Montreal Lace Pty Ltd v Australian Trade Commission
[2000] AATA 867
•29 September 2000
DECISION AND REASONS FOR DECISION [2000] 867
ADMINISTRATIVE APPEALS TRIBUNAL )
) No V97/1483
GENERAL ADMINISTRATIVE DIVISION )
Re Montreal Lace Pty Ltd
Applicant
And Australian Trade Commission
Respondent
DECISION
Tribunal Deputy President B.M. Forrest Mr A. Argent, Member Mr C. Ermert, Member
Date29 September 2000
PlaceMelbourne
Decision The decision under review is affirmed.
.........(Sgd. B.M. Forrest)............
Deputy President
EXPORT MARKET DEVELOPMENT GRANTS – Claim for grant for the 1994-95 grant year – bulk of claimed expenditure for overseas representation – whether eligible expenditure – whether substantiated – decision affirmed.
Export Market Development Grants Act 1974 ss. 3A, 11A, 11C, 11Z, 12(2), 14
Re Parker Pen Australia Pty Ltd and Export Developments Grants Board Full Federal Court, 30 March 1984,G122 of 1983, (1983) 5 ALN N489a
Parker Pen (Aust) Pty Ltd v Export Development Grants Board (1983) 46 ALR 612
REASONS FOR DECISION
29 September 2000 Deputy President B.M. Forrest Mr A. Argent, Member Mr C. Ermert, Member
On 29 November 1995, the applicant Montreal Lace Pty Ltd, ("Montreal Lace") lodged a claim under the Export Market Development Grants Act 1974 ("the Act") for a grant of $236,136 for the 1994-95 grant year. Included in the claim (which was prepared with the assistance of a consultant Mr Russell Chandler) were schedules of various categories of claimed eligible expenditure as follows:
Schedules (a) 1993/94 First time claimant only (b) 1994/95 Total
1 - Fares 2,641 3,977 6,618
2 - Overseas Visits Allowance 4,200 8,400 12,600
3 - Literature/Advertising 0
4 - Tenders/Quotations 0
5 - Free Samples 901 2,215 3,116
6 - Free Technical Information 0
7 - Communications 452 1,623 2,075
8 - Overseas Representation 143,359 334,504 477,863
9 - Agents/Consultants – Australia 0
10 - Agents/Consultants – Overseas 0
11 - Other 0
Total Expenditure and allowances 151,553 350,719 502,272
The bulk of the claimed expenditure was for overseas representation. This claim was detailed in schedule 8 to the claim as follows:
"Expenditure:- Per consolidated Profit & Loss statement, Greek bank statements fully matched to receipts, invoices etc.
Trade Fair set-up costs $79,511.23
Trade Fair Wages $15,088.24
Trade Fair Exhibition Costs $69,713.81
Wages Stavropoulou * $100,941.18
Salaries * $190,000.00
Wages * $6,514.71
Magazine Advertising $41,945.01
Communications * $3,121.52
Office Expenditure * $ 1,205.88
Sub Total $508,041.58
* Deduct 10% of asterisked items to allow for
non promotionals -$30,178.30
Total Claimed $477,863.28Office Funding:- Provided by a mixture of telegraphic transfers from Australia, consignment sales proceeds, and Greek bank overdraft borrowings:
Details of telegraphic transfers from Australia:
15/7/93 $8,000.00
20/7/93 $3,014.29
28/9/93 $14,956.28
6/4/94 $2,172.06
24/6/95 $23,535.00
30/6/95 $38,558.00
$90,235.63
Consignement (sic) Sales Proceeds:
1993/94 $192,315.53
1994/95 $366,074.35
$558,389.88
Overdraft Borrowings 1994/95 $15,816.52"
As a first time claimant, Montreal Lace claimed expenditure over a two year period.
On 24 April 1997 an officer of the Australian Trade Commission ("the Commission"), following a lengthy investigation which included a visit to Greece by an investigating officer in relation to the applicant's overseas representation office, made a determination disallowing $497,081 claimed eligible expenditure for fares, overseas visits, allowances and overseas representation expenses on the basis that neither the purpose nor the amounts of the expenditures claimed were considered to be sufficiently substantiated and that no grant was payable. Amounts claimed for Free Samples ($3,116) and Communications ($2,075) were allowed on the basis they were low risk items and were not investigated. The export earnings of $146,316 claimed in the application were also considered not to have been sufficiently substantiated.
Following a reconsideration at the request of the applicant the determination was confirmed on 31 October 1997. Montreal Lace has applied to the Tribunal for a review of the decision.
Montreal Lace commenced business in 1992 as an import/export distributor of household linen and tableware products. It purchased the business of Montreal Import & Export Distributors Pty Ltd under an agreement dated 2 June 1992 for $107,000. Mr George Skalkos was managing director of Montreal Import & Export Distributors Pty Ltd. It imported and sold cookware and cutlery. The purchase price was stated to be paid by a payment of $22,000 on 2 June 1992 and the balance by assuming liability for creditors of $85,000. Stock in trade and work in progress agreed to be $100,000, was included in the price. The directors and shareholders of Montreal Lace are Mrs Sophie Skalkos and her aunt Angeliki Vasiliou, a resident of Greece.
The eligible goods from which the export earnings were said to have been derived were described as lace bedding ensembles, doona covers, pillow cases and bed sheets for newlyweds, made from lace purchased either in Australia or overseas. The goods are made up by outworkers working from home. They were despatched to Greece by air and sea freight.
A grant is payable to a claimant where the Commission determines there is an entitlement to one: s. 12(2) of the Act. The meaning of "export earnings" is contained in s. 3A of the Act which relevantly provides:
"3A. (1) A reference in this Act to the export earnings of a person (other than an approved joint venture or approved consortium), for the claim period in relation to a claim, shall be read, subject to the operation of this section, as a reference to the sum of:
(a)in respect of eligible goods sold in Australia by that person at any time and exported by that person during that period - so much of the consideration received or receivable by that person in respect of the sale and export as is attributable to the free on board value of the goods;
(b)in respect of eligible goods exported by that person at any time and sold outside Australia by that person during that period - the amount that would have been calculated in respect of the goods under paragraph (a) if they had been sold in Australia;"
Section 14 sets out the conditions of eligibility for a grant. To qualify for eligibility, a claimant must have incurred "eligible expenditure" in the claim period of $30,000 or more, or where a claimant in a first grant year elects, $30,000 or more in the claim period and for the year immediately preceding the grant year. Expenditure is eligible expenditure if it has been "incurred", is "claimable expenditure" and is "qualifying export development expenditure".
"Eligible expenditure" is relevantly for present purposes defined in s. 11A(1):
"11A. (1) Expenditure is eligible expenditure of a person (other than an approved trading house, approved joint venture or approved consortium):
(a)only if it is incurred by the person; and
(b)only to the extent to which it is claimable expenditure (see Division 2); and
(c)only if it is qualifying export development expenditure for the particular person (see Division 4).
..."
Section 11C which is concerned with categories of claimable expenditure relevantly provides:
"11C. (1) Expenditure is claimable expenditure if:
(a)it is incurred by way of expenses of, contribution towards expenses of or payments made to, an agent for the purpose of:
(i)the carrying out of market research or the obtaining of market information; or
(ii)the advertising or other means of securing publicity or soliciting business;
...
(2) Expenditure is claimable expenditure under this section only to the extent to which it relates to one or more of the following:
(a)eligible goods;
...
(3)In applying subsection (2), the Commission is to have regard to:
(a)the number of different types of goods, services or other things being promoted by the agent; and
(b)the allocation of the agent's time; and
(c)any other matters that the Commission considers relevant."
Section 11Z which sets out the criteria for qualifying export development expenditure relevantly provides:
"11Z. (2) Expenditure is qualifying export development expenditure of a person to whom this section applies if, in the Commission's opinion, it is incurred primarily and principally for the purpose of:
(a)creating or seeking opportunities for; or
(b)creating or increasing demand for;
the sale by that person for export, or the export and sale by that person, of eligible goods manufactured, produced, assembled or processed in Australia.
(3) Expenditure is qualifying export development expenditure of a person to whom this section applies if, in the Commission's opinion:
(a)that person manufactures, produces, assembles or processes eligible goods at the time the expenditure is incurred; and
(b)the expenditure is incurred primarily and principally for the purpose of:
(i)creating or seeking opportunities for; or
(ii)creating or increasing demand for;
the sale for export, or export and sale, of eligible goods manufactured, produced, assembled or processed in Australia by that person."
Montreal Lace was funded during the claim period through loans to the company, sales proceeds and deposits received on sales. The acquittal of claimed expenditure was said to have been done in three ways:
a series of telegraphic transfers from Australia amounting to $90,235.63;
sales proceeds retained by overseas office to defray expenses of office; and
drawings from two Greek bank accounts operated from Greece.
Mr Con Dandanis, an accountant in private practice in Melbourne, is the accountant for Montreal Lace. He said that for the purposes of the claim for grant he prepared the list of salaries and wages for overseas representation from company documents in Greek (which he was able to read) setting out date of payment, amount of drachma paid and signed by the person making the payment and the person receiving the payment.
Mr Dandanis also prepared a statement headed "Accounts in Greece". Under columns headed Date, Account Number, Withdrawn, Deposit and Balance the activity was recorded in relation to five bank accounts in Greece which Mr Dandanis said were held in the name of "George Skalkos Montreal Lace", the source documents Mr Dandanis said were bank statements and passbooks.
Tender was sought on behalf of Montreal Lace of a one page statement from one of the bank accounts in Greece and a number of pages from another bank account in Greece but as the documents were in Greek, these were refused until an English translation was provided. This was not done.
Mr Dandanis also prepared a document headed "Sales Deposits" and under columns, Date, Account Number and Deposit he entered details of sales deposits to two of the bank accounts in Greece. A further document in Greek was a list of customers with addresses and telephone numbers and showing in drachmas amount of sale and balance owing.
Mr Skalkos who was described in the claim for grant as "General Manager" or "Manager" of Montreal Lace was a bankrupt at the time the application for a grant was made. He was made bankrupt on 14 February 1994 and discharged from bankruptcy "two or three years ago". He said he could not read or write in English. He gave evidence that the Montreal Lace goods were sold at home shows in Greece. Montreal Lace he said had a showroom in Athens but not a retail outlet. During the relevant period (1993-95) he estimated that he attended approximately ten home shows in Athens for which Montreal Lace rented floor space for a bedroom display. In total about four to six weeks in each year were occupied in home shows. Mr Skalkos said that he was there as a representative of Montreal Lace and helping the other staff with product knowledge and selling. He said that he was not paid for his work and did not manage the day to day business. Purchases of goods at home shows were made either in cash or on a lay-by system. With the latter the purchaser paid a deposit for the goods and the balance by instalments into a bank account number given to the purchaser. A number of bank accounts were opened by George Skalkos with the National Bank of Greece (not individual accounts for each purchaser) to enable purchasers pay their instalments.
During 1993-95 Mr Skalkos spent almost ten months in Greece, saying that he lived with friends. In that time "I help in the company any way I can". When in Australia he worked for Montreal Lace "Yes, I help them." but said he had nothing to do with the day to day running of the business in Australia.
According to Mr Skalkos, in addition to the part time staff working at home shows, two or three other persons were employed including the manager of the Greek office Leonie Stavropoulous. There were, he said, fifteen or twenty part time staff employed at the home shows. The staff were paid in cash "they don't want to pay the tax".
His knowledge of the recording of sales made at home shows and of moneys received and of payments made was vague, saying that he left that to others because he has no ability as a bookkeeper. He did not instruct staff as to what they were to do with moneys received. The decision as to how people were to be paid was made by Mrs Skalkos, he had no part in it. He acknowledged he had the authority to operate bank accounts and when he wasn't in Greece a Mary Karamasenis was authorised to operate the accounts. Asked in re-examination whether he actually paid drachma to any of the sales staff at home shows, he replied "Maybe sometime I did, yes.".
Mrs Skalkos who gave evidence by telephone from Sydney said she, not George Skalkos was managing director of Montreal Lace during the relevant period of the claim, 1 July 1993 to 30 June 1995. She was responsible for the day to day running of the company in Australia. The claim for a grant was prepared in consultation with Mr Chandler and Mr Dandanis. Mrs Skalkos did not visit Greece during the relevant period but said she kept in contact with the staff in Athens.
In 1992 Mrs Skalkos obtained a loan of $100,000 from Angeliki Vasiliou which was paid into the Montreal Lace bank account. No repayments of principal or interest have been made in relation to the loan from Angeliki Vasiliou. The loan monies were used, according to Mrs Skalkos, partly for working capital for Montreal Lace and partly for living expenses for herself and her children. In about 1992 she had separated from Mr Skalkos. In evidence she said that she did not draw a salary from Montreal Lace but Montreal Lace advanced approximately $95,000 to her during 1994-95. She could not recall the purpose of these loans but thought that they went back to the company to keep it going. Another loan of almost $50,000 was made to Mr Skalkos during the grant years. "I know the moneys went to him but I don't know exactly how and how we had organised to do that". She confirmed that Mr Skalkos was not paid a wage.
In her statement, she said:
"Early in the life of the company the Directors established the policy that a customer would pay 20% deposit and the balance would be paid by instalments with the goods being delivered at the end of the payment plan. The company has a fixed price list which is published from time to time. The sales consultants who use the party plan now account for about 5% of sales of the company's products. Each sales consultant is paid a commission of up to 10% of the sales value but there is no tiered system of sales consultants."
When asked if she had ever supplied a price list of the goods to the Commission, she could not recall. It was her evidence that she hired Leonie Stavropoulous, the manager of the Athens branch, but did not have complete faith in her and had other family members "looking over her shoulder". Leonie Stavropoulous' duties included the receipt and recording of moneys paid for goods. Mrs Skalkos said she approved the opening of Montreal Lace bank accounts in Greece which were in her estranged husband George Skalkos' name and on which he was a signatory.
Included in the material before the Tribunal is a document headed "Employment Contract" whereby Alexiadou Panagiota is stated to have commenced employment by Montreal Lace on 24 October 1993 for an "indefinite" period with the employer required to provide fourteen days notice of termination. Her duties were stated to be:
"1) To deal with employer's matters in Greece
2) To deal with matters and issues of trade etc.
3) To organise salespersons visits
4) To organise sales
5) To supervise storage, delivery of goods, invoices.
Annual salary (no amount appears)
Additional payments: Vehicle on annual basis
Insurance on annual basis"The same Alexiadou Panagiota also stated in a separate declaration that she worked on a casual basis for Montreal Lace in Athens during the period 1 July 1993 to 30 June 1995. Mrs Skalkos was asked in cross examination about this person but was unable to shed any light on her employment nor was she able to recall whether Alexiadou Panagiota worked for Montreal Lace during the relevant period or not. Mr Skalkos said he knew Alexiadou Panagiota but did not know if she was a full time employee or not.
Also in the material were quarterly management reports said to have been prepared by Leonie Stavropoulous, the manager of the representative office which Mrs Skalkos said were compiled from information received from Montreal Lace employees who attended home shows during the relevant period. During cross examination Mrs Skalkos was asked why the twelve casual employees who provided statutory declarations for these proceedings (in the absence of wages records) do not also appear in the quarterly reports submitted by Leonie Stavropoulous. Mrs Skalkos replied to the effect that she could not remember the details as "we have a great turnover of people". In re-examination she estimated the number of different people employed in Greece in home shows as "hundreds" because of the large turnover of people. She confirmed that most of the sale proceeds of products sold in Greece remained in Greece to pay Greek creditors, approximately $12,000 was remitted back to Australia over the two year period. When first asked whether she drew a salary from Montreal Lace answered "as far as I know, no" then saying "I know that I didn't draw a salary" adding that she relied heavily upon her accountant's advice and explaining that at the time she was a single parent with three young children and that her major source of income was a sole parent pension with help from family and friends. Asked in relation to the profit and loss statement of Montreal Lace showing loans of approximately $95,000 to her between 1993 and 1995 she thought the money had gone back into Montreal Lace to keep it going but otherwise could not recall the purpose of the loans. She explained that her recollection of events around the relevant time was poor because of her personal circumstances at that time, having to start again following her estranged husband's bankruptcy.
On 30 June 1995, an amount of $38,523 was forwarded to Grigoris Konstandatos in Greece by telegraphic transfer from Montreal Lace in Australia. Mrs Skalkos' maiden name is "Konstandatos". On 26 June 1995 an amount of $23,500 was forwarded to Stavroula Smyrni by telegraphic transfer for which the recipient had issued a receipt eleven days before, on 15 June 1995, for services said to have been styling layout and graphic design. There was a dearth of evidence relating to the services said to have been provided by the recipients.
In mid 1998 Montreal Lace moved premises from Kallithea to Klafada in Athens. In June/July 1998 at the time the investigating officer visited, there was a shop there called Babylon 2000, a business operated by Mr Skalkos' cousin Harry Skalkos. Mr Skalkos said that Montreal Lace was two weeks away from moving into the building when the investigating officer called.
Mr Thomas Jarosz, the manager, Special Investigations Unit of the Australian Trade Commission, conducted an investigation of the Montreal Lace grant claim. In his opinion, some of the copy bills of lading and airfreight bills produced at the hearing and which he inspected overnight, during the hearing (part of Ex. 17) were either defective or had been altered. For example, a Hellas Taxi Trucks bill of lading did not have a container number, an export reference number, a value except for an insurance value, and no declared customs value. Some of the documents are in relation to a period prior to the claim period. Some commercial invoices appeared to have been altered, both the value and quantity of goods had been increased and were inconsistent in format with similarly numbered air waybills previously supplied to the Commission.
Challenged on this, he said he had not subjected the documents to forensic testing and he had no formal skills in the area, he was relying on observation. There was no explanation given or sought to be given by the applicant by way of further evidence in respect to these irregularities other than to say that any mistakes were innocent mistakes made during the ordinary course of business.
Both the amounts and purpose of the claimed expenditure were in issue in these proceedings. Where the genuineness of the expenditure is a matter of controversy, this raises serious questions as to the bona fides of witnesses. Allegations of this nature require very careful scrutiny. Proceedings before administrative tribunals differ from curial proceedings in that the concept of onus of proof does not apply in the fact finding exercise the Tribunal is required to undertake. That does not absolve an applicant from the necessity to persuade the Tribunal of all matters necessary for the Tribunal to conclude that the relevant expenditure was incurred by the applicant for the stipulated purpose: Re Parker Pen Australia Pty Ltd and Export Developments Grants Board unreported Full Federal Court (Toohey McGregor and Morling JJ) G122 of 1983, 30 March 1984 ((1983) 5 ALN N489a). In the context of s. 11Z(2) the "purpose" of a claimant may be gleaned from subjective or objective elements or more usually both. A person may say what his purpose is, but the objective facts may cast doubts upon the credibility or reliability of his statement (per Lockhart J. (the primary Judge) in Parker Pen (Aust) Pty Ltd v Export Development Grants Board (1983) 46 ALR 612).
There were many unsatisfactory aspects about the evidence which generally was far from clear and left many questions unanswered. The status of the representative office in Athens was open to doubt. Montreal Lace was not listed in any telephone directory in Greece in 1993 to 1995 and in fact has never been listed. In the relevant period Mr Skalkos had an individual telephone listing in Athens in his name only. Montreal Lace is not registered as a corporation in Greece. The role of Mr Skalkos in Montreal Lace was uncertain and his evidence shed little light on the representative office claim. According to Mr Dandanis, Mr Skalkos played no role other than a commission agent, he was only entitled to receive a commission based on any sales he made and he only made a few sales because most of his time was organising home shows. Mr Skalkos for his part was equivocal about his role in Montreal Lace. In the claim for grant he is described as "General Manager", in the schedule of the claims for air fares and "Manager" in the schedule for overseas visits allowance. He could not recall if he told either Mr Chandler who prepared the claim for grant, or Mr Dandanis, who gave Mr Chandler instructions for the claim, that he was in fact general manager or manager of Montreal Lace.
In his evidence Mr Skalkos displayed a lack of knowledge of the overseas activities of Montreal Lace. Beyond helping at home shows for four to six weeks a year, his evidence at face value revealed that he knew little else about the business despite spending approximately ten months in Greece during the relevant period. There was no evidence, for instance, that he spent any time other than the four to six weeks each year at home shows in creating or increasing business opportunities as would enable the expenditure claimed for his visits to be properly characterised as having been incurred for such purposes as would categorise the expenses as "claimable expenditure" and "qualifying export development expenditure". He was aware that fifteen to twenty staff were employed at home shows but did not know how they were paid or how much, although he was aware that payments were made in cash. He did not know whether staff deducted their wages from monies received from sales, or by some other method or whether there were any wages records kept. According to the claim the total employment of Montreal Lace at 30 June 1995 was ten persons.
Mr Skalkos was noticeably vague as to what work Mr Konstandatos did for Montreal Lace other than to say that he was helping the company set up for the home shows. He knew nothing about the lump sum payment of $38,523 on 30 June 1995 made to Mr Konstandatos and what it represented or whether Mr Konstandatos had ever invoiced Montreal Lace for whatever services he performed. Similarly, he knew nothing about the payment to Ms Stavroula Smyrni of $23,500 on 26 June 1995 for which the recipient, for reasons unexplained, issued a receipt dated 15 June 1995, eleven days before the payment was made. He did not know if Alexiadou Panagiota was a full time employee of Montreal Lace or not. All of this evidence from a person described as "general manager" or "manager" in the claim for grant dated 28 November 1995 signed by Mrs Skalkos. In our view there was a lack of candour in his evidence.
A component of the claimed overseas representation expenditure is $100,941.18, "wages Stavropoulou". The document titled "Agreement For Services" between Montreal Lace as "Principal", "Leoni Stavropoulou" as "Consultant" and "Leoni Stavropoulou" as "Executive" whereby it was stated that the consultant is entitled to remuneration of Dr8,000,000 per annum payable monthly in arrears for three years commencing 1 July 1993, is on its face, an intriguing document. The document is in English, it is not a translation of a document in Greek. It has the appearance of having been cobbled together with little thought and bearing in mind that the "Consultant" and the "Executive" are one and the same person, "Leoni Stavropoulou", the document in its terms is nonsensical. Under the agreement bearing the date 1 July 1993 the consultant agrees to procure the services of the executive (herself) – see clauses 3 and 4. Montreal Lace has the right to terminate the agreement by written notice to the consultant if the executive (a) becomes bankrupt, (b) is convicted of a felony, (c) dies (how the notice will be given in the event of (c) is not explained), (d) if the consultant and/or the executive is in breach of any provision…or is guilty of conduct tending to bring himself or itself of the company (sic) into disrepute, (e) and (f) if the consultant or the executive (our emphasis) neglects the affairs of the company or reasonable direction of the Board. In the Schedule, the duties of the consultant are described in detail and while specific remuneration is shown in drachma, one of her functions 5(a) refers to a monetary limit expressed in dollars. To further confuse the picture, there is an acknowledgment at the end of the document whereby "Leoni Stavropoulou" (as the executive) agrees and covenants to comply with the terms, "in particular clauses 4F, 6, 7 and 8 thereof". There are no clauses 4F, 6, 7 and 8 in the agreement contained in the Tribunal documents.
If as stated in the document, Leonie Stavropoulous performed the detailed list of functions described then it would seem that she is in the best position to identify the nature, character and quantum of the expenditure claimed, in view of her stated position as manager of the representative office, and given that substantiation of expenditure both as to amounts and purpose were in issue and have been in issue in these proceedings from the outset. There was no evidence from her.
Having considered all the evidence and material, there is in our view an absence of probative evidence from which we can be reasonably satisfied both as to the quantum of the expenditure incurred and as to whether it was incurred primarily and principally for the purposes of s. 11Z of the Act. There is a lack of evidence to verify that whatever expenditure was incurred satisfies the stipulated purpose. Even if we were to be satisfied that the expenditure claimed as eligible expenditure was in fact incurred and we have very serious doubts about quantum given the state of the evidence, there must exist the relevant nexus between the incurring of the relevant expenditure and the purposes specified by the Act. The oral testimony does not satisfy us as to these matters and the documentary material is inconclusive. The combination of the facts and circumstances revealed in these proceedings lead to an inference which we draw that amounts have been telegraphically transferred to Greece for the purpose of creating eligible expenditure which bear no relation to expenditure which may properly be characterised as eligible expenditure under the Act.
For these reasons the decision under review is affirmed.
I certify that the 39 preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President B.M. Forrest
Mr A. Argent, Member
Mr C. Ermert, MemberSigned: .....................................................................................
AssociateDate/s of Hearing 14, 15 and 16 February 2000
Date of Decision 29 September 2000
Counsel for the Applicant Mr G. Steward
Solicitor for Applicant Rogers and Gaylard
Counsel for the Respondent Mr P. Ginnane
Solicitor for the Respondent Australian Government Solicitor
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