Export Development Grants Board v Michell Carbonised Wool Exports Pty Ltd

[1985] HCA 42

HIGH COURT OF AUSTRALIA

Gibbs C.J., Mason, Wilson, Brennan, Deane JJ.

THE EXPORT DEVELOPMENT GRANTS BOARD v. MICHELL CARBONISED WOOL EXPORTS PTY. LIMITED &OTHERS

4 July 1985

Decisions

GIBBS C.J.: The facts of this case and the relevant provisions of the Export Expansion Grants Act 1978 (Cth), as amended, ("the Act") are set out in the judgments of the other members of the Court which I have had the advantage of reading, and I can express quite shortly my own reasons for agreeing with the conclusion that this appeal should be allowed.

2. The powers of the Board to make the adjustments to which s.16(1) of the Act refers are conferred "where the Board is of the opinion that an act or thing (including the making of an agreement, arrangement or payment, the forming of a corporation or partnership or the distribution of income or activities as between different persons or different years) has been done that, if the powers of the Board under this section were not exercised, would result in an increase in the total of the amounts paid as grants without there being a corresponding increase in the total of the amounts of the export earnings of persons in the grant years ... ".

3. The question is whether the provisions of that sub-section can be applied to the first grant year - the year commencing on 1 July 1977: see the definition in s.3 of the Act. The majority of the Full Court of the Federal Court held that it could not be so applied, because there must be some reference to earlier income earnings in order to determine whether there has been an increase and there would be no amount of export earnings in an earlier year against which it would be possible to test a claim that there has been "a corresponding increase" in the export earnings in the first grant year. This assumes that the question whether there has been an increase, and if so in what amount, can be determined only by comparing the income of one grant year with that of an earlier grant year. This assumption is quite unjustified. There is nothing in the Act to support it. A grant may be payable in respect of the first grant year: see ss.6, 11(2) and 13 of the Act. There is no reason why the amount of any increase in the export earnings should not be calculated by making a comparison between the earnings in the first grant year and those in the year immediately preceding it, although the latter was not a grant year. In the present case, the export trade of the respondent companies had been carried on by one of those companies (G.H. Michell &Sons (S.A.) Pty. Limited) in the year immediately before the first grant year, and no difficulty exists in determining whether there was an "increase in the total of the amounts of the export earnings of persons" in the first grant year. The amount of that increase is determined by comparing the export earnings of the companies in the group (who are the "persons" referred to in the sub-section) in the first grant year with the export earnings of G.H. Michell &Sons (S.A.) Pty. Limited in the preceding year.

4. Section 16(1) is clumsily drawn and in some respects obscure, but it nevertheless does not create the difficulty which the majority of the Court thought existed. There is, however, another difficulty upon which Mr Staff, for the respondent companies, relied. He submitted that the phrase "the total of the amounts of the export earnings of persons in the grant years" contemplates one adjustment at the end of the period of six grant years to which the Act applies, in the light of the effect of the "act or thing" on the total grants made in all the grant years. Such an adjustment would, of course, serve the sensible purpose of preventing an increase in the total amount of the grants where there has been a distribution of income or of activities between different years. This submission does not derive support from the reference in s.16(1) to "the total of the amounts", and to "persons", since the use of the plural is there intended to accommodate the situation in which there has been a distribution of income or activities as between different persons. However, the reference to "grant years" takes into account the possibility that there has been a distribution between different years, and does appear to support the respondents' argument. The whole phrase is an ambiguous one, but the ambiguity may be resolved by having regard to the purpose of the enactment and its other provisions. The purpose of the Act is obviously to provide an incentive to increase exports by making the amount of the grant depend on the extent of the increase rather than on some re-arrangement of the way in which, or persons by whom, the trade was conducted. It is impossible to suggest any reason why the Parliament should have intended that the adjustment necessary to prevent an unwarranted increase in the amount payable by way of grants where there has been an "act or thing" of the kind mentioned in the sub-section could not be made in respect of the first grant year. Moreover, it is clear that grants are determined in respect of each grant year and payable thereafter, and not at the end of the period of six successive years: see ss.5, 6, 11, 12(3) and 13 of the Act. Section 16(1) envisages that the adjustment which it permits will be made while the Board is considering a claim made in respect of a particular grant year, for s.16(2) goes on to permit subsequent adjustments. In order to avoid giving the provisions of s.16(1) an effect which would be out of harmony with the other provisions of the Act, the words "in the grant years" should be understood as referring to each of the grant years (including the first).

5. The word "corresponding" also presents some difficulty, although the determination of its meaning is not critical in the present case. It does not naturally mean "consequential" or "responsive", the synonyms suggested by the respondents. In s.16(1) the word cannot mean either "equivalent to" or "proportionate", for the increase in export earnings never equals, and is not always directly proportionate to, the increase in the amount of the grants: see s.13. The ordinary meanings of "corresponding" include "congruous", "harmonious" and "similar to", and it appears to be used with some such meaning in s.16(1); perhaps "fitting" or "suitable" indicates what is intended. If the Board is of the opinion that the result of the act or thing would be that the total amount that would be payable as grants would be increased beyond the amount that would be appropriate, having regard to the scheme of the Act and to the actual increase in the export earnings, the Board is empowered to take the action which the sub-section describes. Whether it does so, of course, lies within the discretion of the Board. How far the Board goes is a matter for its determination, but it may not deprive the claimant or claimants of the grant or grants to which the Act entitles them - i.e., grants calculated in accordance with ss.6 and 13 by reference to the actual, rather than a contrived, export earnings increment. If there has been an increase in export earnings the claimant will benefit in the manner intended, and the Board may not go further than to prevent or limit the result that would otherwise be brought about by the "act or thing" referred to in the sub-section.

6. In the circumstances of the present case the Board was entitled to form the opinion referred to in the sub-section and the action it took was no more than was necessary to ensure that the total amounts allowed by way of grants corresponded to the total of the increase in the export earnings of the respondent companies.

7. For these reasons, in my opinion, the Administrative Appeals Tribunal correctly affirmed the decisions of the Board, and the appeals to the Full Court of the Federal Court should have been dismissed. I would accordingly allow these appeals, set aside the decision of the Full Court of the Federal Court and affirm the decision of the Administrative Appeals Tribunal.

MASON J.: The issue here is whether the Export Development Grants Board ("the Board") was authorized by s.16 of the Export Expansion Grants Act 1978 (Cth), as amended, in circumstances to be stated shortly to adjust downwards the grants to which the respondent companies were otherwise entitled under the Act.

2. The Act provides for the making of grants to exporters in the year beginning on 1 July 1977 and in the five succeeding years with a view to furnishing incentives for the expansion of exports. The legislative scheme, so far as it is relevant to the issue in this appeal, is that a grant in an amount equal to the exporter's "incentive grant entitlement" is made by the Board in relation to a particular grant year, being one of the six already mentioned, on a claim made by the exporter (ss.11, 12). The amount of the incentive grant entitlement of a claimant is calculated, in accordance with a sliding scale set out in s.13, by reference to the claimant's "export earnings increment" for the grant year the subject of the claim.

3. The export earnings increment of a person in relation to a grant year is the amount by which "the export earnings" of that person in that year exceeds the relevant base figure ascertainable from formulae contained in pars.(a), (b), (c) and (d) of s.6. These paragraphs prescribe formulae for ascertaining the base figure of an exporter in four different situations. Paragraph (a) deals with the exporter who has had export earnings in each of the three immediately preceding years; par.(b) deals with the exporter who has had such earnings in two of those years; par.(c) deals with the exporter who has had such earnings in one of the three years; and finally par.(d) provides for the exporter who has had no export earnings in the three year period. We are not concerned with the details of the formulae, but it should be noted that the reference in s.6 to "preceding years" does not confine them to years which are grant years. The reference includes and extends beyond the grant years. So, the export earnings increment of an exporter who claims a grant in relation to the second grant year, the exporter having export earnings in each of the three previous years - one being the first grant year, the others being non-grant years - will be assessed by reference to his earnings in those three years.

4. Because the ascertainment of the base figure varies in the four situations already mentioned and because under the sliding scale according to which the incentive grant entitlement is calculated under s.13 the amount of the grant is a diminishing percentage of the export earnings increment as that increment increases in amount, an exporter may, by restructuring its export operations, increase the overall incentive grant entitlement of the group of which it is a member. Take, for example, a company whose increasing export earnings will give it a very substantial export earnings increment in a particular grant year. By reorganizing its export activities so that they are divided between a number of subsidiary or associated companies, it may increase the overall incentive grant entitlements of all the companies considered as a group because some or all will qualify for grants at a level on the sliding scale where the amounts of the grant represent a higher percentage of the export earnings increment.

5. It is to situations of this kind at least that s.16(1) is directed. It provides:

"Where the Board is of the opinion that an act or thing (including the making of an agreement, arrangement or payment, the forming of a corporation or partnership or the distribution of income or activities as between different persons or different years) has been done that, if the powers of the Board under this section were not exercised, would result in an increase in the total of the amounts paid as grants without there being a corresponding increase in the total of the amounts of the export earnings of persons in the grant years, the Board, to the extent that it thinks it necessary to do so to prevent or limit that result, may, for the purposes of this Act, disregard or adjust all or any of the following amounts, that is to say, the amount of the export earnings, the amount of the export earnings increment, or the amount of the incentive grant entitlement, of a claimant for a year, being an amount that, in the opinion of the Board, has been affected by, or is an amount of anything resulting from, that act or thing."

6. Section 9 is an important provision which has a part to play when the Board gives consideration to exercising the power conferred by s.16(1). Section 9 provides:

"Where the Board is satisfied that-

(a) at any time, including a time before 1 July 1977, a business or undertaking is or was carried on by a person or persons; and

(b) at a later time, by reason of the formation or termination of a partnership or corporation, a change in the membership of a partnership, the acquisition of shares in the capital of a corporation or any other business arrangement, the same business or undertaking or a business or undertaking that, in the opinion of the Board, is or was substantially the same, is or was carried on by a different person or different persons,

the Board may treat the last-mentioned person or persons, and not the first-mentioned person or persons, as having carried on the first-mentioned business or undertaking at the earlier time and as having had any export earnings resulting from the carrying on of that business or undertaking at that time."

7. Until March 1978 a considerable export business was carried on by G.H. Michell &Sons (S.A.) Pty. Limited, ("the S.A. Company"), a member of the Michell group of companies of which G.H. Michell &Sons Pty. Limited was the holding company. In that month, following an investigation which showed that there had been a deterioration in the group's export business, it was decided to reorganize that business so that it would be carried on by the S.A. Company and seven new companies, each of which was to undertake business of a specialized character. The capital of each of the new companies was held as to 50 per cent by the holding company and as to 50 per cent by Merfund Nominees Pty. Limited, the trustee of the group superannuation fund.

8. The S.A. Company and the seven new companies claimed grants in relation to the first grant year, the year in which the seven new companies commenced to carry on export business. Not having such a business in any preceding year, their export earnings increments would have been calculated by reference to s.6(d) and that of the S.A. Company by reference to s.6(a), but for the application of s.16. According to the formulae contained in s.13 their earnings increment generated aggregate incentive grant entitlements of $1,010,644 compared with $894,216, which would have been the amount of the S.A. Company's incentive grant entitlement for that year had it continued to conduct the entire export business of the group.

9. The Board, applying s.16(1), adjusted the incentive grant entitlement of the S.A. Company and the seven new companies so that they amounted in aggregate to $894,216. The Board's decision was upheld by the Administrative Appeals Tribunal. But an appeal to the Full Court of the Federal Court was allowed by majority (Toohey and Morling JJ., with McGregor J. dissenting).

10. It is clear enough that the reorganization of the S.A. Company's export business in March 1978 was "an act or thing" within the meaning of s.16(1). This was accepted by the Federal Court. However, the majority considered that the subsection did not apply, observing "There is no amount of export earnings against which the claim of a 'corresponding increase' may be measured."

11. The principal reason offered to sustain this conclusion was the presence of the words "in the grant years" in the reference made by the subsection to "the total of the amounts of the export earnings of persons in the grant years". This reason has a superficial attraction because the words just quoted at first glance suggest that the subsection looks to a lack of correspondence between: (a) an increase in the total amounts which would have been paid as grants; and (b) an increase in the total of the amounts of the export earnings of persons in the grant years. However, the attraction of this view fades away when the provisions of s.16(1) are construed, as they must be, within the setting of the legislative scheme of which they form part.

12. As we have seen, central elements of the scheme are: (1) a prima facie calculation of grants for each grant year by reference to the incentive grant entitlement referable to the export earnings increment for that grant year; (2) the ascertainment of the export earnings increment for that grant year by reference to the amount by which the export earnings in that year exceed an amount identified by applying the relevant formula prescribed in s.6(a)-(d); and (3) the application of the relevant formula which will, in appropriate cases, relate back to export earnings in non-grant years. Consequently, when s.16(1) refers to an increase in export earnings "in the grant years", it refers to an increase in those earnings over the relevant base figures ascertained in accordance with s.6(a)-(d).

13. So understood, s.16(1) confers on the Board a necessary power to adjust downwards the prima facie entitlement of exporters to export expansion grants in each of the grant years when the export activities of one or more of them have been reorganized and that prima facie entitlement, compared with what it would have been in the absence of the reorganization, is artificially inflated by the reorganization. By way of contrast, the result of the construction favoured by the Federal Court is that the power is incapable of being exercised in the first grant year - a result which could not have been intended by the legislature.

14. The Federal Court seems to have been influenced to some extent by the circumstance that s.16 is to be found, not in Pt II - Grants, but in Pt IV - Miscellaneous. This, it was suggested, indicated that s.16 was not intended to play a part in the year by year determination of grants. This suggestion pays scant regard to the terms of s.16 which make it plain that the exercise of the power will affect the year by year determination of grants. First, the power is expressed in sub-s.(1) to be a power to disregard or adjust the amount of the export earnings, the amount of the export earnings increment or the amount of the incentive grant entitlement of the claimant. Secondly, sub-s.(2), by providing that the power extends to adjusting the amount of the incentive grant entitlement of a person after payment of a grant, proceeds on the footing that in the normal course of events adjustment will take place before payment of a grant.

15. In argument the meaning of the word "corresponding" was much debated. Although its meaning is not determinative of the issue in this appeal I should indicate that I agree with McGregor J. that in the context of s.16(1) the word means "matching".

16. For these reasons I agree with the conclusion reached by McGregor J. in his dissenting judgment in the Full Court and I would allow the appeal.

WILSON, BRENNAN and DEANE JJ.: Until March 1978 G.H.Michell &Sons (S.A.) Pty.Limited had carried on the export business of a group of companies of which G.H. Michell &Sons Pty.Limited was the holding company. In March 1978 the export business of the group was re-organized and seven new companies were incorporated each to undertake business of a specialized character and all of which undertook export business. New agents were appointed, new offices established and responsibilities were rearranged. The shares in the specialist companies were held as to 50% by the holding company and as to the other 50% by the trustees of the superannuation fund maintained for the benefit of employees of the Michell group. The export earnings of the group as a whole increased.

2. The new companies applied for grants under the Export Expansion Grants Act 1978 (Cth) ("the Act") and sought to maintain an entitlement on the footing that in their first year of exporting - the year 1977/78 - their respective export earnings increments were to be determined under s.6(d) of the Act. Section 6 provides:

" Subject to this Act, a reference in this Act to the export earnings increment of a person, in relation to a grant year, shall be read as a reference to the amount by which the export earnings of that person in that year exceeds an amount equal to -

(a) where the person had export earnings in each of the 3 immediately preceding years - one-third of the sum of his export earnings in those 3 years;

(b) where the person had export earnings in only 2 of the 3 immediately preceding years - one-half of the sum of his export earnings in those 2 years;

(c) where the person had export earnings in only one of the 3 immediately preceding years - one-half of the sum of -

(i) his export earnings in that one year; and

(ii) 67 per centum of his export earnings in the relevant grant year; or

(d) where the person did not have any export earnings during the 3 immediately preceding years - 67 per centum of his export earnings in the relevant grant year."

The term "grant year" is defined by s.3 to mean "the year commencing on 1 July 1977 or any of the 4 next succeeding years". By an amending Act in 1981 (Act No.74 of 1981) "5" was substituted for "4" and the scheme thus extended for a further year. We are concerned with the first grant year 1977/78 ("the relevant year").

3. Section 6 provides the respective formulae applicable to the ascertainment of a person's "export earnings increment". One factor in the calculations under pars.(a),(b) and (c) of s.6 is the actual export earnings of the person in the 1, 2 or 3 years immediately preceding the grant year in relation to which the export earnings increment is calculated.

4. The division of the export earnings among the several exporting companies of the group had the result of increasing the aggregate of the incentive grant entitlements of those companies over the amount to which G.H. Michell (S.A.) Pty.Limited would have been entitled had it continued to carry on the whole of the exporting business of the group. That result follows from the differential rates of benefit provided by s.13 which, in the form in which it stood at that time, read as follows:

" Subject to this Act, the incentive grant entitlement of a claimant in relation to a grant year is an amount equal to -

(a) where his export earnings increment for that year does not exceed $500,000 - 15 per centum of that increment;

(b) where his export earnings increment for the year exceeds $500,000 but does not exceed $5,000,000 - the sum of $75,000 and an amount equal to 10 per centum of the difference between that increment and $500,000;

(c) where his export earnings increment for that year exceeds $5,000,000 but does not exceed $10,000,000 - the sum of $525,000 and an amount equal to 5 per centum of the difference between that increment and $5,000,000; or

(d) where his export earnings increment for that year exceeds $10,000,000 - the sum of $775,000 and an amount equal to 2.5 per centum of the difference between that increment and $10,000,000."

5. Had G.H.Michell (S.A.) Pty.Limited been the sole exporter in the relevant year its export earnings for the year would have amounted to $35,861,742. One-third of the sum of that company's export earnings in the three years immediately previous to the 1977/78 grant year, that is in the three years 1974/75 to 1976/77 inclusive, was equal to $21,093,094. The increased export earnings in the relevant year over that base figure would have entitled the company to an export incentive grant of $894,216. By applying s.13 to the individual exporting companies in the group in respect of their export earnings in the year 1977/78 a total export grant entitlement of $1,010,644 would have been attracted. In those circumstances the Board applied the provisions of s.16(1) of the Act which reads as follows:

" Where the Board is of the opinion that an act or thing (including the making of an agreement, arrangement or payment, the forming of a corporation or partnership or the distribution of income or activities as between different persons or different years) has been done that, if the powers of the Board under this section were not exercised, would result in an increase in the total of the amounts paid as grants without there being a corresponding increase in the total of the amounts of the export earnings of persons in the grant years, the Board, to the extent that it thinks it necessary to do so to prevent or limit that result, may, for the purposes of this Act, disregard or adjust all or any of the following amounts, that is to say, the amount of the export earnings, the amount of the export earnings increment, or the amount of the incentive grant entitlement, of a claimant for a year, being an amount that, in the opinion of the Board, has been affected by, or is an amount of anything resulting from, that act or thing."

6. The Board decided that the export companies of the group should be paid amounts which aggregated $894,216. Applications to the Administrative Appeals Tribunal to review those decisions failed. The Tribunal (Davies J., Sir Ernest Coates and Mr B.E. Fleming) upheld the Board's decisions. Appeals to the Federal Court under s.45 of the Administrative Appeals Tribunal Act 1975 (Cth) succeeded by a majority (Toohey and Morling JJ., McGregor J. dissenting). These appeals are brought from the judgment of the Full Federal Court.

7. The Act is an Act relating to grants for the purpose of providing incentives for the expansion of exports. The sections to which we have referred establish a scheme whereby a trader who achieves an increase in export earnings over a previous period is credited with an export earnings increment which entitles him to a grant as determined in accordance with s.13. Section 16 confers a discretion on the Board, in the circumstances therein described, to adjust the grants in order to achieve, inter alia, the result that a mere change in the corporate structure of an export enterprise will not produce an entitlement to a grant in excess of that which corresponds to the actual increase in exports which is achieved.

8. The Tribunal was satisfied that notwithstanding the incorporation of the new companies the export business formerly carried on by G.H. Michell &Sons (S.A.) Pty. Limited continued in the relevant year. It expressed its conclusion in this regard as follows:

" The Michell group of companies continue to trade as an identifiable group and we think that the intent of s.16(1) is that the expansion grants claims of the group should not depend upon the circumstance whether the group chose to incorporate a further seven companies or chose to trade through separate divisions of the one company. ... This is not a case where a new business was developed or acquired. There was simply a change in the structure of the enterprise which carried on a very long established business. ... The Michell management simply continued the Michell business interests through a different structure."

We see no reason to doubt that provided the other requirements of s.16(1) are satisfied the reorganization of the Michell group by the incorporation of the new companies was "an act or thing" within the meaning of those words in the subsection.

9. The majority in the Federal Court founded their judgment upon the interpretation of the phrase "corresponding increase" in s.16. Their Honours said that

" whatever view is taken of 'corresponding', there must be some reference to earlier export earnings in order to determine whether or not there has been an increase."

They held that

" there can be no application of sub-s.16(1) in the first grant year because an element essential to the operation of the sub-section is lacking. There is no amount of export earnings against which the claim of a 'corresponding increase' may be measured. For this reason the appeals must succeed; the Board should not have applied sub-s.16(1) in respect of the grant year commencing on 1 July 1977 and the Tribunal erred in affirming the decision of the Board to apply the provision in that year."

10. With all respect, we think the view expressed by their Honours is not supported by the language of the section. The "total of the amounts of the export earnings of persons" was, in the context of the present case, the total of the export earnings of all the companies in the Michell group. As the Michell group was a continuing commercial entity albeit composed of differing companies from time to time, the Board, and the Tribunal in reviewing the Board's decision, were entitled to identify the Michell group as "the persons" for the purposes of s.16. The "increase in the total" of the amounts of the export earnings of the group "in the grant years" should be construed as referring to the increment in the aggregate of the export earnings of the group ascertained in accordance with s.6, in relation to whichever of the grant years is in question. In accordance with s.6(a), the increase in the total of the amounts of the export earnings of the group in the relevant year is the excess of the group's export earnings in 1977/78 over one-third of the group's export earnings in the 3 years immediately preceding. The amount that would have been paid as grants if the powers of the Board under s.16 were not exercised would have been $1,010,644 - an amount which does not correspond with the amount that would have been payable under s.13 if the increase in the total of the amounts of the export earnings of the group in the year 1977/78 had not been divided among the respective exporting companies. Such an increase in the amount paid over $894,216 would be solely the result of the formation of the new companies and the distribution of the export business and of the income of the export business among them. The "increase in the total amounts paid as grants", amounting to $116,428, would not be based upon any increase in the total of the amounts of the export earnings of the group in the 1977/78 or any other grant year. The word "corresponding" has given rise to some difficulty, but in our view it is used to describe an increase in export earnings which corresponds with the amount which, in accordance with s.13, would attract an increase in the total amounts paid as grants. If there would be no such correspondence - as there would not be in the present case - the Board's power is enlivened and it may be exercised to ensure that the act or thing that has been done results in no increase in the total amounts paid as grants.

11. That is what the Board did and what it was empowered to do. The decisions of the Administrative Appeals Tribunal should have been affirmed. The appeals must be allowed, the judgment and order of the Federal Court set aside and in lieu thereof it should be ordered that the appeals to that Court from the Administrative Appeals Tribunal be dismissed with costs. The Board is entitled to its costs of these appeals.

Orders

Appeals allowed with costs.

Set aside the judgment and order of the Full Court of the Federal Court and in lieu thereof order that the appeals to that Court be dismissed with costs.

Affirm the decisions of the Administrative Appeals Tribunal.