Yao v Minister for Immigration
[2016] FCCA 3164
•16 December 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| YAO & ORS v MINISTER FOR IMMIGRATION & ANOR | [2016] FCCA 3164 |
| Catchwords: MIGRATION – Application for Business Skills (Residence) (Class DF) subclass 890 visa – review of decision of Administrative Appeals Tribunal – whether the Tribunal erred in determining what is a “net asset” for the purpose of assessing the applicants satisfying cl.890.212 in sch.2 to the Migration Regulations 1994 (Cth) – whether the Tribunal miscalculated the applicants loan to the business as a liability – jurisdictional error – writs issued. |
| Legislation: Migration Act 1958 (Cth), s.134 Migration Regulations 1994 (Cth), regs.1.03, 1.11, item 1104B(4) of sch.1, cll.890.211, 890.212, |
| Cases cited: Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 Minister for Immigration & Border Protection v Lesianawai (2014) 227 FCR 562; [2014] FCAFC 141 Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 79 ALJR 825; [2005] HCA 13 |
| First Applicant: | JIN YAO |
| Second Applicant: | YONG ZHANG |
| Third Applicant: | YIYI ZHANG |
| First Respondent: | MINISTER FOR IMMIGRATION & BORDER PROTECTION |
| Second Respondent: | ADMINISTRATIVE APPEALS TRIBUNAL |
| File Number: | SYG 3337 of 2015 |
| Judgment of: | Judge Smith |
| Hearing date: | 10 November 2016 |
| Date of Last Submission: | 10 November 2016 |
| Delivered at: | Sydney |
| Delivered on: | 16 December 2016 |
REPRESENTATION
| Solicitors for the Applicants: | Mr D Gu, Proactive Legal Pty Ltd |
| Counsel for the First Respondent: | Mr J Kay Hoyle |
| Solicitors for the Respondents: | DLA Piper Australia |
ORDERS
A writ of certiorari issue quashing the decision of the second respondent dated 27 November 2015.
A writ of mandamus issue directed to the second respondent requiring it to determine the applicant's application for review of the decision of a delegate of the first respondent dated 13 March 2014 according to law.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 3337 of 2015
| JIN YAO |
First Applicant
| YONG ZHANG |
Second Applicant
| YIYI ZHANG |
Third Applicant
And
| MINISTER FOR IMMIGRATION & BORDER PROTECTION |
First Respondent
| ADMINISTRATIVE APPEALS TRIBUNAL |
Second Respondent
REASONS FOR JUDGMENT
The applicants are husband and wife and their child, who applied for visas on 27 February 2013 on the basis of their ownership interest in Q&Y (Aust) Pty Limited (“Q&Y”). Q&Y operates a retail petrol franchise in an inner western suburb of Sydney. I will refer to the first and second applicants as the “applicants”.
One of the criteria for the grant of the visas was that the net assets of the applicants in Q&Y had a net value of at least $100,000 throughout the 12 month period ending immediately before the application was made. On 13 March 2014 a delegate of the Minister approached this criterion by reference to Q&Y’s balance sheets for the relevant period. The delegate was not satisfied that the amount recorded in respect of goodwill was substantiated and so deducted that amount from the net assets of the company. She concluded that the value of the applicants’ assets in the company did not amount to $100,000 and so decided not to grant the visas.
The applicants applied to the Migration Review Tribunal[1] for review of the delegate’s decision. The Tribunal also found that the net assets of the applicants in Q&Y did not meet the criterion and so affirmed the delegate’s decision.
[1] As it was then known. On 1 July 2015 it became the Administrative Appeals Tribunal: Tribunals Amalgamation Act 2015 (Cth).
Proceedings before the Tribunal
The Tribunal’s approach to the issues was different to that of the delegate. It accepted that the use of the applicants’ share of the net assets of the company was just one way to measure their net assets in the business and may not be the most accurate measure: [74]. It then examined the contention that the first applicant had made a loan to Q&Y and that this constituted an asset of hers in the main business. However, it found at [102] that the loan was not the best assessment of the applicants’ net assets in Q&Y and so determined the issue by reference to the net assets of the company.
One of the reasons for which the Tribunal did not assess the applicants’ net assets in Q&Y by reference to the loan was its view that the loan could only be seen as a net asset, where the money was accessible by, and controlled by the applicants alone for the purpose of Q&Y’s business: [98]. The applicants contend that this reveals that the Tribunal misunderstood the meaning of “asset” and, alternatively, that if the loan was not to be counted as an asset of the applicants, it should not have been included as a liability of Q&Y. The result of that would have been that the net assets of Q&Y were greater and the applicants’ share of those assets increased proportionately.
The Minister accepted that the Tribunal made an error in considering the loan but contended that it was not material to its decision and so did not amount to jurisdictional error. I do not accept that argument. Given the centrality of the applicants’ “net assets” to its decision, the Tribunal’s misconception as to what might fall within the ordinary meaning of that term diverted the Tribunal from considering the question posed by the relevant criterion for the visa. Although the Tribunal arrived at a decision for reasons that were open to it, the diversion affected the Tribunal’s review of the delegate’s decision. For that reason, it constructively failed to exercise its jurisdiction and its decision must be set aside and the matter remitted to the Tribunal to determine according to law.
Relevant statutory provisions
The Migration Act 1958 (Cth) provides for the grant of permission to non-citizens to enter and remain in Australia. That permission is given by the grant of a visa. There are classes of visa provided for in the Act and the Migration Regulations 1994 (Cth) and an applicant must ordinarily apply for a particular class of visa. The Minister must consider a valid application and, if satisfied of a number of matters, must grant the visa. One of those matters is whether the applicant satisfies the criteria for the grant of the visa. If the Minister is not satisfied of those matters, he or she must refuse to grant the visa.
The applicants applied for a Business Skills (Residence) (Class DF) subclass 890 visa. That class of visa had a number of subclasses, the relevant one of which was subclass 890 (Business Owner): item 1104B(4) of sch.1 to the Regulations. The criteria relevant to that subclass were contained in cl.890 in sch.2 to the Regulations. As the name of the subclass suggests, one of those criteria was, relevantly, that the applicant have “an ownership interest” in one or more actively operating “main businesses”: cl.890.211.
“Ownership interest” in relation to a business in this context includes the holding of shares in a company that carries on the business: reg.1.03 of the Regulations and s.134(10) of the Act.
The term “main business” was defined by reg.1.11 relevantly as follows:
1.11 Main Business
(1)For the purposes of these Regulations and subject to subregulation (2), a business is a main business in relation to an applicant for a visa if:
(a)the applicant has, or has had, an ownership interest in the business; and
(b)the applicant maintains, or has maintained, direct and continuous involvement in management of the business from day to day and in making decisions affecting the overall direction and performance of the business; and
…
(d)the business is a qualifying business.
A “qualifying business” is defined in reg.1.03 as an enterprise that:
a)is operated for the purpose of making profit through the provision of goods, services or goods and services (other than the provision of rental property) to the public; and
b)is not operated primarily or substantially for the purpose of speculative or passive investment.
There was no issue before the Tribunal that the applicants satisfied these criteria: they held shares in Q&Y which operated a business selling petrol and other products to the public for the purpose of making a profit.
It was also a criterion for the grant of the visa that the main applicant (or her husband or together with her husband) have assets of a certain value “in the main business”. Clause 890.212 of the Regulations provided:
The assets of the applicant, the applicant’s spouse or de facto partner, or the applicant and his or her spouse or de facto partner together, in the main business or main businesses in Australia:
a)have a net value or at least AUD100 000; and
b)had a net value of at least AUD100 000 throughout the period of 12 months ending immediately before the application is made; and
c)have been lawfully acquired by the applicant, the applicant’s spouse or de facto partner, or the applicant and his or her spouse or de facto partner together.
There is no definition of the terms “assets” or “in the main business” in either the Act or Regulations. However, the evident purpose of the provision is to ensure that only business owners with a significant financial commitment to the business be entitled to the grant of the visa.
Factual background
The applicants applied for the visas on the basis of their interest in Q&Y which operated a retail petrol franchise in Sydney. It is necessary to explain briefly how they came to acquire that interest, although it should be noted that some aspects of that acquisition are not entirely clear.
The petrol business was called Metro Petrol Marrickville (“Metro”). In September 2008 that business was sold for $700,000 to Q&Y. The sale price reflected the value given to the goodwill of the business.
At the time of the purchase of Metro there were 10,000 issued shares in Q&Y. Those shares were held in equal amounts by Minghai Zhang and Lingrong Zhou (the sister of Mr Zhang’s wife). In December 2010 Mr Zhang and Ms Zhou agreed to sell 5,000 shares to the applicants. This sale occurred in several tranches. First, on 7 January 2011, Mr Zhang transferred 1,000 shares to the second applicant. Secondly, on the same day, Ms Zhou transferred 2000 shares to the second applicant. Thirdly, Ms Zhou transferred a further 2000 shares to the first applicant on 9 August 2011. According to the records held by ASIC in respect of Q&Y, both applicants came to hold 5000 shares in Q&Y jointly, that is, 50% of the issued shares in that company.
This transaction was referred to in a document signed by Mr Zhang, Ms Zhou and the applicants on 1 November 2011. The document states that after amicable negotiations there had been an oral agreement that the applicants made a “one-off investment of AU$350,000.00 to purchase shares of Q&Y AUST PTY LTD”.
Q&Y’s balance sheet for the year ended 30 June 2010 showed a secured loan to Q&Y from Lingrong Zhou as a non-current liability in the amount of $350,000. The balance sheet for the following year no longer included that loan, but instead included a loan from the first applicant as a non-current liability in the amount of $440,000. In a letter addressed to the Tribunal, Ms Zhou and her sister explained that Ms Zhou had made a Director’s loan to Q&Y in the amount of $350,000 and that that loan had been repaid on 3 December 2010.
In a letter to the Tribunal dated 30 April 2015 the accountant for the company gave the following explanation of the relevant transactions (without alteration):
Loans from Yao Jin [the first applicant]
The financial statements show that Yao Jin made loans totalling $440,000 and $490,000 in 2011 and 2012 to the Company. Those loans were made personally by Yao Jin from the joint bank account which show withdrawals of $390,000 and $90,000 being withdrawn on 30 November and 1 December 2010. A further sum of $50,000 was withdrawn In August 2011. This transaction history explains the amounts shown in the financial statements as a Liability.
The concern arises as to whether that Directors loan is also being treated as an Asset because those funds correspond with the price paid for the shares in the Company.
The accounting treatment of the Directors loan is to identify it as a “loan” but as it is paid into the Company the funds become available to the Company so that it has the funds available to it to operate the business and to that extent it become an asset.
…
Tribunal’s decision
After setting out a summary of the evidence before it, the Tribunal made a number of preliminary findings at [63]:
· The main business is Metro;
· Metro was purchased by Q&Y in September 2008. It comprises a service station and associated shop. It is the only business owned by Q&Y;
· The applicants commenced buying shares in Q&Y in December 2010, paying the company $440,000 in December 2010 and by August/September 2011 had acquired 50% of the company shares paying a final $50,000 that month;
· The transaction was at arm’s-length;
· 50% of the shares in Q&Y are still owned by Mr Zhang and Ms Zhou;
· At the time of the visa application, 27 February 2013, and for the 12 month period from 27 February 2012, the applicants had a loan of $490,000 to Q&Y recorded on the company financial statements;
· The goodwill of the company is $496,420 and is an asset of the company;
· Although there was a fixed and floating charge over the assets of the company in favour of NAB[2], the financial records were correct not to record that as a liability;
· Neither the goodwill nor the NAB charge had any effect in calculating the net assets of the applicants in the main business over the relevant period.
[2] National Australia Bank.
Next, the Tribunal posed the question for determination: whether the applicant and her husband had assets in the main business with a net value of at least $100,000 over the 12 month period leading up to the visa application bearing in mind the applicants only owned 50% of the company.
The starting point for the Tribunal’s consideration of this issue was that the value of the shares in Q&Y held by the applicants reflected the goodwill of the main business. It is not clear how this fits with the finding in the last dot point at [21] above, but no point was taken about that and I will leave it to one side.
The Tribunal accepted that the money provided by the applicants was a loan to the company but noted that the question remained how it was to establish the value of their assets in Metro: was it the same as the company’s net assets or should it be determined by some other method?
The Tribunal then examined the first of these methods, namely, the value of the company’s assets. It did this by taking the net assets set out in the company’s accounts for the relevant years and dividing it by 2 (on account of the fact that the applicants owned 50% of the shares in the company).
After reaching that conclusion, the Tribunal noted that this was just one way to measure the relevant net assets in the business and may not be the most accurate. The Tribunal stated that it must look at the circumstances relating to the individual company to determine the relevant question.
Taking this approach, the Tribunal examined the loan by the applicants to Q&Y. First, it found that the correct amount of the loan was $490,000. Secondly, it found that, contrary to the company’s accounts, the loan was not secured. Thirdly, it took a “step back” and examined the circumstances surrounding the acquisition by the applicants of their shares in Q&Y. In this respect, the Tribunal referred to the payment of $350,000 as being for half the value of the goodwill at the time of purchase ($700,000).
The Tribunal then considered this more closely. First, it said at [83], that, in order for the applicants to have paid $350,000 for the shares, they “would need to be giving the person/s who owns the shares around $350,000”. That is not necessarily correct. Although consideration must move from the promisee, it need not move to the promisor: Pico Holdings Inc v Wave Vistas Pty Ltd (2005) 79 ALJR 825; [2005] HCA 13 at [66]. In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 Viscount Haldane said, at 853:
…
A second principle is that if a person with whom a contract not under seal has been made is to be able to enforce it consideration must have been given by him to the promiser or to some other person at the promisor’s request… .
Next, the Tribunal noted that the applicants had “elected to put this transfer of funds through the company books and the financial evidence shows a transfer by the applicant and her husband to the company”.
From these findings, the Tribunal drew the conclusion, at [84], that the payment of $350,000 as a loan to the company:
… was not actually a loan as it might be commonly understood. That is, it was not a loan in the sense that it was money lent and available to the main business to meet its cash flow or other financial requirements. Rather, it was a means to achieve the purchase of 50% of the company shares from [Mr Zhang and Ms Zhou].
The Tribunal continued by finding that the payment could be characterised as a loan in that “if the applicant and her husband sold their shares for a similar price as they paid for them, then they would be repaid the money they lent to the business.” Thus, the Tribunal appears to have come to the conclusion that, even though the loan was not an ordinary one, it was a loan nevertheless.
The Tribunal then considered the additional amounts of $90,000 and $50,000 paid to the company by the applicant and her husband. It traced the payments into and out of the company’s accounts as well as those of Mr Zhang and Ms Zhou. Having done that, the Tribunal concluded that the purchase price of the 50% of the shares in Q&Y was $500,000. However, this was not determinative of the question whether the $490,000 loan could be used in determining the value of the net assets of the applicant and her husband in the main business. The Tribunal then gave its reasons for finding that it could not:
[98]Given the Tribunal has determined their share purchase to be an arms-length transaction, it finds that the above sum could only be seen as the applicant’s and her husband’s net asset in the main business where that money is accessible by and controlled by the applicant and her husband alone for the purpose of the main business.
[99]In the facts of this particular case therefore, the applicant and her husband would either have to be the only shareholders of the company, or at the very least, hold a controlling share of the shareholding.
[100]Hence, where that money has been lent to a company that has other arms-length shareholders beyond the applicant or her husband, who are holding an equal 50% of the shares, the Tribunal does not consider that the loan can be counted as the applicant and her husband’s net asset in the main business.
[101]Where there are other arms-length shareholders, holding the other 50% of the shares in this case, it is possible that company money can then go where these other shareholders direct, including to themselves. Indeed, it is not disputed that $350,000 did go to [Ms Zhou] (at the very least), because the loan was used as a method of share purchase rather than as a cash input for the benefit of the running of the main business.
[102]The Tribunal therefore finds that in the circumstances of this particular case, it cannot accept that the $490,000 loan is the best assessment of the net assets of the applicant and her husband in the main business.
In light of that conclusion, the Tribunal reverted to the use of the net assets of the company to determine the value of the net assets of the applicant and her husband in the main business and concluded that it was insufficient to satisfy the relevant criterion.
Accordingly, the Tribunal was not satisfied that the criteria for the grant of the visa were satisfied and so affirmed the delegate’s decision.
Consideration
The applicant argues that the Tribunal erred in finding that the $490,000 loan advanced by the first and second applicants to their business cannot be counted as their net asset in the business because they do not hold a controlling (majority) share of the shareholding and as such, the company money can go where other shareholders direct. The error is said to have arisen from the misconstruction of what constitutes a “net asset” for the purposes of cl.890.212 in sch.2 to the Regulations. The essential argument is that the $490,000 was a loan to the company and so available for its use, and properly a liability of the company, and so the applicants had an asset of a corresponding value.
The applicants contend in the alternative that, if the Tribunal was correct about the loan then it ought not to have included it in the value of the net assets of Q&Y. If that amount had been excluded as a liability, the net assets of Q&Y would have increased by $490,000 and the value of the applicants assets increased by half that amount.
The Minister accepted the applicants submission that the words “assets” and “net value” did not bear any special meaning, but that, in order to be “in the main business” the asset must have an economic function or role in that main business. This applied to a loan advanced to the company.
The Minister submitted that it was not clear whether the Tribunal ever accepted that the $490,000 was a loan but that it found, in any event, that it was not available to fund business activities because it was used to pay Mr Zhang and Ms Zhou for the shares purchased in Q&Y.
In his written submissions, the Minister described the Tribunal’s reasons at [99] – [101] as “somewhat unhappily expressed” and stated that their meaning was not entirely clear; however, he argued that, in context, it was to the effect that the $490,000 did not properly reflect the value of the assets and the applicants’ assets because it was used to pay for the share purchase. The Minister conceded in oral submissions that the Tribunal’s statement at [98] could not be supported but that this did not amount to jurisdictional error. This was because the Tribunal’s decision turned ultimately on the value of the shares of the applicant and her husband in the net assets in the company and that this was an approach available to the Tribunal on a correct understanding of the law and the facts before it.
Before turning to consider these arguments it is necessary to note that, while the Tribunal’s reasons are not as clear as they might be, there is little doubt that the way in which the applicants presented their case was a primary cause of that. That said, those reasons reveal that the Tribunal’s consideration of the applicants claims was affected by several errors.
Contrary to the Minister’s submission, it is clear that the Tribunal accepted that the $490,000 paid to Q&Y by the applicant and her husband was a loan: [84]. On the other hand, the Tribunal considered that it was not a loan as commonly understood because it was not money lent and available to the main business to meet its cash flow, or other financial requirements. That reasoning potentially reveals some confusion.
First, there is nothing in the ordinary meaning of “loan” that turns on the use to which the money is to be put. Ordinarily, a loan is something that is lent or provided on condition of being returned, especially a sum of money lent at interest: Macquarie Dictionary, 6th Edition.
Secondly, subject to one thing, it is not clear why the use of money (as here) to repay another liability is not money that is available to meet a financial requirement. The qualification is that, on one view, the Tribunal was making a distinction between the company and the business (that is, the economic activity conducted by the company). If that is the approach taken by the Tribunal then I consider that it misunderstood the term “asset in the main business”.
That phrase, as I have said, is not defined in the legislation. In my view, it is deliberately broad and must be read to attach to any number of possible types of asset. It will be recalled that an applicant is required to have “an ownership interest” in an actively operating “main business”: cl.890.211 of the Regulations. While “main business” (which must also be a qualifying business) need not be a company, “ownership interest” in relation to a business in this context includes the holding of shares in a company that carries on the business: reg.1.03 of the Regulations and s.134(10) of the Act. This connection between the “main business” and the company that carries on the business suggests that there is no necessary dichotomy between the two. Further, as the Tribunal appears to have accepted, the value of the shares in the company can constitute, or at least be counted towards the value of the visa applicant’s “assets in the main business”. There is no reason, in light of that and the broad purpose of these provisions, to exclude a loan to the company that operates the business simply because it is not used for the day-to-day operation of that business.
The Tribunal appears to have been influenced in its consideration of these matters by its view that, in order to buy shares, the share price had to be paid to the owners of the shares. That view was wrong: see [28] above. On the Tribunal’s own findings the money paid to the company was used to repay a loan to the company by another shareholder. The Tribunal may have had cause to reject the payment as a loan if the money had simply travelled into and then out of the company’s accounts without more.
However, these matters are not the only errors in the Tribunal’s reasons.
The critical error was at [98] of its reasons and, in particular, the reasoning that the loan could only form part of the assets of the applicant and her husband if the money was accessible and controlled by the applicant and her husband alone for the purpose of the main business. It is difficult to pinpoint the error in this reasoning, but it at least reveals a misunderstanding of what an asset is. The asset here was not the money. That belonged to the company. The applicant’s asset was the right to enforce the company’s promise to repay that money, whether that be on demand or, as the Tribunal found, upon sale of the shares. The concept of control of the money was irrelevant in those circumstances.
Again, the context is important. A visa applicant does not have to have complete control of the main business. She must have an “ownership interest” in it as well as maintaining direct and continuous involvement in management of the business from day to day and in making decisions affecting the overall direction and performance of the business. It is inconsistent with that to demand, in terms of an asset, that a visa applicant alone have access to and control of an asset in the business, yet that is what the Tribunal required.
Another possible way of describing the error is that there was no rational basis for the Tribunal’s conclusion, at [102], that the loan was not the best assessment of the net assets of the applicant and her husband in the main business.
In my view, this error amounted to jurisdictional error.
In Minister for Immigration & Multicultural Affairs v Yusuf (2001) 206 CLR 323; [2001] HCA 30, McHugh, Gummow and Hayne JJ said at [82]:
[82]It is necessary, however, to understand what is meant by “jurisdictional error” under the general law and the consequences that follow from a decision-maker making such an error. As was said in Craig v South Australia if an administrative tribunal (like the Tribunal)
“falls into an error of law which causes it to identify a wrong issue, to ask itself a wrong question, to ignore relevant material, to rely on irrelevant material or, at least in some circumstances, to make an erroneous finding or to reach a mistaken conclusion, and the tribunal’s exercise or purported exercise of power is thereby affected, it exceeds its authority or powers. Such an error of law is jurisdictional error which will invalidate any order or decision of the tribunal which reflects it”.
“Jurisdictional error” can thus be seen to embrace a number of different kinds of error, the list of which, in the passage cited from Craig, is not exhaustive. Those different kinds of error may well overlap. The circumstances of a particular case may permit more than one characterisation of the error identified, for example, as the decision-maker both asking the wrong question and ignoring relevant material. What is important, however, is that identifying a wrong issue, asking a wrong question, ignoring relevant material or relying on irrelevant material in a way that affects the exercise of power is to make an error of law. Further, doing so results in the decision-maker exceeding the authority or powers given by the relevant statute. In other words, if an error of those types is made, the decision-maker did not have authority to make the decision that was made; he or she did not have jurisdiction to make it. Nothing in the Act suggests that the Tribunal is given authority to authoritatively determine questions of law or to make a decision otherwise than in accordance with the law.
(Emphasis added, citations omitted)
In Minister for Immigration & Border Protection v Lesianawai (2014) 227 FCR 562; [2014] FCAFC 141, after referring to this passage, Buchanan J said:
[60]I take it to be established, therefore, that in order to find jurisdictional error it is necessary to find not only an error of understanding or approach, but also a discernible effect on the exercise of power which points to a conclusion that the decision was made without authority because there had been a jurisdictional error.
The Minister submitted, in effect, that because the Tribunal reached its conclusion by a route that did not involve consideration of the loan, any error concerning the loan had no discernible impact on its decision. That argument overlooks the way in which the Tribunal actually reached its decision. In fact, the Tribunal reached its decision by reference to something other than the loan because of the error made about the loan. That error had the immediate consequence that the Tribunal put the loan to one side as not the “best assessment” of the net assets in the main business. By doing that, the Tribunal cut short its consideration of a method of valuing the “asset in the main business” and so was diverted from properly determining the question posed by the Act and Regulations. In other words, it misapprehended the limits of its functions.
For those reasons, the Tribunal’s decision affected by jurisdictional error. It must be set aside and the Tribunal must be ordered to reconsider the application for review according to law.
I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of Judge Smith
Date: 16 December 2016
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