F & F ASIA PTY LTD AND AUSTRALIAN TRADE COMMISSION

[1998] AATA 1

Administrative
Appeals
Tribunal

DECISION AND REASONS FOR DECISION

ADMINISTRATIVE APPEALS TRIBUNAL  )
  )              No       W96/366

GENERAL ADMINISTRATIVE DIVISION     )

ReF & F ASIA PTY LTD

Applicant

AndAUSTRALIAN TRADE COMMISSION

Respondent

Decision No 12528

DECISION

TribunalDeputy President T E Barnett

Date5 January 1998

PlacePerth

Decision         

In accordance with s43 of the Administrative Appeals Tribunal Act 1975, the Tribunal affirms the decision of the Respondent dated 4 October 1995.

..................(signed T E Barnett).....................
  Deputy President

CATCHWORDS

EXPORT MARKET DEVELOPMENT GRANT - construction company in Australia establishing Malaysian subsidiary (the Applicant) to provide promotional work and other management personnel to Malaysian company - Malaysian company also owned by owners of Australian company - agreement with Malaysian Company to supply management assistance/personnel and promote the business of the Malaysian Company - initial contract between Australian company and Malaysian company - further agreement in same terms entered into as replacement agreement between Applicant and Malaysian company - whether Applicant or Australian company incurred expenditure - whether expenditure relates to carrying out market research or soliciting business (etc) - whether expenditure paid or payable to an associated person or entity - whether expenditure related to eligible know-how - whether disposal of eligible know-how for reward - whether primary and principal purpose was to increase return on disposal or increase return on investment in subsidiary company or perform obligations under management and marketing contract - whether expenditure reimbursed within s11ZE.

Words and Phrases: “Agent”

“Paid or Payable to a Person”

“Reimburse”

Export Market Development Grant Act  ss11C(1), 11C(2),  11C(3), 11Z(9), 11ZE

Re Photo Corporation of Australia Pty Ltd and Australian Trade Commission (1997) 45 ALD 458

Re Basketball Management Services and Australian Trade Commission (1995) 39 ALD 452

REASONS FOR DECISION

5 January 1998     Deputy President T E Barnett

History of this application

4.      This is an application for review of a decision of the respondent dated 4 October 1995, which affirmed the determination dated 13 June 1995, that the applicant, F&F Asia, was not entitled to certain grants under the Export Market Development Grants Act 1974 (“the Act”).

5.      The applicant was represented by Mr F Carles of Carles Solicitors and the respondent was represented by Mr P Macliver of the Australian Government Solicitor. 

6.      F&F Asia applied for an Export Market Development Grant for the following expenses in the year ending 30 June 1994:

ItemAmount

Fares            $18771.00

Overseas Visits Allowance   $34600.00

Literature/Advertising   $56818.00

Communications   $7555.00

Agents/Consultants - Australia   $880.00

Agents/Consultants - Overseas   $103,362.00

Other            $643.00

$222,629.00

on the basis that the expenditure was eligible expenditure incurred in the promotion of eligible services or know-how for export.

Austrade’s original determination

7.      Austrade determined that none of the expenditure claimed was eligible because:

(a)the promotional activities which occurred and expenses which were claimed were most directly related to UBP and its products, not the Applicant.

(b)Although the management and/or royalty fee referred to in the agreement and payable to the Applicant could have been deemed an eligible service under Regulation 6(6) of the Act, any expenditure incurred would have to have been in the promotion of management services and not to the promotion of UBP products. It appeared clear that the Applicant did not have to promote their services to UBP and that their appointment to provide a service was a foregone conclusion.

(c)In any event the contract with F&F Constructions and that with F&F Asia also contained royalty clauses which made continuing promotion a condition and excluded it from being a claimable expense.

8.      The Previous Tribunal also decided that none of the expenditure was claimable, for different reasons which are summarised below.

9.      Austrade appealed the Previous Tribunal’s decision to the Federal Court.  In a decision dated 29 August 1996, Justice Carr set aside the decision of the Previous Tribunal and remitted the whole of the matter to the Tribunal “to be decided again, either with or without the hearing of further evidence as the Tribunal may determine”.

Background: Previous tribunal’s findings of facts

10.     The facts which were found by the previous Tribunal and accepted by the Federal Court can be summarised as follows:

(a)F&F Constructions Pty Ltd (“F&F Constructions”), in its capacity as Trustee for the F&F Unit Trust, carried on business in Australia and overseas  principally  in  the construction industry.  The  units  in  the Trust

Previous tribunal’s findings of facts cont.

were equally divided between the Ferrara family, headed by Mr George Ferrara and the Fiaschi family, headed by Mr Antonio Fiaschi. 

(b)Mr Darryl Ferrara (a nephew of Mr George Ferrara) who gave evidence had no direct or indirect beneficial interest in the F&F Unit Trust nor share holding or directorship in F&F Constructions.  He was not employed by F&F Constructions.

(c)F&F Constructions had business dealings in Malaysia.  Its directors saw an opportunity to begin a new business in Malaysia, in the manufacture and marketing of steel door and window frames.  At the time, all frames manufactured in Malaysia were made from timber. The directors perceived competitive and technical advantages in steel-framed doors over wooden-framed ones.

(d)F&F Constructions arranged with an unrelated company, Ashridge Holdings Pty Ltd (“Ashridge”) to carry out investigations into obtaining a suitable machine to be installed in Malaysia with which to manufacture steel door and window frames.  Ashridge’s employee, Mr Gino Vasile, conducted this task and made recommendations to F&F Constructions.

(e)In the meantime F&F Constructions found a local Malaysian partner and entered into an agreement to have a machine, which had been manufactured in Australia by Colrol Pty Ltd (“the Colrol machine”), installed in a factory warehouse owned by a Malaysian resident.  F&F Constructions intended to form a business alliance with the Malaysian enterprise, but it never eventuated.

(f)Instead, in about November 1992, the directors of F&F Constructions incorporated a Malaysian resident company as Universal Building Products  Sdn.  Bhd.  (“UBP”).   UBP  became  the Trustee of another unit

Previous tribunal’s findings of facts cont.

trust in which the units were held by the same family interests as held units in F&F Constructions.

(g)Those concerned with this enterprise were advised that it would facilitate the repatriation of funds from UBP to Australia if that were done by means of a management fee payable to an Australian company.  Accordingly, Messrs G Ferrara and A Fiaschi each acquired an equal number of shares in a shelf company incorporated in Western Australia, changed its name to F&F Asia Pty Ltd (the applicant) and appointed it as trustee of a unit trust called “the Asia Unit Trust.”  The units in the Asia Unit Trust were, initially, held beneficially by the same family members as referred to above. 

(h)Ownership of the Colrol machine was transferred to F&F Asia but then, soon after, (the date is not apparent from the evidence) it was acquired by UBP (funded by a loan from F&F Constructions) and installed in the Malaysian factory warehouse.

(i)It was decided that F&F Asia would provide management services and technical know-how to UBP which would pay F&F Asia a fee on this service.

At this stage F&F Constructions had a significant investment in UBP, and a continuing commitment to ensure its success. F&F Constructions hoped to achieve this success through the actions of its subsidiary, the applicant.

(j)On 31 August 1993 a document was executed in the form of an agreement (“the UBP Agreement”) between F&F Constructions and UBP to carry out certain activities (to provide management, technical advice and specified services) through Mr D Ferrara and a full-time manager Mr G Vasile (via Ashridge) 

Previous tribunal’s findings of facts cont.

(k)In about mid 1993, Mr Darryl Ferrara was employed as managing director of F&F Asia to oversee its affairs, being the management of UBP in Malaysia.  Mr Ferrara was a nephew of Mr George Ferrara, but had no beneficial interest in the F&F Unit Trust.  Nor did he have any share holding or directorship in its trustee company, F&F Constructions, although he had been appointed general manager of F&F Constructions in August 1992. 

(l)Mr D Ferrara, in addition to being managing director of F&F Asia, was also managing director of UBP.  Mr Ferrara’s evidence was that he made an error in drawing up the UBP agreement by including F & F Constructions as a party.  When the error was discovered by auditors in Malaysia, a new agreement was executed between F&F Asia and UBP.

(m)During the claim year, 1993/1994, Mr D Ferrara made frequent trips to Malaysia, with all the expenses being met by the applicant, to carry out the obligations under the agreement.  Mr D Ferrara kept a diary of his activities during these trips.

11.     The UBP agreement is set out in full below:

MANAGEMENT & TECHNICAL SERVICES

CONTRACT

THIS AGREEMENT dated the 31st day of August 1993 is between F & F CONSTRUCTIONS PTY LTD and UNIVERSAL BUILDING PRODUCTS SDN BHD.

WHEREAS F & F CONSTRUCTIONS PTY LTD (hereinafter called “the Manager”) is an Australian constructing and manufacturing company and UNIVERSAL BUILDING PRODUCTS SDN BHD (hereinafter called ‘the Company’) is a Malaysian company set up to manufacture metal door frames and other building products.

Previous tribunal’s findings of facts cont.

PURPOSE OF AGREEMENT

This Agreement witnesses the fact that ‘the Manager’ is to provide management and technical skills to enable ‘the Company’ to carry out the manufacture of metal door frames and other building products.

‘THE MANAGER’S’ TERMS AND CONDITIONS

(a)‘The Manager’ is to provide Management and Technical advice by way of the provision of a full time General Manager and the part time attendance of its own General Manager MR DARRYL FERRARA in Malaysia.

The provision of a full time General Manager may be made directly from ‘the Manager’s’ company workforce or by way of its agents.  The initial General Manager will be MR GINO VASILE employed by its Agent, ASHRIDGE HOLDINGS PTY LTD.

(b)It may also from time to time provide other personnel on a temporary basis to assist in the manufacture and sale of any products manufactured by the Company on terms and conditions agreed by both parties.

(c)‘The manager’ is to be responsible for all costs including salary and air fares associated with the provision of the full time General Manager except for those specific costs detailed in clause (c) of ‘the Company’s’ terms and conditions as set out below.  ‘The manager’ is also to be responsible for any costs associated with the part time provision of its own General Manager (Mr Darryl Ferrara) and other personnel and consultants including air fares and accommodation whilst in Kuala Lumpur and for those reasonable costs incurred in promoting the business of “the company’.  Such costs, for example, client entertainment and air fares and accommodation within Malaysia and

South East Asia, to be submitted in writing by the General manger to “the Company’s’ Managing Director for approval and by the Managing Director to ‘the Company’s’ Board for approval.

(d)‘The Manager’ is at all times to actively promote and enhance the operations of ‘the Company’ by the application of its managerial and technical assistance.

Previous tribunal’s findings of facts cont.

THE COMPANY’S TERMS AND CONDITIONS

(a)‘The Company’ is to all (sic) times provide the necessary information to, and to co-operate fully with ‘the Manager’ to enable the best possible application of ‘the Manager’s’ managerial and technical skills.

(b)‘The Company’ is to re-imburse to ‘the Manager’ the costs including salaries, fees and airfares from Australia incurred by ‘the Manager’ for the provision of senior management personnel by way of a Management Fee or Royalty of RM$25,400 per month till 31 December 1993 and thereafter RM$24,000 per month or RM$3.00 per frame whichever is the greater.

(c)‘The Company’ is also to be responsible for the payment of RM$5,000 per month salary to the full time General Manager in accordance with his or her Work Permit and for the costs associated with the provision of accommodation in Malaysia and the provision of a fully maintained motor vehicle.

(d)‘The Company’ is also responsible for any other costs reasonably incurred by ‘the Manager’ in promoting the business of ‘the Company’ provided they are approved in writing in  the manner prescribed in clause (c) above of ‘the Manager’s’ Terms and Conditions. (Signed by G Ferrara as Managing Director for F & F Constructions Pty Ltd and by Mr D Ferrara as Managing Director of Universal Building Products Sdn Bhd, and dated 31 August 1993).”

12.     Mr D Ferrara also gave evidence at the Previous Tribunal that in addition to UBP’s obligation to pay Mr Vasile RM$5,000 per month salary, the applicant had contracted with Ashridge to pay a monthly amount in recognition of Ashridge’s services in this regard.  These payments, claimed as eligible expenditure, totalled $53,063 in the claim year (T8, p.56).

13.     The claim submitted by the applicant included:

(a)telephone and courier expenses relating to communications with and in Malaysia, (T8, pp. 53-54);

Previous tribunal’s findings of facts cont.

(b)the cost of sending Mr D Callaghan, an Australian bricklayer, to Malaysia to demonstrate the door and window frame installation technique to potential customers of UBP (T8, p.55);

(c)the cost of sending Mr B Finlay to demonstrate the fire door product, (T14, pp. 85, 87 & 89);

(d)consultancy fees paid to Mr Bill Crafter’s company, Shengli Investments Limited, in Hong Kong (T8, pp. 56-57);

(e)payments to Ashridge for “marketing and promotional work for door and window frames” (T8, pp. 58-61); and

(f)the cost of advertising and promoting UBP’s products in Malaysia, carried out by an Australian advertising agent, MJB & B Advertising and Marketing, (T14, p90 and T10, pp. 64-72).

(g)When the services of Mr Crafter (or Shengli Investments Limited) were terminated in February 1994 the agreement to bring this about (T9) was between Constructions, signed by Mr D Ferrara as “M.D. for and on behalf of F & F Constructions Pty Ltd” (notwithstanding that he held no such position) and Shengli Investments Limited. That agreement, which according to the evidence, was drawn up by Mr Crafter, referred only to F&F Constructions and not the applicant, despite all previous payments having been made by the applicant.  No original written agreement between the parties was produced in evidence.

(h)Mr D Ferrara also gave evidence at the previous Tribunal that the original machine was replaced by another after the applicant had investigated a better technique of manufacturing the zincanneal frames.  The improved product lent itself to more efficient and cost effective transportation and erection on site by construction tradesmen.  All costs associated with these investigations and development were borne by the applicant.

(i)Further evidence is that none of the salary costs associated with the employment of Mr D Ferrara by the applicant were the subject of any claim for a grant.

The decision of the previous tribunal

14.     The previous Tribunal determined that the following expenditure was eligible expenditure, for the following reasons:

Expenditure made to or on behalf of Ashridge Holdings Pty Ltd (“Ashridge”) relating to the provision by Ashridge of a general manager (Mr G Vasile) for UBP

and

Expenditure made to MJB&B Advertising and Marketing (“MJB&B”)

Expenditure incurred by the Applicant

(a)The error in the original agreement, in referring to F& F Construction and not F&F Asia did not prevent F&F Asia from making the claim for the grant.

Eligible expenditure

(b)Both Ashridge and MJB&B were acting as agents for the Applicant.

In relation to the Ashridge expenditure, there was evidence that Mr Vasile, as the general manager of UBP, was answerable to the Applicant and entered into various contracts binding the Applicant and liabilities created by these were met by the Applicant.

Previous tribunal’s  decision cont.

MJB&B were also acting as agent for the Applicant pursuant to its obligations under its agreement with UBP, in producing promotional material, arranging an official launch of UBP’s products in Malaysia and producing  trade and media advertising copy.

(c)The expenditure met the conditions set out in s11C(1)(a)(i) and (ii) of the Act. The reference to “soliciting business” in 11C(1)(a)(ii) was a reference to the business of F&F Asia and not UBP or its agents. For the purposes of s11C(a)(i) and (ii) the Applicant’s business during the claim year was to use its best endeavours to establish UBP as a viable productive unit for goods to be marketed primarily in Malaysia and elsewhere in South East Asia. In so far as the Applicant was concerned, its business was providing managerial and technical assistance including know-how under the agreement with UBP. It provided those services exclusively to UBP. The market research and information gathered, the advertising and other soliciting of business, and the technical assistance provided were all undertaken to fulfil its obligations under the agreement with UBP.

(d)The expenditure was claimable expenditure within subsection 11C(2). The management consultancy services were eligible services, as UBP was entirely dependent on the Applicant to establish its management, production facility and funding facilities, and there was no evidence that they did not satisfy the conditions in Regulation 6, Schedule 4 paragraph 6.  Insofar as the Applicant’s arrangement with UBP, Ashridge and MJB&B were concerned it was providing the requisite management consultancy services.

Supply of Eligible know-how

(e)The expenditure met the test of “qualifying export development expenditure” within s11Z(9)(a)(i) and (ii) of the Act, since:

Previous tribunal’s  decision cont.

(i)UBP had no managerial personnel of its own apart from directors and factory hands.  This knowledge was provided by the Applicant through Mr D Ferrara, Ashridge (by Mr Vasile) and MJB&B (through specialist support in promotional matters).  This was sufficient to classify the activities of Ashridge and MJB&B as supply of eligible “know-how”;

(ii)This was eligible know-how even though there were no eligible property rights within S 11(9)(a)(i); and

(iii)It “supplied” the know-how by conveying it to UBP such that UBP adopted the knowledge itself.

Disposal for reward to persons outside Australia

(f)The requirements of 11Z(9)(b) and (c) were satisfied as UBP received the services of the Applicant in the course of carrying on the Applicant’s business in Australia under contract which rewarded the Applicant.  The disposal was to UBP a company incorporated in and carrying on business in Malaysia and by May 1994 having 40% of its shares held by persons residing outside Australia.

Primary and principal purpose

The objective purpose of the Applicant in incurring the expenditures to Ashridge and MJB&B was to meet part of its ongoing obligations under the agreement with UBP.  Both Ashridge and MJB&B were contributing in a significant manner to meeting the Applicant’s obligations to UBP.  Therefore, the expenditures to Ashridge and MJB&B were incurred primarily and principally for the purpose of enabling F&F Asia to meet its contractual obligations and in the course of time increase its return from

Previous tribunal’s  decision cont.

UBP.This was so notwithstanding that the whole arrangement was orchestrated by F&F Constructions motivated by a desire to ensure the commercial success of UBP.

15.     The previous Tribunal decided that the following expenditure was not eligible expenditure for the following reasons:

(a)Expenditure for entertainment, communications, Agents/Consultants fees paid to Mr D Callaghan (excepting those made to MJB&B), expenses for literature and advertising, and air fares of Mr G Ferrara, D Ferrara, J Callaghan (visit to demonstrate installation of frames) and B Finlay (sent to Malaysia to demonstrate the fire door product of UBP) relating to fares and allowances.

None of the employment costs incurred by the Applicant in relation to Mr D Ferrara were claimed. None of the expenses above were “claimable expenditure” within s11C(1), as they were not “incurred by way of expenses of, contribution towards expenses of, or payments made to, an agent...”. They were not, therefore, “eligible expenditure” within s11A(1).

(b)Payments to Shengli Investments Limited for the services of Mr Bill Crafter, incurred in the course of the Applicant meeting its obligations to UBP under the agreement.

The evidence did not support the contention that Shengli Investments Limited was an agent for the Applicant as its principle.  The term “agent” was not defined in the EMDG Act but was a technical/legal term. There was no evidence that Shengli Investments Limited was an agent for the Applicant in that it could bind the Applicant by its actions.

Previous tribunal’s  decision cont.

The expenses were not “claimable expenditure” within s11C(1), as they were not “incurred by way of expenses of, contribution towards expenses of, or payments made to, an agent...”. They were not, therefore, “eligible expenditure” within s11A(1).

The Federal Court Appeal

16.     The respondent appealed to the Federal Court where Carr J held that the Tribunal made the following errors of law:

(a)In limiting the meaning of “agent” under s11C to an agent having the legal ability to bind the claimant contractually.  “Agent” takes its meaning from the context ie an agent for the purpose of carrying out market research, obtaining market information or advertising or other means of securing publication or soliciting business.  The section is intended to refer to these activities when carried out on behalf of the claimant.

(b)In its application of paragraph 6 of the fourth schedule to the Regulations in that it failed to consider to what extent the expenditure under s11C(2) by or to Ashridge and MJB&B related to the eligible services (the management consultancy services), and it failed to distinguish between the provision of actual management and management consultancy services (as defined by paragraph 6 of Schedule 4 of the Regulations).

(c)In its application of s11Z.  In relation to both s11Z(8) and 11Z(9),  the disposal of eligible know-how required that the know-how be owned by the claimant.  A broad interpretation of the word “own” was necessary, but in the opinion of the Court, assuming that eligible know-how was involved,

“...it was not owned by the Applicant, but by Ashridge and MJB&B.  A contractual arrangement whereby a party who owns know-how merely agrees with another contracting party to supply that know-how to a third party does not...confer

Federal Court Appeal cont.

ownership of that know-how on the other contracting party within the meaning of the Act.”

(d)In failing to consider the application of s11E(1)(b), notwithstanding that no submission was directed to it at the Tribunal hearing.

17.Carr J also made the following comments about the Tribunal’s decision:

(a)Carr J disagreed with the Tribunal holding that the object of the conditions specified in s11C(1)(a) of the Act must be the business of the claimant. This subsection includes the activities for the specified purposes carried out for the claimant’s business but it is not confined to that business. He did not, however, find it necessary to decide that point. In his opinion, the subsection includes but is not limited to the activities for the specified purposes carried on for the claimant’s business, and

“[one] could easily envisage situations in which a claimant carries on one type of business but, before entering into another type of business wishes to carry out market research or any of the other activities described in that subsection through an overseas agent.”

(b)Carr J questioned whether the Tribunal was correct in characterising the moneys paid to Ashridge and MJB&B as being expenditure incurred primarily and principally for the purpose of creating or seeking opportunities for or creating or increasing demand for the supply by F&F Asia of eligible services, and also noted that the expenditure in question might be seen as something done primarily if not wholly for the purpose of the due performance of F&F Asia’s contract with UBP.

(c)Carr J declined to consider whether the Tribunal erred in failing to find that the moneys which it outlaid in respect of the services provided by Messrs D Ferrara, D Callaghan, G Ferrara, B Finlay, W Crater and Shengli Investments Ltd amounted to claimable expenditure pursuant to s11D or s11L of the Act, as the matters were not raised before the

Federal Court Appeal cont.

Tribunal, the matter was to be remitted to the Tribunal and these matters depended to a considerable extent on findings of fact.

18.     Carr J remitted the whole of the matter to the Administrative Appeals Tribunal for reconsideration in the light of his rulings.

The Remitted hearing - evidence

19.     With the consent of the parties the Tribunal ruled that the evidence and exhibits presented at the previous Tribunal hearing of this matter are to be treated as evidence in this hearing. The Tribunal accepted the Section 37 Documents (“T Documents”) filed in the remitted hearing as evidence along with the following exhibits:

·         Exhibit 1  Transcript of Previous Administrative Appeals Tribunal   hearing.

·         Exhibit A1                 Affidavit of Brian Luscombe dated 13 March 1996.

·         Exhibit A2                 Current Austrade Guidelines.

·         Exhibit A3                 Export Market Development Grants.

·         Exhibit A4                 Universal Building Products Brochure

·         Exhibit R1                 Draft Policy Ruling of Australian Trade Commission.

20.     The Tribunal heard additional evidence from George Ferrara who said (in brief summary) that:

(a)He had been a director of F&F Constructions Pty Ltd and F&F Asia Pty Ltd during the 1993 and 1994 financial years.  He had extensive “hands

Remitted hearing - Evidence

on” experience in the building trade.  In the course of this experience he had developed metal door frames for use to overcome problems with wooden door frames caused by exposure to weather.

(b)Mr Vasile had worked for F&F Constructions for some time. F&F Constructions had taken over an Australian company in which Mr Vasile had worked.  Mr Vasile continued to be employed by F&F Constructions after the takeover.  At his request, he was paid through his company Ashridge Pty Ltd, rather than as an employee of F&F Constructions.

(c)He had travelled to Malaysia with his business partner, Mr Fiaschi, to introduce the idea of metal door and window frames there, and set up a factory with machinery to manufacture them.  He and Mr Tony Fiaschi then left Malaysia, leaving Mr Vasile in charge. He continued to be paid through Ashridge Pty Ltd.

(d)MJB&B were advertising agents only - they had no knowledge of how to build metal door frames and had been engaged to produce promotional material.

(e)Although UBP paid F&F Asia $4000 per week (paid monthly), this was all that F&F Asia received to cover the salaries of D Ferrara and Mr Vasile, the airfares of D Ferrara, Crafter’s services, advertising expenses for MJB&B advertising, air fares for G Ferrara and A Fiaschi in September 1994 and accommodation expenses.  There were also 2 bricklayers who travelled to Malaysia.

(f)while F&F Constructions was owned by Mr Ferrara and Tony Fiaschi via their respective trust structures, UBP was owned by them solely.

Eligible expenditure - section 11A(1)

21. Pursuant to s11A(1), the expenditure here is claimable if it has been incurred by the claimant, if it is claimable expenditure, and if it is qualifying export development expenditure.

Expenses incurred by the claimant - Error in contract with UBP

22.     The previous tribunal accepted that the inclusion of F&F Constructions in the initial contract was an error.  The Tribunal found that it was the intention of F & F Asia and UBP to enter into an agreement in August 1993 to carry out the activities and as such was not a matter which ought affect the applicant’s claim for an export market development grant for expenditure it incurred.  This finding was not contested in the Federal court and is not an issue at this hearing.

23.     This Tribunal agrees with and adopts the findings and reasoning of the previous Tribunal regarding that error.

Claimable expenditure

Expenditure within section 11C - expenses of an agent

24.     The Applicant contends that all of the expenditure claimed falls within either s11C (expenses of an agent) or s11L (certain expenses of associated agent).

25.Section 11C(1) provides that:

11C.(1)Expenditure is claimable expenditure if:

(a)it is incurred by way of expenses of, contribution towards expenses of or payments made to, an agent for the purpose of:

(i)the carrying out of market research or the obtaining of market information; or

(ii)the advertising or other means of securing publicity or soliciting business; and

(b) it is not paid or payable to:

(i)a person for services performed by the person in Australia, or in the course of a visit from Australia to a place or places outside Australia if the person is ordinarily employed in Australia by:

(A)the claimant;

(B)an associated company; or

(C)a prescribed associate; or

(D)a director of the company if the claimant is a company; or

(E)a director of an associated company; or

(F)an associated company carrying on business in Australia; or

(G)an association referred to in section 11B; or

(ii)a prescribed associate who is a resident of Australia other than:

(A)a director of the company if the claimant is a company; or

(E)a director of an associated company; or

(F)an associated company carrying on business in Australia; or

(iii)a director of the company if the claimant is a company; or

(iv)a director of an associated company; or

(v)an associated company carrying on business in Australia

26.Section 11L provides in part that:

11L.(1) This section applies to a person who is:

(a)the claimant; or

(b)a prescribed agent of the claimant; or

(c)any other agent of the claimant;

but does not apply to a person who carries out the duties of a sales representative of the claimant outside Australia.

(2)Subject to subsections (4) and (5), if:

(a)a person to whom this section applies commences a visit from a place in Australia to a place or places outside Australia; and

(b) the visit is undertaken primarily and principally for the purpose of undertaking qualifying export development activities of the claimant; and

(c)[not relevant]

(d)the person’s fares for the visit are not made non-claimable by section 11U;

the claimant is taken, for the purposes of this Act, to have incurred $200 claimable expenditure on each of the whole days elapsed during the visit.”

agency within s11C and s11L

27.The Applicant submitted that:

(a)the expenses of D Ferrara, G Ferrara, G Vasile, J Callaghan, B Finlay and A Fiaschi fall within the provisions of s11L(1)(b) or (c) as they are either “prescribed agents” or “any other agent” of the Applicant.

(b)The balance of the expenditure fell within s11C.

28. The Respondent conceded that on the basis of the comments of Carr J in the Federal Court, G and D Ferrara, A Fiaschi, Ashridge, Shengli, MJB&B, Callaghan and Finlay are all agents for the purposes of s11C and s11L of the Act.

29.     The Tribunal finds in any event that each of these people or entities were acting on behalf of the Applicant in undertaking the activities for which the expenses were incurred.  In accordance with the reasons of Carr J they were each agents within the meaning of s11C.

30. In relation to s11L(1)(b) and (c), both G Ferrara and A Fiaschi were directors of F&F Asia at the relevant times and are therefore prescribed agents for the purposes of s11L(1), in accordance with paragraph (b) of the definition of “prescribed agent” in s3 of the Act.

31.     The balance of the persons for whom expenditure is claimed, namely D Ferrara, G Vasile, J Callaghan and B Finlay fall within the phrase “any other agent” of the claimant in s11L(1).  The Tribunal considers that the definition referred to by Carr J in relation to an agent under s11C is equally applicable to s11L(1).  The Tribunal is satisfied that none of these people were sales representatives.

32.     The whole of the expenditure claimed was therefore expenditure incurred by way of the expenses of, contribution towards the expenses of or payments to an agent.

Purpose of Expenditure - market research/information , procuring publicity or soliciting business

33. The Applicant argued that all of the expenses claimed by the people referred to in paragraph 21 above were incurred for purposes outlined in s11C(1)(a)(ii). The business referred to in s11C(1)(a) as being promoted can be the business of UBP as well as the Applicant, so expenditure by the Applicant for the purpose of promoting the sale of UBP products still meets the requirement of s11C(1).

34.     Taking each of the people or entities for which expenditure was claimed in turn, this Tribunal must consider whether the expenditure for which a claim is made relates to the carrying out of market research or the obtaining of market information or the advertising or other means of securing publicity or soliciting business (s11C(1)(a)(i) and (ii)).  The Tribunal is not concerned under these sub-sections to define whose business is being promoted.  Section 11C defines the type of expenditure which can be claimed.  Section 11Z provides the necessary connection with the Applicant to make the expenditure claimable.

35.D Ferrara (part time manager to UBP):

(a)The applicant submits that Mr Ferrara spent much of his time in Malaysia promoting the metal door frames manufactured by UBP.  The previous Tribunal found that:

The notes indicate the principal activities engaged in by Mr Ferrara...Mr D Ferrara’s activities included consulting Mr Bill Crafter, a local business consultant, who provided information and introductions for both Mr D Ferrara and Mr Vasile to negotiate business on behalf of UBP.  Also, considerable time was spent in promoting the products of UBP, supervising and overseeing the activities of Mr Vasile in relation to his management of UBP and engaging a local business partner.  The notes indicate that most contacts concerned marketing strategies for, and promotion of, UBP’s products and management of UBP’s banking and finance arrangements.  Further, almost every potential purchaser of size expressed an interest in investing in the business of UBP.”

(b)The previous Tribunal then went on to discuss the ultimate partial disposal of the business of UBP.

(c)While this Tribunal agrees with the comments of the previous Tribunal (set out in paragraph 35(b) of these reasons), it is important to note the questions of Mr Macliver and response of Mr D Ferrara, which appears at page 40 of the transcript:

MR MACLIVER:        ... those 20-odd pages of diary notes, do I understand...that in fact these are not a transcript or a typewritten record of your complete diary notes during the periods you were visiting Malaysia, they are only extracts from your diary notes which you thought were relevant or had some connection to marketing? ---Yes, that is the case, because if you see my diary I have got everything but what the food was like on the plane.  I am a prolific scribbler; it is probably the best aspect I could describe myself.

Yes.So, diary entries relating to, for instance, ... endeavouring I think in the early part of 1994 to obtain an equity party for UBP and diary notes relating to your administration or management of UBP have not found their way into these documents? --- No.

(d)Not all of the activities undertaken by D Ferrara were recorded in the diary notes - only those relating to marketing. So, while it is clear that he undertook some work to obtain market information, advertise or otherwise secure publicity or solicit business, some of the expenses claimed may have related to activities which did not fall within s11C(1)(a). It is not clear from the evidence available to the tribunal to what extent this is the case [see Transcript p40-41].

(e)To the extent that the activities involved non-marketing matters, such as the finding of a business partner for UBP, dealing with the credit and finance matters of UBP and supervising the activities of the General Manager supplied to UBP under the contract, they are not claimable as they are not within s11C(1)(a). For the reasons outlined below, this Tribunal doesn’t consider it necessary to make a finding as to the extent to which the activities related to some other purpose.

36. G Ferrara and A Fiaschi each visited Malaysia in September 1993. Air fares for these people are claimed. There is insufficient evidence before the Tribunal to enable it to make a finding as to whether these expenses were incurred for purposes within s11C(1)(a). Again, as a result of the findings in the balance of this decision, it is not necessary for the Tribunal to make such a finding.

37.The activities of Callaghan and Finlay:

Mr D Ferrara gave evidence at the initial hearing that:

“Callaghan, was a bricklayer we took from Malaysia at one stage there, apart from the video we were still concerned that unless the frame was installed properly we could - it could stall(sic), so we bought a bricklayer up and took him around to our most important clients and demonstrated how the frame was properly installed.

...

We - F and F Asia engaged in Perth.  Flew him up to Malaysia and took him around Malaysia doing demonstrations.”  Transcript p21

In relation to the expenses of Mr Finlay, Mr D Ferrara said that:

“The quality of tradesman is quite poor, mostly from Indonesia, so we took this Brian Finlay up.  He not only did some repair works because one of the clients had said that the frame was no good because the hinges didn’t open far enough or something...Well, he demonstrated there was a problem in the way the door was installed.  He also hung a fire door to do a test.  It’s a special door made a special way and you have to submit the frame a the door with a handle that’s tested, so we thought we better do that ourselves giving the quality of workmanship.”  Transcript p21

The Tribunal is satisfied that the activities of both Mr Finlay and Mr Callaghan were for the purpose of “other means of securing publicity or soliciting business” within the meaning of s11C(1)(a)(ii).

38.Expenditure claimed for Mr G Vasile:

The Respondent contends that the expenditure claimed for Ashridge related to the salary and expenses of Mr Vasile as general manager of UBP and that Ashridge was not engaged by the Applicant to carry out market research or obtain market information, provide advertising or other means of securing publicity or soliciting business for the Applicant.

The evidence is [Transcript p 36 line 20, to p37 line 5] that only the expenses relating to marketing were claimed by the Applicant and this is not challenged by the Respondent. The Respondent’s submissions in relation to these expenses deal with the question of what was being marketed (ineligible goods or eligible know-how) and are considered below. The Tribunal is satisfied that these expenses fall within s11C(1)(a). They related to marketing, advertising or otherwise soliciting business within the terms of that section.

39.Expenditure claimed for Shengli:

The activities undertaken by Shengli (Mr Crafter) had more than one purpose, namely to provide information in relation to establishing UBP as a Malaysian company, to find market contacts and local information for UBP to target its marketing at, and to find a business partner for UBP in Malaysia [Transcript p21].  The evidence of D Ferrara is, further, that his assistance in advising F&F Constructions on how to set up the company was “a very short term purpose and then he quickly went on” [Transcript p22].

Insofar as expenses claimed relate to the establishment of UBP or the provision of a Malaysian partner for it, they do not fall within either arm of s11C(1)(a) and are not claimable. To the extent that they are of assistance, the diary extracts at T6 confirm that Mr Crafter spent some time engaged in assisting with the work undertaken by Mr D Ferrara which is outlined in paragraph 35(d) of these reasons.

40.Expenditure claimed for MJB&B:

The Respondent again contends that the activities of MJB&B do not fall within s11C(2) because they do not relate to eligible know-how, but says that the expenditure was for the purposes of advertising or securing publicity for the business and products of UBP, not the applicant.

It is clear from the documents before this Tribunal [especially T10 at page 64] that all of the expenses claimed for MJB&B fall within s11C(1)(a). The work performed is stipulated in that account as being:

- Concept, design and production of promotional material for the introduction of steel door frames for Malaysia and overseas.

- Arrangement of official launch of “ZANNEAL” metal door frames for Malaysia including official function at Istana Hotel, Kuala Lumpur.

- Production of copy and arrangement of Trade/Media advertising in Malaysian publications

The exclusion of some expenditure under 11C(1)(b)

41. The Respondent argues that as they were employees or directors of the claimant, the expenses of D and G Ferrara and A Fiaschi cannot be claimed under s11C(1) as they fall foul of the exclusionary provisions of s11C(1)(b)(i) or (iii) of the Act.

42. In his submissions for the Respondent, Mr Macliver argued that as Ferrara and G Ferrara were employees and/or directors of the Applicant at the material times, their expenses are ineligible as claimable expenses in respect of an agent under the terms of sub-paragraphs 11C(1)(b)(i) and 11C(1)(b)(iii) of the Act.

43.     The Applicant argued that the expenses of D Ferrara and G Ferrara were not excluded by s11C(1)(b).  It said that 11C(1)(b)(i) is limited to funds “paid or payable to” a person, contrasting this against funds payable by that person and paid by the claimant on their behalf.  No expenditure payable to these people was claimed, only expenses incurred by them.  The subsection only excludes expenditure paid or payable to one of the persons listed in that subsection, such as remuneration.  It does not exclude expenses payable by that person, such as airfares or travel costs.

44. The Applicant points to s11C(1)(a) to support this contention, saying that this subparagraph refers to two distinct types of expenditure, being expenses of or contributions to the expenses of an agent on the one hand, and payments to an agent on the other.

45.     The Respondent contends that the applicant is wrong in its submission that s11C(1)(b) does not include expenses of agents as opposed to payments to agents. Reading subparagraphs 11C(1)(a) and (b) together, the expenses of the agents (G Ferrara, A Fiaschi) are excluded.  The provision is aimed at not allowing payments in relation to and in respect of the types of people listed there. 

46.     Mr Rector, an employee of Austrade, noted for the Tribunal that s11L provided that the airfares of locally based directors were payable.  Section 11S provided for the reimbursement of some travel expenses for other Australian based personnel travelling overseas for promotional or marketing activities.

47.     The Tribunal finds that payments made to persons not within (A) to (G) of s11C(1)(b) are not excluded from the operation of s11C.  Section 11C(1)(b) permits of plain reading.  In summary, its effect is that expenditure will not be claimable if it is paid or payable to a person for services performed by the person where that person is usually employed in Australia by one of the listed associated entities.  The words of the section are not ambiguous.  It seems that the section is intended to prevent double dipping by claimants who arrange for themselves or associated entities to provide and be paid for services to their agents and then seek to claim reimbursement for those expenses.  To allow payments to be claimed where expenses are paid on behalf of agents to unrelated third parties fits within this intention.

48.     The Tribunal therefore finds that the expenditure claimed by the Applicant in respect of:

(a)D Ferrara insofar as the expenditure relates to his work referred to in paragraph 35(d);

(b)G Ferrara and A Fiaschi insofar as the expenditure relates to work referred within s11C(1);

(c)Callaghan and Finlay;

(d)Ashridge;

(e)Shengli insofar only as it is not related to the establishment of UBP or the provision of a Malaysian partner for UBP; and

(f)MJB&B

is claimable expenditure within the terms of s11C(1).

claimable expenditure - s11C(2)

49.The expenditure of the Claimant must fall within s11C(2) of the Act for the claim to be successful. Section 11C(2) and 11C(3) read as follows:

11C (2)Expenditure is claimable expenditure under this section only to the extent to which it relates to one or more of the following:

(a) eligible goods

(b)eligible services

(c)[not relevant]

(d)[not relevant]

(e)eligible industrial property rights

(f)eligible know-how

(g)[not relevant]

(h)[not relevant]

(3)In applying subsection (2), the Commission is to have regard to:

(a)the number to different types of goods, services or other things being promoted by the agent; and

(b)the allocation of the agent’s time; and

(c)any other matters that the Commission considers relevant.

50.In the remitted hearing before this Tribunal, the Applicant did not pursue the issue of the expenditure relating to eligible services (within the provisions of s11(2)(b)), and indicated that it was not claiming under those provisions. They had no bearing on the case, as in its view if it failed to meet the provisions relating to “know-how” then it would also fail to meet the provisions relating to eligible services [Transcript p11].

51.In view of this concession, the Respondent agreed that the matter no longer concerned eligible services, but only eligible know-how.

52.In view of the reasoning of this Tribunal below in relation to eligible know-how, it is not considered necessary to deal separately with the question of eligible services.

Expenditure Related to Eligible Know-how

53.The Applicant contended that:

(a)all of the expenses related to eligible know-how, within the terms of s11C(2)(f), because they meet the provisions of s11Z(9). In considering whether the expenditure related to eligible know-how, the Tribunal should be aware that the same expenditure may relate to UBP’s ineligible goods and the Applicant’s eligible know-how.

(b)The Applicant meets Division 4 by falling within the terms of s11Z(9).  The Tribunal had previously found that s11Z(9) when read with s11Z(10) extended beyond the time when a contract has been entered into.

(c)Mr G Ferrara’s evidence established that he and Mr Fiaschi had developed a knowledge of metal door frames through their experience in the building industry.  It was they who travelled to Malaysia with that knowledge to investigate and then establish a metal door frame factory.  Vasile’s role was limited to finding a faster machine to manufacture the frames.

(d)Know-how is defined very broadly in s3(1) in terms of knowledge or information. There is technical skill or expertise involved in making metal door frames, and this constitutes know-how. He referred to the matter of Re Basketball Management Services and Australian Trade Commission (1995) 39 ALD 452 in which know-how was found to exist in the promotion of two basketball teams.

(e)The Applicant could be supplying and promoting goods and know-how associated with those goods at the same time.

54.The Respondent contended that the Applicant’s expenditure related to the promotion of ineligible goods not eligible know-how.  Mr Macliver said in his submissions that:

(a)The expenditure claimed in respect of Shengli was partly for the purpose of sourcing business for the business and products of UBP and partly to assist in setting up of the UBP business itself. Expenditure in respect of the latter is not a claimable expenditure under the Act.

(b)In so far as the expenditure claimed in respect of D Ferrara, G Ferrara J Callaghan and B Finlay was expenditure for the purpose of carrying out market research, the obtaining of market information and advertising or otherwise securing publicity or soliciting business then it might be claimable expenditure under the Act. In so far as it related to the setting up of the UBP business, negotiations with parties relating to the entry of a Malaysian partner to the UBP business and the management of the UBP business itself, the expenditure is not claimable expenditure under the Act.

(c)The expenditure claimed in respect of the agents under s11C(1) for the purpose of carrying out of market research or the obtaining of market information or the advertising or other means of securing publicity or soliciting business did not relate to either eligible services or eligible know-how within the terms of Section 11C(2) of the Act.

(d)None of the claimed expenditure related to eligible know-how.  If any did so, that know-how was owned not by the Applicant but by Mr Gino Vasile or Ashridge.

(e)The Applicant was not seeking to promote eligible know-how, if any, owned by it, but rather the ineligible goods of UBP.  The expenditure incurred by the Applicant related to the promotion of those goods.  The Applicant was the sole proprietor of UBP and was not promoting the use or purchase of its knowledge about the uses, construction or installation of metal doors.

55.The question to be answered by this Tribunal at this stage, as formulated by Carr J, is:

“...to what extent did the expenditure relate to ... eligible know-how”

56.The Tribunal is not yet concerned with who owned the know-how or whether it otherwise meets the criteria laid out in s11Z(9). If the expenditure relates to know-how within the definition of s3, then it will be claimable expenditure.

57.The Tribunal finds that there was know-how associated with the construction, composition and uses of steel door frames.  The Tribunal finds further that there was know-how associated with the techniques involved in installing the frames which also constituted know-how.

58.It is important to note here that the definition of know-how in s3 of the Act refers to “knowledge or information in relation to industrial or other operations”. It does not mean knowledge or information in relation to the finished product. The Tribunal does not accept the argument that in promoting the finished product, the Applicant was necessarily promoting the know-how related with it.

59.In relation to the expenditure relating to the activities of D Ferrara, G Ferrara and A Fiaschi, MJB&B, Shengli and Ashridge, the Tribunal finds that it does not relate to eligible know-how. The expenditure related to promotional and marketing activities. It is abundantly clear from the evidence before the Tribunal, that far and away the bulk of the promotional activities undertaken were aimed at promoting specific products of UBP and were not aimed at know- how. Subject to the following comments, the Tribunal finds that even if the expenditure relating to goods and know-how can be concurrent, as argued by the Applicant, in this case, the technical skill or expertise involved in making metal door frames - the “know-how” - was not the subject of the expenditure. Considering the matters outlined in s11C(3), the Tribunal finds that the expenditure related to the ineligible goods and not the know-how (if any) of the claimant.

60.The facts upon which the Tribunal relies in reaching this conclusion are:

(a)Assuming the expenses incurred in relation to Mr G Ferrara and Mr Fiaschi fell within s11C(1), the expenditure claimed is for air fares which relate to a trip to Malaysia by G Ferrara and A Fiaschi, which began on 19 September 1993.

(b)By that time the agreement between UBP and F&F Constructions had been concluded.  It was dated 31 August 1993, and was in identical terms, as far as is relevant, to the agreement with F&F Asia.  The agreement is relevant to the timing of the disposition of know-how.  Production of the frames commenced by February 1993, and orders for the frames began to be made from that period onwards [Transcript p11].

(c)The know-how in relation to the machines had been promoted to UBP (if any promotion was required) as much as it could be.  UBP was producing the frames from the available machines.  The production phase and product were not promoted to any other potential manufacturers.  The introduction of steel frames to the Malaysian factory was complete.  There was no suggestion (logically enough given the relationship between UBP and F&F Constructions) that UBP were considering any alternative manufacturing techniques or materials. 

(d)The promotion work undertaken therefore did not relate to this aspect of know-how.  Neither was the promotion in relation to the installation techniques for the frames.  It related to the finished products of UBP.

(e)Insofar as the expenditure in relation to D Ferrara was for activities not related to promotional work, the Tribunal has already decided that they do not fall within s11C(1).  The diary notes of D Ferrara indicate that the bulk of his time was spent in promoting specific existing and intended products to existing and intended clients.  He also spent time in dealing with the question of a local partnership.  His evidence at the previous Tribunal hearing was that by Christmas of the claim year, production was successful enough for people to start querying and he had to spend time trying to “bed down the local partnership requirements” [Transcript p11].  The Tribunal notes the agreement of 31 August 1993 required F&F Constructions to provide “Management and Technical advice by way of... the part time attendance of its own General Manager MR. DARRYL FERRARA in Malaysia” and that it would be responsible for  reasonable costs incurred in promoting the business of the Company.  Under the second agreement, with F&F Asia, this obligation continued in the same terms.  Within the duties of Mr Ferrara were promotional activities for the business of the company.  D Ferrara was promoting the company and its products, which are “the business of the company”.  A review of the diary notes provided in the T documents shows that of the marketing work falling within the terms of s11C(1) which was undertaken by D Ferrara, very little related to anything other than the promotion of the company UBP and its door frames. 

61. Taking into account the factors outlined in s11C(3), the Tribunal finds that the expenditure of D Ferrara did not relate to eligible know-how.

62.     In relation to expenditure paid to Ashridge:

(a)The Statement of Commercial Arrangement between F&F Asia and Ashridge Holdings (at T7 page 49) gives some indication of what the funds paid to Ashridge related to.  The role of Ashridge Holdings is agreed to be as follows:

1....

(a)

Undertake on behalf of F&F Asia, the promotion and marketing of steel door frames and other allied products throughout Malaysia.  In particular,

(i)identify potential markets and customers.

(ii)identify potential new products and their commercial viability.

(iii)ensure the effective dissemination of information regarding the advantages and availability of steel door frames by means of meetings with Architects, builders etc., press and magazine advertising, participation in trade fairs/exhibitions and the display and demonstration of promotional video and sample products.

(b)

(i) provide responsive technical expertise and technology “know how” relating to the products and to all aspects of the manufacturing process.

(ii) provide marketing and technical support personnel as required.

(b)The expenditure actually incurred by the claimant in relation to Ashridge Holdings falls within 11C(1)(a) - marketing and promotional work.  The evidence before the Tribunal of precisely what Ashridge promoted is scarce.  The accounts at T8 pages 58 - 61 provide some assistance.  Ashridge rendered accounts for the marketing and promotional work associated with:

(i)new profile door frames to be introduced 1993/1994;

(ii)low cost window frames;

(iii)standard frames; and

(iv)new window frames to complement the door frames already being produced.

63.     In relation to MJB&B, the T documents and evidence of D Ferrara show that their promotion followed the lines of the other promotion undertaken.  Exhibit A4 also shows that the effort was devoted to primarily to UBP products.

64.     In relation to Shengli, the letter enclosed at T9 shows that at least in part, the efforts of Mr Crafter were “to get UBP off and running in Malaysia”.  The evidence of Mr D Ferrara outlined above shows that Mr Crafter was employed as a consultant in “introducing clients to us on a sort of agency principle”.  And later “The selling part was ours, but he was the one that introduced us to a guy like yourself and it was over to us to try and sell from there” [Transcript p22].  What was being sold were the ineligible goods of UBP, not know-how.

65. The Tribunal agrees in principle that expenditure could in some circumstances relate both to know-how and to goods. It finds as a matter of fact that in this case the expenditure paid to Ashridge, MJB&B and Shengli related to promotion of goods. Taking account of the factors outlined in s11C(3), the Tribunal finds that the expenditure did not relate to know-how.

66.     The expenditure relating to Mr Callaghan and Mr Finlay related directly to the installation techniques required to be used to ensure that the frames were effectively. The know-how is eligible know-how because the techniques were developed in Australia, as were the original door frames and Colrol machine.  To the extent only of the expenditure relating to Mr Callaghan and Mr Finlay’s operations, the Tribunal finds that it is claimable expenditure within the provisions of s11C.

SECTION 11Z(9)

67.     Even if this Tribunal had decided that the expenditure within s11C(1) related to know-how, and was therefore claimable expenditure, it would in any event not have considered it to be qualifying export development expenditure within the meaning of s11Z(9).

68. The Applicant contended that it owned eligible know-how within the meaning of s11C(2)(f). The Applicant submitted, in relation to the ownership of know-how that:

In relation to both the Photo Corporation case (Re Photo Corporation of Australia Pty Ltd and Australian Trade Commission (1997) 45 ALD 458) and the Basketball case (Re Basketball Management Services and  Australian Trade Commission (1995) 39 ALD 452), Austrade did not contest that the Applicant owned eligible know-how, and no meaningful distinction can be drawn between those and this case in this regard. The Perth registry should not apply a more stringent test than did the Sydney registry in that case.

(a)No requirement exists in s11Z(9)(a) for the Applicant to be carrying on a substantial business in Australia in order to own know-how, and none should be read into that paragraph.

(b)There is similarly no requirement under the Act that:

(i)the know-how be recorded in writing; or that

(ii)the know-how be developed from the research or efforts of the Applicant’s employees in their capacity as such

as suggested by the Respondent.

(c)Carr J did not find that ownership of know-how requires more than possession of knowledge by a company’s directors or employees.  In this case, G Ferrara and A Fiaschi, as directors of the Applicant had knowledge which they made available for the benefit of the Applicant.  They were clearly acting in their capacities as directors of the Applicant when the know-how was made available, ie disposed of to UBP.

(d)The know-how was eligible within s3(1) as on any view of the facts, the knowledge of the metal door frames was developed in Australia and there was no suggestion of any input from any other country.

(e)The Applicant disposed of its eligible know-how within s11Z(9)(a), by making it available for UBP’s benefit under its agreement with UBP.  Disposal of knowledge differs from disposal of an item of property in that someone passing on knowledge to another still has the knowledge him/herself.

69.The Respondent submitted that:

(a)The Applicant did not hold any industrial property rights in the metal frame processing machine or construction process then in use.  Vasile commissioned and had the technical knowledge related to the operation of the Colrol machine.  The relevant technical know-how belonged to Vasile or Ashridge, not the Applicant.  Although Mr G Ferrara had knowledge about the manufacture of metal frames and some knowledge in relation to the machine.  There was no evidence that Mr Ferrara was engaged in operating the machine or training the local employees in that regard.  This was all done by Mr Vasile.

(b)Know-how requires some tangible knowledge or information in relation to industrial and other operations which can be “disposed of” as that phrase is defined in the Act, and that has to a substantial extent resulted from research or other work performed in Australia. The applicant did not own knowledge or information of this kind in relation to the manufacture of metal door frames using the Colrol machine. Any such know-how belonged to Vasile or Ashridge, not the Applicant.

(c)The Respondent sought to rely upon the reasoning in a draft policy ruling of the Respondent, which stated in part:

“The distinction between know-how and services may be relevant.

...

Know-how should be  disposed of primarily to allow the overseas recipient to improve its operations or itself deliver services.  Claimants which provide ongoing management or other project-related services will be deemed to be providing services and, to be eligible, these must be specified services in the EMDG regulations.”

(d)In the Photo Corporation case, it was not in dispute that Photo Corporation had disposed of eligible know-how owned by it for reward and in the course of Photo Corporation carrying on business in Australia.  The only issue in dispute was whether the expenditure had been incurred primarily and principally for the purpose of increasing Photo Corporation’s return on the disposal of know-how.

(e)The Applicant here had not developed know-how in the form of manuals and the like through its work in Australia, which it was endeavouring to commercially exploit.

(f)Here the Applicant was not carrying on business in Australia in relation to the manufacturing activity in respect of which it alleges it owned know-how nor was it carrying on business in Australia of attempting to commercially exploit any such know-how said to be owned by it.

(g)In Photo Corporation the know-how was owned by Photo Corporation as it resulted from the research, writing and compilation efforts of its employees, or third parties it paid to develop the know-how.  The Applicant does not have any employees apart from D Ferrara, and no third party was contracted to provide the Applicant with know-how.  The only business of F&F Asia in Australia was providing management services to UBP in Malaysia.

In order for the Applicant to be the owner of eligible know-how, it must be know-how which it owns by virtue of it having resulted to a substantial extent from research or other work carried out by its employees (in their capacity as employees) or know-how which has resulted to a substantial extent from research or other work performed in Australia and which it owns by lawfully acquiring it from a third party.

The evidence of Mr G Ferrara does not support the contention that the Applicant owned eligible know-how that it disposed of the UBP

70.The Tribunal finds that:

(a)Eligible know-how is defined as “know-how” which has to a substantial extent resulted from research or other work performed in Australia (s3 “know-how”). “Know-how” is defined under Section 3 as:

“...knowledge or information in relation to industrial or other operations, and includes drawings, models or other material things, or services, supplied for the purpose of enabling or facilitating the use or enjoyment of such knowledge or information, of rights in relation to inventions or trade marks or of copyright in relation to works, designs or other things.”

(b)The Applicant submitted that the evidence of Mr G Ferrara was that he and Fiaschi had developed a knowledge of metal door frames through their experience in the building industry.  They then sought to travel to Malaysia to investigate and establish a metal door frame factory.

(c)At the original Tribunal hearing, D Ferrara gave evidence of his role in F&F Asia and of F&F Asia’s role in promoting UBP products.  The relevant transcript reads:

“---F and F Asia undertakes “everything from the design and construction, if you like, of how we do things, the booking.  I personally carry samples of doors and windows in my car, we design the promotional literature, we book the halls and man them when we are doing exhibitions.  The only sales person UBP has reports to me directly...There’s no one locally that does any promotion, there’s myself and, to a lesser extent, Gino Vasile.

And you can tell us what F&F Asia actually promotes? --- Promotes the products manufactured under our expertise for UBP.  The door and the window and a few other products that we’ve toyed with, just testing the market for at the moment.  So my job is to try and find a likely product, evaluate it, find out whether we can manufacture it locally and if so we undertake the design.  It’s manufactured by UBP and then we promote it.”

Transcript p 17

(d)At the resumed hearing, Mr G Ferrara gave further evidence on this matter that he and Mr Fiaschi, directors of the claimant, had built up a knowledge of how to build metal door frames through their work in the Australian construction industry, and that Vasile’s knowledge of the area came originally from his connection with F&F Constructions.

(e)Based on this evidence, the Tribunal finds that the Claimant had know-how in relation to the construction of metal door frames, which know-how was developed almost exclusively in Australia and is therefore eligible know-how.

(f)It is not, in the Tribunal’s opinion, necessary for the claimant to have documented the know-how that it owns, nor for it to have industrial property rights in relation to that know how, although each of these could be useful evidence of know-how held in some circumstances. The definition of know-how in s3 is “knowledge or information in relation to industrial or other operations”. The balance of the definition is inclusive and significantly includes services supplied, which would not necessarily have a tangible form. Industrial property rights form a separate category under s11C(2) and in the Tribunal’s opinion are not a condition of know-how.

71.The Tribunal agrees that the s3(1) definition of know-how does not contain any requirement of exclusive knowledge held by the Applicant and no one else. It does not require that the know-how be reduced to physical form. Know-how is a type of “knowledge or information”. It need not inherently be reduced to tangible form and the Act does not require that it be in that form. The Tribunal disagrees with the Respondent’s contention that it must be so. The Applicant had knowledge of the characteristics, construction and uses of metal door frames through G Ferrara and Fiaschi. It “owned” the know-how, in the sense that it held the knowledge and, initially, UBP did not.

72.That the Applicant meets the requirements of s11Z(9)(c) are not in dispute. 

Disposal of know-how for reward in the course of carrying on business in Australia.

73.The Respondent submitted that the Applicant did not, in August 1993, dispose of eligible know-how for reward:

(a)No disposal was effected by either agreement. Any disposal would have occurred by February 1993,  prior to the Applicant entering the Agreement with UBP in August 1993.  The agreements themselves did not involve any disposal of eligible know-how owned by the Applicant to UBP.

(b)The disposal of the know-how, if it occurred, was not for reward, although it may have been in the general commercial interests of the Applicant.  The Applicant did not carry on the business of disposal of know-how in Australia.

(c)The agreement in Photo Corporation was clearly one for Photo Corporation to provide know-how and not actual management to Parasol, which was an established company with its own Management established.  The Applicant here was providing management services. There is no statement in the agreement that the Applicant is the owner of know-how which it is willing to provide to UBP for consideration.

74.     It is not necessary, in the Tribunal’s opinion, for the Applicant to be involved in the business of disposing of know-how in Australia for it to be able to do so overseas.  The Applicant was ordinarily based in Australia and carried on its business here.  It then sought to expand its operations overseas and in order to do so had in some way to transfer its know-how overseas.  The contract with UBP clearly involves the provision of management and technical services to UBP.  The applicant’s know-how related to the manufacturing and construction and installation processes.  This it did not dispose of to UBP under the August 1993 agreement, subject to the comments below in relation to the services of Mr D Ferrara.  The reward was for the use of managerial personnel.

75.     The Tribunal notes that the agreement said to evidence the disposal for reward was not written by legal personnel and therefore may have assumed that the disposal of know-how may be effected by the agreement without being expressed in technical terms.

76.     That said, the know-how sought to be relied upon was knowledge of the industrial processes related to the Zincanneal frames.  This had been installed in the factory for no return prior to the agreement being entered into.  The agreement was undertaken for the purpose of enabling F&F Constructions to increase the sales of UBP products, and to enable UBP’s profits to be brought into Australia.

77.     The Applicant argues that the provision of management personnel can also constitute the disposal of know-how.  In principle, the Tribunal agrees with this.  To the extent that the know-how of a company can be held by its personnel, there is, as has been said before, no requirement for the know-how to be in tangible form.  It is a form of knowledge.

78.     Carr J notes [page 21 of judgment] that:

“I do not accept the Commission’s submission that the provision of services cannot at the same time relate to eligible services and the supply of eligible know-how.”

79.In this case, F&F Asia agreed to do the following, in return for monetary reward:

(a)provide a full time manager in the form of Mr Vasile

(b)provide a part time manager in the form of Mr D Ferrara

(c)provide other personnel from time to time to assist in the manufacture and sale of the products manufactured by the company.

80.Mr Vasile had knowledge of the processes and  uses of the metal frames.  This knowledge was originally obtained, according to the evidence of Mr G Ferrara before this tribunal, from Mr Vasile’s association with F&F Constructions.  Carr J  at page 23 commented that:

Assuming for the time being that eligible know-how was involved, it was not owned by F&F Asia. It was owned by Ashridge and MJB&B. A contractual arrangement whereby a party who owns know-how merely agrees with another contracting party to supply that know-how to a third party does not...confer ownership of that know-how on the other contracting party within the meaning of the Act.

81.Insofar as the “other personnel” (in paragraph 78(c) of these reasons) may have held know-how of any description, the agreement with F&F Asia to supply that knowledge to UBP did not amount to a disposal of eligible know-how owned by the Applicant.

82.The same reasoning applies to the provision of the services of Mr Vasile.  The Tribunal accepts that any knowledge held by him came about because of his association with F&F Asia.  He was, however, an independent holder of that knowledge and a third party within the reasoning of Carr J’s decision.

83.The provision of the services of Mr D Ferrara could have constituted the disposal of know-how (knowledge about the industrial processes involved in constructing and installing door frames) owned by the Applicant.  He was the general manager of F&F Asia and from his evidence at the original hearing was well versed with the production processes.  The knowledge held by him was know-how and was disposed of in return for the funds outlined in the agreement.  The tribunal notes that only the expenses (and not the salary) of Mr Ferrara were claimed.  Had the Tribunal been inclined to find that the expenses related to eligible know-how, there would have been a disposal for reward of that know-how.

disposal to a person resident outside Australia for use and enjoyment outside Australia

84.The Tribunal is satisfied that this requirement is met.  UBP were a Malaysian company based in Malaysia and all of its operations took place in Malaysia.

primary and principal purpose to increase return on disposal

85.The Applicant submitted that the expenditure met the “primary and principal purpose” test outlined in s11Z(9)(d) in the following submissions:

(a)The Tribunal has already determined that the expenditure was primarily and principally for the purpose of increasing the Applicant’s return on the disposal and should not seek to redetermine this issue.  In any event the original finding of the Tribunal was correct.  There was the possibility of a per frame return under the agreement with UBP.  The requirement to promote and enhance the operations of UBP was minimal.  The promotional efforts of F&F Asia went beyond this requirement, and the main purpose of the expenditure was to get as much money back from UBP as possible by promoting it.

(b)The fact that the Applicant was providing management to UBP did not prevent it from also providing know-how.  The reference in the Agreement to the applicant having technical skills is consistent with the Applicant having know-how and providing it to UBP for reward.

(c)F&F Asia, unlike Photo Corporation, was not simply an investor:

(i)Photo Corporation’s purpose may primarily have been investment but the same cannot be said of F&F Asia, since:

(a)Photo Corporation was contractually bound to provide funding in respect of the marketing and advertising programme.  F&F Asia was bound only to “promote” UBP.  There was no requirement for it to do so by way of the provision or investment of money.

(b)Photo Corporation also had no active promotional role. F&F Asia, in contrast actively undertook promotional activities, with marketing funds being primarily spent in Australia.

(c)F&F Asia was promoting the know-how itself, and not just the product, to the customers at which the promotion was aimed.

(ii)Section 11Z(9) does not contain a blanket restriction that one can never meet the section if one disposes of know-how to an overseas company in which one has shares.  F&F Asia did not have return on investment as its primary purpose just because it owns shares in UBP.  F&F Asia’s conduct in promoting UBP took it out of the general class of investors who own shares in companies.

(iii)F&F Asia was a 60% shareholder only in UBP.  It is more realistic to conclude that F&F Asia’s main purpose was to increase return on its disposal of know-how under the UBP agreement than to conclude that it would wholly fund promotional activities upon which it would only receive a 60% benefit.

(iv)The Photo Corporation case involved an existing company.  In such a case, it is more readily said that the purpose is to seek a return on investment.  In this case a return on the investment of a new business, was a long term hope rather than a realistic immediate purpose.

(v)It should be noted that in contrast to the Basketball and Photo Corporation cases, the agreement here was not written for the purpose of obtaining an export grant.

86.The Respondent submitted that the Applicant did not meet the purpose test:

(a)The EMDG act is concerned with encouraging certain types of export earning activity by the payment of grants as a reimbursement of a proportion of certain specified expenditure which is in turn aimed at promoting the export earning activities with which the particular Applicant is concerned.

(b)It is not concerned with overseas investment activities or overseas investment income, so if an Australian company invests money in an overseas company, expenditure incurred in promoting the activities of that overseas company would not be eligible expenditure for the purposes of s11A(1) of the Act.

(c)Here an Australian company was a sole or major shareholder of an overseas company, and expenditure by the Australian company promoting the overseas company’s product is not eligible expenditure.

(d)Even if the Tribunal found that the Applicant did dispose of eligible know-how owned by the Applicant to UBP, all of the marketing and promotional expenditure claimed in respect of the promotion of UBP’s business and products was not incurred primarily and principally for the purpose of increasing the Applicant’s return on that disposal.  The expenditure was incurred primarily and principally because the Applicant was contractually bound to undertake the promotional activities.

(e)The Tribunal in Photo Corporation referred to Parker Pen (Australia) and concluded that the primary reason for expenditure in that case was to make the promoted company a profitable company.  It was an investment by a parent corporation in its subsidiary with a view to making the revenues of the subsidiary greater.  The nexus that was needed for the purposes of s11Z(9)(d) is not made out.  The Tribunal should make a similar finding here.

(f)Given the initially fixed management fee and the fact that the return would only increase if sales were sufficiently high to make the RM$3 per frame calculation higher than the fixed fee calculation, and given that the first sales for UBP did not occur until May 1993, the expenditures by the Applicant here were less likely to be principally and primarily for the purpose of increasing return on the disposal.

87.As was said in the Basketball Management case:

“The general looseness of the language of the marketing agreement entitles one to have regard to this material and to the subsequent conduct of the parties to establish what it was that they contracted to do.  Having regard to the close relationship of the parties the actual words used should be subordinated to the commercial fact of the arrangement as they emerged in evidence.

What was done... was for the purpose of enabling the applicant to promote the prosperity of the Bullets, rather than to [promote the disposal of the applicant’s know-how [at page 458].

88.It is clear that the expenditure must be directly related to the purpose of increasing the return on the disposal of know-how to be primarily and principally for that purpose.  An indirect relation between the expenditure and the return on disposal of know-how is unlikely to be a primary and principal purpose.

89.In this case, the expenditure may have had several purposes, being:

(a)to increase the sale of UBP products so that the Royalty payments could increase

(b)to increase the profitability of UBP as a subsidiary-style company to F&F Asia;

(c)to increase the acceptance of the concept of steel door frames generally in Malaysia to make the future disposal of know-how of the production process more likely and more remunerative; or

(d)to fulfil the obligations of F&F Asia under its contract to provide management and promotional assistance.

90.The Tribunal must now decide on the evidence before it what the primary and principal purpose of the applicant, F&F Asia was.

91.F&F Asia were contractually bound to promote UBP’s products, irrespectively of the likely return they could obtain for doing so.  To this extent, a major motivation for undertaking the promotional activities was simply to fulfil the requirements of F&F Asia under its contract with UBP.  The Tribunal does not, however, find that this was the primary or principal purpose.

92.The facts in this case are strikingly similar to those in the Photo Corporation case.  It is the Tribunal’s finding that the disposal of know-how, if owned by the Applicant, occurred without reward by its setting up of UBP and investing it with the Colrol machine and production processes.  The evidence before the tribunal does not lead it to conclude that anything more was disposed of by the Applicant in the agreement with UBP.  The agreement relating to the disposal of know-how which existed in the Photo Corporation case is missing in the case under consideration.

93.Even if the Tribunal found that the agreement with UBP constituted a disposal of know-how, the expenditure was made by F&F Asia to increase the profit made by UBP.  UBP was the Trustee of a family Trust, the beneficiaries of which were held by the families of Mr Ferrara and Mr Fiaschi.  On the evidence of Mr D Ferrara, the management agreement was used to facilitate getting money (profits) into Australia. He said:

Very simply put, when I set up UBP, or Gurshon that became UBP, and had had no luck in trying to ... patent the product, I also had queries about the money being paid back to Australia:  were there any limitations, and I was advised back then by Shern Dellamore in Malaysia that the expertise would be put through a management fee because it was easier to get money back that way.  So originally the management fee was based on - a royalty based on technical expertise and marketing and it was a means of being easer to transfer money back.  We were worried about future profits and so on and so on.” (emphasis added).[Transcript p17]

94.This evidence indicates that the agreement was to set up a means of increasing the return on the sale of UBP products and to enable those returns to be removed from Malaysia.  The focus of the ultimate expenditure - on the marketing of the end result and the process - also lend themselves to the conclusion that the purpose of the advertising work was to increase the return on the investment undertaken prior to 31 August in setting up the subsidiary company.

95.In the Parker Pen case, The Court noted that the question of whether the expenditure meets the requirements of s11Z(9)(d) involves a subjective element

The purpose must be someone’s purpose.  It is the purpose of the person mentioned in the sub-section.  To ignore subjective elements is wrong.  There is, of course, a difference between the essential elements in the notion of purpose and the means whereby purpose is ascertained.  Purpose may be gleaned either from subjective or objective elements, or more usually, both.  A person may say what his purpose is, but the objective facts may cast doubt upon the credibility or reliability of his statement.  It is for the Tribunal of fact to consider all the circumstances and conclude whether the requisite purpose has been established.  Objective facts are usually more reliable than mere protestations of purpose, intent or state of mind although susceptible [sic] of testing in cross-examination are intrinsically inpenetrable [sic] and inscrutible (FLR 242)

96.The apparent differences outlined by the Applicant between this case and that in Photo Corp do not lead that case to be relevantly distinguishable.  The facts here, as there, are that the expenditure was to increase the sales of UBP products and the Tribunal finds, as a matter of fact, that:

>From the marketing agreement with UBP it is apparent that the prime reason for [the expenditure on marketing] was to assist UBP in its marketing and promotional program in order to develop its operating business.

97.There is one relevant difference between Photo Corporation and this case which bears mentioning.  In the present case the income to be derived by Applicant from its investment in UBP was to be returned by way of the Trust structure in place.  The Tribunal member in Photo Corp looked to the agreement there as evidence that this would allow the claimant to derive an income stream from Parasol even after the Applicant’s interest in such company may have been sold.  If the applicant had an investment in Parasol without the agreement, the income stream would cease if such interest was sold, the technology agreement continuing for an unspecified period.  In this case, the income of UBP, if sold, would cease to be able to be transferred to the Applicant in the absence of the agreement.

98.Adopting the words of the Tribunal in Photo Corporation to express this Tribunal’s findings on the evidence now before it, this Tribunal is satisfied that looking objectively at the evidence placed before it and the surrounding circumstances, the purpose of the marketing undertaken and the expenditure incurred under that agreement was to increase the number of  customers to whom the frames were sold by UBP and to increase the total revenue of that company. It was an investment by a parent corporation in its subsidiary with a view to making the revenues of the subsidiary greater.  The nexus that is needed for the purpose of s11Z(9)(d) is not made out on the material before the Tribunal.

s11ze Reimbursement

99. Section 11ZE of the Act relevantly provides:

11ZE   (1)       Subject to subsection (2) where qualifying export development expenditure incurred by a person (in this section called the “claimant):

(a) has been, or is to be, paid or reimbursed to the claimant by:

(i)        another person or

(ii)-(vi)  [not relevant]

(b) is incurred in respect of a qualifying export development activity, for which the claimant has been, or is to be paid by:

(i)        another person;

(ii)-(vi)  [not relevant]

that qualifying export development expenditure in relation to that claimant is to be ignored.

(1A)   For the purposes of subsection (1), the effect of writing off, waiving or otherwise releasing a person from, an obligation to repay or reimburse an amount is to be disregarded.

(2)     [not relevant]

100. The Applicant contended that the expenditure did not fall within the reimbursement provisions of s11ZE.

a)The agreement refers to the Company (UBP) reimbursing the Manager (F&F Asia/ F&F Constructions) certain costs by way of a management fee or royalty.  The agreement was prepared by Mr D Ferrara and the word “re-imburse” should not be technically construed - it is an inaccurate description of the substance of the clause.

b)The agreement actually provides for F&F Asia to receive an income from UBP.   The Applicant was then responsible for the expenses referred to in paragraph B of the terms and conditions, including salaries, fees and airfares from Australia for the provision of senior management personnel, as well as other costs under paragraph D, reasonably incurred by the Manager, being F&F Asia, in promoting the business.

c)The funds paid to F&F Asia were in the nature of income, not a reimbursement because they were not dependant on F&F Asia actually incurring any expenditure, or incurring expenditure in the amount of the payment to them.

d)Any reimbursement which was possible under clause C of the terms and conditions:

i)did not in fact happen, as UBP was not generating sufficient income to meet more than the monthly payments;

ii)in any event was solely at the discretion of UBP both as to whether any liability to pay expenses was to arise, and if so the amount of the liability; and

iii)there was therefore no present or certain liability to reimburse created by the agreement.

101. The Respondent contended that the expenditure has been paid or reimbursed to the Applicant by UBP and should be ignored under s11ZE(1) of the Act.

a)The terms of the Agreements committed the Applicant to regular monthly management expenses and expenses in respect of promoting the business of the company and clauses (b) and (d) of the Terms and Conditions provided a mechanism for the reimbursement of those expenses to the Applicant.

b)The monthly payments were not royalty payments linked to and dependant upon the level of sales of UBP’s products, but were a fixed amount, which was not negotiated between the parties at arms length and represented an average of the monthly expenses to be incurred by the Applicant under the agreement as estimated by the parties at the time.  F&F Asia had no other source of income to meet the expenses incurred.

102.The MacQuarie Dictionary (2nd ed) defines “reimburse” as:

“1.To make repayment to for expense or loss incurred.  2.  To pay back, repay.”

103.Under the terms of the agreement:

a)F&F Asia were responsible for all expenditure in relation to the provision of the full time general manager except for a RM$5000 per month salary and for the costs of accommodation and the provision of a motor vehicle.

b)F&F Asia were also responsible for the costs associated with the provision of the part time services of its general manager, D Ferrara and other personnel and consultants including air fares and accommodation and for those reasonable costs incurred in promoting the business of “the Company” Such costs for example, client entertainment and air fares and accommodation within Malaysia and South East Asia, to be submitted in writing by the General Manager to “the Company’s Managing Director for approval and by the Managing director to the Company’s board for their approval.

104.UBP was to “re-imburse” to the manager the costs, including salaries, fees and airfares from Australia incurred for the provision of senior management personnel by way of a Management Fee or Royalty.  The company was also responsible for other costs reasonably incurred by the Manager in promoting the business of the company provided they are approved in writing in the manner prescribed in clause (c) of the manager’s conditions.

105.The purpose behind s11ZE is to prevent claimants from being reimbursed twice - once under an agreement and once by way of a grant. The fact that the Reimbursement was insufficient to cover the entire amount expended, is catered for by the fact that the reimbursement is to be effectively offset against the grant.

106.The Applicant argues that there is no obligation to pay the amount unless and until the costs are approved by UBP in accordance with the agreement.  The Tribunal notes, however, that paragraph (b) reads “ ‘The Company’ is to reimburse” to the manager the sums referred to in that paragraph.  That the reimbursement is by way of funds described as a “Royalty” does not detract from the fact that it was a repayment, a reimbursement.

107.The same can be said for the balance of the expenditure.  There is an implied obligation on the part of UBP to repay reasonable expenses incurred and for which a claim is made by F&F Asia to UBP.  F&F Asia have not claimed that sum.  This is effectively a waiver of their right to receive it.  It is to be deducted from their claim for a grant.  Construing the UBP agreement as a whole, in the context of the background facts, F&F Asia have a right to recover reasonable expenses.  The reasonableness of the expenses are to be assessed in accordance with the procedure outlined in the agreement.

108.For these reasons the Tribunal agrees that the expenditure claims falls within the provisions of s11ZE.

Decision

109.In accordance with s43 of the Administrative Appeals Tribunal Act 1975, the Tribunal affirms the decision of the Respondent dated 4 October 1995.

I certify that this and the 53 preceding pages are a true copy of the decision and reasons for decision herein of Deputy President T E Barnett

Signed:         .....................................................................................

Associate

Date/s of Hearing  2 April 1997
Date of Decision  5 January 1998
Counsel for the Applicant         Mr F Carles
Solicitor for Applicant                Carles Solicitors
Counsel for the Respondent     Mr P Macliver
Solicitor for the Respondent     Australian Government Solicitor