Export Development Grants Board v. Thompson & Growers Co-Op Pty Ltd

(1985) 6 AAR 276

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(Judgment by: Beaumont J)

Re: Export Development Grants Board
And: Geoffrey Thompson and Growers Co-Operative Company Pty Ltd

Court:

Judges: Smithers J

Beaumont JEverett J

Subject References:
Administrative Law

Judgment date: 24 July 1985

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Judgment by:
Beaumont J

As its long title indicates, the Export Market Development Grants Act, 1974 ("the Act") makes provision for grants for the purpose of providing incentives for the development of export markets. The respondent, Geoffrey Thompson and Growers Co-Operative Company Pty. Limited, an exporter of fresh fruit and vegetables, claims from the applicant, the Export Development Grants Board ("the Board") a grant for the financial year ended 30 June 1982 in respect of the sum of $12,215.00 paid by it to Mr. Wilf. Stokes, a technical consultant, for services rendered. Since the true character of those services is critical to the resolution of the appeal, it will, in due course, be necessary to analyse the facts relevant to that question in some detail. For present purposes, it will suffice to say that Mr. Stokes was retained by the respondent as a consultant for the purpose of monitoring the performance of certain contracts for the sale by export of "William Bon Chretien" pears, also known as the "William" pear.

Subject to the provisions of the Act, the grant entitlement of a claimant in relation to a "grant year" (as defined in the Act) is an amount equal to 70% of the "eligible expenditure" incurred by the claimant during that year (s.15). "Eligible expenditure" is defined by s.4, so far as presently relevant, as follows:

"(1)

Subject to the succeeding provisions of this section, a reference in this Act to eligible expenditure is a reference to expenditure that, in the opinion of the Board, has been incurred by a person primarily and principally for the purpose of creating or seeking opportunities, or creating or increasing demand, for-

(a)

the sale by that person for export, or the export by that person and sale by him, of eligible goods produced . . . in Australia;

. . .

(2)

For the purposes of this section, 'expenditure' means expenditure to the extent to which it is incurred by a claimant . . . by way of-

(a)

expenses of, . . . or payments made to an agent for the purpose of-

(ii)

advertising or other means of securing publicity or soliciting business . . ."

The respondent's claim for a grant was rejected by the Board. An application was made to the Administrative Appeals Tribunal for a review of the Board's decision; the Tribunal set aside that decision and remitted the matter to the Board for reconsideration with a direction that the part of the expenditure in question related to the overseas activities of Mr. Stokes was "eligible expenditure" for the purposes of s.4. The Board now appeals to the Court on a question of law pursuant to s.44 of the Administrative Appeals Tribunal Act, 1975. The question of law which arises for determination is whether the fees paid to Mr. Stokes and the expenses incurred by him overseas fall within s.4 of the Act as "expenditure incurred . . . primarily and principally for the purpose of creating or seeking opportunities, or creating or increasing demand, for" export sales (see s.4(1)), being "expenditure . . . by way of expenses of, . . . or payments made to an agent for the purpose of . . . soliciting business" (see s.4(2)(a)(ii)).

The facts, as found by the Tribunal and not challenged on this appeal, are as follows. The William pear is difficult to sell in a fresh condition on the export market: it has a short season of 6-8 weeks; it requires very careful packing and rigid temperature controls during transit; and it has a shelf-life, after unloading, of only three weeks. Thus, the condition of the pear on arrival at its destination is crucial. Difficulties in this regard were experienced by Australian exporters in the 1980 season.

As a step designed to boost the confidence of overseas buyers in the respondent's product, its management decided in 1981 to retain Mr. Stokes to perform the consultancy services now in question. His functions were described by the Tribunal as follows:

" . . . the services performed by Mr Stokes were various. His principal function in Australia was in monitoring the packing of the pears and stuffing of the containers. When the cartons were put into the container, he was to make sure that the temperatures were correct and that the dunnage (packing materials) allowed a free flow of air. From the company's viewpoint, we gathered that this was his most important function, because the arrival condition of the pears depended substantially upon the care and skill employed in packing the goods . . . It is a necessary expenditure the company would have undertaken regardless of any question of an export grant . . .

When the goods arrived at their destination, Mr Stokes was expected to be present to see their condition, to deal with any problems attributable either to the shipping company or the condition of the goods ex Australia. From the company's point of view, he was there to verify that the packing and transhipment of the goods had been achieved without damage to the pears. From the purchaser's point of view, however, Mr Garfirth (a director of the respondent) described Mr Stokes' presence on outturn as a 'security blanket' - in other words, as we understood him, Mr Stokes was the physical embodiment of the vendor's confidence in the arrival condition of the product.

Mr Stokes was also available, however, to fulfil whatever function the purchaser required. If the purchaser wished to have his advice, it was available; if he wanted to complain about the condition or quality of the pears, he was available."

Mr. Garfirth gave evidence, which the Tribunal accepted, that in his negotiations with prospective overseas buyers, he indicated that the services of Mr. Stokes would be made available; and that this indication was, in some cases at least, a decisive factor in procuring a sale. The Tribunal found that the respondent's purpose in committing itself in 1981 and 1982 to the cost of Mr. Stokes' overseas activities was in order to increase the flagging demand for the William pear and to secure export sales which, without some such special inducement, it probably would not otherwise have obtained. However, the Tribunal also found that Mr. Stokes would have been engaged, in any event, to monitor the packing of the goods in Australia. In the result, the Tribunal concluded that the cost of providing Mr. Stokes' overseas services fell within s. 4 as expenditure for the purpose of soliciting export business within the meaning of s. 4(2)(a)(ii); but that the cost of Mr. Stokes' services in Australia was not eligible.

In order to qualify under the Act, expenditure must first meet the general test prescribed in s. 4(1) - it must be "incurred primarily and principally for the purpose of creating or seeking opportunities, or creating or increasing demand, for" export sales. It must also fall within one of the specific situations described in s. 4(2)(a) - that is, in the present case, "expenses of, . . . or payments made to an agent for the purpose of soliciting business".

In my opinion, the respondent has failed to satisfy the requirements of either limb of s. 4.

I turn first to s. 4(1). In my view, it is not possible to characterise the services rendered by Mr. Stokes as conduct engaged in primarily and principally for the purpose of the promotion of export trade. True it is that the indication by Mr. Garfirth to prospective buyers that those services would be available played a decisive role in the procurement of at least some of the export contracts. But it does not follow that what Mr. Stokes did can properly be described as something done primarily and principally for the purpose of creating or seeking opportunities or creating or increasing demand for export sales. Rather, in my view, his services should be seen as something done primarily, if not wholly, for the purpose of the due performance of the export contracts in question even if, as a result of his efforts, the prospects of the respondent's procuring future business with overseas buyers were enhanced. In my opinion, any such enhancement was an incidental benefit flowing from Mr. Stokes' activities rather than an indicator of the true character of those activities: that character was something done in the administration or performance of the export contract and expenditure incurred in respect of conduct engaged in for that purpose is not eligible under s. 4(1) of the Act.

In other words, in my view, s. 4(1) takes the several activities of any business as it finds them and selects only certain of those activities as qualifying for eligibility. Such activities are those of a kind which themselves have the prescribed primary purpose of promoting the export trade: that is their intrinsic character. No doubt it can be said that the due performance of a contract may well improve the prospects of a future business relationship. But, in the ultimate analysis, the action of an exporter in the due performance of a contract should be characterised as acts done for that purpose - that is its intrinsic character - rather than acts done to promote trade, even if the promotion of trade is an incidental benefit of a proper performance of any such contract.

Similar problems confront the respondent under s. 4(2)(a). Here the respondent must show that the expense was incurred for the purpose of soliciting business, or that it made a payment to an agent for that purpose. In order to qualify, there must be attributed to the activities of Mr. Stokes the character of something done by way of the solicitation of business. In truth, what Mr. Stokes did could only be described as the monitoring of the due performance of the contract. Any promotion of trade accruing in consequence of his efforts should be seen as an incidental benefit rather than something which is determinative of the character of his functions.

It is hardly necessary to say that there are many methods available to a trader for the solicitation of business. In his explanation of a precursor of s. 4(2)(a)(ii), the then Treasurer instanced, as falling within the prescribed notion, expenditure on negotiations with representatives of overseas enterprises or in maintaining permanent sales representatives overseas (see Australian Federal Tax Reporter (CCH Australia Limited Vol. 5, para. 76-000; p. 45,492). In those instances, the prime purpose of the activity is the solicitation of business. Other examples could be imagined but, in my view, a distinction should be drawn for the purposes of s. 4(2)(a)(ii) between, on the one hand, acts which, as a matter of their intrinsic character, constitute something done by way of solicitation of business and on the other hand, acts which are not inherently of that character even if there may well flow from such activities, as an incidental matter, the prospect of future trade relations. In my opinion, the subject payments fall into the latter rather than into the former category. It follows that the respondent has failed to qualify under either s. 4(1) or (2).

In the result, I would allow the appeal.

I would add that I have had the advantage of reading in draft form the reasons for judgment of Smithers, J.. I agree with those reasons.

The respondent has cross-appealed from that part of the Tribunal's decision which disallowed the local content of the fees paid to Mr. Stokes. It must also follow that the cross-appeal should be dismissed.

The respondent must pay the costs of the appeal and cross-appeal but should have a certificate under the Federal Proceedings (Costs) Act, 1981.

I would make the following orders:

1.

Order that the appeal be allowed.

2.

Order that the decision of the Administrative Appeals Tribunal made on 25 January 1985 herein be set aside.

3.

Order that the cross-appeal be dismissed.

4.

Order that the respondent pay the costs of the appellant Board of the appeal and of the cross-appeal.

5.

Order that the respondent be granted a certificate under the Federal Proceedings (Costs) Act, 1981 in respect of the costs of this appeal.