Purvis and Ors and Dairy Adjustment Authority - [2005] AATA 233

CATCHWORDS – SUPPLEMENTARY DAIRY ADJUSTMENT SCHEME – whether entitled to discretionary payment rights – whether change or atypical feature in the management of the dairy farm enterprises – whether entities’ choice or change of processor a change in management – whether any change significantly and adversely affected the entities’ eligibility for a payment right – whether scheme gave preference to one State or part thereof over another State or part thereof contrary to s. 99 of the Constitution – decisions affirmed.

CONSTITUTIONAL LAW – operation and effect of the Commonwealth Constitution – whether the Scheme discriminates between the States or parts thereof – whether any discrimination arises as result of particular circumstances of individuals – decisions affirmed.

STATUTORY INTERPRETATION – whether evidence may be given regarding interpretation of statute – whether evidence may be given regarding the limits of a discretion given by statute – whether evidence may be given regarding an agency’s policy.

Acts Interpretation Act 1901 ss. 15, 15A, 15AB and 46
Commonwealth of Australia Constitution Act ss. 51(i) and 99
Dairy Industry Act 1992 (SA)
Dairy Produce Act 1986 s. 125A, Schedule 2, cll. 1, 2, 3, 5, 6 and 7
Dairy Produce Levy Act (No. 1) Act 1986
Dairy Structural Adjustment Program Scheme 2000 ss. 3, 9, 10 to 24, 30 and 31
Primary Industries (Excise) Levies Act 1999
Supplementary Dairy Assistance Scheme 2001 ss. 3(1), 3(2), 8(1), 8(2), 8(2A), 8(3), 8(4), 8(5)(a) and (b), 8(7), 13(1), 16, 17, 18, 20, 27, 28 and Part 5

Alexandra Private Geriatric Hospital v Blewett (1984) 2 FCR 368; 56 ALR 265
Bank of New South Wales v The Commonwealth (1948) 76 CLR 1
Chevron USA Inc v Natural Resources Defense Council Inc (1984) 467 US 837
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; 141 ALR 618
Coal and Allied Operations Pty Limited v Australian Industrial Relations Commission and Others (2000) 203 CLR 194
Colonial Sugar Refining Co Ltd v Irving (1903) St R Qd 261
Colonial Sugar Refining Co Ltd v Irving [1906] AC 360
Commissioner of Taxation v Clyne (1958) 100 CLR 246
Commissioner of Taxation v Murray (1990) 21 FCR 436; 92 ALR 671
Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297
Corporation of the City of Enfield v Development Assessment Commission (2000) 199 CLR 135
Davies and Jones v Western Australia (1904) 2 CLR 29
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60
Elliott v The Commonwealth (1936) 54 CLR 657
Ferguson v Federal Commissioner of Taxation (1979) 79 ATC 4,261
Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24
Morgan v The Commonwealth (1947) 74 CLR 421
Nassif v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 129 FCR 448
Permanent Trustee Australia Ltd v Commissioner of State Revenue (2004) 79 ALJR 146
R v Barger; Commonwealth v McKay (1908) 6 CLR 41
R v Palmer [1981] 1 NSWLR 209
Redfern v Dunlop Rubber Australia Ltd (1964) 110 CLR 194
Re Adams and Tax Agents Board (1976) 1 ALD 251
Re Australian Industrial Relations Commission; ex parte Australian Transport Officers Federation (1990) 171 CLR 216
Re Buchan and Dairy Adjustment Authority (2001) 71 ALD 114
Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634
Re Jonsson and Marine Council (No. 2) (1990) 12 AAR 323
Re Mynard and Dairy Adjustment Authority [2004] AATA 940
Re Vulcan Australia Pty Ltd and Comptroller-General of Customs; Dimplex Australia Pty Ltd (party joined) (1994) 34 ALD 773
TCN Channel Nine Pty Ltd v Australian Mutual Provident Society (1982) 42 ALR 496
Wacando v The Commonwealth (1981) 148 CLR 1; 37 ALR 317

DECISION AND REASONS FOR DECISION [2005] AATA 233

ADMINISTRATIVE APPEALS TRIBUNAL )
) S2002/339

GENERAL ADMINISTRATIVE DIVISION )

Re RONALD PURVIS

Applicant

AndDAIRY ADJUSTMENT AUTHORITY
Respondent
S2002/340

Re KAYLENE PURVIS

Applicant

AndDAIRY ADJUSTMENT AUTHORITY
Respondent
S2003/250

Re RODGER CLARK

Applicant

AndDAIRY ADJUSTMENT AUTHORITY
Respondent
S2003/251

Re NEVILLE TELFORD

Applicant

AndDAIRY ADJUSTMENT AUTHORITY
Respondent

DECISION

Tribunal:                   Deputy President S A Forgie
Date:  18 March 2005
Place:  Adelaide

Decision:The Tribunal decides that:
1.in relation to the application by Mr Ronald Purvis, I affirm the decision of the respondent dated 20 August 2002;
2.in relation to the application by Mrs Kaylene Purvis, I affirm the decision of the respondent dated 20 August 2002;
3.in relation to the application by Mr Rodger Clark, I affirm the decision of the respondent dated 19 May 2003; and
4.in relation to the application by Mr Neville Telford, I affirm the decision of the respondent dated 19 May 2003.
S A FORGIE
Deputy President

REASONS FOR DECISION

Mr and Mrs Purvis, Mr Clark and Mr Telford are dairy farmers in the South East of South Australia (“South East”). Until 2000, each had received payments under the South Australian Market Milk Equalisation Scheme (“SAMME Scheme”). That Scheme was intended to ensure that the proceeds from the sale of market milk in South Australia were shared equitably amongst producers who delivered their milk to processors who were parties to the SAMME Scheme. After the deregulation of the dairy industry, the SAMME Scheme came to an end. Mr and Mrs Purvis, Mr Clark and Mr Telford were each granted a standard payment right under the Dairy Structural Adjustment Program Scheme 2000 (“DSAP Scheme”). Each later applied for a discretionary payment right under the Supplementary Dairy Assistance Scheme 2001 (“SDA Scheme”). The Dairy Adjustment Authority (“DAA”) decided that each held an interest in a dairy farm enterprise as required by s. 8(2) of the SDA Scheme during the qualifying period as well as at 6.30pm on 28 September 1999. It also decided, however, that there had been not been “… a change or an atypical feature in the … management of the enterprise ...” held by each of them within the meaning of s. 8(5)(a)(iii) of the SDA Scheme. Even if there had been such a change in the management, the DAA decided that it would not have exercised its discretion to grant the payment right. I have decided that the DAA’s final decision not to grant an SDA payment was correct in each case.

At the hearing, Mr Morcombe QC with Mr Tokley of counsel represented Mr and Mrs Purvis, Mr Clark and Mr Telford. DAA was represented by Mr Almond QC with Mr Pizer of counsel. The documents lodged according to the requirements of s. 37 of the Administrative Appeals Tribunal Act 1975 (“T documents”) in each case were admitted in evidence together with a number of other documents. I have had regard to each of them and have referred to a number of them in these reasons. Oral evidence was given by each of the applicants together with Mrs Valerie Monaghan (a Rural Financial Counsellor), Mr Ian Conrad (Chartered Accountant and former Company Secretary of the South Australian Market Milk Equalisation Company Limited), Dr John Patrick Drinan (consultant and farmer), Mr Stephen John Rice (Chief Executive Officer of the Dairy Authority of South Australia), Mr Gregory James Gilbert (Farm Services Manager of Australian Co-operative Foods Ltd of which Dairy Vale Foods Ltd is a subsidiary) and Mr Samuel Charles Acheson (consultant in the dairy industry).

THE ISSUES

The issues in this case are:
(1)whether, within the meaning of s. 8(5) of the SDA Scheme there was “before 28 September 1999 … a change or an atypical feature in the ownership or management of the enterprise” undertaken by each of them:
(a)in the case of Mr and Mrs Purvis and Mr Clark, whether their changing their processor is a change in the management of their dairy enterprises; and
(b)in the case of Mr Telford, whether he was unable to select a processor who produced UHT or flavoured milk and, if so, whether that constituted a change or atypical feature in the management of his dairy enterprise;
(2)if so, whether that change or atypical feature “… significantly and adversely affected the face value of … “ each of their payment rights under the DSAP Scheme;
(3)if so, whether each of them should be given a discretionary s. 8(5)(a) of the SDA Scheme.

I note that none of the applicants pursued one of their original arguments to the effect that the introduction of the SAMME Scheme on 1 July 1995 constituted a change or atypical feature in the management of their enterprises within the meaning of s. 8(5)(a).

THE LEGISLATIVE SCHEME

An outline of the Dairy Industry Adjustment Program

On 1 July 2000, the dairy industry was deregulated. The Dairy Industry Adjustment Package (“the package”) was developed to assist the dairy industry to adjust to deregulation. The Dairy Produce Act 1986 (“the Act”) provides for one element of that package. That element is the Dairy Industry Adjustment Program (“Program”) and provides for further elements. The Program is set out in

Schedule 2 of the Act (s. 125A). Clause 1 of Schedule 2 sets out a simplified outline of it:

“This Schedule and Part 9C of the Farm Household Support Act 1992 provide a framework for the implementation of the Dairy Industry Adjustment Program.
The main object of the Dairy Industry Adjustment Program is to help the dairy industry or dairy communities adjust to deregulation by providing for 4 types of grants, as follows:
(a)DSAP payments (made under this Schedule);
(b)SDA payments (made under this Schedule);
(c)dairy exit payments (made under Part 9C of the Farm Household Support Act 1992);
(d)payments under the Dairy Regional Assistance Programme (see cl. 86).

Generally, DSAP payments are calculated by reference to 1998-1999 milk deliveries at a rate of 46.23 cents per litre for market milk and national average rate of 8.96 cents per litre for manufacturing milk.
Dairy exit payments are available for farmers who choose to leave agriculture.
The Dairy Adjustment Authority will administer DSAP payment rights.
The Dairy Industry Adjustment Program will be funded by a dairy adjustment levy on milk products.
The levy will be paid into a Dairy Structural Adjustment Fund, and DSAP payments, SDA payments and dairy exit payments will be paid out of that Fund.”

An outline of the DSAP Scheme

A “DSAP payment” is a payment under the DSAP Scheme (Program, cl. 2). The DSAP Scheme is the scheme formulated in writing by the Minister for the grant of payment rights to entities holding an eligible interest in a dairy farm enterprise at 6.30pm on 28 September 1999 and satisfying the objectives set out cll. 12-23 of the Program in the DSAP Scheme (Program, cll. 10(a) and 11).

Payments under the DSAP Scheme

The DSAP Scheme came into operation on 14 April 2000. There was no suggestion in this case that it has not been appropriately formulated by the Minister or that it is not consistent with the policy objectives set out in the Act. The DSAP Scheme establishes three types of payment rights: standard payment rights, exceptional events supplementary payment rights and anomalous circumstances payment rights (DSAP Scheme, ss. 9 to 11 and see also Program, cl. 12(2)). Only one, the standard payment right, is relevant in this case.

The basic eligibility criteria for a standard payment right are:
“An entity is eligible to be granted a standard payment right in respect of a dairy farm enterprise if:
(a)the entity held an eligible interest in a dairy farm enterprise at 6.30pm on 28 September 1999; and
(b)the enterprise delivered milk during the base year.” (DSAP Scheme, s. 9)

DSAP Scheme: an “entity”

Payment rights are conferred on an “entity”. An “entity” is defined in broad terms to include an individual, a body corporate, body politic or a trustee of a particular trust estate. A person may act in a number of different capacities and be regarded as an entity in each (Program, cll. 2 and 5). As each is an “individual”, Mr Purvis, Mrs Purvis, Mr Clark and Mr Telford is each an entity.

DSAP Scheme: a “dairy farm enterprise”

The payment rights are in respect of a “dairy farm enterprise”. That expression is not defined in the DSAP Scheme but it is defined in cl. 2 of the Program. The Program is found in Schedule 2 of the Act and so forms part of the Act. The DSAP Scheme is formulated under cl. 10 of Schedule 2 of the Act. As there is no suggestion in the DSAP Scheme that the same meaning should not be given to the expression as it has in the Act, it should be given the same meaning in both (Acts Interpretation Act 1901 (“AI Act”), s. 46). Clause 2 of the Program defines the expression “dairy farm enterprise” as “… a business in Australia that delivers market milk and/or manufacturing milk” (Program, cll. 2 and 6).

DSAP Scheme: “an eligible interest”

An entity must hold “an eligible interest” in a dairy farm enterprise. It does so when it is a party to an eligible dairy share farming arrangement, an eligible dairy leasing arrangement, or when it is carrying on the enterprise (Program, cl. 7). Only the third is relevant in this case as each entity is carrying on the enterprise.

Clause 6(4) of the Program provides that, for its purposes, “… the continuity of a business or a dairy farm enterprise is not affected by: (a) any change in the identity of the entity or entities who carry on the business or enterprise; or (b) any change in the ownership of the business or enterprise.”

DSAP Scheme: “manufacturing milk” and “market milk”

Returning to the definition of a “dairy farm enterprise”, the business must deliver market milk and/or manufacturing milk. The term “manufacturing milk” is defined to mean, in so far as it relates to a producer, “… relevant dairy produce delivered by a producer to a manufacturer during a month ending before 1 July 2000, in respect of which a domestic market support payment has been paid under section 108A as in force before the conversion time.” (Program, cl. 2) The expression “market milk means milk on which levy was imposed by whichever of the following is applicable … paragraph 5(1)(a) of the repealed Dairy Produce Levy Act (No. 1) 1986 and paragraph 6(1)(a) of the Primary Industries (Excise) Levies Act 1999.” (Program, cl. 2) The “base year” to which reference is made is the financial year beginning on 1 July 1998 (Program, cl. 3).

DSAP Scheme: calculation of payment right

The face value of an entity’s right is calculated in accordance with Part 4 of the DSAP Scheme. The method of calculating the face value of a standard payment right varies according to whether a dairy farm enterprise is subject to a share farming arrangement, a leasing arrangement, to both or to neither (DSAP Scheme, ss. 21 to 24). In the case of a dairy farm enterprise that is not subject either to a share farming arrangement or a leasing arrangement and only one entity has an eligible interest in that dairy farm enterprise, the face value of a standard payment right is equal to the overall enterprise amount (DSAP Scheme, s. 21(2)).

DSAP Scheme: market pool distributions

Clause 31 of the Program provides that the DSAP Scheme may make provision for and in relation to the adjustment of eligibility for payment rights in relation to a distribution that is to be taken as an abnormal market milk pool distribution.
“Those provisions may include (but are not limited to):
(a)treating a particular dairy farm enterprise, for the purposes of this Part and the scheme, as if the enterprise had delivered a particular volume of market milk during a particular financial year instead of a particular volume of manufacturing milk; and
(b)treating a particular dairy farm enterprise, for the purposes of this Part and the scheme, as if the enterprise had delivered a particular volume of manufacturing milk during a particular financial year instead of a particular volume of market milk.” (Program, cl. 31(2))

In its original form, s. 30 of the DSAP Scheme provided that:
“(1)     This section applies if, in the base year, 1 or more dairy farm enterprises in a pooling jurisdiction did not receive payment at the market milk rate for the same proportion of their milk deliveries as other dairy farm enterprises in the jurisdiction.
(2)      However, this section does not apply to:
(a)a dairy farm in South Australia that was not bound by the voluntary price equalisation scheme known as the South Australian Market Milk Equalisation Agreement approved under section 26 of the Dairy Industry Act 1992 of South Australia; or
(b)a dairy farm enterprise in Victoria that does not deliver milk to an authorised agent within the meaning of section 49 of the Dairy Industry Act 1992 of Victoria.
(3)      If this section applies, the DAA must determine, for each dairy farm enterprise in relation to which 1 or more claims for payment rights have been received:
(a)the amount of market milk that the enterprise would have delivered if it had received payment at the market milk rate for the same proportion of its eligible milk deliveries during the base year as other dairy farm enterprises in the jurisdiction; and
(b)the amount of manufacturing milk that the enterprise would have delivered if it had received payment at the market milk rate for the same proportion of its eligible milk deliveries during the base year as other dairy farm enterprises in the jurisdiction.
(4)      The sum of the amount of market milk and manufacturing milk that the DAA determines an enterprise would have delivered during the base year must be equal to the amount of milk that the enterprise actually delivered during the year.
(5)      For the scheme, each enterprise is taken to have delivered, during the base year, the amount of market milk, and the amount of manufacturing milk, determined under subsection (3).

(6) In this section:
eligible milk deliveries means deliveries of milk that satisfies the requirements for market milk under the law of the State or Territory in which the milk is delivered.
pooling jurisdiction means a State or Territory in which enterprises were not required to hold quota to deliver market milk during the base year.”

The Minister amended s. 30 of the DSAP Scheme with effect from 17 August 2000 when he made the Dairy Structural Adjustment Program Scheme 2000 Amendment (No. 3). He added s. 30(3A) and amended s. 30(4) so that they now read:
“(3A) For subsection (3), do not count the amount of milk deliveries of market milk that were not covered by State pooling arrangements embodied in, or that operated under:
(a)the voluntary price equalisation scheme known as the South Australian Market Milk Equalisation Agreement approved under section 26 of the Dairy Industry Act 1992 of South Australia; or
(b)the Dairy Industry Act 1992 of Victoria; or
(c)the Dairy Industry Act 1994 of Tasmania.
Note Deliveries of market milk not covered by these State pooling arrangements are dealt with under other provisions of this scheme.
(4) The sum of the amount of market milk and manufacturing milk that the DAA determines an enterprise would have delivered during the base year, together with milk not counted because of subsection (3A), must be equal to the amount of milk that the enterprise actually delivered during the year.”

SDA Scheme: SDA payment rights

The SDA Scheme is concerned with conferring three types of payment rights which are collectively known as “SDA payment rights” (Program, cl. 2). They are:
basic market milk payment rights;
additional market milk payment rights; and
discretionary payment rights.

Although described as “rights”, entitlement to them does not confer a

right to a payment under the SDA Scheme. Payment lies within the discretion of the

Minister, or his delegate, for s. 13(1) of the SDA Scheme provides that:

“At any time after the commencement of this scheme the Minister may decide:

(a)that an entity is eligible for a discretionary payment right; and
(b)if the Minister decides that entity is eligible:
(i)whether to grant the right; and
(ii)if the Minister decides to grant the right – the face value of the right and the time at which the right is granted.”

SDA Scheme: eligibility for a discretionary payment right

In order to be eligible for a discretionary payment right in the circumstances of this case, an entity must satisfy the requirements of s. 8(1). In so far as it is relevant in this case, an entity is eligible for a discretionary payment right under that provision if:
“(a) the entity held an interest of a kind mentioned in subsection (2) in a dairy farm enterprise at any time during the qualifying period; and
(b)either:
(i)the entity is taken to be affected by a significant event or a significant crisis because of subsection (3); or
(ii)the entity is taken to be affected by significant anomalous circumstances because of subsection (5).”

The kinds of interests that are referred to in s. 8(1)(a) and that are relevant in this case are:
“(a) …
(b)if the entity was not granted a payment right under the DSAP scheme:
(i)…
(ii)…
(iii)a proprietary interest in the land on which a milking shed is situated;
(iv)an interest as an owner of a dairy farm enterprise;
(c)an interest as a party to a binding contract or other binding arrangement under which the entity would, during or after the end of the qualifying period, be entitled to hold an interest in a dairy farm enterprise as described in paragraph (b).” (SDA Scheme, s. 8(2))

It should also be noted that:

“A contract or arrangement conferring an option or a similar right is not a contract or arrangement for the purposes of paragraph (2) (c) unless the entity exercised the option or right, and acquired the interest, before the end of the period after 6.30 pm on 28 September 1999 that, in the circumstances, is reasonable.” (SDA Scheme, s. 8(2A))

The entity must have held that interest in a “dairy farm enterprise”. Unless the contrary intention appears, words used in the SDA Scheme have the same meanings as they have for the purposes of the DSAP Scheme (SDA Scheme, s. 3(1)). I have given the DSAP Scheme’s meaning in relation to “dairy farm enterprise”. It is apparent from s. 8(7) of the SDA Scheme that it continues to have that meaning but that it also has an extended meaning:
“dairy farm enterprise includes a business in Australia carried on with a view to delivering market milk or manufacturing milk during the qualifying period but did not deliver such milk in that period.”

The “qualifying period” is defined as the period from 1 July 1998 to 6.30pm on 28 September 1999 (SDA Scheme, s. 3(2)).

Section 8(3) of the SDA Scheme is concerned with the circumstances in which an entity is taken to be affected by a significant event or a significant crisis. It provides:
(3)An entity is taken to be affected by a significant event or a significant crisis because of this subsection if but only if:
(a)the entity held an interest in a dairy farm enterprise at 6:30 pm on 28 September 1999; and
(b)the event or crisis is:
(i)     an illness of a person that had a detrimental effect on the management of the dairy farm enterprise mentioned in paragraph (a); or
(ii)     a person's incapacity to work due to injury that had such an effect; or
(iii)    a person's death that had such an effect; or
(iv)    the disease or death of 1 or more dairy animals kept by the enterprise mentioned in paragraph (a) that had a detrimental effect on the production or delivery of milk during the 1998-1999 financial year; or
(v)     an exceptional event; and
(c)there was a significant reduction in the volume of milk delivered by the dairy farm enterprise mentioned in paragraph (a) during the base year compared to the enterprise's normal year volume of milk; and
(d)the Minister is satisfied that the reduction was attributable to the event or crisis.”

An “exceptional event” is defined to mean:
“… in relation to a dairy farm enterprise, … a drought, storm, flood or other natural event, or disease suffered by livestock.” (DSAP Scheme, s. 3 and SDA Scheme, s. 3(1))

For the purpose of s. 8(3)(c), s. 8(4) of the SDA Scheme provides that:
“(4) For the purposes of paragraph (3)(c), but without limiting that paragraph, if the volume of milk delivered by an enterprise during the base year is less than 70% of the enterprise's normal year volume of milk, the reduction may be taken to be significant.”

The “enterprise’s normal year volume of milk” is defined as:

“(a) the average of the total number of litres of market milk and manufacturing milk delivered by the enterprise in the 3 financial years immediately before the base year; or
(b)if the volume worked out under paragraph (a) does not, in the opinion of the DAA, fairly represent a normal year's delivery for the enterprise – the volume of milk that, in the DAA's opinion, does fairly represent a normal year's delivery for the enterprise.” (SDA Scheme, s. 8(7))

The “base year” is the financial year beginning on 1 July 1998 (DSAP Scheme, s. 3).

Section 8(5) of the SDA Scheme is concerned with the circumstances in which an entity is taken to be affected by significant anomalous circumstances. It provides:
“An entity is taken to be affected by significant anomalous circumstances because of this subsection if but only if:
(a)all the following apply:
(i)the entity held an interest in a dairy farm enterprise at 6.30 pm on 28 September 1999;
(ii)before 28 September 1999 there was a change or an atypical feature in the ownership or management of the enterprise;
(iii)the Minister determines that the change or feature significantly and adversely affected the entity's eligibility for a payment right under the DSAP scheme, or significantly and adversely affected the face value of such a payment right;
(iv)the Minister determines that this subsection should apply to the entity; or
(b)all the following apply:
(i)the entity held an interest in a dairy farm enterprise shortly before 28 September 1999 but had assigned the interest to another person by that date;
(ii)the entity did not, on that date, hold an interest in a dairy farm enterprise except as mentioned in subparagraph (iii);
(iii)at 6.30 pm on 28 September 1999 the entity was a party to a binding contract or other binding arrangement under which it would, after that date, be entitled to hold an interest in a dairy farm enterprise;
(iv)the Minister determines that this subsection should apply to the entity; or
(c)all the following apply:
(i)the entity held an interest of a kind mentioned in paragraph (2)(b) or (2)(c) in a dairy farm enterprise shortly before 28 September 1999;
(ii)on or shortly after 28 September 1999 the entity held an interest in a dairy farm enterprise only as mentioned in paragraph (2)(c) (whether or not the entity held an interest in another dairy farm enterprise at that time);
(iv)the Minister determines that this subsection should apply to the entity.”

SDA Scheme: face value of discretionary payment rights

Once an entity has been granted a discretionary payment right under s. 8, the face value of that right is an amount determined by the Minister under s. 16. In determining that amount, the Minister must have regard to the matters set out in s. 16(2). There is a cap on the amount that may be determined and that cap is calculated in accordance with s. 17 of the SDA Scheme.

SDA Scheme: SDA units in SDA payment rights

Each SDA payment right consists of SDA units. The number of those units is calculated by dividing the face value of the payment right by 32. The resulting figure is rounded up or down to the nearest dollar and represents the number of SDA units in the SDA payment right (SDA Scheme, s. 18). Details of those SDA units are entered on a Register maintained by the DAA (SDA Scheme, s. 20). SDA units may be transferred, cancelled or varied in accordance with provisions of Part 5 of the SDA Scheme.

The Australian Dairy Corporation must pay $1 to the registered owner of each SDA unit in respect of a quarter in which the SDA payment right has been granted to an entity and each earlier and following quarter (SDA Scheme, s. 28(1) and (2)). Those quarters must not be earlier than 1 July 2000 nor later than 30 June 2008 (SDA Scheme, s. 27). An entity with an additional market milk right or a basic market milk payment right may elect to receive a lump sum provided it elects to do so before receiving the first payment in respect of its SDA units (SDA Scheme, s. 28(3)). There is no right to receive a lump sum payment in respect of a discretionary payment right.

BACKGROUND

The SAMME Scheme

On the basis of the evidence of Mr Rice, I find that in or about 1995, three processors, Kraft Foods Pty Ltd (“Kraft”), Dairy Vale Foods Ltd (“Dairy Vale”) and National Dairies SA Ltd (“National Dairies”), entered an agreement with the South Australian Dairy Farmers’ Association Inc (“SADF Association”) and the South Australian Market Milk Equalisation Committee Limited (“Company”). Their agreement was known as the South Australian Market Milk Equalisation Agreement (“SAMMEA”). It remained in force until the de-regulation of the dairy industry in 2000.

Clause 2 of SAMMEA established a state wide market milk equalisation scheme known as the SAMME Scheme. The South Australian Minister for Agriculture approved the SAMME Scheme as an authorised price equalisation scheme. He did so on 30 June 1995 under s. 26(1) of the Dairy Industry Act 1992 (SA) (“DI Act”) that was then in force. It was a statewide scheme whose purpose was to ensure that the proceeds from the sale of market milk in South Australia were shared equitably amongst producers who delivered their milk to processors who were parties to the SAMME Scheme.

A “producer” was defined to mean any person, organisation or company, other than a co-operative, licensed under the DI Act as a dairy farmer and supplying Milk to a processor or to a co-operative (SAMMEA, cl. 1). The Company could also determine that a dairy farmer in a State other than South Australia could be brought into the SAMME Scheme.

“Milk” was defined to mean bovine milk produced by a producer and processed in South Australia as well as meeting the quality prescribed in Annexure C to the SAMMEA. The SAMMEA distinguished between “Market Milk” and “Manufacturing Milk”. “Manufacturing Milk” was defined to mean “… Milk that is processed into products other than Market Milk including without limitation Milk that is processed into UHT milk or flavoured milk”. UHT milk or flavoured milk is also known as “non-white milk” (SAMMEA, cl. 1). “Market Milk” has the same meaning as in the DI Act “… but excludes Milk that is processed into UHT or flavoured milk and Milk that is purchased directly or indirectly from a person who is not a Producer or Co-operative” (SAMMEA, cl. 1).

Under cl. 3.1 of SAMMEA, each processor paid the Company the Farm Gate Price for each litre of Market Milk it had sold during the preceding month. The Farm Gate Price was the farm gate price set by the Minister for Agriculture under the DI Act (SAMMEA, cl. 1). The Company deducted an administration fee from the amount paid to it by the processors (SAMMEA, cl. 3.2). Using Annexure B to SAMMEA as required by cl. 3.3, the Company calculated the Market Milk Percentage for each month by dividing the total volume of Market Milk in litres sold by the processors in the previous month by the total volume of Milk in litres purchased by processors in that month. The Market Milk Rate for each month was calculated by dividing the amount received by the Company under cl. 3.1 by the figure reached by multiplying the Market Milk Percentage by the total kilograms of protein for the total volume of Milk purchased by the processors from the producers. The Company also calculated the Freight Adjusted Market Milk using Annexure E (SAMMEA, cl. 3.5). A Freight Adjusted Market Milk was set for each of the four regions, including the South East, into which South Australia had been divided.

Each month while the SAMME Scheme operated, the Company then paid each of the processors the Freight Adjusted Market Milk Rate for the preceding month. It did so on the basis of the total kilograms of protein in the Milk supplied to that processor by producers and co-operatives in each region during the preceding month as was equal to the Market Milk Percentage for that month (SAMMEA, cl. 3.5).

Mr Conrad is an accountant and a partner in the firm providing accounting services to the Company of which he was also the Company Secretary. His evidence as to the adjustments made between processors was uncontradicted and I accept it. Therefore, I find:
“16. Some processors sell a higher % of market milk than the state average. Some Processors sell a lower % of market milk than the state average. Other Processors do not sell market milk.
17.Pursuant to clause 5 of SAMMEA, a Processor that contributed more than the state average of market milk was required to be compensated by a Processor that contributed less than the state average of the market milk % in any month.
18.The Processor that contributed a higher % of market milk than the state average (‘THE RECEIVING PROCESSOR’) was entitled to receive a milk volume entitlement from a Processor that contributed a lower % of market milk than the state average (‘THE SUPPLYING PROCESSOR’). In that situation the Supplying Processor with a milk volume liability had to settle with a Receiving Processor in the following order:
18.1first by physically transferring that MILK VOLUME LIABILITY, which occurred rarely; or
18.2secondly, on a negotiated basis; or
18.3thirdly, use a fall-back method of adjustment based on a Supplying Processor’s manufacturing milk prices, provided for in clauses 5.5 and 5.7 of the agreement;
to the Receiving Processor with a milk volume entitlement.
19.The payment by the Supplying Processor to the Receiving Processor was made at the Supplying Processors’ basic manufacture milk price on a monthly basis.
20.In addition to the payment at the basic manufacture milk price, the Supplying Processor was also required to account for any additional manufacturing milk payments such as seasonal or production bonuses and payments for quality.
21.At the end of each financial year I collated the manufacturing milk price paid (including additional payments above) by all Processors over the preceding year and prepared a spreadsheet setting out each Processors manufacturing milk prices and the average manufacturing milk price paid by the other Processors. A copy of that spreadsheet was sent to each of the Processors who were given the opportunity to confirm and check those calculations. …
22.Based on the calculations prepared by me, if the overall manufacturing price paid by a Supplying Processor was less than the average of the other Processors overall manufacturing price paid to their producers over the preceding year, then the Supplying Processor was required to pay that underpayment to the Receiving Processor.” (Exhibit H)

In 1997, the SAMMEA was amended. At the same time, Kraft ceased to be a party to the agreement but the following processors became parties to it in addition to National Dairies and Dairy Vale: The Warrnambool Cheese & Butter Factory Company Holdings Ltd (“Warrnambool”), Murray Goulburn Co-Operative Co Limited (“Murray Goulburn”) and De Cicco Industries Pty Ltd (“De Cicco Industries”). I will refer to the three additional parties collectively as the “Victorian processors”. The SADF Association and the Company continued to be parties as well but no dairy farmer was a party to the SAMMEA. At the same time, the definition of “Milk” was amended to delete the requirement that it be processed in South Australia.

In the financial year ending 30 June 1999, most, but not all South Australian producers delivered their Milk to a processor who was a party to the SAMMEA (“SAMMEA processor”). Those producers who did deliver Milk to a SAMMEA processor could be divided into two groups. In the first, were those delivering milk used in the production of non-white milk for sale on the domestic market (“UHT producer group”). In the second, were those who delivered milk other than non-white milk for sale on the domestic market (“Non-UHT producer group”). During the financial year ending 30 June 1999, all of the producers delivering Milk to a SAMMEA processor had approximately 19% of their Milk paid for under the SAMME Scheme at the Market Milk rate.

Additional payments under the Dairy Produce Levy Act (No. 1) Act 1986 and the Primary Industries (Excise) Levies Act 1999

The Dairy Produce Levy Act (No. 1) Act 1986 and the Primary Industries (Excise) Levies Act 1999 were administered by the Australian Dairy Corporation. Under them, all farmers paid a monthly levy on the volume of Drinking Milk they supplied to processors. “Drinking Milk” was a term used to describe market milk, UHT and flavoured milk. On the basis of Dr Drinan’s evidence, I find that market milk levy was generally deducted by the processor before it paid the balance to the dairy farm enterprise that supplied the milk.

On the basis of the evidence of both Mr Gilbert and Mr Rice, I find that the processors paid a monthly levy on all Drinking Milk (i.e. all white and non-white milk) sold by them in Australia. The money raised by the levy was returned to farmers who sold manufacturing milk in the form of a Domestic Market Support payment (“DMS payment”). The practical outcome was that the producers received a higher price for their manufacturing milk than they would otherwise have received. At the same time, the DMS payments were intended to support export returns and avoid domestic discounting in manufactured dairy products.

Mr and Mrs Purvis

On the basis of the evidence of Mr Purvis, I find that he and his wife have been involved in the dairy industry since approximately 1982. Initially, they were involved on a part time basis on their property at Balhannah but, since selling that property in 1987, have been engaged full time. They have a property at Penola in the South East.

Between 1991 and 1997, Mr and Mrs Purvis milked approximately 100 cows each day and delivered the milk to Dairy Vale. The milk was collected from their property by a tanker that also collected milk for Kraft. The milk was mixed and taken to one or other of the processors. The statement sent to them by Dairy Vale showed payments for market milk and, as part of their payments for manufacturing milk, payments for UHT and flavoured milk. It also showed the amount of their DMS payment and the levies that had been deducted. Mr and Mrs Purvis started to deliver their milk to De Cicco from 1 October 1997.

Mr Clark

On the basis of the evidence of Mr Clark, I find that he took over the running of the family dairy farm at Moorak in 1976. That was a small enterprise and it became clear to him that he had to expand or find a different source of income. Consequently, in 1977, he and his wife acquired a 365 acre dairy farm with a 12 unit swing over herringbone dairy at Burrungule. The previous owner had supplied Kraft and he continued that practice until on or about 1 July 1997 when Kraft stopped collecting milk from dairy farmers in the South East.

In September 2000, Mr Clark was granted a standard payment right under the DSAP Scheme. It had a face value of $99,496. When he sought internal review, the DAA confirmed the decision.

Mr Telford

Mr Telford was raised on a dairy farm in the Mount Schank district of South Australia. In 1968, he bought a 444 acre property in the same area. He and his wife started to farm it the following year. For the first ten years, they milked cows which, at one stage, totalled 98. In 1976, they switched to sheep for wool production and 100 hives of bees. After the collapse in the price of wool in the early 1980s, Mr and Mrs Telford decided in 1990 to build and run a fish farm. For the next ten years, they ran a trout fishery for tourists and he now sells fingerlings for farm dams and a hatchery where he hatches any kind of salt or freshwater fish.

In early 1997, Mr and Mrs Telford decided to return to the dairy industry. They talked to Kraft and it agreed to take their milk. Kraft then decided not to purchase milk from dairy farmers. Mr and Mrs Telford then chose to sell their milk to Warrnambool. They bought heifers and cows in about June or July 1997. For a month, they milked their cows in a neighbour’s dairy while they waited for their own to be ready. On 4 September 1997, their milk first went into their own tank.

Mr Telford suffered health problems. Consequently, he and his wife decided to start a share farmer in December 1997. That sharefarmer ran cows on their property but left after two months. Mr and Mrs Telford’s son then left school so that he could do the milking.

In September 2000, Mr Telford and his wife were each granted a standard payment right with a face value of $76,709 under the DSAP Scheme. When they sought review of the decision, DAA confirmed it. Since receiving their DSAP Scheme payments, Mr and Mrs Telford have purchased the neighbouring property. This happened in January 2002 and gave them a square property and an acreage that was increased by 434 acres. They installed a 70 unit rotary dairy and plant allowing them to milk close to 700 cows in 2004. The property, dairy and plant were mainly financed from borrowings.

In the financial year ending 30 June 2003, Mr and Mrs Telford incurred a $45,000 loss leading to their being on a hardship allowance for some six months.

THE EVIDENCE

Delivery of milk to SAMMEA producers and others

During the financial year ending 30 June 1999, Mr Rice said, most South Australian dairy farm enterprises delivered their milk to a processor who was a party to SAMMEA. At the end of that year, the Annual Report by the Dairy Authority of South Australia (“DASA”) shows that there were 714 licensed dairy farmers in the State. There were also 35 licensed processors of whom five were supplying at least some of their milk to the five processors who were parties to SAMMEA. Three of the dairy farm enterprises delivered their milk to their own processing businesses. At least three further dairy farm enterprises either did not deliver milk to a processor that was a party to SAMMEA or delivered only some of their milk to such a processor. The 30 licensed processors that were not a party to SAMMEA, purchased their milk from another processor on a wholesale basis or purchased it directly from one or more dairy farm enterprises. Mr Rice also said that in the year ending 30 June 1999, all producers and co-operatives delivering their milk to a processor under SAMMEA had 18.8% of that milk paid for under the SAMME Scheme.

Rates paid for non-white milk

Mr Gilbert said that, for Milk sold as non-white milk, the processors paid the producers a percentage of the Farm Gate Price. Up to December 1996, the rate for both UHT and flavoured milk was about 67% of the Farm Gate Price for Market Milk. It was increased to approximately 75% after approximately January 1997. From 1 December 1997, the rates paid for UHT milk and flavoured milk were no longer the same. The rate for flavoured milk became 67% and for UHT milk 75%. These figures were consistent with the evidence given by Mr Rice and both referred to the price control orders made by the Minister for Agriculture over the period from 1 January 1996 to 1 September 1999.

Both Mr Gilbert and Mr Rice gave evidence to the effect that the rate paid by processors to producers for Manufacturing Milk was a matter for individual processors. From time to time, they reviewed their rate. Mr Gilbert said that the rate was based on the masses of butter fat and protein in the milk. It could be converted to an approximate rate per litre of milk sold. This rate was known as the converted manufacturing milk rate. It was always a rate lower than both the regulated Farm Gate Price for market milk and the rate or rates set for UHT milk and flavoured milk. Using Dairy Vale’s rates as an example, it paid between 22 and 24 cents per litre for manufacturing milk or approximately between 43% and 48% of the regulated Farm Gate Price for Market Milk.

Mr Rice explained that it was difficult to compare directly the price paid by particular processors of manufacturing milk with the prices paid for non-white milk because:
the price for manufacturing milk was typically calculated by reference to the respective masses of butter fat and protein in manufacturing milk received from the producer but the prices for non-white milk were set by the Minister of Agriculture by reference to the volume of manufacturing milk;
in their payment notices to producers, the processors usually did not specify the exact volumes of milk supplied by the producer and sold by the processor as non-white milk. Instead, they usually recorded that a specified sum, representing 75% of the farm gate price for UHT milk and 67% of the farm gate price for flavoured milk, was included in the total payment to the producer for manufacturing milk.

Production of non-white milk

Mr Gilbert said that, in the financial year ending 30 June 1999:
Dairy Vale produced and sold both UHT milk and flavoured milk on the domestic market;
National Foods produced and sold flavoured milk but no UHT milk on the domestic market;
Kraft did not produce any flavoured or UHT milk;
Murray Goulburn sold UHT milk but did not manufacture that milk or flavoured milk sold on the domestic market using milk produced in South Australia; and
neither Warrnambool nor De Cicco sold any UHT or flavoured milk.

Mr Clark noted that the Milk Statement that he received from Kraft for June 1999 disclosed an “Eligible UHT Payment”. He said that he was aware that Kraft had produced UHT milk for Nippy’s until May 1997. In oral evidence, Mr Rice agreed with Mr Clark. He said that between August 1996 and May 1997, Kraft supplied 1.6% of its bulk milk to Nippy’s to process into UHT and flavoured milk. Producers received a greater return for milk that was processed in that way than white milk. The industry fixed prices for non-white milk based on markets and the Australian dollar. It was not regulated although the State Minister regulated the prices for white milk. In so far as the South East was concerned, it was not a regulated market for manufacturing milk.

Changes in producers to Dairy Vale

Mr Gilbert said that between Dairy Vale’s becoming a party to SAMMEA in 1995 and 26 June 1997 when the three Victorian processors became parties to the agreement, Dairy Vale’s Mt Gambier factory was supplied by approximately 92 dairy farm enterprises in the South East. In that time, no producers left Dairy Vale to go to another processor and no new producers were added. Between the time that the Victorian processors joined in June 1997 and the end of that year, 41 dairy farm enterprises had changed from Dairy Vale to another supplier. In later years, 6 and 2 changed to Dairy Vale in the years ending 30 June 1999 and 2000 respectively, 2 and a further 6 changed from Dairy Vale to another processor in the following two years and six changed to Dairy Vale from another processor in the year ending 30 June 2003.

Section 30 of the DSAP Scheme

Dr Drinan gave evidence regarding the way in which DAA considered whether s. 30 of the DSAP Scheme should be applied and the way in which it did apply it. In doing so, he referred to the intention of the Minister in making the DSAP Scheme.

Application of the discretion under s. 8(5)(a) of the SDA Scheme

In summary, Dr Drinan’s evidence regarding the exercise of the discretion under s. 8(5)(a) of the SDA Scheme was:
the SDA Scheme is a supplementary scheme intended to assist the small number of farmers who were disadvantaged by the DSAP Scheme. The applicants did not fall within that number as the DSAP Scheme had been specifically amended with the circumstances of South Australian farmers delivering milk under the SAMME Scheme in mind. Milk treated as market milk was milk on which a levy had been paid and only that milk;
the amendments made to the Act leading to the SDA Scheme were made with the full knowledge of the applicants’ concerns and Parliament chose not to make any amendments dealing with those issues. Dr Drinan referred to the oral and written submissions made by Mr Purvis and his solicitor to the Rural and Regional Affairs and Transport Legislation Committee of the Senate (“Senate Committee”). That committee tabled a report dated June 2001 to the Senate. It noted the submissions made by and on behalf of Mr Purvis.
in a minute dated 18 June 2001, the Department of Agriculture, Fisheries and Forestry – Australia (“Department”) attached speaking notes for the Minister on a number of issues including the position of the South East dairy farmers. The speaking notes observed that South East dairy farmers have been treated in exactly the same way as all other dairy farmers in Australia under arrangements specifically requested, and agreed to, by dairy industry leaders; and
discretionary payment rights were not intended to provide payments to entities who, in the normal course of carrying on a dairy enterprise, made commercial decisions that had the consequence of reducing the face value of their standard payment right under the DSAP Scheme. Deregulation was expected to have its greatest impact on the price dairy farmers received for market milk. That has proved to be the case. Consequently, assistance under the DSAP Scheme was weighted in favour of those farmers who delivered a greater proportion of their milk as market milk. The SDA Scheme does not override or replace that intention.

The DAA’s Business Guidelines set out factors that may assist the DAA’s staff in recommending whether or not it should exercise its discretion under ss. 8(5) and 13 of the SDA Scheme. Staff are directed to keep in mind that the purpose of the scheme in respect of discretionary payment rights is to provide additional assistance to those entities who were ineligible for a DSAP payment right or the face value of the right was lower than they would normally have expected. The

Business Guidelines continued:

“… The following factors may be taken into account when the DAA uses its discretion, however it is not an exhaustive list and additional factors that further the intention of the legislation, may be considered. These factors have been drafted in particular reference to cases under paragraph 8(5)(a) where there has been a change in management/ownership of the enterprise.
Factors that may be considered when using the discretion:
1.The reasons for entering into any such agreement.
Illness or death of an entity.
Other significant event or crisis.
‘Commercial’ decisions/reasons.

2.The reasons for any such agreement ending.
Improvement in health.
S/farmer-lessee leaving due to illness etc.
S/farmer-lessee leaving without agreement.
‘Breach’ of agreement.
‘Commercial’ decisions/reasons

3.The capacity in which the entity was granted a DSAP payment right and the capacity in which the entity has subsequently operated in the industry. Furthermore, if the entity has changed status on a number of occasions, this may be relevant.
4.Whether or not the entity still has an ‘eligible’ interest in a dairy farm enterprise.” (Business Guidelines 19-2-2002, T documents, page 154)

In selecting a processor, Dr Drinan said, each of the applicants had made a decision on commercial grounds. He reviewed the evidence given by each applicant in expressing his opinion.

Mr and Mrs Purvis

Mr Purvis said in his statement that he and his wife supplied the Mt Gambier Co-operative with milk when they started farming at Penola. They chose Mt Gambier Co-operative in preference to other processors “… in the belief that it would be better for us financially to supply a farmer co-operative rather than a proprietary company, and all profits would pass back to the farmer” (Exhibit A). At the time, the only other processor in the South East was Kraft. Both it and the Mt Gambier Co-operative paid approximately the same price for milk. In September 1991, Dairy Vale took over the Mt Gambier Co-operative and Mr and Mrs Purvis supplied Dairy Vale.

Mr Purvis said that he and his wife remained with Dairy Vale for approximately six years. During at least part of that time, they considered that they were paid non-competitive prices by Dairy Vale when that company refused to increase its prices compared with Kraft. As they understood that Kraft and Dairy Vale had an agreement not to take each other’s producers, they did not consider that they could change to Kraft.

In Mr Gilbert’s view, Mr Purvis’s understanding was incorrect. Dairy Vale and Kraft did not have any such understanding but, from approximately 1994 or 1995, Dairy Vale had a publicly expressed policy that that it would not accept any new producers unless those new producers purchased a farm from Dairy Vale’s existing producers. Its policy was intended to protect its existing members and was not related to any agreement with Kraft. In approximately 1997, it changed its policy and began to accept new producers.

When the Victorian based processors, De Cicco, Warrnambool and Murray Goulburn, entered the market, Mr and Mrs Purvis decided to remain with Dairy Vale to see whether it would increase its prices in the face of increased competition. Together with other dairy farmers in the South East, they had discussions with each of the Victorian processors. At the same time, Kraft closed one of its Mt Gambier factories and no longer purchased milk from South East dairy farmers. At meetings held during the first half of 1997, Dairy Vale advised Mr Purvis and other dairy farmers that it would not increase its prices to match those previously offered by Kraft or then offered by any of the Victorian processors.

Mr Gilbert confirmed that Dairy Vale’s management had advised the dairy farmers attending meetings in the South East that it could not match either the prices previously paid by Kraft or the prices estimated by Murray Goulburn, Warrnambool or De Cicco for the year ending 30 June 1998.

In making their decision whether to stay with Dairy Vale or to change to De Cicco, Mr and Mrs Purvis took into account:
“12.1 That we were continuing to receive market milk equalisation payments under the South Australian Market Milk Equalisation Scheme;
12.2The price of 25 cents per litre we were receiving from Dairy Vale i.e. all milk other than market milk (pooled milk);
12.3The price being offered by the other processors. De Cicco was offering to pay at the flat rate of 27 cents per litre over the full year and WCB was offering to pay at an opening price of 25 cents per litre plus step ups and production bonuses over the full year.
12.4The financial stability of all the processors. De Cicco Industries was a family owned company with long term overseas and local markets, with all expansion owner funded. WCB was a long established co-operative processor with a substantial turnover and recommended by Kraft Foods to take their place in the South East. Murray Goulburn was the largest co-operative in Australia in turnover and the number of suppliers.
12.5Nature of products manufactured and markets supplied by the processors, determined whether there was either a relatively flat payment structure for the full year or a competitive yearly price that was seasonally adjusted.” (Exhibit A)

Mr Gilbert said that Mr and Mrs Purvis had notified Dairy Vale of their intention to withdraw as members in July 1997. In accordance with normal practice, they stopped supplying Dairy Vale on or about 1 September 1997. Had they wanted to return to Dairy Vale, Mr Gilbert continued, they could have applied. Whether they would have been accepted:
“… depended on factors such as the volume of milk they were capable of supplying, their locality, their seasonality of their milk production, the quality of their milk, and the ease of collection at their farms. However, in considering all applications it was relevant that Dairy Vale was, at the time, very short of milk in the Mt Gambier region to the point where the viability of Dairy Vale’s Mt Gambier factory was in doubt. Dairy Vale’s Mt Gambier factory had experienced a net loss of approximately 40 suppliers by September 1997, as a result of decisions made by some suppliers to deliver their milk to Victorian processors. In order to maintain the viability of the Mt Gambier factory, Dairy Vale wished to increase the number of suppliers delivering milk to that factory. Consequently, Dairy Vale would have been more likely to accept new suppliers in the Mt Gambier region than in any other regions of South Australia.” (Exhibit 5 at [23])

During his discussions with Dairy Vale and the three Victorian processors, Mr Purvis understood that the use to which his milk was put by the processors was irrelevant to the money he would receive for it. No reference was made to UHT milk or flavoured milk during their discussions. Mr and Mrs Purvis ultimately chose De Cicco, Mr Purvis said, for two reasons. One was that De Cicco paid a higher price than did Dairy Vale. The other was that it paid a flat rate over the whole year and so gave them a more even cash flow. Other processors offered a competitive yearly milk price but payments were seasonally adjusted. Murray Goulburn was not a processor they considered as it targeted only selected areas of the South East and dealt with dairy farmers running larger herds than that run by Mr and Mrs Purvis.

In the year ending 30 June 1999, Mr and Mrs Purvis milked approximately 120 dairy cows and produced 560,535 litres of milk. Although other dairy farmers supplying Dairy Vale and Warrnambool could use an integrated trucking system, Dairy Vale would not allow De Cicco to do the same. Consequently, a local trucking company collected the milk for De Cicco and delivered it to Scotts Transport from which it was transported to Melbourne.

Mr Gilbert disputed Mr Purvis’s statement that Dairy Vale refused to allow De Cicco to use the integrated trucking system. Although there had been media reports to that effect at the time, it was not the case, he said.

Mr Purvis said that they received payments from De Cicco in the middle of the month. Occasionally he and others compared the prices paid by the various processors. Although some processors, such as Warrnambool, paid slightly higher prices, Mr Purvis did not consider that the variation justified a change of processor. All processors collecting milk from the South East paid the same amount for market milk pursuant to equalisation. There was no significant change in the total manufacturing milk price paid by any of the processors. Mr Purvis said that he was aware that Dairy Vale increased the price it paid for milk after a number of dairy farmers changed from it to one of the Victorian processors. Its price them more closely matched that paid by the Victorian processors.

Mr Gilbert took exception to this statement stating that “… Dairy Vale’s prices, like those of all dairy processing companies, are affected by world commodity prices, exchange rates and factors specific to the particular business of each company. Dairy Vale responded to prevailing market conditions as they affected product pricing from time to time” (Exhibit 6 at [6]). Rather than Dairy Vale’s prices’ increasing after deregulation, they actually decreased. Whereas they had averaged 28.09 cents per litre in the financial year ending 30 June 2000, they averaged 27.62 cents in the financial year ending 30 June 2001.

Mr Purvis said that he was aware that, with the deregulation of the dairy industry, the SAMME Scheme would be repealed. A consequence would be that dairy farmers no longer received the equalisation payments and therefore the average price they paid for their milk would be reduced accordingly. He continued that:
“21. Until we made our own enquiries, we did not appreciate, nor were we told, that the amount of money available under the DSAP Scheme would be paid based on whether the processor we supplied also produced UHT & flavoured milk, to De Cicco, who did not produce UHT 7 flavoured milk.
22.I am aware of farmers, who did not change processors, who received higher DSAP Scheme payment rights and an additional market milk payment right under the SDA Scheme.” (Exhibit A)

Mr Purvis said that he and his wife decided to increase their total irrigation area in light of the implications of deregulation and their receiving a DSAP Scheme payment. An increase in the irrigation area would increase their forward feed reserves and eliminate their dependence on grain while increasing their milk production. Grain was an off-farm cost that was determined by the market at the time. They obtained a quotation of $23,500 to extend the centre pivot to the maximum size and ascertained that they would also need a new bore. As their plan required the removal of five trees, they made the necessary application to the Department of Environment, Heritage and Aboriginal Affairs. Their application was approved.

Mr and Mrs Purvis planned to use some of the money that they received under the DSAP Scheme either to fund the bore and the extension to the pivot and to use the remainder to reduce existing debt or to subsidise the post deregulation milk price. Ultimately, they decided to defer the implementation of their decision to extend the pivot and to wait until the effects of post deregulation of the dairy industry became more apparent. They then decided to take their payments under the DSAP Scheme by quarterly instalments to assist with the post de-regulation

decreases in prices. They chose not to take their payments in a lump sum due to the costs involved and due to their being less than expected. Mr Purvis said:

“27. Our plans were put on hold when we discovered that we were not going to receive a payment right equal to or similar to other farmers of similar size and production. Our reduced restructure package compared to that being published put on hold our plans and has cost our enterprise approximately $33,000-$35,000 per year in lost income post deregulation. A discretionary payment would allow original plans to be executed, as the additional package would cover some of the expenses now required to become competitive again.” (Exhibit A)

Mr Purvis said that the initial impact of deregulation led to the Victorian processors’ dropping the prices they paid for milk. They did so, Mr Purvis said, because they were no longer receiving payments under the SAMME Scheme. He understood, however, that the prices paid by Dairy Vale increased after deregulation. Therefore, he believed that those farmers who supplied Dairy Vale received a higher DSAP Scheme payment right and also received higher milk prices than did he and his wife.

Mr Clark

Mr Clark said that, prior to 1997, Dairy Vale and Kraft owned the only two milk processing factories in the South East. They had agreed to start a new company to supply drinking milk to the South East. Mr Clark understood that they had also agreed that neither would take producers from the other. They would also collect milk from each other’s producers on particular roads regardless of whether the tanker was classed as belonging to Kraft or Dairy Vale.

Mr Clark said that he understood that the Metropolitan Milk Supply Act 1946 (SA) (“MMS Act”) prevented dairy farmers in the South East from supplying milk to those in metropolitan Adelaide. Mr Rice disagreed with Mr Clark’s understanding stating that, after the MMS Act had been amended with effect from 1 July 1993, producers were no longer precluded from delivering white milk to Adelaide. Practical considerations such as additional transport costs might have made it uneconomic for dairy farmers in the South East to take advantage of the removal of the restriction.

Before Kraft stopped collecting milk from dairy farmers in the South East in July 1997, Mr Clark attended meetings organised by the Victorian processors. He also obtained information from Dairy Vale as to the basis of its payments to its producers. Mr Clark said that he put the information from the three Victorian processors and Kraft into a spread sheet together with that from Dairy Vale. He had understood that changing to Dairy Vale was not an option before July 1997 as it and Kraft had an agreement not to take each other’s producers.

As I have set out above, Mr Gilbert said that Mr Clark’s understanding was incorrect. On or about 4 July 1997, Dairy Vale decided to accept new producers. Mr Gilbert wrote to all existing producers to advise them of that and gave notice of it in the company’s newsletter published in August 1997. The newsletter was sent to existing producers, other parties to SAMMEA and about 200 people and bodies, including the SADF Association, involved in the industry.

In July 1997, Mr Clark decided to change to Warrnambool, which, Mr Clark said, did not produce any significant quantities of UHT milk and flavoured milk products. He said that they based their decision to select Warrnambool over the other processors on a number of factors:
“… including the price they paid for fat and protein, which was how all processors calculated their prices, the volume charges they applied, the bonus for ‘out of season’ milk, and whether the processor required shares to be purchased.” (Exhibit B)

Mr Clark said that none of the processors remaining after Kraft left the market told him or included any information in their pricing structure to the effect that a differential in price would be paid according to whether his milk went into UHT or flavoured milk. Some times his milk went into UHT or flavoured milk and sometimes it did not. His milk was collected with that of his neighbours who supplied Dairy Vale. Whether his milk became UHT or flavoured milk depended on the factory to which it was delivered. The milk could be taken to Warrnambool in Allansford in Victoria, Kraft Philly Cheese Factory at Mt Gambier, Dairy Vale’s Mount Gambier Factory or another milk factory at Mt Gambier.

Mr Gilbert said that, had Mr and Mrs Clark wished to become producers to Dairy Vale, it was open to them to do so from the time that the company changed its policy in July 1997. Their application would have been determined on its merits and given the fact that their enterprise was situated at Burrungule and that they delivered 1,397,999 litres in the year ending 30 June 1999, it was very likely that Dairy Vale would have accepted their application. So far as Mr Gilbert was aware, Mr and Mrs Clark made no approach to Dairy Vale.

Mr Clark said that, although he had realised that the SAMME Scheme would be repealed as a result of deregulation and he would no longer receive the equalisation payments, he did not know that the amount of money paid under the DSAP Scheme would be based on whether the processor he and his wife supplied produced UHT or flavoured milk.

Mr Clark said that he chose to take his standard payment right by quarterly instalments to assist with the deregulation decreases in prices. He had the option of taking the payment of a lump sum but chose not to do so because of the costs involved and the less than expected payment right. Mr Clark said that the money has been used for various aspects of running the dairy farm and to cover unexpected costs such as the breakdown of the drive shaft on the pivot.

Mr Clark said that he had intended to use the DSAP Scheme payment to make up for the fall in return on milk by increasing production and efficiency. To undertake that, they needed to undertake a major pasture renovation and renovations to the dairy. A discretionary payment would allow the execution of the renovation plans and for the dairy farm enterprise to become competitive once more. Mr Clark said that the renovation plans were put on hold when he discovered that they “… were not going to receive a package equal to other farmers of equal production and equal pre deregulation financial returns. …” (Exhibit B at [20]). Instead, they have just pushed the pastures harder and taken stop gap measures in the dairy to accommodate extra milk and reduce the time spent milking.

Mr Telford

Mr Telford said that, before they commenced their business in 1997, he and his wife had discussions with Kraft’s Field Officer, Mr Noel Stratford, to supply their milk to Kraft. At the time, he said, Dairy Vale did not want any more producers. Despite their trying to contact Dairy Vale, their calls were not returned and they did not chase the company. In cross-examination, Mr Telford said that he could not recall whether his telephone calls were answered by Dairy Vale. Kraft was their only option, Mr Telford continued, but it ceased to operate in July 1997. After that, Warrnambool became their only option. Had the Victorian processors not entered the market, no one would have wanted their milk.

In cross-examination, Mr Telford said that he and his wife chose Warrnambool as they were paying a fairly good price. At the time, he did not think about whether they were producing UHT milk or flavoured milk. He had been aware that if he delivered his milk to a processor who produced market milk, including UHT milk and flavoured milk, he had to pay a levy. If the processor produced manufacturing milk, he received a DMS payment.

At about the time that they started milking, Mr Telford attended a meeting De Cicco held with dairy farmers in the South East. At his request, De Cicco sent him information. He analysed that information but decided to remain with Warrnambool. Warrnambool collects the milk from their property but does so under a pooling arrangement with Dairy Vale whereby the milk supplied to each is mixed in the same tankers.

Mr Gilbert said that, had Mr and Mrs Telford wished to become producers to Dairy Vale, it was open to them to do so from the time that the company changed its policy in July 1997. Their application would have been determined on its merits and given the fact that their enterprise was situated at Mt Schank and that they delivered 994,930 litres in the year ending 30 June 1999, it was very likely that Dairy Vale would have accepted their application. So far as Mr Gilbert was aware, Mr and Mrs Telford made no approach to Dairy Vale.

Mr Telford said that he and his wife had intended to use their DSAP payments to reduce their debt, purchase more cows so that they could improve the viability of their operations and to updated their equipment. They knew that deregulation of the dairy industry meant the repeal of the SAMME Scheme and so the end of their equalisation payments and a reduction in the average price they received for their milk. Mr Telford said that they did not know that the amount of money paid under the DSAP Scheme would be based on whether the processor they supplied also produced UHT and flavoured milk. Had they known that, it might have affected the decision they made to sell their milk to Warrnambool.

Mr Telford said that he and his wife decided to take their payment under the DSAP Scheme as three quarterly payments followed by a lump sum. It was used to pay a private loan from the family, pay off cows bought on account and reduce their overdraft. Towards the end of 2003, they again canvassed processors to determine the basis on which they would purchase their milk. After comparing those bases, Mr and Mrs Telford decided to stay with Warrnambool.

Management of a dairy farm

Mr Purvis said that:
“The activities involved in the management of our dairy farm include:
4.1the selection, breeding and care of our dairy cows;
4.2pasture and fodder management including maintaining our pasture and crops, improving irrigation methods, hay and silage production and supplemental feeding programmes;
4.3milking the dairy cows twice daily;
4.4communicating with other dairy farmers and keeping up to date with dairy farming information by attending information sessions and field days;
4.5undertaking negotiations with processors to take our milk and comparing the prices being received for milk by us and other farmers;
4.6budgeting and maintaining all necessary financial records and obtaining finance as needed;
4.7purchasing goods required for operating the farm;
4.8maintaining and repairing farm equipment and machinery, and ensuring that all farm activities are recorded to comply with quality assurance programs.”

Of management, Mr Clark said that:

“We carry out all the day to day business of the farm. This includes many tasks, some of which are feeding and looking after the cows, milking the cows and ensuring the milk is picked up for the delivery, fixing any farm equipment, and looking after finances.” (Exhibit B)

Mr Telford said that the first couple of years after starting a milk production business are the hardest. They are the years in which the cows, milking machines, bulk tank, hay, grain and silage must be maintained. He described four general areas of business in managing a dairy farm:
“The land: this includes irrigation, feed, grain, and fences.
The cattle: this includes selecting cattle, feeding, care, breeding, and rearing calves.
The production of milk: this includes milking the cattle, making sure all the milking equipment works properly, and having the milk picked up and delivered to the processor.
Supply and payment: this includes selecting which processor is going to be supplied, making sure payment is received, and allocating the money to various areas of the business.” (Exhibit D)

Ms Valerie Monaghan said of “management” that it:
“3. … is explained well by Mukhi, Hampton & Barnwell [1994, Australian Management, McGraw-Hill Book Company Australia Pty Limited, Roseville, at 20] as:
The traditional view of management sees it as a common set of processes which, when competently carried out, contribute to organizational effectiveness and efficiency. The basic processes are planning, organizing, leading and controlling.

4.I believe that their further defining of the planning process of management (p. 21) is accurate and covers the management role of a dairy farmer as I have observed it over many years of working with farmers involved in management tasks.
Planning includes thinking about the fundamental nature of the organization and deciding how it should be positioned in its environment, how it should develop and deploy its particular strengths, and how it should cope with threats and opportunities in the environment. Planning also includes refining fundamental and long-range ambitions and translating them into more specific and short-range objectives and methods of implementation.

5.It is very clear to me that the selection process that a dairy farmer goes through to choose the processor that the enterprise will supply with the farm’s milk output is part of the planning process of management.” (Exhibit F)

Ms Monaghan said that her view that selection of a processor is a management decision is confirmed by the fact that the choice of a processor for a milk production enterprise is identified as a Rural Business Management Unit by the Australian National Training Authority.

Dr Drinan said that decisions to change a processor are decisions made by management but not decisions that are changes in the management of a dairy enterprise. Changes in processor are not uncommon in the dairy industry. Were, for example, an owner/operator to introduce sharefarmers to the operation of a dairy farm enterprise or were two dairy farm enterprises to be combined, there would be a change of management.

Mr Gilbert said that dairy farmers are not required to run, operate or carry on a business differently if they change from one processor to another. As far as he is aware, Dairy Vale, National Foods and the three Victorian processors do not impose any requirements on their producers that would lead to any differences in the way they carry on their businesses.

Mr Acheson gave evidence regarding the changes, if any, that would need to be made to the management of a dairy farm enterprise’s management practices, day to day farming arrangements, milk production and delivery were it to change processor or would be a consequence of such a change. He did so on the assumption that, in or about the second half of 1997, some of the dairy farm enterprises in the South East changed the processor to whom they supplied milk to either Kraft or Dairy Vale to either Warrnambool or De Cicco.

Mr Acheson gave evidence to the effect that there would be no such changes required to change processors or as a consequence of such a change. He based his view on the following reasons:
In South Australia at that time, a dairy farm enterprise usually had to meet several pre-conditions to supply milk to a processor. While the cows were producing milk, for example, the producer’s volume of milk would have to be sufficiently high to justify a processor’s collecting it and the milk must have met the processor’s standards for milk quality in respect of hygiene and temperature. If a producer changed to another processor, it could be assumed that the dairy farm enterprise met the new processor’s standards. He would have assumed the standards of processors to be similar.
Unless the processors were very small, and there were no such processors under consideration in this case, processors were responsible for the collection of milk. If there were any changes, they were the responsibility of the processor. Generally, the milk was collected by the processor’s tanker. Until its collection, it was the responsibility of the dairy farm enterprise.
Over time, a change of processor might have resulted in the dairy farm enterprise’s voluntarily adjusting, or attempting to adjust, its practices to take the best possible economic advantage of the new processor’s milk pricing arrangements. If, for example, the new processor paid seasonal prices under which the supplier was paid more for the same volume (or mass) of milk at times when the milk supply was relatively scarce than at times when milk supply was relatively plentiful, the supplier might move from a seasonal pattern of calving to a pattern spread more broadly over the year. If well-managed, that change would, if all other things were even, be likely to increase the milk production of the dairy farm enterprise when higher prices would be paid and reduce milk production when the processor paid lower milk prices. Such a change would be merely voluntary rather than one required or imposed by the new processor.

Mr Acheson said that activities such as undertaking negotiations with processors to take milk is not part of dairy farm management practices or day to day farming arrangements of a dairy farm enterprise. The arrangements between a processor and a producer are akin to a standing order for the processor to collect the producer’s milk. Once an agreement has been reached between the producer and the processor, collection becomes a matter of routine.

Discrepancies in payments to dairy farmers under the DSAP Scheme

Together with her assistant, Ms Ruth Low, Ms Monaghan had prepared spreadsheets showing:
the average payments made under the DSAP Scheme and the SDA Scheme for the average dairy farm in the South East;
statistics for milk production for the South East for the year ending 30 June 1999; and
the average proceeds of a South East dairy farm for the year ending 30 June 1999 and the average for those supplying each of Dairy Vale (formerly Dairy Farmers), De Cicco, Murray Goulburn and Warrnambool.

Ms Low and Ms Monoghan had obtained the pricing structures for each processor from dairy farmers’ monthly milk statements supplemented by the processors’ newsletters and information obtained from the processors. Attached to Ms Monoghan’s first statement were 11 appendices with a further three appendices amending three of the first group.

Referring to the SAMME Scheme as SAMMEC, Ms Monaghan said that:
“An important feature of the spreadsheets is that the market milk is split into SAMMEC and non-SAMMEC proportions to demonstrate clearly that:
(a)the Dairy Farmers Company [later Dairy Vale] collected market milk levies on both SAMMEC and non-SAMMEC market milk (UHT and flavoured milk)
(b)although levies were collected for ‘market milk’, suppliers did not receive market milk price for this non SAMMEC component” (Exhibit E at Appendix 12 at [(4)]).

Having regard only to trade and commerce, their Honours said that “… s. 99 should be read as applying only to laws which can be made under the power conferred upon the Commonwealth Parliament by s. 51(i).” (at 455)

Section 51(i) of the Constitution:
“… may be called Parliament’s first and most general power and authority is not wanting that this trade and commerce power has a ‘wide meaning and flexible application’; Australian Coastal Shipping Commission v O’Reilly (1962) 107 CLR 46; O’Sullivan v Noarlunga Meat Limited (1954) 92 CLR 565 at 597; …” (Redfern v Dunlop Rubber Australia Ltd (1964) 110 CLR 194 at 220 per Menzies J)

It is not, however, a power without boundaries and so, for example:

“… A law providing for a bounty upon the export of goods would be a law of ‘trade or commerce’ and accordingly would be subject to the prohibition contained in sec. 99. A law providing for a bounty upon the production of goods would be a ‘law of trade or commerce’ according to the accepted interpretation of those words.” (Elliott v Commonwealth at 667 per Latham CJ)

At the same time, matters incidental and necessary to trade and commerce come within the power (Bank of New South Wales v The Commonwealth (1948) 76 CLR 1 at 381-2 per Dixon J at 381-2).

It seems to me that the dairy industry package may be regarded as a law with respect to trade or commerce in the wide sense in which it is understood in the authorities. It is a law that was addressed to improving the performance of the dairy industry. The dairy industry is, by its very nature, engaged in trade and commerce. Part of the package provided for the imposition of a levy by means of the Dairy Adjustment Levy (Customs) Act 2000 and the Dairy Adjustment Levy (Excise) Act 2000. The amount received under the levy was intended to fund payments to dairy farmers under the DSAP Scheme and SDA Scheme. To that extent at least, it is also a law of revenue. In both respects, it is a law that comes within the purview of s. 99 of the Constitution.

The next question is whether s. 30 gives preference to one State or any part of a State over another State or part of that State. Dixon J emphasised that:
“… it is, perhaps, desirable to notice that the phrase is not ‘give a preference’ but ‘give preference’. The difference may be slight, but the latter expression seems to bring out the element of priority of treatment, while the former as more suggestion of definite and actual advantage in the treatment. What is forbidden by s. 99 is, in the matter of advantage to trade or commerce, the putting of one State or part of a State before another State or part thereof. But the section does not call upon the Court to estimate the total amount of economic or commercial advantage which does or will actually ensue from the law or regulation of trade or commerce. It is enough that the law is designed to produce some tangible advantage obtainable in the course of trading or commercial operations, or some material or sensible benefit of a commercial or trading character … “ (Elliott v Commonwealth at 683)

As Dixon CJ said in Commissioner of Taxation v Clyne (1958) 100 CLR 246, the majority of the High Court in Elliott v The Commonwealth:
“… gave to the words ‘one State or any part thereof over another State or any part thereof’ a restricted meaning. … according to that interpretation the legislation will be good unless in some way the parts of the State are selected in virtue of their character as parts of a State. …” (at 266)

His Honour noted that:

“… This view seems to accord with that expressed by Isaacs J in relation to s. 51(ii) in R v Barger (1908) 6 CLR 41, a view, however, contrary to that taken by the majority of the Court in that case. See further WR Moran Pty Ltd v Deputy Federal Commissioner of Taxation (NSW) (1940) AC at 849, 853, 854, 855, 856, (1940 63CLR at 341, 345, 347) It is a view that was attacked by Evatt J in his dissenting judgment in Moran’s Case (1939 CLR at 783 et seq. …” (at 266)

The Privy Council had approved the passage from the judgment of Isaacs J when he was in the minority in R v Barger; Commonwealth v McKay (1908) 6 CLR 41 and said that:
“… the pervading idea is the preference of locality merely because of its locality, and because it is a particular part of a particular State. It does not include a differentiation based on other considerations, which are dependant on a natural or business circumstances, and may operate with more or less force in different localities; and there is nothing, in my opinion, to prevent the Australian Parliament, charged with the welfare of the people as a whole, from doing what every State in the Commonwealth has power to do for its own citizens, that is to say, from basing its taxation measures on considerations of fairness and justice, always observing the constitutional injunction not to prefer States or parts of States.” (at 108)

For his own part in Commissioner of Taxation v Clyne, Dixon CJ favoured the wider view expressed by the majority in R v Barger; Commonwealth v McKay at 78:
“ The words ‘States or parts of States’ must be read as synonymous with ‘parts of the Commonwealth’ or ‘different localities within the Commonwealth’. The existing limits of the States are arbitrary, and it would be a strange thing if the Commonwealth Parliament could discriminate in a taxing Act between one locality and another, merely because such localities were not coterminous with States of with parts of the same State. …” (at 266 and see earlier Elliott v The Commonwealth at 682 and see also Evatt J at 690 and 693)

While in dissent on the application of s. 99 in the circumstances of the case before him, McHugh and Kirby JJ canvassed the authorities at some length in Permanent Trustee Australia Ltd v Commissioner of State Revenue (2004) 79 ALJR 146. Neither resolved the conflict that has arisen.

It may be that preference is given to a State, or part thereof, over another State or part thereof when a Commonwealth law is applied to various circumstances. If it is the circumstances that give preference in that way and not the law, the law does not offend s. 99. This is illustrated by Colonial Sugar Refining Co Ltd v Irving (1903) St R Qd 261 when it was held that the Excise Tariff Act 1902 did not give preference to one State over another State contrary to s. 99. That legislation allowed an exemption in the case of goods on which customs or excise duties had been paid under State legislation before 8 October 1901. The judgment was affirmed by the Privy Council:
“… The rule laid down by the Act is a general one, applicable to all the States alike, and the fact that it operates unequally in several States arises not from anything done by Parliament, but from the inequality of the duties imposed by the Acts themselves …” (Colonial Sugar Refining Co Ltd v Irving [1906] AC 360 at 367)

As Higgins J said of that the Privy Council’s judgment:

“Parliament may not discriminate between States but the facts may, and often must …” (R v Barger; Commonwealth v McKay at 131)

Does s. 30(3) of the DSAP Scheme offend s. 99 of the Constitution whether the narrower or wider interpretation is given to the words “one State or part thereof over another State or any part thereof”? Having regard to the Second Reading Speech delivered on the introduction of the Dairy Industry Adjustment Bill 2000 to amend the Act, it appears that that the DSAP Scheme is intended to ensure that dairy farmers were better able to adjust to the deregulation of the dairy industry. The structure of the program and of the DSAP Scheme as well as its particular provisions show that it intends to do that by making payments to dairy farmers. Those payments are not intended to be arbitrary but are based on the milk that was delivered to processors in the base year and, in effect, the use that the processor made of that milk. I say “in effect” because the payments are based on whether a levy was paid on the milk or whether the producer received a DSP payment. Whether a levy was paid was determined by reference to whether it was used for Drinking Milk be it white milk or non-white milk in the sense of UHT milk or flavoured milk. All the milk was regarded as market milk for the DSAP Scheme and the remainder, on which a DMS payment was made to the dairy farmer, as manufacturing milk.

Section 30(3) only applies if: (1) a dairy farm enterprise is located in a State or Territory in which enterprises are not required to hold quota to deliver milk during the base year; (2) if, the dairy farm was located in South Australia, it was bound by SAMMEA or, if in Victoria, delivered its milk to an authorised agent; and (3) it did not receive payment at the market milk rate for the same proportion of their milk deliveries as others in the jurisdiction. The effect of s. 30(3) is to ensure that those dairy farm enterprises are treated as if they had all delivered the same proportion of their “eligible milk deliveries” as market milk and the same proportion as manufacturing milk under the pooling arrangements. It is important to note that the expression “eligible milk deliveries” does not refer to all of a dairy enterprise’s milk deliveries. It refers only to those that satisfy “… the requirements for market milk under the law of the State or Territory in which the milk is delivered” (s. 30(6)). Taking the SAMME Scheme as an example, this meant that the dairy farm enterprises were treated as delivering the same proportion of Market Milk (i.e. white milk but not non-white milk be it UHT or flavoured milk) as other dairy farms subject to the that State agreement. The “market milk rate” to which s. 30(3) refers must be a reference to the rate paid for milk satisfying “… the requirements for market milk under the law of the State or Territory in which the milk is delivered”. Again taking the SAMME Scheme as an example, that must mean the rate paid for milk that was Market Milk under the SAMME Scheme and that was a rate set by the State Minister. Market Milk under the SAMME Scheme, of course, is not all of the milk that satisfies the definition of “market milk” under the DSAP Scheme. The effect of s. 30(3) is not to exclude that other amount from the calculations that the DAA must otherwise make. That can be gleaned from the provision in its context but is clarified by s. 30(3A). Section 30(4) makes it clear that the dairy farm enterprise cannot be credited with more milk than was actually delivered during the base year.

Given that the definition of “Market Milk” under the SAMMEA did not include UHT milk or manufacturing milk but the definition of “market milk” in relation to the DSAP Scheme does include non-white milk, there may be instances in which the operation of s. 30(3) on its own might lead to an entity’s being credited with a lower amount of market milk than the amount on which it paid a levy. It is clear from the overall operation of the DSAP Scheme, however, that each entity operating a dairy farm enterprise is credited with a volume of market milk equivalent to that on which it paid a levy. Even the Note to s. 30(3A) makes it clear that separate account is taken of milk delivered outside a pooling arrangement. For all practical purposes, all that s. 30 does is ensure that dairy farm enterprises in a pooling jurisdiction are treated as they were intended to be treated according to the rules of their pooling jurisdiction. That does not lead to the conclusion that s. 30(3) has given a preference to “one State or part thereof over another State or any part thereof” contrary to s. 99 of the Constitution. Whether or not s. 30(3) has any application at all let alone whether it is given a preference depends on the particular circumstances of the dairy farm enterprise whose market milk and manufacturing milk is being considered. It has nothing to do with its locality in a particular State or part of a State. Any differences, and any possible preferences, arise as a result of the particular circumstances of the dairy farm and in any differences between pooling schemes and not as a result of s. 30(3). It is not a law that contravenes s. 99 of the Constitution.

Exercise of the discretion in relation to Mr and Mrs Purvis: limits of the discretion

Mr Tokley acknowledged that, even if applicants fulfil the requirements of s. 8(5)(a), they do not have a right to receive a discretionary payment. Instead, the Minister has a discretion whether or not to give them a discretionary payment. In light of the beneficial nature of the SDA Scheme and the SDA’s failing to specify any other criteria for the discretionary payment right, Mr Tokley submitted, it should be presumed that applicants will be entitled to a discretionary payment. That is to say, it is for the Minister to decide that s. 8(5)(a) does not apply to each of the applicants. In exercising that discretion, he may take into account relevant considerations that must be determined by implication from the subject matter, scope and purpose of the Act and take into account relevant broader policy considerations (Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24 at 39 and 42 per Mason J).

Should I be incorrect in my findings to date, I have considered Mr Tokley’s submission. The notion of a discretion was explained by Gleeson, Gaudron and Hayne JJ in Coal and Allied Operations Pty Limited v Australian Industrial Relations Commission and Others (2000) 203 CLR 194:
“ ‘Discretion’ is a notion that ‘signifies a number of different legal concepts’ [Norbis v Norbis (1986) 161 CLR 513 at 518, per Mason and Deane JJ]. In general terms, it refers to a decision-making process in which ‘no one [consideration] and no combination of [considerations] is necessarily determinative of the result’ [Jago v District Court (NSW) (1989) 168 CLR 23 at 76, per Gaudron J]. Rather, the decision-maker is allowed some latitude as to the choice of the decision to be made …. The latitude may be considerable as, for example, where the relevant considerations are confined only by the subject matter and object of the legislation which confers the discretion …. On the other hand, it may be quite narrow where, for example, the decision-maker is required to make a particular decision if he or she forms a particular opinion or value judgment.” (at 204-5)

Section 8(5)(a) gives the DAA a discretion of this sort. It does not circumscribe its exercise by the imposition of any presumption or assumption that the Minister will grant a discretionary payment right unless satisfied that it is not appropriate to do so. Instead, the question is open. The SDA Scheme does not prescribe any factors to which I must have regard. That leaves me with the object and subject matter of the SDA Scheme and its place in the package that was introduced to assist dairy farmers with deregulation.

Evidence has been given by Dr Drinan as to the manner in which the Minister’s discretion should be exercised. I have outlined this above but have reservations about taking his evidence into account because it seems to me that it is addressed to an issue that I must determine in the manner I have indicated. As Glass JA said in R v Palmer [1981] 1 NSWLR 209; 1 A Crim 458 (CCA):
“… The true rule, in my opinion, is that no evidence can be received upon any question, the answer to which involves the application of a legal standard. It is not possible, for example, to tender evidence that a defendant was negligent, that a deceased lacked testamentary capacity or that the accused was provoked. …” (at 214; 464)

That is not to say that I should not have regard to the DAA’s policy in considering the discretion. In accordance with the principles expressed in Re Drake

and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 (Brennan J, President), the DAA:

“… is equally free, in point of law, to adopt such a policy in order to guide him in the exercise of the statutory discretion, provided the policy is consistent with the statute.” (at 640)

This is consistent with the earlier judgments of the Full Court of the Federal Court in Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577; 2 ALD 60 esp. Bowen CJ and Deane J at 590; 70 and Smithers J at 602; 80.

The policy to which DAA has regard is that set out in its Business Guidelines (at [58]) above. It expressly states that it is not exhaustive. I consider it consistent with the provisions of the SDA Scheme and of the DSAP Scheme. It does no more than draw attention to factors that may be considered without stipulating any particular result when that is done. I have considered those factors but have done so in light of the purpose of both the SDA Scheme and the DSAP Scheme. In summary, the payments under those schemes are not intended to be arbitrary but are based on the milk that was delivered to processors in the base year and, in effect, the use that the processor made of that milk. The way in which the actual volumes is calculated is subject to some variations but the overall intention is to ensure that DSAP payments are based on whether a levy was paid on the milk so that it is market milk or whether the producer received a DMS payment so that it is manufacturing milk.

The effect of Mr and Mrs Purvis’s changing processors from Dairy Vale to De Cicco was that a greater proportion of their milk was processed as manufacturing milk than would have happened had they remained with Dairy Vale. Therefore, they received a lesser DSAP payment than they would have received had they remained with Dairy Vale for generally 46.23 cents per litre was paid for market milk and 8.96 cents per litre for manufacturing milk. The difference, the Second Reading Speech states, reflects the premium paid for market milk under the regulated systems that prevailed in the States before deregulation and recognised the price of market milk after deregulation was expected to fall towards that of manufacturing milk. While the package was not about compensation, it was about recognising those consequences of deregulation.

Like other dairy farmers, Mr and Mrs Purvis took into account a range of factors in reaching their decision to transfer from Dairy Vale to De Cicco or to remain with Dairy Vale. The return that they would receive from each processor was at the heart of those factors. It was at the heart of their decision to transfer. By moving to De Cicco, they received a greater return for their milk at the time. They have received payments according to the milk they actually delivered and the amount that was market milk and the amount that was manufacturing milk. That is in accordance with the DSAP Scheme and its rationale.

If I were to decide that they should receive an SDA payment because they would have made a different decision had they known that they would have received a greater sum had they remained with Dairy Vale, I would be undermining the DSAP Scheme and its rationale. I would be effectively deciding to give them DSAP payment at the higher market milk rate for a certain portion of their milk when they actually sold that portion not as market milk but as manufacturing milk. I would be making that decision when they have already received payment for that portion at a rate greater than they would have received for it had they sold it as market milk. This would not be an appropriate exercise of the discretion and I decline to exercise it. Therefore, I have decided that Mr and Mrs Purvis are not entitled to an SDA payment under the SDA Scheme and I affirm the decision under review.

For the reasons I have given:
(1)in relation to the application by Mr Ronald Purvis, I affirm the decision of the respondent dated 20 August 2002;
(2)in relation to the application by Mrs Kaylene Purvis, I affirm the decision of the respondent dated 20 August 2002;
(3)in relation to the application by Mr Rodger Clark, I affirm the decision of the respondent dated 19 May 2003; and
(4)in relation to the application by Mr Neville Telford, I affirm the decision of the respondent dated 19 May 2003.

I certify that the one hundred and sixty preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President S A Forgie,

Signed: ..sgd. Nathaniel Wills …........................

Nathaniel Wills Associate

Dates of Hearing  15, 16, 17 and 18 March 2004
Date of Decision  18 March 2005
Counsel for the Applicants           Mr N. Morcombe QC with Mr A. Tokley
Solicitor for the Applicants           Mellor Olsson
Counsel for the Respondent         Mr P. Almond QC with Mr J. Pizer
Solicitor for the Respondent         Mallesons Stephen Jaques