Saxena and Dairy Adjustment Authority

Case •

[2005] AATA 53

•

19 January 2005


CATCHWORDS – DAIRY ADJUSTMENT SCHEME – whether entitled to discretionary payment right on basis of significant anomalous circumstances – whether held an interest in a dairy farm at any time during qualifying period and at 6.30pm on 28 September 1999 – whether they were carrying on business – whether there has been a significant anomalous circumstance - decision affirmed.

A New Tax System (Goods and Services Tax) Act 1999, s. 195-1

Acts Interpretation Act s. 46

Dairy Industry Adjustment Program cll. 1, 2, 5, 6(4), 10, 12, 37B, 37D-37P
Dairy Produce Act 1986 ss. 3 and 125A; Schedule 2

Dairy Structural Adjustment Program Scheme ss. 3, 8(4), 8(5), 9, 10, 11, 19, 21, 22, 23 24, 25, 26, 27, 29, 30, 28, 31, 32, 33 and 49; Part 4; Part 5 and Part 6

Income Tax Assessment Act 1936 s. 6
Supplementary Dairy Assistance Scheme ss. 3(1), 3(2), 8(1), 8(2), 8(2A), 8(3), 8(4), 8(5), 8(7), 13(1), 16, 18, 20, 27, 28(1), 28(2)

Beneficial Finance v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510
Biochem Pharma Inc v Commissioner of Patents (1998) 82 FCR 87
Buchan and Dairy Adjustment Authority (2002) 71 ALD 114; [2002] AATA 644
Cowell v Rosehill Racecourse (1937) 56 CLR 605
Ferguson v Federal Commissioner of Taxation (1979) 79 ATC 4,261
JS McMillan v Commonwealth (1997) 77 FCR 337
Lorang v Mater Misericordiae Hospital and Anor BC9402654
Wells v Kingston-upon-Hull (1875) LR 10 CP 402
Yager v R (1977) 13 ALR 247

DECISION AND REASONS FOR DECISION [2005] AATA 53

ADMINISTRATIVE APPEALS TRIBUNAL     )          
  )          V2003/297

GENERAL ADMINISTRATIVE DIVISION     )          

Re                DHRUV DEEPAK SAXENA

Applicant

AndDAIRY ADJUSTMENT AUTHORITY

Respondent

V2003/298

Re                MICHAEL McCONACHY

Applicant

AndDAIRY ADJUSTMENT AUTHORITY

Respondent

V2003/299

Re                WILLIAM JOHN GILBERT

Applicant

AndDAIRY ADJUSTMENT AUTHORITY

Respondent

DECISION

Tribunal:                  Deputy President S A Forgie
Date:  19 January 2005
Place:  Melbourne

Decision:The Tribunal affirms the reviewable decision of the respondent dated 17 February 2003.

S A FORGIE
  Deputy President

ADMINISTRATIVE APPEALS TRIBUNAL     )
  )          V2003/297
GENERAL ADMINISTRATIVE DIVISION      )          

Re:DHRUV DEEPAK SAXENA

Applicant

And:DAIRY ADJUSTMENT AUTHORITY

Respondent

Tribunal:  Deputy President S A Forgie

Place:  Melbourne

Date:  1 February 2005

CORRIGENDUM TO DECISION [2005] AATA 53

The Tribunal amends its decision and reasons for decision published on 19 January 2005 as follows:

Reasons for decision

paragraph 88, line 11

delete the date:

“17 September 2004”

and replace with:

“17 September 1999”

heading to paragraph 89, line 2

delete the date:

“28 September 2004”



and replace with:

“28 September 1999”

paragraph 89, line 3

delete the date:

“28 September 2008”



and replace with:

“28 September 1999”

S A FORGIE

Deputy President

REASONS FOR DECISION

Mr Michael John McConachy is the sole director and shareholder of Agrivision International Pty Ltd (“Agrivision”), which was registered on 19 May 1999. Mr Dhruv Deepak Saxena is a business man while Mr William John Gilbert is a lawyer and a company director. Together, they invested in a dairy farm. Together, they applied for a discretionary payment right on the basis of significant anomalous circumstances under the Supplementary Dairy Assistance Scheme (“SDA Scheme”). The respondent, the Dairy Adjustment Authority (“DAA”), has decided that they were not entitled to that payment right because they did not hold an interest in a business that was carried on with a view to delivering milk during the period from 1 July 1998 to 6.30 pm on 28 September 1999 (“qualifying period”). I have reached the same decision and so affirmed the DAA’s decision.

THE ISSUES

  1. Resolution of whether the applicants are entitled to a discretionary payment right under the SDA Scheme depends, in part, on whether the applicants held an interest in a dairy farm enterprise at any time during the qualifying period and on whether they held it at 6.30pm on 28 September 1999. That requires a consideration of whether they were carrying on a business and, if so, whether the business delivered market milk or manufacturing milk or was carried on with a view to delivering market milk or manufacturing milk at the relevant times. I have decided that they did not.

THE SOURCES OF EVIDENCE

  1. Each of the applicants made a written statement.  So too did Mr Stevens and Mr Hamilton.  A Dairy Investment Model prepared by Mr McConachy was admitted in evidence together with statements by Mr McConachy, Mr Stevens, Mr Hamilton, Mr Saxena, Mr Gilbert and Dr Drinan, a company extract regarding Agrivision International Pty Ltd, letter from Mr Lee Hamilton of Elders dated 27 May 2003, extracts from Mr Stevens’ diary and Mr Stevens’ letter dated 27 May 2003. 

BACKGROUND

  1. I will set out a brief resume of the findings that I have made regarding the facts forming the background to the application.

  1. Agrivision is a management company that identifies, analyses and manages agricultural investments on behalf of investors.  Mr McConachy has been its director since its inception.  For at least three years prior to its incorporation, Mr McConachy and Mr Saxena were involved in several business ventures.  By January 1999, Mr McConachy had developed a proposal to invest in a large scale dairy investment in southern Australia.  The three met in Melbourne in that month to discuss his proposal.  As a result of their discussions, they asked Mr McConachy to find a quality dairy investment. 

  1. In March 1999, Mr McConachy located a property known as Torrumbarry Estate at Echuca in Victoria (“Torrumbarry”).  It was owned by Murray Valley Dairies Pty Ltd (“Murray Valley Dairies”) and was initially listed for auction on 15 April 1999.  Mr McConachy, Mr Saxena and Mr Gilbert agreed that they would investigate the feasibility of purchasing the property and prepared analyses.  After the auction was abandoned, they indicated their continuing interest in purchasing Torrumbarry. 

  1. On 1 July 1999, the three applicants and Agrivision entered an agreement.  The three engaged Agrivision to conduct a feasibility and investment memorandum regarding Torrumbarry.  Should they be successful in their purchase of Torrumbarry, Agrivision would be engaged to manage the property.  (T documents, page 216)

  1. Murray Valley Dairies went into receivership and Torrumbarry was to be sold.  When they learned that it would be auctioned on 17 September 1999, they took further steps which I will describe generally for the purposes of this summary as being directed to the purchase and operation of Torrumbarry as a dairy farm enterprise.  Mr McConachy, Mr Saxena and Mr Gilbert attempted to purchase Torrumbarry before the auction but were unsuccessful.  On 17 September 1999, the three applicants and/or their nominee purchased Torrumbarry at auction.  Their nominee was a company that they intended to form to own and operate a dairy enterprise.  That company was incorporated and became known as Integrated Dairies of Australia Pty Ltd (“Integrated Dairies”).  Mr McConachy, Mr Saxena and Mr Gilbert each became a director of the company.

  1. They gained access to Torrumbarry on 24 September 1999 after the mortgagee of Torrumbarry granted a licence to Mr McConachy and Mr Saxena (T documents, pages 235-240).  The purchase of it was settled by Integrated Dairies on 16 December 1999.  It commenced milk production on Torrumbarry in January 2000 and delivered market milk and/or manufacturing milk between January and June 2000.

LEGISLATIVE FRAMEWORK

An outline of the Dairy Industry Adjustment Program

  1. 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 it 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, SOA payments and dairy exit payments will be paid out of that Fund.”

An outline of the DSAP Scheme

  1. A “DSAP payment” is a payment under the Dairy Structural Adjustment Program Scheme 2000 (“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 other requirements set out in the DSAP Scheme (Program, cl. 10(a)).

Payments under the DSAP Scheme

  1. 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 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.

  1. 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”

  1. 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).

DSAP Scheme: a “dairy farm enterprise”

  1. 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, 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”

  1. An entity must hold “an eligible interest” in a dairy farm enterprise.  It does so when it is a party to an eligible dairy sharefarming 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. 

  1. 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”

  1. 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) Act 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

  1. 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 sharefarming 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 sharefarming 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)). 

The Supplementary Dairy Assistance Scheme

  1. In 2001, another scheme, known as the Supplementary Dairy Assistance Scheme (“SDA Scheme”), was formulated under cl. 37B of Schedule 2 of the Act. It had to comply with cll. 37D to 37P of the Schedule 2 to the Act. There is no suggestion that the SDA Scheme does not comply with them.

SDA Scheme: SDA payment rights

  1. 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.

  1. 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

  1. 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).”

  1. 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))

  1. 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 i.e.

    “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)).

  1. 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.”

  1. 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))

  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).

  1. 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

  1. 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

  1. 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.

  1. 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.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).

THE EVIDENCE

The events up to the initial auction date

  1. Agrivision, Mr McConachy said, was developed as a management company in order to develop and manage agricultural operations which are environmentally sustainable for the purposes of wealth creation and management excellence.  Its intention was to develop large scale farms, including dairy farms. 

  1. Mr McConachy said that, he undertook a preliminary inspection of the property on 20 March 1999.  He did so with Mr Brett Stevens of Elders Real Estate at Echuca.  Before that day, he had inspected Torrumbarry from its boundaries.  In cross-examination, Mr McConachy said that he could see the dairy from the road.  He could also see the milk vats to some extent but not in detail. 

  1. Mr Stevens confirmed that he had taken Mr McConachy and his wife to see the property.  He and Mr Hugh Davies were the two real estate agents assigned to Torrumbarry.  In view of the vendor’s circumstances and as he was a reluctant seller, he had given the real estate agents very strict instructions as to what they could do.  The vendor was always telling him that he was getting money from elsewhere and that the property was not really on the market.  Mr Stevens was not surprised when the property was withdrawn from the market in early to mid April 1999.

  1. They had to be very careful on the inspection.  The property was bounded by several roads and another traversed part of the middle section.  They could get a decent view of the property from the road.  It was better than a kerbside view because of the road that traversed part of the middle section.  Although Mr Stevens took potential purchasers onto the property, they only did so if it appeared worthwhile after the kerbside inspection. 

  1. On 23 March 1999, Mr McConachy met with Mr Gilbert and Mr Saxena to discuss what he had seen on the inspection and the possibility of their purchasing Torrumbarry.  Mr McConachy, Mr Saxena and Mr Gilbert stated that they instructed him (Mr McConachy) to investigate further the possibility of their purchasing it.  Mr McConachy then made a number of further inspections of the property and this was confirmed by Mr Stevens.  In the meantime, he prepared financial and physical analyses of Torrumbarry. 

  1. Shortly before 15 April 1999, the property was withdrawn from auction and from sale.  Mr MrConachy said that he understood from Mr Stevens that the property would be re-listed for sale.  He asked Mr Stevens to let him know should Torrumbarry be re-listed for sale.  Mr Stevens confirmed that this had happened.

The events up to the second date for the auction of Torrumbarry

  1. In or about late June 1999, Mr McConachy said, Mr Stevens told him that Torrumbarry had been re-listed by the mortgagee for sale by auction on 17 September 1999.  Mr Stevens said in evidence that there were two separate parties and possibly two others who were interested in purchasing Torrumbarry.

  1. All three applicants said that Mr McConachy prepared revised financial and physical analysis of the property.  He presented that document, entitled “Dairy Investment ‘Model’” to Mr Saxena and Mr Gilbert as well as to other potential investors.  In his oral evidence, Mr McConachy said that he prepared this document in late June or early July 1999 but in cross-examination, he said that he prepared it after Torrumbarry had been taken off the market.  A document entitled “Information Memorandum” states that it was updated on 20 August 1999 (T documents, page 281).  The document called “Dairy Investment ‘Model’” (Exhibit B) does not carry a similar marking and appears less comprehensive.  It does not contain the detailed financial analyses included in the dated document and notes that much physical and financial analysis is still to be done (Exhibit B, page 9).  In evidence, Mr McConachy said that it was a “work in progress” that he updated from time to time. 

  1. Mr Saxena said that Mr McConachy’s preparation of the financial and physical analysis had been an evolutionary process.  He thought that the Dairy Investment Model had been prepared in approximately March or April 1999.  The Information Memorandum was finalised in approximately June 1999. 

  1. In both forms of that document, Mr McConachy stated that he had inspected the property from the boundaries when he was accompanied by the agent who had first had Torrumbarry for sale.  He had not recorded the precise date on which it had occurred.  Mr McConachy also set out opportunities in the document.  The first was that the dairy industry was undergoing market deregulation.  His recommendations concluded the document.  None recommended that Turrumbarry be purchased prior to auction.

  1. The Dairy Investment Model contained a recommendation that “the establishment time for starting the physical dairy operation is likely to be six months from the time of taking over the property” (Exhibit B, page 9).  The Information Memorandum contained a number of recommendations relating to funding the venture.  The investment summary included in the Information Memorandum assumed that there would be a ninety day settlement period meaning that settlement would take place on 16 December 1999.  The property, the document noted, was to be sold with minimal plant and equipment and no stock.  There would be substantial capital and pre-operative costs as a result and it would:

    “… take six months to purchase dairy cows with suitable calving and lactation cycles to fit in with the proposed farm program.  For this reason, the full farm program does not begin until the 1st July, 2000 and the financial planning reflects this.” (T documents, page 295)

  1. On 1 July 1999, Mr McConachy, Mr Saxena and Mr Gilbert said, they entered an agreement with Agrivision to undertake a feasibility study in relation to the purchase of the property, engage a manager, find finance, negotiate access to Torrumbarry, take steps to incorporate the company that became known as Integrated Dairies of Australia Pty Ltd (“Integrated Dairies”), negotiate price of production quota agreements with milk purchases, locate and negotiate the possible purchase of herds of cows and examine and evaluate farm equipment as well as to advise on the repair and replacement of farm equipment (“feasibility agreement”) (T documents at 216-217).  In cross-examination, Mr McConachy said that they had all gone a fair way down the track with their plan.  The agreement was simply to formalise it.  It was a comprehensive agreement but there was no reference to the property’s being purchased before auction.  There was a reference to the property’s being purchased.  There was recognition that maintenance needed to be carried out. 

  1. Mr Saxena said that the Dairy Investment Model had been prepared before 20 August 1999.  He relies fairly heavily on Mr McConachy in these matters.  He still does as he respects his judgment, has relied on it and continues to rely on it.  He knew that work had to be done on the property and he knew that there was no guarantee the investment would be successful.  This was confirmed by the recitals in the feasibility agreement.  The feasibility agreement did not refer to making a pre-auction bid or delivering milk.  There was an implied assumption that they would deliver milk immediately on settlement.  The document was dealing with broader issues and not with the specific tools after the property had been purchased. 

  1. The Dairy Investment Model proposed that:

    “Initially, between one and three large-scale dairy operations is proposed with between 1,000 and 2,000 milking cows each.  Each property would be developed in its own right and the viability of each of these properties would be evaluated on existing milk markets.  The development of these properties would be over an 18 to 24 month period, and during this time, the detailed evaluation and development of a processing and packaging facility is proposed.” (Exhibit B, page 4)

Mr Saxena said that it was not proposed that all of the properties would be in the one location.  There would be people behind the project and they would be large businessmen in Asia.  The Dairy Investment Model was not conceived to be a single unit operation.  There had to be value adding and there had to be a critical mass. 

  1. It would take six months to reach a steady state of operation.  It was hoped that would be 1,000 cows.  The recommendation that the establishment time for starting the physical dairy operation was likely to be six months did not mean that the first cow would arrive six months later.  There was to be no initial cost.  If it was not operating in six months, they had to find funding.  Instead, the funding started as soon as they bought the property.  The Dairy Investment Model assumed that the farm profit would exceed the total expenses in the first year of operation being the year ending 30 June 2000.  At that stage, they had not started the operation.  Instead, they were working with someone who had significant experience.  They were investing a substantial amount of money and looking to start as soon as they could.  The assumption was that they would be active at the end of year one.

  1. Mr Saxena said that he had not realised the kinds of issues that they would have.  The Dairy Investment Model had been prepared on assumptions that did not happen.  It was clear that considerable work had to be done.  The objective was not to have 1,000 cows but to advance a profitable business.  The financial modelling was done on the basis of 1,000 cows.  

  1. From 7 August 1999, Mr MrConachy had the assistance of Mr Smith, who is an agricultural consultant from New Zealand, in carrying out the work on behalf of Agrivision.  Mr Stevens said that Mr McConachy and Mr Smith inspected Torrumbarry on 7 and 8 August 1999.  Together, Mr McConachy said, he and Mr Smith held meetings on behalf of the three who ultimately bought Torrumbarry i.e. Mr McConachy, Mr Saxena and Mr Gilbert.  Those meetings were with:

    Mr Stevens to inspect Torrumbarry and its dairy infrastructure in detail;

    Mr Alan Wakefield, an officer with the Environmental Protection Authority, to discuss the effluent runoff from the property;

    Mr Graham Clark, who is an officer with Goulburn Murray Water, to discuss the transfer of water rights;

    Ms Nikki Chapman, who is an officer with Murray Goulburn Co-operative Co. Ltd to negotiate potential supply arrangements;

    Mr Barry Campbell and Mr John Newlan from Nestlé to negotiate supply arrangements and to determine that Nestlé required only 24 hours’ notice in order to collect milk from Torrumbarry; and

    Mr Stan Archard of Archards Irrigation.

Mr McConachy said that he also had discussions and negotiations with several people regarding their being employed to assist with the conduct of the dairy farm enterprise on Torrumbarry.  They took place between 1 July and early August 1999. 

  1. During August 1999, Mr McConachy said that he was aware that pregnant cows on Torrumbarry were due to calve from mid August until mid October 1999.  He said that he contacted Mr Lee Hamilton of Elders VP to inquire whether those cows could be purchased on the basis that Torrumbarry could be purchased prior to the auction.  That was in August.  Late in that month or early in September 1999, Mr McConachy also asked Mr Stevens whether the vendor of Torrumbarry would be interested in considering an offer to purchase before the auction.  Mr Stevens advised him, and Mr McConachy understood, that it was unlikely as it was a mortgagee sale and confirmed his advice soon after.  Mr Stevens confirmed that this discussion occurred in late August or early September 1999.

  1. In cross-examination, Mr McConachy said that he inspected pregnant cows and intended to purchase them to start the operation of the business.  They were due to calve in late August or early September and needed milking immediately.  It was always their intention to start milking immediately.  Had they been able to take cows on the property, they would have been operational within 24 to 48 hours. 

  1. In cross-examination, Mr McConachy disagreed with the proposition that his inability to obtain the property prior to auction meant that he was not serious about purchasing the cows that were on the property.  He agreed that there was no reference to their purchase in the Investment Summary in the Information Memorandum.  Reference was made in that document to environmental concerns regarding effluent run-off and the need to purchase plant, tools and equipment.  Mr McConachy said that it took them 12 to 18 months to purchase all of the plant, tools and equipment they needed.  They purchased a motor bike to get the cows to and from the dairy as it was a grass bound dairy. 

  1. In the cash budget forecast he prepared for September 1999 to June 2000, Mr McConachy forecast milk income of $131,851.00 (T documents at 298).  It was always anticipated that they would milk cows.  The applicants did not purchase the business operated by Murray Valley Dairies.  Instead, they purchased its assets.  In a letter to the DAA dated 11 September 2002, Mr McConachy wrote that Murray Valley’s business had ceased on 10 January 1999; milking had ceased on that day.  His understanding had been based on the milk statements.  He set out the action that had been taken by the applicants between 1 July 1999 and 28 September 1999 and concluded that:

    “Consequently there was a business being carried on by the applicants at the relevant date. This business was carried on with a view to deliver market milk and/or manufacturing milk in the period 01 July 1999 to the relevant date. Accordingly, there was a ‘dairy farm enterprise’ as it is defined in subsection 8(7) of the SDA Scheme in existence at the relevant date, and the applicants were owners of that business.” (T documents, pages 206-7)

Mr McConachy said that he did not interpret his letter as saying that there would not be any milk deliveries before 28 September 1999.  As soon as they had purchased Torrumbarry, they started negotiating with the mortgagee for a licence to enter the property.  That was done through Mr Stevens’ colleague, Mr Davies.  The licence that they negotiated was between the National Australia Bank and Mr McConachy and Mr Saxena.  It permitted occupation of the homestead by a caretaker, harvesting of the permanent pastures for silage or hay but only to prevent further deterioration and fire hazard and to undertake basic maintenance of the fencing and irrigation channels (T documents, pages 235-236).  Mr McConachy said that they had not been able to negotiate as much access as they had wanted. 

  1. Mr Saxena confirmed that the licence did not permit them to operate the dairy.  Although it was not in the licence, they were permitted to repair the dairy.  He said that Mr Pizer was “technically right” that, had they intended to milk immediately, they would have included permission to milk cows on the property.  He had never been involved in a dairy enterprise before but, if a property is to be made workable, there is an implicit understanding that they could bring cows in.  It was not implicit in the licence but it was always clear that they would make the property operational at the earliest possible moment.  In August 1999, it was difficult to state the date when milk would be produced.

  1. In a further letter to the DAA dated 25 October 2002, Mr McConachy said that:

    “Confirmation of the sourcing and negotiating for the purchase of dairy cows prior to the 28th September 1999 can be confirmed with out Elders dairy agent, Mr Lee Hamilton … Due to the fact that some repairs were made to the dairy prior to the commencement of milking, no sale contracts or funds were exchanged until the 21st January 2000 which was the day prior to the re-commencement of milking on the property.  The cows started to arrive on the property on the 22nd January 2000.” (T documents, page 214)

  1. Mr McConachy agreed with Mr Pizer that the true situation was something different from the statement he had signed when lodging the Significant Anomalous Circumstances Application Form (T documents, pages 110-113).  He stated on 15 January 2002 that “Integrated Dairies had purchased the property as an established dairy farm and we immediately began stocking the property with lactating cows. …” (T documents, pages 111-112).  The statement was not made to mislead, Mr McConachy said.  They began purchasing the cows fairly soon after the purchase of the property.  At the time, Integrated Dairies had not been incorporated as it was not incorporated until 8 October 1999. 

  1. Mr Hamilton said that he was involved in the sale of the entire dairy herd on Torrumbarry.  Mr McConachy, who had already seen the cows during his inspections with Mr Stevens, questioned him in detail as to the availability of cows in the open market, Mr Hamilton said.  He also expressed interest in purchasing some of the cows that were on Torrumbarry at the time.  In particular, he was interested in purchasing some of the cows, which would calve in between mid August and mid October, but only if he could negotiate a sale of the property prior to the auction.  The sale did not proceed as the owners and the receivers of Murray Valley Dairies were in dispute about their ownership.  Others later claimed ownership as well.  Disputes as to ownership almost derailed the arrangements that Mr Hamilton had made to auction the stock in late August 1999 in accordance with his instructions.  Stock that were obvious cull stock were to be sent directly to slaughter rather than to auction.  Had Mr McConachy been able to purchase the cows, he would have had to make arrangements to milk a number of them immediately. 

  1. Mr McConachy wrote a letter to the DAA on 23 December 2002 (T documents at 260-264).  In that letter, he wrote that they were engaged in discussion of the purchase of the cows from 1 July 1999.  All of the applicants and Agrivision’s employees were ready to provide labour from that date.  They had already decided on Nestlé on the basis of their offer to supply interest subsidies for the installation of improved milk storage and refrigeration. 

  1. In cross-examination, Mr McConachy said that this passage had exaggerated the situation slightly.  In actual fact, they had not waited until they had full production but began delivering milk in January 2000.  A considerable amount of work was carried out between July 1999 and January 2000. 

  1. Mr McConachy said that he asked Mr Stevens whether the vendor would consider an offer prior to the auction.  That conversation had occurred at the end of August or the beginning of September 1999 but, after five years, he could not be precise.  At the time, he had been working on the project almost full-time and had undertaken a lot of detailed analysis of it.  He knew that he had meetings on 7, 8 and 9 August 1999 and had inspected the property before that date.  The interest of the investors was sufficiently piqued that they would have made a pre-auction bid.  It could be that he made the approach regarding the pre-auction purchase before 20 August 1999 but he could not be sure.  He was continually updating the Dairy Investment Model and so its date of 20 August 1999 did not assist him in working out when he made the pre-auction bid.  The advantage of purchasing the property before the auction would have been to make matters certain.  That would have been so even if the purchase had only been made a week or so before the auction.  They would then have negotiated pre-settlement access to the property.

  1. Mr Hamilton said that he had no doubt that Mr McConachy was committed to purchasing Torrumbarry and its stock and to operate is as a large scale dairy operation.  Since it purchased Torrumbarry, Mr Hamilton said that he had sold a large number of cows to Integrated Dairies and Torrumbarry has been restored to its former position as one of the leading dairy operations in the district.

  1. On 17 September 1999, Mr McConachy, Mr Saxena and Mr Gilbert successfully bid for Torrumbarry at auction.  They did so as nominees for a company that was to be formed for the purpose of the ownership and operation of a dairy enterprise.  That company was Integrated Dairies.

Events after the purchase of Torrumbarry at auction

  1. Immediately after they had purchased Torrumbarry, Mr McConachy began to negotiate with the representatives of the vendor to gain immediate access to the property.  He did so on behalf of himself, Mr Gilbert and Mr Saxena.  The vendor’s representatives said that they would have to return to Melbourne before making a decision.  On 24 September 1999, only two, Mr McConachy and Mr Saxena, entered a licence agreement with the vendor and gained access to Torrumbarry.  That is apparent from the licence agreement (T documents, pages 235-240). 

  1. Integrated Dairies settled the purchase on 16 December 1999.  It commenced milk production on Torrumbarry in January 2000 and delivered market milk and/or manufacturing milk between January and June 2000.

  1. Mr McConachy wrote a letter to the DAA on 23 December 2002 requesting internal review of the DAA’s decision .  Following the auction of the land, he wrote, deliveries could have commenced from the farm but they did not do so because:

    “(i)    There was milk in the vat that had been there for 12 months.

    (ii)The dairy had not been cleaned for 12 months.

    (iii)The business’ goal was to milk many more cows than had been previously milked in the dairy, so repairs and maintenance to the dairy plant were necessary.

    (iv)The laneways that existed were not sufficient to handle the long-term goals of the business in their present state.

    (v)Once you start milking from a business, improvements and maintenance become much more difficult logistically.  Accordingly, as an industry member will tell you it is absolutely necessary to get the whole operation capable of the capacity of the business was aiming at and then commence milking.

    (vi)My partners and I elected to dismantle all milk-lines and plate coolers to thoroughly clean and ensure that once milking commenced the premium bank milk quality parameters of Nestlé were met.

    (vii)It was a logical time to replace all rubberware in the dairy prior to commencement of milking.

    (viii)Whilst the steel work on the platform was serviceable, it was bent and required some repair.  This was considered the most appropriate time to make the repairs.

    (ix)The relevant testing of the milk vat to ensure it met the appropriate standards for the delivery of milk.  Relevantly, after initial testing, it was established that the milk could only be cooled to approximately 11 degrees Celsius.  This issue was discussed with Nestlé and repairs were made to the vat and associated refrigeration system to improve the cooling to achieve the requirements set by Nestlé of less than 4 degrees Celsius within the set time period.

    (x)The tanker track was regravelled to ensure all weather access.

    (xi)The rotary platform and other associated machinery in the dairy were fully serviced prior to the commencement of milking.” (T documents, pages 262-3)

  1. Mr McConachy confirmed that the repairs that were carried out to the dairy had been a big job.  Although they could have started milking, they decided to take the opportunity to do the repairs thoroughly and to get the dairy fully operational.  Although charged for 133 hours of labour on the dairy repairs, those hours were not required to make it operational (and see also T documents, page 241).  The invoice for the repairs to the rotary dairy was issued by Total Refrigeration & Dairy Services on 1 December 1999.  It amounted to $13,792.33.  Over time, they had realised that this was the better way to go as they had not purchased cows with the property.  At the same time, they decided to do some work on the staff houses that they had not been able to inspect before purchasing the property.  Mr McConachy disagreed with the proposition put in cross-examination that they had done well to get the property up and running when they did.  The repairs to the dairy were not critical to the commencement. 

Mr McConachy’s hopes and views from late June 1999 to August 1999

  1. Mr McConachy said that, from either late June or early August 1999, he had held the hope and view that the business would commence the deliver of market milk and/or manufacturing milk from Torrumbarry as soon as they were able to gain access to it.  During that whole period, he held the hope and view that he would be able to gain access before 17 September 1999.

  1. Mr McConachy said that they always planned a pre-operative period.  The six month period he referred to in the Dairy Investment Model was the period before full capacity was reached.  As it was, instead of a six month pre-operative period, it was two years before they were fully operational.  They purchased cows so that they had calving nearly all year round.  Mr McConachy had said in the Dairy Investment Model that, “… with minimal work, the equipment will be ready to start milking … The property in the past has milked in excess of 1,000 cows, however, with the current run down state of the pastures and infrastructure, it is currently only capable of approximately 500-600” (Exhibit B, page 8).  By “minimal work”, he said, he had meant that a vacuum pump had to be purchased and the dairy equipment had to be cleaned.  There was a 50 cow rotary dairy.  Once they could milk 50, they could milk 1,000.  Mr McConachy said that they had hoped to build up the numbers to 500 or 600 cows quickly.  That number of cows could be kept on a large part of the farm while other areas were being improved. 

  1. At no time did the applicants conclude that they could not milk the cows.  They decided that they would not as they thought it best to do the repairs before they started milking.  They could then build up the numbers as soon as possible. 

Mr Stevens’ expectations

  1. Mr Stevens said that, at all times from March until 17 September 1999, he considered that Mr McConachy was likely to be the successful purchaser of Torrumbarry. 

CONSIDERATION

At 6.30pm on 28 September 1999, did the applicants hold an eligible interest in a “dairy farm enterprise” for the purposes of the DSAP Scheme?

  1. I will first consider whether there was a dairy farm enterprise within the meaning of the Program?  That is to say, was there “… a business in Australia that delivers market milk and/or manufacturing milk” within the meaning of cl. 6 of the Program at the relevant date?  Whether the applicants were, or were not, carrying on a business is not relevant at this stage.  That is because I am satisfied that, whatever arrangement the applicants had, they were not delivering milk of any sort.  I am satisfied that Murray Valley Dairies delivered its last milk on 10 January 1999.  That was well before 28 September 1999.  The next milk delivered from Torrumbarry was delivered in January 2000 by Integrated Dairies.  That was well beyond the relevant date.  Nobody was delivering milk on 28 September 1999.  Therefore, whatever arrangements the applicants had and whether they are properly characterised as a business at 28 September 1999, they could not amount to a dairy farm enterprise in the narrow sense of the expression without the delivery of milk (Program, cll. 2 and 6). Therefore, the applicants were not entitled to a standard payment under the DSAP Scheme.

Did the applicants have a proprietary interest in Torrumbarry at any time during the qualifying period?

  1. If they are to be granted a discretionary payment, the applicants must have held an interest of a kind mentioned in s. 8(2)(b) of the SDA Scheme at any time during the qualifying period (SDA Scheme, s. 8(1)(a)). That is so because they were not granted a standard payment right under the DSAP Scheme. The relevant provision is whether they had a proprietary interest in land on which there is a milking shed (SDA Scheme, s. 8(2)(b)(iii)).

  1. I find that the applicants successfully bid for Torrumbarry at auction on 17 September 1999.  They entered a contract of sale and purchase with the mortgagee.  A milking shed was, I find, situated on Torrumbarry.  The applicants never became owners of the freehold interest in Torrumbarry.  The sale was completed by Integrated Dairies, for whom the applicants had purchased Torrumbarry as nominees.  Settlement took place on 16 December 1999.  That was after 28 September 1999.  Did they have “a proprietary interest” in the property at any time during the qualifying period?  In this case, the time is limited to that between the date of the auction on 17 September 1999 and 28 September 1999.

  1. In general terms, proprietary interests:

    “… generally implies the right to use or enjoy, the right to exclude others, and the right to alienate.  I do not say that all these rights must co-exist before there can be a proprietary interest, or deny that each of them may be subject to qualifications. …” (Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 at 272 per Blackburn J)

Proprietary interests in relation to land include freehold and leasehold estates, mortgages, rent charges, profits à prendre, easements and restrictive covenants (Minister of State for the Army v Dalziel (1943-44) 68 CLR 261 at 290 per Starke J). They do not include mere licences. In Cowell v Rosehill Racecourse (1937) 56 CLR 605 referred to a passage from the judgment of Lord Coleridge CJ in Wells v Kingston-upon-Hull (1875) LR 10 CP 402 observing that it:

“… pointed out the difference between the creation of a proprietary interest in land by a contract relating to the possession or enjoyment of land and the creation of a contractual right to use land under conditions, the owner of land retaining possession and all rights over it.  In that case a dock was ‘let’ to a ship-owner for the purpose of repairing a ship, but it was held that no interest in land was created. …” (at 617)

An equitable interest in land may be a proprietary interest if it attaches to an identifiable lot (Beneficial Finance v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510 at 524 per Young J).

  1. I have concluded that the applicants had a proprietary interest in Torrumbarry when they purchased it at auction. That was an equitable interest. They did so personally because, even though they had purchased as nominees for Integrated Dairies, that company had yet to be incorporated. As purchasers, the applicants had a right to have the contract completed and not merely to obtain damages if the vendor failed to complete. Their right to possession was limited by the licence they had negotiated but that does not detract from the proprietary interest they had acquired in Torrumbarry. Therefore, I find that within the meaning of s. 8(2)(b)(iii) of the SDA Scheme, the applicants had a proprietary interest in the land on which a milking shed is situated during the qualifying period. They met the criteria in s. 8(1)(a) of the SDA Scheme.

Did the applicants have an interest as owner of a dairy farm enterprise at any time during the qualifying period?

  1. Should I be incorrect in my conclusion in the previous paragraph, I have also considered whether the applicants meet the criterion in s. 8(2)(b)(iv), and so s. 8(1)(a) of the SDA Scheme. Given that there was no delivery of milk during the qualifying period, that requires consideration of whether, during that time, the applicants:

    held “an interest as an owner …” (SDA Scheme, s. 8(2)(b)(iv));

    of a “dairy farm enterprise” i.e.

    (i)in “… a business in Australia …”;

    (ii)“that is carried on with a view to delivering market milk or manufacturing milk during the qualifying period but did not deliver such milk during that period”;

    (SDA Scheme, s. 8(7) and see also DSAP Scheme and Program, cll 2 and 6)

    during the “qualifying period” i.e. 1 July 1998 to 6.30pm on 28 September 1999 (SDA Scheme, s. 3(2)).

  1. I will begin with the question whether there were any relevant businesses associated with Torrumbarry between 1 July 1998 and 28 September 1999.   There are two businesses that need to be considered.  The first is that operated by Murray Valley Dairies for the delivery of milk.  I am satisfied that the applicants did not purchase it.  There are two reasons.  One is that it had ended on 10 January 1999 when Murray Valley Dairies made its last milk delivery and so was not available for purchase.  The second is that the applicants did not purchase any business when they purchased Torrumbarry.  On the basis of all of the evidence, I find that they purchased the real estate known as Torrumbarry.  That included some plant and improvements such as the homestead and four other houses, a dairy, feedlot, three silos, machinery shed, pumps and miscellaneous tools and equipment.  That was all.  There were no cows or stock of any sort.  There was no milk production.  There was no business.

  1. The second business to which I must have regard is any business operated by the applicants.  There is no dispute between Mr Golombek and Mr Pizer that there was a business operated by Integrated Dairies.  I find that it did not begin to operate any business until a date after the conclusion of the qualifying period.  That was so because it could not operate such a business until after it was incorporated on 8 October 1999. 

  1. Mr Golombek submitted that there was a business that operated from 17 September 1999.  That was a business operated by a group of people, being the applicants, who had a plan to purchase a property and cows, a plan to employ people and to contact suppliers and a plan to change the infrastructure of the property and to set up a number of factors that would lead to full production.  It is not necessary to have all of the indicia present at all times.

  1. In my decision in Buchan and Dairy Adjustment Authority (2002) 71 ALD 114; [2002] AATA 644, I reviewed a number of authorities and set out my understanding of the sense in which the word “business” is used in the definition of “dairy farm enterprise” in cl. 6 of the Program:

    “30. Having regard to the ordinary meanings of the word ‘business’ and to the authorities, it seems to me that, taken in the context of the Act, the word should be given its most general meanings. That is to say, it should be interpreted as covering a wide field of human endeavour whether described as a profession, trade, employment, vocation or calling or occupation in which a person is engaged provided that it may not be more properly described as something such as a hobby or recreational pursuit. Identification of an endeavour as a business will depend upon the consideration of a wide range of issues including matters such as the regularity and repetition of the endeavour, its purpose, its record keeping, those engaged in it and the place at which the endeavour is conducted. No one factor is essential in order to make an endeavour a business. So, for example, while it may well be that the endeavour is carried out for the purpose of making a profit, I do not consider that such a purpose is an element that is required to make it a business. In the context of the Act this follows from the fact that, when viewed at the most basic level, the Scheme provides compensation to those who have delivered milk that has been subject to regulation (be it in the form of a payment or a levy) and the amount of that compensation is calculated on the basis of the amount of that milk delivered during 1998/99. Whether or not that milk was delivered for a profit or not or with the intention of gaining a profit or not is irrelevant. Again in the context of the Act, the precise place at which the endeavour is conducted is also irrelevant. The Act’s object is to assist the dairy industry and that, when read with the availability of dairy exit payments for farmers who wish to leave the industry, must mean that the emphasis is upon the business of dairy farming rather than upon the place at which that business is conducted.” (at 125)

  1. I would add to that summary, the words of Fisher J when he considered whether a person, who had intended to carry on a business of cattle raising or of primary production on his own land, had carried on a business at an earlier stage when he was building up a herd on leased land:

    “…The fact that he ultimately intended to carry on the business of cattle raising or primary production on his own property with the stock acquired during the first stage does not necessarily preclude the finding that the taxpayer was also carrying on business during the first stage.  A person may conduct a business, albeit of a limited nature, the activities of which business are preparatory to or in preparation for the conduct of another business on a larger scale.” (Ferguson v Federal Commissioner of Taxation (1979) 79 ATC 4,261 at 4,269 and see also 4,266 per Bowen CJ and Franki J)

  1. What is meant by “carrying on” a business?  Mr Golombek referred to the definition of “carrying on an enterprise” in s. 195-1 of A New Tax System (Goods and Services Tax) Act 1999.  It provides that the expression “… includes the commencement or termination of an enterprise”.  Generally, regard may not be had to definitions in other legislation as:

    “A statutory definition exists for the purposes of a particular statute in which it is contained, unless it appears in a statute expressed to have a more general application, such as the Acts Interpretation Act. …” (Yager v R (1977) 13 ALR 247 at 256 per Mason J)

There are exceptions (see generally Statutory Interpretation in Australia, 5th edition, 1988 at [3.35]).  None would allow me to rely on the interpretation adopted in legislation imposing a goods and services tax in interpreting legislation restructuring an industry and providing for payments to entities operating in that industry.

  1. In their ordinary meaning, the words “carrying on” import an element of repetition and do not extend to a one-off act (Biochem Pharma Inc v Commissioner of Patents (1998) 82 FCR 87 at 93 per Hill J). At the same time, “Absence of a system and regularity might deny that a business is being carried on but the presence does not necessarily establish that it is …” (JS McMillan v Commonwealth (1997) 77 FCR 337 at 354 per Emmett J).

  1. Taking into account these meanings and all of the evidence, I am not satisfied that the applicants were carrying on a business at any stage during the qualifying period and so did not meet the requirements of s. 8(2)(b)(iv) of the SDA Scheme and, consequently, of s. 8(1)(a).  They had a contract to purchase a property and had access to it for certain purposes.  They had explored a number of avenues to make it operational as a dairy farm.  Through Mr McConachy’s efforts, they had made plans for a business to conduct a dairy farm business.  They had prepared financial analyses and budgets.  They had made enquiries of Mr Hamilton regarding the purchase of stock.  They had decided who would provide labour and that was in place.  They had decided that they would supply Nestlé once they produced milk.  All of these matters are essential to the establishment of a business but I am not satisfied that they had, in the qualifying period, got to the stage where they were carrying on a business.  They were still in the preparatory stages of forming a business and had yet to reach the stage of carrying it on. 

  1. Certainly, the applicants could have been operating a business without producing any milk or any income let alone profit.  Apart from their plans, they effectively had only one of the pieces in the multitude of pieces that are required to carry on a business that is carried on with a view to delivering milk.  That was the land on which pastures grew and on which a rotary dairy existed but even then they did not have unrestricted access to and use of it.  Their access and use were limited by the terms of the licence agreement with the mortgagee.  They did not have any cows to graze on the pasture or to milk in the dairy.  Even if they had, the terms of the licence they had to enter and use the property during the qualifying period did not permit them to keep cows or to use the pasture for anything other than harvesting.  Even if they had cows, which did not arrive until Integrated Dairies purchased them in January 2000, they could not have milked them for the rotary dairy required repairs.  Even if I accept Mr McConachy’s evidence that they required only minor repairs, the applicants could not undertake those repairs under the terms of the licence.  The licence limited them to undertaking basic maintenance to the fencing and irrigation channels.  There is no mention of repairing the dairy in the licence.  Despite Mr McConachy’s evidence that they were given permission to do that, I prefer the words of the licence.  Those words are quite precise and the absence of any reference to the repair of the dairy is consistent with the date of 1 December 1999 appearing on the invoice for the repairs of the rotary dairy.  The repairs were not completed until some time on or before 1 December 1999 but it is difficult to think that they took two months to complete and so started before 28 September 1999. 

  1. If I am incorrect in my conclusion that they were not carrying on a business at all in the qualifying period, I have considered whether they were carrying on any such business “with a view to delivering market milk or manufacturing milk during the qualifying period”.  The expression “with a view to” means no more than whether the applicants had the necessary intention or object (Lorang v Mater Misericordiae Hospital and Anor BC9402654, Gleeson CJ, Kirby P and Clarke JA per Kirby P at 16 and see also the Shorter Oxford Dictionary and the Macquarie Dictionary).  Although slightly ambiguous when read alone, I think that in its context the applicants must have had a view to deliver market milk or manufacturing milk during the qualifying period if they are to come within the extended definition of “dairy farm enterprise”.  It is not enough that, during the qualifying period, they were carrying on a business with a view to delivering market milk or manufacturing milk.

  1. I am satisfied that, before they purchased Torrumbarry, the applicants intended to carry on a business with a view to delivering market milk or manufacturing milk in the qualifying period. If they did in fact carry on that business before they successfully bid for Torrumbarry (and I do not find that they did), they did so with a view to delivering that milk in the qualifying period. Their intention is apparent from the enquiries that Mr McConachy made regarding the purchase of the cows on Torrumbarry and the applicants’ trying, although with ultimately with limited success, to gain early possession of the property once they had purchased it. Mr McConachy’s cash budget forecast for the preoperative period set out in the Information Memorandum took account of income from milk for the period September 1999 to June 2000. They did not expect to be fully operational but they did intend to deliver milk in the qualifying period. They would meet the requirements of s. 8(2)(b)(iv) of the SDA Scheme were I to have found that they conducted a business at all. They would then have held an interest in a dairy farm enterprise as required by s. 8(1)(a).

  1. If they only began to carry on a business on or after 17 September 1999 when they successfully bid for Torrumbarry (and again I do not find that they did), I do not find that they did so with a view to delivering market milk or manufacturing milk in the qualifying period. As soon as they had access to Torrumbarry, I find, they realised that there was more work to be done than they had realised. They decided to concentrate on repairing the rotary dairy and improving the property. They gave up all thought of purchasing cows and producing milk until that was done even though I accept that Mr McConachy did not think that they could not. There is a difference between knowing what one can and cannot do and what one intends to do. Given that there was such a short time between the auction on 17 September 2004 and the end of the qualifying period on 28 September 1999 and given that they could not graze cows on the property, I find that the applicants did not operate any business in the period with a view to delivering market or manufacturing milk in the qualifying period. Therefore, the applicants would not satisfy s. 8(2)(b)(iv) of the SDA Scheme and so would not hold an interest in a dairy farm enterprise as required by s. 8(1)(a).

Did the applicants hold an interest in a dairy farm enterprise at 6.30pm on 28 September 2004?

  1. If the applicants are to qualify for a discretionary payment right under either ss. 8(3) or (5), they must have held an interest in a dairy farm enterprise at 6.30pm on 28 September 2008.  In view of my findings in the previous paragraphs, I am not satisfied that they did.  There was no dairy farm enterprise at that date.  That was because the applicants were not carrying on a business with a view to delivering market milk or manufacturing milk during the qualifying period at all let alone on the last day of that period.

  1. I have also considered the situation if I am incorrect in that view but correct in my view that, if they were carrying on a business at all before 17 September 1999, they were carrying on such a business with a view to delivering market milk or manufacturing milk but not after that date.  The notion of “carrying on” carries with it a sense of repetition and regularity but it also carries with it a sense of the moment.  Intentions and objects can change and so too can the reasons why actions are undertaken.  It is not inconsistent to conclude that a business is being carried on with a view to a certain outcome at a certain time and with a view to another after that time.  Circumstances change and businesses adapt their short term and long term goals in view of those changes.  I am satisfied that the applicants changed their short term goals once they had secured Torrumbarry even though their long term goals to deliver market milk and manufacturing milk remained the same.  They chose to repair and restore the property and so did not carry on the business at that time with a view to delivering market milk or manufacturing milk in the qualifying period.

  1. This means that the applicants do not satisfy either ss. 8(3)(a) or (5)(a) of the SDA Scheme. They are not entitled to a discretionary payment right under either provision.

Has there been a significant event or crisis?

  1. Should I be incorrect in my conclusion in the previous paragraph, I have considered whether the applicants have been affected by a significant event or crisis as set out in s. 8(3)(b) and expanded on by the definition of “exceptional event”.  I am satisfied that none of the events or crises has affected the applicants at any relevant time.

Has there been a significant anomalous circumstance?

  1. On the same basis, I have considered whether there was a change or an atypical feature in the ownership or management of the applicants’ enterprise.  Mr Golombek submitted that “atypical” means:

    “… not typical; not conforming to the type; irregular; abnormal …” (Macquarie Dictionary, 3rd edition, 1997)

I accept that this is the meaning that I should give the word but I do not accept that there has been any such atypical feature of change in the ownership or management of the applicants’ enterprise. I agree with Mr Golombek that they were in “start up mode” and endeavouring to establish milk production. I do not accept that this represents any change or atypical feature in the management of the dairy enterprise. I do not accept that I can have any regard to the fact that the applicants could not purchase Murray Valley’s dairy farm enterprise for whatever reason. The establishment of any dairy farm enterprise by the applicants cannot be linked back to Murray Valley’s dairy farm enterprise. Murray Valley’s was an entirely separate enterprise and s. 8(5)(a)(ii) focuses on the dairy farm enterprise in which the applicants held an interest. This means that the applicants do not satisfy either s. 8(5)(a)(ii) of the SDA Scheme.

  1. The effect of my findings is that the applicants are not entitled to a discretionary payment right under either ss. 8(3)(a) or (5)(a) of the SDA Scheme. Therefore, I affirm the reviewable decision of the respondent dated 17 February 2003.

    I certify that the ninety four preceding paragraphs are a true copy of the reasons for the decision herein of
    Deputy President S A Forgie,

Signed:           ...............................................................

Nathaniel Wills  Associate

Date of Hearing  19 and 20 May 2004

Date of Decision  19 January 2005
Counsel for the Applicants           Mr P Golombek
Solicitor for the Applicants           W J Gilbert & Co
Counsel for the Respondent         Mr J Pizer
Solicitor for the Respondent         Mallesons Stephen Jacques

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Cases Cited

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Williams v Attorney-General for New South Wales [1913] HCA 33
Williams v Attorney-General for New South Wales [1913] HCA 33
Buchan and Dairy Adjustment Authority [2002] AATA 644