June & Juniper PTY LTD and Australian Trade and Investment Commission (Austrade)

[2023] AATA 2653

June & Juniper PTY LTD and Australian Trade and Investment Commission (Austrade) [2023] AATA 2653 (21 August 2023)

Division:GENERAL DIVISION

File Number(s):      2022/7863

Re:June & Juniper PTY LTD

APPLICANT

AndAustralian Trade and Investment Commission (Austrade)

RESPONDENT

DECISION

Tribunal:Deputy President B W Rayment OAM KC

Date:21 August 2023

Place:Sydney

The reviewable decision will be set aside and remitted to the respondent for reconsideration with the direction that the goods are eligible goods under s 24(b) of the Export Market Development Grants Act 1997 (Cth).

...................................[SGD].....................................

Deputy President B W Rayment OAM KC

CATCHWORDS

FOREIGN AFFAIRS AND TRADE – export market development grants – whether the goods are eligible goods – whether Australia will derive a significant net benefit from the sale of goods outside Australia – fitness products sold via Amazon – decision under review set aside and remitted

LEGISLATION

Export Market Development Grants Act 1997 (Cth)

Export Market Development Grants (Significant Net Benefit) Guidelines 2016 (Cth)

SECONDARY MATERIALS

Export Market Development Grants – Administrative Guidelines

REASONS FOR DECISION

Deputy President B W Rayment OAM KC

21 August 2023

1. The applicant has sought review of a decision of Austrade to the effect that certain goods are not eligible goods within the meaning of the Export Market Development Grants Act 1997 (the Act) for the grant year 2020/2021. The applicable version of the legislation is the version that was in force for that grant year.

2. Section 24 of the Act, as it was, provides as follows:

   24   Eligible goods

   Goods are eligible goods if:

   (a)they are made in Australia; or

   (b)the CEO of Austrade is satisfied, in accordance with guidelines determined under paragraph 101(1)(baa), that Australia will derive a significant net benefit from the sale of the goods outside Australia.

   Note:Decisions under this section are subject to guidelines determined by the Minister under section 101.

3. Section 24(b) relates to goods not made in Australia. The section itself poses for goods not made in Australia an evaluative test. The section refers to guidelines determined by the Minister under s 101(1)(baa).

4. Relevantly, s 101(1)(baa) requires the Minister to determine by legislative instrument:

   guidelines to be complied with by the CEO in determining, for the purposes of paragraph 24(b), whether Australia will derive a significant net benefit from the sale of goods outside Australia

5. Guidelines determined by the Minister under that provision are set out in the Export Market Development Grants (Significant Net Benefit) Guidelines 2016 (the legislative instrument).

6. The legislative instrument caused to be published by the Minister for s 24(b) is as follows:

   1   Name of Guidelines

   These Guidelines are the Export Market Development Grants (Significant Net Benefit) Guidelines 2016.

   2   Commencement

   These Guidelines commence on 1 July 2016.

   3   Application of Guidelines

   1These Guidelines apply in relation to a grant application made under the Export Market Development Grants Act 1997 on or after 1 July 2016.

   2These Guidelines apply in relation to goods which are not made in Australia.

   4   Significant net benefit

   1In determining, for paragraph 24(b) of the Export Market Development Grants Act 1997, whether Australia will derive a significant net benefit, the CEO of Austrade must comply with the following guidelines.

   2The CEO of Austrade must consider whether:

   (a)the business assets which are used in making the goods ready for sale (other than assets used in manufacture) are primarily or substantially based in Australia; and

   (b)the activities (other than manufacture) which result in the goods being made ready for sale are primarily or substantially carried on in Australia; and

   (c)a significant proportion of the value of the goods is added within Australia; and

   (d)any sale of the goods generates, or is reasonably likely in the foreseeable future to generate, economic benefits for Australia, including in the area of employment, that are substantial relative to the amount of the grant claimed by the applicant.

7. There is a clear relationship between s 24(b) of the Act and cl 4(2)(d) of the legislative instrument. It refers to net benefit for Australia and in effect makes it obligatory for decision-makers to consider the net benefit question by comparing the net benefit to the amount of the grant claimed by the applicant.

8. I propose next to consider each of the matters for consideration in the order mentioned in the instrument.

9. The first matter which the instrument requires to be considered is whether the business assets which are used in making the goods ready for sale (other than assets used in manufacture) are primarily or substantially based in Australia.

10. The applicant’s business involves trading in two markets, namely Australia and the United States. The applicant has the goods manufactured in China, and imports the goods into Australia for the local market, and causes other, similar goods to be exported from China to the United States. In each country, the applicant has engaged the services of Amazon to store and deliver the goods to end users or, one assumes, to retailers to end users.

11. The evidence is that the sole director of the applicant, Ms Yang, who represented the applicant in the review, herself did the work of designing aspects of the goods, to which she devoted quite considerable time and effort, and that the distinctiveness of the goods significantly depends on the designs she is responsible for. The skills which she uses are said to be “business assets” within the ordinary meaning of those words. In additions, she refers to other matters also being business assets.

12. The respondent submits that the design skills of Ms Yang are not business assets, and that the expression refers to capital assets.

13. Ms Yang’s skills at the present time are utilised by her in her business model. To take one hypothetical example, if she sold the business of the applicant, and also entered into a service agreement with the applicant, by which she promised to continue the role of using her skills for the company as she does at the moment, then that may add value to the business she sells. Of course, since she is the sole director, she needs no service agreement at the present time.

14. The words “business assets” are not defined in the Act. The expression is very general and non-specific. I do not think that it is limited to what would appear on a balance sheet. Not without some hesitation, I conclude that Ms Yang’s skills are part of this company’s business assets. In a letter to Austrade commencing at page 222 of the T-documents it is submitted on behalf of the applicant that the designs of the products (which consist of foldable yoga mats, Pilates mats, exercise/resistance bands including 3 leg bands and a unique arm band and a knee pad, sold with an exercise booklet designed by Ms Yang) are intellectual property. Characterising the creative work as intellectual property may be correct, and assists the view that the creative work is a business asset. The circumstance that she had others overseas paint the colours on the things she designed, and then sent the finished product to the Chinese manufacturer, does not mean that she did not do design work.

15. Insofar as the letter refers to the Australian business, I think it is mistaken, because the claim cannot relate to goods imported into Australia for sale in this country.

16. The letter states that the amount of the claimed grant was $24,000. If that has been affected by the inclusion of the Australian business rather than the US business, I think it needs to be adjusted.

17. Another business asset claimed in the letter of $16,000 related to learning to export courses which Ms Yang undertook. She said that this related “mainly to the United States”. If so, that expense will need to be apportioned. Two countries are involved in the shipments to America. At the US stage they are entered for home consumption. At the Chinese side the goods are exported by shipping them. I am not satisfied that such education qualifies as a business asset in any event.

18. To conclude my consideration of the first consideration, it seems to me that business assets primarily located in Australia, namely the fruits of Ms Yang’s creative work, are substantially based within Australia, where Ms Yang resides. Those business assets are not the only assets which make the goods ready for sale, but they are parts of those assets which make the goods ready for sale. Section 24(b) and the terms of the first consideration take the business assets of the Chinese manufacturer out of the equation. Others have participated elsewhere in the world to the creative work. Painters has been engaged to depict what Ms Yang designed. Nevertheless it seems to me that the business assets (creative work) used in making the goods ready for sale are primarily or substantially based in Australia, within the meaning of cl 4(2)(a) of the legislative instrument.

19. Similarly, and for the same reasons, it seems to me that the activities of Ms Yang in doing the creative work are activities which (other than manufacture) result in the goods being made ready for sale. Thus the consideration mentioned in cl 4(2)(b) is satisfied.

20. The consideration mentioned in cl 4(2)(c) is actually unclear to me on the evidence. It may be that the designs of Ms Yang make the goods more valuable, and significantly so. On the other hand, I have insufficient evidence to that effect. I am unable to make a positive finding in terms of cl 4(2)(c). The reviewable decision admits that this and one other consideration is satisfied. Also in the grant year preceding the relevant year and in the grant year following the relevant year, the applicant’s grant application was accepted in full. Mr Leerdam, appearing for the respondent, nevertheless submitted that the applicant satisfied none of the matters referred to in cl 4(2). It was open to him to do so, and contrary to a submission of the applicant, I do not accept that the respondent is estopped from doing so. The view taken by a decision-maker as to whether a consideration mentioned in the legislative instrument does not bind another decision-maker. It is not uncommon for a respondent’s representatives to submit that the reviewable decision is erroneous, and in such a case, the Tribunal will make up its mind, on the evidence before it, what is the correct or preferable decision. As to the letter mentioned in [14] above, starting at page 222 of the T-documents, its argument about cl 4(2)(c) is that favourable reviews received by Amazon Australia paved the way for Amazon in America to accept the product for distribution. That does not directly satisfy cl 4(2)(c).

21. Turning to cl 4(2)(d), this consideration refers to economic benefits to Australia, those already generated or those reasonably foreseeable. The sale in the United States are on an upward trajectory in my understanding. The economic benefits in cl 4(2)(d) include employment. Ms Yang’s endeavours will be expected to increase taxes paid by her company and by her if and when dividends are declared by the company. Given that the grant claimed is for $24,000 (which may be amended if it has included any figure for the imports into Australia) this does not seem to be disproportionate to the net benefit to Australia of making the grant.

22. I therefore conclude that in the case of three of the four considerations mentioned in cl 4(2) of the legislative instrument, the applicant succeeds. The applicant’s failure to call valuation evidence, which, if called, may well have led to the applicant’s success on the remaining consideration, and the reviewable decision may have led her to fail to call that evidence.

23. The administrative guidelines of the respondent suggest that three out of four considerations is sufficient for an applicant to succeed: cl 4.1.4. I agree that the legislative instrument does not require all considerations mentioned in cl 4(2) to be satisfied.

24. In my opinion, therefore, the correct or preferable decision is to determine that the goods are eligible under s 24(b) of the Act. The reviewable decision will be set aside and the matter will be remitted to the respondent for determination of the grant amount.

I certify that the preceding 24 (twenty -four) paragraphs are a true copy of the reasons for the decision herein of Deputy President B W Rayment OAM KC

....................................[SGD]....................................

Associate

Dated: 21 August 2023

Date(s) of hearing:	23 May 2023
Date final submissions received:	5 July 2023
Advocate for the Applicant:	Ms J Yang
Solicitors for the Respondent:	Mr L Leerdam, Keypoint Law