DEMETRIOU NOMINEES And AUSTRALIAN TRADE COMMISSION
[2010] AATA 238
•1 April 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 238
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/0801
GENERAL ADMINISTRATIVE DIVISION ) Re DEMETRIOU NOMINEES PTY LTD AND RJK HOLDINGS PTY LTD Applicants
And
AUSTRALIAN TRADE COMMISSION
Respondent
DECISION
Tribunal Deputy President D G Jarvis Date1 April 2010
PlaceAdelaide
Decision The decision under review is affirmed.
Signed
(D G Jarvis)
Deputy President
CATCHWORDS
TRADE AND COMMERCE – application for grant under Export Market Development Grants Act 1997 – applicants carrying on business in partnership as trustees of family trusts – goods owned and made by subsidiary company whose ultimate parents were the applicants – identity of applicant for grant – held that amendment in s 37(1A) referring to related entity of corporate applicant did not apply – decision under review affirmed.
Export Market Development Grants Act 1997 (Cth), s37(1A)
Corporations Act 2001 (Cth), s 50AA
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60
LexisNexis Butterworth’s, Halsbury’s Laws of Australia, Volume 10 (at 25 March 2010) 140 Deeds and Other Instruments “Interpretation of Deeds and Instruments under Hand”
Dennis Pearce, Administrative Appeals Tribunal, 2nd Ed, LexisNexis Butterworth’s
REASONS FOR DECISION
1 April 2010 Deputy President D G Jarvis 1. Demetriou Nominees Pty Ltd and RJK Holdings Pty Ltd (the applicant companies) previously carried on the business of manufacturing and distributing certain food products in partnership. They made an application for a grant under the Export Market Development Grants Act 1997 (Cth) (the EMDG Act) in respect of the grant year 2006/2007.
2. The Australian Trade Commission (Austrade) initially decided that the partnership between the companies was not entitled to a grant because they were not able to show that the business had an income of less than the then statutory limit, $30 million, in the grant year.
3. The companies requested a review of this decision. Austrade then accepted that the turnover of the business was less than $30 million, but decided that the partnership was not eligible for a grant, because the companies had entered into a licence agreement with a related company with effect from the commencement of the grant year, and the effect of the agreement was that the partnership did not own or make the goods described in its application, being a condition of eligibility for the grant.
4. An application has now been made to this Tribunal for review of Austrade’s decision.
Issues Before the Tribunal
5. The issue before the Tribunal at the hearing was whether the entity which applied for the grant owned or made the relevant goods and was therefore entitled to a grant in the 2006/2007 grant year pursuant to s 37 of the EMDG Act.
6. At the hearing a further issue arose, namely whether the ameliorating provisions of s 37(1A) of the EMDG Act applied on the grounds that the company that owned and made the goods was a related entity of the applicant companies, thus giving rise to a potential entitlement to a grant.
Background
7. The following background facts are based on the evidence of Raymond Khabbaz, the founder of RJK holdings Pty Ltd, and documentary evidence before me, and are not in contention.
8. The applicant companies were at all material times managed by Michael Demetriou and Raymond Khabbaz respectively. The Directors of Demetriou Nominees Pty Ltd are Michael Demetriou and his wife, Gayle Demetriou. Its shareholders are Mr Demetriou and Theognosia Costa. Mr Khabbaz is the sole director and sole shareholder of RJK Holdings Pty Ltd.
9. Messrs Khabbaz and Demetriou arranged to establish the partnership between the applicant companies in 2001. Demetriou Nominees Pty Ltd is the trustee for the Demetriou Family Trust, and RJK Holdings Pty Ltd is the trustee for the Shamrock Trust, which was established for the benefit of members of Mr Khabbaz’s family. The partnership traded under the name “Copper Pot” and variants thereof, and its business was to manufacture and sell dips, pates and associated products.
10. The companies successfully expanded their commercial activities, and acquired other businesses. They also set up a number of companies, including Brands Food Australia Group Pty Ltd, with a view to taking their business public. However, in April 2007 the business being conducted by the applicant companies and their subsidiaries was sold to the Goodman Fielder Group.
11. In the grant years 2002/2003, 2003/2004, 2004/2005 and 2005/2006, the partnership between the companies made successful applications to Austrade for grants under the EMDG Act in relation to their dip and pate making business.
12. On 1 February 2006 the companies entered into a licence agreement effective from 1 July 2006 whereby they licensed the manufacturing, sales and distribution of the goods to Copperpot Pty Ltd. Its name was later changed to Cmade Pty Ltd in April 2007, but I will refer to the company as “Copperpot Pty Ltd” throughout these reasons for the sake of consistency. The company is a wholly owned subsidiary of Brands Food Australia Group Pty Ltd, which has two shareholders, Demetriou Nominees Pty Ltd and RJK Holdings Pty Ltd. The Directors of both Copperpot Pty Ltd and Brands Food Australia Group Pty Ltd are Messrs Khabbaz and Demetriou.
13. The application for a grant for the grant year 2006/2007 was lodged with Austrade on 5 July 2007 in the name of Demetriou Nominees Pty Ltd and RJK Holdings Pty Ltd.
14. Mr Khabbaz said that he and Mr Demetriou had set up Copperpot Pty Ltd on advice in order to take advantage of bigger commercial opportunities. He gave evidence as to the growth of the business being conducted by the applicant companies. He said that each of the companies owned and operated by himself and Mr Demetriou had a specific role, and that all decisions relating to each company were jointly made by him and Mr Demetriou following both formal and informal discussions.
15. As mentioned above, in its reviewable decision Austrade refused the application on the basis that the expenditure was not incurred for an approved promotional purpose under s 37 of the EMDG Act, since the effect of the licence agreement was that the manufacturing and ownership of the goods passed to the licensee, Copperpot Pty Ltd.
16. Mr Khabbaz agreed that during the period of the grant year in question, the entity which sold the dips and pates was Copperpot Pty Ltd and that the partnership only received an annual royalty from the company. He nevertheless maintained that it was he and Mr Demetriou who retained overall control over the dip and pate making business, including the activities of Copperpot Pty Ltd.
Legislative Scheme
17. Section 4 of the EMDG Act makes entitlement to a grant subject to three conditions. It provides as follows.
“4 Entitlement to grant
Subject to this Act, a person that:
(a) is eligible under Part 3 for a grant in respect of a grant year; and
(b)has incurred eligible expenses in that grant year in relation to eligible products; and
(c)has applied for a grant in accordance with Part 7;
is entitled to a grant in respect of that grant year in the amount worked out under Part 6.”
18. The Act provides for the persons eligible for a grant in Part 3. This Part is introduced by s 5, which provides in effect that the underlying principle is that only small or medium Australian businesses that are developing export markets for eligible products and have a prospect of success in their export enterprise should be eligible for a grant. Section 6 then lists various persons or entities that are eligible for a grant. This includes a body incorporated under the Corporations Act 2001, a partnership regulated by an Australian law, and a joint venture approved by the CEO of Austrade under the EMDG Act.
19. Part 5 defines what are eligible expenses of an applicant for a grant, and provides in s 28(2) that the underlying principle is that “only expenses relating to specific promotional activities genuinely incurred by applicants for the purpose of marketing eligible products in foreign countries should qualify.”
20. Section 33 of the Act sets out the activities that constitute approved promotional activities and the expenses that are claimable in respect of those activities.
21. Section 37(1) provides for the circumstances in which an eligible promotional activity will be for an approved promotional purpose, and provides for requirements for eligibility for grants in respect of expenses in relation to the ownership, manufacture or sale of eligible goods. It provides as follows.
“37 Approved promotional purpose—eligible products
(1)For the purposes of section 33, an eligible promotional activity in relation to an applicant is for an approved promotional purpose if it is carried out for the purpose of creating, seeking or increasing demand or opportunity in a foreign country for any of the following:
(a)eligible goods owned by the applicant and that the applicant intends to sell for export or to export and sell;
(b) if the applicant is making goods in Australia—eligible goods:
(i) made in Australia by the applicant; and
(ii)that any person intends to sell for export or to export and sell;…”
22. Section 37(1A) recognises the commercial reality that in some cases, businesses are structured so that one company owns the product being exported, but another company within a group of related companies will promote or export the product. It provides as follows.
“(1A)For the purposes of section 33, if an applicant is incorporated under the Corporations Act 2001, the CEO of Austrade may determine that an eligible promotional activity in relation to the applicant is for an approved promotional purpose if:
(a)a related entity of the applicant satisfies the requirements of paragraph (1)(a), (c), (d), (da) or (e); and
(b)the activity in relation to the applicant would be for an approved promotional purpose if instead the applicant had satisfied the requirements of that paragraph.
Note: For related entity see subsection (4).”
23. Subsections 37(4) and (5) define the meaning of “related entities” under the EMDG Act as follows:
“Definitions
(4)For the purposes of subsection (1A), an entity (the first entity) is a related entity of another entity (the second entity) if:
(a)the first entity controls, or is controlled by, the second entity (within the meaning of section 50AA of the Corporations Act 2001); or
(b)the same shareholder or shareholders own all the shares in both the first entity and the second entity; or
(c)the first entity is a director of the second entity.
(5)In this section:
entity means:
(a)an individual who is a resident of Australia; or
(b)a body incorporated under the Corporations Act 2001.”
Consideration
Were the goods owned or made by the applicant companies?
24. It is apparent from the licence agreement that with effect from 1 July 2006, the goods that were exported were manufactured and sold not by the applicant companies, but by Copperpot Pty Ltd. Mr Khabbaz acknowledged this in his evidence, and that the applicant companies only received a royalty in respect of sales made by Copperpot Pty Ltd in the grant year in question. Austrade therefore says that the applicant companies were not carrying on an eligible promotional activity for an approved promotional purpose within the meaning of s 37(1) of the EMDG Act.
25. Mr Khabbaz disputes this. He contended emphatically that the ultimate ownership and control of all the relevant companies was vested in himself and Mr Demetriou, and that therefore the applicants should be entitled to the grant as a matter of common sense.
26. Section 37(1A) is an ameliorating provision, and confers a discretion to determine that a promotional activity qualifies if a related entity of the applicant satisfies s 37(1). It applies if an applicant is “incorporated under the Corporations Act 2001” and if a related entity of the applicant owns or manufactures the goods for sale. It is therefore necessary to determine whether the application in this case was made by an applicant meeting the above description.
Identity of applicant for grant
27. On the face of it, the application was made by the two applicant companies, whose names were typed on the application form. However, counsel for Austrade, Dr Grey, said that it was agreed between the parties that the applicant was the partnership between the applicant companies. She therefore submitted that s 37(1A) did not apply because the partnership was not an “an applicant incorporated under the Corporations Act 2001.”
28. In dealing with matters that arise in this tribunal, the tribunal has an obligation to arrive at the correct or preferable decision: Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 at 68. In performing that function, it is not always appropriate to act in accordance with concessions by or agreements between the parties, especially where (as in this case) one party is not legally represented, and the material before the tribunal raises some doubt as to the correctness of the concession or the agreement: see Dennis Pearce, Administrative Appeals Tribunal, 2nd Ed, LexisNexis Butterworth’s at [7.4], and the cases there cited. In this matter certain changes were made to the application form making it potentially ambiguous, and I think it appropriate to consider and determine the identity of the applicant in order to consider the relevance of s 37(1A), notwithstanding the parties’ agreement.
29. At common law written instruments should be construed so as to give effect to the intention of the parties: LexisNexis Butterworth’s, Halsbury’s Laws of Australia, Volume 10 (at 25 March 2010) 140 Deeds and Other Instruments “Interpretation of Deeds and Instruments under Hand” [140 – 490].
30. The application made to Austrade was prepared by an export agent, Mr Stewart Mitchell, but as mentioned above, it was later amended. Under question 1 the typed names of the companies, that is Demetriou Nominees Pty Ltd and RJK Holdings Pty Ltd, were crossed out and replaced by the hand-written words, “The Demetriou Family Trust & Ray Khabbaz Investments Trust”. Question 5 of the application form was also amended by hand: the business or trading name of “Brands Foods Group Australia Pty Ltd” has been crossed out and replaced with “Copper Pot Pate”.
31. The parties agreed during the hearing that these changes were made by Austrade following receipt of the application. Austrade apparently made the changes in order to make the application accord with the ABN appearing on the application form. Mr Mitchell did not object to the changes when he was told about them. However, the changes rendered the application form ambiguous, since it then referred to both the trusts and the partnership’s ABN. I am not satisfied that the applicant companies fully understood the effect of the changes, and in the absence of fully informed consent to the amendments, the application could not be said, as a matter of law, to have been amended so as to constitute an application by the two trusts. I will therefore consider the effect of the application in its form as originally lodged, that is, showing the companies as the applicants for the grant.
32. The business of manufacturing and distributing the products had been carried on by the applicant companies in partnership for some years before they entered into the licence with Copperpot Pty Ltd. An email dated 30 April 2008 (exhibit R1, page 69) provides evidence of the companies’ intention as to the effect of their application. Mr Mitchell then wrote:
“The application we submitted for the 06/07 year was the 4th in the name of the partnership of Demetriou Nominees Pty Ltd and RJK Holdings Pty Ltd trading as ‘Copperpot Dips and Pate’.”
33. I have noted that the business name provided in answer to question 5 of the application form in its original form was not the name of the partnership business. However, when Austrade later queried this, Mr Mitchell referred to the sale of the business to the Goodman Fielder Group, and advised that the purchaser was responsible to make all the name changes to the ABN, but had not done so, and he “(thought) it best that (Austrade) record the trading name still as The Copperpot Pate under question 5” (exhibit R1, page 23). That trading name was one of the names used by the partnership.
34. The EMDG Act expressly contemplates that persons entitled to a grant include various business structures. As mentioned above, these business structures expressly include a partnership by virtue of s 6(1), and under s 4 it is a condition of entitlement to a grant that the applicant must incur eligible expenses and (significantly for the purpose of applying s 37(1A)) must have applied for a grant.
35. Because a partnership is not a distinct legal entity, it is customary for relevant documentation to be signed by all of the persons carrying on business in partnership, or alternatively by one person expressly on behalf the partners. In the present matter information provided in support of the application, namely the expenses claimed and the ABN, were those of the partnership between the applicant companies. I am satisfied that whilst the application form for the grant was prepared in the names of the two applicant companies, the companies intended to apply for the grant in their capacity as the partners of their partnership business, and that the applicant was the partnership for the purpose of the EMDG Act. I accordingly find that s 37(1A) does not apply, because the applicant was not “incorporated under the Corporations Act 2001” within the meaning of that section.
Was the licensee a related entity of the applicant companies under s 37(1A)?
36. I further consider that, even if I am wrong in the above conclusion, s 37(1A) would not apply in the present circumstances, because Copperpot Pty Ltd is not a related entity of the applicant companies within the meaning of that subsection.
37. Section 37(4)(a) refers to the concept of “control” under s 50AA of the Corporations Act. Section 50AA(4) provides in effect that if an entity has the capacity to influence decisions about a second entity’s financial and operating policies, and is under a legal obligation to exercise that capacity for the benefit of someone other than the first entity’s members, the first entity is taken not to control the second entity.
38. WhiIst the applicant companies had the capacity to determine the outcome of Copperpot Pty Ltd’s financial and operating policies, each of the applicant companies was bound to exercise its capacity to influence decisions about Copperpot Pty Ltd’s policies for the benefit of someone other than their respective members, namely the beneficiaries of the family trusts of which they are the trustees. The categories of beneficiaries are referred to in the trust deeds constituting the family trusts (exhibits A2 and A3), and are different from the shareholders of the applicant companies.
39. I further consider that s 37(4)(b) of the EMDG Act does not apply to the applicant companies, because the sole shareholder of Copperpot Pty Ltd is Brands Food Australia Group Pty Ltd, that is, a different shareholder to the shareholders of the two applicant companies, which in turn have different shareholders to each other. Further, s 37(4)(c) is not relevant to Copperpot Pty Ltd.
Relevance of s 37(1A) if the applicants for the grant were the family trusts
40. I have so far considered this matter on the basis that the applicants were the companies. As mentioned above, the handwritten amendments to the applicant form show the applicants to be the two trusts. In case I am wrong in my conclusion that the amendments were not legally effective, I will now consider the position on the basis that the application had been effectively amended so as to have been made by the two family trusts.
41. A trust is eligible for a grant under the EMDG Act under s 7(4). The fact that the applicants did not disclose the information required by s 7(4) would not, as was contended on behalf of Austrade, provide a sufficient reason for the rejection the application, since Austrade could have requested further information pursuant to s 72(1) of the EMDG Act.
42. It is apparent that the applicant companies were acting in their capacity as trustees of the trusts. However, it is also clear that they were carrying on business in partnership pursuant to a partnership agreement, a copy of which is in evidence (exhibit R1, T15, page 87). Again, it was the partnership between the two trusts that incurred the expenses that formed the basis of the application, and the ABN shown on the application form was that of the partnership. I therefore consider that it is not appropriate to regard the application as having been made by the trusts, and that the application, on its correct construction, was an application by the partnership between the two companies, each carrying on the partnership business as a trustee of a family trust. Once again, s 37(1A) does not apply to the application, because the applicant was not incorporated under the Corporations Act.
Other issues
43. For the sake of completeness, I record that Mr Khabbaz also asserted that Austrade’s rejection of the application was made because of a “tall poppy syndrome” on the grounds that the business was sold to the Goodman Fielder Group; because Austrade had decided to “crack down” on South Australian companies; and because an individual in Austrade had an issue with Mr Khabbaz in consequence of his willingness to stand up for certain principles.
44. Applications for review by this tribunal involve a rehearing, and the tribunal is required to arrive at the correct or preferable decision on all of the material before it: Drake (supra) 1979 2 ALD 60 at 68. I have considered the issues arising in the present proceedings in accordance with these principles. For the reasons referred to above, I have concluded that the companies were not eligible for the grant in issue. It is therefore unnecessary to refer further to Mr Khabbaz’s assertions as set out in the preceding paragraph. However, there was no evidence that Austrade’s decision had been made in bad faith, and Mr Khabbaz’s assertions were denied by Mr Robert Harker, the State Manager for Grants under the EMDG Act for South Australia and the Northern Territory. He gave evidence that Austrade’s decision was based on the documents provided by the applicants and on the provisions of the EMDG Act. The unavailability of the refinement effected by the inclusion of s 37(1A) in circumstances where the applicant is a partnership comprising one or more corporations (or alternatively, a trust with one or more corporate trustees, or a joint venture where one or more participant is a corporation) seems inconsistent with the purpose of the amendment effected by that subsection, but Austrade must of course administer the Act in accordance with its terms.
45. There is force in a further submission by Dr Grey that ss 6 and 37(1A) of the EMDG Act refer to “a body incorporated under the Corporations Act 2001” and an “applicant” respectively, and that this use of the singular number indicates that an application made in the names of two companies would not comply with the requirements of the Act. Of course, by virtue of s 23 of the Acts Interpretations Act 1901 (Cth) words in the singular include the plural unless the contrary intention appears. It may be that there is a contrary intention in the EMDG Act, because of the references to partnerships, the requirement for joint ventures to be approved, and the provisions that apply to applications by a trust. However, once again, it is not necessary for me to determine this issue in view of the conclusion I have reached above.
Decision
46. The decision under review is affirmed.
I certify that the 46 preceding paragraphs are a true
copy of the reasons for the decision herein of
Deputy President D G Jarvis.........................(signed).........................
AssociateDate/s of Hearing 4 February 2010
Date of receipt of
final submission 18 February 2010
Date of Decision 1 April 2010
Applicants’ representative Mr R Khabbaz
Counsel for the Respondent Dr R Grey
Solicitor for the Respondent Lachlan Partners Legal
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