Good Earth Oils Pty Ltd and Australian Trade and Investment Commission
[2019] AATA 2353
•2 August 2019
Good Earth Oils Pty Ltd and Australian Trade and Investment Commission [2019] AATA 2353 (2 August 2019)
Division:GENERAL DIVISION
File Number(s): 2018/1976
Re:Good Earth Oils Pty Ltd
APPLICANT
Australian Trade and Investment Commission And
RESPONDENT
DECISION
Tribunal:Deputy President J Sosso
Date:2 August 2019
Place:Brisbane
The decision under review is affirmed.
.............................[SGD]........................................
Deputy President J Sosso
Catchwords
TRADE AND COMMERCE – EXPORT MARKET GRANTS – whether the Applicant satisfies the prescribed eligibility criteria for a grant under the Export Market Development Grants Act 1997 – whether the Applicant’s business or a part of its business is similar to Energreen Nutrition Australia Pty Ltd, to such an extent that the Applicant’s business should be treated as a continuation of Energreen Nutrition Australia Pty Ltd – decision under review affirmed.
Legislation
Export Market Development Grants Act 1997 (Cth)
Export Market Development Grants Bill 1997 (Cth)
Acts Interpretation Act 1901 (Cth)
Corporations Act 2001 (Cth)Cases
Allmaster Software Pty Ltd and Australian Trade and Investment Commission [2019] AATA 506
Australian Trade Commission v Isaac Jewellery Pty Ltd [2009] FCA 37
Bendigo and Adelaide Bank Limited v DY Logistics Pty Ltd [2018] VSC 558
Bishop v The Herald and Weekly Times Ltd [2010] VSC 471
Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 24 ALR 307
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
MZAIC v Minister for Immigration and Border Protection (2016) 237 FCR 329
Nysan Asia Pacific Pty Ltd and Australian Trade Commission [2015] AATA 2018
Preston SuperAccess Pty Limited and Australian Trade Commission [2013] AATA 537
Quinney v United Stevedoring Pty Ltd [1957] VR 484
Royal British Bank v Turquand (1856) 119 ER 886
Sydney West Area Health Service v Staracek (2008) 73 NSWLR 68
SZFDE v Minister for Immigration and Citizenship (2007) 237 ALR 64
SZGME v Minister for Immigration and Citizenship (2008) 168 FCR 487
The Eight Modern Chinese Restaurant Pty Ltd and Australian Trade Commission [2014] AATA 923
Troozi Pty Ltd and Australian Trade and Investment Commission [2018] AATA 4360Secondary Materials
Explanatory Memorandum to the Export Market Development Grants Bill 1997
Export Market Development Grants (Change in Ownership of Business) Guidelines 2016
Australian Oilseeds Federation Standards ManualREASONS FOR DECISION
Deputy President J Sosso
2 August 2019
INTRODUCTION
Good Earth Oils Pty Ltd (the Applicant) seeks review of a 2 March 2018 decision of the Australian Trade and Investment Commission (the Respondent) affirming a decision disallowing an application for an Export Market Development Grant (EMDG) for the 2016-2017 grant year.
This matter involves consideration of the Export Market Development Grants Act 1997 (the Act). The object of the Act is stated in s 3, “to bring benefits to Australia by encouraging the creation, development and expansion of foreign markets for Australian goods, services, intellectual property and know-how.” This object is sought to be achieved by the provision of “an assistance scheme under which small and medium Australian exporters committed to, and capable of seeking out and developing export business are repaid part of their expenses incurred in promoting those products”. The policy underpinning the grants is to provide financial assistance to eligible businesses in the form of partial reimbursement of expenses incurred.
Section 5 of the Act also makes it clear that the underlying principle in Part 3 (Persons eligible for a grant) are small or medium Australian businesses that are developing export markets for eligible products and which have a prospect of success in their export enterprise.
As the Respondent pointed out (Respondent’s Statement of Facts and Contentions (RSFC) para 8), the EMDG scheme is financially capped. To ensure that the capped amount of funds allocated for the scheme are distributed in accordance with the intention of the Act, and to prevent abuses, applicants’ are required to satisfy the strict and prescribed eligibility criteria.
Section 7 of the Act prescribes the general rules for eligibility. For present purposes, the key provision is s 7(1)(c) which provides:
“the person is not a grantee in respect of 8 or more previous grant years…”
In short, the scheme is not designed to provide indefinite funding for small and medium businesses. Rather, the intent is to provide short term targeted financing so that a fledging enterprise can start on the often difficult journey of marketing its product in foreign markets.
Attention also needs to be directed to the provisions in Division 2 of Part 8 of the Act which deal with changes in the ownership of a business. Section 93 outlines the Object of Division 2 which is to ensure that the rules relating to grants, including the limit on the number of grants, continue to apply to a business despite a change in who carries on the business. Subsection 93(2) provides that to achieve this, the CEO of the Respondent is to treat certain particulars of the previous owner of the business as being those of the new owner.
The Explanatory Memorandum to the Export Market Development Grants Bill 1997 provides the following rationale for what is now s 93:
“Clause 93 To prevent circumvention of a number of principles fundamental to this bill, it is necessary to have the power to negate the effect of certain actions by applicants. Two of the principles at risk are the eight grant per applicant limit and the rate of application of the export performance test. The EMDG scheme is based on 'individual legal identity'. That is, for example, the scheme does not recognise as an applicant, a division or branch within a company. On the other hand, the ownership of a company has no bearing on that company's status as an eligible applicant for grant - if it is registered in Australia (has an Australian company number) it is prima facie an eligible 'person'. It follows that a partnership registered in Australia is an eligible 'person'. It follows also that a second partnership with only one member different from the first partnership, is a separate legal identity, and may claim grants in its own right.
The creation of a ‘new’ identity’ of itself does not circumvent the principles of the bill. The focus is on the business carried on by another person, whether or not that other person is a 'new' person or an existing person. Should a person take over a business activity or part of a business activity previously carried on by another person, the new 'owner' gains the benefit of grants paid to the previous owner. In addition, as a separate legal identity with (say) no previous EMDG history, and without regard to the number of grants paid to the previous owner, the new owner has the right to receive eight general grants and additional “new market” grants - that is, the business gets all the benefits of a first time applicant. This situation could be repeated indefinitely. To prevent this occurrence this clause assumes that a continuing business environment exists until investigation by Austrade indicates otherwise. Where an exemption is not given, the grants history of the previous owner in respect of the particular business activity is assigned to the new owner.”Although the drafting of s 93 was significantly changed in 2006, nonetheless the above explanation clearly sets out the policy rationale behind the provision.
Section 94 is the key provision that gives effect to this policy. The aim of this provision is to ensure that a business does not become eligible for grants beyond the upper limit, purely because of a change of ownership. Section 94 is set out below:
Change in ownership of business etc.
“(1) Subsection (2) applies if:
(a) at any time, a person (the previous owner ) carried on a particular business (the old business ) in Australia; and
(b) at a later time, another person (the new owner ) carries on:
(i) the business or a part of the business (the relevant part ); or
(ii) a business (the new business ) that, at that time, is similar to the old business, or a part of the old business (the relevant part ), carried on by the previous owner before that time, to such an extent that the CEO of Austrade is satisfied that the new business should be treated as a continuation of the old business; and
(c) the new owner applies for a grant in respect of a grant year.
Note: Decisions whether 2 businesses are similar are subject to guidelines determined by the Minister under section 101.
(2) For the purposes of this Act, the CEO of Austrade must treat particulars of the previous owner as being those of the applicant in the following ways:
(a) any eligible expenses incurred by the previous owner in the capacity of owner of the business (or of the relevant part) are to be treated as having been incurred by the new owner;
(b) if the CEO had decided that the previous owner met the grants entry requirements -- the new owner is to be treated as if the CEO had decided that it had met the grants entry requirements;
(c) any grant, or advance on account of grant, paid or payable (whether under this Act or under the repealed Act) to the previous owner in the capacity of owner of the business (or of the relevant part) is to be treated as having been paid, or as being payable, to the new owner;
(d) any other aspect of the business (or of the relevant part) is to be treated as if it had been carried on by the new owner.”
Section 101 of the Act provides for the making, by legislative instrument, Guidelines, which are to be complied with by the CEO of Austrade in making various decisions under the Act. In particular, s 101(1)(d) allows for the making of Guidelines to be complied with by the CEO in determining, for the purposes of s 94(1)(b)(ii), whether a business or part of a business carried on by a person, is similar to a new business being carried on by another person to such an extent that the new business should be treated as a continuation of the old business.
Pursuant to this provision, the Export Market Development Grants (Change in Ownership of Business) Guidelines 2016 were made. These Guidelines apply in relation to EMDG applications made on or after 1 July 2016.
Subclause 4(2) of the Guidelines provide that in determining whether the new business is similar to the old business, the CEO must have regard to the similarities (if any) and the differences (if any) between the following matters:
“(a) the product of the new business and that of the old business; and
(b) the activities that are carried out in the course of the business of the new business and the activities that were carried out in the course of the old business; and
(c) the customers, including the export market customers, of the new business and those of the old business; and
(d) the directors, shareholders, and management personnel of the new business and those of the old business; and
(e) the suppliers to the new business and those to the old business; and
(f) the overseas representatives of the new business and those of the old business; and
(g) the employees of the new business and those of the old business; and
(h) the markets, including the export markets, of the new business and those of the old business; and
(i) the premises from which the new business is conducted and the premises from which the old business was conducted; and
(j) the logo of the new business and that of the old business; and
(k) the property and assets, including the intellectual property, of the new business and those of the old business.”
It will be noted that the Guidelines must be complied with by the CEO of Austrade, and are accordingly, binding on this Tribunal when performing its review function – Preston SuperAccess Pty Limited and Australian Trade Commission [2013] AATA 537 at [12].
The product the Applicant was seeking to export was described in its grant application as “Australian edible oil” – Exhibit 1 T6 p. 24. In response to a Question asking if the Applicant was carrying on a business, or had purchased a business or part of a business, or acquired significant assets from any other person/business that has or may have a received an EMDG, the Applicant answered “No” – Exhibit 1 T6 p. 25.
The Applicant was stated to have commenced business operations on 26 November 2015, with its business address as Unit 2, 100 Park Road, Slacks Creek, Queensland. The Directors of the Applicant were stated to be Gary and Christopher Seaton. Enquiries were to be forwarded to Mr Gary Seaton, Director (hereafter referred to as ‘Mr Seaton’). The Applicant was stated to have two employees and total business income for 2016-2017 of $216,419, with a loss of $142,016. In response to a Question whether the Directors had ever been involved with any other business that had previously applied for an EMDG, an affirmative response was recorded and the previous business was stated to be Energreen Nutrition Australia Pty Ltd (Energreen) – Exhibit 1 T6 pp. 24 – 25.
A total of $98,570 expenses were claimed, with $74,645 comprising representative’s fees (Mr Trent Paasch, Terra Food Source, LLC), $21,310 for marketing visits and $2,615 for Trade Fairs and promotional events – Exhibit 1 T6 pp. 26 – 27.
On 15 December 2017, the Respondent notified the Applicant that its EMDG application had not been successful – Exhibit 1 T29 pp. 87 – 88. The reasons given for the decision were as follows – Exhibit 1 T2 p. 8:
“Austrade has exercised its discretion under Section 94(1)(b)(i) or (ii) of the EMDG Act to declare the applicant to be carrying on the business activities previously conducted by Energreen Nutrition Australia P/L, which has received eight previous grants. Accordingly, the 2016/17 grant has been assessed as a year nine application. EMDG recipients are limited to a maximum of eight (8) grants, therefore no grant is payable. There is clear evidence that Energreen Nutrition Australia P/L has already promoted and exported cooking oils. The new market (Japan) is not sufficient reason for sec 94 exemption.”
On 2 January 2018, Mr Seaton, on behalf of the Applicant, sought a reconsideration of this decision, and provided the following reasons for disagreeing with the decision of 15 December 2017 – Exhibit 1 T30 p. 89:
“Good earth Oils is a completely independent company and has a right to apply for the EMDG grant in its own right.
The shareholders of good Earth oils are different from Energreen Nutrition and the assumption that it is Energreen applying for its 9th Year of EMDG application is incorrect.
We would like to have the opportunity to explain the operations shareholding and business plans of Good earth oils that in our opinion meets the criteria of The EMDG guidelines.
I am currently travelling overseas and will be returning to Australia on the 12th January.”
It should be noted that Mr Seaton’s email address was “[email protected]”.
On 14 February 2018, Ms Susan Wood, a Grants Auditor with the Respondent, forwarded to Mr Seaton a copy of the decision of Deputy President Tamberlin QC in Nysan Asia Pacific Pty Ltd and Australian Trade Commission [2015] AATA 2018 for consideration – Exhibit 1 T34 pp. 95 – 112.
On the same day Mr Seaton responded as follows – Exhibit 1 T35 p. 113:
“I have read the case mentioned and the circumstances of Good earth oils is different, compared to the Case mentioned. Good earth Oils is a separate company - from Energreen Nutrition with separate owners and shareholders compared to Energreen Nutrition. There are some common shareholders but GEO is totally independent company with a totally different business model and line of Business from Energreen Nutrition.
The company was not set up specifically to obtain an export marketing grant, because of the fact that Energreen had exhausted its seven applications under the EMDG grant guidelines.
It was set up specifically to market organic and cold pressed chemical free oils from Australia to International markets, completely different Business from Energreen Nutrition, with Different shareholders and employees from Energreen Nutrition.
Energreen did not export these products which are manufactured and produced by Cootamundra Oilseeds and Cowcumbla investments GEO is the export and International marketing arm of these 2 companies. This may be checked.
Oil exports by GEO are currently going to Japan and USA which is a new export development and promotion. Geo is also developing branded products in the edible oil category which we hope will grow into a global brand which will be of benefit to our country.
This is also the intention and philosophy behind the EMDG grant to help promote and support Australian entrepreneurship and Australian Manufactured products abroad.
I believe that GEO fits the EMDG criteria as well as the Intention behind the legislation.”
On 15 February 2018, the Respondent replied to Mr Seaton drawing his attention to the criteria outlined in subclause 4(2) of the Guidelines, and seeking his reply to each of the matters specified therein – Exhibit 1 T36 pp. 116 – 117.
On 26 February 2018, Ms Beth Angeles, on behalf of the Applicant, replied and responded to each of the criteria in subclause 4(2) – Exhibit 1 T39 pp. 131 – 137. In addition, attached to the email was the logo of the Applicant and also that of Energreen – Exhibit 1 T40 & T41 pp. 138 – 139. It is obvious from viewing the two logos that they have nothing in common.
The Applicant’s response to each of the criteria in subclause 4(2) is set out below – Exhibit 1 T39 pp. 133 – 134:
(a) – “GEO – Export of Australian Cold Pressed & Organic Edible Oils – Canola Oil & Olive Oil which was not carried out by Energreen Nutrition.”
(b) – “Good Earth Oils (GEO) export Australian Cold Pressed & Organic Edible Oils – Canola Oil & Olive Oil which was not carried out by Energreen Nutrition.”
(c) – “The customers of GEO are: DKSH Japan K.K., JIVO Wellness PVT Ltd, Senza Fine LLC (Centra Foods).”
(d) – “GEO: Director – Christopher Seaton
Shareholders: Cowcumbla Investments
Origin Food Ingredients Pty Ltd
Management & Personnel: Christopher Seaton & Tracy Hogan
Accounts: Wendy Duan
Energreen: Director – Gary Seaton
Shareholders: Gary Seaton
Iain Woodhill
Management & Personnel: Gary Seaton & Iain Woodhill
Accounts: Elizabeth Angeles”
(e) – “Cootamundra Oilseeds, ROBE and Aji-Koo (Japan).”
(f) – “Terra Food Source”
(g) – “GEO: Christopher Seaton & Tracy Hogan
Accounts: Wendy Duan
Energreen: Gary Seaton & Iain Woodhill
Accounts: Elizabeth Angeles”
(h) – “GEO: Japan, China, India & USA
Energreen: USA & Malaysia”
(i) – “GEO: Unit 2 100 Park Road, Slacks Creek QLD 4127.
Energreen: 2 Nerrima Street, Shailer Park QLD 4128.”
(j) – “as enclosed.”
(k) – “GEO – As per Balance Sheet – Trade Marks/GEO Brand
Energreen – no similar assets”.
The following day Mr Seaton sent a further email to the Respondent in which he supplied the following information on the “independence” of the Applicant to Energreen – Exhibit 1 T42 p. 140:
“As mentioned Good Earth Oils was established for the sole purpose of exporting Australia grown Non GMO Cold pressed Canola and other Vegetable oils grown in Australia including organic oils – It is not involved in any other import or export business at this stage. The second purpose of Good earth oils was to establish and develop a global brand for Good earth oils that could be marketed particularly in the USA.
The largest market is the USA where there is a growing health awareness particularly in California for Non Gmo Foods.
My Son Christopher is doing all the marketing and has been to the USA on sales and marketing trips. We had hoped to establish an Office in California for sales and marketing.
You may ask Why Am I involved in responding to these e-mails. The reason is that I am a major shareholder in Cootamundra Oilseeds who is a 50% partner of Good earth oils and whose oil Good earth oils is marketing, and the second reason is that I am more familiar with the EMDG process, Than Chris – This is his first exposure to the EMDG process.
Once we establish the acceptance of Good earth oils as an independent company who is entitled to the EMDG grants – Chris will follow up and take over the execution of future applications.”
On 2 March 2018, Mr Chris Papademetriou of the Respondent affirmed the original decision. In his letter notifying the Applicant Mr Papademetriou provided the following reasons for this decision – Exhibit 1 T48 p. 159:
“Austrade is of the opinion that Good Earth Oils export business is substantially similar to that part of the export business of Energreen to such an extent that Austrade is satisfied that the Applicant’s business should be treated as a continuation of the Energreen business.”
CORPORATE INFORMATION
Company searches conducted by the Respondent provide key information about the ownership and management of the Applicant and other corporate entities that are the subject of discussion below.
Information extracted from ASIC on 13 September 2017 disclosed that at that date, the Applicant (which is stated to have been active from 26 November 2015) had issued 100,000 ordinary shares. Of those, 50,000 were held by Origin Food Ingredients Pty Ltd and 50,000 by Cowcumbla Investments Pty Ltd – Exhibit 1 T25 p. 71.
The sole Director and Secretary of the Applicant was Christopher Seaton, who had been appointed in both instances on 26 November 2015 – Exhibit 1 T25 pp. 70 – 71.
As at 12 September 2017, the principal place of business was stated to be Unit 2, 100 Park Road, Qld 4127 – Exhibit 1 T25 p. 70.
Both this company extract, and an updated extract supplied by the Respondent on 22 March 2019, confirm that at no time was Mr Seaton a Director of the Applicant.
Origin Food Ingredients Pty Ltd was registered on 7 December 2015 and as at 27 October 2017 had issued two Class A shares and two Ordinary Shares, each of which were held by Mr Seaton and his son, Christopher Seaton. Also as at 27 October 2017, Mr Seaton was both the Secretary and a Director of Origin Food Ingredients Pty Ltd. Christopher Seaton was also a Director of Origin Food Ingredients Pty Ltd. The principal place of business was registered as Unit 2, 100 Park Road, Slacks Creek, 4127 – Exhibit 1 T28 pp. 83 – 85.
Energreen was registered as having being been registered as a proprietary company since 13 October 1999 with eight Class A shares and 192 ordinary shares issued. Mr Seaton was the holder of four Class A shares and 176 ordinary shares. Mr Iain Woodhill was the holder of four Class A shares and 16 ordinary shares. Mr Seaton was the sole Director and Secretary of Energreen and its registered office and principal place of business was stated to be Unit 2, 100 Park Road, Slacks Creek 4127 – Exhibit 1 T27 pp. 77 – 80.
The Applicant provided with its Outline of Submissions a letter dated 28 May 2019 from Mr David Fong, Principal Accountant with Tilley Business Accountants. Mr Fong stated that his firm acted as accountants for Cowcumbla Investments Pty Ltd, and that Mr Seaton was the principal and majority shareholder of the company.
THE HEARING
A Hearing was convened in Brisbane on 19 March 2019. Mr Seaton appeared for the Applicant and Mr Leerdam appeared for the Respondent. The only witness called to give evidence was Mr Seaton.
Leave was given for both parties to provide written closing submissions. The Respondent provided the Tribunal and the Applicant with its Outline of Submissions (ROS) dated 7 May 2019. The Applicant responded with its Outline of Submissions (AOS) dated 29 May 2019. In addition, other material was provided to the Tribunal, in particular on 22 March 2019 the Respondent provided the Tribunal and the Applicant with various company extracts relating to the corporate role of Mr Seaton in certain entities.
JURISDICTIONAL ISSUE
Apart from the key issue arising under s 94 of the Act, the Applicant raises an antecedent issue which must be addressed at the outset. Before dealing with the antecedent issue raised, it is necessary to point out that the Tribunal was not presented with a fully argued brief on the jurisdictional issues that were raised. The Respondent has, quite properly, raised some serious issues. In doing so, the Respondent highlighted various legal principles. It is the case, however, that the law in this area is complex and not all of the legal principles applicable to the jurisdictional challenge were ventilated by the Respondent. Further, the Applicant’s response was not particularly helpful. The Tribunal’s ability to deal properly and comprehensively with the legal points raised was therefore somewhat constrained.
As previously mentioned, in the Applicant’s application for a EMDG it is stated that the Company Directors during 2016 and 2017 were Messrs Gary and Christopher Seaton – Exhibit 1 T6 p. 25. The accompanying Applicant Declaration was executed by Mr Seaton in his capacity as a Company Director of the Applicant – Exhibit 1 T7 p. 35.
At the bottom of the Declaration Form is the following admonition:
“This declaration must be signed by either: the Managing Director, Chief Executive Officer, Registered Company Secretary, the company’s Director, Chief Financial Officer, or the Applicant, sole trade and partner.”
The Respondent submitted (ROS para 3) that it was common ground that Mr Seaton, despite his sworn evidence to the contrary, was never at any time a Director of the Applicant. In support of the proposition that Mr Seaton was not a Director of the Applicant at the time he signed the Declaration, reference is made to his testimony on 19 March 2019 – Transcript (Tr.) pp. 69 – 70.
The Applicant’s AOS is signed by Avinash Kedumulor, Company Secretary. In that document the following concession is made:
“We admit that this was an oversight that Mr. Gary Seaton was not a director of Good Earth Oils at the time of the application signing, but he was a partner in Good Earth Oils through his substantial shareholding in Cowcumbla investments which owned 50% of Good Earth Oils.
Mr. Gary Seaton is a reputed and respected businessperson both domestically and internationally and as claims by the respondent that he intentionally and falsely mislead tribunal is strongly denied.
Under the EMDG legislation – partners of the business are entitled to lodge an EMDG claim on behalf of the company then Mr. Gary Seaton in his capacity as a partner has a right to do so (Addendum 1 and 2).”
It is therefore common ground that Mr Seaton was not a Director of the Applicant when he signed the Declaration.
Section 4 of the Act provides that “a person” that is eligible under Part 3 for a grant, and who has incurred eligible expenses, and has applied for a grant in accordance with Part 7, is entitled to a grant in the amount worked out under Part 6.
“Persons” eligible for a grant are prescribed by s 6 of the Act, and include “a body incorporated under the Corporations Act 2001” – s 6(1)(b).
Part 7 of the Act deals with applications for, and payments of, grants. Subsection 70(2) provides that a grant application must:
“(a) be in a form, and made in a manner, approved by the CEO of Austrade”.
Division 2 of Part 7 (ss 74 – 79) proscribes a disqualified person from helping in the preparation of a grant application. Where a disqualified person (who is defined by s 78) has assisted in the preparation of a grant application, specific provision is made for the application being taken not to have been made – s 75.
Division 2A (ss 79A – 79E) provides that the CEO of Austrade must reject a grant application if the CEO becomes aware that the application has been prepared by, or the preparation of the application has been helped by, an “excluded consultant”.
It is tolerably clear, then, that the Act makes specific provision for those circumstances when an application is either deemed not to be made or must be rejected. Absent the circumstances catered for by Divisions 2 and 2A of Part 7, there would appear to be no statutory mandate for the automatic rejection of a grants application. In short, there is, prima facie, a discretion vested in the CEO of Austrade to determine, on a case by case basis, whether an application has sufficiently complied with the requirements of the Act and subordinate legislation.
Reference can also be made to s 25C of the Acts Interpretation Act 1901 (Cth) which provides that where an Act prescribes a form, then, unless the contrary intention appears, strict compliance with the form is not required and substantial compliance is sufficient.
It should be noted that this provision reflects the position at common law – see Quinney v United Stevedoring Pty Ltd [1957] VR 484 at 489.
The applicability of s 25C to the form determined by the CEO of Austrade is not clear, as the form is not actually prescribed in the Act or Regulations, but the power to determine the content of the form is delegated to the CEO of Austrade – see Sydney West Area Health Service v Staracek (2008) 73 NSWLR 68.
Nonetheless, even if s 25C is not applicable, as previously noted, substantial compliance with a form is the common law position.
A perusal of the more recent case law on compliance with forms illustrates a clear trend at both Commonwealth and State levels of adopting a liberal approach to what constitutes substantial compliance, even to the extent of expanding the concept of substantial compliance to incorporate use of a different form, provided that the information provided substantially complies with the mandated requirements – see the Full Federal Court decision of MZAIC v Minister for Immigration and Border Protection (2016) 237 FCR 329.
What constitutes “substantial” compliance with a Form necessarily is predicated on the terms of the particular statutory regime in question. However, there appears to be at least one fundamental principle that underpins the various cases on substantial compliance. Where a person has completed a form and the information is deliberately misleading, there cannot be substantial compliance – see, for example, Bishop v The Herald and Weekly Times Ltd [2010] VSC 471.
It can be accepted that the characterisation of Mr Seaton as a Director of the Applicant could be characterised as misleading, however there is a need to consider the implications of his misdescription as a Director and the submissions of the Respondent.
The Respondent contends (ROS para 4) that this state of affairs requires consideration of s 127 of the Corporations Act 2001 (Cth). Subsection 127(1) provides:
“(1) A company may execute a document without using a common seal if the document is signed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director who is also the sole company secretary -- that director.
Note: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(5) for dealings in relation to the company.”
The Respondent submitted (ROS para 5) that the prerequisite for the valid execution of a document is, inter alia, the signature of the relevant company’s Director, and in support of that proposition quoted from the Victorian Supreme Court decision of Bendigo and Adelaide Bank Limited v DY Logistics Pty Ltd [2018] VSC 558.
The passages cited by the Respondent are found within that part of the judgment which is entitled:
“Whether a company may execute a document as deed under s 127(3) of the Corporations Act if two directors sign the document, for the purpose of s 127(1), by authorising their facsimile signatures to be affixed to the document”.
The Court had before it a dispute over the validity of the execution of two loan deeds which were not actually signed by the Director and Secretary of the relevant company, but instead two facsimile signatures were affixed to the loan documents. The issue to be determined was whether the Director and Secretary had actually “signed” the loan documents in accordance with s 127 of the Corporations Act. Justice Croft in Bendigo and Adelaide Bank Limited v DY Logistics Pty Ltd found that s 127 had not been complied with because there was no evidence before the Court that the officers had authenticated the relevant document by authorising the affixing of the facsimile to the document, and, in fact, had no involvement in the production or authentication of the particular document.
The circumstances before the Court in that matter are clearly distinguishable to the factual matrix presented to the Tribunal.
Unfortunately, whilst the Respondent drew the Tribunal’s attention to s 127 of the Corporations Act, it did not address ss 128 or 129 of the Corporations Act. These sections allow for the application of the “indoor management rule” otherwise known as the rule in Royal British Bank v Turquand (1856) 119 ER 886.
As a general rule, the common law principles of agency apply to companies. If a person, with the actual or ostensible authority of a company, holds out that he or she acts on behalf of the company, then, prima facie, a third person can rely upon those representations – Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.
In this case whilst Mr Seaton was not a Director at the time he signed the relevant Form, he did so, based on the evidence before the Tribunal, with the actual or ostensible authority of the Applicant. His execution of the Form was not designed to harm the Applicant nor was it an action contrary to the plans of the Applicant. In short, Mr Seaton acted in a way which facilitated the intended course of action of the Applicant and the Respondent was at liberty to rely upon his ostensible authority to execute the Form.
If this had not been the case, then there would be force in the Respondent’s submissions (ROS paras 7 – 10) that the application by the Applicant had not been validly made. In the event that a person without the actual or ostensible authority of a corporate entity has signed a document, then there is scope, depending on the factual matrix, to adopt the approach outlined in Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 24 ALR 307 and the “persisting lack of authority” principle expounded in SZGME v Minister for Immigration and Citizenship (2008) 168 FCR 487. In this case, however, the “persisting lack of authority” principle is not apposite.
In these circumstances despite Mr Seaton not being a Director of the Applicant at the time he executed the Form, the common law and statutory principles set out above, lead to the conclusion that there has been substantial compliance with the relevant Form, and the principles of corporate agency apply.
This, however, does not finally dispose of the jurisdictional challenge made by the Respondent. The Respondent further contends (ROS para 11) that even if the Tribunal finds that a valid application has been made, nonetheless the conduct of Mr Seaton was lacking in good faith and the Tribunal has no proper evidence before it as to whether the Applicant ever intended to lodge an application for a EMDG grant. Further, it is submitted that where a grant for a EMDG grant has not been bona fide made, the CEO of Austrade has the discretion under s 96(1) of the Act to disallow the amount claimed – ROS para 11.1.
The Respondent contends that the state of affairs merits the description of a fraud on the Tribunal and cites as authority for this proposition the High Court decision of SZFDE v Minister for Immigration and Citizenship (2007) 237 ALR 64.
The Tribunal has before it submissions lodged on behalf of the Applicant in which there is no disavowal of the actions of Mr Seaton signing the application form. Indeed, Mr Seaton gave extended evidence to the Tribunal as a witness for the Applicant. At no stage has the Applicant ever suggested that Mr Seaton did not act on its behalf.
There is a significant difference between the actions of a “sloppy” or “negligent” applicant, and one where there is a conscious intention to mislead or to go further and perpetrate a fraud. There is no evidence of the latter behaviour in this case. Mr Seaton’s mistaken decision to sign an application form as a Director of a company, which office he did not hold, is not symptomatic of an intention to mislead the Respondent by falsely holding out an authority to make the application.
The actions of Mr Seaton are, however, symptomatic of his own belief about his relationship with the Applicant, and, indeed, the Applicant’s apparent belief about its relationship to Mr Seaton, both of which are germane to the fundamental issue before the Tribunal.
ISSUES
The Respondent contends (RSFC para 19) the issues to be determined by the Tribunal are whether either pursuant to s 94(1)(b)(i) or (ii) of the Act, the Applicant carried on the business, or part of the business, of Energreen (Test 1) or whether the Applicant’s business was similar to that of Energreen, or a part of Energreen, such that the Applicant’s business should be treated as a continuation of that of Energreen (Test 2).
The applicability of Test 1 to the facts of this matter is discussed below.
In addition, the Respondent raised a further legal issue in its ROS (at para 13) namely, whether the phrase “at a later time” in s 94(1)(b) of the Act only requires a comparison of the export sales activity of the Applicant shortly after 30 June 2016 (when the Applicant commenced operations) and the export sales of Energreen leading to that time.
CONSIDERATION
Legal Overview
It is helpful to commence the consideration of this matter by quoting the overview given by Deputy President Tamberlin QC in Preston SuperAccess Pty Limited and Australian Trade Commission [2013] AATA 537:
“26. It is clear from ss 93 and 94 of the Act that the limitation on the number of grants requires consideration of the similarities and differences between the businesses carried on, notwithstanding the change in ownership. Under the Guidelines, consideration must be given to the directors, shareholders and management personnel of the new and old businesses. Businesses can be substantially similar notwithstanding that there has been a development or variation in the range or type of product or service provided in the course of the business. A variation in the nature or type of product or in the manner in which the business is carried on is, of course, a relevant factor to be taken into account under the Guidelines.
…
28. The considerations that products sold are more technically advanced, or the business is conducted on a larger scale, do not of themselves necessarily mean that the new business is not to be treated as a continuation of the old business: see Re Amlink Technologies Pty Ltd and Australian Trade Commission (2005) 86 ALD 370; [2005] AATA 359 at [66].
29. Nor does the fact that the new business evolves or develops as a result of a competitive market pressures mean that the business cannot be treated as a continuation of the old business: see Re Magee and Australian Trade Commission (1994) 36 ALD 304 at 311. The comparison of the degree of similarity between the businesses requires a balancing and weighing of the considerations required to be taken into account by the Guidelines, in light of the evidence, and forming a degree of satisfaction based on an evaluation of the relative weight to be assigned to the relevant considerations. It is not a mathematical exercise, but one of factual evaluation and weight: see Re Fairlight Instruments Pty Ltd and Australian Trade Commission [2013] AATA 231 at [55].”
The two “tests” in s 94(1)(b)
It will be noted that s 94(1)(b) contains two limbs. Each limb was referred to by the Respondent as a “test”.
The two limbs or tests are in the alternative. The word “or” and not the conjunction “and” separate them. In short, if an Applicant fails either test, then a grant is not payable under the Act – see Tr. p. 13.
Further, “the issues to be determined under each subparagraph require the application of different criteria” – per Cowdroy J Australian Trade Commission v Isaac Jewellery Pty Ltd [2009] FCA 37 at [29] (Isaac Jewellery). It would therefore be an error for the Tribunal to deal with both limbs simultaneously using the same criteria. Each limb or test deals with a different factual scenario. The first is predicated on the continuation of a business but with a change of ownership, whereas the second envisages a new business regardless of whether the old business has dissolved or not.
Subparagraph 94(1)(b) – generally
The Respondent drew the Tribunal’s attention to recent decision of Deputy President Constance in Allmaster Software Pty Ltd and Australian Trade and Investment Commission [2019] AATA 506 (Allmaster) where reference was made to the opening word words of s 94(1)(b): “at a later time”. Deputy President Constance made the following observations:
“23. Although marketing of the Quisine product continued for only a short period after the Applicant’s purchase of the business, this is sufficient to meet the requirements of subsection 94(1). The subsection requires only that the business be carried on ‘at a later time’ to the time in which it was carried on by the previous owner; there is no requirement for the business to be carried on for any particular period of time.
24. Having decided that the Applicant carried on the Quisine business after it was purchased from the previous owner, and it being accepted that the Applicant thereafter applied for a grant in respect of the 2014-2015 grant year, the requirements of subsection 94(1) are satisfied. Subsection 94(2) therefore applies.”
The Respondent also drew the Tribunal’s attention to a recent decision of Senior Member Kelly in Troozi Pty Ltd and Australian Trade and Investment Commission [2018] AATA 4360 (Troozi).
Senior Member Kelly observed that the eligible promotional activity for the purposes of s 37 is for an approved promotional purpose carried out during the grant year. The conclusion reached by Senior Member Kelly is unimpeachable.
The factual matrix before Deputy President Constance in Allmaster is distinguishable from that before the Tribunal in this matter. In Allmaster there was a clear and unmistakable transition from the business of one company to another, albeit for a short period of time. Indeed, the undisputed evidence was that the later company purchased the assets of the Quisine division from the former company for $280,000 (at [11] and [12]) in 2006 and continued to operate it for approximately six months thereafter (at [[20]). It is not necessary for the determination of this matter to consider whether the conclusion reached by Deputy President Constance is the preferable one. All that need be noted is that the conclusion he reached was reasonably open both on the facts and the law.
In this matter the Applicant is a new company, and, ostensibly, has no formal legal links with Energreen. The Applicant has not purchased part of the business of Energreen, nor is there any legal documentation that would suggest a formal transition of part of the business of Energreen to the Applicant. It will be seen, therefore, that the circumstances presented to Deputy President Constance are different to those presented to the Tribunal in this matter.
In short, the issues raised by the Respondent are not of assistance in resolving the fundamental issues before the Tribunal, namely whether either Test 1 or Test 2 is met.
Subparagraph 94(1)(b)(i) – Test 1
In Isaac Jewellery his Honour, Cowdroy J, made the following important observations:
“32. Further, the Court considers that the Tribunal should not have considered s 94(1)(b)(i) of the EMDG Act in its review of Austrade’s decision. The test under s 94(1)(b)(i) requires a factual consideration of whether the new owner is carrying on the business or part of the business. This does not require an investigation of the similarities between the old business and the new business, as subparagraph (i) does not anticipate a new business being in existence. The only question to be considered under such subparagraph is whether the business, previously conducted by its former owner, is being conducted by the new owner.
33. Since there is no issue that the old business, namely ABJ, had ceased to operate, the Tribunal had no reason to consider s 94(1)(b)(i).”
As explained by Cowdroy J, there is no scope in this matter for the Tribunal to consider the first test, as the question to be determined is not whether there is a new owner of Energreen, but, rather, whether a new corporate entity (the Applicant) is carrying on the old business, or part of the old business, of Energreen, namely the export sale of edible canola oil – see also The Eight Modern Chinese Restaurant Pty Ltd and Australian Trade Commission [2014] AATA 923.
A large proportion of the Respondent’s written submissions and oral presentation was predicated on the relevance of Test 1 to the facts of this matter. Unfortunately, the Respondent did not draw the Tribunal’s attention to the above critical observations of Cowdroy J.
As the Tribunal finds below that the Applicant has failed Test 2, it was not considered necessary to require the parties to attend a further Hearing with attendants cost and inconvenience. It is to be hoped that the important observations of Cowdroy J are given due consideration in the future when similar matters are being reviewed by the Respondent.
Subparagraph 94(1)(b)(ii) – Test 2
The issue to be resolved in s 94(1)(b)(ii) of the Act is one of fact and degree requiring the consideration of the factors set out in the Guidelines.
Guideline (a) – product of the new business and that of the old business
This guideline focuses the attention of the decision-maker on a consideration of the similarities between the products of the old and new businesses.
The Applicant contends that Energreen’s business and that of the Applicant are completely different. The focus of Energreen, it is contended, is primarily the marketing of stock feed to the domestic market, while the Applicant’s business is cold pressed, non-GMO and chemically free edible oils – AOS p. 3. The Applicant made the following submissions – AOS pp. 2 – 3:
“It has been clearly demonstrated through the analysis of the respective accounts of Good Earth Oils Pty Ltd and Energreen Nutrition during the appeals hearing that the purpose and functioning of the two companies are completely different. The contention by the respondent that the sole purpose of setting up Good Earth Oils Pty Ltd was to continue the business of Energreen Nutrition for the purpose of obtaining a 9th round of EMDG grant has been clearly proven not to be the appeal hearing conducted on the 19th March. The contention that the applicant has acted at the behest of Energreen Nutrition to claim a 9th grant beyond the statutory limits is strongly denied.
19. We stand by the statement, that Good Earth Oils was formed exclusively for sales and marketing of Non-GMO, chemical free and cold pressed oils and the range of products are different from that of Energreen Nutrition.
…
20.2 Markets of Australian export are normally similar for agricultural products. Australian products are sold at a premium to more developed economies. Good Earth oils products are more expensive and sold to more developed markets.
20.3 Energreen’s core business is stockfeed while Good Earth Oils was set up primarily for marketing and exporting of the purpose of products that were Non-GMO, chemical free and cold pressed. So, the claim made by respondent is false.”
It is the case that the Applicant’s business is focused on the sale of non-genetically modified, chemical free, cold pressed edible oils, including sunflower, olive and canola oil. These oils are of premium quality and purely for human consumption.
This particular product is not marketed by Energreen, and the percentage of Energreen’s total sales in any given year for oils was initially stated by Mr Seaton to be only one percent. Mr Seaton testified that the vast bulk of Energreen’s sales are from unrefined agricultural products and domestic food trading – Tr. p. 20.
Mr Seaton’s initial testimony (Tr. pp. 19 – 20) was that the one percent of sales of conventional non-animal fat oils is for the primary production market, and the oils sold are not the non-genetically modified, chemical free and cold pressed edible oils which are the sole focus of the Applicant’s enterprise – see the evidence of Mr Seaton Tr. pp. 17 – 21.
Mr Seaton’s initial evidence, and the Applicant’s initial written submission, were that the oils sold by Energreen are used in the animal feed industry as feed solvent for animal feed and not for human consumption – see Applicant’s Response to the Respondent para 25 – 26.
During the cross-examination of Mr Seaton it became clear that this alleged state of affairs was incorrect.
Mr Leerdam drew Mr Seaton’s attention to details of Canola and other oil sales by Energreen in the final year it received an EMDG (2015 – 2016) – Exhibit 2 T11 p. 38.
Under the heading “Canola Oil” is listed 14 sales to three different customers: Bakels Edible Oil (NZ) Ltd, Moulin De-Saint-Vincent and Riverina Oils & BioEnergy Pty Ltd.
The sales of Canola Oil to Bakels Edible Oil (NZ) Ltd amounted to $1,271,806 in the 2015 – 2016 financial year. The following exchange occurred between the Tribunal and Mr Seaton – Tr. p. 27:
“Just before we go on. And I’m looking at the same document as you are, Mr Seaton. The reference to edible oils is the company that purchased the oils. Bakels Edible Oils New Zealand Limited?---Yes.
Is that correct? So the issue is, was that company, which is called Bakels Edible Oils, purchasing the canola oil for animal, agricultural or human use? --- For Bakels Edible Oils New Zealand, that’s an edible oil company. So they would be purchasing for edible use.
But when I asked you the question earlier, you said that the 1 per cent of the business that was canola oil for Energreen was entirely for agricultural use of it (indistinct)?---Yes, it is. At this particular year it might have been slightly different, but these other – and as I said it’s 1 per cent of our turnover is, you know, of Evergreen’s turnover is going for Canola oil. The second company there is a feed company Willine St Vincent [sic – Moulin De Saint-Vincent]. That’s a feed company in the Pacific Islands.”
It should be noted that the sales to Moulin De Saint-Vincent amounted to only $72,523, or approximately 5.7 percent of the amount sold to Bakels Edible Oils.
Unfortunately for the Applicant, the testimony of Mr Seaton after this point did not advance its cause.
Mr Seaton was specifically asked if the sales to Bakels Edible Oil (NZ) Ltd were the only sales of edible oils for human consumption by Energreen in the 2015/2016 financial year. His response was as follows (Tr. p. 27):
“So the only company there that is in the edible side is Bakels.”
Shortly after this, I asked Mr Seaton a specific question aimed at ensuring that the Tribunal proceeded on a correct factual foundation – Tr. p. 28:
“Can you tell me on oath, then, whether that was a one-off situation… it’s important for me to understand and for the respondent to understand?---Yes
Was the sale to Bakels Edible Oils basically unique occurrence… or is it standard practice for you to export canola oil for human consumption?
…
Are these the only examples or basically, the only examples of exports of processed canola oil for human consumption?---Yes.”
Unfortunately, when Mr Leerdam again commenced cross-examining Mr Seaton it became obvious that his answers to the questions posed by the Tribunal were incorrect.
At the bottom of p. 38 of Exhibit 2 under the heading of “RBD Oil” were three export assignments to two corporate entities. The first two were to “Cibaria International Inc.”. The two sales were made on 8 December 2016 and 8 February 2017 for a total value of $247,396.36. The third sale was on 1 July 2017 to American Vegetable Oils Inc., in the sum of $27,853.20.
Mr Seaton’s attention was drawn to these sales, and he said (Tr. p. 29): “I think American vegetable oil is for feed”. However, Mr Leerdam then directed Mr Seaton to pp. 40 – 41 of Exhibit 2 which were copies of a Commercial Invoice for the sale to American Vegetable Oils Inc. The documentation described the goods sold as “Non GMO RBD Canola Oil” – Exhibit 2 p. 40
When confronted with this documentation, Mr Seaton agreed that the sale to American Vegetable Oils Inc. was in fact non-genetically modified canola oil for human consumption.
It is then, manifestly clear that by the final year of receiving EDMG’s, Energreen was developing a market for the sale of canola oil for human consumption, and in that year alone sales of more than $1.2 million were generated. The documentation before the Tribunal establishes that in the 2015/2016 financial year, non-genetically modified canola oil was exported by Energreen to at least New Zealand and the United States. Mr Seaton agreed, under cross-examination, that in that financial year, Energreen’s total sales would have been between $40 and $45 million – Tr. p. 29. Assuming that is an accurate estimate, then the sales of non-genetically modified canola oil for human consumption would have comprised approximately 5 percent of Energreen’s sales, and not 1 percent estimated by Mr Seaton.
It also became clear from Mr Leerdam’s cross-examination of Mr Seaton, that the fundamental difference between the canola oil sold by Energreen in 2015/2016 and that sold by the Applicant, was that the former was expeller pressed whilst the latter was cold pressed. Although there was some confusion about the difference between the two (see Exhibit 4 – “Cold Pressed vs. Expeller Pressed”), the Tribunal accepts the explanation given by Mr Seaton that expeller pressed oils involve artificial heating during the pressing process, whereas cold pressing does not involve artificial heat – see Tr. pp. 32 – 34.
The Tribunal agrees with the Respondent’s submission (ROS para 23.1) that the product sold by the Applicant is simply a cold pressed version of what was sold by Energreen. The product is essentially the same, and the differentiation is found in the process by which it is manufactured. Both Energreen and the Applicant are engaged in the business of selling canola oil for human consumption. The only difference is that the product the Applicant markets has evolved into a more expensive and environmentally “friendly” version aimed at the premium end of the market – see Tr. p. 32.
Guideline (b) – activities carried out in the course of the business
It also flows from the evidence outlined above, that both Energreen and the Applicant have carried on, and carry on, similar activities, namely the promotion, sale and export of edible canola oil.
Neither company is involved in the manufacture of the edible oils sold. Both companies are customers of Cootamundra Oilseeds, whose company’s product range includes cold pressed canola oil, extra virgin grade oils, premium grade light coloured canola oil and blended cold pressed oils – Exhibit 3. The documents admitted into evidence indicated that Cootamundra Oilseeds, which was incorporated in December 1991, commissioned its first oilseeds crushing plant in 1992 and has a seed processing capacity of 36,000 metric tons annually.
Mr Seaton also testified (Tr. p. 71) that Energreen is a customer of a corporate entity referred to as “Robe” which supplied “hot pressed” canola oil.
The Respondent submitted (ROS para 23.4) that the commercial classification and retail treatment of cold pressed canola oil and expeller pressed canola oil varies little, and fails to receive any different regulation under the Australian Oilseeds Federation Standards Manual.
In summary, then, the activities of Energreen and the Applicant are similar insofar as both are engaged in the export sale of edible canola oil. Both entities are not engaged in actual pressing of canola and purchase pressed canola oil from suppliers, including Cootamundra Oilseeds.
Guideline (c) – customers
When Mr Seaton first gave evidence he testified that there was no overlap whatsoever between the Applicant’s customers and those of Energreen – Tr. p. 22. However, during the course of his testimony Mr Seaton gave a more nuanced explanation, and it became clear, that there had been a substantial overlap between those customers of the two entities who purchased cold pressed edible canola oil. The following exchange is illustrative of this fact – Tr. p. 69:
“DEPUTY PRESIDENT: What is the – of the customers, and the customers are simply the countries – the export countries but also the people – more importantly the people purchasing the product. Is there any overlap between the customers of product – of the canola oil products sold by Energreen and those by Good Earth?--There could be, there could be, because, you know, some customers that are buying conventional oils, which they have been for the last 20, 30 years, we’re obviously marketing to them to try and get them to take on board this new product that’s, you know, chemically free, non-GMO, et cetera. So there could be an overlap between previous customers and these new products that GEO is trying to market.
Let me word it a bit differently. Of the customers you are currently selling to, what is the extent of the overlap?---The overlap at the moment is – because the first place of – I would have to – I would have to look at the numbers.
Yes. I don’t need it with apodictic arithmetic certainty, just---?---I would say maybe 30 percent are existing customers and 70 per cent are new customers. Because the first place of call that you will go is who in the oil business, who can we convert to these new products. And obviously naturally you will go with the people you know.”
As Mr Seaton explained, the platform for the Applicant’s sales strategy was approaching those customers of Energreen who were already purchasing edible canola oil and extolling to them the virtues of non-genetically modified, chemical free, cold pressed canola oil. Clearly, as Mr Seaton testified, that strategy was at least partially successful, with a substantial overlap between the customers of Energreen and those of the Applicant, but as with any new business, the Applicant was actively seeking out new customers.
Mr Seaton went on to explain (Tr. p. 69) that the extent of the customer overlap by the date of the Hearing was zero percent because of what the Tribunal assumes was a very successful campaign of developing new customers.
Accordingly, Mr Seaton’s evidence was that when the Applicant made its grant application there was a significant customer overlap with Energreen, and a deliberate marketing strategy of seeking to obtain sales from Energreen customers. However, over a relatively short period of time, a successful strategy of seeking out new customers had been implemented.
Mr Seaton also helpfully outlined the current and future sales strategy of the Applicant. He explained that whilst the Applicant was currently focusing its export attention on the United States and Japan, looking to the future it would likely be “Taiwan, China, Vietnam, Thailand, Philippines. I think America is just an opportunistic market” – Tr. p. 68.
It is tolerably clear, then, that Energreen was making a very deliberate attempt by 2015/2016 to develop an export market for cold pressed edible canola oil, with a focus, initially, on New Zealand and the United States. For some time Energreen had also been focusing its attention on East Asian markets, and at least by 2010 had targeted opportunities in Malaysia, Taiwan and Japan for its broader agricultural business – Exhibit 2 T3 p. 4. It is also tolerably clear that the Applicant initially targeted the edible canola oil customers of Energreen for the sale of its premium oil product and that this strategy was at least partially successful. In these circumstances the Tribunal is satisfied that there was, during the grant year in question, a significant overlap between the customers of Energreen and the Applicant.
Guideline (d) – directors, shareholders and managers
It is abundantly clear from the evidence that the various entities involved in the sale and marketing of canola oil, are under substantial control by Mr Seaton and his family.
First, shares of the Applicant are owned equally by Origin Food Ingredients Pty Ltd and Cowcumbla Investments Pty Ltd.
The shareholders of Origin Food Ingredients Pty Ltd are Gary and Christopher Seaton, with each holding 50 percent of the issued shares.
Mr Seaton is also a shareholder in Cowcumbla, holding 15,000 ordinary shares and having been a Director of that company since 30 May 2014 – ROS para 23.6. In fact, the Respondent contended (RSFC para 25.4) that the major shareholder of Cowcumbla is Australian Oilseeds Investments Pty Ltd, which lists the same registered business address as the Applicant – Exhibit 1 T37. The second largest shareholder of Cowcumbla is Soon Soon Oilmills SDN BHD, a Malaysian company that was a major purchaser of oil products from Energreen – Exhibit 2 T10.
At the time the grant application was made Mr Seaton was both a Director and the Secretary of Origin Food Ingredients Pty Ltd – Exhibit 1 T28 p. 84.
Turning then to Energreen Nutrition Australia Pty Ltd, of the 192 ordinary shares issued, some 176 are held by Mr Seaton, and of the eight Class A shares, 4 are held by Mr Seaton. At the date of the grant application, Mr Seaton was the sole Director and Secretary of Energreen.
When giving testimony, Mr Seaton informed the Tribunal that he had been involved with Energreen for approximately 20 years since shortly after its founding. Mr Seaton agreed that he had an intimate knowledge of the operation of Energreen, its corporate goals, and how it intended to give effect to those goals – Tr. pp. 16 – 17.
The Respondent contends (ROS para 23.8) that it is sufficiently clear that the corporate structure of the Applicant’s business is intimately connected to that of Energreen so as to represent the existence of direct and indirect financial interests and corporate overlap between the organisations.
The Tribunal agrees with this submission. The intimate connection between the various corporate entities outlined above and the overlapping role and influence of Mr Seaton was made abundantly clear when he testified.
Mr Seaton was asked about the reasons for the incorporation of the Applicant. The following exchanged occurred – Tr. p. 17:
“DEPUTY PRESIDENT: When Good Earth Oils was established, was it established at the instance of Energreen or was it established separate to the will of Energreen?...In other words, how did it come to be established?
MR SEATON: Okay, I mean good question. It was a combination of factors; Good Earth Oils, as I said, was a start of a new company, a new business concept focused on organic oils and cold pressed oils, which Energreen was not doing. Energreen was doing conventional oils and we had another company which my son was running - his name’s Chris Seaton – called Origin Food Ingredients and that was set up to do organic foods and other food ingredients which is predominantly sort of domestic business.
So there’s no export of that business at the moment, but that was the concept of Good Earth Oils; was to go into different organic food ingredients. And the main business of Energreen is animal feed, animal feed products; not in oils.”
Mr Leerdam extensively cross-examined Mr Seaton about the reasons for the incorporation of the Applicant and its relationships with the other corporate entities discussed previously. The following exchange occurred at the end of this part of the cross-examination – Tr. pp. 58 – 59:
“It’s quite clear, we say, from the evidence that you’ve given so far, that there has been some kind of business arrangement or agreement as between Energreen and Good Earth Oils, which in effect had the effect of spinning off Good Earth Oils to getting to the cold pressed canola market, and the agreement over and above a transition phase was that Energreen would not, itself, get into that market and compete, if you like, with Good Earth Oils. There was – given that you’re the director, you were, at the relevant time, the director of both companies, are you able to comment on the proposition I’m putting to you, that there was a certain specified business arrangement that culminated in that proposition?---No it wasn’t a spin-off, as you referred to it, it was a creation of a new company to focus on a new business development of new products.
…
You’ve presented, in your evidence, copies of the accounts and the balance sheet, and it clearly shows that in the P&L and the balance sheet that Good Earth Oils was only handling oils. I think the turnover for that year was something like $300,000. Energreen – let me finish, please. Energreen’s turnover is $40 to $45 million. So to say it’s a spin off, I mean the finances and the business model doesn’t support that. It’s a creation of a new company for a new business model.
But it’s a spin off in the sense, that there was an agreement that Energreen would not get into a cold press canola market?---There was not agreement.
But your evidence is that it didn’t?---No, no, it didn’t. It didn’t because my son was – called Christopher Seaton, he was involved in the Origin Tea business and then he said he also, you know, sees that there would be an opportunity in this new era of oils, cold pressed oils, so that was his – that was his initiative. But it wasn’t a – I was just there to lend some support to a son who was starting out in business, and it wasn’t a spin off. It was the creation of a new business, of a new business model, that’s all.
But it was nevertheless the case---? ---Because Energreen is still conducting business in oils. Energreen didn’t stop its oil – if there was a spin off, then we would have given the whole oil business to Good Earth Oils. If it was what you’re alluding to, why would Energreen retain some oil and not give it all to Good Earth Oils.
But you agree it wasn’t a coincidence that Energreen did not get involved in the cold pressed canola export business?---Well, it’s not a coincidence, that was a joint business decision based on a business model.
And it was a business decision based on the fact that Good Earth Oils was going to get into it?---Yes, Good Earth Oils was because they were focusing on that. And, as I said, if it was a spin off then we would have given all of the oil business to Good Earth Oils. Why would Energreen just retain the animal feed business?”
At the conclusion of Mr Leerdam’s cross-examination, I asked Mr Seaton the following questions – Tr. p. 59:
“DEPUTY PRESIDENT: Just – let me ask you some propositions?---Yes.
And you can respond. It wasn’t a mistake that Good Earth Oils was created in the first place?---No, it wasn’t a mistake.
It was a considered decision, and was it a decision predicated on the assumption that there was a market for cold pressed canola oil, a niche market, and is a market not predicated on sales for agricultural use, and that the customers for that product would be different than the customers for the hot pressed, if I can call it that way, canola oil?---Yes, I think it’s fair to say that. And this concept is more around health, a lot of the food products that we eat today have got chemicals in them, and a lot of the diseases are as a result of the chemicals in the food supply chain---
And would it have been advantageous in successfully marketing a boutique expensive product in a retail market for it not to be associated with a company that was selling mass agricultural food?---I think yes. I think you could argue – you could argue along those lines, yes…”
When denying that the Applicant had been incorporated purely as a device to avoid the imposition of the eight grant limit, Mr Seaton made the following statement – Tr. p. 9:
“…we haven’t set up this company, Good Earth Oils or Good Earth Oils hasn’t been set up for the purpose and intention of solely trying to get an export marketing development grant. Because it’s very clear that we spent much more money than the export marketing grant. So that is applied as a motive for doing it, which is not correct. And I’m a businessman that is a director of public companies and private companies, more than 50 throughout the globe, including Australia, Singapore, London, India, Sri Lanka. I don’t have the reputation for doing things that are against the law or with intent to deceive anybody.”
Mr Seaton was asked what was the primary reason for the incorporation of the Applicant, and he gave the following answer – Tr. pp. 60 – 61:
“…it was set up to develop and market and sell a completely different line of products that was in the health food range, and to develop brands both internationally, as well as---
But why did you need a new company to do that? You could have used an Energreen brand to do that, and you had an existing corporate entity to do it?--- Well, because – I think Energreen is, you know, basically a feed company. It’s – majority of its business is supplying stock feed and animal feed. You know, if you were feeding animals with additives, et cetera, and you’re associating that with food for humans, there’s a bit of a – you know, a differentiation required there. And we also wanted to have the differentiation between conventional oils, which we regard as carcinogenic for people’s health, and these oils which are considered healthy oils and good for your health.”
Mr Seaton is directly, or indirectly, involved in each of the corporate entities involved in the purchase, sale and promotion of edible canola oil. The extent of his involvement is clear from the above transcript extracts. He is clearly in a position to indirectly control the activities of the Applicant, and it would be a fair observation that he plays an important role in its day to day operations. His shareholding permeates Cowcumbla Investments, Origin Food Ingredients, Energreen Nutrition and the Applicant. He is a Director of both Origin Food Ingredients and Energreen Nutrition. He was so intimately involved in the Applicant that he signed the grant application as a Director, even though he was not a Director at the time. The fact that he was able to appear before the Tribunal on behalf of the Applicant and testify for a number of hours about the intimate workings of all of the above companies, the reason for the incorporation of the Applicant and the goals and future plans of the Applicant, strongly suggests that the Applicant is not a corporate entity operating in a vacuum, but an integral part of the Seaton Family’s corporate business whose operations are inextricably intertwined with the overall plans of that family business.
Guideline (e) – suppliers
The evidence discloses that the major supplier of cold pressed canola oil to both Energreen and the Applicant is Cootamundra Oilseeds – see the evidence of Mr Seaton Tr. p. 71. Energreen has purchased expeller pressed oilseeds from other suppliers (e.g. ROBE), but as this product is not sold by the Applicant there is no overlap with ROBE or similar suppliers.
Guideline (f) – overseas representatives
It would appear from the evidence presented that Mr Trent Paasch, Managing Director, Terra Food Source, was assisting both Energreen and the Applicant with their endeavours to export edible canola oil (as well as other “agricultural products”) to the United States.
The overseas representative agreements between Mr Paasch and Energreen (Exhibit 2 T9 pp. 14 – 17) and the Applicant (Exhibit 1 T14 pp. 43 – 46) are, for all intents and purposes, the same.
It should also be noted that in both instances the agreements between Mr Paasch and both companies were executed by Mr Seaton.
Guideline (g) – employees
There is no indication that the employees of Energreen and the Applicant are common in any respect. Although the evidence presented on this aspect of both corporate entities operations is not extensive, the Tribunal has proceeded on the assumption that there is no overlap in employment between Energreen and the Applicant. This assumption is based on the following testimony of Mr Seaton – Tr. p. 72:
“DEPUTY PRESIDENT: Mr Seaton, how many employees have Good Earth Oils at the moment?---Good Earth Oils has got – well, at that particular time, three.
Good Earth Oils in 2017 had three employees?---Three employees.
Were they previously employees of Energreen or were they employed independently of that?---No, they were employed independently of that.
Never worked for Energreen?---Never worked for Energreen…”
Guideline (h) – markets
The Tribunal accepts that Energreen sells a diverse range of products, and exports to markets that have no relation to the business, or proposed business, of the Applicant. One example given by Mr Seaton was the sale of “hot pressed” canola oil to a feed company in Papua New Guinea called Niugini Tablebirds – Tr. p. 22. Evidence was also given of canola oil sales to Moulin De Saint-Vincent which Mr Seaton testified was a feed company operating in the Pacific Islands – Tr. p. 27.
Mr Seaton helpfully explained that the current market for the Applicant’s export of canola oil was the United States, but due to Canada being the world’s largest producer of canola oil, the natural focus of the Applicant’s plans for future exports would be towards East Asian markets.
The Tribunal accepts that there is a degree of overlap in the markets for both Energreen and the Applicant, but it is likely that with the effluxion of time the markets for the two companies will increasingly diverge.
Guideline (i) – business premises
From its incorporation, the Applicant has been co-located with Energreen – see the testimony of Mr Seaton – Tr. p. 71.
Both the Applicant’s and Energreen’s principal place of business since mid-2016 has been Unit 2, 100 Park Road, Slacks Creek. Both companies operate within one floor of each other, but both have separate leases – Tr. pp. 71, 73.
Guideline (j) – the logo of the new and the old business
There is no similarity between the logo of the Applicant (Exhibit 1 T40 p. 138) and the logo of Energreen (Exhibit 1 T41 p. 139).
Guideline (k) – property and assets
The Respondent submits (RSFC para 25.11) that the property, machinery and product should be the main point of comparison in terms of similarities between the property and assets of the Applicant and Energreen. It is further submitted that these are the same and the main point of difference is that the intellectual property and websites of the two businesses are different.
It is clear from the material presented, that both the Applicant and Energreen obtain their edible oil from Cootamundra Oilseeds. It is also a company that Mr Seaton has a direct financial interest in. It is, in fact, somewhat difficult to disentangle the complex and various interconnections between these companies.
It is also the case that the Applicant is a new business and in the early stages of development. Clearly there is a marked degree of dependence on assistance from Mr Seaton and the other companies he is connected with.
CONCLUSION
The evidence before the Tribunal highlights that Energreen has been established for some time and is a bigger, more diverse and profitable enterprise than the Applicant. In comparison the Applicant is a fledgling enterprise whose focus is specifically on the premium end of the human edible oil market, with a specific focus on non-genetically modified, chemical free, cold pressed canola oil.
Energreen is a relatively large enterprise and sells a range of products, although the bulk of those sales are to the agricultural sector. The proportion of Energreen’s sales of processed oils for human consumption represents only a small proportion of its overall business.
However, when one compares the business of the Applicant with the human consumption oil sales of Energreen, it is clear that they are basically the same business. Both are part of the Seaton Family business, they are both co-located in the same premises, there are overlapping shareholdings, directorships and Mr Seaton plays a dominant role in each of the family companies. Further, when the Applicant was established it relied on the customers of Energreen and used the same overseas representative as Energreen.
Additionally, neither company manufactures the product it sells. Both rely on Cootamundra Oilseeds, another related company.
Clearly there is a difference in the oil product sold by the Applicant and Energreen. The Applicant is aiming at the premium and health conscious end of the market. The Tribunal has no reason to doubt the energy that Mr Seaton and others are investing into making the Applicant a success and trying to develop new export markets. The Tribunal was also impressed by the way that Mr Seaton explained the operations of the Applicant, and it is clear that he is an experienced businessman who has expert knowledge of the canola oil market.
Nonetheless, the evidence leads to the conclusion that the Applicant has evolved from Energreen and the difference between the two, so far as canola oil sales, is one of degree and not kind. In addition, the two companies form part, as already explained, of a bigger corporate structure such that it would be artificial to assume that they operate in a vacuum. Indeed, the operations, strategies and future direction of the Applicant are inextricably intertwined with the overall direction and future of the Seaton Family business.
The Tribunal finds that the Applicant should be treated, for the purposes of s 94(1)(b)(ii) of the Act, as a continuation of the business of Energreen.
DECISION
The decision under review is affirmed.
I certify that the preceding 158 (one hundred and fifty-eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President J Sosso
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Associate
Dated: 2 August 2019
Date of hearing: 19 March 2019 Date final submissions received:
Representative for the Applicant:
Solicitors for the Respondent:
29 May 2019
Mr Gary Seaton
DLA Piper Australia
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