Seaf Pty Ltd and Australian Trade Commission
[2001] AATA 951
•19 November 2001
DECISION AND REASONS FOR DECISION [2001] AATA 951
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W2000/363
GENERAL ADMINISTRATIVE DIVISION )
Re SEAF PTY LTD
Applicant
And AUSTRALIAN TRADE COMMISSION
Respondent
DECISION
Tribunal The Hon C R Wright QC., (Deputy President)
Date19 November 2001
PlacePerth
Decision The Tribunal determines: (1) That eligible expenditure claimed totalling $50,493 is not excluded expense pursuant to s49 of the Export Market Development Grant Act 1997. (2) That eligible expenditure claimed totalling $3,307 is excluded expense pursuant to s47 of the Export Market Development Grant Act 1997.
[Sgd The Hon C R Wright QC]
Deputy President
CATCHWORDS
Export Market Development Grant - eligible promotional activity - approved promotional purposes - excluded expenses - expenses incurred as commission or remuneration by way of salary determined by reference to extent of commercial transactions - whether fees paid to director of applicant company calculated on a sum per head of cattle shipped are eligible or excluded expenses.
Export Market Development Grant Act 1997 – s49
REASONS FOR DECISION
19 November 2001 The Hon C R Wright QC., (Deputy President)
Facts
The applicant is a company incorporated in Australia on 27 January 1998 which carries on the business of the export of live cattle, sheep and goats from Australia to South East Asia.
At all material times Scot Braithwaite was a shareholder and director of the applicant and was employed by the applicant as its marketing director and South East Asian representative. In June 1998 Mr Braithwaite moved to Malaysia to carry out his duties.
During the 1999 grant year Mr Braithwaite arranged live cattle sales by the applicant into Malaysia. He also travelled to Indonesia and the Philippines and arranged live cattle sales by the applicant into those countries.
The applicant paid Mr Braithwaite the sum of $117,798.94 for the two year period ended 30 June 1999. Not all of this total amount was claimed by the applicant as eligible expenses under the Export Market Development Grants Act 1997 ("the EMDG Act").
The basis upon which payments were made by the applicant to Mr Braithwaite for his services changed during the course of the two year period to 30 June 1999. Prior to April 1998, the applicant paid Mr Braithwaite's relocation costs, expenses and a monthly fee of $1,000. Between April 1998 and December 1998 the applicant paid Mr Braithwaite a flat fee per each boat load of cattle exported, from which he was required to pay all expenses. From January 1999 the applicant paid Mr Braithwaite on the basis of a set fee ($3.75) per head of cattle exported. There was no formal contract between the applicant and Mr Braithwaite at any time during the two year period to 30 June 1999.
In the year ended 30 June 1998, the applicant paid Mr Braithwaite $15,500 by way of retainer and $15,217.16 by way of expenses. In the year ended 30 June 1999 the applicant paid Mr Braithwaite $75,817.06.
The applicant lodged its first claim for a grant under the EMDG Act in the 1998/99 grant year on 30 November 1999. This sought a grant based on total expenditure of $70,951 incurred during the 1997/98 and 1998/99 financial years. The only expenses in respect of which the claim was made were in respect of amounts paid to Mr Braithwaite in those years for eligible promotional activities.
The expenses claimed by the applicant in respect of a grant were as follows:
For the year ended 30 June 1998 $20,247.63
For the year ended 30 June 1999 $50,494.16
Total $70,951.79The applicant arrived at the claimed expenses in each year by reducing the total amounts paid to Mr Braithwaite in each year by 33.3% in respect of activities performed by Mr Braithwaite during those years which the applicant accepted were ineligible activities within the terms of the EMDG Act.
By its Notice of Determination dated 8 June 2000 the respondent notified the applicant that it had been determined that $50,493 of the expenses claimed in respect of payments made to Mr Braithwaite in the year ended 30 June 1999 were not eligible expenses for a grant. All of the claimed expenses for the year ended 30 June 1998 were deemed to be eligible expenses.
By written notice dated 27 June 2000 the applicant sought a reconsideration by the respondent of its determination.
On 4 September 2000 the respondent, by the reviewable decision, determined that a further amount of $6,593 was eligible for the purposes of a grant under the EMDG Act but affirmed that the balance of the disputed amount of claimed expenses $43,900, was not eligible.
On 3 October the applicant sought a review by the Administrative Appeals Tribunal pursuant to the EMDG Act s99. The grounds upon which the review is sought were expressed as follows in the applicant's letter to the Tribunal dated 2 October 2000.
"1.Eligible Expenditure claimed but disallowed totalling $50,493 does not fall under Section 49 of the Act or Guideline 49 5.21.1 – 5.21.3 for exclusion.
2.Eligible Expenditure claimed of $3,307 (9,900 less 6,593 subsequently allowed) and included in $50, 493 above does not fall under section 49 and has not been paid in reference to extent or value of transactions."
During the hearing before the Tribunal the applicant called evidence from 3 of its directors, namely, Bernard Brosnan, Scot Braithwaite and Peter Wood. Their testimony established that during Scot Braithwaite's time as company representative in Asia, no livestock sale was concluded unless it had just been approved in a four-way telephone discussion involving the 3 witnesses and another director, Bill Lawry. The per capita price of livestock to be included in the anticipated transaction would depend to a large extent on the input of Mr Brosnan who was based in the Northern Territory, and had duties including liaison with customers as to both cattle requirements and availability, and organising and sourcing cattle for export in accordance with customers specifications.
Peter Wood explained that the applicant company had a very low capitalisation and that as a consequence it was necessary to carefully assess the cost of each proposed shipment of cattle to Asia by factoring into the price of the animals all costs and overheads, including the actual remuneration payable to company staff and directors. For this reason, he said, all payments to employees were assessed as an ad hoc per job cost. At first this cost was assessed on a per
boatload basis and subsequently, during the critical time in issue in these proceedings on a per head basis. To fairly apportion the relevant claim made for assistance under the EMDG Act, the remuneration paid to Scot Braithwaite had been assessed as being two thirds referable to market development and one third referable to sales negotiation and other duties. The sum paid to Scot Braithwaite calculated on this per head basis was intended to include and did include not only his intended remuneration, but also expenses which he may have incurred in carrying out his duties, such as the cost of travel accommodation.
By reference to a series of schematic diagrams Mr Wood advanced two principle arguments.
(a)That Braithwaite did not receive commission based remuneration because the whole "team" was directly involved in the sales process (vide Sheet 4, Exhibit A4).
(b)That it was the company which entered into the relevant commercial transactions with Asian cattle buyers and that Braithwaite himself did not do so (vide Sheet 7, Exhibit A4.
Sheet 7 sets out, in relation to 10 sample shipments, the percentage of cases in which Braithwaite had direct responsibility and was acting for the company in relation to quoting the price to the purchasers, preparing the proforma invoice or discharge certificate in respect of the shipment, and/or dispatching the final invoice to the purchaser.
A copy of the relevant parts of Sheet 7 is set out below:
" Schedule> Quote> Build> Load> Invoice>
# of Ships Quote Proforma Discharge InvoiceSheet invoice Certificate
# 10 10 6 4 10
% Braithwaite 0% 50% 25% 20%
% Other 100% 50% 75% 80%"
It was not disputed that prima facie the applicant's claim under the EMDG Act related to claimable expenses in respect of eligible promotional activities (Section 33) and were for approved promotional purposes. However it was contended by the respondent, Austrade, that the sum claimed in respect of the period after January 1999, being payments calculated by reference to the number of cattle exported by the applicant fell foul of s49(1)(b) of the EMDG Act as excluded expenses. The respondent submits that it is irrelevant to a consideration of whether or not these expenses are excluded that other persons employed or engaged by the applicant were remunerated pursuant to a similar formula, because no expenses in relation to such persons have been claimed as eligible by the applicant.
Section 49 of the EMDG Act provides as follows:
"49 Expenses incurred as commission, discounts etc.
(1) Expenses of an applicant are excluded if they were incurred as:
(a)commission or other remuneration paid, otherwise than by way of salary, retainer or fee, in respect of commercial transactions relating to eligible products; or
(b)remuneration by way of salary, retainer or fee, to the extent that the remuneration is determined, directly or indirectly, by reference to the extent or value of any commercial transactions relating to eligible products that the person to whom the remuneration is paid has entered into; or
(c)discounts and credits, or amounts equivalent to discounts or credits, allowed or paid in relation to commercial transactions relating to eligible products.
(2) In subsection (1):
commercial transaction, in relation to an eligible product, means:
(a)the sale, supply or disposal of the product; and
(b)in the case of eligible intellectual property or eligible know-how – the obtaining of an increased return on the disposal of the intellectual property or know-how."
In my opinion there can be little, if any, doubt that Mr Braithwaite was remunerated by reference to the extent of commercial transactions relating to eligible products and in my opinion it is immaterial whether or not that method of remuneration bore a direct relationship to or comparison with a normal commission sale process. As I see it, the real issue for resolution is whether or not such payments were made to Mr Braithwaite in respect of commercial transactions which he had "entered into". I have no trouble in concluding that each shipment of cattle involved a relevant "commercial transaction" (see s49(2)), and I have no trouble concluding that Mr Braithwaite was involved in all such relevant transactions; but did he "enter into" such transactions? Without the aid of decided cases I would be inclined to the view that he did not. I was referred to several authorities by Mr Jenshel of counsel for the respondent. They included:
Kirby v Commissioner of Taxation (1987) 14 FCR 563
Nicholas Paspaley Properties Pty Ltd v Commissioner of Taxes (1991) 91 ACT 4,171 and Commonwealth v Crowe (1992) 29 ALD 164
However the only decision with arguable relevance to the present question appears to me to be Grimwade v Federal Commissioner of Taxation (1949) 78 CLR 199. At pp 219-220 Latham CJ and Webb J said in a joint judgment:
"Paragraph (f) of the definition of "disposition of property" requires that a transaction should be entered into by a person with intent to diminish the value of his property and to increase the value of the property of some other person. This intent must be a real intent: Finch v Commissioner of Stamp Duties (1). It was found by the learned trial judge that there was such an intent. This finding was based on an inference from all the facts of the case. We agree that this inference should be drawn. There was no evidence of any other intent. The diminution of the value of E N Grimwade's property and the increase in the value of the property of his sons was the obvious and necessary result of what was done. It is true that the intent was to reduce the value of both A and B shares, but it is still the case that the value of the property of the sons was increased because they each received 17s. 6d. per share and that E N Grimwade intended this result.
But did E N Grimwade "enter into a transaction" when he voted for the resolutions reducing capital?
There may be a "transaction" with respect to the casting of a vote. It may be an illegal transaction when an elector takes a bribe in return for his vote at a parliamentary election. It may be a legal transaction, as when a shareholder (who as such has no fiduciary obligation in respect of the manner in which he exercises his right to vote on the affairs of a company) agrees to vote in a particular way for a consideration, e.g. if other shareholders will exercise their votes in a particular way. Such an agreement is an ordinary business matter when a re-adjustment of rights between ordinary and preference shareholders takes place. The commissioner did not allege that there was any agreement between E N Grimwade and his sons as to voting for the resolutions. But when a shareholder makes up his mind to vote in a particular way and casts his vote accordingly he cannot be said to be "entering into a transaction". A transaction by a person must be a transaction with some other person. In the circumstances mentioned there is no transaction with any person."
These views, which were shared by Rich J, the other member of the court, seem to me to support the proposition that in joining in the decision making process adopted by Seaf Pty Ltd to sell cattle on each occasion that such an opportunity arose, Mr Braithwaite was not "entering into" any relevant commercial transaction. He was merely engaging in the process of authorising the company to do so.
Nor do I think that it can be said that by preparing all or any of the documentary processes whereby the company formally invited or confirmed the sale with the intending purchaser Mr Braithwaite was "entering into" the relevant transaction. If such activity was intended to be caught as an excluded expense for the purposes of the EMDG Act, I would have expected a much clearer expression of the legislative purpose. No doubt it can be argued that the EMDG Act is designed to assist in defraying the cost of building viable export markets rather than subsidising a company's sales program, but often the two processes will be difficult to separate, practically as well as conceptually.
In my opinion the applicant is entitled to succeed on this issue and consequently ground 1 of the application to review succeeds. This being so it is strictly unnecessary to consider the second ground of review raised by the applicant, but as there is an issue of principle involved, I think a few observations may be worthwhile. By the decision under review the respondent allowed a claimed 66.6% ($6,593) of expenses totalling, in all, $9,900 paid by the applicant to Mr Braithwaite in December 1998. The applicant sought to increase its claim to include the balance ($3,307) of the expenses incurred in December 1998 albeit that such sum was not claimed to be part of the eligible expenses in the original application.
Section 47 of the EMDG Act provides as follows:
"Expenses disclosed after submitting application.
(1) This section applies if:(a)on one or more occasions after applying for a grant in respect of a grant year, but before Austrade determines whether the applicant is entitled to the grant, an applicant discloses to Austrade eligible expenses (undisclosed expenses) that were not disclosed in the application; and
(b)the total amount of the undisclosed expenses is more than 10% of the amount of the eligible expenses disclosed in the application (disclosed expenses).
(2) The undisclosed expenses of the applicant are excluded to the extent to which they exceed 10% of the disclosed expenses."
The respondent determined that the applicant was entitled to a grant on 8 June 2000. This being so I am of the opinion that the applicant cannot bring itself within s47(1) and therefore cannot now claim any additional sum for expenses not included in the original application. Perhaps the section could have been expressed more felicitously in other terms but this, I think, is its plain meaning.
There is no need to consider further arguments advanced by the applicant based upon the content of the "Administrative Guidelines for the EMDG Scheme" referred to during the hearing. It is unclear whether these are ministerially approved guidelines under s.101(2), but I am prepared to assume that they are. Nonetheless I have some considerable doubt as to the validity of s49 Guideline 5.21.2. which reads:
"5.21.2.Some sales related expenses may be eligible to the extent that the recipient of the expenses can demonstrate that the allowance was spent on eligible promotional activities."
As a broad proposition this paragraph may be unexceptionable but to include it in the Guidelines as a legitimate method of construing or applying s49 seems to me to be erroneous. I do not think s49 can be interpreted so as to allow sales expenses to be separated out from excluded expense items disallowed by virtue of the operation of the section. However no concluded view is necessary on this point and its resolution should await further argument on another occasion.
It is determined:
(1)That eligible expenditure claimed totalling $50,493 is not excluded expense pursuant to s49 of the EMDG Act.
(2)That eligible expenditure claimed totalling $3,307 is excluded expense pursuant to s47 of the EMDG Act.
I certify that the 27 preceding paragraphs are a true copy of the reasons for the decision herein of The Hon C R Wright QC., (Deputy President)
Signed: K L Miller.
Personal AssistantDate/s of Hearing 11 October 2001
Date of Decision 19 November 2001
Applicant's Representative Mr Peter Wood
Counsel for the Respondent Mr Ari Jenshel
Solicitor for the Respondent Australian Government Solicitor
0
3
0