Safetycare Australia Pty Ltd v Australian Trade Commission

[1997] FCA 1171

FEDERAL COURT OF AUSTRALIA

ADMINISTRATIVE LAW - Export market development grant - meaning of “business activity”

Export Market Development Grants Act 1974 (Cth) ss 19, 38(2)

Australian Trade Commission v Correira & Zaknich Holdings Pty. Ltd. 110 ALR 667 mentioned

SAFETYCARE AUSTRALIA PTY LTD
VIDEOTRAIN PTY LTD
v AUSTRALIAN TRADE COMMISSION
VG 741 of 1996

FINKELSTEIN J
MELBOURNE
31 OCTOBER 1997

IN THE FEDERAL COURT OF AUSTRALIA

VG 741 of 1996

VICTORIA DISTRICT REGISTRY

On appeal from a decision of the Administrative Appeals Tribunal

BETWEEN:     SAFETY CARE AUSTRALIA PTY LTD
  VIDEOTRAIN PTY LTD

  Applicants

AND:                AUSTRALIAN TRADE COMMISSION

  Respondent

JUDGE:

FINKELSTEIN J

DATE OF ORDER:

31 OCTOBER 1997

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The applicants pay the respondent’s costs of the appeal.

Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

On appeal from a decision of the Administrative Appeals Tribunal

 VG 741 of 1996

BETWEEN:	SAFETY CARE AUSTRALIA PTY LTD VIDEOTRAIN PTY LTD Applicants
AND:	AUSTRALIAN TRADE COMMISSION Respondent

JUDGE:	FINKELSTEIN J
DATE:	31 OCTOBER 1997
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

HIS HONOUR: SafetyCare Australia Pty Ltd (SafetyCare) is a company that produces videotapes of workplace safety training programmes.  For a number of years after its incorporation in 1987 those videotapes were only sold in Australia.  Then sales commenced overseas, probably in about 1989.  The videotapes that were sold overseas were not printed in Australia.  A mastertape of each training programme that was produced in Australia was sent overseas for printing and then for distribution in the overseas markets.  SafetyCare produces approximately 65 different training programmes that are sold to some 21,000 customers around the world.  At all relevant times the directors of SafetyCare were Rodney Disney Davidson, Philip Earle, Robert Claudio Paul Marcuzzo and Paul Whately; those directors or companies controlled by them held all the shares in the capital of SafetyCare.

Videotrain Pty Ltd (Videotrain) is a company that also produces videotapes.  They are for the training of “middle management” and concentrate on “modern management issues, customer service issues, sales techniques and communication skills.”  Videotrain was established in 1989 and until 1993 it sold its products exclusively in Australia.  Thereafter it commenced to sell videotapes in overseas markets.  The procedure for the printing and distribution of its videotapes for the overseas markets is the same as that followed by SafetyCare, namely that a mastertape of each management training programme is produced in Australia and is then sent overseas where copies are printed and distributed.  At all relevant times two of the directors of SafetyCare, namely Mr Whately and Mr Marcuzzo, were also directors of Videotrain and the other director of Videotrain was Michael Minter.  Further, each director, or a company controlled by each director, held one third of the capital of Videotrain. 

The Export Market Development Grants Act 1974(Cth) was enacted for the purpose of providing incentives for the development of export markets: see the preamble to the Act.  The incentive is provided in the form of an annual grant that is usually available for a maximum of eight years: see s 14.  The period in respect of which a grant is payable may be extended in certain circumstances: see s 15.  A grant is payable if a claimant has incurred “eligible expenditure” in a “claim period” in excess of a specific amount namely $30,000: see s 14(1).  “Eligible expenditure” is relevantly defined in s 11A(1) to be expenditure that is incurred by a claimant which is both “claimable expenditure” and “qualifying export development expenditure”.  Division 2 sets out the expenditure that is “claimable expenditure”.  Division 4 sets out the expenditure that is “qualifying export development expenditure”.  At the risk of oversimplification (a very real risk I am afraid) “qualifying export development expenditure” may be described as expenditure for particular purposes namely creating the opportunities or increasing the demand for goods, services and rights, including intellectual property rights, outside Australia.  The goods, services and rights are those listed in s 11C(2) that is to say “eligible goods”, “eligible services”, “eligible internal educational services”, “eligible external governmental educational services”, “eligible industrial property rights”, “eligible know how”, “eligible internal services” and “eligible tourism services”.  For the sake of convenience I will refer to these goods, services and rights as “s 11C goods and services”.  Each of the s 11C goods and services is defined in s 3.  So, for example, “eligible goods” are defined, again at the risk of over simplification, as goods manufactured or assembled in Australia with fifty per cent in value of the material being of Australian origin or, if manufactured or assembled outside Australia, where seventy five per cent of the value of the material used is of Australian origin: for the precise definition see s 5(1).  Another example is “eligible know-how”.  In s 3 that is defined to mean “know-how that, in the opinion of the [Australian Trade] Commission, has to a substantial extent resulted from research or other work performed in Australia”.  In the same section “know-how” is defined to mean “knowledge or information in relation to industrial or other operations, including drawings, models or other material things, or services, supplied for the purpose of enabling or facilitating the use or enjoyment of such knowledge or information, of rights in relation to inventions or trade marks or of copyright in relation to works, designs or other things”.

It will be recalled that expenditure will be “eligible expenditure” when it is both “qualifying export development expenditure” that is incurred for a relevant purpose and “claimable expenditure” that is expenditure of a kind described in Division 2.  Here different categories of expenditure are described.  They include, by way of example, payments made to an agent for carrying out market research or for advertising to the extent that such expenditure relates to
s 11C goods or services (s 11C), the cost of preparing or submitting a tender or quotation to a person outside Australia for the provision of s 11C goods or services (s 11E) and the cost of packaging eligible goods (s 11F).

Once a claimant’s “eligible expenditure” has been calculated it will then be possible to determine the amount of the grant to which that claimant is entitled.  Section 16 describes how the amount of the grant is worked out.  It is not necessary to set out the method of calculation.  But two points should be noted about the quantum of a grant that may be payable in any grant year.  The first point is that s 16 provides that a grant will not exceed $250,000: this amount is the “grant ceiling” that is referred to in s 16 and is defined in s 3.  The second point is that, especially having regard to the terms of s 16(6), there is a likelihood that the annual grant that it is payable to a claimant will decline in each successive year.

There are two sections in the Act that might be described as anti-avoidance provisions. They are ss 19 and 38. What they seek to avoid need not be stated exhaustively. It would include avoiding the grant ceiling of $250,000 and avoiding the restriction that a claimant cannot claim a grant when that claimant’s export earnings exceed $25,000,000: the restriction is found in
s 14B(1).  For a general discussion of these anti-avoidance provisions see Australian Trade Commission v Correira & Zaknich Holdings Pty. Ltd. 110 ALR 667 at 679 per Hill J. Later it will be necessary to return to ss 19 and 38 in more detail.

On 21 December 1994 SafetyCare submitted a claim for a grant for the 1993/1994 claim period to the Commission in accordance with s 13.  The claim set out the eligible expenditure of SafetyCare for the period as $1,138,722.  The claim also described the services in respect of which the eligible expenditure was incurred as “research, development & production of training material”.  Section 13(2AA) contemplates that the Commission may require a claim to be accompanied by an export market plan.  The Commission did require SafetyCare to provide such a plan.  That plan accompanied the claim and described SafetyCare’s activities as “[r]esearch, development, production and marketing of industrial training video programs”.

Also on 21 December 1994 Videotrain submitted a claim for a grant under s 13 for the 1993/1994 claim period in relation to eligible expenditure of $227,895.  The description of the services in respect of which this eligible expenditure had been incurred was identical to the description given by SafetyCare of its services.  Videotrain was also required to provide an export market plan to the Commission.  That plan described Videotrain’s activities as “[r]esearch, development, production and marketing of industrial training video programs [s]pecialising in the management skill area”.  The difference between that description and the description given by SafetyCare of its services is in the area of specialization.

Having regard to the amount of eligible expenditure incurred, SafetyCare was entitled to a grant of $250,000 (being the maximum amount payable to it under the Act) and Videotrain was entitled to a grant of $98,948.  The Commission considered each claim.  It decided “that
s 38 of the Export Market Development Grants Act 1974 (Cth) be applied to limit the combined 1993/1994 grant of these two claimants to a notional $250,000”. The Commission also decided that s 19 should be applied to the claim by Videotrain. As a consequence of the application of s 19 the entitlement to a grant by Videotrain was reduced from $98,948 to $27,484. As a consequence of the application of s 38, the combined claims of SafetyCare and Videotrain could not exceed $250,000 and that amount was apportioned as to $212,500 to SafetyCare and as to $27,484 to Videotrain. The accuracy of the calculations involved is not in dispute.

Pursuant to 40A(2) both SafetyCare and Videotrain requested the Commission to reconsider its decisions. The Commission did reconsider its decisions but affirmed them: see s 40A(4) for the Commission’s powers on a reconsideration. SafetyCare and Videotrain then made application to the Administrative Appeals Tribunal to review the decisions that were confirmed by the Commission. Their right to do so is conferred by s 40A(6). On 15 November 1996 the Tribunal affirmed the decisions under review. Being dissatisfied with that decision the applicants now appeal to the Court to obtain orders that the decision of the Tribunal be set aside and that the matter be remitted to it for rehearing. The appeal is confined to “a question of law”: see s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth).

To understand the question of law that is raised by this appeal it is necessary to return to ss 19 and 38. Section 19 is concerned with the case where, as a result of a sale, transfer, change in partnership or some other business arrangement, “a particular business activity” carried on by one person (the original owner) is subsequently carried on by another person (the new owner) or where as a result of such an arrangement a substantially similar business activity is carried on by the new owner: see s 19(1)(a) and (b). If either of these events occurs the Commission may treat the eligible expenditure incurred or the export earnings derived by or the grants paid to the original owner as having been incurred or derived by or paid to the new owner: see s 19(1)(c) to (g).

Section 38(2) is concerned with the case where the “effect of an act ... is to transfer or reorganise a business activity ... between persons ...” and, as a result of that act, the Commission “is liable to pay [to those persons] in respect of that business activity ... a total amount by way of grant that exceeds the total amount (if any) that would have been payable” if the act had not been done. In that event, the Commission may reallocate any expenditure or income in respect of that business activity among the parties as the Commission determines.

It should be noted that each of ss 19 and 38(2) can operate in respect of the same facts as, for example, in the case of a sale of a business that is involved in the export market where the owner of that business incurs eligible expenditure. On the other hand there will be circumstances where only one or other section will apply. I draw attention to this for the reason that the Tribunal indicated in the case under consideration that if s 38(2) of the Act did not apply to the applicants then s 19 would not apply either. Provided this comment is understood to be limited in its application to the case that the Tribunal was considering it is unobjectionable. It would not be correct if the statement was intended to be of general application.

Each of ss 19 and 38(2) first requires the Commission to be satisfied that there has occurred an event of a particular character in relation to a “business activity” (speaking broadly a change in ownership in the case of s 19 and a transfer or reorganisation in the case of s 38(2)) before the powers of the Commission conferred by those sections can be exercised. In order to determine whether such an event has occurred it is necessary for the Commission to identify a particular area of commercial enterprise that is the business activity in respect of which the event has occurred. What is not clear is the precise area of commercial enterprise that can be looked at for this purpose. Ultimately the answer will depend upon the proper construction of ss 19 and 38(2). There seem to be two competing constructions available. The first is that the only area of commercial enterprise that can be considered is an enterprise that can result in a claim for a grant under the Act, that is, an enterprise that produces or is capable of producing eligible expenditure. Business activity would then be confined to a commercial enterprise that is concerned only with s 11C goods or services. I will call this possible construction the narrow construction. The competing construction is that “business activity” is not confined in any way. That is to say, in the case of s 19 it could be any commercial enterprise which, as a consequence of some business arrangement, is carried on by a different person (the new owner) or results in the new owner carrying on a substantially similar enterprise. In the case of s 38(2), it could be any commercial enterprise where, as a result of the transfer or reorganisation of that enterprise, the Commission is liable to pay a greater amount by way of grant. I will call this the wide construction. I should point out that in the case of s 38(2) the wide construction would require the commercial enterprise to at least encompass dealings in one or other of the s 11C goods or services. If this was not the case a transfer or reorganisation could not result in a greater grant being payable under the Act so as to enliven the powers conferred by s 38(2).

The resolution of the construction question is not easy. There are indications to be found in both ss 19 and 38(2) that suggest that the narrow construction is to be preferred. Let me explain why I think this is so. Section 19 is only concerned with the case where a business activity that was carried on by one person has changed hands, wholly or in part, or where the new owner is carrying on a substantially similar business activity to that being carried on by the original owner. It is true that the language of s 19(1)(a) and (b) does not limit business activity by reference to any specific type of commercial enterprise. However, that is not true when one considers s 19(1)(c) to (g) where the powers of the Commission are to be found. For example, one power conferred on the Commission is to “treat any eligible expenditure incurred by the original owner in relation to the (business) activity as having been incurred by the new owner”: s 19(1)(c). Another power is to “treat any export earnings of the original owner in relation to the relevant activity as export earnings of the new owner”: s19(1)(d). These provisions assume that the business activity the subject of consideration is the activity in respect of which a claim under s 14(1) may be made. The same is true of the power to “treat any grant ... payable to the original owner in relation to the relevant activity as having been paid ... to the new owner” found in s 19(1)(e). These paragraphs proceed on the assumption, so it seems to me, that only a particular kind of commercial enterprise is eligible for consideration as a “business activity” and that is an enterprise that may result in a claim under the Act, i.e. an enterprise in respect of which eligible expenditure is or may be incurred.

If the wide construction was adopted the Commission would be able to employ s 19 in circumstances where no avoidance of any provision of the Act is contemplated or could occur. Assume the following example. A person (A) has a large business that is involved in both the domestic market and the export trade. Its export trade is concerned with eligible services. By far the largest part of A’s business is its domestic trade. There is another person (B) who has a small export business. That business is concerned with eligible goods unconnected with the eligible services supplied by A. A sells its domestic business to B. On the wide construction B now carries on the business activity formerly carried on by A or at least carries on a business activity that is substantially similar to the business activity that had been carried on by A. I say this for the reason that the business activity is likely to be characterised by reference to its predominant activity. As a result of the sale, the powers conferred on the Commission by
s 19(1)(c) to (g) may be used in relation to B’s export business notwithstanding that there has been no change in the ownership of that business. This could not have been the intention of the Parliament. It is no answer to say that if the Commission sought to exercise any of its powers in the supposed circumstances that would be an unreasonable exercise of power and invalid for that reason. It is true that the exercise of the power may well be unreasonable. However, the better view of the legislation is that the powers conferred by s 19(1)(c) to (g) should not be exercisable at all in the supposed circumstances. That would be the result only if the narrow construction was adopted.

The language of s 38(2) also points to the correctness of the narrow construction. Section 38(2)(b) sets out one of the conditions that must be satisfied before the Commission can exercise the power conferred by the sub-section. The condition is that an effect of the act that transfers or rearranges a business activity is to make the Commission “liable to pay [a claimant] in respect of [the transferred or rearranged] business activity ... a total amount by way of grant that exceeds the total amount ... that would have been payable ... in respect of that business activity if ... (i) the act had not been done”. The assumption behind the condition is that the transferred or rearranged business activity is the activity that will result in the obligation to pay the grant. That assumption will be correct if the business activity is confined to an activity that produces eligible expenditure. It will not necessarily be correct if business activity is not confined in that way. It follows, in my opinion, that the narrow construction is to be preferred.

How did the Tribunal approach the matter?  The applicants contend that the Tribunal erred in law in incorrectly adopting the wide construction.  Two short extracts from its reasons will demonstrate the position that the Tribunal took.  First, the Tribunal identified what it saw as the main point at issue between the parties:

“The applicant contends that the crux of the argument lies in the characterisation of the business activities of the two entities.  It is the commodity of “know-how” which brings each company within the EMDG Act as being eligible for receipt of a grant pursuant to the definition contained in s.3(1) of that Act.  While the element in common between the products of the two companies is the packaging and distribution of know-how, to extrapolate from this an argument that the medium controls the content of the videos is a fundamental error in the context of the EMDG Act.  It was submitted that it is the message or subject matter, not the medium, that is in point and that too great an emphasis had been placed by the respondent on the packaging of the know-how, viz., the videotape.  If, as was submitted, the subject matter contained in the videotapes of each company is different, then s.38(2) of the EMDG Act does not apply.”

The way this issue was resolved can be gathered from the following part of its reasons:

“Grants are given for the recoupment of qualifying export development expenditure as provided for in Division 4 of Part 1A of the EMDG Act. Section 11Z(8) of that Act qualifies expenditure incurred with respect to “eligible know-how”, which term is defined in s.3(1) of the EMDG Act.  Both Mr Whately and Mr Minter have extensive backgrounds in video production.  Mr Whately does not have a background in industrial safety nor was it suggested in the evidence that Mr Minter had a background in office or personnel management.  Neither could be described as experts in those fields in the sense that they have a formal qualification associated with experience or alternatively, a long involvement in either of those areas.  However, each has a long and detailed involvement in the production of videos and both could rightly be described as experts in that area.  Accordingly, the totality of the evidence leaves the tribunal satisfied that the eligible know-how on which the business activities of both SafetyCare and Videotrain were formed is the ability to produce training videos and supporting manuals and that this is the business operation or activity in which both companies are engaged.”

This conclusion and other findings made by the Tribunal led it to affirm the decision under review. 

The first passage shows that the Tribunal understood that the applicants were contending for the narrow construction of ss 19 and 38(2). I mean by this that the Tribunal understood that the applicants’ case was that the Tribunal was required to determine (a) that the business activity of SafetyCare was constituted by its dealings in eligible know-how, (b) whether a substantially similar activity was being carried on by Videotrain as a result of some business arrangement in order for s 19 to apply and, (c) whether that business activity had been transferred to or reorganised with Videotrain for s 38(2) to apply. I accept that it is not altogether clear whether the Tribunal proceeded on the basis that it was required to decide the case in the manner put forward by the applicants. I have read and re-read the reasons to determine as best as I can the position taken by the Tribunal.

My reason for setting out the second passage is that, on one view, it does suggest that the Tribunal approached the task of determining what was the relevant “business activity” by reference to the totality of the commercial enterprises undertaken by each applicant. Such an approach involves an examination not only of the export activities of each applicant but of its domestic trade as well. As I have indicated, this approach is not warranted by either s 19 or
s 38(2). However, there is an important part in the passage that establishes to my satisfaction that the Tribunal applied the narrow construction in identifying the relevant business activity for the purposes of each section. The Tribunal expressed its ultimate conclusion in the following terms: “[t]he totality of the evidence leaves the Tribunal satisfied that the eligible know-how on which the business activities of both SafetyCare and Videotrain were formed is the ability to produce training videos and supporting manuals and that this is the business operation or activity in which both companies are engaged”. This demonstrates that the Tribunal was only considering each applicant’s dealings in eligible know-how when it undertook the task of determining, for the purposes of s 19, whether a business arrangement resulted in a new owner (Videotrain) carrying on that or a similar activity and, for the purposes of s 38(2), whether there had been a transfer or a reorganisation that resulted in an obligation on the Commission to pay a larger grant. What is not clear is whether the Tribunal considered the matter in this way as a result of having accepted the narrow construction as the correct construction. It may be that the Tribunal could not have considered the matter on the basis of the wide construction for the reason that the principal activity of each applicant was its dealings in eligible know-how so that approaching the matter on the basis of the wide construction was not open on the facts. In the end it does not matter why the Tribunal acted on the basis of the proper construction of ss 19 and 38(2). Like any other decision-maker the Tribunal’s arrival at the correct result may come about intentionally or unintentionally.

The substantive complaint made by the applicants is that the Tribunal erred in defining “business activity” as the ability to produce training videos and supporting material being the description first adopted by each applicant in its claim.  The applicants say that the business activity was, so far as SafetyCare is concerned, its skill and expertise in producing training videos and supporting manuals relating to industrial safety issues and that the business activity of Videotrain was the ability to produce training videos and supporting manuals relating to management training.  However, unless the Tribunal arrived at its decision as a consequence of an erroneous construction of the Act, its determination of what is the relevant business activity of each applicant is a finding of fact.  And there can be no error of law in simply making a mistake in a finding of fact.

The appeal will be dismissed with costs.

I certify that this and the preceding ten (10) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice FINKELSTEIN

Associate:
Date:  31 October 1997
Counsel for the Applicants:               Mr P Hanks
Solicitor for the Applicants:               Home Wilkinson & Lowry
Counsel for the Respondent:             Ms D Mortimer
Solicitor for the Respondent:             Australian Government Solicitor
Date of Hearing:  12 August 1997
Date of Judgment:                            31 October 1997