Isaac Jewellery Pty Ltd and Australian Trade Commission
[2009] AATA 713
•21 September 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 713
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2007/5644
GENERAL ADMINISTRATIVE DIVISION )
ReIsaac Jewellery Pty Ltd
Applicant
And Australian Trade Commission
Respondent
DECISION
TribunalMr R P Handley, Deputy President
Date21 September 2009
PlaceSydney
DecisionThe decision under review is set aside and the matter is remitted to the Respondent with the direction that s 94(1)(b)(ii) of the Export Market Development Grants Act 1997 does not apply in this case.
..............[sgd]................................
Mr R P Handley
Deputy President
CATCHWORDS
EXPORT MARKET DEVELOPMENT GRANTS – eligibility – change in ownership of business guidelines - continuation of old business – new business – decision under review set aside
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RELEVANT ACT
Export Market Development Grants Act 1997: ss 94, 101
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CITATIONS
Re Isaac Jewellery Pty Ltd and Australian Trade Commission [2008] AATA 758
Australian Trade Commission v Isaac Jewellery Pty Ltd [2009] FCA 37
Re Muirfield International Group Pty Ltd and Australian Trade Commission [2002] AATA 506
Re Rimslow Global Pty Ltd and Australian Trade Commission [2008] AATA 555
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OTHER AUTHORITIES
Export Market Development Grants (Change in Ownership of Business) Guidelines 2006: s 4
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REASONS FOR DECISION
| 21 September 2009 | Mr R P Handley, Deputy President |
The decision under review is a decision by the Australian Trade Commission (Austrade) to disallow an application by Isaac Jewellery Pty Ltd (Isaac Jewellery) under the Export Market Development Grants Act 1997 (Cth) (the EMDG Act) for a grant in respect of claimed expenditure of $120,114 in the 2006-2007 grant year.
The matter has been remitted to the Tribunal by the Federal Court on a successful appeal by Austrade against a decision of the Tribunal (Re Isaac Jewellery Pty Ltd and Australian Trade Commission [2008] AATA 758) that was set aside by the Court: Australian Trade Commission v Isaac Jewellery Pty Ltd [2009] FCA 37.
background
The background to this matter was set out by the Federal Court at [5] to [13] as follows:
[5]ABJ Australia Pty Limited (‘ABJ’) conducted a business as a designer, manufacturer and wholesaler of jewellery in Sydney for approximately 25 years. Its directors were Mr Isaac Atakliyan (‘Mr Atakliyan’) and his brother Aram. The business exported substantial quantities of manufactured jewellery and received grants under the EMDG Act.
[6]In 2004 following a disagreement each brother formed new companies and commenced separate businesses both engaged in the manufacture of jewellery. The equipment and the stock used in the business of ABJ were divided between the two brothers. In July 2005 Isaac Jewellery Pty Ltd (‘Isaac Jewellery’) was incorporated and Mr Atakliyan became its sole director and share holder. In around September 2005 Mr Atakliyan purchased a property in Market Street, Sydney and conducted the operations of Isaac Jewellery from that premises. The purchase price was partly met using a portion of the proceeds of the sale from the property which had been formerly owned by himself and Aram, and had been used by ABJ for the conduct of its business.
[7]On 6 July 2007 Isaac Jewellery lodged an application form with Austrade for a grant under the EMDG Act in respect of claimed expenditure incurred during 2006/2007 in the amount of $120,114.
[8]Section 101(1)(d) of the EDMG Act empowers the Minister for Trade (‘the Minister’) to determine, by legislative instrument, ‘guidelines to be complied with by the CEO in determining, for the purposes of subparagraph 94(1)(b)(ii), whether a business or part of a business (the old business) that was carried on by a person is similar to a business (the 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’.
[9]The Export Market Development Grants (Change in Ownership of Business) Guidelines 2006 (Cth) (‘the Guidelines’) in respect of s 94 were made by the Minister on 19 July 2006. Section 4(2) of the Guidelines specifies eleven criteria which must be considered by Austrade in determining whether the new business is similar to the old business.
[10]Austrade, having applied the criteria, rejected the application for a grant by Notice of Determination of Grant dated 27 July 2007. Austrade considered Isaac Jewellery to be a continuation of the business previously conducted by ABJ. Since ABJ had exhausted its entitlement to grants, Isaac Jewellery’s application for a further grant was refused.
[11]Isaac Jewellery thereafter sought a review by Austrade of the decision. The review was duly held but it concluded that Isaac Jewellery was ineligible upon the following grounds:
“Section 94 of the EMDG Act applies if a person is carrying on a business (new business) which is similar to one carried on previously by another person (old business) and the two businesses are similar to such an extent that Austrade is satisfied that the new business should be treated as a continuation of the old business. We note that in your case the old business, ABJ Australia Pty Ltd, has been the recipient of the maximum entitlement of seven grants up until the 2003-04 grant year.
Austrade has carefully examined and taken into account the criteria set out in the Ministerial Guideline EMDG (Change of Ownership Guideline) 2006 in deciding whether Isaac Jewellery P/L should be treated as a continuation of the old business. Accordingly, Austrade has concluded that there are too many similarities NOT to warrant the application of Section 94 and that Isaac Jewellery P/L therefore be treated, for EMDG purposes, as continuing the old business thus inheriting the grant history of ABJ Australia P/L. As ABJ Australia P/L has received 7 prior grants, I regret to advise that Isaac Jewellery P/L are [sic] no longer eligible for a grant.”
[12]Isaac Jewellery sought judicial review of Austrade’s review decision before the Tribunal. The Senior Member, in determining the review in favour of Isaac Jewellery said:
“I have identified the two questions that I must consider as whether Isaac Jewellery carries on:
(a)the business, or part of the business, carried on by ABJ: section 94(1)(b)(i); or
(b)a business similar to the business, or part of the business, carried on by ABJ, to such an extent that the new business should be treated as a continuation of the old business: section 94(1)(b)(ii);
The questions are most conveniently addressed together.
In applying section 94, I, as the decision-maker standing in Austrade’s shoes, am required to take into account the Export Market Development Grants (Change in Ownership of Business) Guidelines 2006 (the “Guidelines”): s 101(1)(d).”
[13]Having taken into account the criteria specified in the Guidelines, the Senior Member concluded:
“I have therefore come to the view, having regard to the factors identified in the Guidelines, that Isaac Jewellery is [sic] neither carries on the same business, or part of the same business, carried on by ABJ, nor does it carry on a business similar to the business, or part of the business, carried on by ABJ to such an extent that the new business should be treated as a continuation of the old business.”
the relevant law and guidelines
Section 94 of the EMDG Act states relevantly:
(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:
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(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;
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Section 101(1) of the EMDG Act empowers the Minister to determine, by legislative instrument, various guidelines, including under s 101(1)(d):
(d)guidelines to be complied with by the CEO in determining, for the purposes of subparagraph 94(1)(b)(ii), whether a business or a part of a business (the old business) that was carried on by a person is similar to a business (the 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.
On 19 July 2006, pursuant to the power in s 101(1)(d), the Minister made the Export Market Development Grants (Change in Ownership of Business) Guidelines 2006 (the Guidelines). Section 4(2) states:
(2)In determining whether the new business is similar to the old business, Austrade must have regard to the similarities (if any) and the differences (if any) between:
(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.
the outcome in the federal court
In the Federal Court, Austrade contended that the Tribunal made two errors of law in reaching its decision. First, that the Tribunal misconstrued and misapplied s 94(1)(b) of the EMDG Act by conflating the matters to be considered under ss 94(1)(c)(i) and (ii). Secondly, that the Tribunal erred in applying the Guidelines to s 94(1)(b)(i) of the EMDG Act. Cowdroy J concluded, at [34]:
… the Tribunal misconstrued and misapplied s 94 of the EMDG Act by failing to perceive that the circumstances to which s 94(1)(b)(i) applied were not relevant to the review before the Tribunal, and further by considering that the Guidelines applied to both ss 94(1)(b)(i) and 94(1)(b)(ii).
His Honour also said, at [32] and [33]:
32.Further, the Court considers that the Tribunal should not have considered s 94(1)(b)(i) of the EMDG in its review of Austrade’s decision. …
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). The issue for determination was whether the new business was similar to the old business as provided for in s 94(1)(b)(ii). This distinction appears to have been overlooked by the Tribunal.
Justice Cowdroy allowed the appeal, set aside the Tribunal’s decision, and remitted the matter to the Tribunal, differently constituted, for determination according to law.
issues in the remittal proceedings
Miss Henderson, for the Respondent, submitted that Cowdroy J's comment at [33] “was, with respect, wrong”. She contended that His Honour misread s 94(1). Sub-paragraph (a) draws a distinction between “a person (the previous owner)” who carried on a business (the old business), and the “particular business (the old business)” itself. Miss Henderson said:
His Honour was apparently under the impression that section 94 only applies where a previous owner has “ceased to operate”. There is no requirement to that effect in the section. It is, therefore, appropriate for the Tribunal to consider section 94(1((b)(i).
Miss Henderson also said the judge’s comments were, in any event, obiter and not binding on the Tribunal, because the Court was only asked to determine whether the Guidelines had been wrongly applied.
In my view, it does appear that Cowdroy J may have misread s 94(1). In this case, the previous owner of the business, ABJ, ceased to operate its jewellery business, following a disagreement between Mr Atakliyan and his brother Aram. Each brother then formed a new company that commenced operating its own new business. The relevant question of fact in terms of s 94(1)(b)(i) is whether Mr Atakliyan’s new company, Isaac Jewellery, carried on the whole or a part of the old business during the 2006-2007 grant year.
The error of law made by the Tribunal in the previous proceedings was to apply the criteria identified in s 4 of the Guidelines in making the necessary finding of fact for the purposes of s 94(1)(b)(i). On this remittal, I should, therefore, make a finding of fact for the purposes of determining whether s 94(1)(b)(i) applied, that is, whether the new owner – Isaac Jewellery – carried on the old business – of ABJ – or part of that business – the Guidelines having no relevance to this issue.
If s 94(1)(b)(i) does not apply, the second issue to determine is whether s 94(1)(b)(ii) applies, that is whether the new business – that of Isaac Jewellery – was, at the time of the grant application, similar to the old business – of ABJ – or part of the old business, to such an extent that Isaac Jewellery’s business should be treated as a continuation of the old business.
If either s 94(1)(b)(i) or (b)(ii) applies, then s 94(2) will apply and Austrade (and the Tribunal standing in its shoes) must treat the particulars of the previous owner – ABJ – as being those of the Applicant – Isaac Jewellery – in specified ways. The effect of this would be that because ABJ previously received the maximum entitlement of EMDG grants, Isaac Jewellery will not be entitled to a grant in the 2006-2007 grant year.
THE EVIDENCE
The parties have asked that I rely principally on the transcript of evidence from the earlier Tribunal hearing and the documents admitted into evidence at that hearing. However, Mr and Mrs Atakliyan also gave some additional oral evidence in these proceedings and I admitted into evidence some further documents tendered by the parties.
DID ISAAC JEWELLERY CARRY ON THE BUSINESS PREVIOUSLY CARRIED ON BY ABJ? (s 94(1)(b)(i))
ABJ conducted business as a designer, manufacturer and wholesaler of jewellery. ABJ was first registered as a proprietary limited company on 27 August 1985. At the time of the disagreement between Mr Atakliyan and his brother Aram, each held one of the two $1 shares and was a director of ABJ.
The brothers purchased premises in Clarence Street, Sydney, which they leased to ABJ for its business. Aram was responsible for sales and marketing and the purchase of materials for the business, while Mr Atakliyan was responsible for design and manufacture. The brothers fell out over the purchase of new business premises in Artarmon and, in about June 2005, Aram informed Mr Atakliyan that they should break up ABJ’s business and operate independently. Ultimately, this occurred in December 2005, by which time Mr Atakliyan had registered a new proprietary limited company for his business, Isaac Jewellery, and had personally purchased premises in Market Street, Sydney, which he leases to Isaac Jewellery.
The two brothers divided ABJ’s stock, materials and equipment between them, although Mr Atakliyan took only 25 percent of its machinery because of Isaac Jewellery’s smaller business premises. Most of the 20 ABJ staff went with Aram and Mr Atakliyan took only three ABJ staff into his new business. Mrs Atakliyan’s evidence is that she took on the role of promoting the new business, including “going on the road” to attract sales, organising a catalogue and attending the London Jewellery Fair (as opposed to the Birmingham Gift Fair which Aram used to attend to promote ABJ). Mr Atakliyan took on the purchasing of materials for the jewellery made in the business, but his principal role has been to develop new, more modern designs, including designs for the manufacture of earrings, which were not formerly manufactured by ABJ, and new ways of manufacturing the jewellery – using castings, making jewellery that is hollow or silver-filled rather than solid gold – with a view to keeping the jewellery competitively priced and attracting younger customers.
Mr Atakliyan agreed that Isaac Jewellery continued to manufacture and sell jewellery of the kind manufactured and sold by ABJ, but said that such jewellery was manufactured and sold by most other jewellers drawing on designs that had been used for over 2,000 years. Mr Atakliyan said it is the designs that sell jewellery. He created new and modern designs that account for 80 percent of Isaac Jewellery’s business. (I note that the ‘Surreal’ brand of jewellery was created by Isaac Jewellery in December 2007, outside the 2006-2007 grant year, and I have not therefore otherwise referred to it in these reasons.) Mr Atakliyan introduced a new 24-hour service for custom-made jewellery.
Miss Henderson made submissions as to the meaning of the word “business” in s 94 of the EMDG Act, noting that the Tribunal has used the word in the sense of a general description of commercial activity: for example, Re Muirfield International Group Pty Ltd and Australian Trade Commission [2002] AATA 506 at [31]; Re Rimslow Global Pty Ltd and Australian Trade Commission [2008] AATA 555 at [9]. Miss Henderson said that the business carried on by ABJ was the manufacture and sale of handcrafted jewellery in precious metals for sale to retail stores and a few wholesalers. She contended that during the 2006-2007 grant year, Isaac Jewellery carried on the business or part of the business that had been carried out by ABJ. Mr and Mrs Atakliyan disputed this and contended that Isaac Jewellery was not carrying on ABJ’s business or a part of that business but, on the contrary, was carrying on a new business, albeit one in the jewellery industry.
In my view, Mr and Mrs Atakliyan’s evidence establishes that Isaac Jewellery does not carry on the business or part of the business formerly carried on by ABJ and did not do so in the 2006-2007 grant year. The fact that the initial catalogue used by Isaac Jewellery contains designs utilised in ABJ’s business is not sufficient to persuade me otherwise, and Mr and Mrs Atakliyan’s evidence clearly establishes that Isaac Jewellery's business, while involving the design, manufacture and sale of jewellery, is different in terms of a majority of the designs, uses some different manufacturing processes, and has adopted an approach to sales, not relying on that used in ABJ’s business.
Thus, I am satisfied that s 94(1)(b)(i) does not apply.
WAS ISAAC JEWELLERY’S BUSINESS SIMILAR TO ABJ’s BUSINESS OR A PART OF THAT BUSINESS, TO SUCH AN EXTENT THAT ISAAC JEWELLERY’S BUSINESS SHOULD BE TREATED AS A CONTINUATION OF ABJ’s BUSINESS? (s 94(1)(B)(II))
In determining this issue, regard must be had to the similarities (if any) and differences between the factors set out in s 4(2) of the Guidelines, set out above. Each of the factors is addressed below.
(a) the products of the new and old business: While both Isaac Jewellery and ABJ are in the handcrafted jewellery business, I accept Mr Atakliyan’s evidence that new designs account for 80 percent of the business, that there are some differences in the manufacturing process and in the use of gold and other materials and of a “donut” clasp developed by Mr Atakliyan, and in so far as Isaac Jewellery manufactures earrings which were ‘bought in’ and not manufactured by ABJ.
(b) the activities carried out in the course of the new and old businesses: While Isaac Jewellery and ABJ design(ed) and manufacture(d) jewellery primarily for the wholesale market, in Isaac Jewellery’s business there is a greater emphasis on product design and, since early 2006, it also provides a 24-hour service for individual items, a service never provided by ABJ.
(c) the customers of the new and old businesses: Mrs Atakliyan gave evidence that Isaac Jewellery did not rely on the list of customers used by ABJ, which Mr Atakliyan said yielded almost no business for Isaac Jewellery. Mrs Atakliyan went “on the road” to promote sales for Isaac Jewellery and, in terms of exports, sought to promote its business in the professional jewellery market rather than the gift market.
(d) the directors, shareholders, and the management personnel of the new and old businesses: Mr Atakliyan is the sole director and shareholder in Isaac Jewellery, responsible for design, purchasing and manufacture. Mrs Atakliyan, who has a background in business management, is responsible for sales, marketing and business development. Mr Atakliyan has undertaken responsibility for purchasing materials, formerly undertaken by Aram in ABJ. Mrs Atakliyan was not involved in ABJ – she ran her own independent business.
(e) the suppliers to the new and old businesses: Mr Atakliyan’s evidence is that there are a limited number of gold suppliers used by the majority of jewellers in Sydney. Isaac Jewellery purchases 9 or 18 carat gold from the same supplier as ABJ formerly did, whose terms require payment within 30 days, and other finer gold, where payment is required on delivery, from whomsoever is the cheapest supplier at the time.
(f) the overseas representatives of the new and old businesses: Aram represented ABJ at fairs attended overseas. Mrs Atakliyan represents Isaac Jewellery. Isaac Jewellery also recruited a representative in London after the London Jewellery Fair in August 2006.
(g) the employees of the new and old businesses: Mr Atakliyan’s evidence is that most of ABJ’s staff were employed by ABJ. Only three former ABJ staff were employed by Isaac Jewellery. Isaac Jewellery now employs 13 staff.
(h) the markets of the new and old businesses: ABJ was and Isaac Jewellery is operating in the wholesale market in Australia. Exports have been important for both businesses and, in particular, exports to the UK market. Mrs Atakliyan said the London Jewellery Fair also attracts buyers from all over Europe, from whom, it appears, Isaac Jewellery has sought to attract custom. ABJ, on whose behalf Aram attended the Birmingham Gift Fair, appears to have attracted a slightly different clientele.
(i) the premises from which the new and old businesses is/was conducted: Isaac Jewellery conducts its business from different premises to those used by ABJ.
(J) the logo of the new and old businesses: There are some similarities in the logo used by ABJ and that used by Isaac Jewellery. Mr Atakliyan’s evidence is that the logos used by jewellers are oval so that the logo does not hurt the wearer. He produced copies of other jewellers’ logos to support this. While in both ABJ’s and Isaac Jewellery’s logos, the inner part of the logo contains the jeweller’s initials and the outer band contains the full name of the jeweller, the logos are of different designs and in the catalogues are of different colours.
(k) the property and assets of the new and old businesses: Both Isaac Jewellery and ABJ lease(d) their premises from the owner(s) of the business. On ABJ ceasing business, the stock and materials were divided between the two brothers. Because Isaac Jewellery’s new premises were significantly smaller, Mr Atakliyan took only about 25 percent of the equipment and machinery, with Aram taking the rest. Mr Atakliyan has subsequently acquired further equipment for Isaac Jewellery. There does not seem to have been any formal sharing of ABJ’s goodwill or intellectual property. Isaac Jewellery relied on some of the content of ABJ’s catalogue in producing its own catalogue. It appears that as is common in the jewellery business, there was no exclusivity about the designs utilised by ABJ. The goodwill of ABJ seems to have been principally associated with Aram, who was responsible for ABJ’s sales and marketing, and the goodwill was of little or no benefit to Isaac Jewellery.
In relation to the overall picture, Mr and Mrs Atakliyan contend that the business carried on by Isaac Jewellery and ABJ is “totally different”. Austrade contends it is similar to such an extent that the Tribunal should be satisfied that Isaac Jewellery should be treated as a continuation of ABJ’s business. My view is that there are significant differences between the two businesses. Isaac Jewellery has a much greater emphasis on innovative product design and using different manufacturing techniques and materials where appropriate. Both businesses have competed for customers in similar markets but the emphasis on innovative design and service differentiates Isaac Jewellery’s business from that of ABJ. The personnel involved in the two businesses is significantly different and the businesses operate from different premises. Some of the suppliers utilised by the two businesses are necessarily the same, Sydney having only a limited number of suppliers. The logo used by Isaac Jewellery is differentiated from that of ABJ by its different colour and the design of the inner part. While Isaac Jewellery uses about 25 percent of ABJ’s equipment and machinery, and Mr Atakliyan took over an equal share of ABJ’s stock and materials on ABJ ceasing to operate, the property and assets of Isaac Jewellery are otherwise different.
In conclusion, having had regard to the factors identified in s 4(2) of the Guidelines, I am not satisfied that Isaac Jewellery carries on a business or part of a business that is sufficiently similar to that carried on by ABJ to warrant treating Isaac Jewellery's business as a continuation of ABJ’s. In my view, there are significant differences between the two businesses.
Thus, I am satisfied that s 94(1)(b)(ii) does not apply.
decision
The decision under review is set aside and the matter is remitted to the Respondent with the direction that s 94(1)(b)(ii) of the Export Market Development Grants Act 1997 does not apply in this case.
I certify that the 39 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R P Handley, Deputy President
Signed: .........................[sgd]................................................
A Veness, Associate
Date of Hearing: 3 September 2009
Date of Decision: 21 September 2009
Applicant representative: Self-represented
Respondent representative: Mr C Tucker, Lachlan Partners Legal
Respondent counsel: Miss R Henderson
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