Oppidan and Australian Trade Commission - [2002] AATA 582

DECISION AND REASONS FOR DECISION [2002] AATA 582

ADMINISTRATIVE APPEALS TRIBUNAL )

) No N2001/1595

GENERAL ADMINISTRATIVE DIVISION       )
           Re      OPPIDAN PTY LTD
  Applicant
           And    AUSTRALIAN TRADE COMMISSION
  Respondent

DECISION

Tribunal Ms G Ettinger - Senior Member
Date 15 July 2002

PlaceSydney

Decision      The Administrative Appeals Tribunal affirms the decision of the Grant Assessor of the Australian Trade Commission dated 9 October 2001 which affirmed the decision of Austrade of 25 September 2001 which held that Austrade was not satisfied that there were sufficient grounds to demonstrate that Australia will derive a significant net benefit from the export of the Applicant, Oppidan Pty Ltd's tea, and that therefore the Applicant did not have eligible goods in order to receive an Export Market Development Grant pursuant to section 24(4)(b) of the Export Market Development Grants Act 1997 for the grant year 1998/99.
  ..............................................
  Ms G Ettinger
  Senior Member
CATCHWORDS
Export Market Development Grant - whether Applicant meets the tests in section 24(4)(b) of the Act - whether a product manufactured outside of Australia and sold to the USA markets can qualify – whether Australian input to the Applicant's tea is sufficient to ensure that Australia will derive a significant net benefit from its export - whether the discretion in section 24(4)(b) of the Act can be exercised for the grant year 1998/99 - decision affirmed

Legislation
Export Market Development Grants Act 1997 sections 3, 23, 24(4), 107
Export Market Development Grants Bill 1997- Explanatory Memorandum
Acts Interpretation Act 1901 ss 15AA, 15AB

Case Law
Australian Trade Commission v Hellay Laboratories Pty Ltd [2001] FCA 79; (2001) 32 AAR 473
Re Sterns Playland Pty Ltd v Collector of Customs (No 2) (1982) 4 ALD 562
ACI Pet Operations Pty Ltd v Comptroller-General of Customs and Another (1990) 26 FCR 531
Re Bag & Jute Co (T'wth) Pty Ltd and Comptroller-General of Customs and Southcorp Australia Pty Ltd (1995) 38 ALD 357

REASONS FOR DECISION

15 July 2002 Ms G Ettinger - Senior Member

The decision under review before the Administrative Appeals Tribunal ("the Tribunal") was the decision of the Australian Trade Commission ("Austrade") of 9 October 2001 which affirmed the decision of 25 September 2001 and the further contentions made by the Applicant, and refused the Applicant's Oppidan Pty Ltd's ("Oppidan") claim for an Export Market Development Grant ("EMDG") in respect of expenditure said to have been incurred for the 1998/99 financial year. It is noted that Oppidan trades as "Teas of Ceylon", and that the Respondent in this matter is Austrade.
The Applicant was represented by Mr W Jones, of KPMG, and the Respondent Austrade, by Dr G Flick SC, of counsel, instructed by Mr I Johnson of Mallesons Stephen Jaques.
It is noted by way of background that there had been a previous application to the Tribunal dated 2 May 2000, (N2000/674), which appealed a decision of the Respondent dated 4 April 2000. Mr I Tranter, NSW Manager Export Grants of Austrade had held, in reviewing the decision of Austrade to deny Oppidan's claim for an EMDG for the 1998/99 year:
"This review has been carried out but I regret to advise that your appeal has been unsuccessful. As discussed with you by our auditors the tea being promoted has been assessed as an ineligible good as it is sourced 100% overseas and as such does not satisfy the Australian content provisions of Section 24 of the Export Market Development Grants Act."
It is noted that the application to the Tribunal was ultimately dismissed by consent of the parties before the present application was lodged.
ISSUES BEFORE THE TRIBUNAL
The issue before the Tribunal was whether Oppidan was eligible to receive an EMDG in respect of expenditure said to have been incurred in relation to promotion of its tea during the financial year 1998/99.
The Applicant having conceded that his product did not meet the tests for Australian content in sections 23 and 24 of the Export Market Development Grants Act 1997 ("the Act"), relied on the discretion in section 24(4)(b) of the Act, arguing that his tea was an eligible good for purposes of an EMDG for the year 1998/99, because the Australian input in Oppidan's tea was sufficient to ensure that "Australia will derive a significant net benefit from its export".
In making the decision, the only matters to be considered by this Tribunal were whether in satisfaction of section 24(4)(b) of the Export Market Development Grants Act 1997, the Australian input into Oppidan's tea in the grant year 1998/99, was sufficient to ensure that Australia will derive a significant net benefit from the export of the Applicant's tea.
LEGISLATION
The relevant legislation in this matter is the Export Market Development Grants Act 1997, in particular sections 3, 23, 24, and 107 which follow as relevant:
"3 Object of Act
The object of this Act is to bring benefits to Australia by encouraging the creation, development and expansion of foreign markets for Australian goods, services, intellectual property and know-how. It does so by providing for an assistance scheme under which small and medium Australian exporters committed to and capable of seeking out and developing export business are repaid part of their expenses incurred in promoting those products.
23 Object of Part
(1) This Part sets out the conditions to be satisfied in deciding if a particular product (whether goods, services, an event, intellectual property or know-how) is an eligible product.
(2) The underlying principle is that a product should be eligible only if it is substantially of Australian origin.
24 Eligible goods
(1) Subject to subsection (3), goods made in Australia are eligible goods if they meet the 50% Australian content rule, that is, at least 50% of the free on board value of the goods is attributable to:
(a) components that were manufactured or produced in Australia; and
(b)      the cost of labour performed on the goods in Australia; and
            (c)        the overheads incurred in Australia in connection with the
  making of the goods; and
            (d)      any mark-up included in the free on board value of the goods.
(2) Subject to subsection (3), goods made outside Australia are eligible goods if they meet the 75% Australian content rule, that is, at least 75% of the value of the components used in the making of the goods is attributable to goods that meet the 50% Australian content rule.
(3)        Despite subsections (1) and (2):
(a) particular goods made in Australia that meet the 50% Australian content rule; and
(b)     particular goods made outside Australia that meet the 75%
Australian content rule;
are not eligible goods if Austrade has determined, in writing, having regard to all the facts available to it, that the Australian input in those goods is not sufficient to ensure that Australia will derive a significant net benefit from their export.
(4)      In addition:
(a) particular goods made in Australia that do not meet the 50% Australian content rule; and
(b) particular goods made outside Australia that do not meet the 75% Australian content rule;
are eligible goods if Austrade has determined, in writing, having regard to all the facts available to it, that the Australian input in those goods is sufficient to ensure that Australia will derive a significant net benefit from their export.
Note:For goods made in Australia and goods made outside Australia see section 107.
107 Definitions
        In this Act, unless the contrary intention appears:
…
approved activity, project or purpose, in relation to an approved joint venture, means the activity, project or purpose for which the joint venture is approved under section 89.
…
approved promotional purpose has the meaning given by Subdivision 3 of Division 2 of Part 5.
approved trading house means a person that is approved by Austrade as an approved trading house under section 89.
…
Austrade means the Australian Trade Commission established by section 7 of the Australian Trade Commission Act 1985.
Australian law means a law of the Commonwealth, of a State or of a Territory.
…
company means a body incorporated under the Corporations Act 2001
…
eligible expenses has the meaning given by Division 1 of Part 5.
…
                   eligible goods has the meaning given by section 24.
…
eligible products means:
(a)      eligible goods; or
            (b)      eligible services; or
(ba)     eligible events; or
(c)      eligible intellectual property; or
            (d)      eligible know-how.
eligible promotional activity has the meaning given by subsection 33(1).
…
export means export from Australia, but does not include the taking of goods out of Australia with the intention that the goods will at some later time be brought back to Australia to remain permanently in Australia.
Note: See also section 110.
export earnings has the meaning given by Division 2 of Part 3.
…
goods made in Australia means goods manufactured, produced, assembled or processed in Australia.
goods made outside Australia means goods manufactured, produced, assembled or processed outside Australia.
grant means a grant under this Act.
grantee means a person that has received, or is entitled to receive, a grant under this Act or under the repealed Act in respect of a grant year (other than a grant that must be disregarded because of subsection 8(1)).
grants entry requirements means the grants entry requirements determined under subsection 21(1).
grant year means:
(a) a year commencing on 1 July during the period from the start of 1 July 1996 to the end of 30 June 2006; or
(b) a grant year within the meaning of the repealed Act other than a year commencing on or after 1 July 1996.
income, in relation to a person, means:
(a)      any income of the person that:
(i) is assessable income under the Income Tax Assessment Act 1936; or
(ii)if that Act does not apply to the person - would be assessable income under that Act if it applied to the person; or
(b) any money (other than income referred to in paragraph (a)) that the person receives by way of financial assistance from:
(i)         the Commonwealth, a State or a Territory; or
(ii) a body established by or under an Australian law; or
(c) if the person is a body corporate referred to in paragraph 6(1)(g) - any payment to the body from money appropriated by the Parliament of the Commonwealth, of a State or of a Territory for the purposes of the body.
…"

EVIDENCE BEFORE THE TRIBUNAL

The Tribunal had before it documents lodged, the ("T-documents"), pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 ("the AAT Act"), as Exhibit R1, and the following other documents. This comprised both the T-documents and supplementary T-documents.
ITEM DATE EXHIBIT NUMBER
Financial Statements of Oppidan Pty Ltd 1998/99         Exhibit A1
Austrade Memorandum & Letter to Warren Cross 29 January 2001; 24 November 1999           Exhibit A2
KPMG Report (15 pages) to Mallesons Stephens Jaques      8 June 2001 Exhibit A3
Profit & Loss Statements of Oppidan Pty Ltd     July 2000-June 2001          Exhibit A4
Profit & Loss Statements of Oppidan Pty Ltd     July 2001-January 2002     Exhibit A5
Email to Oppidan Pty Ltd from Akbar Brothers Ltd.      12 June 2001           Exhibit A6
Sales Invoices  Exhibit A7
"Teas of Ceylon" Brochure           Exhibit A8
Forecasts - "Teas of Ceylon"  Exhibit A9
Email from Hugh Burne to Thao Bui, KPMG      11 February 2001    Exhibit A10
Affidavit of Annette Burne 6 February 2002      Exhibit A11
Affidavit of Hugh Burne      27 February 2002    Exhibit A12
Austrade Letter        24 November 1999 Exhibit A13
Email from Belinda Burne to Tyeab Akbarally    12 June 2001           Exhibit A14
Affidavit of Belinda Burne 6 February 2002      Exhibit A15
Applicant's Statement of Facts and Contentions          29 January 2002 Exhibit A16
Original Tea Packaging; Pictures of packets of 25 & 100  Exhibit R2
Revised Tea Packaging; Pictures of packets of 25 & 100       2000   Exhibit R3
Applicant's Statement of Facts & Contentions   30 March 2001        Exhibit R4
Mr Burne's File Note           16 May 1992 Exhibit R5
Mr Burne's File Note           March 2001   Exhibit R6
Mr Burne's File Note           9 February 2001      Exhibit R7
Letter of Mallesons Stephen Jaques to Mr W Jones    8 March 2002           Exhibit R8
Respondent's Statement of Facts and Contentions - 3           20 March 2001; 17 April 2001; December 2001       Exhibit R9

Oral evidence was given by Mr H Burne, Managing Director of Oppidan, Mrs Annette Burne, Director of Oppidan, and Ms Belinda Burne, Chartered Accountant, Director of Oppidan and daughter of Mr and Mrs Burne.
EVIDENCE OF MR HUGH FRANCIS BURNE – MANAGING DIRECTOR OF THE APPLICANT, OPPIDAN PTY LTD
Mr Burne, whose affidavit of 27 February 2002 was before the Tribunal as Exhibit A12, gave oral evidence. He is the Managing Director of Oppidan, and told me that he is also the major shareholder, that he spends some 60-70 per cent of his time developing the export market, and that he travels for about one third of his time in connection with his business. Mr Burne told me he had made 23 trips to the USA since 1999. He indicated that his company is 100% Australian owned and has its head office in two locations in Sydney. Mr Burne told me that the company brochure is also printed in Sydney and that Sydney firms Adtype and MBM Marketing were involved in the package design, promotion and design of the (tea) blends.
Mr Burne gave evidence that the branding of his tea as "Teas of Ceylon" was a helpful marketing tool for the USA market where he had a network of food brokers, distributors and supermarkets. His evidence in cross-examination was that his tea was recognised as an Australian brand in the USA.
Mr Burne indicated that there were no written contracts between him and his suppliers in Sri Lanka, but that "personal relationships" were very important.
Mr Burne gave evidence that in 1999 he had only one blend of tea, said that presently, the tea was in six different blends and seven different packages, and that within 5-10 years he would have 17 blends. Mr Burne explained that by December 2001, he had 400-800 supermarkets with whom he dealt, whereas in the previous year, he had had 50. Mr Burne also described how he now had critical mass in his sales and would be able to promote the teas. He indicated that he had established relationships with various television networks and appeared on various programs promoting his teas. He estimated the growth in the market, for example in the mid-west of the USA which was one of eight retail regions, and said that he could penetrate up to 2,000 stores in that area. Mr Burne spoke of penetrating the health food industry with "Tree of Light" and going into Walmart which had 700–800 stores. He also indicated that his product would be sold in the biggest supermarket chain which had 1,100 supermarkets. Mr Burne said that he had been taken on by Eurest Dining Services, a UK group which was the world's largest food service organisation with 25,000 outlets worldwide. He indicated that he was assisted with penetration into US markets by a food broker named Advantage Sales & Marketing.
Mr Burne told me that he was personally involved in developing blends and studying his competitors and consumer preferences. He said by way of example that decaffeinated tea would be a new market for him in the future. He said that the blending of the tea was done in Australia, and sent to Sri Lanka by courier. Standards were monitored from Sydney he said. Mr Burne said:
"We then taste these teas and that is some process because you, we need to develop teas that are in our personal views, a palatable to, with the quality and the taste which is befitting of what we are selling and we are selling a high quality tea … with a high quality distinctive taste so we spend a lot of time developing the taste here …"
Mr Burne said that he had been negotiating for promotion of his tea by Luke Longley, an Australian whose image is associated with Australia, who is very well known in the USA, and who now lives in Australia.
Mr Burne insisted his tea was an Australian product and that the image of Australian products and services was favourable in the USA. He described Ceylon tea as the "champagne of tea". Mr Burne told me that he was a creative person who had designed and painted the picture which appeared on the packages of Oppidan's tea. He added that the words "The Australian Tea Company" appeared on the package as well as a map of Australia, which I noted had an elephant depicted on it. When cross-examined about the origins of the symbols, Mr Burne said that the American market had in 1998/99 requested the change, and he had included the elephant on the packaging in that year. I noted Mr Burne's reply with regard to the packaging design. He said as follows:
"We were actually asked by our US broker, distributor network, to put "The Australian Tea Company" on here. He said that is what will sell your tea. We didn't have it on our original packaging by the way. … We also put a little map of Australia with an elephant in it. It might sound ridiculous to start with but it has attracted a lot of attention in America amongst consumers who actually like and do identify that with Australia but have also asked questions about why is an elephant and not a kangaroo in there. But that is good, because it has attracted the consumer attention so it is high profile to have that."
Mr Burne said that he considered the painting (by him), which appeared on the packets of tea as a critical part of the package, the trademark. In discussions with his accountants KPMG, it had been valued at $50,000 he said. In an e-mail addressed to [email protected], dated 11 February 2001 (Exhibit A10), Mr Burne wrote amongst other things:
"…Therefore all design and blend costs plus Labour and Overheads for both design and blend were costed over this number of packets. Essential to the design is the painting which is owned by Hugh Burne and not by Oppidan. The painting is so critical to the brand recognition that a value should be attributed to the right for Oppidan to use the painting on the packets. The value was set for the purpose of this exercise as 50,000 AUD for the production of 250,000 packets of each of the above blends. This has never to date been charged to the company as the company has not had the money for pay for it. This charge ought to be an annual charge."
Mr Burne gave evidence that although the design was done in Australia, the printing of the cardboard packets was done in Sri Lanka by a company called Print USA, as required, and as requested by Akbar Brothers Ltd ("Akbar"), and paid for by Akbar. However Mr Burne said that he had a role in liaison with Print USA from Australia, monitoring the printing.
When cross-examined about the source of the cardboard for the packaging of the Applicant's teas, Mr Burne told me that Akbar had informed him the cardboard was sourced from Australia, but that there was no obligation for Akbar to do so. Neither had Mr Burne seen any invoices pertaining to cardboard. He considered that it was not his business, and said that the suppliers of cardboard billed Akbar directly.
In cross-examination, Mr Burne was referred to the Applicant's Statement of Facts and Contentions (Exhibit A16) which he said his daughter had mainly drafted, although he said he had contributed some information.
At paragraph 12 of Exhibit A16, the Applicant had indicated that "the cost of the cardboard represents 9.2c per packet of tea." Mr Burne gave evidence that the cost of the cardboard used in the packaging of Oppidan's tea was originally estimated by Akbar to have been 9.5 cents per packet, but that he had a file note which would verify the information he received from Akbar saying it was 9.2 cents. Mr Burne then referred to Exhibit A6, an e-mail from Akbar to Ms Burne dated 12 June 2001 in response to a query from Oppidan regarding the cost of cardboard, which stated as follows:
"The Cardboard used in the production of the Teas of Ceylon packs comes from Australia. The cost of the board in relation to the total cost of the product is 17%."

However I noted that in Exhibit A6, no period of time was specified, and the total cost of the product was not specified. I noted from paragraph 23 of the Applicant's Statement of Facts and Contentions that "the cardboard element of the equivalent FOB value was $144.27" and noted Mr Burne's understanding that the cardboard used to package Oppidan's tea for the grant year was Australian cardboard. Dr Flick then asked Mr Burne whether he had taken the figure of $144.27 and divided it by the number of packets to arrive at 9.2 cents per packet. Mr Burne then agreed that the 9.2 cents had been arrived at in that way rather than by way of information from Akbar.
Dr Flick suggested to Mr Burne that the cost of the cardboard had deliberately been inflated for purposes of convincing Austrade with regard to the EMDG. Mr Burne denied this, saying the allegation was "outrageous".
Mr Burne indicated in reply to Dr Flick's cross-examination that various other figures such as those at paragraph 16 of the Statement of Facts and Contentions (Exhibit A16), being cost of the sales to the USA, ($2,810), were prepared by his daughter, who did the accounting. The same reply was given in reply to questions relating to various other figures from the Statement of Facts and Contentions.
Mr Burne was directed to paragraph 19 of the Facts and Contentions which stated: "That the CIF value of the tea sold to the US was $6,818 for 1,563 packets of tea." When asked whether that information was correct, Mr Burne said that it should be so, and said that the figures would have emanated from a commercial invoice (Exhibit A7), but that he could check it. I noted that calculations done in connection with Exhibit A7 indicated that the figure was 1,740 packets so that there was a discrepancy as there was later shown to be with various of the other figures which the Applicant had supplied.
Dr Flick asked Mr Burne whether the figures produced were aimed at giving the impression that there was a good mark-up. Mr Burne replied that he did his best to have accurate figures, and that the figure provided of 1,563 packets of tea sold the USA in the grant year had not been not a guess.
When questioned regarding paragraph 24 of the Statement of Facts and Contentions, where it was stated that "the combined proportion of the cardboard element and the mark-up was 55.02% ($3,261.26/$5,927). Accordingly more than 50% of he equivalent FOB value of the tea related to Australian inputs", Mr Burne stated that the mark-up meant net profit but asked that the question be referred to his daughter for clarification.
When questioned about brokerage fees, Mr Burne said that there had been none paid for the grant year, and that in another year or so into the future, that might be a feature of the business. He told me that he needed to come within the rules of the Federal Drug Administration ("FDA") in the USA and had lawyers in Chicago for that purpose. The lawyers were friends he said, and for the grant year there were no legal bills although he considered they would be deferred to the following year. However I noted that after cross-examination by Dr Flick, the figure which emerged for legal fees for 31 January 1999 was $US156.66. Further, $US1,437.86 was paid to the FDA for the trademark application, on 31 December 1998 and $US693.77 to the FDA for packaging, totalling $A2,504.81. These were not shown in the Statement of Facts and Contentions, the reason given being that it was at the discretion of the Burnes' with Mr Jones who together determined which items were recorded. Mr Burne also said that the lawyers he used in Chicago were friends and their billing may have been deferred from the 1998/99 year. When cross-examined about brokerage fees, Mr Burne said that they may not have been levied in the grant year; he added that they were "very irregular" in levying these, but that Ms Burne would know the answer better than he.
Mr Burne gave evidence that Oppidan was run by himself, relying on his expertise in banking gained at another time in his working career, and by his wife and his daughter, the latter as the accountant. When cross-examined about the growth of the company, he told me that the business was growing, the family was taxed to the limit and intended to employ an Australian executive, but that at the date of the hearing, no offer had yet been made to any prospective employee. Mr Burne said that the present cash flow could not yet support another senior person.
When questioned about the role of Akbar, Mr Burne said that it was the producer of the tea. He also said that Quick Tea Pty Ltd was the actual supplier, and that it was 100% owned by Akbar. Mr Burne told me that Akbar bagged the tea, packaged it and exported it on his behalf. Mr Burne told me that his relationship with Akbar was informal and there was no contract with regard to continuity of supply. Mr Burne said however that they wrote to each other from time to time with prices and other information. He said that the industry did not operate in a formal way, and that he did not doubt the continuity of supply. "It is understood we will continue to work together," he said. Mr Burne said that for the quantities required for the American market, there was no other supplier. However when asked specifically about other suppliers, Mr Burne said that: "You always keep your eyes open for back-up." In re-examination when questioned by Mr Jones regarding why he did not press Akbar for a formal contractual relationship, Mr Burne said that his company was too small to have a big influence, and it was therefore best to wait. It was however good to be associated with the largest producer of tea in Ceylon he said, adding that his association dated back to 1991. Mr Burne was adamant that his product was put into packages designed in Australia, that the product and its taste were formulated here, and that the brand could not do without his input from Australia.
Mr Burne gave evidence regarding Advantage Sales and Marketing, Golden State Sales, Trend Marketing in the USA and others, with whom he dealt. Mr Burne said that in the grant year 1998/99 he had only two brokers and one distributor in the USA.
Dr Flick asked Mr Burne whether his business was the export of tea from Sri Lanka, to which Mr Burne answered emphatically in the negative. In reply to a question from Dr Flick as to whether the American clientele regarded Mr Burne as a supplier of tea from Sri Lanka, he also emphatically replied in the negative. Mr Burne said that the clientele viewed the tea as a product of Australia, but that he could not register the name "Teas of Australia". "They see it as an Australian product", he said.
As to promotion; Mr Burne told me that he spent 24–30% of his costs on promotion of his tea in 1998/99, with anticipated increases into the future. He said that in the current year 65% of his costs were spent on promoting his tea. Mr Burne was asked by Dr Flick to provide actual figures in this regard.
In reply to the question from Dr Flick regarding where the sales of tea were monitored, Mr Burne said that his office in Sydney did the pricing, distribution and monitoring. I noted however that at T4/39, Oppidan's letter to Austrade dated 14 September 1999, it stated that:
"We are fortunate to have the established network in the USA which assumes a very substantial workload including inventory movements, relationship with the supermarkets, monitoring sales, introducing new blends, shelf stacking, planogram positions, marketing, promos, trade fairs and so on."

I noted that the content of that letter conflicted with Mr Burne's oral evidence, and noted that when he was referred to T4/39, Mr Burne said that the monitoring was shared.

Mr Burne continued in cross-examination when the Tribunal reconvened on 14 March 2002 for a third day of hearing after adjourning for a month. He had been requested, and had undertaken to prepare answers to a number of questions. Mr Burne said he had consulted his files and come up with documents PT9, PT10, and PT12. He said that he had found file notes to support PT10, and PT12. I also quote from the Affidavit of Mr Burne at Exhibit A12:
"The tables in PT 9, PT 10, and PT 12 reflect the different stages of our communications with Austrade and were prepared for different purposes. As a result, each table should be viewed in its context at the time and for the purpose it was prepared."
The questions Mr Burne had been asked to reply to were as follows:

Mr Burne was asked to explain how an apparent error occurred in reporting the amount of tea sold to the USA in the grant year (i.e. 1,740 rather than 1,563 packets). Mr Burne confirmed that 1,740 was the correct figure by reference to Exhibit A7 and the invoices of 19 March 1999 and 24 May 1999.
The second question related to the value of the cardboard at 9.2 cents per packet in the Statement of Facts and Contentions which Mr Burne said was the information he had at that time. He said:
"This figure relates back to 1998/99. The 9.2 cents I calculated by applying inflation from 1992 up to '98/99. It appears that was a better technique because the 17 per cent related to the year 2001."
The third question related to whether brokerage fees and legal fees had been included in the mark-up calculation. Mr Burne said that the answer to that question was at page 13 of Exhibit A12. Brokerage had been described as $AUD 347. He agreed when questioned that it had intentionally been excluded from the mark-up calculation. Mr Burne agreed with Mr Jones in re-examination that the brokerage fees had not been included in the gross profit calculation, rather they had been included in the net profit calculation.

In closing his cross-examination, Dr Flick asked Mr Burne if he would agree that there was no reliability in the Statement of Facts and Contentions due to the many discrepancies in the figures shown there when compared with the accounts, and what had in reality occurred. Examples he gave were for the cardboard, for freight and insurance, and for the numbers of packets of tea exported in the grant year. Mr Burne answered that they were doing so many things that some small inaccuracies could occur. Mr Burne also frequently referred to the fact that his daughter Ms Belinda Burne had prepared the accounts.
Mr Burne argued that his teas met the tests in section 24(4)(b) of the Act, being particular goods made outside Australia that did not meet the 75% Australian content rule, but that they were eligible goods in that the Australian input in those goods was sufficient to ensure that Australia will derive a significant net benefit from their export. He argued that the word "will" in the sub-section imported future benefit for Australia, and did not just pertain to historic benefit.
EVIDENCE OF MRS ANNETTE BURNE - DIRECTOR OF OPPIDAN
Mrs Burne who holds a law degree from Sydney University, and whose affidavit of 6 February 2002 was before the Tribunal as Exhibit A11, gave oral evidence. She described her work as blending the tea after tasting it, assisting her daughter Belinda Burne, doing the banking, photocopying, handling the legal issues such as trademarks, handling customer feedback and promotions and advertising for Oppidan.
Mrs Burne said that she "developed all the blends" for the company, aiming at the market in supermarkets, Eurest services and natural food stores. She said that in doing so, she considered the competitors' teas, read data on tea and considered herbs. Mrs Burne said that she took responsibility for the packaging, including barcoding, and attended meetings with regard to design. Mrs Burne said that she had no formal qualifications with regard to blending but thought that her enjoyment of the product would be reflected in the customer's view of the tea. She added that she did not claim to be an expert in the field.
Mrs Burne said that in the USA customers had a toll free number and that she attended to their needs, as well as liaising with the lawyers in the USA.
As to blending; Mrs Burne said that in the process of manufacture, in particular in processing the tea into tea bags, the taste may not be able to be fully duplicated and may therefore vary. In tea bag form the tea had to remain fresh for some two to three years she said. She said that she provided samples to Akbar.
I noted the following exchange with Dr Flick:
"Dr Flick: Would it be correct to say that the ingredients of the tea which he supplies you may be quite different to the ingredients that you have used?
Mrs Burne: I wouldn't say quite different because firstly we are trying to keep with natural ingredients. … So no, the ingredients would not be quite different. They may be – there certainly will be a subtle difference.
…
Dr Flick: And in fairness to you, you would contend that Mr Akbarelli is applying a real area of expertise to duplicate the product that you have supplied him. Would you agree with that?
Mrs Burne: No, not totally because I think with a lot of the ingredients that we have introduced he hasn't a lot of knowledge and we have had to search around ourselves and find knowledge and that would apply to one of the new blends. He has no knowledge of the product that I have introduced which is a totally Australian product and I will have to research where he is going to get that product from."

EVIDENCE OF MS BELINDA BURNE – CHARTERED ACCOUNTANT, DIRECTOR OF OPPIDAN AND DAUGHTER OF MR AND MRS BURNE

Ms Burne, whose affidavit of 6 February 2002 was before the Tribunal as Exhibit A15, gave oral evidence. Ms Burne said that she had worked at KPMG for four years, and had left that firm in 1995.
Ms Burne said that as Oppidan was a small family company, she was responsible for promotions, distribution of the tea throughout the USA, and the financial affairs, cash flow and budgeting. She said that she also had involvement in blending and tasting the teas which took an hour or two a week. She said that as the company expanded, her role was now more than 50 per cent involved in the financial aspects of the company. The other half of her work was involved with trade shows, market share and distribution. Ms Burne said that she spent a total of two or three ten hour days on Oppidan's work.
Ms Burne was asked whether Exhibits A4 and A5 correctly reflected Oppidan's sales to the USA for the periods July 1999 to June 2000. She agreed, noting that the figures were in $US.
When questioned by Dr Flick regarding preparation of the submission to Austrade for the EMDG grant, (T9), Ms Burne said that this had been prepared by her father.
SUBMISSIONS AND CONCLUSIONS
I had to take into account the evidence, submissions, legislation and case law to make the correct and preferable decision regarding the eligibility of Oppidan for an Export Market Development Grant for the financial year 1998/99. The Applicant having conceded that his product did not meet the tests for Australian content in sections 23 and 24 of the Act, relied on the discretion in section 24(4)(b) of the Act, arguing that its tea was eligible for an Export Market Development Grant for the year 1998/99 because the Australian input in its product was sufficient to ensure that Australia will derive a significant net benefit from its export.
For the sake of completion I have noted that there had been a previous application to the Tribunal dated 2 May 2000, (N2000/674), which appealed a decision of the Respondent dated 4 April 2000. Mr I Tranter, NSW Manager Export Grants of Austrade had held, in reviewing the decision of Austrade to deny Oppidan's claim for an EMDG for the 1998/99 year, that the tea being promoted was "assessed as an ineligible good because it was sourced 100% overseas and as such did not satisfy the Australian content provisions of Section 24 of the Export Market Development Grants Act". The application by Oppidan to the Tribunal for review of Austrade's decision was ultimately dismissed by consent of the parties before the present application was lodged.
I noted also Dr Flick's submission on behalf of the Respondent in which he stated:
"… to the extent that Austrade has to administer the legislation, it is very much dependant factually upon material over which it has no control. It is very much in the hands of an applicant as to what it advances and we see, and I mean no disrespect in putting it this way, we see the facts as sought to be advanced by the applicant in this case is inherently unreliable and such that it's a very shaky foundation.
…
We mean no criticism of the applicant, the way in which the applicant presents its case, it lacks the legal rigour of what the inquiry is all about."
Having heard Dr Flick's submission, I wanted to put on record that my impression of Mr Burne was not that there was an issue of credibility with regard to his evidence, but rather, that he was so enthusiastic about promoting his tea that he had perhaps taken an optimistic view of everything he was doing. I did not find him or the other two members of his family to be witnesses of untruth. However, there were many inconsistencies in the Applicant's documentation which Dr Flick was able to point to in his cross-examination of the Applicant parties, and other inconsistencies which became apparent during the course of the hearing. As relevant, those matters have been considered in the decision making process
Dr Flick also made a general submission that this case raised questions fundamental to the interpretation of the Act, and stated that:
" … if this case succeeds, there is no difference between an applicant simply setting up an office at Woolloomooloo and exporting whatever you want, Indonesian shoes from Indonesia, nowhere coming near Australia but you can put a boomerang on the side of the box or something, and export them to the United States or you could have the same person in the office at Woolloomooloo exporting from France wine grown in France, bottled in France but with a kangaroo on the front of it, and sell it to California."
I was mindful of the objects of the Act as stated by North J in Australian Trade Commission v Hellay Laboratories Pty Ltd [2001] FCA 79; (2001) 32 AAR 473, and section 3 of the Act which I had to take into account in my decision making.
"The object of this Act is to bring benefits to Australia by encouraging the creation, development and expansion of foreign markets for Australian goods, services, intellectual property and know-how. It does so by providing for an assistance scheme under which small and medium Australian exporters committed to and capable of seeking out and developing export business are repaid part of their expenses incurred in promoting those products."
I was mindful that the underlying principle is that a product should be eligible pursuant to the legislation only if it is substantially of Australian origin, noting however the discretion in section 24(4)(b) of the Act that goods may be considered eligible goods if particular goods made outside Australia that do not meet the Australian content rule are eligible goods if having regard to all the facts available to the Tribunal, it holds that the Australian input in those goods is sufficient to ensure that Australia will derive a significant net benefit from their export.
I noted also Dr Flick's submissions about the admissibility of certain evidence in this matter. I am mindful that pursuant to section 33(1)(c) of the AAT Act, the strict rules of evidence do not apply in this Tribunal. Accordingly I have certain evidence before me which would not be admissible in a court of law. The weight accorded to that evidence is commensurate with its relevance to this matter.
I move then to consider the closing submissions of the parties.
intangible inputs
Mr Jones commenced his closing submissions by referring to section 24 of the Act, submitting that in relation to Oppidan's tea, Australian inputs were not confined to tangible inputs, but included intangible inputs as contemplated in section 24(1)(a), (b), (c) and (d). I noted that section 24(1)(a) referred to components that were manufactured or produced in Australia; (b) to the cost of labour performed on the goods in Australia; (c) to the overheads incurred in Australia in connection with the making of the goods; and (d) to any mark-up included in the free on board value of the goods. Mr Jones stated as follows:
"Therefore you could include reference to components, labour, overheads and in particular, mark-up. Subsection (4) does not define what Australian inputs are. There's no reference in there for that term to be restricted to the manner in which components, for example, are determined under section 24(2).
Section 24(4) is a broader application in the determination of what Australian inputs include. So in that regard, where there's a reference to mark-up we submit that the reference to mark-up is a reference to the gross profit on an item, not the net profit. The inputs can also include intangible items such as employment opportunities, input such as packaging design, blending, administration and promotional activities. In particular, the determination of what Australian inputs represent is not to be limited to either a 50 per cent or 75 per cent test, as is the case under subsection (1) and (2).
...
Essentially in the applicant's situation the Australian inputs, we submit, primarily the major item is the mark-up – the mark-up, the time and effort that Mr Burne, Mrs Burne and Ms Burne put into running the business and also the packaging and design activities, the blending activities, the use of outside consultants in those activities, the money spent on promotional activities with Australian suppliers ..."

Dr Flick, on the other hand, drew my attention to the object of the Act, namely that it is to bring benefit to Australia by encouraging the creation, development and expansion of foreign markets for Australian goods, and to do so by providing for an assistance scheme under which small and medium exporters are capable of seeking out and developing export businesses. Dr Flick submitted that the underlying principle was that to satisfy the requirements of sections 23 and 24 of the Act, the product had to be an eligible product, the underlying principle being that a product could only be eligible if it was substantially of Australian origin. What the Applicant was doing however, Dr Flick submitted, was simply encouraging or developing a market in the United States for "Teas of Ceylon".
Dr Flick submitted that section 24(2) of the Act dealt with goods made outside of Australia, and directed attention to the value of the components used in making the goods. It dealt simply with the value of the components, and there was no question of the inclusion of mark-up or profit here, he submitted. Dr Flick also acknowledged that the Act recognised that goods may be made outside Australia. What section 24(4) of the Act was concerned with, he submitted, was a "safety net", a "residual protection", conferring a power upon Austrade to make a determination if, having regard to all the facts, the Australian input in those goods was sufficient to ensure that Australia will derive a significant net benefit from their export.
In contrast to the submissions of Mr Jones, Dr Flick submitted that very little of the value of the components of the Applicant's tea was Australian. He submitted that the tea came from Sri Lanka, the purchasing of it, plus perhaps the insurance, freight and shipping. Dr Flick referred to Mr Jones' submission regarding promotional material and marketing expenses, and submitted that mark-up was not a value of the components used in the making of the tea. Neither was the time and effort of the Burne family. Dr Flick submitted that whether it was a good idea for an Australian family to be developing a business of exporting tea from Sri Lanka to the USA, was not a question for the Tribunal to consider. Pursuant to section 24(4) of the Act, it was the task of the Tribunal to work out the value of the (tangible) components of the goods.
Dr Flick submitted that:
"I think even Mr Jones would contend that when he was putting in his submissions that the Australian input is primarily mark-up and time and effort, and he has emphasised mark-up a number of times, and profit, if you exclude that, the Australian input is very little indeed.
…
Or, and we say this is the preferable way of construing 24(4), you construe 24(4) and 24(2) together, because you're talking about goods made overseas, and if you read the two provisions together you look at the Australian input into the value of the components used in the making of the goods. But that is process of construction. Either way, Australian input seems to be to the goods, not to their marketing, not to their distribution in the United States, not to securing more markets, not in appearing on American television, but the input into the goods.
…
It comes down to Mrs Burne and Ms Burne, albeit to a very limited extent, and Mr Burne tasting American tea, perhaps put a question mark next to that, but … it would include the process whereby they pick and choose components and pick a flavour which they then send to Akbar to duplicate. If we're right on our construction, that is what the Australian input is, and we can call it blending if you wish.
…
A query also whether you include cardboard.
If you're looking at what goes into that tea which is produced in Sri Lanka, what's the Australian contribution to that, there's certainly no contribution in terms of growing it. There's certainly no contribution in terms of picking it or blending it by Akbar. There's certainly no contribution by the Australians in printing the box or packaging it. But in fairness there is an Australian element in terms of what they have told the Akbarians, .. this is the flavour we want to duplicate and here is some Australian cardboard.
It doesn't even look as if they supplied the cardboard, it looks as though Print USA secures it, but it's at least Australian for present purposes. That's the Australian element and we would say that that is nowhere near the word sufficient."
Dr Flick submitted that were his submissions regarding content not acceptable, then the Applicant would still fail in his application because significant benefit to Australia had not been established. He referred me to ReSterns Playland Pty Ltd v Collector of Customs (No 2) (1982) 4 ALD 562 as authority for the approach to construction characterisation of the business, conclusively in this case, he submitted, the creation of an American market for tea exported from Sri Lanka. Oppidan was not creating a market for Australian cardboard or anything else Australian in this case he submitted. In paragraph 19 of the Respondent's Outline of Submissions, Dr Flick wrote:
"No construction and application of s.24(4), with respect, should permit a grant in respect to goods exported from overseas to another overseas market where the goods are not "substantially of Australian origin." Such a construction would not promote the object and purposes of the Act."
I considered Re Sterns Playland Pty Ltd v Collector of Customs (supra) with regard to principles to be adopted when identifying goods. Having considered the submissions of both parties, I noted that goods made outside Australia are defined pursuant to section 107 of the Act as "goods manufactured, produced, assembled or processed outside Australia". I was mindful that the term "components" is listed separately in section 24(1)(a) of the Act, and that "mark-up" is listed under a separate head, section 24(1)(d) of the Act. In section 24(2) of the Act, the term used is "value of the components used in the making of the goods". Component is not defined in the Act but is defined in the Longman New Universal Dictionary as "a constituent part; an ingredient ...".
In The New Shorter Oxford English Dictionary ("The Oxford Dictionary") component is defined as "…A constituent part;.composing, constituting, making up, constituent…"
Now, if reference is made to section 24(1) of the Act, "components" are separate from "labour, overheads and mark-up", so that the "value of the components used in making the goods" is likely in this case to mean the tea and the cardboard used for packaging. This leaves items like design, artwork, formulation of tea blends, trademark copyright and other areas for classification either within the category of components or that of labour or overheads.
The term used in section 24(4) of the Act is "Australian input". The Longman's New Universal Dictionary defines input as follows: "an amount coming or put in .... energy, material or data supplied to a machine or system ... a component of production e.g. land, labour or raw materials ..."
The Oxford Dictionary defines input as "…A sum put in; a contribution … something contributed to a whole … The total resources (including raw materials, manpower, etc) necessary to production, which are deducted from output in calculating profits…"
Although I am not bound by the Explanatory Memorandum, I am entitled to consult it, and in part because I did not find there was case law to guide me, I have noted here from the Explanatory Memorandum (with respect to section 24 of the Act) as follows:
"Eligible goods are those where Australian content is at least 50% of the free on board value of the goods. Australian content includes the cost of materials and labour, factory overheads, and margin for profit. Goods made outside Australia will meet the Australian content rule if 75% of the value of the components used in the making of the goods is attributable to goods that meet the 50% Australian content rule. Eligibility of goods is further subject to consideration by Austrade that the export of the goods will derive a significant net benefit to Australia. Austrade may determine in writing that goods meeting the 50% or 75% requirements are not eligible for grants consideration, or alternatively, that goods which do not meet the 50% or 75% requirements are eligible for grants consideration."

Having considered the submissions of the parties and the Explanatory Memorandum, I preferred the submissions of the Applicant that input should include physical components such as the tea and packaging, but also intangible inputs such as blending, design, mark-up and other items. I was mindful of course that "Austrade may determine in writing that goods meeting the 50% or 75% requirements are not eligible for grants consideration, or alternatively, that goods which do not meet the 50% or 75% requirements are eligible for grants consideration." [my emphasis]
I am mindful of particular situations such as the book publishing industry, (but not presently the tea industry or Oppidan's industry), where special concessions have been made, and where the inclusion of non-physical components has been accepted. I have noted also that businesses which have significant Australian intellectual property and research and development embedded in their product have the option to claim export market development grants under the intellectual property or know-how product categories. Oppidan did not claim under that category, and a review in that regard was not before me. I have therefore not considered it.
I find on the basis of material before me, (notwithstanding that book publishing has been classified separately), and without taking that particular situation into account in this case, that "input" in section 24(4) of the Act may include intangible inputs including mark-up, and design as submitted by the Applicant. In coming to a decision, I have had to measure that input and consider it in context of section 24(4)(b) of the Act, and whether the Australian input was sufficient to ensure that Australia will derive a significant net benefit from the export of Oppidan's tea. I was mindful of course that Austrade may determine in writing that goods meeting the 50% or 75% requirements are not eligible for grants consideration, or alternatively, that goods which do not meet the 50% or 75% requirements are eligible for grants consideration.
The value of the Australian input into Oppidan's product is discussed further on in these Reasons for Decision.
As this was raised by the Applicant, I moved then to consider whether export in section 24(4)(b) of the Act means export from Australia.
whether export is intended to include only export from australia
Mr Jones submitted that the use of the term "export" in section 24(4) of the Act was not restricted to export of goods from Australia. He submitted, referring to section 24(2) of the Act, that that section encompassed goods manufactured outside Australia, and thus that that concept could be imputed to section 24(4) of the Act. Mr Jones submitted as follows:
"Commercial reality will dictate that you go directly from the foreign market to the foreign market. So, I think that reference to export is not to be restricted to purely exports from Australia. You will restrict significantly the eligibility of goods made outside Australia."
Dr Flick, disagreeing, referred me to section 107 of the Act, the definition provision which defines "export" to mean "export from Australia".
I was mindful that section 24(2) of the Act provides that goods made outside Australia which meet the 75 percent Australian content rule are "eligible goods" pursuant to the Act, and that indeed "export" is not mentioned in that section. I was mindful also that it was agreed Oppidan's tea did not meet the 75 percent test, and I accepted Dr Flick's submission, that the definition of "export" in section 107 of the Act was: "export means export from Australia …". The meaning appeared clear to me, and I relied also on section 15AB(3) of the Acts Interpretation Act 1901 ("Acts Interpretation Act") which indicated that:
"(3) In determining whether consideration should be given to any material in accordance with subsection (1), or in considering the weight to be given to any such material, regard shall be had, in addition to any other relevant matters, to:
(a) the desirability of persons being able to rely on the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; and …"
I was mindful that section 24(4) of the Act did not specify export from Australia, but I was satisfied that the meaning of export was clearly and unambiguously defined in section 107 of the Act, as "export from Australia", and that no extrinsic material was required to understand the term in its ordinary useage.
However if I am wrong about that, and export in section 24(4) of the Act is not export from Australia, but export of the tea from Sri Lanka, then I must still consider whether there is sufficient Australian input to ensure that Australia will derive a significant net benefit from the export.
I moved then to consider the next submissions, that is in relation to whether the decision regarding the grant year could be extended to consider the Applicant's financial situation in future years.
interpretation of "will" in the phrase "will derive a significant net benefit"
Mr Jones made submissions with regard to the interpretation of the word "will" in section 24(4) of the Act, submitting that the phrase "will derive a significant net benefit" was not limited to the past, but indeed that regard could, and should be given to future activities, so that the increase in sales of tea for the years 2000 and 2001 could be taken into account in making a decision about the award of an Export Market Development Grant to the Applicant for the grant year. He submitted that there was a subjective element involved so that "the determination of what is significant to the applicant is to be a determination made relative to the circumstances of the applicant." In support of his argument, Mr Jones drew my attention to Exhibits A4, A5, and A7, submitting that when comparing the sales of $US 5,133 for the 1999 year with the cost of goods sold in relation to those sales amounting to $US 1,862, (the invoice for the supply of the tea), the mark-up was more than 63 percent. Similar calculations showed high mark-ups achieved by using this method of calculation for the following years, 2000, 2001 and 2002, Mr Jones said.
Mr Jones also referred me to Exhibit A9, where he said the Applicant had a forecast for the next ten years showing revenue was planned to approach $A100,000,000. The benefit to Australia, Mr Jones submitted, was by way of mark-up, employment opportunities the business would create, reinvestment of profits in Australia, payment of taxes and an increasing use of Australian packaging design. I noted that the forecasts showed significant potential and growth as submitted on behalf of the Applicant, but they were of course only forecasts.
Dr Flick connected the concept of "will derive" with "significant net benefit", arguing the contrary to Mr Jones, namely that the "will" in "will derive" indicated a degree of certainty was required rather than a reference to future events. He submitted that the facts relevant to a particular grant year related to the people and entities who had derived a benefit in that year, in this case:
"the plantation owners in Ceylon obviously derived a benefit. Akbar gained a benefit. Print USA gained a benefit. The distributors in the United States gained a benefit. But there certainly wasn't any benefit to Australia for the grant year because those employees who were employed weren't paid, no other employees were sought, and there was no tax paid."
Dr Flick submitted that the phrase "will derive" required certainty rather than uncertainty, and submitted that the Applicant's case was "fraught with repeated uncertainty" as to whether Australia will derive any benefit at all. To illustrate the uncertainty to which he referred, Dr Flick referred to the lack of a contract with Akbar with regard to the supply of tea, and the uncertainty of the American markets.
Dr Flick argued that the structure of the Act looked to particular facts, particular goods and particular years, and there was nothing in the Act he submitted, which indicated that in considering the significant net benefit to Australia, one was directed to look at any but a particular grant year. He referred me also to section 4 of the Act which I noted focused attention on a particular grant year.
I accepted that the forecasts for the growth of the business were substantial, and I was also mindful from the figures before me that sales for 2000 and 2001 had increased (Exhibits A9).
I also looked to the definition of "grant year" in the Act which follows as relevant:
"grant year means:
(a) a year commencing on 1 July during the period from the start of 1 July 1996 to the end of 30 June 2006; or
(b) a grant year within the meaning of the repealed Act other than a year commencing on or after 1 July 1996."
There is no doubt that the definition of grant year as cited above refers to a particular year, and indeed, just taking into account commonsense commercial life, the situation with regard to a business, its growth and its progress, and therefore its eligibility, may differ from year to year.
I consulted the Acts Interpretation Act 1901 with regard to the interpretation of "will" in this context and noted that section 15AA of that Act was clear that in the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act "shall" be preferred to a construction that would not. As relevant section 15 AA of the Acts Interpretation Act follows:
"15AA Regard to be had to purpose or object of Act
(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."
I noted further that section 15AB of the Acts Interpretation Act permits the use of extrinsic material in the interpretation of legislation, and accepted Dr Flick's submission that there was no relevant case law to be considered in this context.
" 15AB Use of extrinsic material in the interpretation of an Act
(1)Subject to subsection (3), in the interpretation of a provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material:
(a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or
(b) to determine the meaning of the provision when:
(i) the provision is ambiguous or obscure; or
…
(2) …
(e)any explanatory memorandum relating to the Bill containing the provision, or any other relevant document, that was laid before, or furnished to the members of, either House of the Parliament by a Minister before the time when the provision was enacted;
…
(3) In determining whether consideration should be given to any material in accordance with subsection (1), or in considering the weight to be given to any such material, regard shall be had, in addition to any other relevant matters, to:
(a) the desirability of persons being able to rely on the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; and
…"
Although I am in no way bound by it, I am entitled to, and have consulted the Explanatory Memorandum ("EM") to the Export Market Development Grants Bill 1997. I noted that Part 5 of the EM defined eligible expenses as follows:
"They must be expenses incurred by the applicant in the grant year for the overseas promotion of the applicant's eligible product. Only those promotional activities specified in part 5 of the bill are eligible for grants consideration."

Having considered the definition of grant year in the Act, the Explanatory Memorandum and both parties' submissions, I accepted that the term "will" in "Australia will derive a significant net benefit" in section 24(4) of the Act is intended to refer to certainty, and the grant year, and not a time in the future. I moved then to consider the discretion in section 24(4)(b) of the Act, namely whether the Australian input to Oppidan's tea was sufficient to ensure that Australia will derive a significant net benefit from the export of it.
whether significant net benefit to australia
Mr Jones made a submission that there were subjective elements included in assessing significant net benefit to Australia. In reply Dr Flick submitted that the test to determine whether Australia was deriving a benefit pursuant to section 24(4)(b) of the Act was an objective rather than a subjective test.
Mr Jones submitted that the cost of the cardboard, the blending of the tea, labour costs, design and packaging materials and mark-up were all of significant net benefit to Australia. He submitted that in fact the combined value of the cardboard and mark-up made up approximately 55 per cent of the value of the tea as related to the Australian inputs. Mr Jones submitted as follows:
"Indeed, if you stand back from exactly what the business is, what the applicant's doing, it's basically doing everything from Australia except the actual manufacturing, putting together the tea in Sri Lanka. The product is developed here, the business is managed from here, all of the organisation for what shipments are made into the US market is conducted from here. The communication with the distributors is done from here and from Australians. The implication that the most important part of this business is the manufacture of the tea I don't think properly reflects the true nature of the business. It has been stated that the important ingredient to this business is the actual taste of the tea and the packaging of the tea. It's the design of that packaging which first attracts the customer's attention when the product is on the shelf to go to the second step of actually tasting the tea. They are the two most important parts. The manufacture of the tea in Sri Lanka is not the most important part. The thing that drives the value in this business is the actual blending, the taste and packaging. That is what drives sales, or that's what drives a successful outcome for the business. The whole monitoring, the whole administration, the whole handling of inquiries that come in relation to this business, it is all conducted from Australia."
Dr Flick's submission regarding the words "significant net benefit" was as follows. He said:
"It's easy to give content to the word significant and you can draw some loose analogies with trade practices legislation. But the phrase 'net benefit' is somewhat elusive because net of what, it doesn't tell you. But undoubtedly what the phrase is directing attention to is something of substance at the end of the day after you've taken other considerations out of account. It has got to be significant to Australia. A benefit to other people is not sufficient.
A benefit to Mr Burne, a future benefit to its shareholders, whoever they may be, is not to the point."
Dr Flick submitted there was considerable uncertainty regarding any benefit to Australia, much less a significant net benefit. He said that even beyond the grant year there was uncertainty as to how the business would progress.
Dr Flick submitted that a view of the Applicant's activity in the grant year to assess whether there was "significant net benefit to Australia" pursuant to section 24(4)(b) of the Act, should have been straightforward. He submitted had there been clear invoices, bank account statements, the cost of insurance and freight from the bills of lading, and payments to Akbar, Print USA and the like tendered, the situation would have been easy to assess. However, what documents were produced with regard to these contained contradictions, he submitted, such as the number of packages of tea sold in the USA in the grant year, the cost of the cardboard, the calculation of mark-up, insurance, freight and other expenses.
In considering whether the activities of Oppidan in connection with this application were of "significant net benefit to Australia", and whether the Australian input into the tea was sufficient to render the goods eligible goods, I considered what the Tribunal knew of those activities, and how reliable the information put before me was.
Essentially I found from the evidence before me that the business consisted of the export of tea grown in Sri Lanka, supplied by Quick Tea Pty Ltd to Akbar which company packaged it according to blends prepared by Oppidan. It was then sold to the USA. I was also mindful of certain rather minor Australian inputs such as design, blending, mark-up and some distribution activities. There were no salaries paid to Oppidan's directors in the grant year.
I considered Oppidan's financial statements for the grant year (Exhibit A1), the figures provided and statements made in the Applicant's Statements of Facts and Contentions. I was mindful that Mr Burne gave evidence regarding the number of packets of tea sold in the USA in the grant year which was shown as 1,563 to the value of $6,818 in the Applicant's Statement of Facts and Contentions (Exhibit A16) of 29 January 2002, and in Mr Burne's Affidavit sworn 30 March 2001 (Exhibit R4). The number was however incorrect, and conceded by him during cross-examination to be 1,740 packets. Mr Burne, although he deposed to certain figures relating to the tea which were in his Affidavit and in the Statement of Facts and Contentions of the Applicant which he first said he had prepared, when pressed, deferred to his accountant, Ms Burne, whom he said, had a more thorough understanding of the figures. Thus it was demonstrated to my satisfaction that the figures for the sales of tea to the USA for the grant year had been incorrectly recorded in the Applicant's records before the Tribunal.
Mr Burne also gave evidence regarding the cost of the cardboard used to package the tea. I noted that Mr Burne had no precise knowledge of who the Australian supplier of cardboard was, or what arrangements existed between Akbar and that supplier. However I was prepared to accept that the cardboard used to package Oppidan's tea in the grant year was Australian cardboard. Mr Burne gave evidence that the design of the packages was Australian but that the printing was done at the behest of Akbar and paid for by Akbar in Sri Lanka. The cost of the cardboard per packet of tea was first deposed to by the Applicant as being 9.2 cents. However during the course of cross-examination, and after some handwritten notes had been produced and consulted (Exhibits R5, R6, and R7), and conversations with persons in Sri Lanka in 1992 (26 February 1992, conversation with Akbarelli), and 2001 (30 March 2001, conversation with Abiwickrama of Print USA), were referred to, certain other figures were produced indicating that the cost of the cardboard in relation to the total cost of the product was 17 per cent.
Dr Flick, at page 31 of the document, Austrade's Outline of Submissions dated 14 March 2002, submitted that the 17 per cent was inexplicable and calculated from the figures in the Applicant's Statement of Facts and Contentions, that the figure could, in the alternative, be 2.1 per cent. I noted that in that connection, Mr Burne conceded he had made errors in converting American dollars into Australian dollars, and that the figure should be 7.4 per cent (PT10/65). Thus the cost of the cardboard per packet of tea could have been 17 per cent (said to be of the total cost which was unknown), or 2.1 per cent or 7.4 per cent. Needless to say this was a most unsatisfactory situation, as was the documentation referred to in calculating the figures, namely handwritten scribbled notes which were Exhibits R5, R6 and R7 before the Tribunal.
There was further confusion regarding the cost of insurance and freight (Austrade's Outline of Submissions, page 31). I have reproduced the questioning of Mr Burne by Dr Flick with regard to these components of the business. It transpired from the above questioning and perusal of handwritten documents that the figures for insurance and freight could have been $AUD or $US 0.57 or $AUD 0.32 per packet or approximately 13 per cent of the US invoice cost, or perhaps 7.4 per cent. I noted the following statement from Mr Burne's Affidavit (Exhibit A12):
"The insurance and freight component shows USD 0.21 for the original Blend 100 and USD 0.08 for the 25 count packages which is from accurate source data at the time. I note that we incorrectly converted the accurate raw source data to Australian dollars recently when I inadvertently took the wrong one of three numbers handwritten close together on my file working notes and applied the 0.65 exchange conversion and this was shown with the working paper at the hearing. There was never any doubt about the accuracy of the source data provided which is USD."
Dr Flick asked Mr Burne:
"Dr Flick: So we have got three figures now. We had 57 cents which you say is wrong. I thought you told me before lunch it should have been 37 cents and now you are you are telling me it is 32.3 cents.
Mr Burne: Actually I did but it was my mistake before. This is exactly how my mind made a mistake last time. I looked at it, these figures here, I had written 37 cents but if you notice on the right-hand side of my handwritten notes I have actually got .31 cents Australian which is the correct figure but this is exactly the mistake I made before, I took the 37 incorrectly …"
I also considered the reliability of other figures such as the 24-30 per cent of costs claimed by Mr Burne to have been spent on promotions in 1998/99. I noted the following exchange between Dr Flick and Mr Burne.
"Dr Flick: May I ask 24 to 30 per cent of what figure was spent on promotions?
Mr Burne: I actually wrote some numbers down, I will look that up if you don't mind there. I just need to look up the – I have found my little notes.
… I just went through those when I was virtually driving in in the morning. So I don't know how accurate these are and I want to have a look and see what I did."
Mark-up was mentioned in Mr Burne's evidence and in submissions by Mr Jones who submitted that mark-up was a component of the input into the tea. Re-examination by Mr Jones regarding how mark-up was calculated did not assist with clarity and reliability of the figures before the Tribunal as Mr Burne discussed at length whether the Tribunal wanted to hear about gross revenue, gross profit or net profit. I have reproduced a portion of page 12 and 13 of the transcript of the hearing on 14 March 2002 as follows:
"Mr Jones: Yes, in your Statement of Facts and Contentions you make reference to the term mark-up. Could you explain what you understand that term to mean?
Mr Burne: Yes, there are two ways to look at mark-up. We've done it on both a per packet basis and we've done it based on the absolute numbers. There are distinct differences and I have explained that in the Affidavit. The distinct differences are that in one case we're looking at gross, which is the price per packet, and gross has got to be defined as well, because there is in accounting terms a gross net of brokerage costs. Then there's another gross which can be net of remittances as well as brokerage costs. Our gross means gross before brokerage costs in some instances, in other instances where there is a difference of five per cent, and I've explained those in this thing, there's a gross which is net of the brokerage. …
Mr Jones: When you've used the term mark-up have you intended that to mean net profit?
Mr Burne: It depends on the use, if I may say because …"
Even with the assistance of Mr Jones, Mr Burne was unable to reply to precisely to whether the figure of $347 for brokerage had been intentionally excluded from mark-up, although I finally concluded that had been so.
Mr Jones then had the following exchange with Mr Burne:
Mr Jones: "So, was there any importance to showing mark-up calculations of greater than 50 per cent, given that you've failed the 75 per cent test, which was the relevant test? I'll ask that again. You failed the strict 75 per cent test?"
Mr Burne: "Right"
Mr Jones: "Therefore you were applying for the discretion?"
Mr Burne: "Correct"
Mr Jones: "So was there any weight that you foresaw in having the calculations reflect greater than 50 per cent Australian content?"
Mr Burne: "I'm trying to recollect what the formula was now because we've gone off that."
Mr Jones: "The suggestion was put to you that you went out of your way to have the calculations reflect a mark-up attributable to Australian inputs of greater than 50 per cent."
Mr Burne: "Yes, I see what you mean."
Mr Jones: "My question is, in the circumstances that you're applying for the exercise of the discretion because you've failed the relevant test of 75 per cent, did you go out of your way to show calculations that showed Australian inputs of greater than 50 per cent?"
Mr Burne: "No".

I found such exchanges very unsatisfactory in terms of ascertaining the accurate figures in relation to this case, although I acknowledge of course that an Applicant would have wanted to put his case in the best possible light.
I noted also from the content of Exhibit A10, an e-mail dated 11 February 2001 from Mr Burne to Thao Bui of KPMG, the following comment on mark-up.
"The Australian markup to the US is shown as a difference between the invoice price to the US (less freight and insurance) and the price which Sri Lanka charges us for the raw tea plus packaging and printing plus their markup (figure which you have seen previously).
There is an argument for the Australian markup to net out the Australian costs as shown on the attached table. However I am not sure how to interpret the guidelines in respect of this and therefore have shown only the markup as described above."
I could not be convinced to the requisite standard that any of the above-mentioned figures calculated for purposes of the Export Market Development Grant application were reliable. In any case, they were quite minor components of the tea or input into the product (the tea), and as such did not comprise "sufficient" Australian input for Australia to derive a significant net benefit from the export of the tea. I noted that "sufficient" is defined as follows in The Oxford Dictionary:
"legally satisfactory … adequate to satisfy an argument … adequate (esp. in quantity or extent) for a certain purposes …"
By reference to the objects of the Act and noting the Explanatory Memorandum, I was mindful that "sufficient" in this context is also intended to encompass the concept of goods being substantially of Australian origin.
I was mindful that the Respondent's submissions were that intangible inputs should not be included in assessments pursuant to section 24(4)(b) of the Act. It will be noted however, that I have found in the paragraphs above that intangibles may be included in calculating Australian input. This does not change my view that the tea itself (grown, packaged and exported from Sri Lanka to the USA), was at all times the major item, and that the packaging, whatever the correct figure may be, was a minor part of that. I was mindful further that the intangible inputs such as blending for which no salary was paid, design and mark-up were a minor part of the total. For the reasons given by Mr Burne, and submitted by Mr Jones there were no salaries paid by Oppidan, and no tax paid in the grant year.
I noted from Clause 58 of the Explanatory Memorandum that some fundamental rules covering the incurrence of expenses were as follows:
• that expenditure must be acquitted - expenditure may not be accrued;
• acquitted means actually paid, or formally set off against the debts of the creditor;
• cheques and payment orders are not eligible expenses until actually debited to the applicant's account;
• shares do not constitute eligible expenses.
I turned then to consider how "significant" had been considered elsewhere. The Oxford Dictionary defines "significant" and "insignificant" as follows:
"significant…Important, notable; consequential …
insignificant…meaningless…Devoid of weight or force; ineffective, ineffectual…Of no importance; trivial, trifling…Small in size…"
I was mindful also of the case ACI Pet Operations Pty Ltd v Comptroller-General of Customsand Another (1990) 26 FCR 531 at pages 551-552 where Foster J had stated:
"The word "significant" has acquired a number of shades of meaning in common parlance. For instance, it is not infrequently used as a substitute for "substantial". It is, however, clearly important that it be given as precise a meaning as possible in this legislative provision, as its use imports a major guiding consideration into the determination by the Comptroller of whether goods serve "similar functions". I turn, therefore, to the dictionaries for guidance and find that the Oxford English Dictionary (2nd ed) defines the word (where relevant) as "full of meaning or import; important, notable; and having or conveying a meaning", and that the Macquarie Dictionary defines it as "important; of consequence; expressing a meaning; indicative".
I derive assistance also from considering that the word is the opposite of "insignificant" which word is defined in the Macquarie Dictionary as meaning "unimportant, trifling or petty" and as "too small to be important". Looked at from this point of view "significant" may be regarded as meaning "not unimportant or trivial" or as "sufficiently large to be important"."
I noted further that In Re Bag & Jute Co (T'wth) Pty Ltd and Comptroller-General of Customs and Southcorp Australia Pty Ltd (1995) 38 ALD 357, the full Tribunal stated as follows with regard to a significant adverse effect in relation to a tariff matter:
"(32) An adverse effect is not sufficient, but it must be a significant adverse effect. InMcVeigh v Willarra Pty Ltd (1984) 57 ALR 344 at 352; 6 ALN N313 the full court of the Federal Court (Toohey, Wilcox and Spender JJ) did not dissent from the formulation of the judge at first instance who stated: "Significant" is an ordinary English word used in Div 10BA according to its common understanding. I take its meaning to be "important", notable", "of consequence".

Because Oppidan's figures were not entirely reliable, I was unable to calculate exactly the Australian input into its tea. I do find however that even with the inclusion of intangible inputs, the Australian input into Oppidan's product was quite minor in the grant year. Accordingly, I could not be satisfied to the requisite standard that the Australian input to Oppidan's tea product in the grant year was "sufficient" pursuant to the legislation to ensure that Australia will derive a "significant net benefit" from its export. The significant net benefit from the export of Oppidan's tea was from the material before me, mainly shared between Sri Lanka and the USA.
Of course if I am wrong about the inclusion of intangible inputs into calculating "input" in section 24(4)(b) of the Act, then the only tangible components of the tea would be the tea itself, which is sourced, packaged and sold from Sri Lanka. The only Australian input would then be the blending of the tea (for which no salary was paid in the grant year, and indeed beyond), and the Australian package design and cardboard. That would make the Australian input into Oppidan's tea so minimal that it certainly would not be sufficient for Australia to derive a significant net benefit from the export.
conclusions
Having heard the parties, and considered all the documentation, legislation and case law, I find as follows:

Oppidan, the Applicant, is a family company owned substantially by the directors Mr Burne, Mrs Burne and Ms Belinda Burne.

Oppidan exports tea from Sri Lanka to the USA, tea which is grown, packaged and exported from Sri Lanka.
Quick Tea Pty Ltd is a wholly owned subsidiary of Akbar and supplies the tea for Oppidan to Akbar.
Akbar packages the tea for Oppidan, according to blends prepared in Australia for that purpose. I accepted Mr Burne's evidence regarding the blending of tea by Oppidan's directors in Australia, (for which they are currently not paid), and Mrs Burne's concession that the Oppidan blends were not able in some cases to be duplicated entirely faithfully, in particular in the production of tea bags.
Oppidan's head office is for purposes of the grant year in Australia. I accepted the Respondent's submission that the head office of Oppidan, now located in Sydney, could be anywhere, but I did not give weight to the submission as in the grant year, (as well as presently), the head office was located in Sydney.
I accepted that customer service was performed way of telephone from Oppidan's offices in Sydney, one of which is in the Burne home.
The control of the distribution is done partly from the Sydney offices of Oppidan. Mr Burne's evidence was that the tea is held in a warehouse in Chicago from whence, with USA input, it is distributed to agents, universities, office buildings, and Eurest, a major catering firm.
The tea packaged for Oppidan is exported from Sri Lanka to the USA. Mr Burne told me, and I accepted, that Akbar does not retail, and that it is one of the biggest suppliers of bulk tea to the Middle East. Oppidan has no formal contract with Akbar because it is a small customer, but Mr Burne was confident Akbar would continue to supply Oppidan. It has done so since the grant year.
I was mindful of Mr Burne's evidence which was unchallenged by the Respondent that the tea has, up to the present, been packaged in packets made from Australian cardboard, the source of which was unknown to Mr Burne, and the supply contract for which Mr Burne has no input or authority. There was considerable uncertainty regarding the cost of the packaging which could be 9.2 cents out of the approximate selling price of $2.84 or 3.2 percent, 13 percent, or 17 per cent.
Creative design costs totalling $12,377 and paid to Adtype Colour and MBM Marketing were accepted by the Respondent. Estimated $1,000 for communication costs incurred in relation to design and manufacture were identified. I did not verify the above expenses, but have noted from the Respondent's Statement of Facts and Contentions dated 17 April 2001 (Exhibit R9), that it was stated as follows at paragraph 18:
"The Respondent confirms that it has investigated the expenses set out in the Applicant's grant application (T3) and is satisfied that the expenses were incurred for the purposes described in the grant application."
Mark-up could not easily be ascertained as it was demonstrated during cross-examination that certain expenses in the USA (e.g. legal and distribution expenses) had been arbitrarily omitted so as to keep the figure for mark-up as favourable as possible for purposes of the EMDG application.
The printing of the packages (for Oppidan's tea), shipping, insurance, legal costs, payment with regard to compliance issues, and brokerage were to the benefit of parties outside Australia, and carried out outside Australia, and with no significant net benefit to Australia.
I have found that "input" in section 24(4)(b) of the Act includes not only tangible items such as Oppidan's tea and its packaging, but intangible items such as mark-up, blending, design.
I have found inherent unreliability in the figures presented for sales, costs of cardboard used for packaging Oppidan's tea, and the cost of freight, insurance, mark-up and other items relevant to assess Australian input. To be eligible for an EMDG, the Australian input into a product has to be sufficient for Australia to derive a significant net benefit from the export of that product. Notwithstanding the inclusion of intangible items into the calculation of input, I was not convinced to the requisite standard that Oppidan's tea had sufficient Australian input to complete the first hurdle to qualify for the discretion in section 24(4)(b) of the Act to be exercised in its favour.
I found from the evidence that in the grant year, notwithstanding the presence of service agreements, there were no employees in Oppidan apart from the Directors of Oppidan, the Burne family, and there was no significant gain to Australia from employment because there were no wages paid.
Notwithstanding the accounting figure of $50,000 given for the picture which Mr Burne said he painted, and is depicted on the tea, package design costs were not paid to Mr Burne as he was not paid a salary in the grant year. The package is labelled "Teas of Ceylon" and depicts an elephant, not generally recognised as a symbol of Australia. Notwithstanding Mr Burne's evidence that Americans thought Oppidan's tea was Australian, there was no result of any survey or other research corroborating this evidence. I did not accept Mr Burne's evidence on this point and find there could not be any significant net benefit to Australia in publicising tea produced and packaged in Sri Lanka, labelled as "Teas of Ceylon" and associated with a minute map of Australia which depicted the image of an elephant on it. I find from the evidence before me that there was no significant net benefit to Australia's image or recognition in the grant year from the marketing of Oppidan's tea "Teas of Ceylon" from Sri Lanka to the USA.
I have found that no contrary intention has been expressed and that "export" means export from Australia.
I find that "Australia will derive a significant net benefit" is intended in section 24(4)(b) of the Act to mean "certainty" and not future benefit as submitted by the Respondent, that is, that "Australia will derive a significant net benefit" from the export of goods held to be "eligible goods" in the grant year.
Ultimately given that Oppidan's tea met neither the 50 percent rule nor the 75 percent rule, I had to consider whether in order to meet the tests in section 24(4)(b) of the Act, "Australia will derive a significant net benefit" from the export of Oppidan's tea, and whether Oppidan therefore may be found to have "eligible goods" to receive an Export Market Development Grant for the year 1998/99. I have found that the "Australian input" into Oppidan's tea was not sufficient to satisfy the first hurdle, and that in all the circumstances, Australia will not "derive a significant net benefit" from the export of Oppidan's tea in the grant year 1998/99. Therefore the tests in section 24(4)(b) of the Act were not satisfied. The application must fail.

DECISION

The Administrative Appeals Tribunal affirms the decision of the Grant Assessor of the Australian Trade Commission dated 9 October 2001 which affirmed the decision of Austrade of 25 September 2001 which held that Austrade was not satisfied that there were sufficient grounds to demonstrate that Australia will derive a significant net benefit from the export of the Applicant, Oppidan Pty Ltd's tea, and that therefore the Applicant did not have eligible goods in order to receive an Export Market Development Grant pursuant to section 24(4)(b) of the Export Market Development Grants Act 1997 for the grant year 1998/99.
I certify that the 121 preceding paragraphs are a true copy of the reasons for the decision herein of Ms G Ettinger
Senior Member
Signed: H Sim         .....................................................................................
  Associate
Date/s of Hearing  5 & 6 February &14 March 2002
Date of Decision  15 July 2002
Applicant's Representative      Mr W Jones, KPMG
Counsel for the Respondent Dr G Flick SC
Solicitor for the Respondent    Mr I Johnson, Mallesons Stephen Jaques