Travel Vision International Pty Ltd and Australian Trade Commission

[2001] AATA 766

DECISION AND REASONS FOR DECISION [2001] AATA 766

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No W1999/39

GENERAL ADMINISTRATIVE   DIVISION     )          
           Re      TRAVEL VISION INTERNATIONAL  PTY LTD         
  Applicant
           And    AUSTRALIAN TRADE COMMISSION  
  Respondent

DECISION

Tribunal       Associate Professor S D Hotop, Senior Member         

Date6 September 2001

PlacePerth

Decision      The Tribunal sets aside the decision under review and, in substitution therefor, decides that the applicant is eligible for a grant under s14(1) of the Export Market Development Grants Act 1974 in respect of the 1994/95 grant year on the basis that it incurred "eligible expenditure", comprising "claimable expenditure" of the kinds referred to in ss11C and 11L, and being "qualifying export development expenditure" within the meaning of Division 4 of Part 1A, of that Act, in the 1994/95 grant year.
  ..........(sgd S D Hotop)...........
  Senior Member
CATCHWORDS
BOUNTIES AND OTHER SUBSIDIES – Export Market Development Grant – whether applicant incurred eligible expenditure in 1994/95 grant year – whether applicant incurred claimable expenditure by way of expenses of agent – whether applicant incurred claimable expenditure by way of hotels, meals and entertainment expenses on overseas visits by agents

Export Market Development Grants Act 1974 ss3(2), 3(6), 3(9), 3(9A), 11A, 11C, 11L, 14

Australian Trade Commission v F & F Asia Pty Ltd (1996) 69 FCR 252
Australian Trade Commission v International Universities of Australia Pty Ltd [2000] FCA 348
Re Dronpool Pty Ltd and Australian Trade Commission (1999) 56 ALD 797

REASONS FOR DECISION

6 September 2001 Associate Professor S D Hotop, Senior Member   

Introduction

1. Travel Vision International Pty Ltd ("TVI") and 6 other persons each claimed a grant under the Export Market Development Grants Act 1974 ("EMDG Act") in relation to the year commencing 1 July 1994 ("1994/95 grant year"). On 1 April 1996 the Australian Trade Commission ("Austrade") decided to disallow each of the claims in full and, on 18 October 1996, following a reconsideration at the request of the claimants, Austrade confirmed those decisions.

2. The claimants subsequently applied to the Tribunal for a review of the abovementioned decisions of 18 October 1996.   On 16 January 1998 the Tribunal set aside 6 of the 7 decisions under review (including the decision disallowing TVI's claim) and made a decision in substitution therefor.   An appeal by Austrade to the Federal Court of Australia was dismissed on 5 February 1999: see Australian Trade Commission v Disktravel [1999] FCA 48. A further appeal by Austrade to the Full Court of the Federal Court of Australia was, however, allowed on 22 October 1999: see Australian Trade Commission v Disktravel (1999) 91 FCR 374. The Full Court set aside the decision of the Court at first instance and the decision of the Tribunal, in so far as those decisions related to the respondents to the appeal, and ordered that the decisions of Austrade in relation to those respondents be affirmed.

3. TVI was not a respondent in Austrade's appeal to the Full Federal Court, although it was a respondent in the appeal to the Federal Court at first instance. The position is, therefore, that the Tribunal's decision in relation to TVI, as affirmed by the Federal Court at first instance, remains in force. That decision was that the claimed expenditure of TVI was "qualifying export development expenditure" within the meaning of Div 4 of Pt 1A of the EMDG Act but that, to the extent that TVI incurred expenditure by way of payments to Plutora Pty Ltd, such expenditure was not "claimable expenditure" within the meaning of Div 2 of Pt 1A of that Act. Accordingly, the matter of TVI's claim is again before the Tribunal for decision but, on this occasion, with respect only to the issue of the quantum of "claimable expenditure" (if any) incurred by it in the relevant "claim period", namely, the 1994/95 grant year.

4. At the hearing TVI was represented by Mr G Castledine, Solicitor, and Austrade was represented by Mr R Le Miere of Queen's Counsel. The Tribunal had before it the statement and documents lodged with the Tribunal by Austrade pursuant to s37 of the Administrative Appeals Tribunal Act 1975 ("AAT Act") in the matter of Travel Vision International Pty Ltd and Austrade (Application No W96/432) ("the TVI T documents") and the following documentary exhibits tendered in evidence by the parties:

   ·     Statement of Peter John Ridsdale Snow filed on 15 May 2000 (including annexures PS1 – PS8) (Exhibit A1);

   ·     Minutes of a Meeting of Directors of Travel Vision International Pty Ltd held on 30 May 1994 (Exhibit A2);

   · Statement and documents lodged with the Tribunal by Austrade pursuant to s37 of the AAT Act in the matter of Holden Barlow and Austrade (Application No W96/429) (Exhibit R1);

   ·     Chart of Accounts of Plutora Pty Ltd comprising pp 1-8 (dated 29 June 1995) and  p10 (dated 23 November 1995) (Exhibit R2); and

   ·     letter from Austrade to Mr P Snow, Plutora Pty Ltd, dated 29 May 1998 and letter from Mr P Snow, Plutora Pty Ltd to Austrade (including schedules 1 – 3), dated 30 June 1998 (Exhibit R3).

Oral evidence was given by Mr P Snow.   There were no other witnesses.
Agreed Background Facts

1. The following background facts, which are agreed between the parties, are found by the Tribunal on the basis of the TVI T documents.

2. TVI lodged two claims for a grant under the EMDG Act for the 1994/95 grant year:

   (a)      a first-half claim for the period 1 July 1994 to 31 December 1994; and
   (b)      a balance-year claim for the period 1 January 1995 to 30 June 1995.

The total expenditure claimed by TVI for the whole of the 1994/95 grant year was $280,709.00 (T8, T9, T12, T13 and T17).

1. In the first-half year claim for 1994/95, TVI claimed expenditure in the following categories:

Description Amount      
Fares  $27,436.00   
Overseas visits allowance $45,000.00   
Literature/Advertising         $12,668.00   
Communications     $31,489.00   
Overseas representation        $121.00  
Agent/Consultants – Australia      $59,417.00   
Agent/Consultants – Overseas         $170.00  
Other  $13,953.00   
Total Expenditure  $190,254.00 

(T8, T9, T12 and T13).

1. In the balance-year claim for 1994/95, TVI claimed expenditure in the following categories:
    Description           Amount      
   Fares  $31,932.00   
   Overseas visits allowance $4,600.00    
   Literature/Advertising         $3,358.00     
   Communications     $18,208.00   
   Overseas representation         $326.00
   Agent/Consultants – Australia      $24,469.00   
   Other    $7,562.00  
   Total Expenditure  $90,455.00   

   (T17).

Additional Factual Background

1. The following relevant facts were found by the Tribunal for the purposes of its abovementioned decision of 16 January 1998 and were accepted by the Federal Court for the purposes of its decisions in the abovementioned appeals.

2. In June 1993 TVI, a company incorporated in Australia, retained "Microbase Business Systems" to develop a computer software program utilising "CD-ROM" technology whereby a comprehensive data base of travel and tourism information regarding certain countries would be stored on compact disks for use by participating travel agents in Australia and overseas.   The software program came to be known as the "Travel Vision System – Global Destination Database" ("Travel Vision System").   TVI has at all times owned the intellectual  property rights in and associated with the Travel Vision System.

3. TVI subsequently entered into a "Licence Agreement" with each of Disktravel, John G M Fiocco, Divot Pty Ltd, Holden Barlow, Coral Acorn Pty Ltd and CECK Investments ("the licensees") whereby TVI granted to each of the licensees, in consideration of the payment of specified fees, a licence "to use and to commercially exploit" the intellectual property associated with the Travel Vision System in the manner set out in the Agreement within a designated overseas territory for a specified period.    At the same time each of the licensees entered into a 'Marketing Agreement" with Plutora Pty Ltd ("Plutora") whereby the licensee appointed Plutora as 'Marketer and agent in respect of the Licensee's rights and obligations" under the relevant overseas territory Licence Agreement, and Plutora was obliged to "use its best endeavours to seek out and appoint Sub-licensees" in the designated overseas territory, and the licensee was obliged to pay to Plutora specified "marketing fees" and additional specified fees.    TVI also entered into similar Licence Agreements with the licensees in respect of designated territories within Australia.   Each licensee at the same time entered into a "Management Agreement" and a "Limited Recourse Loan Agreement" with Plutora.   Under the terms of the "Management Agreement" the licensee appointed Plutora as "manager and agent in respect of the Licensee's rights and obligations" under the relevant Australian territory Licence Agreement, and Plutora was authorised, inter alia, to enter into advertising agreements and collect advertising fees on behalf of the licensee and generally to exercise all powers of the licensee under that Licence Agreement, and the licensee was obliged to pay to Plutora specified "management and marketing fees" and other specified fees.   Under the terms of the "Limited Recourse Loan Agreement", Plutora agreed to lend a specified sum to the licensee to enable it to pay its "operating expenses" within the relevant Australian territory, and the licensee, by way of security for the loan, agreed to "charge (its) rights" under the Licence Agreement "in favour of" Plutora.

4. TVI did not enter into any formal marketing agreement or management agreement with Plutora.

5. Bruce Gallash and Peter Snow were, at all material times, directors of both TVI and Plutora.

6. TVI and each of the licensees claimed a grant under the EMDG Act in relation to the 1994/95 grant year. All such claims were ultimately disallowed by Austrade on 18 October 1996. Reviews by the Tribunal and the Federal Court of Australia then followed, as set out in paragraph 2 above.
   The Evidence of Peter Snow

7. Peter John Ridsdale Snow, a director of TVI, gave oral evidence.   A written statement of Mr Snow was tendered in evidence (Exhibit A1) and he confirmed that the contents of that statement were true and correct.   The contents of that statement are as follows:

   "…
   2. … the claim for an export market development grant by Travel Vision International Pty Ltd ('TVI') relates to expenses incurred in the 1994/95 financial year in promoting the Travel Vision System in territories not covered by licences granted to the six licensees.
   3.  The details of the claim lodged by TVI are accurately set out in paragraphs 2 and 3 of the Respondent's Revised Statement of Facts and Contentions on Quantum Issues dated 10 January 2000.  [See paragraphs 7 and 8 above] Unlike the claims lodged by the six licensees, no part of the claim by TVI includes any marketing fees paid to Plutora Pty Ltd as trustee for the M & M Trust ('Plutora').   This is because TVI paid no marketing fees to Plutora or any other funds for services rendered by Plutora.
   4.  Plutora was retained by the six licensees to promote the Travel Vision System and seek sub-licensees in the territories for which those parties had licences.   In those countries for which no licence had been granted, expenses incurred in the promotion of the Travel Vision System were allocated to TVI, being the party with rights in respect of those countries.   Out of convenience, these expenses were paid by Plutora on behalf of TVI.   In this regard, it would have been most inconvenient to have such expenses paid directly by TVI, given that economies of scale required consultants to purchase airfares and other services which would take them to a number of countries, (some of which would be licensed and some of which would be unlicensed).
   5.  Accordingly, an arrangement was agreed pursuant to which TVI would advance funds to Plutora on account of expenses to be incurred on its behalf.   Annexed to this statement and marked 'PS1' are copies of bank statements for TVI and Plutora covering the 1994/95 financial year indicating that the following payments were made by TVI to Plutora for this purpose on the dates specified.

   Date  Amount
   1 November 1994                 $100,000
   18 November 1994                 $12,000
   15 December 1994                 $85,000
   6 February 1995                   $100,000
   14 February 1995                   $42,000
   31 March 1995   $33,000
   28 June 1995   $50,000

   $30,000

   29 June 1995   $15,000
   30 June 1995   $10,000
   TOTAL  $477.000

   6.   In general terms, as funds became available to TVI they would be advanced to Plutora to enable TVI's expenses to be met.   However if TVI required funds to meet capital and software development costs some advances could be refunded by Plutora to TVI for that purpose.
   7.  At the end of the financial year, any surplus or shortage of funds required by Plutora to meet expenses incurred on behalf of TVI would be carried over to the next financial year.
   8.  Annexed to this statement and marked 'PS2' is a copy of extracts from Plutora's general ledger account activity detail report covering the 1994/95 financial year and showing the manner in which particular expenses were allocated to TVI as each expense was incurred.
   9.  Given that the various expenses were incurred by Plutora on behalf of TVI, and with the benefit of funds provided on account of such expenses, these expenses should  properly be treated as expenditure by TVI to third parties, and not as fees paid to Plutora.   In this regard, most of the invoices for expenses incurred on TVI's behalf were made out to TVI, not Plutora.   Annexed to this statement and marked 'PS3' are copies of examples of various payment vouchers to which are attached invoices to TVI, but which were paid by Plutora pursuant to the arrangement referred to above.
   10.  In relation to overseas visits allowances, the principle was again to claim this allowance for TVI in respect of visits to unlicensed territories.   In this regard, although most of the consultants were formally retained by Plutora, these retainers were entered into on behalf of TVI as far as the unlicensed territories were concerned.  For example, all business cards for agents and consultants used by TVI overseas indicated that they were representing Travel Vision International Pty Ltd as did all management and administration forms used by those agents and consultants.  Consultants would also report back to TVI as to progress made on their overseas visits.

   11.   Annexed to this statement and marked 'PS4', 'PS5', 'PS6', 'PS7' and 'PS8' respectively are copies of the following documents:
   (a)       the retainer agreements entered into with the various consultants;
   (b)       business cards for all agents and consultants used overseas;

   (c)a selection of management and administration forms used by agents and consultants;

   (d)a selection of completed consultants post visit review forms; and

   (e) a selection of 'on the road' faxes from consultants reporting back to TVI."

8. In his examination-in-chief, Mr Snow was first referred to paragraph 5 of his written statement and, in particular, to the reference therein to an "arrangement" between TVI and Plutora.   In that connection a document headed

   "MINUTES OF A MEETING OF DIRECTORS OF TRAVEL VISION INTERNATIONAL PTY LTD    
   held at the Registered Office on Monday 30th May 1994 at 11.00 am"

was tendered in evidence (Exhibit A2).   Mr Snow confirmed that that document is a true record of the business of a meeting of the directors of TVI which was held on the specified date.   The document records that Messrs B E Gallash, P J R Snow and F McQuillin were  present and that Mr Gallash was appointed Chairman of the meeting.  The document then records the following resolution:  

"that the appointment of Plutora Pty Ltd in its capacity as trustee for The M&M Trust as Manager of the affairs of the company and the company's wholly owned subsidiaries be confirmed and the Manager to be remunerated as follows:

1.A fee of 15% of all Initial Licence Fees received by the company in respect of all licences granted by the company; and

2.A fee equivalent to the actual costs incurred by the Manager in respect of the management of all subsidiaries and offices of the company and in the solicitation of potential licensees of the Travel Vision system."

The document next records that Messrs Gallash and Snow "declared their interest in the above arrangement by virtue of their positions as Directors of Plutora Pty Ltd and as direct or indirect beneficiaries of The M & M Trust" and finally records the following further resolution:

"to execute such Management Agreements and/or other documents as shall be necessary to give affect (sic) to this resolution under the Common Seal of the company or under the signature of a Director."

Mr Snow explained the basis of the abovementioned arrangement between TVI and Plutora.   He said that TVI was seeking to exploit its intellectual property (the Travel Vision System) both domestically and internationally and it was "deemed appropriate" that Plutora undertake the role of soliciting Australian licensees.   He added that, in order "to avoid confusion in the market place", Plutora agreed to act as manager of the affairs of TVI "so that the expenses related directly to third party licensees could be separated from those that were directly attributable to TVI".   He confirmed, however, that, notwithstanding the abovementioned further resolution recorded in the minutes of the meeting of the TVI Board on 30 May 1994, no "formal agreement" was entered into between TVI and Plutora.

1. Mr Snow was next referred to Annexure "PS2" to his written statement, which contains extracts from Plutora's "general ledger account activity detail report", showing the amounts debited and credited to the TVI accounts in the period from 1 July 1994 to 30 June 1995. He explained that the TVI accounts described each expense that was incurred by Plutora on behalf of TVI and that there was a separate TVI account for each category of expenditure incurred, corresponding to the various schedules of expenditure required to be supplied in a claim for a grant under the EMDG Act. He added that at the end of the financial year the total balance of the expenses incurred by Plutora was consolidated into the main TVI loan account kept by Plutora.

2. Finally in his examination-in-chief, Mr Snow was referred to Annexure "PS3" to his written statement, which contains various invoices addressed to TVI and corresponding "cheque payment vouchers" issued by Plutora in relation to payment of those invoices during the 1994/95 grant year.    Asked to explain why invoices were addressed to TVI but paid by Plutora, Mr Show said that "effectively the entire operation was Travel Vision International, that was the image", but, given that there were also the "third party licensees", it was administratively convenient for all the expenses of TVI and the licensees to be paid by one cheque drawn by Plutora, the amount of which would then be "dissected to the respective accounts", rather than for separate cheques to be drawn by TVI (for its expenses) and by Plutora (for the expenses of the licensees).   He added:

   "Plutora effectively acted as a clearing house…for the payment of accounts even though the expenses were, in fact, on account of Travel Vision or on behalf of the third parties."
   (Transcript, p.11)

He further added that the expenses of TVI were "never brought to account in …Plutora's accounts as an expense" because they were "expenses related to TVI, not Plutora".

1. In cross-examination Mr Snow was referred to the various letters of appointment (or "retainer agreements", as described in paragraph 11 of his written statement) relating to the persons appointed to act as consultants for the purpose of marketing the Travel Vision System in the relevant overseas territories.   These letters of appointment are contained in Annexure "PS4" to Mr Snow's statement and may be itemised as follows:

• letter dated 28 January 1994 from B E Gallash, "Chief Executive Officer", TVI to G C Hornel, President, Scotia Communications International;

• letter dated 21 April 1994 from P J Snow, "Joint Managing Director", Plutora to H Ferrara, Wanderlust Tours Pty Ltd;

• letter dated 12 May 1994 from P J Snow, "Joint Managing Director", Plutora to G Lucas, Skinpo Pty Ltd;

• letter dated 16 June 1994 from P J Snow, "Joint Managing Director", Plutora to M Martin, Riviera Systems Pty Ltd;

• letter dated 28 June 1994 from P J Snow, "Joint Managing Director", Plutora to O Martinson, Fransen Pty Ltd;

• letter dated 29 June 1994 from P J Snow, "Joint Managing Director", Plutora to J Pontre, The Rose Hill Trust; and

• letter dated 29 June 1994 from P J Snow, "Joint managing Director", Plutora to G Hankinson, Glenowen Enterprises Pty Ltd.

1. All 6 letters from Mr Snow (Plutora) commenced as follows:

   "Thank you for your time so far on the development and discussion on the plans for the TRAVEL VISION SYSTEM internationally.   As managers of the project on behalf of TRAVEL VISION INTERNATIONAL PTY LTD and marketers of sub-licences on behalf of our various Investor Licensees, we are pleased that your company has expressed interest in assisting in a marketing role.
   We confirm our wish to retain your consultancy to assist in the identification, solicitation and appointment of Licensees and/or Sub-Licensees or Joint-Venture Partners for the TRAVEL VISION SYSTEM for a number of territories internationally.   The list of territories for which your consultancy will be responsible will be the subject of mutual agreement …
   This letter is to confirm the terms and conditions under which your company is to provide the consultancy services to our company under the direction of our Joint Managing Director, Bruce Gallash."

Each letter then specified a date of commencement of the provision of the relevant consultancy services and set out the arrangements for remuneration, including the payment of consultancy fees and expenses.   As regards the latter, it was stated in each letter:

"All costs of overseas travel, sustenance and accommodation (of reasonable standard for a senior executive) and usual business outgoings will be borne by our company …".

Mr Snow agreed that terms such as "we", "our" and "our company" in those letters were references to Plutora.

1. The letter of 28 January 1994 from Mr Gallash of TVI to Mr Hornel of Scotia Communications International commenced as follows:

   "RE: CONSULTANCY APPOINTMENT

   It was good to meet you in person to discuss our plans for the development of our TRAVEL VISION SYSTEM internationally.
   Peter and I believe that your assistance will be invaluable in the establishment of TVI as the world's leading GLOBAL DESTINATION DATABASE:
   We confirm our wish to retain your consultancy to assist in:

   1.The solicitation and appointment of Licensees and/or Sub-Licensees for the TRAVEL VISION SYSTEM for a number of territories internationally.   We will mutually resolve the list of territories for which your consultancy will be responsible.

   2.The introduction of the TRAVEL VISION SYSTEM to the heirachy (sic) of the various National Tourism Offices, Travel Industry Associations and major hotel chains and, where possible, obtaining their official endorsement of the system.   In addition, it would be of great advantage to the licensing program if you could negotiate promotional/advertising agreements with those offices and/or assist the Licensees for those territories to do so.

   3.The preparation and distribution of appropriate promotional material to the travel industry and media.

   4.The establishment of strategically placed international TRAVEL VISION offices.

   5.The introduction of international Licensees and/or their senior management to appropriate contacts within the Travel Industry within their Licensed Territories."

As regards remuneration the letter stated:

"As some of the activities performed will be undertaken on behalf of Licensees whose affairs our associated entities manage, the actual payment for your firm's services may come from TVI or one or more other associated entities, …".  

The letter then set out details regarding the "base retainer", "bonuses" and "expenses".   As regards "expenses", the letter stated:

"… all costs of overseas travel, accommodation and usual outgoings will be borne by TVI or associated entities based on mutually agreed pre-travel budgets…".

1. Mr Snow explained that, as at the date of Mr Gallash's letter to Mr Hornel, there were no Australian Licensees in respect of the Travel Vision System but that later, after such licences had been granted to the licensees, it was Plutora (rather than TVI) which retained the relevant consultants on behalf of the licensees.   Mr Snow added, however, that those consultants, when appointed, were acting on behalf of both TVI and the licensees in the sense that they undertaking marketing services for the benefit of TVI and the licensees.   As regards Scotia Communications International, Mr Snow acknowledged that, as from July 1994, payments for consultancy services were in fact made by Plutora rather than TVI, although there had been no subsequent letter of appointment from Plutora to Scotia Communications International.   He also acknowledged that from July 1994 Scotia Communications International and the other consultants were retained by Plutora to undertake marketing services overseas which were for the benefit of TVI and the licensees.

2. Mr Snow was next referred to an exchange of correspondence between Austrade and himself regarding the "quantum assessment" of TVI's claim for a grant under the EMDG Act for the 1994/95 grant year. A letter from Austrade dated 29 May 1998 (Pt Exhibit R3) addressed to

   "Mr Peter Snow
   Joint Managing Director
   Plutora Pty Ltd
   …"

requested information in response to a series of questions including the following:

"…

• who did M & M represent during the 1994/95 year and in what capacity?

  …

• who did M & M engage and/or employ during the 1994/95 year enabling it to conduct its activities and provide services?"

In a letter dated 30 June 1998 from Mr Snow to Austrade (Pt Exhibit R3) the following information was provided in response to the abovementioned questions:

"…

2.During the period M&M represented all the claimant entities as their international marketer during the TRAVEL VISIONTM SYSTEM© in their relevant international territories and as manager of their Australian territories.  M&M also concluded its marketing and management of automotive software and introduced an investor group to the third party project mentioned previously for which it received commission.

…

5.The following is a list of companies, and the period of their engagement, retained on a consultancy basis to carry out the international marketing of the TRAVEL VISIONTM  SYSTEM©  in the 1994/95 year:

a)Fransen Pty Ltd (Full year);

b)Questbay Pty Ltd t/as Scotia Communications International (Full year);

c)Glenowen Enterprises Pty Ltd (Full year);

d)the Rose-hill (sic) Trust (Full year);

e)Riviera Systems Pty Ltd (01/07/94 – 30/11/94);

(f)Raycon International Pty Ltd (01/7/94 – 10/08/94);

g)Wanderlust Tours Pty Ltd (01/07/94 – 22/11/94); and

h)Skinpo Pty Ltd (01/07/94 – 16/11/94).

Employees of M&M and their respective responsibilities in the period were:

a)Jeff Oates – originally marketing of VMWorkshop, and then administrative duties;

b)Cecily Stewart – National Corporate Sales Manager/Australian Promotions;

c)Karen Rowell – Receptionist & Research assistant (Full time until Oct 94);

d)Carly Morrison – Receptionist & Research assistant (Full time commenced Nov 94);

e)Barbara Martinson – Research assistant (Casual);

f)Sue Mayer – Research assistant (Casual);

g)Brad Taylor – Research assistant (Casual); and

H)Ann Gallash- Research assistant (Casual).

In addition, Directors Messrs Snow and Gallash provided both marketing and some administrative services."

[The Tribunal notes that the references to "M&M" in the above correspondence are in fact references to Plutora.]

1. In his oral evidence Mr Snow sought to "clarify" the information provided in his letter of 30 June 1998.   He said that Plutora had relevantly acted in 2 capacities – as a manager on behalf of TVI, and as a marketer on behalf of the licensees pursuant to the relevant marketing agreements.   As regards the relationship between TVI and Plutora, he said that TVI was being managed by Plutora and was appropriately meeting its share of the expenses.

2. Mr Snow was also questioned about the meeting of the Directors of TVI on 30 May 1994, the minutes of which were in evidence (Exhibit A2 – see paragraph 16 above).   He confirmed that a meeting of the Directors, as recorded in those minutes, did in fact take place on that date.    He said that the arrangement between TVI and Plutora was that Plutora would manage the affairs of TVI  – in particular, the overseas market – in return for which Plutora would receive fees of two kinds, namely, a commission of 15% of all initial licence fees received by TVI and, secondly, the amount of costs incurred by Plutora in respect of its management of TVI's affairs.   As regards the latter fee category, he said that the intention was that TVI would "pay its share of the costs".    He reiterated that Plutora "never at any stage brought to account a fee in relation to" such costs and that, instead, it had "always been allocated directly as a share of costs to TVI" by debiting those costs in the various accounts in the name of TVI kept by Plutora.   Mr Snow's cross-examination on that matter continued as follows:

   "And then that debt or debit was acquitted at the end of each financial year by the transfer of that debt or debit to TVI's loan account with Plutora? --- Technically correct but in fact TVI had in substantial part of the cases already paid for those expenses to – by way of advances to Plutora.   And that what we end up with is, at the end of the year, an accounting consolidation.
   Do you agree that – and I will take you to the loan account and the debit accounts if you wish – but do you agree that what they show is that during the course of the year, TVI advanced various sums in round figures to Plutora? --- Correct.
   That those were credited to TVI's loan account? --- Correct.
   At times there were payments made back to TVI which were then debited to its loan account? --- Correct.
   When the various allocated costs were debited to TVI, they were debited to the various expense accounts – wrong choice of expression – the various accounts we've gone through? --- Accounting convenience for scheduling purposes.
   But when you said technically, would you agree that from an accounting perspective, what the accounts show is that the various allocated costs were debited to TVI during the course of the year and that those debts or debits were then acquitted at the end of each financial year by transferring that amount to TVI's loan account? --- No, I don't, because those particular schedule headings were purely for accounting convenience, for the purpose of putting TVI's schedule together.   So from Plutora's perspective, the instant they were allocated to any of the individual dissected accounts, they were TVI's acquittal.
   …
   Right.   You've told us that the arrangement between Plutora and TVI included that TVI had to – I take the words of the minute – to pay to Plutora a fee equivalent to the actual costs incurred in respect of the services.   So for the purpose of calculating or determining that fee, payment, reimbursement, whatever you want to call it, they have to be recorded? --- Yes, they did.
   And the  way in which they were recorded was in those debit accounts as I've referred to them? --- Yes.
   Right.   And they were actually discharged at the end of the financial year when they were offset against the loans or advances made to Plutora? --- No, I don't agree with that.   From an accounting convenience method, they were done in the different schedule things.   For simplicity's sake the balance was transferred at the end of  the year but the debt was incurred at the time the payment was made.   Now, if we'd have wanted to confuse and not simplify the accounting for the claim, they would have all gone straight to TVI's loan account on the day.
   My question was not when the debt was incurred, that is, as between Plutora and TVI, but when it was discharged, acquitted.   It was discharged or acquitted at the time the debits were transferred over to the TVI loan account.  Correct? --- Well, I can't see that.   I mean at the moment ---
   Well, from an accounting perspective that's correct, isn't it? --- Well, if there's a number of different dissected accounts, it doesn't necessarily mean that the debt is not acquitted just because one's in one dissection account and there's a credit in the other dissection account."
   (Transcript, pp67-68)

3. Mr Snow was also questioned about the basis on which expenses incurred by Plutora on behalf of TVI and the licensees were allocated amongst TVI and the licensees.   He said that such allocation of expenses was made by their administration manager (Mr J Oates) based on his judgment as to what was a fair and reasonable allocation amongst TVI and the licensees having regard to the subject matter of the expenses and the relative benefit thereof to TVI and/or one or more of the licensees, as the case may be.   He said that a "common sense approach" was taken to the issue of allocation of expenses and he rejected the suggestion that the allocation was made on an "arbitrary" basis.

4. In reply to a question from the Tribunal Mr Snow confirmed that no formal management agreement between TVI and Plutora (as foreshadowed in the abovementioned TVI Board minute of 30 May 1994) was ever executed.   He explained that because 2 of TVI's directors were also the directors of Plutora and the 2 companies were "related entities" with the same registered office

   "we didn't see the necessity because we all understood what it meant".
   (Transcript, p72).

The Legislation

1. Section 14(1) of the EMDG Act prescribed the conditions which must be fulfilled before a claimant would be eligible for a grant under that Act, including (relevantly) that "the claimant has incurred eligible expenditure in the claim period" (para (a)). The expression "eligible expenditure" was elucidated in s11A (in Div 1 of Pt 1A) which relevantly provided:

   "11A. (1) Expenditure is eligible expenditure of a person (other than an approved trading house, approved joint venture or approved consortium):
   (a)      only if it is incurred by the person; and
   (b)      only to the extent to which it is claimable expenditure (see Division 2); and

   (c) only if it is qualifying export development expenditure for the particular person (see Division 4).

   …".

Division 2 of Pt 1A of the EMDG Act set out the kinds of expenditure that were "claimable expenditure" (within the meaning of s11A(1)), including "expenses of agent" which was the subject of s11C which relevantly provided:

"11C. (1) Expenditure is claimable expenditure if:
   (a)  it is incurred by way of expenses of, contribution towards expenses of
       or payments made to, an agent for the purpose of:

(i)    the carrying out of market research or the obtaining of market
             information; or

(ii)   the advertising or other means of securing publicity or
             soliciting business; and

(b)  it is not paid or payable to:

…         

(v)      an associated company carrying on business in Australia.

(2) Expenditure is claimable expenditure under this section only to the extent
to which it relates to one or more of the following:
   (a)  eligible goods;
   (b)  eligible services;
   (c)  eligible internal educational services;
   (d)  eligible external governmental educational services;
   (e)  eligible industrial property rights;
   (f)  eligible know-how;
   (g)  eligible internal services;
   (h)  eligible tourism services;
   (i)  designated tourism services.

(3) In applying subsection (2), the Commission is to have regard to:
   (a)  the number of different types of goods, services or other things being
       promoted by the agent; and
   (b)  the allocation of the agent's time; and
   (c)  any other matters that the Commission considers relevant.
…",

and "hotels, meals and entertainment expenses on overseas visits ($200 a day allowance)" which was the subject of s11L which applied to:

"a person who is:
(a)      the claimant; or
(b)      a prescribed agent of the claimant; or
(c)      any other agent of the claimant; ".

Section 3 of the EMDG Act contained definitions of various words and phrases for the purposes of the Act and also relevantly provided:

"(2)  For the purposes of this Act, where an act is done by an agent on behalf of his principal, it shall be deemed to be done by the principal and not by the agent.
…
(6) For the purposes of this Act, but subject to subsections (7) and (8), expenditure shall be taken to have been incurred only at the time when the amount of that expenditure is acquitted.
…
(9)  For the purposes of this section, but subject to the operation of subsections (7) and (8), an amount shall be taken to have been acquitted at the time when:
(a)       that amount is paid by one person to another person; or

(b)that amount is, in an account rendered by one person to another person, set off by the person rendering the account against money owing by that other person to the person rendering the account.

(9A)  For the purposes of subsection (9), if an amount is paid by cheque or payment order, the amount is taken to be paid when the bank or financial institution on which the cheque or payment order is drawn debits the drawer's account."

The Issues

1. The general issues in this case are whether any "claimable expenditure" – specifically, of the kinds referred to in ss11C and 11L of the EMDG Act – was incurred by TVI in the 1994/95 grant year, and, if so, the quantum thereof. For the purpose of determining those issues, it is common ground that Plutora is, in relation to TVI, "an associated company carrying on business in Australia" within the meaning of s11C(1)(b)(v) of the EMDG Act. It is also common ground that the relevant expenditure claimed by TVI to have been incurred by it in the 1994/95 grant year is "qualifying export development expenditure" within the meaning of Div 4 of Pt 1A of the EMDG Act. Accordingly, to the extent that TVI incurred "claimable expenditure" in the 1994/95 grant year, that expenditure was "eligible expenditure" for the purposes of determining TVI's eligibility for a grant under s14 of the EMDG Act.
   Did TVI Incur Claimable Expenditure of the Kind Referred to in Section 11C of the EMDG Act?
   The Submissions

2. Mr Castledine (for TVI) submitted that all the claimed items of expenditure set out in paragraphs 7 and 8 above – other than "Overseas visits allowance" (as to which, see paragraphs 38-45 below in relation to s11L) – were "incurred" by TVI, within the meaning, and for the purposes, of ss11A and 11C of the EMDG Act. He submitted that Plutora, when it incurred and paid the relevant expenses, did so on behalf of TVI as the agent of TVI. Accordingly, he submitted, by virtue of s3(2) of the EMDG Act those expenses are deemed to have been incurred by TVI as the principal. He cited Australian Trade Commission v International Universities of Australia Pty Ltd [2000] FCA 348 at paras 27-30 and Nilsen Development Laboratories Pty Ltd v Federal Commissioner of Taxation  (1981) 144 CLR 616 at 627. He further submitted that none of the relevant claimed items of expenditure involved a payment to Plutora of the kind contemplated by s11C(1)(b) of the EMDG Act – rather, they each involved a payment of "third party expenses" incurred by Plutora on TVI's behalf. He cited Australian Trade Commission v WA Meat Exports Pty Ltd (1987) 75 ALR 287 at 291 in support of the proposition that such a payment of "third party expenses" does not constitute the kind of "mischief" sought to be avoided by s11C(1)(b) of the EMDG Act.

1. Mr Le Miere (for Austrade) submitted that all the relevant claimed items of expenditure set out in paragraphs 7 and 8 above were incurred by Plutora, and not by TVI, and that the relevant payments made by TVI to Plutora did not constitute "claimable expenditure" within the meaning of s11C of the EMDG Act because they were payments made to an "associated company" (as defined in s3(1) of that Act) carrying on business in Australia. He submitted that there was no legal relationship between TVI and any of the consultants, suppliers, creditors etc in respect of whom the obligation to pay the relevant expenses was incurred by Plutora, and that TVI did not itself assume any obligation to pay any of those expenses. Nor, he submitted, was Plutora, when it appointed the various consultants and incurred the relevant expenditure, acting as the agent of TVI. Rather, he submitted, Plutora was at all relevant times acting as TVI's manager, and in that capacity it – not TVI – assumed the relevant contractual obligations to the consultants etc and the obligations to pay expenses.
   Consideration and Findings

2. There is no dispute that each of the claimed items of expenditure was paid directly by Plutora by means of a cheque drawn by Plutora. The question is whether, notwithstanding that each item of expenditure was paid directly by Plutora, TVI nevertheless "incurred" that expenditure, within the meaning, and for the purposes, of the EMDG Act.

3. In Australian Trade Commission v International Universities of Australia Pty Ltd [2000] FCA 348 the Federal Court of Australia (Finkelstein J) said, in relation to the EMDG Act (at paras 26 – 27):

   "26   How then does the statute operate? Section 14(1)(a) imposes a requirement that the claimant is the person who has incurred the expenditure that is said to be eligible expenditure. That requirement is emphasised in s 11A(1)(a) which provides that expenditure is eligible expenditure of a person only if it is incurred by that person. Another requirement that is imposed by s 14(1)(a) is that the expenditure must be incurred in the claim period. It will only be incurred in the claim period if the amount of that expenditure is acquitted (that is paid or set off) in that period. That is the effect of subs 3(6) and subs 3(9). …
   27 Although expenditure is only incurred when it is acquitted, the requirement that the claimant be the person who incurs the expenditure means more than that the claimant be the person who has paid that expenditure. The combined effect of ss 14(1)(a), 11A(1)(a), 3(6) and 3(9) makes it clear that the claimant must also be the person who has assumed the obligation that is discharged on acquittal. That is, expenditure is 'incurred' under this Act only when the claimant has both assumed the obligation to pay an expense which is enforceable at law (Nilsen Development Laboratories Pty Ltd v Federal Commissioner of Taxation (1981) 144 CLR 616 at 627) and has acquitted that expense. It is not necessary to decide whether the obligation must be assumed under a contract or by some other means, as for example pursuant to principles of restitution or according to the doctrines of equity. "

In the present case the evidence supports a finding that TVI both assumed an obligation ultimately to pay the claimed items of expenditure initially paid by Plutora, and ultimately did pay those items of expenditure.    At the meeting of the Board of Directors of TVI on 30 May 1994 it was resolved that TVI would pay Plutora certain "fees", including a fee "equivalent to the actual costs incurred" by Plutora in respect of the management of TVI's affairs and "in the solicitation of potential licensees of the Travel Vision System" (Exhibit A2).   Although no formal agreement giving effect to that resolution was subsequently entered into by TVI and Plutora – for the reasons explained by Mr Snow in his oral evidence (see paragraph 27 above) – Plutora did in fact incur costs on behalf of TVI pursuant to that resolution, which costs were then debited to the relevant accounts in the name of TVI kept by Plutora.   The Tribunal notes, in this connection, that numerous invoices for relevant services were addressed to TVI but were instead paid by Plutora (see annexure PS3 to Mr Snow's statement (Exhibit A1) and paragraph 9 thereof).   TVI, furthermore, advanced funds to Plutora from time to time on account of such costs to be incurred by Plutora on TVI's behalf, as stated by Mr Snow (Exhibit A1, para 5).

1. Accordingly, on the basis of the evidence before it, the Tribunal finds that, by reason of the resolution of its Board of Directors (which included all the Directors of Plutora) on 30 May 1994 which in effect authorised Plutora to incur the relevant claimed items of expenditure on its behalf, and by reason of the fact that Plutora, pursuant to that authorisation, subsequently incurred such expenditure on behalf of TVI, TVI itself assumed a legally enforceable obligation to pay each such item of expenditure and did in fact ultimately pay each such item of expenditure. The Tribunal concludes, therefore, that TVI "incurred" each of the claimed items of expenditure within the meaning, and for the purposes, of ss11A and 14 of the EMDG Act.

2. The next issue which arises – namely, whether each of the claimed items of expenditure was "claimable expenditure" within the meaning of s11C of the EMDG Act – can be dealt with briefly. That issue was argued before the Tribunal by the parties on the basis that, to the extent that the claimed expenditure involved payments made by TVI to Plutora, that expenditure was not "claimable expenditure" because Plutora is an "associated company" (as defined in s3(1) of the EMDG Act) in relation to TVI, but that otherwise to the extent that the claimed expenditure was "incurred" by TVI, it was "claimable expenditure" within the meaning of s11C of the EMDG Act.

3. The Tribunal accepts Mr Castledine's submission that none of the claimed items of expenditure involved a payment by TVI to Plutora of the kind contemplated by s11C(1)(b) of the EMDG Act. The Tribunal agrees with Mr Castledine's characterisation of each of the claimed items of expenditure as a payment by TVI of "third party expenses" initially incurred and paid by Plutora on behalf of TVI. None of those claimed items of expenditure involved a payment by TVI to Plutora by way of a management fee or any other kind of fee for services or for any purpose other than merely to reimburse Plutora for the abovementioned "third party expenses" paid by it on TVI's behalf.

4. Accordingly, the Tribunal finds that each of the claimed items of expenditure "incurred" by TVI (as already found) constituted "claimable expenditure" within the meaning of s11C of the EMDG Act.
   Did TVI Incur Claimable Expenditure of the Kind Referred to in Section 11L of the EMDG Act?
   The Submissions

5. Mr Castledine submitted, relying on Australian Trade Commission v F & F Asia Pty Ltd (1996) 69 FCR 252 at 261, that each of the consultants, in respect of whom "Overseas visits allowance" was claimed by TVI, was acting as an agent of TVI during the relevant overseas visits and, accordingly, was a person to whom s11L of the EMDG Act applied. In support of that submission he referred to the evidence of Mr snow – in particular, para 10 of Mr Snow's statement and annexures PS4 – PS8 thereto (Exhibit A1).

6. Mr Le Miere submitted, relying on Re Dronpool Pty Ltd and Australian Trade Commission (1999) 56 ALD 797 at 798, that none of the consultants, in respect of whom "Overseas visits allowance" was claimed by TVI, was acting as an agent of TVI during the relevant overseas visits because there was no legal relationship between TVI and any of those consultants. The mere fact that a consultant happened to do something which was for the benefit of TVI was not sufficient, he said, to establish the relationship of principal and agent as between TVI and the relevant consultant.
   Consideration and Findings

7. In Australian Trade Commission v F & F Asia Pty Ltd (1996) 69 FCR 252 the Federal Court of Australia (Carr J) said (at 261):

   "There is nothing in s11C [of the EMDG Act] which … requires the reference to an agent to be limited to an agent having the legal ability to bind the claimant contractually. Rather, in my opinion, the expression 'agent' takes its meaning from the context ie an agent for the purpose of carrying out market research, obtaining market information or advertising or other means of securing publication or soliciting business. The section, when read with s3(2), is intended to refer to these activities when carried out on behalf of the claimant."

In the Tribunal's opinion, the reference to "agent" in s11L of the EMDG Act should be understood in the same way.

1. In the present case, TVI claimed "Overseas visits allowance" – that is, that it had incurred "claimable expenditure" of the kind referred to in s11L of the EMDG Act – in the total amount of $49,600.00 for the 1994/95 grant year in respect of overseas visits made by the following persons:
     H Ferrara of Wanderlust Tours Pty Ltd;
     O Martinson of Fransen Pty Ltd;

   G Hornel of Questbay Pty Ltd trading as Scotia Communications International;
   G Hankinson of Glenowen Enterprises Pty Ltd;
   J-N Pontre of The Rose Hill Trust;
   M Martin of Riviera Systems Pty Ltd;
   G Lucas of Skinpo Pty Ltd;
   W Garratt of Isagoge Pty Ltd;
   B Gallash of Plutora; and
   P Snow of Plutora.

It is common ground that Messrs B Gallash and P Snow, being Directors of TVI, were at all relevant times "prescribed agents" (as defined in s3(1) of the EMDG Act) of TVI and were, accordingly, persons to whom s11L of the EMDG Act applied. The matter which is in dispute is whether each of the other persons listed above was at the relevant time an agent of TVI and, therefore, also a person to whom s11L applied.

1. Before considering and making findings in relation to the matter in dispute, the Tribunal notes that there is no evidence before it in relation to one of the persons in the above list, namely "W Garratt of Isagoge Pty Ltd".   The Tribunal is, accordingly, unable to make findings in relation to that person and company and the following discussion and findings are to be understood as not referring to "W Garratt" and "Isagoge Pty Ltd".

2. In the Tribunal's opinion each of those abovementioned persons was acting as an agent of TVI, in the sense referred to by Carr J in F & F Asia (above), during the relevant overseas visits.   Although Plutora (rather than TVI) appointed each of the abovementioned companies (represented by the relevant abovementioned person) – with the exception of Questbay Pty Ltd trading as Scotia Communications International, represented by G Hornel – as a consultant for the purpose of promoting the Travel Vision System overseas, it did so as manager of that project on behalf of TVI (see para 10 of Mr Snow's statement (Exhibit A1) set out in paragraph 15 above, and the relevant terms of appointment set out in paragraph 20 above).   Furthermore, according to para 10 of Mr Snow's statement, and annexures PS5 – PS8 thereto, each of the abovementioned persons 

• had a business card clearly indicating that he or she was representing TVI; and

• reported directly to TVI on the relevant overseas visits by way of "urgent fax" during the visit and by completing a "post visit review" form.

Having regard to the whole of the evidence before it, the Tribunal is satisfied, and finds, that each of the abovementioned companies, through its relevant abovementioned representative, was acting as an agent of TVI on the relevant overseas visits in that each of them was appointed by Plutora, acting on behalf of TVI, as a consultant for the purpose of promoting, and soliciting business for, the Travel Vision System overseas.   In the Tribunal's opinion the present case is distinguishable from Re Dronpool Pty Ltd and Australian Trade Commission (1999) 56 ALD 797, which was relied on by the respondent, because in the present case, unlike Dronpool, there was a "connection of a legal nature" between TVI and each of the abovementioned consultants in that each of them was appointed by Plutora on behalf of TVI; and, furthermore, each of those consultants was appointed for relevant "statutory purposes" (cf Dronpool, at 798).

1. As regards Questbay Pty Ltd trading as Scotia Communications International, represented by G Hornel, the position is a fortiori in that that company was appointed as a consultant directly by TVI (see paragraph 21 above).   Even if, as Mr Snow's evidence before the Tribunal indicated, after May 1994 and during the 1994/95 grant year Questbay Pty Ltd's consultancy services were in fact retained by Plutora, the Tribunal is satisfied that such retainer was continued by Plutora on behalf of TVI, on the same basis as the other abovementioned consultants were retained by Plutora on behalf of TVI (as discussed above).   Accordingly, the Tribunal finds that Questbay Pty Ltd trading as Scotia Communications International, through its representative G Hornel, was also acting as an agent of TVI on the relevant overseas visits.

2. The Tribunal finds, therefore, that each of the persons listed in paragraph 41 above – with the exception of "W Garratt of Isagoge Pty Ltd", in respect of whom or which no finding is made – is a person to whom s11L of the EMDG Act applies for the purposes of TVI's claim for a grant under the EMDG Act in relation to the 1994/95 grant year.
   Conclusion

3. The conclusion of the Tribunal is, therefore, that TVI incurred "claimable expenditure" of the kinds referred to in ss11C and 11L of the EMDG Act in the 1994/95 grant year, and that that expenditure is "eligible expenditure" for the purposes of determining TVI's eligibility for a grant under s14 of the EMDG Act.

4. As regards the quantum of that "eligible expenditure", the Tribunal is not in a position to make a precise finding although it understands that the amounts of expenditure specified in paragraphs 7 and 8 above are not in dispute.   In any event the Tribunal makes no finding as to the quantum of eligible expenditure incurred by TVI in the 1994/95 grant year on the understanding that that matter will be agreed by the parties in the light of the Tribunal's findings and decision.
   Decision

5. For the above reasons the Tribunal sets aside the decision under review and, in substitution therefor, decides that TVI is eligible for a grant under s14(1) of the EMDG Act in respect of the 1994/95 grant year on the basis that it incurred "eligible expenditure", comprising "claimable expenditure" of the kinds referred to in ss11C and 11L, and being "qualifying export development expenditure" within the meaning of Div 4 of Pt 1A, of that Act, in the 1994/95 grant year.

I certify that the 48 preceding paragraphs are a true copy of the reasons for the decision herein of Associate Professor S D Hotop, Senior Member)

Signed:

..................................(sgd S Railton)................................
Associate

Date/s of Hearing  18 October 2000
Date of Decision  6 September 2001
Counsel for the Applicant        Mr G Castledine
Solicitor for the Applicant         Minter Ellison Lawyers
Counsel for the Respondent    Mr R Le Miere QC
Solicitor for the Respondent    Australian Government Solicitor