Franks and Dairy Adjustment Authority - [2001] AATA 993

DECISION AND REASONS FOR DECISION [2001] AATA 993

ADMINISTRATIVE APPEALS TRIBUNAL )

) No N2001/397

GENERAL ADMINISTRATIVE DIVISION       )
           Re      Merilyn Franks
  Applicant
           And    Dairy Adjustment Authority
  Respondent

DECISION

Tribunal Mr R P Handley, Deputy President

Date6 December 2001
PlaceSydney

Decision The Tribunal affirms the decision under review.

..............................................
R P Handley
Deputy President
CATCHWORDS
DAIRY ADJUSTMENT AUTHORITY – Dairy Structural Adjustment Program Scheme 2000 – eligibility for standard payment right – whether Applicant held an "eligible interest" in the dairy farm enterprise – whether dairy farm enterprise entered into an "eligible dairy leasing arrangement" – whether milking shed used by enterprise situated on land leased by the Applicant

Dairy Produce Act 1986: Schedule 2 - clause 6, clause 7(1)(c), clause 10
Dairy Structural Adjustment Program Scheme 2000: ss 3, 5(1), 5(2), 9

REASONS FOR DECISION

6 December 2001 R P Handley

This is an application by Merilyn Franks ("the Applicant") for a review of a decision of a delegate of the Dairy Adjustment Authority ("the Respondent") made on 22 February 2001 which affirmed an original decision made by another delegate on 10 January 2001 that the Applicant is not eligible for a standard payment right under the provisions of the Dairy Structural Adjustment Program Scheme formulated under the Dairy Produce Act 1986 (Cth).
At the hearing, the Applicant was represented by her husband, Neil Franks, and the Respondent was represented by Jason Pizer, of Counsel. The evidence before the Tribunal comprised the documents provided pursuant to s 37 of the Administrative Appeals TribunalAct 1975 ("the T Documents"), together with the exhibits tendered by the parties. Mr and Mrs Franks gave evidence in person, and Ian Williams, David Wright and Peter Gardner gave evidence by conference telephone.
BACKGROUND
Albacore Pty Ltd, Mr and Mrs Franks' family company, owned the Crown Lease of a dairy farm near Parowa, South Australia, known as "Tara Springs", comprising section 292 Yankalilla, a parcel of 94.29 hectares. Adjacent to this land, Mrs Franks owns section 227 Yankalilla, a parcel of 97.94 hectares. On 11 August 1997, Albacore sold section 292 to RT & LE Gardner Nominees Pty Ltd, a family company owned by Peter and Sandra Gardner, and leased section 227 to the same company for a period of 5 years for the purpose of the Gardners' dairy farming enterprise. Mr and Mrs Franks are now involved in another farming enterprise near Yenda, NSW.
On 1 July 2000, the Australian dairy industry was deregulated. The Dairy Industry Adjustment Package was developed to assist the dairy industry adjust to deregulation. The Dairy Structural Adjustment Program Scheme was one of the programs in that package which provided for payments to be made to "eligible entities" by the Respondent.
On 7 August 2001, Mrs Franks lodged an application for a standard payment right, one of three types of payments available under the Scheme, in relation to section 227 Yankalilla, leased to Mr and Mrs Gardner for their dairy enterprise. On 10 January 2001, a delegate of the Respondent decided that Mrs Franks was not eligible for a standard payment right on the ground that there is no milking shed on the leased land, which is a requirement in the case of eligible dairy leasing arrangements where a quota was not required for the delivery of market milk by the enterprise in the base year.
This decision was affirmed on a review by another delegate on 22 February 2001 and, on 29 March 2001, Mrs Franks lodged an application for review by the Tribunal.
APPLICABLE LAW
The Dairy Industry Adjustment Program is set out in Schedule 2 of the Dairy Produce Act 1986 ("the Act"). Clause 10 of Schedule 2 of the Act requires the Minister to formulate a Dairy Structural Adjustment Program ("DSAP") Scheme for the grant of payment rights to entities who held an eligible interest in a dairy farm enterprise at 6:30 pm on 28 September 1999 and who satisfy certain other conditions.
Section 7 of the DSAP Scheme states there are three types of payment rights under the Scheme:
(a) standard payment rights;
(b) exceptional events supplementary payment rights;
(c)anomalous circumstances payment rights.

Section 9 states that to be eligible for a standard payment right in respect of a dairy farm enterprise, an entity must, first, have held an eligible interest in the enterprise at 6:30 pm on 28 September 1999, and, second, the enterprise must have delivered milk during the base year. The word "milk" is defined in section 3 as meaning "market milk or manufacturing milk". Market milk is that supplied for drinking purposes while manufacturing milk is that supplied for processing or manufacturing purposes. The expression "base year" is defined in section 3 as meaning "the financial year beginning on 1 July 1998".

The expression "dairy farm enterprise" is defined in clause 6 of Schedule 2 of the Act to mean "a business in Australia that delivers market milk and/or manufacturing milk". An entity will have an "eligible interest" in a dairy farm enterprise if the conditions set out in clause 7 of Schedule 2 are met, including, relevantly under clause 7(1)(c) if:
(i)under the DSAP scheme, the enterprise is taken to be subject to an eligible dairy leasing arrangement; and
(ii)under the DSAP scheme, the entity is taken to be a party to that arrangement.
The meaning of the expression "eligible dairy leasing arrangement" is explained in section 5(1) of the DSAP Scheme which provides relevantly:
(1) A dairy farm enterprise is subject to an eligible dairy leasing arrangement:
(a) …;or
(b)if quota was not required for the delivery of market milk by the enterprise in the base year, and the owner of the land on which a milking shed used by the enterprise is situated leases the land to 1 or more other entities for the purpose of producing milk.

Section 5(2) states:

(2) An entity is a party to an eligible dairy leasing arrangement if the entity is the lessor or lessee of a quota of land mentioned in this section

The issues in dispute

The question for the Tribunal to determine is whether Mrs Franks is eligible for a standard payment right under the provisions of the DSAP Scheme. There is no dispute that the relevant dairy farm enterprise, that of Mr and Mrs Gardner operated on sections 292 and 227 Yankalilla, delivered milk in the base year. Therefore, the issue on which the Tribunal must focus is whether Mrs Franks held an "eligible interest" in the enterprise at 6:30 pm on 28 September 1999.
There is no dispute that Mrs Franks leased section 227 Yankalilla to the Gardners on 11 August 1997 for the purpose of the Gardners' dairy farm enterprise. However, at issue is whether it is an "eligible dairy leasing arrangement" within the meaning of section 5(1) of the DSAP Scheme. In particular, since no quota was required for the delivery of market milk by the enterprise in the base year 1 July 1998 to 30 June 1999, the outstanding issue is whether there is a milking shed used by the enterprise situated on the land leased by Mrs Franks to the Gardners.
The evidence
Mr and Mrs Franks gave evidence about their purchase and management of "Taru Springs" before they sold the business to the Gardners on 11 August 1997 on a walk in, walk out basis. The sale included the parcel of land section 292 Yankalilla on which the farm buildings stand, and a 5 year lease of the parcel of land at section 227 Yankalilla. Mr Franks gave evidence that section 292 comprises 85.92 hectares of permanent rye grass sub-clover pasture and 8.37 hectares of swamp, stringy bark, shade, reserve and dairy yard races, a total of 94.29 hectares. Section 227 comprises 68.31 hectares of permanent rye grass sub-clover pasture, 2.63 hectares of swamp, stringy bark, shade and race ways, and 27.00 hectares of pinus radiata excluded from the lease to the Gardners, a total of 97.94 hectares.
Mr and Mrs Franks purchased "Taru Springs", including section 292 in 1982. Mrs Franks and her two sisters inherited section 227, and Mrs Franks bought out her sisters so that she and her husband could run the dairy farm with the two parcels of land. Mr Franks stated the dairy farm needed the extra pasture provided by section 227 to make the farm economically viable. With good management of the property, they expanded production significantly – from 120 cows in the early 1990s to about 150 cows in 1996/1997. Mr Franks' figures for the last 5 years when he and his wife ran the business showed an increase from 125 cows, producing 865,136 litres of milk in 1992/1993, to 146 cows producing 1,027,810 litres of milk in 1996/1997 (A1).
When Mr and Mrs Franks purchased Taru Springs, there was an existing milking shed near the farm house and buildings of Taru Springs, adjacent to Springs Road, which marks the far boundary of section 292. Rather than building a new milking shed nearer section 227, they decided it was more economical to convert the existing shed from a conventional walk-through shed to a nine aside herringbone dairy capable of milking up to 160 cows. This also necessitated building a larger dairy yard and replacing the existing milking plant and milk vat with larger models.
Mrs Franks said the paddocks furthest away from the dairy were used for calves and one to two year old heifers, for cows not in milk and for hay and silage making. The paddocks closest to the dairy were used as night paddocks and the others for cows in milk. This minimised the time required in driving the cows to the dairy for milking.
When Mr and Mrs Franks sold Taru Springs to Mr and Mrs Gardner in 1997, the Gardners negotiated the lease of section 227 to enable them to have access to the additional pasture. Mr Gardner acknowledged this is the most convenient way to run the property. He and his wife would like to renew the lease when it expires on 10 August 2002 and, ultimately, if Mrs Franks wishes to sell section 227, to buy that parcel. However, he said the enterprise could continue to operate without section 227 by buying in hay or leasing alternative pasture.
Mrs Franks estimated that 61 cows of the Gardners' 144 cow herd were supported by section 227. Mr Franks calculated the capital contributions to the Gardners' dairy enterprise as at 28 September 1999 were attributable as to 74.01% to the Gardners and 25.99% to Mrs Franks. Clearly, the Gardners' dairy enterprise was more profitable utilising the adjoining leased section 227. Mr and Mrs Franks therefore submitted that it is inequitable for the DSAP Scheme payment in respect of the enterprise to be wholly paid to the Gardners. Mr Franks said the value of his wife's property has also been affected by the deregulation of the dairy industry. When he and his wife sold the farm and his wife leased section 227 to the Gardners, they were not aware that the industry would be deregulated.
Mr Franks, Mr Gardner and Mr Williams (Mrs Franks' brother who has been dairy farming nearby for about 40 years) all gave evidence about the effect of deregulation on the price received by farmers for market milk and manufacturing milk. The price of market milk dropped significantly after deregulation but is now beginning to recover. The price of manufacturing milk has fared better. Mr Gardner said the average price for all milk (both market and manufacturing) was 25 cents a litre immediately before deregulation. The price fell to 21 cents a litre after deregulation, but this year has risen to 31 cents a litre.
Mr and Mrs Franks said they might seek to influence the Gardners in relation to the running of their business if this impacted adversely on the management of section 227. Under the terms of the lease, the Gardners have certain responsibilities in relation to their use of section 227, for example, the application of fertiliser and the maintenance of the pasture and fences. However, the Franks would not otherwise play any part in the management of the Gardners' business. Mr Gardner acknowledged his responsibilities under the lease of section 227. He said he and his wife have the sole management of their business with input from a farm adviser.
Mr Franks said he completed the Standard Payment Right application (T4) on behalf of his wife, who signed the application. He phoned the Respondent's "Help Line" for advice on completing the form because he was not sure of how to do this. He said the person he spoke to was not too clear either. He ticked the "No" box in answer to Question 11.1 "Do you wish to apply for an Anomalous Circumstances Payment Right?", because he thought this was the appropriate answer.
SUBMISSIONS
The Respondent
Mr Pizer, for the Respondent, submitted that the issue for the Tribunal to determine is whether Mrs Franks had an eligible interest in the Gardners' dairy enterprise at 6:30 pm on 28 September 1999. While there is no dispute that the Gardners use the pasture leased to them by Mrs Franks for the purpose of their business, there is no milking shed located on the leased land and, therefore, the lease is not an eligible dairy leasing arrangement. Thus, Mrs Franks does not have an eligible interest in the Gardners' dairy enterprise and is not entitled to a standard payment right.
Mr Pizer submitted the DSAP Scheme does not contemplate the aggregation of two pieces of land for the purposes of determining eligibility for payments. The Scheme clearly contemplates that different parcels of land should be treated separately. This is apparent from the plain words of the relevant provisions.
Mr Pizer contended that even if Mrs Franks were eligible for a standard payment right, her entitlement under the terms of the Scheme would be nil. Section 24 of the DSAP Scheme sets out the "face value" of each entity's standard payment to which enterprises subject to eligible leasing arrangements are entitled. In particular, sub-section 24(4) provides:
(4) The rest of the premium component of the overall enterprise amount is allocated to the entity or entities who are taken to have provided the essential capital contribution required to achieve access to the market milk premium for a dairy farm enterprise because it or they:
(a) owned the land on which the enterprise is predominately carried on; or
(b) owned at least 25% of the number of livestock used in, or for purposes incidental to, the carrying on of the enterprise.

There is no dispute that the Gardners' business is "predominantly carried on" on section 292 and Mrs Franks does not own any of the livestock used in the Gardners' business.

Finally, Mr Pizer contended that Mrs Franks would also not be entitled to an Anomalous Circumstances Payment because the Gardners' dairy enterprise did deliver milk during the base year, thereby excluding Mrs Franks from qualifying, pursuant to section 11(1A) of the DSAP Scheme.
The Applicant
Mr Franks said he rejected the legal position put forward by the Respondent. He said his wife had a significant capital investment in the enterprise at the time of deregulation. The sale of the farm to the Gardners was contingent on the lease of section 227 for the purpose of dairying. He contended approximately 61 cows of the Gardners' herd were supported by section 227, equivalent to 42% of production on a grazing basis. However, the capital contributions to the enterprise were, on his calculations, 25.99% Franks and 74.01% Gardners. [See paragraph 19 above as to Mr Franks' evidence.] If the enterprise were solely reliant on section 292, it would not be a viable economic unit. Section 227 provides valuable pasture for the enterprise.
Mr Franks submitted that his wife should, as a matter of equity, be considered as a stakeholder in the enterprise. The value of her asset had also been adversely affected by deregulation of the industry, which will make it more difficult to maintain an appropriate level of rent for the leased land. He contended that Mrs Franks' situation was anomalous and the payments under the DSAP Scheme should recognise the position of parties who have entered into legal agreements committing them to a dairy farming enterprise.
Mr Franks submitted that it is inequitable to apportion all the production of the Gardners' dairy enterprise to section 292 because this is not a true reflection of the actual operation of the dairy business. He said it is a matter of history that the milking shed is located on section 292. If further development of the farm had taken place, a new dairy had been contemplated on section 227 to service the two parcels of land and improve the strategic location of the dairy.

APPLICATION OF THE LAW AND FINDINGS

There is no dispute that the milking shed for the Gardners' dairy enterprise is located on the section 292 parcel of land and that there is no milking shed located on the section 227 parcel of land leased by Mrs Franks to the Gardners for the purpose of their enterprise. This finding effectively resolves the issue in dispute.
As explained above, to be eligible for a standard payment right under section 7 of the DSAP Scheme, an entity must, pursuant to section 9 of the Scheme, have held an "eligible interest" in that dairy farm enterprise at 6:30 pm on 28 September 1999. For Mrs Franks to have an eligible interest would require that the Gardners' dairy farm enterprise was subject to an "eligible dairy leasing arrangement". Section 5(1) of the Scheme requires, in the case of Mrs Franks' land, that there is a milking shed on the leased land. In the absence of such a milking shed, the lease is not an "eligible dairy leasing arrangement", Mrs Franks does not have an "eligible interest" and so is not eligible for a standard payment right under the DSAP Scheme.
In the Tribunal's opinion, the language of the Scheme is clear and unambiguous and does not permit a consideration of other factors on the ground of equity as contended by Mr Franks. The Tribunal must, therefore, affirm the decision under review.
I certify that the 31 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R P Handley, Deputy President
Signed:         .....................................................................................
  Associate
Date of Hearing  12 November 2001
Date of Decision  6 December 2001
Representative for the Applicant   Mr N Franks
Counsel for the Respondent    Mr J Pizer
Solicitor for the Respondent    Ms J Patterson, Mallesons Stephen Jaques