Martin and Dairy Adjustment Authority
[2004] AATA 321
•30 March 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 321
ADMINISTRATIVE APPEALS TRIBUNAL )
) No V2003/1069
GENERAL ADMINISTRATIVE DIVISION ) Re GREGORY MARTIN Applicant
And
DAIRY ADJUSTMENT AUTHORITY
Respondent
DECISION
Tribunal Mrs Joan Dwyer, Senior Member Date30 March 2004
PlaceMelbourne
Decision The Tribunal affirms the decision under review.
[sgd] Mrs Joan Dwyer
Senior Member
DAIRY ADJUSTMENT AUTHORITY – Dairy Structural Adjustment Program Scheme 2000 – cancellation of units in a standard payment right – matter remitted from Federal Court –remitted for consideration of whether applicant made a false statement that dairy farm enterprise was not subject to “an eligible dairy sharefarming arrangement” – “false statement” in s 35 of the scheme requires only that statement is objectively false – nature of arrangement between applicant and workers on farm – requirement that entity be entitled to “a fixed percentage share of the milk revenue of a dairy farm” – purpose of section to protect those entities affected by falling milk prices – finding that there was “an eligible dairy sharefarming arrangement” – finding that applicant made a false statement – decision under review affirmed.
Dairy Structural Adjustment Program Scheme 2000 (Cth)
Acts Interpretation Act 1901, s 15AA.
Musgrave v Martin [2003] FCA 920
Re Martin and Dairy Adjustment Authority and Carinya Dairy Pty Ltd [2002] AATA 726Re Rogers and The Dairy Adjustment Authority and the Van Diemen's Land Company - Dairies Ltd (VDLD) Pinegrove [2001] AATA 937
REASONS FOR DECISION
30 March 2004
Mrs Joan Dwyer, Senior Member
1. This matter has been remitted to the Tribunal by the Federal Court (Musgrave v Martin [2003] FCA 920). Weinberg J, on 2 September 2003, set aside a decision of the Administrative Appeals Tribunal made on 26 August 2002 (Re Martin and Dairy Adjustment Authority and Carinya Dairy Pty Ltd [2002] AATA 726). The Tribunal had set aside a decision of the Dairy Adjustment Authority (“the Authority”) made on 20 April 2001 and affirmed on 13 July 2001, to cancel 903 units registered in the name of Mr Martin under the Dairy Structural Adjustment Program Scheme 2000 Commonwealth (“the Scheme”).
2. It is not necessary to set out again the way in which the issue arose. It is a consequence of the Dairy Industry Adjustment Package which was developed to assist the dairy industry adjust to deregulation. It is well understood by the parties and has been thoroughly explained both in the Tribunal decision and in the decision of Weinberg J.
3. The facts were briefly summarised by Weinberg J who said (at paragraph 6 of his reasons for judgment):
6 On 11 July 2000, Mr Martin applied for compensation under the Scheme. On 29 December 2000, the Authority accepted that Mr Martin was entitled to a standard payment right. It conferred payment, in the form of 10,997 "units", with a face value of $351,913, upon him. However, on 20 April 2001 it cancelled 903 of those units. It did so because it concluded that when he completed his application form he had made a false statement regarding his status. In that form, he denied having an "eligible sharefarming arrangement" in place on 28 September 1999. The Authority found that such an arrangement did exist, and that he was therefore a "sharefarmer". This meant that he was not entitled to the number of units which had been allocated to him, and that a number of them should be cancelled.
4. The power of the Authority to cancel the units arises under Division 5.2 of the Scheme. His Honour explained the operation of the relevant provisions as follows:
15 Division 5.2 sets out the circumstances in which the Authority may cancel some, or all, of the units allocated. Section 35 relevantly provides:
"(3) Subsection (4) applies if:
(a) before a payment right is granted, an entity makes a false statement to a person exercising powers, or performing functions under or in connection with Part 2 of [the Schedule] to the Act or the [Scheme]; and
(b) as a result of action relying on the false statement, the face value of the payment right exceeds the amount that would have been the face value if the false statement had not been made.
(4) If this section applies, the [Authority] may cancel the number of units in the payment right worked out by:
(a) dividing the number of whole dollars in the amount of the excess by 32, and
(b) if the result of the division is not a whole number - rounding down to the nearest whole number (treating zero as a whole number)." (emphasis added)
16 The expression "false statement" is defined in s 35(5) as having the same meaning as in cl 50 of the Schedule.
17 Clause 50(3) provides:
"(3) In this clause:
false statement means a statement (whether made orally, in a document or in any other way) that:
(a) is false or misleading in a material particular; or
(b) omits any matter or thing without which the statement is misleading in a material particular." [emphasis added] (para 15‑17).
5. His Honour held that the Tribunal had erred in holding that, for a statement to be "a false statement", as referred in clause 50(3) of the Schedule, more was required than that it simply be objectively false. In view of that finding, it was not possible to determine whether or not Mr Martin had made a false statement without first deciding whether or not there had been an "eligible dairy sharefarming arrangement" between Mr Martin and Carinya Dairy Pty Ltd (“Carinya”). As the Tribunal had not finally decided that issue, the matter was remitted to the Tribunal to decide whether there was an "eligible sharefarming arrangement" in existence at the relevant time.
6. His Honour stated (at para 120) of his reasons for judgment that he considered it inappropriate for him to finally determine the issues in dispute between the parties. He explained (at paras 120‑122):
120 In my opinion, it would be inappropriate for me finally to determine the issues in dispute between the parties. As I have already indicated, the Tribunal did not resolve the question whether there was an eligible sharefarming arrangement in existence at the relevant time. I have not done so, and unless that question is answered, it is impossible to say whether, in fact, a false statement was made.
121 The question whether such an arrangement existed may well involve mixed questions of fact and law, and the need to consider a significant body of evidence. I do not have before me all of the relevant material upon which an answer to that question could properly be given. Normally, in an appeal under s 44, on a question of law, the Court will do no more than remit the matter to the Tribunal for rehearing if satisfied that an error was made. There may be cases where it would be futile to remit the matter because it admits of only one possible outcome: see Morales v Minister for Immigration and Ethnic Affairs (1995) 60 FCR 550. This is not such a case.
122 I am unable to accept the respondent's submission that any error of law made by the Tribunal did not affect the outcome of the case. The Tribunal's erroneous construction of the word "false" led it to conclude that the Authority's decision should be set aside, irrespective of whether Mr Martin had in fact been party to an eligible sharefarming arrangement. Had the Tribunal correctly interpreted that word, it would unquestionably have had to resolve the latter issue. In these circumstances, it is plain that the error made "could have affected the outcome of the case".
7. The parties, at a directions hearing, advised the Tribunal that they did not wish to call any further evidence and they requested that the Tribunal decide the matter on the papers. The Tribunal agreed to decide the matter on the papers. The Tribunal had before it the submissions on behalf of Mr Martin lodged with the Tribunal on 30 January 2004, which include, as attachments, the decision of Weinberg J of 2 September 2003 and the statements of contentions of the applicant and the respondent lodged in the Federal Court proceedings. The Tribunal also had before it the respondent’s submissions of 10 February 2004, and the applicant’s further submission of 17 February 2004.
8. The background facts appear adequately in the Tribunal’s reasons for decision, delivered on 26 August 2002 (at paras 23‑43):
23.As already stated, as at 6:30pm on 28 September 1999, Mr and Mrs Mundy were working on Mr Martin’s farm. They agreed that the arrangement under which they commenced work was set out in the unsigned document headed “Sharefarming Memorandum of Understanding” (“the Memorandum”). It is necessary to consider the terms and effect of that unsigned document. Neither party took the Memorandum to their solicitor for approval before Mr and Mrs Mundy commenced work on the farm. Mr Brown said in evidence that he had advised both parties to take the document to their own solicitor, and, under the heading “Sharefarming Memorandum of Understanding” the Memorandum states:
(THIS DOCUMENT AIMS TO PROVIDE GUIDELINES ONLY TAKE TO YOUR OWN SOLICITOR TO DRAW UP AGREEMENT)
23. After setting out the obligations of the owner and the sharefarmer, the Memorandum sets out the shares of income and expenses as follows:
Owner
Sharefarmer
INCOME
Milk (net of levies etc)
89%
11%
Calves
100%
0%
Culls
100%
0%
Rebates
(as per expense schedule)
EXPENSES
Shed
Shed Power
100%
0%
Detergent/Rubberware
100%
0%
Herd
AI/Herd test
100%
0%
Animal Health/vet
100%
0%
Calf rearing costs
100%
0%
Feed
Concentrates (grain/pellets/additives)
89%
11%
Hay – Silage purchases/ contracting
89%
11%
Agistment (off farm)
100%
0%
Irrigation Water
100%
0%
(including sales and GMW TWE del. Costs)
100%
0%
TWE water (capital)
100%
0%
Fertiliser (only Nitrogen on % basis)
100%
0%
Fuel/oil (farm)
100%
0%
Overheads
Casual Labour (plus super/wcover)
100%
0%
Fuel for capital works
100%
0%
Repairs to plant and machinery
Own
Own
Repairs to improvements
100%
Rates
100%
Vehicle Registration and Insurances
Own
Own
Telephone
Own
Own
Insurance
100% farm
Public risk and contents
Personal Accident (& income protection)
Suggest
100%
(S/F Superannuation and Workcover
0%
100%
24. The Memorandum also contained the following additional points.
Special notes:
1.The s/farmer milk income share is to be 11% after all factory/industry levies, including any stop charges and any cartage rebates associated (ie 11/89 income split after ALL factory & industry levies).
2.Method of payment to the sharefarmer shall be factory order.
3.Should the sharefarmer receive less than $66000 in net income after the share of feed costs per year, the difference is to be made up by the owner with rising 2 yr olds nominally valued at $1000/hd. (eg. If after receiving 11% of net milk income, paying 11% share of feed costs, the s/f net income is 60000, The owner is to provide 6 heifers to bring figure to $66000). Cows are then to be leased back by the owner at $140/yr in future years (paid quarterly to S/F). See Lease Agreement (attached).
4.At completion of the arrangement, the sharefarmer and owner to agree on a method of selection of animals (eg. pick for pick, drafting race, etc).
5.Milk to be provided for calf rearing by sharefarmer to owner at no cost. Maximum use of colostrum by sharefarmers for calf rearing.
6.Contract to be initially for three years, being renewed annually, then may be renegotiated. (herd ownership option).
25. There was no dispute about the meaning of Note 3 which guaranteed Mr and Mrs Mundy a net income of $66,000 per year from the enterprise. There was evidence as to how it came to be added to the agreement.
26. Mr Martin explained that he has been dairying at Ardmona for 30 years. He said he purchased an adjoining property and built a dairy on it in 1997. He was looking for assistance with the work and a mutual acquaintance put him in touch with Mr and Mrs Mundy. They suggested that Mr Brown, who is an agricultural consultant, consulting predominantly to dairy farmers in the Goulburn Valley, be brought in to assist with negotiating the terms under which they would work.
27. Mr Martin said that during the negotiations there was discussion about the deregulation package which was expected to be announced soon. At the time everybody in the industry was aware of the fact that deregulation was imminent, and that the compensation package which would be made available was likely to benefit sharefarmers. He did not intend to enter into a sharefarming agreement with Mr and Mrs Mundy. He did not want to share his compensation payment, which took into account the 30 years he had spent building up his dairy farm, with a sharefarmer who was just starting to work with him when the structural adjustment scheme was due to come into operation.
28. Mr Martin said that Mr and Mrs Mundy made it clear that they wanted a guaranteed minimum income rather than a straight percentage of the milk income. It was agreed that they would receive 11% of milk income, but that there would be a “top up” to take their income up to $66,000 per annum, if the agreed percentage of milk income came to less than that figure. Mr Martin said that on his projected figures there would in fact have been a top up required to bring their income up to the agreed figure. He said he understood that because of the agreed minimum income, Mr and Mrs Mundy were not sharefarmers and would not be entitled to share in his compensation package when it was announced.
29. Mr Martin said that he was obliged to pay Mr and Mrs Mundy an agreed income regardless of the income of the farm. That meant that he bore all the risk of any reduction of income due to fluctuations in milk prices. Even though he had not wanted or intended to enter into a sharefarming arrangement, he had agreed during negotiations with Mr and Mrs Mundy that the terms on which they worked would, in some respects, resemble a sharefarming arrangement. He said this was agreed to so that Mr and Mrs Mundy would be entitled to tax and sales tax concessions as sharefarmers.
30. Both Mr Brown and Mr Mundy also gave evidence as to the meeting at which the agreement between Mr Martin and Mr and Mrs Mundy was negotiated. Mr Brown said that he had previously worked with both Mr Martin and Mr and Mrs Mundy. He said he was contacted by them and visited Mr Martin at the farm on 16 June 1999. After he had some preliminary discussion with Mr Martin, Mr and Mrs Mundy arrived and discussed their requirements. Mr Brown said Mr and Mrs Mundy wanted a share farming arrangement and financial security.
31. Mr Brown said that in May 1999 he had been involved in workshops preparing for the deregulation of the dairy farming industry. He had done a report to the Australian Dairy Farmers Federation suggesting guidelines for disbursement of the compensation package. He said the suggested guidelines were:
(i) that the compensation would not cover capital losses
(ii) that it would relate to potential loss of dairy income after regulation.
32. As a result of his awareness of the issues raised by the deregulation package Mr Brown said he raised that issue in his discussions with Mr Martin and Mrs and Mrs Mundy. He explained that it was his understanding that people exposed to price fluctuations as a result of the deregulation of the industry would participate in the package. He said he expected milk prices to fall. He said that it was his belief that the fixed income required by Mr and Mrs Mundy might jeopardise their participation in the package. He said they accepted that. He drafted an agreement and sent it to the parties. He was requested to amend it by Mr Mundy. He did so and sent an amended version to the parties. That is the document which so far as relevant is set out at paragraphs 23 and 24 of these reasons.
33. In his evidence Mr Mundy said that he and Mrs Mundy intended to enter into a sharefarming arrangement. He said he had considered it likely that the 11% of milk income payable to him and Mrs Mundy would have been more than the agreed $66,000. He referred to attachment A to exhibit R1. That is a projection of income prepared by Mr Brown. Mr Mundy said he regarded Mr Brown’s estimates as conservative and thought he could have improved on the $64,210 shown there as projected income for Mr and Mrs Mundy on the 89-11% split.
34. There is a question as to the nature of the agreement under which Mr and Mrs Mundy started work. The Memorandum, does not read as if it was intended to be a binding document. It was never signed or dated. It stated that it provided “guidelines only” and advised that it be taken to “your own solicitor to draw up agreement”. Yet both parties in their evidence agreed that it did set out the terms of their agreement. Thus it is not necessary to consider whether the agreement was oral or written or to refer to the analysis set out in Masters v Cameron (1954) 91 CLR 353
35. The evidence is that Mr and Mrs Mundy started work on the farm on the terms set out in the Memorandum on about 12 July 1999. However the arrangement did not last long. On 16 September 1999 Mr and Mrs Mundy gave one week’s notice of intention to terminate the agreement. Mr Martin said that he asked them to stay on longer and pointed out that their agreement had provided for six months notice of termination. In fact that is what the Memorandum provides for “where a party is in default of the agreement.” It does also state, “or earlier by mutual agreement”. After discussion with Mr Brown, Mr and Mrs Mundy agreed to extend the period of notice and to stay until 10 October 1999. The crucial date, 28 September 1999, fell during the period of notice worked by Mr and Mrs Mundy.
36. In order to decide whether Mr Martin made a false statement when he answered “No” in his application (T3) to the question whether the enterprise had an eligible share farming arrangement in place at 6.30 pm on 28 September 1999, it is necessary to consider whether the agreed terms, as set out in the Memorandum, constituted an “eligible sharefarming arrangement”.
37. Mr Martin explained that because the income of Mr and Mrs Mundy was fixed at $66,000 per annum and not as a percentage of the profits of the farm, he did not regard himself as having entered into a sharefarming arrangement. On the other hand he did not regard Mr and Mrs Mundy as employees, because he did not cover them for workers’ compensation.
38. Mr Brown said that in his opinion Mr and Mrs Mundy were sharefarmers. He said it was a sharefarming arrangement, “but with a floor”. He said it was quite different from an employment agreement. He said there is not one accepted form of sharefarming agreement or arrangement. There are many different variations. That is no doubt true.
39. However, the only variation of a sharefarming arrangement which gives an entitlement to share in a DSAP payment right, is one where the sharefarmer is entitled to a fixed percentage share of the milk revenue of a dairy farm enterprise. The question here is whether the terms of the arrangement between Mr Martin and Mr and Mrs Mundy are to be characterised, as Mr Pizer submitted, as entitling Mr and Mrs Mundy to “a fixed percentage share of the milk revenue” namely 11%. That submission, in effect, ignores the fact that if a “top up” was paid the actual percentage would have been more than 11%. That was the basis of Mr Martin’s submission that the agreed payment to Mr and Mrs Mundy of a minimum of $66,000 meant that the percentage share of the milk income to which they were entitled was not “a fixed percentage”, but would have been more than 11% where 11% did not yield an income of $66,000. There is merit in both submissions. It is not possible to say whether Mr Martin made a false statement without considering the meaning of the terms “a fixed percentage share” and “a false statement”.
40. There is an ambiguity about the meaning of the term “an eligible sharefarming arrangement”. It is not easy to decide whether a person is entitled to a fixed percentage share of the milk revenue, if that is one component of the entitlements, but there is “a floor”, so that the percentage must be increased if an 11% share does not reach the agreed floor.
41. Mr Pizer submitted that in providing for an 89-11% split of the milk revenue, the agreement provided that each party was entitled to a fixed percentage share of the milk revenue.
42. Mr Martin submitted that because Mr and Mrs Mundy’s income would, or may, have required topping up to reach $66,000, it was not “a fixed percentage” share of milk revenue, but could have been more than the percentage fixed in the agreement. If their percentage had turned out to be more than 11%, his percentage would correspondingly have been less than 89%. As Mr and Mrs Mundy left after three months their percentage share of milk revenue was never determined. If there had in fact been an increase in milk revenue for the year 1999‑2000, over the preceding year, so that 11% of the milk income was equal to or more than $66,000, then under the agreement Mr and Mrs Mundy’s income would have been fixed at 11% of the total milk revenue of the farm. But, as at 28 September 1999, it could not have been known whether Mr and Mrs Mundy would have been entitled to “a fixed percentage share of the milk revenue” of the dairy farm enterprise, or to more than the fixed 11% share.
43. An additional issue is that as at the relevant date, 28 September 1999, Mr and Mrs Mundy had given notice and were serving out their period of notice. Was the arrangement, if there had been one, still in existence? Had it been terminated by breach by Mr and Mrs Mundy, or was it continuing during a mutually agreed period of notice?
9. The term "eligible dairy sharefarming arrangement" is defined in s 4 of the Scheme as follows:
(1) An eligible dairy sharefarming arrangement is an arrangement between 2 or more entities:
(a) under which each entity is entitled to:
(i) a fixed percentage share of the milk revenue of a dairy farm enterprise; or
(ii) a fixed percentage share of the milk revenue of a dairy farm enterprise in relation to the sale of each type or amount of milk produced by the enterprise; and
(b) where at least 1 of those entities has no proprietary interest in:
(i) the land on which a milking shed used by the enterprise is situated; and
(ii) quota under which the enterprise delivers market milk.
(2) A dairy farm enterprise is subject to an eligible dairy sharefarming arrangement if the milk revenue of the enterprise is shared under the arrangement.
(3) An entity is a party to an eligible dairy sharefarming arrangement if the entity is entitled to a share of the enterprise’s milk revenue under the arrangement. [emphasis added]
10. I have now considered the further submissions of the parties. I have concluded that the arrangement between Mr Martin and Carinya was an “eligible dairy sharefarming arrangement”.
11. First, as pointed out in the respondent’s submissions at paragraphs 36, 37 and 39–43, the definition of "an eligible dairy sharefarming arrangement" refers only to the question of whether each entity is entitled to "a fixed percentage share of the milk revenue of a dairy farm enterprise". It makes no reference to other forms of remuneration or top‑up income. In this matter the memorandum of agreement establishes that Carinya was entitled to a fixed 11 per cent share of the milk revenue of a dairy farm enterprise. Thus, the arrangement appears to fall within the language of the definition in s 4(1), even though it has an additional provision providing for a floor or top‑up income, if Carinya's 11 per cent share of milk revenue yielded an income of less than $66,000 net income.
12. In my earlier decision in this matter, I referred to the decision of the Tribunal in the matter of Re Rogers and The Dairy Adjustment Authority and the Van Diemen's Land Company - Dairies Ltd (VDLD) Pinegrove [2001] AATA 937. I set out paragraphs 26–31 of the reasons for decision of Deputy President Escourt, QC, in that matter. The Deputy President considered the purpose of the definition. He said as to the matter before him:
22. The applicant's entitlements under the sharefarming agreement between himself, his wife and the joined party include, relevantly for the purpose of this application:
(a) a specified payment of $0.9143 per kilogram of milk solids sold; and
(b) a bonus payment of 10% of the incremental increase over a base payout level of $3.20 per kilogram of milk solids "net farm rate" on every kilogram of milk solids produced.
23. The specified payment of $0.9143 per kilogram of milk solids is clearly not "a fixed percentage share of the milk revenue" of the Pinegrove enterprise for the purposes of s4(1)(a)(i) of the Scheme. It is, in truth, a fluctuating percentage of the milk revenue as prices rise and fall.
24. As to the bonus payment, the Tribunal is of the view that whilst it is only a fixed percentage share of an incremental increase it could be argued that it is a fixed percentage share of a part of the milk revenue of the enterprise and thus perhaps meet the description of the entitlement required by s4(1)(a)(i).
25. However in the Tribunal's judgment, the bonus payment provided by clause 24.4 of the sharefarming agreement is a contingent entitlement calculated as a fixed percentage of part of the milk revenue of the enterprise in the event of that contingency whereas the entitlement contemplated by s4(1)(a)(i) is a vested entitlement.
26. The Scheme, clearly is remedial in nature and as such its purpose must be steadily borne in mind in construing its provisions where they permit of ambiguity.
27. That purpose, the Tribunal accepts, as submitted by the applicant himself, is to provide the benefit of compensation to those entities whose economic returns were subjected to the vagaries of milk prices in a deregulated industry as a result of increased competition.
28. Contrary to the applicant's contentions that he was such an entity, the Tribunal is of the view that his sharefarming agreement was designed precisely to protect him from rises and falls, particularly falls of course, and to provide him with the security of a base level payment sufficient to permit him to remain in the industry.
29. In the Tribunal's judgment s4(1)(a)(i) is intended to embrace those entities whose milk revenue is affected by falling milk prices because they have a vested entitlement under a sharefarming arrangement to a fixed percentage of that revenue.
30. In such cases the entitlement to compensation is easily perceived as the fixed percentage share affects an entity's income depending on the actual price paid for milk. In the applicant's case however, he being remunerated predominantly by a specified amount per kilogram of milk solids, the amount of his percentage share will vary depending on the price actually paid for milk, but his income is not affected other than very peripherally in the sense that he could earn more by way of a bonus in the event that the actual price exceeded a certain level.
31. A bonus is just that, a boon or gift or premium over what is normally due. What was normally due to the applicant under his sharefarming agreement was a specified payment which, implicit in his submissions was to give him a return sufficient to allow him to remain in the dairying industry after bad years of low prices and poor seasons whilst farming with the joined party on the basis of a fixed vested 50%/50% entitlement.
32. For the foregoing reasons, in the judgment of the Tribunal, a contingent entitlement calculated on a fixed percentage of part of the milk revenue of an enterprise, namely 10% of the incremental increase over a base payout level of $3.20 per kilogram of milk solids is not, albeit payable by reference to every kilogram of milk solids produced or sold, an entitlement to "a fixed percentage of the milk revenue of a dairy farm enterprise" for the purposes of s4(1)(a)(i) of the Scheme. To hold otherwise would be to give the section a construction which would be unreasonable or unnatural given the legislative purpose of the Scheme and the character of the bonus payment provided for by the sharefarming agreement.
33. It follows that the decision of the Tribunal is that the decision under review is affirmed. [emphasis added]
13. I agree with Deputy President Estcourt, QC, that the scheme, which is part of the Dairy Industry Adjustment Package, is remedial in nature and that, as such, its purpose must be borne in mind in construing its provisions. I also agree that the definition in s 4 of the Scheme is intended to embrace “those entities whose milk revenue is affected by falling milk prices because they have a vested entitlement under a sharefarming arrangement to a fixed percentage of that revenue”.
14. In the Tribunal’s reasons for decision, delivered on 26 August 2002, I gave emphasis to the floor of $66,000 and described that as a guaranteed minimum income, saying in paragraph 48 of my reasons for decision:
...
48. Applying Deputy President Estcourt’s comments in Re Rogers, Mr and Mrs Mundy had an entitlement to a fluctuating percentage of the milk revenue as it could have been to more than 11%, if 11% did not yield an income of $66,000 .... Thus Mr and Mrs Mundy’s economic return was protected “from the vagaries of milk prices in a deregulated industry as a result of increased competition”, as it could not be less than $66,000 .... The term of the agreement, which guaranteed Mr and Mrs Mundy a base income of $66,000 was designed to protect them from falls in the price of milk and to provide them with the security of a base level payment sufficient to permit them to remain in the industry....
15. However, as Mr Pizer pointed out in the submissions filed in this matter for the Authority, it is not correct to regard the agreement as guaranteeing Carinya an income of $66,000 and as being protected from falls in milk prices. The arrangement between Mr Martin and Carinya did not in fact, on close analysis, provide Mr and Mrs Mundy, the proprietors of Carinya, with the security of a fixed base level payment of $66,000 which they regarded as the amount required to permit them to remain in the dairy industry.
16. I accept as correct the arguments in paragraph 54 of the respondent’s submissions lodged on 10 February 2004. In order to understand that reasoning in context, I set out paragraphs 42, 43 and 54 of the submission on behalf of the Authority:
42. The Top Up Clause, if it applied, simply meant that if the 11% share of milk revenue translated into an income of less than $66,000, Carinya was also entitled to additional compensation in the form of heifers. The provision of heifers (being a capital asset rather than income from the sale of milk) could have no effect whatsoever on the parties’ fixed milk revenue shares. That is because the transfer of a capital asset of the Enterprise (namely, heifers) simply cannot be regarded as a sharing of the Enterprise’s gross proceeds from the sale of milk. Indeed, Mr Brown, the person who drafted the Top Up Clause, recognised this fact. Similarly, Mr Mundy’s evidence on this point was as follows:
“But to me that [ie the heifers] is not an income as such. It is not money you can spend so it further enhances the fact that we were totally committed to being share farmers and to the vagaries of the dairy industry as such.”
43. Moreover, the fact that Carinya was entitled to a guaranteed minimum (notional) “income” of $66,000 is an irrelevant distraction. Section 4(1) requires one to focus on whether the arrangement is one under which each entity is entitled to a fixed percentage share of the Enterprise’s milk revenue. To consider whether an entity is also entitled to additional benefit that is not milk revenue (such as the provision of heifers or the provision of accommodation at a reduced rent) in certain specified circumstances is an irrelevant inquiry that is not sanctioned by the section.
...
54. Seventhly, even if the contentions set out in paragraphs 35 to 45 were rejected (on the basis that the provision of heifers constituted a sharing of the milk revenue and that the Top Up Clause still had work to do on 28 September 1999), and even if heifers had been transferred to the Mundys under the Top Up Clause, the Mundys were required to lease those heifers back to the Applicant at $140 per head per year. It follows that if, for example, the Mundy’s net income was $60,000, then:
(a) the Mundy’s would be entitled to six heifers under the Top Up Clause; and
(b) the Mundy’s would not receive an actual income of $66,000; rather, they would in fact receive an income of $60,000, plus an entitlement to six heifers and an entitlement to the sum of $840 (paid quarterly) in the following year.
In addition, the greater the Mundy’s entitlement to heifers, the more precarious the Mundy’s actual income position would be. It follows that the Mundys’ so-called “insulation” from the variations in the price of milk was more apparent than real.
17. I have been persuaded that, on a strict literal interpretation of s 4, the arrangement between Mr Martin and Carinya did, in fact, satisfy the definition of the term “an eligible dairy sharefarming arrangement”, in that each entity was entitled to a "a fixed percentage share of the milk revenue of [the] dairy farm enterprise". However, as I indicated in my earlier decision in this matter, there is much to be said for the adoption of a purposive interpretation of the definition of the term, bearing in mind the remedial nature of the legislation and the requirements of s 15AA of the Acts Interpretation Act 1901. Section 15AA provides:
(1) In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object.
18. I accept what was said by Deputy President Estcourt in Re Rogers as to the purpose of the scheme. But I have decided that a purposive approach does not assist Mr Martin, on the facts of this matter. The position may have been different if the arrangement had been that Carinya was to be paid a minimum net income of $66,000 per annum, made up, first, of a fixed percentage share of 11 per cent of the milk revenue of the dairy farm enterprise and, if that yielded a net income less than $66,000, of a cash payment to bring the total annual net income up to $66,000. However, that was not the arrangement.
19. As Mr Pizer pointed out in paragraph 54 of his submission, in so far as the net income of Carinya was less than $66,000, the agreement was that Carinya would receive heifers valued at a notional $1000 each, to make the income up to $66,000. But those heifers were to be leased back by Mr Martin at $140/yr in future years (See the Special note to Memorandum of Understanding). Thus, the income of Carinya in the first year would have remained at 11 per cent of the milk revenue of the dairy farm enterprise. In future years it would have increased only by $140 for every $1000 by which it had fallen below $66,000 in the preceding year.
20. Applying the analysis of Deputy President Estcourt in Re Rogers to those facts, I find:
(i)Carinya was entitled to a fixed percentage share of the milk revenue of the dairy farm enterprise;
(ii)even taking into account the top up provision in special note 3 of the share farming Memorandum of Understanding, the economic returns of Carinya "were subjected to the vagaries of milk prices in a deregulated industry" (Re Rogers paragraph 27);
(iii)Carinya, under the arrangement with Mr Martin, was not protected from falls in income due to falling milk prices. A fall in annual net income for one year of $6000, as pointed out by Mr Pizer, would have led, not to a top up payment of $6000, but to ownership of heifers and additional income of $840 only, in each following year;
(iv)Carinya, as an entity, was affected by falling milk prices because it had a vested entitlement to a fixed percentage share of milk revenue; and
(v)the small income top up provided under the Memorandum of Understanding did not change the character of the arrangement so as to ensure that Carinya received a secure net income return protected from falls in the price of milk.
21. The matter is complex. As Weinberg J emphasised in paragraph 74 of his Reasons for Judgment, there has been no challenge to my finding that Mr Martin acted honestly and reasonably when he stated, in answer to question 7 in his Standard Payment Right Application, that he was not a party to an "eligible share farming arrangement" as at 6:30 p.m. on 28 September 1999. However, I have now concluded that Mr Martin was a party to "an eligible dairy share farming arrangement" at the relevant time. Thus, I must find that Mr Martin made a "false statement".
22. That was the only issue remaining for determination. Accordingly the decision to cancel payment rights under review, made by the Authority on 20 April 2001 and affirmed on 13 July 2001, is affirmed.
I certify that the 22 preceding paragraphs are a true copy of the reasons for the decision herein of
Signed: Josephine McKay
AssociateDate/s of Hearing Hearing on the papers
Date of Decision 30 March 2004
Counsel for the Applicant M Goldblatt
Solicitor for the Applicant Riordan & Partners Lawyers
Counsel for the Respondent J Pizer
Solicitor for the Respondent Mallesons Stephen Jaques
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