Direct Barrels Pty Ltd and Australian Trade and Investment Commission

[2023] AATA 1571

Direct Barrels Pty Ltd and Australian Trade and Investment Commission [2023] AATA 1571 (8 June 2023)

Division:GENERAL DIVISION

File Number:          2022/5206

Re:Direct Barrels Pty Ltd

APPLICANT

AndAustralian Trade and Investment Commission

RESPONDENT

DECISION

Tribunal:R Cameron, Senior Member

Date:8 June 2023  

Place:Melbourne

The Tribunal affirms the decision under review.

................................[SGD]........................................

R Cameron, Senior Member

CATCHWORDS

FOREIGN AFFAIRS AND TRADE – application for payment of export market development grant – former grant recipient reached limit of eight grants – whether grantee is in substance conducting the business of another person that has ceased to exist – same business name – acquisition of intellectual property – same nature and characteristics of business – wine polymer oxygen-permeable maturation vessels and oak products used in the making of fine wine – continuity of trade and operation – new version of product derived from old version with improvements and efficiencies – decision under review affirmed

LEGISLATION

Export Market Development Grants Act 1997 (Cth)

Export Market Development Grants Rules 2021 (Cth)

CASES

Marshall v Whittaker’s Building Supply Co (1963) 109 CLR 210

REASONS FOR DECISION

R Cameron, Senior Member

8 June 2023

INTRODUCTION

1. The applicant, a company called Direct Barrels Pty Ltd (‘Direct Barrels’), seeks a review of a decision made by the respondent on 6 June 2022 (‘the reviewable decision’).[1]

   [1] The reviewable decision is document T19 of the T documents.

2. The reviewable decision was made by a delegate of the respondent’s Chief Executive Officer (‘CEO’) following a request made by the applicant under s 98 of the Export Market Development Grants Act 1997 (‘EMDG Act’). The applicant sought a reconsideration of a previous decision made on 8 February 2022 rejecting an application made by the applicant for an Export Market Development Grant (‘EMDG’) for the 2021/2022 grant year.[2]

   [2] The original decision made on 8 February 2022 is document T17 of the T documents.

3. The delegate of the respondent’s CEO, in making the reviewable decision, affirmed the previous decision of 8 February 2022.

4. It is useful to record the reasons contained in the reviewable decision made by the delegate of the respondent’s CEO. Those reasons were as follows:

   (a)Under Rule 13(5)(b) of the Export Market Development Grants Rules 2021 (‘EMDG Rules’), a previous applicant, Flextank International Ltd (‘FIL’), had reached the maximum number of financial years in respect of which grants were payable;

   (b)Austrade was satisfied that for the purposes of EMDG Rule 13(5), the number of financial years grants payable to a person (the grantee), included financial years in respect of which grants were paid to another person (including another person that has ceased to exist); and

   (c)For the purposes of interpreting EMDG Rule 13(5) the business Direct Barrels was in substance conducting was the same business that had been conducted by a former grant recipient, FIL, and was therefore not eligible for a grant.

5. The effect of the reviewable decision is that Direct Barrels is not eligible for an EMDG under the EMDG Act.

   THE REGULATORY FRAMEWORK OF THE EMDG ACT

6. In this case it is useful to consider the objects of the EMDG Act. They are to bring benefits to Australia by encouraging the creation, development and expansion of foreign markets for Australian products. Such an objective is to be achieved by providing targeted financial assistance, for promotional activities and development of marketing skills, to Australian small and medium enterprises and their representative organisations.[3]

   [3] Export Market Development Grants Act 1997 (Cth) s 3.

7. Division 3 of Part 2 of the EMDG Act establishes the conditions that an applicant must satisfy to be eligible for an EMDG grant. A person (defined in section 15), to be eligible for an EMDG grant, must satisfy the “Eligibility conditions” contained in section 16 of the EMDG Act. Those conditions to be satisfied by the person are as follows:

   (a)They must be ready to export eligible products; or

   (b)They must be both:

   (i)exporting eligible products; and

   (ii)seeking to expand the person’s export promotion activity (within existing, or to new, export markets) for eligible products; and

   (c)They must satisfy any other conditions prescribed by the rules.

8. Under section 106 of the EMDG Act the Minister is given a power to make rules prescribing matters required or permitted by the Act to be prescribed by the rules, or alternatively necessary or convenient to be prescribed for carrying out or giving effect to the Act.

9. Pursuant to the EMDG Act, as amended, the Minister has made the EMDG Rules concerning matters required or permitted by such Act which are applicable to the subject matter of this application. Specifically, with respect to this application it is apparent that Rule 13 of the EMDG Rules “Eligibility conditions for applicants and grantees other than representative bodies: 8 year cap on grants” (“Rule 13”) applies.

10. The provisions of Rule 13 are referred to in their entirety. They need not be reproduced in full for the purposes of these reasons. However, it is appropriate to refer to several parts of Rule 13. Rule 13 as its title suggests imposes an eight-year cap on EMDG grants. It prohibits a person, when entering into a grant agreement, from grants being payable in respect of more than eight financial years.[4] Additionally, it prohibits the payment of a grant or instalment to a person if it results in such person being paid grants in respect of more than eight financial years.[5]

    [4] Rule 13(2).

    [5] Rule 13(4).

11. Given that the delegate of the CEO of the respondent’s reasons applied Rule 13(5)(b) it is appropriate to reproduce that rule. It reads as follows:

    (5) For the purposes of subsections (2) and (4):

    (b) the number of financial years in respect of which grants are payable or paid to a person (the grantee) includes financial years in respect of which grants were paid to another person (including another person that has ceased to exist), if the CEO of Austrade is satisfied that the grantee is in substance conducting the business that the other person conducted, having regard to any of the following:

    (i) the nature and assets of the businesses conducted by the grantee and the other person;

    (ii) the individuals controlling or constituting the grantee and the other person;

    (iii) any other matters the CEO of Austrade considers relevant.

    THE ISSUE FOR DETERMINATION BY THE TRIBUNAL

12. The Tribunal considers that as decision-maker the issue for its determination is whether it is satisfied that the applicant is in substance conducting the business of FIL having regard to the three matters contained in Rule 13(5)(b)(i), (ii) and (iii). The Tribunal considers that this is a question of fact and degree as to the continuation of the previous business conducted by FIL.

    SOME RELEVANT FACTS

13. On 26 November 2021 Direct Barrels made an application to the respondent for an EMDG in the 2021/22 grant year (‘the 2022 application’).[6] A determination of the application was made by the respondent on 8 February 2022 as noted above. The application was unsuccessful. The grounds relied upon by the respondent in rejecting the application made by Direct Barrels were that Rule 13(5)(b) of the EMDG Rules applied in that Direct Barrels was in substance conducting the business that a previous applicant, FIL, had conducted. Therefore, as the previous applicant, namely FIL, had received grants in the years from 2009 to 2017 which reached the grants cap prescribed under Rule 13(2) of the EMDG Rules, Direct Barrels was ineligible for the further grant sought. The reviewable decision was made, as also noted above, following a request by Direct Barrels for a reconsideration of the 8 February 2022 determination.

    [6] The application is document T6 of the Joint Tribunal Book.

14. Direct Barrels was incorporated on 12 July 2006. Amongst others, William Henry Willis (‘Willis’) has been a director since 18 September 2019. Peter Charles Henry (‘Henry’) was a director from 12 July 2006 until 30 September 2019. He became a director of Direct Barrels again on 17 October 2019.

15. Question 18 of the 2022 application asked Direct Barrels the following question: “Are you carrying on a business, or have you bought a business or part of a business, or acquired significant assets from any other person/business that has or may have received an EMDG grant?” The response provided by Direct Barrels to this question was, “No”.

16. Question 19 of the 2022 application required provision of the names of company directors during the 2020-21 financial year. In response to this question, Willis, Henry and one Calven Chan were recorded as the directors of Direct Barrels during that financial year.

17. Question 20 of the 2022 application asked if any of the directors of Direct Barrels that were recorded as officeholders during 2020-21, had ever been involved with any other business that had previously applied for an EMDG grant. The response provided by Direct Barrels to this question was, “No”.

18. Question 24 of the 2022 application required the provision of a comprehensive description of the products that Direct Barrels intended to market in a foreign country. Its response was, “An oxygen permeable polymer cube designed for the maturation of wine.”

19. Willis had been a director of FIL from 8 November 2018. Henry had been a director of FIL from 18 June 2008.

20. FIL was placed into liquidation on 25 September 2019 by a creditors’ voluntary winding up. Simon Patrick Nelson (‘Nelson’) was appointed liquidator.[7]

    [7] A notice of appointment of a liquidator lodged with the Australian Securities & Investments Commission recording the appointment of Nelson as a liquidator of FIL is at page 121 of the T documents.

21. FIL made 8 successful applications to the respondent for EMDGs in the grant years 2008/09, 2009/10, 2011/12, 2012/13, 2013/14, 2014/15, 2015/16 and 2016/17.[8]

    [8] Particulars of each of the grants made by the respondent to FIL during these grant years are contained in the table sub joined to paragraph 5 of the respondent's Statement of Facts, Issues and Contentions. They need not be reproduced for the purposes of these reasons. The application made by FIL for EMDGs in each of the grant years 2008/09, 2009/10, 2011/12, 2012/13, 2013/14, 2014/15, 2015/16 and 2016/17 are hereinafter collectively referred to as the FIL EMDG applications.

22. In early FIL EMDG applications, FIL’s “core business” was usually described as “Rigid and Semi-Rigid Polymer Product Manufacturing”. In later applications the core business was described as, “Manufacturing/Polymer Product and Rubber Product”, “Manufacturing/Polymer Product Manufacturing/Rigid and Semi--Rigid Polymer Product Manufacturing.”

23. Likewise, in the FIL EMDG applications when asked to describe the products that it was seeking to export, they were described as, “Patented Polymer technology incorporated into vessels used for the maturation of wine.”

24. On 15 November 2019 FIL and Nelson, in his capacity as liquidator of FIL, in liquidation, entered into an Asset Sale Agreement (‘ASA’) with Direct Barrels as the “Buyer”, and Willis and Henry as “Guarantors”.

25. The ASA contained the following terms:

    (a)The total Purchase Price payable by the Buyer for the Assets was $250,000, plus GST;

    (b)The “Assets” means:

    (i)the Equipment;

    (ii)the Intellectual Property;

    (iii)the Records;

    (iv)the Shares; and

    (v)the Stock.

26. “Intellectual Property”, means the items set out in Schedule 2 to the ASA. Included in the Intellectual Property set out in Schedule 2 were a Trademark No 1343724 for the word “Flexcube” and a registered business name of “Flexcube”.

27. The ASA was completed on 29 November 2019.

    THE APPLICANT’S CONTENTIONS

28. Willis appeared on behalf of the applicant Direct Barrels. He gave his evidence and made his submissions to the Tribunal in a careful, logical and comprehensive manner. It is fair to say he was an impressive and candid witness.

29. The applicant relied on several grounds in support of its contention that the Tribunal, as decision-maker, could not be satisfied that it was in substance conducting the business that FIL conducted, having regard to the nature and assets of the business conducted by FIL, or the individuals controlling FIL at the relevant time. The applicant contended that there were no other matters that were relevant to the decision-maker’s task.

30. It was insisted by the applicant that when one closely and carefully examined several facts the conclusion would be reached that there was a significant difference in market approach, business operation, products and the company structure between the business conducted by Direct Barrels and that conducted by FIL.

31. Willis placed considerable emphasis in his submissions and his evidence on identifying the distinctions between the products designed and marketed by Direct Barrels when compared with those of FIL. Willis said that the intellectual property giving rise to Direct Barrels’ most recent patent application concerned an oxygen permeable polymer vessel that controls passive oxygen. Willis said that Direct Barrels’ vessel has several additional features from those products developed by FIL for which patents had been applied for, such patents and rights to them being acquired by Direct Barrels under the terms of the ASA. Those additional features arise from extensive research in the wine, spirit and olive industries which enable the flexible cubes engineered and designed by the applicant to be applied to those industries. The inventions patented by FIL, on the other hand, could only be used for the maturation of wine.

32. Indeed, in his witness statement, which was adopted on affirmation from the witness box, Willis identified 14 discrete steps that Direct Barrels undertook in designing its version of the Flexcube.[9]

    [9] Those steps are recorded in detail on page 3 of Willis’ witness statement and need not be reproduced for the purposes of these reasons.

33. Direct Barrels also identified in submissions the differences in the design of the vessels for which it has sought patent protection when compared to those of FIL which were subject of the earlier grants obtained by it. Specifically, amongst other things, it observed that there were modifications to them including the use of a pressure relief valve to stop ballooning. To this extent Direct Barrels also relied upon the patent documentation for the fluid container assemblies applied for separately by it and FIL.

34. The patent applied for by FIL was for, “A bulk fluid container assembly for maturing wines or other fluid beverages comprising a container of moulded polymeric material”, with an International Publication Date of 2 April 2015 with international application number PCT/AU2014/000940 and international publication number WO 2015/042647 A1.[10]

    [10] Details of the FIL patent are to be found at page 721 of the Joint Tribunal Book.

35. The patent applied for by Direct Barrels was for, “A bulk fluid container assembly formed of polymeric material”, with an International Publication Date of 16 June 2022 with international application number PCT/AU2021/051464 and international publication number WO 2022/120422 A1.[11]

    [11] Details of the Direct Barrels patent are to be found at page 461 of the Joint Tribunal Book.

36. It is the contention of Direct Barrels when one carefully examines the individual characteristics of the two cubes depicted in the several schematic diagrams (described in several parts of the “Brief Description of the Drawings” contained in the patent documentation, as an “axonometric view”) accompanying each registered patent, they are completely separate and distinguishable. It highlights the fact that there are several functions present in the Direct Barrels cube that are not found in the FIL cube. In summary, these differences are that the Direct Barrels cube is engineered to be pallet and forklift usable. This includes computations that enable stacking of a 4000 L capacity cube on a pallet. It also has a unique lid and seal assembly, and a self-draining sump. Additionally, there is a pressure relief valve that prevents pressure building up inside the cube which otherwise would cause the contents of the cube such as wine or spirits to be blown through the seals. Threaded inserts are moulded into the plastic cube to house taps. Finally, it points to the fact that there has been testing undertaken of the Direct Barrels cube commissioned by it from RMIT University to ensure that there is food grade compliance.

37. Some mention should be made about Direct Barrels’ contentions concerning staff. It was acknowledged that Henry had been a director of FIL for some time, as noted above, and Willis for a comparatively short time prior to FIL’s liquidation and the subsequent entry into the ASA. With respect to other staff, only two staff members previously employed by FIL were retained by Direct Barrels, one was a storeman and the other a bookkeeper. It was also conceded that two contractors, one in South Africa (employed by Flexcube South Africa (Pty) Ltd, the shareholding of which was acquired by Direct Barrels under the ASA) and the other in China (who was employed by a distributor in China), were also retained by Direct Barrels. The remaining staff employed by FIL at the time of its administration and subsequent liquidation lost their jobs. It was therefore contended on behalf of Direct Barrels that employment of two people and retainer of two agents previously engaged by FIL was a significant difference from simply acquiring a continuing business with all its staff as contemplated by the provisions of Rule 13(5).

    THE RESPONDENT’S CONTENTIONS

38. The respondent asserted, adopting the language of Rule 13(5)(b), that Direct Barrels was in substance conducting the business of FIL. It did so by identifying what it described as the obvious indicia that emerged from the evidence before the Tribunal. Its principal submission was that these indicia consisted of three discrete elements.

39. Firstly, there was a continuity of trade.

40. Secondly, there was a commitment to the improvement of the product. It sought to rely upon the evolution of the cube identified in the patent of a bulk fluid container assembly formed of polymeric material registered by the applicant on 16 June 2022 which was described in various parts of the evidence as the “Mark 3” version. By contrast, the version of the cube identified in the patent of a bulk fluid container assembly for maturing wines or other fluid beverages comprising a container of moulded polymeric material registered by FIL on 2 April 2015 was described in various parts of the evidence as the “Mark 2” version. The respondent contended that the Mark 3 version was in effect derived from the Mark 2 version with various improvements or efficiencies built into it. It was described by the respondent as a development effort to overcome the problems experienced with the Mark 2 version. A further limb of this contention was derived from documents and evidence before the Tribunal that included declarations to the Patents Office that the inventor of the products, including the Mark 3 version, was Henry. It was argued that Henry, as a director of both companies and inventor of the cubes for which patents had been applied for, was in effect doing so as part of a continuity of business operations.

41. Thirdly, the respondent contended that the business of Direct Barrels represented a continuity of the FIL operation. This was demonstrated, it asserted, because it had the same target market, clients, several staff members, directors in Henry and Willis and that having acquired the intellectual property of FIL under the ASA it was protecting the invention derived from that intellectual property in international markets.

1. Further in support of its contention that there was continuity of the FIL operation by Direct Barrels, the respondent relied very heavily on the contents of Direct Barrels’ “Market Plan” that was lodged with its EMDG application on 26 November 2021.[12] Several passages of the Market Plan were referred to in detail. There was a section of the document headed “Business History and Overview”. In that section, amongst other things, it stated that Direct Barrels had purchased the “former company’s” assets. It also stated that its business is focused on the sale of wine polymer oxygen-permeable maturation vessels and oak products used in making fine wine. This description, the respondent contended, is essentially the same business as that conducted previously by FIL.

   [12] The Market Plan of Direct Barrels is at page 5 of the Joint Tribunal Book.

2. There was also reference in the Business History and Overview section which stated that Direct Barrels had retained most of the FIL staff and international markets. It also revealed that in the first two months following acquisition of the FIL assets there was more than $500,000 in product sales. That product had been acquired by Direct Barrels from the liquidator of FIL under the ASA. Critically, the respondent also relied on a passage in that section which also stated that to get over past issues, modifications to the vessels had been made to stop ballooning. It then stated that, shortly it would have sold the old product range and would be able to sell the new product range in the future. This gave rise to an inference that they were similar products being sold in the same marketplace which therefore satisfies the test prescribed by Rule 13(5)(b) that Direct Barrels was in substance conducting the business previously undertaken by FIL. Another section of the Market Plan relied upon and emphasised by the respondent was to be found in the section headed “Strategic Vision”. In that section the core business of Direct Barrels was described as the profitable sale of polymer oxygen-permeable maturation vessels which have international patent protection. It is contended that this is precisely the same business that was conducted by FIL.

   CONSIDERATION

3. It is appropriate at the commencement of the consideration of this matter to be alive to the language used in Rule 13(5)(b). The keywords adopted in that Rule are “satisfied” and “in substance”. They are not terms of art. In particular, the term “in substance” is adopted in a variety of legal settings. Although it has been observed that it rarely appears in statutes. It has also been said that it is commonly used in connection with the definition and classification or “characterisation” of a particular fact or matter. It really is a question of looking to substance, and not form, to determine what the essential qualities or features of the business now undertaken by Direct Barrels are when compared with that previously conducted by FIL.[13]

   [13] See, eg, Marshall v Whittaker’s Building Supply Co (1963) 109 CLR 210 per Windeyer J.

4. The Tribunal has reached the conclusion that the business conducted by Direct Barrels can be characterised as in substance the business that was previously carried on by FIL. There are several reasons for this.

5. The Tribunal concludes that on the preponderance of the evidence the essential characteristics of the business previously conducted by FIL and that business now conducted by Direct Barrels are the same. In the Market Plan it is labelled “Direct Barrels Pty Ltd T/A Flexcube”. It has adopted the same business name “Flexcube” that it acquired under the ASA which had previously been used by FIL both as a trademark and a registered business name.

6. Another fact which is relevant to determining the essential characteristics of the business conducted by Direct Barrels when compared with that previously conducted by FIL concerns the description of the nature and characteristics of that business identified in several documents that were before the Tribunal. The authenticity of those documents was not challenged. As noted above, in the Market Plan it is stated that the business is focused on the sale of wine polymer oxygen-permeable maturation vessels and oak products used in the making of fine wine. As also observed above, the section of the Market Plan under the heading “Strategic Vision” contained an almost identical description. A similar description to that contained in the Direct Barrels Market Plan was used to describe FIL’s “core business” in the FIL EMDG applications. In the application made by Direct Barrels in the grant year 2022, it will once again be recalled that it provided a description of the products that it intended to market in a foreign country as an oxygen permeable polymer cube designed for the maturation of wine.

7. Another reason why the Tribunal is satisfied that Direct Barrels is in substance conducting the business that FIL conducted is, as contended for by the respondent, the fact that there has been continuity of trade and operation. This continuity of trade and operation following the completion of the ASA is quite apparent. In addition to the two continuing directors, namely Henry and Willis, there were two continuing staff members, the storeman and the bookkeeper. The business was conducted from the same premises (although, the applicant contended that the only reason it continued to occupy those premises was due to a reasonable rate of rental and the central location). The products marketed by Direct Barrels were sold to the same target overseas markets. In furtherance of its endeavours in the overseas target markets it retained the services of two contractors or distributors, in South Africa and China. The business and the business opportunity acquired by Direct Barrels under the ASA was for all intents and purposes largely a going concern.

8. Further, upon completion of the ASA, Direct Barrels achieved sales of approximately $500,000 by realising the stock of cubes that it had acquired under that agreement. This was, directly engaging in the same form of business activity, selling the same product, as had been conducted by FIL previously. It was indicative of a going concern.

9. There is the contention of Direct Barrels that the cubes that it is now marketing, which can perhaps be described for the purposes of convenience as the “Mark 3” version, is a separate and distinct product, therefore giving rise to a different business operation. The Tribunal cannot accept this contention.

10. There is, of course, the fact noted earlier that in the FIL EMDG applications and the 2022 application made by Direct Barrels, there is a very similar description of the goods or products that were intended to be sold in a foreign country.

11. Additionally, the Tribunal is persuaded by the contentions advanced by the respondent that the “Mark 3” version of the bulk fluid container assembly formed of polymeric material is overall an improvement on the “Mark 2” version. There appears to the Tribunal to be much force in the argument that the Mark 3 version was, to a significant extent, derived from the Mark 2 version with various improvements or efficiencies built into it. This conclusion is further fortified by the fact that when one examines the documents lodged with the Patents Office, particularly in the section which provides a description under the heading “Abstract”, the description of the invention is almost identical. Certainly, it is identical in its initial use of the words, “A bulk fluid container assembly”. Similarly, in the section of the patent documents under the heading “Claims” for each of the Mark 3 and Mark 2 versions of the invention, their descriptions are largely the same, namely that of a bulk fluid container assembly comprising a container of moulded polymeric material. The Tribunal as decision-maker is not stepping into the shoes of an examiner in the Patents Office. However, subject to this proviso, when one examines the drawings to both inventions the drawings showing an exploded view of the neck enclosure assembly bear a remarkable resemblance. They are similar products being sold to essentially the same target markets.

12. It seems that the similarity of the products being sold by several of the same personnel into the same market is not dissimilar to a situation that one might find in the realms of many different kinds of businesses. For instance, a business might sell exclusively sedan motor vehicles such as a Toyota, for family use. It is unquestionably carrying out the business of a licensed motorcar trader or, to use a colloquialism, that of a car dealer. Another licensed car dealer might sell only off-road vehicles or perhaps a different brand such as BMW. Perhaps another distinction might be where one car dealer sells only vehicles powered by petrol engines whereas another sells exclusively electric powered vehicles. They are clearly very different products in terms of their means of propulsion and engineering integers. However, both concerns would be in substance carrying on the same business as that of a motorcar trader, or car dealer. Even though the products are completely different, they are nonetheless motor vehicles. It seems that in this instance, Direct Barrels, by both selling the stock that it initially acquired under the terms of the ASA and, subsequently, by its development of the Mark 3 version of the “Flexcube”, was in substance conducting the same business as FIL had done previously. That business was the marketing of an oxygen permeable polymer cube designed for the maturation of wine, regardless of which ever version of the Flexcube was being sold.

13. The totality of the facts as have been adduced before the Tribunal in this case therefore lead to the conclusion that Direct Barrels is in substance conducting the business that FIL previously conducted prior to the parties entering into the ASA.

    CONCLUSION

14. By reason of the foregoing matters, the Tribunal concludes that Rule 13(5) applies. Because the statutory limit of eight grants under the EMDG Act prevents Direct Barrels from making any further successful claims, it is not eligible for a grant under that Act. Accordingly, the reviewable decision is affirmed.

I certify that the preceding 55 (fifty-five) paragraphs are a true copy of the reasons for the decision herein of R Cameron, Senior Member

.....................[SGD]............................

Associate

Dated: 8 June 2023

Date of hearing:	25 May 2023
Applicant:	Self-represented
Advocate for the Respondent:	Mr Lenny Leerdam
Solicitors for the Respondent:	Keypoint Law