The Eight Modern Chinese Restaurant Pty Ltd and Australian Trade Commission
[2014] AATA 923
•12 December 2014
[2014] AATA 923
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2013/6283
Re
The Eight Modern Chinese Restaurant Pty Ltd
APPLICANT
And
Australian Trade Commission
RESPONDENT
DECISION
Tribunal Deputy President S E Frost Date 12 December 2014 Place Sydney The decision under review is affirmed.
................[sgd]................................................
Deputy President S E Frost
CATCHWORDS
TRADE AND COMMERCE – industry assistance – export market development grants – whether the new business is similar to the old business to such an extent that the new business should be treated as a continuation of the old business – decision under review affirmed
LEGISLATION
Acts Interpretation Act 1901 (Cth) s 2C
Export Market Development Grants Act 1997 (Cth) ss 7, 93, 94, 99, 101
CASES
Australian Trade Commission v Isaac Jewellery Pty Ltd [2009] FCA 37
SECONDARY MATERIALS
Export Market Development Grants (Change in Ownership of Business) Guidelines 2006
REASONS FOR DECISION
Deputy President S E Frost
12 December 2014
INTRODUCTION
The applicant operates a 700-seat Chinese restaurant in Sydney’s Haymarket area.
At the end of the 2012 financial year it lodged a claim for an export market development grant (EMDG) in respect of export-related expenses in the 2011 and 2012 financial years. It considered itself to be a first-time applicant for a grant, having commenced its business in July 2010, and in that event its claim for two years’ expenditure would be in order.
The respondent Commission did not agree that the applicant was a first-time applicant. It considered that the business being conducted by the applicant was a continuation of a business carried on by a different company, Regess Pty Ltd (Regess), which had already received five grants under the EMDG scheme. That meant that the applicant’s 2012 claim was a sixth-year claim and its entitlement to a grant would be significantly reduced. Since EMDG claimants are only entitled to seven annual grants, treating this claim as a sixth-year claim would also mean that the applicant would only be entitled to one further grant after this one[1].
[1] The seven-claim limit has since been raised to eight.
That decision was subjected to an internal review but confirmed. The applicant now applies to the Tribunal, under s 99 of the Export Market Development Grants Act 1997 (EMDG Act), for the review of the decision.
THE LEGISLATIVE BASIS FOR THE COMMISSION’S DECISION
The Commission considered that s 94(1)(b)(ii) of the EMDG Act applied. Section 94 is in Division 2 of Part 8 of the Act. The Division in its entirety provides as follows:
Division 2—Effect of change in ownership of business etc.
93 Object of Division
(1)Broadly, the underlying principles of this Division are:
(a)that the rules relating to grants that are payable in respect of a business (including the limitation on the number of grants that are payable) continue to apply; and
(b)that a particular grant is still payable in respect of a business;
despite a change in who carries on the business.
(2)To achieve this, this Division requires the CEO of Austrade to treat certain particulars of the previous owner of the business as being those of the new owner.
94 Change in ownership of business etc.
(1) Subsection (2) applies if:
(a)at any time, a person (the previous owner) carried on a particular business (the old business) in Australia; and
(b)at a later time, another person (the new owner) carries on:
(i) the business or a part of the business (the relevant part); or
(ii) a business (the new business) that, at that time, is similar to the old business, or a part of the old business (the relevant part), carried on by the previous owner before that time, to such an extent that the CEO of Austrade is satisfied that the new business should be treated as a continuation of the old business; and
(c)the new owner applies for a grant in respect of a grant year.
Note:Decisions whether 2 businesses are similar are subject to guidelines determined by the Minister under section 101.
(2)For the purposes of this Act, the CEO of Austrade must treat particulars of the previous owner as being those of the applicant in the following ways:
(a)any eligible expenses incurred by the previous owner in the capacity of owner of the business (or of the relevant part) are to be treated as having been incurred by the new owner;
(b)if the CEO had decided that the previous owner met the grants entry requirements—the new owner is to be treated as if the CEO had decided that it had met the grants entry requirements;
(c)any grant, or advance on account of grant, paid or payable (whether under this Act or under the repealed Act) to the previous owner in the capacity of owner of the business (or of the relevant part) is to be treated as having been paid, or as being payable, to the new owner;
(d)any other aspect of the business (or of the relevant part) is to be treated as if it had been carried on by the new owner.
Note:For eligible expenses, repealed Act and grants entry requirements see section 107.
Section 101(1)(d) of the EMDG Act provides that the Minister must determine, by legislative instrument:
guidelines to be complied with by the CEO in determining, for the purposes of subparagraph 94(1)(b)(ii), whether a business or a part of a business (the old business) that was carried on by a person is similar to a business (the new business) being carried on by another person to such an extent that the new business should be treated as a continuation of the old business.
The relevant “guidelines” are the Export Market Development Grants (Change in Ownership of Business) Guidelines 2006, made by the then Minister for Trade on 19 July 2006. They provide in clause 4 as follows:
4 Change in ownership of business
(1)In determining, for the purposes of subparagraph 94 (1) (b) (ii) of the Export Market Development Grants Act 1997, whether a business or a part of a business (the old business) that was carried on by a person is similar to a business (the new business) being carried on by another person to such an extent that the new business should be treated as a continuation of the old business, Austrade must comply with these Guidelines.
(2)In determining whether the new business is similar to the old business, Austrade must have regard to the similarities (if any) and the differences (if any) between:
(a)the product of the new business and that of the old business; and
(b)the activities that are carried out in the course of the business of the new business and the activities that were carried out in the course of the old business; and
(c)the customers, including the export market customers, of the new business and those of the old business; and
(d)the directors, shareholders, and management personnel of the new business and those of the old business; and
(e)the suppliers to the new business and those to the old business; and
(f)the overseas representatives of the new business and those of the old business; and
(g)the employees of the new business and those of the old business; and
(h)the markets, including the export markets, of the new business and those of the old business; and
(i)the premises from which the new business is conducted and the premises from which the old business was conducted; and
(j)the logo of the new business and that of the old business; and
(k)the property and assets, including the intellectual property, of the new business and those of the old business.
Just as the CEO of the Commission, as the original decision-maker, must comply with the Guidelines, so must the Tribunal when it undertakes its review of the original decision.
BRIEF FACTUAL BACKGROUND INCLUDING OWNERSHIP OF THE TWO RESTAURANT COMPANIES
Regess operates the 450-seat Zilver Seafood Restaurant located in Pitt Street, Haymarket. Regess is a tourism service provider as defined in s 107 of the EMDG Act. It has received grants under the EMDG scheme in respect of marketing activities undertaken in China and Hong Kong for tourism services. It has received five grants – one for each of the financial years from 2007 to 2011 inclusive.
The applicant is a company incorporated on 7 July 2010 to operate The Eight Modern Chinese Restaurant in Hay Street, Haymarket. That restaurant is located in premises previously occupied by a restaurant known as the China Grand. The China Grand was owned by entities at arm’s length from, and unconnected with, Regess and the applicant.
An ASIC search on Regess, undertaken on 22 May 2014[2], shows that on that date, the company had only one director – Ms Chillie Poon. The search also discloses that she had been the only director of the company since December 2009. On that date, the company’s 11,000 shares were held by the following entities, and in the following amounts:
[2] S2-6 in Exhibit R1
·Andishell Pty Limited – 1,100 shares;
·MCMY Australia Pty Ltd – 550 shares;
·Joot Pty Ltd – 550 shares;
·Zilver Group Corporation Pty Ltd – 2,585 shares;
·Albert Cheung – 660 shares;
·Ellis Choy – 660 shares;
·Wai Hung Wilson Tseih – 275 shares;
·Wilson Diec – 550 shares; and
·Waack Investment Pty Ltd – 4,070 shares.
An ASIC search on the applicant, also undertaken on 22 May 2014[3], shows that on that date, the applicant had two directors – Ms Poon and Yue Sum (Henry) Tang. Mr Tang is Ms Poon’s husband. He was appointed a director and the secretary of the applicant on 7 July 2010. Ms Poon was appointed a director on 24 June 2011. The 200 shares in the applicant were held on that date by the following entities, and in the following amounts:
·Zilver Group Corporation Pty Ltd – 150 shares;
·Wilson Diec – 10 shares;
·Joot Pty Ltd – 10 shares;
·MCMY Australia Pty Ltd – 10 shares; and
·Andishell Pty Limited – 20 shares.
[3] S1-1 in Exhibit R1
The shareholders of the applicant on 11 January 2013 (around the time of lodgment of the EMDG claim under consideration here) were[4]:
·3C Investments Group Pty Ltd – 30 shares;
·Joot Pty Ltd – 10 shares;
·Zilver Group Corporation Pty Ltd – 150 shares; and
·Wilson Diec – 10 shares.
[4] T13-51 in Exhibit R1
Prior to 11 January 2013 Zilver Group Pty Ltd and Zilver Group Holding Pty Ltd had been shareholders of the applicant.
THE PARTIES’ SUBMISSIONS ON THE CONSTRUCTION OF SECTION 94
The applicant refers to the language of s 94 and submits that:
·Regess is not the previous owner of the Zilver Seafood Restaurant but the current owner;
·The Zilver Seafood Restaurant is not an old business but a current business;
·It is not correct to say that Regess carried on the business of operating the Zilver Seafood Restaurant because it is still carrying on that business;
·The applicant does not carry on a business at a later time to Regess since the business carried on by Regess is carried on now, and so is the business of the applicant.
The applicant’s submission relies heavily on the temporal comparison between the carrying on of two business activities. The use of the past tense in s 94(1)(a) but the present tense in paragraph (b), the use of the words “previous”, “later”, “old” and “new” – all of these, the applicant submits, are indicators that the comparison is a temporal one, one that looks at what once was and compares that with what is now. Such a comparison in this case reveals nothing because, as the applicant’s representative Mr Turnbull put it, the section “doesn’t fit” the circumstances of this case. It follows, in the applicant’s submission, that s 94 cannot operate to treat the applicant’s claim as a sixth-year claim rather than a first-year claim.
The respondent submits that:
·Regess is the previous owner that carried on a business in Australia, namely the Zilver Seafood Restaurant;
·At a later time, another person “comprising 70% of Regess Pty Ltd” carries on a business, The Eight Modern Chinese Restaurant;
·That business is similar to the Zilver Seafood Restaurant, carried on by Regess before that time;
·The extent of the similarity is such that The Eight Modern Chinese Restaurant business should be treated as a continuation of the Zilver Seafood Restaurant business.
I understood Mr Leerdam, who appeared for the respondent, to reformulate the submission slightly during the hearing, so that the current business being carried on is now said to be the combined business of both the Zilver Seafood Restaurant and The Eight Modern Chinese Restaurant.
The respondent emphasises that the expression “carried on (or carries on) a business” cannot be considered in isolation from the identity of the owner who did, or does, the carrying on. So, it is submitted, regard should be had to the underlying ownership of the company or companies concerned. Once that is done, it becomes clear that the same persons – the shareholders of the two companies, which have a degree of commonality – are carrying on both businesses. This, it is submitted, is one of the types of arrangement that s 94 was designed to address.
THE PROPER CONSTRUCTION OF SECTION 94
It is clear that there is an interaction between s 93 and s 94 and for that reason it is not appropriate to consider one section without the other.
Section 93 identifies the “underlying principles” of Division 2. One of the underlying principles concerns the continued application of “the rules relating to grants that are payable in respect of a business”. That is unusual language, since eligibility for a grant is not dependent on there being a connection between the grant and a particular business. Grants are simply payable. They are payable to entities (the Act uses the expression “person”, which includes a corporation: Acts Interpretation Act 1901, s 2C(1)). Having said that, it is the case that a person must be carrying on business to be eligible for a grant (s 7(1)(a)). In context, then, the reference to grants that are payable “in respect of a business” must be a reference to grants that are payable to a grant recipient in respect of the particular business activities carried on by that recipient at the time the eligible expenditure was incurred.
There is a limit to the number of grants a person can receive – it is now eight but it used to be seven (s 7(1)(c)). A person will be restricted to the relevant number of grants no matter how many different business activities he, she or it carries on. So, if the one person carries on one business activity (Activity A) for ten years, the grants will cut out after eight years because of s 7(1)(c). Similarly, if the one person carries on one business activity (Activity A) for five years and then a different business activity (Activity B) for the following five years, the grants will cut out after eight years for the same reason. Likewise, and again for the same reason, if the one person carries on one business activity (Activity A) for five years, and then an extended business activity (Activity A plus Activity B) for five years, the grants will cut out after eight years. Sections 93 and 94 will not have any work to do in any of those cases.
On the other hand, ss 93 and 94 are designed to operate where the same (or a similar) business activity is carried on first by one person and then by another. The evident purpose of the sections is to prevent people from avoiding the eight-year grant restriction by having the same or similar activity carried on, successively, by different operators. If it were not for ss 93 and 94, a business activity carried on first by Operator A for five years and then by Operator B for five years would attract five years of grants to Operator A and five years of grants to Operator B. That is a clearly advantageous position when compared with that of the single operator discussed in [22]. It is an outcome undone by s 94.
Section 94 is drafted in an orthodox way. Its construction should be approached in an orthodox way. In my view neither the applicant nor the respondent has construed the section correctly.
The applicant has been beguiled by the labels in the section and has placed an unnecessary emphasis on the meaning of the words used as labels. For its part, the respondent has complicated its analysis by injecting questions that are not raised by the section.
The first question posed by s 94(1) is whether, at any time, a person carried on a particular business. If the answer to that question is yes, then the person is identified by the label “previous owner” and the business is identified by the label “old business”. There is no particular significance to those labels. The person need not have owned anything; nor need the business be old. The labels are just that: labels that can be applied to concepts to make the rest of the section easier to understand. Put another way, the “previous owner” is, by definition, a person who, at any time, carried on a particular business; the “old business” is, by definition, a particular business carried on at any time by a person. The labels could just as easily have been “Person A” and “Business X”.
The rest of s 94(1) proceeds in the same way. It next asks whether, at a later time, another person carries on the business or a part of the business. If the answer to that question is yes, then this other person is labelled the “new owner” and, if relevant, the part of the business being carried on is labelled the “relevant part”.
If the answer to the question is no, then an alternative question is asked. This question incorporates references to the labels (“previous owner” and “old business”) that were initially assigned in the first question. This alternative question is whether, at a later time, another person carries on a business that is similar to the old business (as defined), or a part of the old business (as defined), that was carried on by the previous owner (as defined) to such an extent that it should be treated as a continuation of the old business. It is this enquiry, and only this enquiry (see Australian Trade Commission v Isaac Jewellery Pty Ltd [2009] FCA 37), that is subject to the Guidelines set out in [7] of these reasons. If the answer to this alternative question is yes, then the person carrying on this similar business is labelled the “new owner”, the business now being carried on is labelled the “new business”, and the part of the old business being carried on (if applicable) is labelled the “relevant part”.
IS SECTION 94 CAPABLE OF APPLYING TO A CASE SUCH AS THIS?
I consider that s 94 is capable of applying to a case such as this.
It is true that, at a particular time, a person (Regess) carried on a particular business (the Zilver Seafood Restaurant). Therefore, s 94(1)(a) is engaged. Regess is the “previous owner” and the Zilver Seafood Restaurant is the “old business”.
It is also true that, at a later time, another person (the applicant) carries on a business (The Eight Modern Chinese Restaurant) that may be similar to the Zilver Seafood Restaurant. For the purpose of considering the Guidelines, the applicant is the “new owner” and The Eight Modern Chinese Restaurant is the “new business”. Therefore, s 94(1)(b)(ii) is potentially engaged, depending on the application of the Guidelines.
It is also true that the applicant (the “new owner”) has applied for a grant in respect of a grant year. Therefore, s 94(1)(c) is engaged.
The circumstances of this case are within the general principles of s 94. The question is whether, having regard to the Guidelines, the “new business”, The Eight Modern Chinese Restaurant, is similar to the “old business”, Zilver Seafood Restaurant, to such an extent that the Tribunal is satisfied that the new business should be treated as a continuation of the old business.
CONSIDERATION OF THE GUIDELINES
Before I embark on my own consideration of the Guidelines, it is helpful to record how Ms Poon dealt with the factors arising under the Guidelines when she wrote to the respondent on 14 March 2013[5] in support of the applicant’s EMDG claim. She commented:
[5] T15-55/56 in Exhibit R1
(a)The restaurant services are similar although the menus of each restaurant are different.
(b)The business activities of both The Eight and Zilver are similar in that the business activities of both are to supply Chinese meals to diners.
(c)The customers are similar in that both restaurants supply meals to tour groups and to individual diners. Zilver accommodates a higher % of inbound tour groups than The Eight whilst The Eight accommodates a higher % of Australian diners than Zilver.
(d)The directors and shareholders of The Eight and of Regess Pty Ltd are similar. I am a director of both companies and Henry is a director of only The Eight. Both companies share “some” common shareholders.
(e)The suppliers to both restaurants are predominately the same.
(f)The overseas representative used by both restaurants is the same.
(g)The employees of the restaurants are completely different.
(h)The markets are the same. Both restaurants endeavour to attract Australians and foreign diners to dine in the restaurants.
(i)The premises of the restaurants are completely different.
(j)The logos of the restaurants are completely different.
(k)The property and assets of the restaurants are completely different.
I now set out my own consideration of the Guidelines.
Guideline (a) – Product
The product of both Zilver Seafood Restaurant and The Eight Modern Chinese Restaurant is Chinese food.
In her oral evidence Ms Poon emphasised that the menus are “actually different in some areas”. Asked to explain how, she said they have “seasonal dishes, creativities, varieties, different types of Chinese area”. The Eight Modern Chinese Restaurant has Szechuan dishes, unlike Zilver Seafood Restaurant. Although Ms Poon’s letter to the respondent[6] indicated, in respect of the Zilver Seafood Restaurant, that “menus change all the time”, she retreated from that position in her oral evidence; when asked to confirm the claim she said “I don’t believe so.”
[6] T15-55 in Exhibit R1
Guideline (b) – Activities
Both businesses prepare and serve Chinese food to their customers. They do so on a large scale, one with 450-seats and the other with 700. They carry out the types of ancillary activities to be expected of a Chinese restaurant – menu creation, marketing, advertising, and promotional activities.
Guideline (c) – Customers
I accept Ms Poon’s statement that both restaurants cater to both tour groups and individual diners, with Zilver Seafood Restaurant having a higher proportion of tour groups and The Eight Modern Chinese Restaurant accommodating more Australian diners.
Ms Poon explained that the Zilver Seafood Restaurant markets to tour groups by sending them menus – “to encourage them to come” – as well as leaflets and promotional material. She agreed that some of the groups targeted are Experience Tour Australia, Holiday Pacific, Time Travel Pty Ltd, Transglobal, Aus Wonder Holiday and Ever Sun. All of those groups are included in a printout of the applicant’s sales[7], which, although headed “March 2012”, also includes some isolated transactions in late 2011.
[7] T10-33 in Exhibit R1
Ms Poon explained that each restaurant had a “tour manager”, and that the tour manager for Zilver Seafood Restaurant was not the same person as the tour manager for The Eight Modern Chinese Restaurant. She also acknowledged that promotional material and menus for both restaurants were sent to all the tour groups mentioned in [40] above. Somewhat incongruously, however, she also said that she had “no idea” whether the tour managers talk to the same tour operators.
The website is branded “Zilver Group” and offers three navigation selections – Zilver; The Eight; and Zilver Catering. It is possible from the home page to make bookings for either Zilver Seafood Restaurant or The Eight Modern Chinese Restaurant.
[8] A print of the home page, as accessed by the Commission on 12 August 2014, is Exhibit R3
Guideline (d) – Directors, shareholders and management personnel
Ms Poon is the sole director of Regess, while she and her husband Henry Tang are the two directors of the applicant.
All of the shareholders of the applicant, as at 22 May 2014, were also shareholders of Regess. At about the time of lodgement of the EMDG claim that may not have been the case, but Ms Poon still accepted that the shareholders of both companies were “similar”.
Ms Poon is the manager of The Eight Modern Chinese Restaurant while her sister-in-law Angela Tang is the general manager of Zilver Seafood Restaurant[9].
[9] T15-55 in Exhibit R1
Ms Poon explained that she, Ms Poon, has some involvement with both restaurants. At Zilver Seafood Restaurant she monitors the marketing activities. At The Eight Modern Chinese Restaurant she is involved in menu design and creation, as well as marketing.
Guideline (e) – Suppliers
According to Ms Poon’s evidence, which I accept, the suppliers to both restaurants are largely the same.
Guideline (f) – Overseas representatives
According to Ms Poon’s evidence, which I accept, the overseas representatives of both businesses are the same.
Guideline (g) – Employees
The employees are different. That is to be expected, since both restaurants appear to operate during similar trading hours.
Guideline (h) – Markets
The markets that the two businesses operate in are largely the same, as Ms Poon accepts.
Guideline (i) – Premises
The premises are different, although they are in close proximity.
Guideline (j) – Logo
Ms Poon claims that the logos of the restaurants are “completely different”, but in the branding of each restaurant there is one Chinese character that is common. Ms Poon explained that the character signifies “happy” or “lucky”.
Guideline (k) – Property and assets, including intellectual property
Ms Poon claims that the property and assets of the restaurants are completely different, and I accept that claim in the absence of any material to the contrary.
The Respondent noted that the know-how in running a Chinese restaurant is the same.
IS THE OLD BUSINESS SIMILAR TO THE NEW BUSINESS TO SUCH AN EXTENT THAT THE NEW BUSINESS SHOULD BE TREATED AS A CONTINUATION OF THE OLD BUSINESS?
This is the question which must be addressed, “hav[ing] regard to the similarities (if any) and the differences (if any)” identified in [36]-[54] of these reasons.
The similarities between the businesses identified by reference to the Guidelines are striking. The differences are minor and relatively unimportant.
The word “continuation”, used in s 94(1)(b)(ii) of the Act, is defined in the Macquarie Dictionary Online as “1. the act or fact of continuing or prolonging; 2. the state of being continued; 3. extension or carrying on to a further point: the continuation of a road; 4. that by which anything is continued; a sequel, as to a story”.
The “new business” carried on by the applicant is similar to the “old business” carried on by Regess to such an extent that the former is a “continuation” (definition 3 above) of the latter. The commonality of shareholding, the involvement of Ms Poon in the activities of both businesses and the relationships established with common tour operators all point towards such a conclusion. While Ms Poon tried to downplay the commonality – she emphasised that The Eight Modern Chinese Restaurant focuses heavily on parties, weddings and large corporate events whereas Zilver Seafood Restaurant is more attuned to attracting tour groups – the fact is that the former engages in significant activity with respect to tour operators and leverages off established relationships to maximise revenue from tour groups.
Five of the current shareholders of Regess have a 48.5% interest in a 450-seat Chinese restaurant; in addition to that, they now have a 100% interest in a 700-seat Chinese restaurant operated less than half a kilometre away.
The Eight Modern Chinese Restaurant is a continuation of the Zilver Seafood Restaurant business carried on by Regess. The respondent’s decision is affirmed.
I certify that the preceding 60 (sixty) paragraphs are a true copy of the reasons for the decision herein of Deputy President S E Frost ..............[sgd]..........................................................
Associate
Dated 12 December 2014
Date of hearing 13 August 2014 Advocate for the Applicant Mr M Turnbull Solicitors for the Respondent Mr L Leerdam, DLA Piper Australia
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