious effort; an aim. LME-M16 7 An appointed task; a duty, a province; spec. a particular errand, a cause of coming. LME 8 Action demanding time and labour; serious work. LME 9 A habitual occupation, a profession, a trade. L15 10 A thing that concerns one; a matter in which one make take part. E16 11 A particular matter requiring attention; a piece of work; a job; an agenda. M16 b A topic, a subject. Only in 17. c A difficult matter. colloq. M19 12 gen. An affair; a concern, a process; a matter; a structure; slang all that is available. Usu. derog. E17 13 Dealings, intercourse, (with) E17 14 Theatr. Action on stage (as opp. to dialogue). L17 15 Trade; commercial transactions or engagements; total bookings, receipts, etc. E18 16 A commercial house, a firm. L19 …" (The New Shorter Oxford English Dictionary, 3rd edition, 1993)
29. The focus of the word's ordinary meanings is upon the endeavour, as it were, be it described as an activity, occupation or dealing or the like. It is not upon the implements used to undertake the action or the place at which the action takes place. Certainly, evidence of the nature of any action undertaken, the tools used and the place at which action is undertaken is relevant in determining whether or not there is a business. That is apparent from cases such as Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307 (Bowen CJ, Franki and Fisher JJ) which considered the definition of "business" in s. 6(1) of the Income Tax Assessment Act 1936. That definition read:
"`business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee;"
Their Honours Bowen CJ and Franki J then summarised the effect of the authorities at the time:
"... This does not afford much assistance in the present case. It is necessary to turn to the cases. There are many elements to be considered. The nature of the activities, particularly whether they have the purpose of profit-making, may be important. However, an immediate purpose of profit-making in a particular income year does not appear to be essential. Certainly it may be held a person is carrying on business notwithstanding his profit is small or even where he is making a loss. Repetition and regularity of the activities is also important. However, every business has to begin, and even isolated activities may in the circumstances be held to be the commencement of carrying on business. Again, organization of activities in a business-like manner, the keeping of books, records and the use of system may all serve to indicate that a business is being carried on. The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business. The volume of his operations and the amount of capital employed by him may be significant. However, if what he is doing is more properly described as the pursuit of a hobby or recreation or an addiction to a sport, he will not be held to be carrying on a business, even though his operations are fairly substantial. See generally, Trautwein v. FC of T (No 2) (1936) 56 CLR 196; Tweddle v. FC of T (1942) 7 ATD 186; 2 AITR 360; Fairway Estates Pty Ltd v FC of T; (1970) 123 CLR 153; 1 ATR 726; Thomas v. FC of T (1972) 46 ALJR 397; 3 ATR 165; especially at 399-401; (67-71) in all of which cases it was held the taxpayer was carrying on business; and Martin v FC of T (1953) 90 CLR 470; 5 AITR 548, in which it was held the taxpayer was not carrying on business." (pages 311)
30. Having regard to the ordinary meanings of the word "business" and to the authorities, it seems to me that, taken in the context of the Act, the word should be given its most general meanings. That is to say, it should be interpreted as covering a wide field of human endeavour whether described as a profession, trade, employment, vocation or calling or occupation in which a person is engaged provided that it may not be more properly described as something such as a hobby or recreational pursuit. Identification of an endeavour as a business will depend upon the consideration of a wide range of issues including matters such as the regularity and repetition of the endeavour, its purpose, its record keeping, those engaged in it and the place at which the endeavour is conducted. No one factor is essential in order to make an endeavour a business. So, for example, while it may well be that the endeavour is carried out for the purpose of making a profit, I do not consider that such a purpose is an element that is required to make it a business. In the context of the Act this follows from the fact that, when viewed at the most basic level, the Scheme provides compensation to those who have delivered milk that has been subject to regulation (be it in the form of a payment or a levy) and the amount of that compensation is calculated on the basis of the amount of that milk delivered during 1998/99. Whether or not that milk was delivered for a profit or not or with the intention of gaining a profit or not is irrelevant. Again in the context of the Act, the precise place at which the endeavour is conducted is also irrelevant. The Act's object is to assist the dairy industry and that, when read with the availability of dairy exit payments for farmers who wish to leave the industry, must mean that the emphasis is upon the business of dairy farming rather than upon the place at which that business is conducted."
That brings us to the particular circumstances of Mr and Mrs Ford. In a letter Mr Ford wrote to the DAA on 7 February, 2000, he said that "the previous and current dairy farm were merged into the current dairy farm enterprise. Due to the anomalous circumstances or time lags in rationalization, no production was achieved in 1998/99 season for the current dairy farm." (T documents, page 23) In his oral evidence, Mr Ford said that he uses one machinery pool for the old farm and the new farm. He tends to run the cows on the new farm during the day and on the old farm at night. From the point of view of labour, he runs the two farms together and must also provide labour for a third farm that is leased.
On the basis of their evidence and taking into account their retention of separate dairy farm licences from the Victorian DAA and their development plan that relates solely to the new farm and not to the old, we are satisfied that Mr and Mrs Ford are developing the new farm as an entity entirely separate from the old farm. In reaching that conclusion, we have had regard to their stated intention to sell the old farm when the upgrading of the new farm is complete. We have also noted that they have developed and are implementing a plan to upgrade the new farm and that the plan makes no reference to the old farm and does not include it in the upgrade of facilities. Further, we note the use of the new farm to graze cows from the old farm and the use of the old farm to milk cows from the new farm old. Those matters are simply matters of pasture management and, in so far as milking is concerned, of convenience and efficiency. The new farm is being developed so that it can operate as a self sufficient and efficient dairy farm at some stage in the future. Its Victorian DAA dairy farm licence is maintained so that it may commence operation under its discrete licence number without the need for further application. In addition, the new farm has its own water rights and more may be transferred to it from the old farm or purchased for it. Mr and Mrs Ford use common tools and machinery to work both the new and the old farms. The use of those common tools does not detract from our finding that they are developing the new farm as an entity separate from the old farm.
The fact that Mr and Mrs Ford were developing the new and the old farms as separate entities that could be separated does not necessarily lead to the conclusion that they operated separate businesses. A view about that can only be formed having regard to all of the evidence. We have already found that they maintained the Victorian dairy farm licence for the new farm but that is not conclusive of whether they were operating the new farm as a business separate from the old farm. There were two ways in which they could have done so; by continuing the business operated on the new farm by its previous owners or by commencing a new business. Continuation of the previous owner's business could have occurred by maintaining their business from May, 1998. Continuation of the business does not necessarily require that Mr and Mrs Ford continued to deliver milk from the new farm for businesses can cease production for a time without the business being brought to an end. Cessation could be brief as in the case of a retail business closing for a few hours to conduct a stock take or could be longer as in the case of a manufacturer which closes its plants for a period of weeks or months to re-tool.
Having regard to all of the evidence, we have concluded that the work that Mr and Mrs Ford have carried out on the new farm could not be regarded simply as an interruption of the business carried on by the previous owners while they carried out the improvements. Instead, we have concluded that they ceased to carry out that business if they carried it out at all. The time for which the business has ceased to deliver milk has been substantial as the last delivery of milk from the new farm occurred in May, 1998 and almost two years have passed since then. The work carried out and to be carried out to effect the improvements is substantial both in terms of effort and of cost. It is directed to a complete overhaul of every aspect of milk production from the pasture that feeds the cows, the herd itself and the milking facilities. This work is consistent with Mr and Mrs Ford's business plan to develop the new farm to a stage where they can move to its operation and sell the old farm. Cows are pastured on it and they are milked on the old farm but their milk is not recorded as being delivered from the new farm. On the evidence, their presence on the land is incidental to its development as is its hay production. The uses to which the land has been put and the work that has been undertaken on it leads us to conclude that Mr and Mrs Ford have not continued the business conducted by the former owners of the new farm.
The same factors also lead us to conclude that the business contemplated by Mr and Mrs Ford and towards which their work is directed is a completely different business from that carried out by the previous owners of the new farm. At this stage, however, it is premature to say that they are carrying out a business on the new farm that is separate from their business on the old farm. At most and despite the considerable amount of effort that has gone into the property, we find that it is preparatory to the commencement of a new business.
If we are not correct in these findings, we find that the business carried on by Mr and Mrs Ford on 28 September, 1999 was the business of delivering milk whether the cows were grazed on the old farm or the new farm. Despite maintaining separate Victorian DAA dairy farm licences for the new farm and the old farm, they have operated the two farms as one business. Cows from the old farm have been grazed on the new farm and cows intended for the new farm have been grazed on the old farm. Cows grazing on the new farm are milked on the old farm. No separate deliveries of milk are made from the new farm. When the new farm has been upgraded to an appropriate standard, Mr and Mrs Ford intend to focus their activities on the new farm and to sell the old farm but, in the meantime, they have shared labour and tools between the two farms. This was consistent with their business plan. Their activities are part of their overall endeavours as dairy farmers on both the old and the new farm and so part of the one business delivering market milk and/or manufacturing milk.
Either way, we find that Mr and Mrs Ford did not carry on a separate business on the new farm. The consequence is that they did not hold an eligible interest in a dairy farm enterprise being a business carried on by them on the new farm. They would not pass the standard DSAP test for they did not hold an eligible interest in a dairy farm enterprise (being a business carried on by them on the new farm) on 28 September, 1999. Equally they would not be entitled to a anomalous circumstances payment right for they would not satisfy the second requirement set out in s. 11(a) of the Scheme i.e. that they held an eligible interest in a dairy farm enterprise (being a business carried on by them on the new farm) during the whole or part of the base year.
If it is the case that Mr and Mrs Ford's endeavours on the new farm were part of their overall business of delivering milk, then they do pass the standard DSAP test for they held an eligible interest in a dairy farm enterprise on 28 September, 1999. Furthermore, their dairy farm enterprise delivered either market milk or manufacturing milk in the base year. It makes no difference whether the milk delivered came from cows milked on the old farm or from the new farm. As they pass the standard DSAP test, they cannot satisfy s. 11(a) of the Scheme and so are not entitled to the anomalous circumstances payment right.
For the reasons we have given, we affirm the decisions of the respondent dated 7 February, 2001 as confirmed by further decisions dated 20 April, 2001.
I certify that the thirty-nine preceding paragraphs are a true copy of the reasons for the decision herein of
Miss S A Forgie (Deputy President),
Mr C Ermert (Member)
Dr P D Fricker (Member)Signed: …………………………………..
Paul Paczkowski AssociateDates of Hearing 25 March, 2002
Date of Decision 21 August, 2002
Counsel for the Applicant Mr Golonbek
Solicitor for the Applicant Morrison & Sawers
Counsel for the Respondent Mr Pizer
Solicitor for the Respondent Mallesons Stephen Jacques
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