Jack Minas and Australian Trade Commission
[2014] AATA 647
[2014] AATA 647
Division GENERAL ADMINISTRATIVE DIVISION File Number
2013/4818
Re
Jack Minas
APPLICANT
And
Australian Trade Commission
RESPONDENT
DECISION
Tribunal Egon Fice, Senior Member
Date 5 September 2014 Place Melbourne The Tribunal affirms the reviewable decision made on 27 August 2013.
........[sgd Egon Fice]................................................................
Egon Fice, Senior Member
TRADE AND COMMERCE – Export Market Development Grant – Ineligible expenditure – Success fee – Commission payments –Was the claimed expenditure incurred – Exclusionary provisions
Legislation
Export Market Development Grants Act 1997 (Cth) ss 29, 34, 49, 58, 98
Export Market Development Grants Amendment Act 2014 (Cth) (No. 23, 2014)
Secondary Materials
Export Market Development Grants Administrative Guidelines
REASONS FOR DECISION
Egon Fice, Senior Member
5 September 2014
Dr Jack Minas is the managing director of Heart Smart Diagnostics Pty Ltd (Heart Smart). Heart Smart developed a cardiovascular diagnostic system which it sought to market overseas, and in particular, in the United Arab Emirates (UAE). It had previously made a number of applications for grants under the Export Market Development Grants Act 1997 (EMDG Act). However, on 15 February 2013 the Australian Trade Commission (Austrade) notified Dr Minas that Heart Smart’s application for the 2011 – 2012 financial year was rejected.
Heart Smart then sought reconsideration of Austrade’s decision in accordance with s. 98 of the EDMG Act. In a letter dated 27 August 2013 Austrade informed Dr Minas that it had completed its review and that the original decision to disallow the expenditure claimed by Heart Smart was affirmed. Austrade determined that the claimed expenditure which was made to Heart Smart’s representative in the UAE, Mr Peter Mayne, who is the Chief Executive Officer of a UAE registered corporation, Looptech – ME FZE (Looptech), was a commission or success fee which was ineligible expenditure. Following that decision, Dr Minas, on behalf of Heart Smart, lodged an application with the Tribunal on 24 September 2013 seeking review of the reconsidered decision.
The only issue which I am required to determine is whether Heart Smart was entitled to the expenses claimed for overseas representation. According to Austrade, the claimed expenses fell within the exclusions set out in s. 49 of the EMDG Act.
THE CLAIMED EXPENDITURE
On the EMDG Application Form for the 2012 application year, which was signed by Dr Minas on 10 September 2012, Heart Smart claimed $85,500 for overseas representation and a further $15,298 for marketing visits. The total claim was for $100,798. It also claimed that its export earnings for that year were $338,708. In Schedule 1A, Heart Smart described the expenses as Retainer & Expenses which was supported by an account, an agreement and correspondence. The date of payment was said to be 14 March 2012 and the method of payment described as offset. In fact the total retainer was said to be $95,000 and the claim to be 90% of that amount, resulting in a claim of $85,500. In Schedule 2, which deals with marketing visits, Dr Minas claimed for two visits to the UAE. The first occurred between 10 February 2012 and 29 February 2012 and the second between 8 July 2011 and 23 July 2011. The expenses claimed were airfares in the amount of $4498 and general expenses in respect of 36 working days at $300 per day (s. 34(4)) being $10,800. The total claim for marketing visits was $15,298.
The representative arrangements made by Dr Minas on behalf of Heart Smart with Looptech were formalised in an agreement which was executed by Dr Minas on 25 November 2010 and subsequently, at an unknown date, by Mr Mayne on behalf Looptech. That agreement (a draft copy having been provided to the Tribunal and which Dr Minas agreed was in the same form as that which was executed by the parties) stated that Looptech was to act as agent for Heart Smart to negotiate the sales of the cardiovascular diagnostic system to the Zayed Military Hospital and to all associated military hospitals in the UAE. Although the agreement is described as a Heads of Agreement and the recital states that the parties intended to execute formal agreements on terms not inconsistent with the terms of the Heads of Agreement, this did not occur.
The agreement stated that Looptech would have the rights to market and sell on behalf of HSD (Heart Smart Diagnostics) the Products (which are described as the cardiovascular diagnostic system developed by HSD). It also stated:
(b)LOOPTECHME FZE will receive 10% of the annualised licence fee charged to the end user with which a sale agreement has been reached and payment has been received.
(c)LOOPTECHME FZE will retain an additional $US44,000 as reimbursement for estimated associated costs. Once paid these costs will be substantiated and any balance above or below the estimate will be forwarded to the appropriate party.
In cross-examination Dr Minas confirmed that he had read the terms of the Heads of Agreement prior to signing it.
In a letter dated 26 April 2011, Looptech invoiced the Medical Services Corps, GHQ Armed Forces in Abu Dhabi, UAE the amount of AED 1,973,600 Dirhams for the supply of 4 Heart Smart Diagnostic Systems which included the supply of hardware as well as a software licence agreement for three years.
In a letter dated 27 June 2012, Looptech provided to Heart Smart a summary of the transaction with General Military Headquarters (presumably in respect of the Zayed Military Hospital transaction). In that letter Mr Mayne confirmed that Looptech deposited US$53,750 with Heart Smart (more accurately, deposited that sum with Citibank in the UAE to enable the bank to provide a performance guarantee to the purchaser) as the initial down payment for the purchase of 4 cardiovascular diagnostic devices totalling US $537,500. Mr Mayne then said: Looptechme retained US $95,000 as its fee for the transaction and forwarded the balance of the funds to Heartsmart diagnostics. Looptechme is not owed any further funds from the sale of the equipment to GHQ. Furthermore, Looptech subsequently invoiced Heart Smart for a total sum of US$95,000 (invoice number 0310061) on 26 June 2012. As will become clear presently, this invoice was backdated by Mr Mayne for the purposes of the claim made by Heart Smart to Austrade. The amount was said to be for the following:
$75,550 Marketing
$7500 Rental costs for 25% of Looptech office
$6500 Other marketing costs (car, fuel, repairs)
$4250 Consultancy Costs related to the sale
$1200 Telephone and faxes
$95,000Total Costs
Despite what appeared to be a rather straightforward matter, in November 2012 Austrade asked Mr Stephen Giles, an investigator with the Special Investigations Unit attached to the Export Market Development Grants (EMDG) Program, to further investigate the claim. Mr David Parker, the then EMDG State Manager, had become concerned by some of the documentation provided by Heart Smart.
According to Mr Giles’ Affidavit sworn on 3 April 2014, Mr Parker was first concerned by the fact that the invoice dated 26 June 2012 (number 0310061) was issued 4 days before the grant period ended (30 June 2012). Attached to the schedule to the EMDG claim were two copies of the same invoice which Heart Smart received from Looptech. The positioning of the Looptech stamp differed on each invoice indicating that they were not identical documents. In addition, the letter of 27 June 2012 from Looptech to Heart Smart was dated the day after the invoices were received from Looptech for a transaction that settled in February 2012. The reason for the timing of the letter was not clear. There was also a letter dated 29 October 2012 from Heart Smart to Austrade which said there was no formal agreement between Heart Smart and Looptech despite the fact that Mr Mayne referred to an agreement in his statutory declaration lodged in this proceeding. An unsigned agreement between Looptech and Heart Smart was provided to Austrade on 22 November 2012. Mr Parker was also concerned by a letter dated 4 November 2012 from Looptech to Austrade which referred to Looptech having received a payment of $95,000 for its marketing services. Mr Parker was of the view that the documents may have been created for the purpose of obtaining the EMDG grant and therefore further enquiries were warranted.
ELIGIBLE EXPENSES
Part 5 Division 1 of the EMDG Act sets out the general provisions dealing with eligible expenses. Section 29 relevantly provides:
29 Eligible expenses – general
Subject to section 30, expenses incurred by an applicant for a grant in respect of a grant year are eligible expenses if the following conditions are satisfied:
(a)the expenses are, under section 33, claimable expenses in respect of an eligible promotional activity;
(b)…
(c)the expenses were incurred (within the meaning of Division 3) by the applicant:
(i) if the applicant is not a grantee in respect of any previous grant year – during the grant year or the immediately preceding year; or
(ii) in any other case – during the grant year;
(d)the expenses, together with other expenses of the applicant that satisfy paragraphs (a) to (c); add up to $20,000 or more.
(see: Export Market Development Grants Act 1997 prior to the Export Market Development Grants Amendment Act 2014 (No. 23, 2014) coming into effect on 9 April 2014)
Division 3 deals with when expenses are incurred. The general rule is set out in s. 58 which provides:
58 General rule
(1)Subject to section 59, an expense is taken have been incurred by an applicant only at the time when the amount of the expense is acquitted.
(2)For the purposes of subsection (1), the amount of an expense incurred by an applicant is taken to have been acquitted at the time when that amount:
(a)is paid off; or
(b)is set off, with the written consent of the person (creditor) to whom it is payable, against money owed by the creditor or another person to the applicant.
(3)For the purposes of subsection (2), if an amount is paid by cheque or payment order, the amount is taken to be paid when the bank or financial institution on which the cheque or payment order is drawn debits the drawer’s account.
(4)For the purposes of subsection (2), the transfer or issue to a person of shares in a company does not constitute an acquittal.
In order to better understand the structure of the payments made by Heart Smart to Looptech, I need to say something about the underlying transaction between Looptech and the Zayed Military Hospital. GHQ Armed Forces Logistics Staff issued what is called a Local Purchase Order (LPO) on 2 August 2010 in favour of Looptech. The total purchase price on the LPO is said to be 1,973,600 Dirhams. At that time, that was the equivalent of US$537,500. The LPO also required the seller to provide a Performance Bond. This was to be provided by an unconditional bank guarantee for 10% of the LPO value which was the purchase price. Therefore, in order to satisfy the Performance Bond, Looptech had to acquire an unconditional bank guarantee in the amount of US $53,750. The purpose of the Performance Bond was to ensure that the seller fulfilled its terms of the contract.
On 31 July 2011 Citibank in the UAE issued a bank guarantee in favour of GHQ Armed Forces, Abu Dhabi, UAE, in the amount of 197,360 Dirhams (US $53,750). That amount was held by Citibank until all the obligations of the seller had been fulfilled to the buyer. According to Mr Mayne in an email he sent to Mr Theo Rigopoulos, an accountant acting on behalf of Heart Smart, Citibank charged US $2000 for establishing the bank guarantee facility.
At the completion of the transaction, Dr Minas wrote to Looptech on 28 February 2012 stating that the payment from the Zayed Military Hospital in the amount of US $537,000 was paid on 28 February 2012. He noted that the Looptech marketing fee agreed by the parties was $95,000. Dr Minas then recorded that the net proceeds to Heart Smart amounted to $442,000 less the deposit paid by Looptech on 30 June 2011, presumably to Citibank, in the amount of $53,000. In other words, Heart Smart received US $389,000. On 26 June 2012 Looptech issued to Heart Smart invoice 0310061 to which I have referred above in the amount of $95,000. Given that Looptech must have had refunded to it by Citibank the US $53,750 on the completion of its obligations to the Zayed Military Hospital, Heart Smart in fact paid Looptech US $148,000; unless, which does not appear to be recorded, Looptech subsequently refunded that sum to Heart Smart. In fact it is possible that Looptech made payments to Heart Smart in respect of the bank guarantee because there are deposits totalling AUD $51,401 made between 28 June 2011 and 1 July 2011 in Heart Smart’s Westpac account.
In a letter dated 29 October 2012 Dr Minas wrote to Austrade stating that Looptech had received US $95,000 from the proceeds of the sale of 4 Heart Smart cardiovascular diagnostic devices to the General Military Headquarters in the UAE. He said the total purchase price was US $537,500. He explained that Heart Smart and Looptech had negotiated a marketing fee of US $95,000 for assistance with representing Heart Smart in the region, organising product demonstrations and important appointments for him during his trips to the Middle East. He then said that Looptech had also presented an invoice detailing the expenses it had incurred. Dr Minas did not detail what those expenses were. He then said: This statement is made as there is no formal agreement with Looptech – ME. Austrade can contact Peter Mayne as per the details on the schedule to obtain any further information.
In his affidavit lodged with the Tribunal, Mr Giles said that after reviewing Heart Smart’s EMDG claim for the 2012 year, he decided to contact Mr Mayne of Looptech. He said that the purpose of his enquiry was to verify Mr Mayne’s payment arrangement with Heart Smart; the duties he performed on behalf of Heart Smart; and the supporting documentation he had provided. He said that he telephoned Mr Mayne on 11 December 2012 at or around 5.15 pm. Mr Giles made handwritten notes of his conversation, a copy of which was attached to his affidavit. He described Mr Mayne’s response to his questions as defensive initially, and short. He said he was, nevertheless, generally cooperative and answered all the questions put to him. He also apparently told Mr Giles that he was lucky to have caught him because he was about to leave for an international flight. He said he told Mr Mayne that the reason for what might have appeared to him as lengthy pauses between questions was the fact that he was making handwritten notes at the time of the discussion. He said this was his normal practice for all telephone enquiry discussions which he undertook.
In the course of questioning Mr Mayne, Mr Giles asked him if there was a written agreement between Looptech or himself and Heart Smart. Mr Mayne answered: Yes mate. He also said that he had a copy somewhere. When asked what period of work the agreement covered, Mr Mayne answered: From 2007 to now – still ongoing mate. Nothing has changed. When asked about the payment arrangements stipulated in the agreement, Mr Mayne said it was financial reward based. When asked what he meant by that, Mr Mayne answered: Basically on a success fee basis around the deal. Mr Mayne confirmed that the deal he referred to was a sale to the military and when asked whether the fee was success based on an agreed amount or a percentage of the sale he answered: Percentage of the sale mate. When asked what the percentage was, he said it was 10%.
Mr Giles then asked Mr Mayne whether the 10% fee was calculated on the full sale price to the military and he responded: No, it was based on the licence fee. He then explained there were two parts to the sale, the hardware which was the 4 Heart Smart Diagnostic Systems, and the software. He said his fee was based on the licence fee for the software. He also explained that the value of the licence fee paid by the military hospital was $360,000. When Mr Giles then put to him that his fee for the sale was 10% of that, being $36,000, he answered: Correct. He explained that was no other component to the fee and that he retained the amount as a lump sum. When Mr Giles asked Mr Mayne whether, if the deal had not proceeded, he would have been paid for his efforts, he answered: No, that’s what success fees are paid for mate. Successful deals. When asked if he issued an invoice to Heart Smart, he answered that he thought he would have though the answer seemed somewhat equivocal. When asked what the amount of the invoice was, he responded by saying: My success fee – $36,000. When asked whether there was anything else on his invoice such as costs or expenses, he said: No just my fee mate.
It is clear that Mr Mayne’s recollection that he was to receive 10% of the licence fee paid by the military is in accordance with the agreement signed by him on behalf of Looptech and Dr Minas on behalf Heart Smart. Also, in the schedule to the agreement, at Item 8, the annual service fee is said to be a minimum of US $30,000 for ZMH (Zayed Military Hospital).
In a letter which bears the handwritten date 5 November 2012, Dr Minas explained that GHQ pre-paid for three years licence fee of $30,000 x 4 systems x 3 years equalling $360,000. That appears to be consistent with what Mr Mayne said about his fee and is also consistent with their agreement.
While I suspect that not all of the information regarding this transaction has been disclosed by Dr Minas or Mr Mayne, one thing can be said with certainty. The payment made by Heart Smart to Looptech does not accord with what is set out in invoice 0310061 dated 26 June 2012. In fact, Mr Giles had formed that view after speaking with Mr Mayne and he therefore arranged for a meeting with Dr Minas. That meeting took place on 5 February 2013 and Mr Giles was accompanied by another Grants Assessor and, also present with the applicant, was a Mr Dyring, who was a consultant assisting Heart Smart with its EDMG claim. It was at this meeting that Mr Giles told Dr Minas that he was of the view that the moneys paid to Looptech were ineligible commission payments.
Mr Mayne made a statutory declaration on 23 February 2014 which was taken into evidence in this proceeding. He also gave oral evidence in the course of the hearing.
In his statutory declaration Mr Mayne confirmed that the UAE military hospital signed a purchase order for US $537,000 for the supply of Heart Smart’s cardiovascular diagnostic system. He then testified that Looptech requested a payment of US $$200,000 from Heart Smart based on the time he had spent on marketing Heart Smart’s product. Mr Mayne said that a sum of US $95,000 was finally agreed and paid for his marketing services for the period between 2007 and 30 June 2012. Mr Mayne then referred to the discussion he had with Mr Giles in December 2012 and confirmed that he had told Mr Giles that Looptech received US $36,000 for marketing services rendered. He said this was not correct. He also said that Looptech continued to market Heart Smart’s product in the UAE and in Saudi Arabia.
In a statutory declaration made on 20 February 2014, Dr Minas also testified that the value of the sale to the UAE military hospital was US $537,000 and that Looptech’s commission was US $95,000. He denied the assertion made by Austrade that if that sale did not occur, Looptech would not have been paid. Dr Minas testified that Looptech would have been paid and the payment would have been based on its billings for the time Mr Mayne spent marketing and scheduling his appointments. He then said:
The 10% figure contained in the agreement was an attempt by HeartSmart to limit the amount of marketing to an affordable level. In spite of this plan the final figure paid was greater than 10% but not 100% of the sales figure. The agent was unhappy as he believed a fair payment was $200,000 based on his estimation of the work which he had performed over four years. I was equally unhappy paying such a high sum and would have preferred to pay less than $50,000.
Dr Minas also confirmed that the three year service agreement period, which ended on 1 May 2014, was valued at $360,000.
The problem with the evidence given by Mr Mayne and Dr Minas in their respective statutory declarations is that it was not supported by the contemporaneous documents. Nor was it supported by the answers given by Mr Mayne in the course of his cross-examination.
In cross-examination Mr Mayne was asked whether Dr Minas had requested that he provide an invoice for his marketing services. Although not expressly stated, this request was made in about early September 2012 for the purposes of Heart Smart’s application to Austrade for an EMDG grant. Mr Mayne was referred to an email which he sent to Dr Minas on 5 September 2012 at 1.09 am in which he said: Invoice as requested. Let me know if it is satisfactory for claim. The subject of that email was said to be: heart smart – invoice fixed. Mr Mayne confirmed that Dr Minas had requested an invoice for the purposes of the claim. He also agreed that he had sent a draft invoice in the total sum of $114,450 which was attached to that email. I had a copy of that draft invoice in evidence. It, like the invoice I have referred to above at [9], bears the date 26 June 2012 and the number 0310061. However, rather than the $75,550 expense for Marketing, the amount on that invoice is $95,000 for marketing as well as the remaining expenditures which I have listed above at [9]. When asked if he could recall Dr Minas’ response, he answered: no.
Mr Mayne was then referred to an email from Dr Minas addressed to him dated 5 September 2012 at 8.19 am. That email states:
Peter
I can only lodge for my claim the actual amount that HSD has paid, total $95,000, so I request the following change as per attachment
Regards
Jack
When Mr Mayne was asked whether Dr Minas attached an amended invoice to the email sent at 8.19 am, Mr Mayne said he was not sure. He was then referred to the invoice dated 26 June 2012 which had the total expenditure as $95,000 and was asked whether that was the invoice sent back by Dr Minas, and he responded: yes. He also agreed that he had backdated that invoice to 26 June 2012.
Finally, I had in evidence an email from Mr Mayne to Dr Minas which was sent on
10 September 2012 at 5.54 pm. The subject of that email was described as: HSD – revised invoice. It said:
Jack,
Here you go!
Let me know if that is sufficient?
That email appeared to have attached to it the invoice in the total sum of $95,000. It was signed by Mr Mayne and had Looptech’s seal placed on it.
However, when Dr Minas was questioned about the series of emails to which I have referred above, and in particular the email sent on 5 September 2012 at 8.19 am, he strongly denied that he had made the amendment to the $114,450 invoice despite the fact that in that email, Dr Minas said:… so I request the following change as per attachment. With respect to Dr Minas, it is simply not possible for me to accept his denial about that matter. The statement he made in the email speaks for itself.
In the course of his cross-examination, Mr Mayne was referred to a letter he received from Dr Minas dated 9 September 2009 which confirmed he was authorised to represent Heart Smart to the Zayed Military Hospital and all of the associated military hospitals in the UAE to negotiate the contract of sale of the Heart Smart diagnostic system product in the region as agent for Heart Smart. Mr Mayne agreed that was the 9 September 2009 letter referred to in the agreement between Looptech and Heart Smart whereby Looptech was engaged to act on behalf of Heart Smart in the UAE. Mr Mayne agreed he executed that agreement on 25 November 2010.
Mr Mayne was also taken to an email sent from Johnson Partners (the accountancy firm where Mr Rigopoulos was employed) on 4 November 2010. That email enclosed a draft Heads of Agreement for Mr Mayne’s perusal and comment. In it, Ms Tania Phillips, who appears to have been the author, stated that she was endeavouring to raise cash for the security deposit and to build and implement the installation of the 4 HSD machines. She also said: In order to secure the funding I require a mechanism and documentation to guarantee the release of funds from Looptechme FZE to HSD (less 10% commission of licence fee and associated agreed costs) once GHQ makes payment to Looptech FZE. Mr Mayne then agreed that he was only to receive payment in accordance with the Heads of Agreement after payment by GHQ.
Mr Mayne confirmed that the software licence fee was $36,000, calculated as $30,000 per year for each unit over three years resulting in a total sum of $360,000. Mr Mayne agreed that payment was made by GHQ on 28 February 2012 and that prior to that date, he had received no payment whatsoever. He also agreed that if no sale had occurred, he would have suffered a loss as there would have been no payment. In fact Mr Mayne agreed that all of the expenses had been paid out of the sale proceeds.
While the evidence given by Dr Minas and Mr Mayne is contradictory in a number of respects, and I have had considerable difficulty in reconciling the moneys Heart Smart in fact received from the Zayed Military Hospital transaction and the fees and expenses said to have been retained by Mr Mayne, that does not prevent me from coming to conclusions, based on the balance of probabilities, regarding the claimed expenditure. My concern with reconciling the amounts in fact received by Heart Smart arise from the fact that the USD amounts of the transaction resulted in a payment of $537,000 into an account held by Looptech in the UAE. Subtracting from that income expenses allowed to Looptech of $95,000 as well as the $53,000 amount said to have been provided to Citibank for the bank guarantee, leaves the sum of $389,000. When that sum is converted into an AUD amount at the exchange rate of 0.95c per USD $1, which was the exchange rate at 14 March 2012 when the payment of $324,374.08 was made into the Heart Smart Australian bank account (see: Tribunal documents page 103), it results in the sum AUD $369,550. That leaves AUD $45,175.92 unaccounted for.
The evidence also raises concerns about whether the US $95,000 expenses were in fact incurred. In accordance with s. 58 of the EMDG Act, expenses are taken to be incurred when the amount of the expenses is acquitted. An expense is acquitted when it is paid off or it is set off by consent. While I did have in evidence invoices issued by Looptech to Heart Smart, those invoices were plainly constructed by Mr Mayne following discussions with Dr Minas regarding the amount of the claim to be made under the EMDG Act. In fact, the first invoice was for an amount of $114,450 and that was subsequently revised down to $95,000 following Dr Minas’ request to Mr Mayne for that amendment. Given the circumstances in which these invoices were altered, I find that it is simply not possible to rely on those invoices for the purposes of determining whether the claimed expense incurred was as stated in the revised invoice or that it was in fact acquitted in that sum.
I also had in evidence limited extracts from Heart Smart’s Westpac bank account. However there is nothing in those extracts which supports the acquittal of the sums set out in the initial or revised invoices from Looptech.
Given the state of the evidence regarding the incurring of marketing expenses and other expenses claimed by Looptech in respect of the sale of Heart Smart’s cardiovascular diagnostic system to the Zayed Military Hospital, I find that Heart Smart has failed to establish that the amount of the expenses claimed was acquitted. In case I am wrong about that finding, I will examine the exclusionary provisions contained in the EMDG Act.
I should also briefly mention the claim for marketing visits made by Dr Minas in the sum of $15,298. Because those expenses are below the threshold of $20,000 set out in
s. 29(d) of the EMDG Act, even if there was evidence of those expenses being acquitted, by themselves, they are ineligible expenses.
EXCLUSIONARY PROVISIONS
Of particular concern in this case was whether the exclusionary provisions in s. 49 of the EMDG Act applied to the claimed expenditure. Relevantly, it provides:
49 Expenses incurred as commission, discounts etc.
(1)Expenses of an applicant are excluded if they were incurred as any one or more of the following:
(a)commission or other remuneration paid, otherwise than by way of salary, retainer or fee, in respect of commercial transactions relating to eligible products;
(b)remuneration by way of salary, retainer or fee, to the extent that the remuneration is determined, directly or indirectly, by reference to the extent or value of any commercial transactions relating to eligible products;
(c)discounts and credits, or amounts equivalent to discounts or credits, allowed or paid in relation to commercial transactions relating to eligible products.
Note: For commercial transaction see subsection (2).
(2)In subsection (1):
commercial transaction, in relation to an eligible product, means:
(a)the sale, supply or disposal of the product; and
(b)in the case of eligible intellectual property or eligible know-how – the obtaining of an increased return on the disposal of the intellectual property or know-how.
Section 49 of the EMDG Administrative guidelines also deals with expenses incurred as commissions and the like. Clause 5.21.1 provides:
Expenses which are determined by reference to the level of sales achieved do not generally qualify under the scheme. This exclusion includes remuneration by way of commission, success fees, salary, retainer or fee and amounts in the nature of discounts or credits that relate directly or indirectly to the level of sales.
The first point I should make is that the parties entered into an agreement, executed by their respective representatives in about November 2010. Both parties agreed that Looptech would receive 10% of the annual licence fee charged to the end user following a sale agreement and payment for that sale had been discharged. Whether or not the fee which was paid by Heart Smart to Looptech was in fact calculated as 10% of the annual licence fee may not be to the point. Nevertheless, when Mr Mayne was questioned by Mr Giles before he was aware that Austrade was investigating Heart Smart’s EMDG claim, he made it clear to Mr Giles that his fee was success based and that it was to be 10% of the licence fee. That is precisely accordance with the agreement. In fact, his calculation of $36,000 was exactly in accordance with the agreement. His evidence about that fee only seemed to change following discussions with Dr Minas and the subsequent reconstruction of the invoice issued by Looptech. By the time he made a statutory declaration, he had resiled from that position. However, by then, Mr Mayne was well aware of the problems Dr Minas was experiencing with his EMDG claim.
In addition, in cross-examination Mr Mayne agreed that the only payment he received over a number of years acting as Heart Smart’s representative in the UAE was that which resulted from the sale of the cardiovascular diagnostic system to the Zayed Military Hospital. He also agreed that if no sale had occurred, he would not have received any payment whatsoever. In other words, what Looptech was paid was a success fee. He also said that the expenses he had claimed in addition to his consulting work had been paid from the proceeds of the sale. Although Dr Minas disputed the fact that Looptech was only paid as a direct consequence of the sale to the Zayed Military Hospital, the letters between the parties also indicated that Heart Smart did not even have sufficient funds to place money with Citibank in the UAE for a performance guarantee. These moneys were provided by Looptech.
In my opinion, the evidence clearly discloses that Heart Smart was not able to pay Looptech for its consultancy fees or any expenditure incurred in marketing its product in the UAE prior to the sale for which it was paid in February 2012. I find, on the balance of probabilities, if payments were in fact made by Heart Smart to Looptech in accordance with the $95,000 invoice, those payments amounted to remuneration paid, otherwise than by salary, retainer or fee, in respect of a commercial transaction relating to an eligible product. If I am wrong about that and the remuneration was paid by way of a retainer or fee, I would nevertheless find that it was determined either directly or indirectly by reference to the value of the transaction involving the Zayed Military Hospital. In other words, the payment was by way of a success fee. Accordingly, I find that the expenses incurred by Heart Smart to Looptech are excluded expenses in accordance with s. 49 of the EMDG Act.
CONCLUSION
I have found that even if the expenditure claimed by Heart Smart did not fall within the exclusionary provisions set out in s. 49 of the EMDG Act, it was nevertheless not entitled to the claimed expenditure because the material in evidence before me did not establish, on the balance of probabilities, that the claimed expenses were acquitted in the grant year.
Even if I am wrong about whether the claimed expenditure was acquitted in the grant year, I have nevertheless found that Heart Smart’s claimed expenses were excluded by reason of s. 49 the EMDG Act. The expenses claimed to have been paid to Looptech were in the nature of a success fee or, alternatively, the payments constituted a commission or other remuneration paid otherwise than by way of salary, retainer or fee in respect of commercial transactions relating to eligible products.
It follows that I find the decision made by a delegate of the CEO of Austrade on
27 August 2013, refusing Heart Smart’s EMDG claim, was correct. I affirm that decision.
I certify that the preceding 49 (forty-nine) paragraphs are a true copy of the reasons for the decision herein of Senior Member Egon Fice ....[sgd]....................................................................
Associate
Dated 5 September 2014
Dates of hearing 14-16 July 2014 Applicant Self-represented Counsel for the Respondent Mr R Knowles Solicitors for the Respondent Mr N Abrams, Moray Agnew Lawyers
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