Parker Pen (Australia) Pty Ltd v Export Development Grants Board

[1984] FCA 62

Re: PARKER PEN AUSTRALIA PTY. LIMITED
And: EXPORT DEVELOPMENT GRANTS BOARD
No. G 122 of 1983
(1984) ADMN para 96 - 013
Administrative Law

COURT

IN THE FEDERAL C0URT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Toohey J.
McGregor J.
Morling J.

CATCHWORDS

Administrative law - Administrative Appeals Tribunal - appeal from single judge on question of law - licant elegibility for export development grant - whether manner in which expenditure paid relevant in determining purpose fo expenditure - promotional expenditure paid to related company - more than one purpose - primary and principal purpose of expenditure not stipulated purpose as in legislation.

Export Market Development Grants Act 1974 s. 4(1), (5)

Administrative Appeals Tribunal Act 1975 s. 44

HEARING

SYDNEY

#DATE 30:3:1984

ORDER

1. The appeal is dismissed

2. The appellant pay the respondent's costs of the appeal.

JUDGE1

Parker Pen (Australia) Pty. Limited ("the appellant") manufactures and distributes in Australia writing instruments, including the well known "Parker" pen. It also exports writing instruments and associated products to a number of countries, principally in the Asian and Pacific region. It is a wholly owned subsidiary of a United States company.

1. The appellant lodged a claim with the respondent for a grant under the Export Market Development Grants Act, 1974 ("the Act") in respect of the 1978-79 grant year. The Act makes provision for grants for the purpose of providing incentives for the development of export markets. An applicant desiring to obtain a grant under the Act is required to submit a claim to the respondent Board which then considers it and determines whether the applicant has a "grant entitlement" and, if so, the amount thereof. Where the Board determines that the applicant has a grant entitlement there is payable a grant equal to the amount of the grant entitlement so determined. (Sub-s. 12(2)). The grant entitlement of a claimant in relation to a grant year is an amount equal to 70% of the "eligible expenditure" incurred by the claimant during that year (s.15).

2. The expression "eligible expenditure" is defined in
   sub-s. 4(1) as follows: -
   
   

"4(1) Subject to the succeeding provisions of this section, a reference in this Act to eligible expenditure is a reference to expend iture that, in the opinion of the Board, has been incurred by a person primarily and principally for the purpose of creating or seeking opportun ities, or creating or increasing demand, for -

(a) the sale by that person for export, or the export by that person and sale by him, of eligible goods manufactur ed, produced, assembled or processed in Australia;

(b) in the case of a person who manufact ured, produced, assembled or process ed eligible goods at the time when the expenditure was incurred, the sale for export, or export and sale, of eligible goods manufactured, produced, assembled or processed in Australia by that person;

...

but does not include so much of any expenditure incurred by that person as -

(k) has been, or is to be, paid or reimbursed to him by another person, the government of the Commonwealth or of a State or Territory or any other government;"

Subsection 4(5) provides as follows:

"4.(5) Where the amount of any expenditure constituting or forming part of any eligible expenditure exceeds the amount that, in the opinion of the Board, would reasonably be expect ed to be payable for the purpose or purposes for which the expenditure was incurred, the Board may, for the purposes of this section, treat the expenditure as being reduced by the amount of the excess."

1. The appellant's claim for a grant in the relevant
   year was made in respect of a number of items of expend iture. The Board allowed some of these items and disallowed others. The only items disallowed by the Board were two amounts, one of U.S. $36,134.80 and the other of U.S. $22,800.00, paid by the appellant to Parker Pen (Far East) Limited ("Parker Far East"). The first of these amounts was in respect of an invoice directed to Parker Far East by a company known as Chase-Compton Advertising Limited ("Chase-Compton"). Parker Far East is a wholly owned subsidiary of the same United States company that owns all the share capital of the appellant. Chase-Compton is also a subsidiary of this same United States parent. The invoice was in respect of expenditure incurred in publishing advert isements in several magazines circulating in Asia and the Pacific area. The second item was the amount in a debit memo directed to the appellant by Parker Far East. The debit is expressed to be in respect of "Parker advertising expenses in the Philippines" incurred during the year ended 25 February 1979.

2. After the Board notified the appellant of its
   determination to disallow the two items the appellant requested it to reconsider its decision under s.40A of the Act. The Board did this and confirmed its original decision. Thereupon the appellant sought a review by the Administrative Appeals Tribunal of the Board's decision. The Tribunal affirmed the Board's decision that the two payments to Parker Far East were not "eligible expenditure" within the meaning of that expression in the Act. From that decision an appeal was brought to this Court pursuant to s.44 of the Administrative Appeals Tribunal Act 1975 and was therefore limited to an appeal on a question of law. The appeal was heard by a single judge of the Court. The learned judge was of the opinion that the Tribunal had not fallen into error in reviewing the Board's decision and accordingly dismissed the appeal. This appeal is brought from his Honour's decision.

3. The facts out of which the appeal arises are not in
   dispute. The following account of them is taken substant ially from the judgment under appeal. During the relevant grant year, the appellant exported its products to 26 countries. Its largest markets were New Zealand, New Guinea and the Philippines. The appellant was the sole supplier of Parker products to some 20 or 21 of the 26 countries. It shared its markets in 5 countries with other affiliated countries in the Parker Pen group, being companies incorporated outside Australia. The advertising of Parker products in countries where the appellant was the sole supplier was undertaken by the appellant itself. Advertising expenses incurred in those countries were paid for by the appellant direct to the advertisers. In countries where the appellant shared markets for Parker products with other affiliated countries the promotion of Parker products was undertaken by Parker Far East. Parker Far East dealt directly with advertising agents or other companies with whom advertising or promotion material was placed by it.

4. The appellant played no role in determining the
   allocation of promotional expenditure by Parker Far East in the countries where Parker products were advertised, the amount allocated to each country, the form or extent of advertising, the selection of the appropriate medium for advertising or the choice of relevant publications.
   

5. The appellant (and each of its affiliates)
   committed itself for promotional expenditure to Parker Far East for 10% of its estimated sales of Parker products in the marketing franchise areas, that is to say, areas in which it shared franchises with other affiliated Parker companies. At the beginning of each financial year the appellant and its foreign affiliates each assessed the F.O.B. values of export sales of Parker products by it for the forthcoming year and 10% of that figure was treated within the Parker group as its commitment to Parker Far East for promotional expenditure in those shared franchise areas. As the appellant and its affiliates achieved sales in the shared franchise areas they sent copies of all invoices for export shipments to Parker Far East.

6. Although the evidence before the Tribunal was
   apparently far from clear, it appears that the appellant and its overseas affiliates did not pay Parker Far East in respect of the advertising placed by Parker Far East. Instead, in some way, Parker Far East divided its overall commitments for advertising between the various affiliates including the appellant, and allocated proportions of expenditure directly related to the 10% commitment of each company. Parker Far East did not itself pay the advertising expenses incurred by it and debit each affiliate with its respective share to be reimbursed by it. Instead, it arranged for invoices to be sent by the advertising agency, or a company with whom the expense had been incurred, direct to the appellant or other affiliate for an amount having some nexus with the 10% commitment of that affiliate. In the result, at the end of each year, each affiliate had paid the 10% commitment to a variety of companies and advertising agencies throughout the franchise area. In fact some of the invoices paid by the appellant did not necessarily have any direct relevance to any benefit that might accrue to the sales by the appellant of its products in shared franchise areas. That this was so is borne out by the invoice for U.S. $36,134.80 to which reference has already been made. That invoice referred to advertising in publications which circulated in a number of countries, some of which were supplied with Parker products solely by the appellant, some by the appellant and its affiliated companies where they shared franchises, and some by the appellant's affiliated companies alone. Moreover, so far as the invoice for U.S. $22,800.00 is concerned, it related entirely to advertising expenses in the Philippines. That market was shared by the United States and French affiliates and the appellant, the appellant's share of the market being only 27%.

7. In relation to the Parker group's advertising
   strategy an executive of the appellant gave the following evidence:
   
   

"The Hong Kong company has an advertising executive who looks after the advertising and co-ordinates the advertising in the markets they are responsible for, and the supplying countries like Australia and France actually send copies of all the invoices for export shipments to these various countries to the Hong Kong office and we accrue up to 10 per cent of the value of the invoice toward advertising expenditure in the area. The Hong Kong office plans the advertising campaigns in the various countries and allocates the money that is accrued by the exporting countries to these advertising campaigns, and in order to substantiate the expenses they obtain the invoices from the advertising agencies in the various countries and then they send them to the supplying countries for payment, because in order for us to remit money overseas we have to provide the bank with the documents covering the expend itures, and our commitment is a maximum of 10 per cent of our sales."

1. The same executive described the marketing
   philosophy of the appellant in the following terms:
   
   

"...The international image of Parker Pen prestige and quality, which has been established and accepted over a period of many years, has resulted from the development of a marketing philosophy which focuses on the quality of the Parker Pen product range rather than the countries of origin or manufacture. This marketing philosophy has equal application to similar products which are manufactured and marketed on a trans-national basis by other companies.

Whilst it is acknowledged that overseas pro motional activity undertaken by our Company would lead to some spin-off marketing benefits for other Parker Pen companies located outside Australia, we wish to assure you that marketing benefits also accrue to our Company which are commensurate with the considerably greater promotional expenditure undertaken by our overseas affiliates.

...

Parker Pen products have gained a prestigious status in virtually every available market throughout the world and it is for this reason that all promotional expenditure is directed towards the promotion of the international status of the products themselves rather than the country of their origin or manufacture.

Whilst this marketing philosophy dominates the promotion of Parker Pen products it is achieved by making it incumbent on individual Parker Pen manufacturing and exporting affiliates to support on a pro-rata basis (namely up to the maximum of 10% of projected sales) the promotion of their product range in their respective franchise marketing areas."

1. When the matter was before the Administrative
   Appeals Tribunal it was agreed between the parties that in the event that the Tribunal held that the amounts expended by the appellant were incurred primarily and principally for the purpose of creating or seeking opportunities for creat ing or increasing demand for the export and sale of the appellant's products, the Board would concede that the amount of the expenditure incurred by the appellant was incurred in the ordinary course of business and was a reasonable sum for the appellant to have incurred for those purposes. Before this court on appeal, counsel for the appellant contended that this agreement amounted to a concession by the Board that the amounts which the appellant was called upon to pay to Parker Far East were no more than the reasonable value of the advertising and promotion work undertaken by that company on behalf of the appellant. In other words, it was argued that the concession was tantamount to a concession that the appellant received full value in the way of advertising and promotion of its products in return for the relevant expenditures.

2. Counsel for the Board disagreed with this
   contention. She submitted that any agreement as to the appropriateness of the appellant's expenditure was subject to it first being determined that the expenditure was incurred primarily and principally for one or other of the purposes referred to in sub-s. 4(1)(a) or (b). We agree with the submission of counsel for the respondent in this regard. Accordingly, we think it was obligatory for the appellant to persuade the Tribunal of all matters necessary to cause it to form the opinion that the relevant expend iture was incurred by the appellant for the stipulated purpose. Obviously, the question whether in return for the expenditure the appellant received fair value by way of advertising and promotion of its products was a matter to be considered by the Tribunal in deciding whether it should form the requisite opinion. It appears not to have made a positive finding in favour of the appellant on this question.

3. As we have already observed the appeal from the
   Tribunal's decision to the Federal Court, by the express terms of s.44 of the Administrative Appeals Tribunal Act 1975, was limited to an appeal on a question of law. Before his Honour the question of law which was said to arise in the case was:
   
   

"Whether, and if so, how far, the fact that advertising expenditure was paid by the Appellant to a related company which advertised on behalf of the Appellant as well as on behalf of itself and other associated companies of the Appellant was relevant in determining the purpose for which the Appellant expended such moneys:"

1. As the matter was argued on appeal we doubt whether
   this question adequately covers all the arguments put by the appellant in support of its contention that the Tribunal erred in law in arriving at its decision and that the learned trial judge erred in not so finding. However, in the light of the opinion that we have formed as to the proper outcome of the appeal, we do not think this is of any consequence.

2. It could scarcely be contended that the fact that
   advertising expenditure was paid by the appellant to one of its related companies which advertised on behalf of it as well as on behalf of other companies in the Parker group was irrelevant in determining the purpose for which the appellant undertook such expenditure. The relationship between the appellant, Parker Far East and other companies in the Parker group was plainly one of the circumstances to be considered in identifying the purpose for which the expenditure was primarily and principally incurred. Indeed, we did not understand counsel for the appellant to contend to the contrary. His argument was rather that in determining what was the purpose both the Tribunal and the learned judge undertook a wrong approach. It was submitted that they regarded what was described as "the characterisation of the transaction in which the money was paid" as determining the purpose for which the appellant paid the money. It was argued that in so doing, they failed to correctly address the critical question whether the appellant's primary and principal purpose was the purpose stipulated in subs. 4(1) of the Act. The appellant sought the remission of the matter to the Tribunal to be determined upon the basis that the question whether the appellant had the requisite purpose in making the expenditures was not concluded by the form of the transaction under which the money was paid. In substance, the appellant's argument was that both the Tribunal and the learned judge had formed the opinion that the mere fact that the appellant had made the expenditures through a pooling arrangement supervised by Parker Far East rather than directly to the advertisers of its products was destructive of its claim for a grant.

3. Before considering whether the learned judge erred
   in his decision it is helpful to consider what conclusions were reasonably open on the evidence before the Tribunal. In our opinion a finding was plainly open that the appellant had two purposes when it made the relevant expenditure. One purpose may have been to ensure that goods exported by the appellant to countries in the Asian and Pacific areas were advertised and promoted. The other purpose may have been to ensure the appellant's continued membership of the Parker international group with the consequential benefits flowing from such membership, the price of such membership being payment of a sum equivalent to 10% of the value of its exports to some markets.

4. In our opinion it is clear from the decisions of
   the Tribunal and the learned judge that they both recognised that included amongst the appellant's purposes in making the relevant expenditures was the purpose of advertising its own products in export markets as distinct from promoting the interests of the Parker group. Thus in its decision the Tribunal said:
   
   

"Each of the words 'primarily' and 'principally' must be given its due weight. I do not doubt, and I do not understand the respondent to have argued otherwise, that amongst the purposes of the applicant's advertising expend itures was the purpose of promoting the sale by export of its own products as opposed to the products of its affiliated companyies (sic). The issue at hand is whether that purpose was both a prime and a principal purpose. That is, whether the purpose was not only first in importance but also whether it was predominant to the degree that the expenditure could, on the whole, be said to be attributed to it."

(emphasis added)

1. It appears from this passage in the Tribunal's
   reasons that it did not regard the fact that the appellant made payments to Parker Far East as demonstrating that such payments were not made for the purposes stipulated in the Act. The Tribunal accepted that one purpose of the payments was the purpose referred to in the Act. It thus did not fall into the error attributed to it by counsel for the appellant. It was of the opinion that the appellant had more than one purpose in making the payments, and that its primary and principal purpose was not the stipulated purpose.

2. We are satisfied from an examination of the
   judgment under appeal that the learned judge did not fall into the same error as was attributed to the Tribunal. It is true that he referred in some detail to some aspects of the manner in which the relevant payments were made. For instance, he pointed out that it was not the appellant which directly undertook the advertising. But having expressed the opinion that it was plain from the evidence that the advertising was carried out internationally to promote the image of Parker products rather than the country of manufacture, he said, in terms, that he did not regard this as fatal to the appellant's case. Thus it cannot be said that his Honour regarded the payment of the moneys to Parker Far East as necessarily showing that they were not made for the purposes stipulated in the Act.

3. It was not for his Honour to determine the primary
   and principal purpose for which the relevant expenditure was incurred. That was a matter for the Tribunal. Unless an error of law was shown to have been made by the Tribunal in forming its opinion on that matter there was no warrant for interfering with its decision. His Honour corrrectly held that no such error had been demonstrated. The appeal should therefore be dismissed with costs.