Wescorp Livestock International Ltd and Australian Trade Commission

30 ALD 131

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(Decision by: P W Johnston, (Deputy President), K J Taylor Member, R D Fayle Member)

Wescorp Livestock International Ltd v
Australian Trade Commission

Tribunal:

P W Johnston, (Deputy President)
K J Taylor Member
R D Fayle Member

Subject References:
Export Development Grant
Whether expenses of bringing Chinese delegations to Australia in connection with the purchase of sheep eligible expenditure incurred by way of soliciting
Whether expenditure incurred primarily and principally for the purpose of creating demand or opportunities
Distinction drawn between members of delegation mainly concerned with choosing predetermined number of sheep and members whose presence was conducive to enhancing chances of future export trade
(CTH) Export Market Development Grants Act 1974 s 4.
eligible expenditure
soliciting
primarily and principally

Hearing date: 20 & 21 February 1992 & 18 June 1993
Decision date: 18 June 1993

Perth

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Decision by:
P W Johnston, (Deputy President)
K J Taylor Member
R D Fayle Member

The applicant seeks review of a decision of the respondent dated 8 April 1991 affirming a decision of a delegate of the respondent dated 15 November 1990 that expenditure by the applicant of $66,605 was not eligible for a grant, pursuant to s 4(1) of the Export Market Development Grants Act 1974 (Cth) (the Act), in respect of the 1989/1990 grant year. The amount in dispute was made up of $21,848 for expenses in respect of officials from the Xinjiang province in China (the Chinese delegation) who visited Australia between 21 July 1989 to 13 August 1989 pursuant to arrangements made by the applicant, $16,488 for expenses in respect of officials from Inner Mongolia (the Mongolian delegation) who visited Australia between 1 September 1989 and 4 November 1989, together with a further amount of $28,269 being reimbursement to the applicant's Hong Kong agent for fares and accommodation outlaid for the Chinese and Mongolian delegations. The amounts relate to costs incurred by the applicant in bringing the two delegations to Australia in connection with the export to China and Inner Mongolia of Australian breeding livestock. Two sales were relevantly made by the applicant to China in 1989, being the sale of Merino rams, and Suffolk and Dorset rams and ewes to Xinjiang and the other being the sale of Merino rams to Inner Mongolia.

The respondent disallowed the claim for these expenses on the basis that they were not primarily and principally incurred for the purpose of creating or seeking opportunities or creating or increasing demands for eligible goods. There is no dispute however that the relevant breeding stock came within the description of "eligible goods'' for the purposes of s 4(1) of the Act nor as to the actual amounts expended by the applicant in respect of the costs of bringing the two delegations to Australia. Section 4 relevantly provides:

Eligible Expenditure

4(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 Commission, 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 manufactured, produced, assembled or processed in Australia;

...

but does not include so much of any expenditure incurred by that person as -

(k)

has been ... paid or reimbursed to him by another person, ... or any other government; ...

...

(2)

or the purposes of this section, "expenditure'' means expenditure to the extent to which it is incurred by a claimant, or an association referred to in sub-section (3), by way of -

(a)

expenses of, contributions towards expenses of, or payments made to an agent for the purpose of:

...

(ii)

advertising or other means of securing publicity or soliciting business ,

...

but not including

(g)

expenses in respect of travel, accommodation, sustenance or entertainment in respect of or in relation to a visit by any person from a place (whether within or outside Australia) to another place or other places (whether within or outside Australia) other than

(i)

fares;

...

(iii)

expenses in respect of accommodation , sustenance or entertainment within Australia in respect of or in relation to a visit by a person , not being the claimant or a prescribed agent of the claimant or of the association ordinarily employed; or carrying out duties in Australia, from a place outside Australia to Australia; or

(iv)

expenses in respect of accommodation, sustenance or entertainment outside Australia in respect of or in relation to a visit by a person who is carrying out the duties of a sales representative of the claimant outside Australia from a place outside Australia to another place or other places outside Australia; (emphasis added).

It is the applicant's case that the amounts in dispute are eligible expenditure within s 4(2)(g)(ii) of the Act which provides, in broad terms, that expenditure incurred by a claimant in respect of the cost of fares and expenses in respect of accommodation, sustenance or entertainment of overseas visitors for the purpose of soliciting qualifies as "eligible expenditure'' under the Act so long as, consistently with s 4(1) of the Act, the expenditure was incurred primarily and principally for the purpose of creating or seeking opportunities, or creating or increasing demand overseas for eligible goods. The applicant contends that all requisites for entitlement to grant, including the latter condition, are satisfied.

At the hearing the applicant was represented by Mr G Dean, barrister and solicitor, and the respondent by Mr P Macliver, solicitor from the Australian Government Solicitor's Office. The tribunal received into evidence the T documents furnished to it pursuant to the s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) together with the following materials:

•

statement of M B Holtham and attachments;

•

supplementary Statement of M B Holtham and attachments;

•

statement of H W Warden;

•

statement of I R Howie.

These documents were consolidated at the hearing and taken into evidence as a single volume referred to as "Papers for the Tribunal'

The tribunal heard evidence from Mr Holtham, the company secretary of the applicant, and Mr Howie, the applicant's general manager. Because of commercial sensitivity of some of the information contained in the statements and supplementary statements listed above, the tribunal made an Order under s 35(2)(b) of the AAT Act 1975 that their contents and the oral evidence relating to their statements not be disclosed except to the parties and members and staff of the tribunal. A similar Order was made in respect to documents T10, 11, 12, 13, and 14 relating to the arrangements between the applicant and the relevant Chinese and Mongolian corporations with which the applicant dealt. In these reasons the tribunal will therefore only refer in generality to the commercial arrangements and the documents concerning them so as to avoid disclosing the specific confidential details set forth in those documents.

Jurisdiction

Although initially it was contested between the parties as to whether the tribunal should proceed on the basis of the Act as it stood at the time of the application for grant, or as it had been amended in material respects by the Export Market Development Grants Amendment Act (No 2) 1990 (Cth), it was accepted at the hearing by both parties that the law applicable was the provisions as they were prior to the latter amendments. The tribunal agrees that is the correct view: see Re Vismatec Pty Ltd and Australian Trade Commission (AAT, Decision No 7361, 25 September 1991,unreported).

Evidence

In coming to the findings of fact set forth below, the tribunal has had regard to the statements and evidence of Messrs Holtham, Howie and Warden produced to and heard by it. The respondent largely accepted the materials put before the tribunal in the respective statements but did put in contest a number of paragraphs of Mr Holtham's principal statement,^[1] and various paragraphs in Mr Howie's statement. ^[2] The facts set forth in Mr Warden's statement were not put in contest.

Concerning those parts of the respective statements in dispute, Mr Macliver for the respondent cross-examined each witness at some depth. The tribunal would comment that the credibility and veracity of the witnesses was not in issue. The cross-examination was largely directed to eliciting facts and opinions that were arguably inconsistent with the contentions of the applicant and which supported the reasons for the respondent's rejection of the claim.

Founded on the evidence before it, the tribunal makes the following findings of fact:

•

On 18 May 1989 the applicant executed what neutrally, for present purposes, might be described as a "contract'' with Xinjiang Animal By Products Import and Export Corporation Xinjiang contract). Following that an "irrevocable'' letter of credit in respect of the dealings between the applicant and Xinjiang party was provided on 23 June 1989 by the purchaser (the Xinjiang letter of credit).

•

The visit of the Chinese (ie Xinjiang) delegation took place between 21 July 1989 and 13 August 1989. Included in the 6 members of the party were first of all persons, including at least one veterinarian, whose principal function was to select, inspect and supervise the sheep to be bought by the applicant for supply to the Xinjiang Corporation, and others whose interests were more generally directed to livestock husbandry and production. The applicant's agent also was present in the delegation.

•

On 27 July 1989 the applicant executed a document with the Guangdong Provincial Animal Husbandry Development Corporation (which will be neutrally described as the "Guangdong contract''), following which on 11 August 1989 a letter of credit was provided to the applicant to cover the deals entered into by the Guangdong Corporation (the Guangdong letter of credit).

•

Between 1 September 1989 and 4 November 1989 the applicant hosted a visit by the Inner Mongolian delegation which ultimately comprised 10 persons. They came in two groups, the first comprising 4 persons between 1 September 1989 and 16 September 1989, the second 6 persons described as "end-users'', between some time in October 1989 and 4 November 1989.

•

The selection of the particular animals to fulfil the quotas established by the delegations was crucial because the respective corporations were seeking Australian breeding stock to cross with native varieties in order to increase wool and meat production of local varieties of sheep which have to contend with extremes of climate.

•

On 10 October 1989 the applicant arranged for despatch of sheep to Xinjiang and on 26 December 1989 similar arrangements for export of sheep to Guangdong were effected.

•

The Xinjiang contract was prepared in China but its 'terms' followed a similar 'contract' entered into previously by another organisation. The Guangdong contract was prepared by the applicant but followed the Xinjiang precedent.

•

These documents were entered into by the applicant at the request of the two delegations. They were regarded as essential by the Chinese (including the Inner Mongolians) firstly in order to obtain credit approval for necessary finance for the deals entered into with the applicant - such funds being extremely scarce and requiring close governmental scrutiny and approval. A second reason for entering into the contracts from the Chinese perspective, was to enable members of the two delegations to get passports for travel outside the country, such passports only being issued for single trips. The undertaking by a foreign party to provide the travel funds is seen to be crucial by the Chinese government before permission to travel is granted.

•

By inspecting, on the ground, the Australian production and veterinary system relating to sheep, the delegations were able to establish for themselves the quality and technology of the Australian producers and their support base.

•

When in Australia, whilst the essential function of the delegations, particularly the official veterinary members of them, related to the inspection and purchase of livestock for supply to the Chinese and Mongolian corporations, a second purpose of the visits was to educate and interest persons in those delegations, both the party and technical constituents, about the livestock business, in breeding developments with a view to possible future sales. Another purpose of the visit was to introduce the Chinese to new breeds and technology. The establishing of an ongoing relationship of trust for future dealings was also an important purpose of the visits.

•

There are significant and special cultural requirements different to those of Australia that affect the manner and understanding of doing business with the Chinese.

•

Subjectively, the Chinese and Mongolian corporations and delegations would probably not have considered the documents described as "contracts of sale'' to have been legally binding upon them; rather they would have been seen to be steps in an ongoing process of negotiations leading up to the purchase of breeding livestock, their despatch to China, their inspection there and quarantine, and upon satisfaction of the Chinese corporations, the payment of agreed amounts to the applicant.

•

The applicant had to rely on the letters of credit for payment. No payment was guaranteed before the letter of credit was honoured or some substituted arrangement made. Similarly the Chinese at least, in respect of the Xinjiang letter of credit, did not regard it to be absolutely binding and irrevocable. The evidence indicates that they saw themselves as able to amend the amounts provided under the letter of credit or even to substitute a new letter of credit for an existing one if they were not satisfied that the sheep supplied by the applicant were satisfactory. The procurement of the initial letters of credit was an essential prerequisite to obtaining government permission for, and commitment of, import funds.

•

Without inspection and selection of the livestock by the delegations brought to Australia there would be no sale of sheep, regardless of the "contract'' or letter of credit.

•

Even after selection, the Chinese regarded themselves as free to reject particular animals if they did not comply with their quarantine and health protocol requirements.

•

Having regard to the numbers of sheep and types of sheep set forth in the Xinjiang 'contract' the Chinese delegation did in fact vary the number of Suffolk and Dorset rams actually procured by the applicant so that in strict terms it fell outside the figures for permitted variation listed in that "contract''. In the case of the Xinjiang sale there were 1 less Suffolk ram and 2 more Dorset rams purchased than the minima and maxima specified in the "contract''. So far as numbers and types of sheep were concerned, apart from the one variation in the number and type just mentioned, the numbers and types conformed generally to the limits prescribed in the 'contracts'

•

When indicating prices for various classes of rams in the 'contracts', the applicant determined a figure which would allow for a profit, taking into account all estimated costs including the costs associated with the visits by the two delegations. The amount recoverable by way of an export development grant was not specifically factored into the price. There is nothing in the evidence to suggest that the applicant received either reimbursement or indemnity for its expenditure directly from the Chinese or Mongolians. The applicant received an agreed price per animal procured and exported.

•

With respect to the supply of Merino rams under the 'contracts', this was dependent upon the applicant successfully bidding and paying for them under the export auction system. A limit is placed by the Australian government upon the number of Merino rams available for export.

•

Before despatch from Australia the animals spent up to 30 days in quarantine.

•

After undergoing quarantine the final sales documentation including invoices and insurance certificates were completed and transport arranged. At any stage up to despatch from Australia, the Chinese and Mongolian purchasers regarded themselves as free not to proceed with purchases though not to do so would have entailed a loss of face and would have been regarded as a failure in China.

Contentions of the parties

(a) Respondent's submissions

Because the refusal to pay the amount of grant in contention flows from objections voiced by the respondent, the submissions of the respondent in support of the decision under review shall be considered first.

The respondent's primary contention is that the expenses in relation to the delegations were not for the purpose of advertising or soliciting business , but were incurred in performing obligations already entered into under contracts with the Chinese and Mongolian corporations. Those contracts were binding upon the parties to them and their terms were sufficiently certain to constitute an enforceable agreement. Once a contract is concluded, expenditure consequent upon carrying it out does not amount to solicitation: Re Ampol Pty Ltd and Export Development Grants Board (1983) 5 ALN N82 (Re Ampol).

The second submission of the respondent is that, irrespective of whether there were binding agreements, the expenses were not incurred primarily and principally for the purpose of creating or seeking opportunities, or creating or increasing demand for, the sale of a product for export because at the time the delegations came to Australia an agreement had been reached between the parties as to the number of sheep to be purchased, as stipulated in the "contracts''. The visit of the delegations could not therefore be seen to further the purpose of creating or increasing demand for the purchase of sheep.

Thirdly, even if the travel expenses did qualify as "expenditure'' under s 4(2) of the Act, on the basis that no sale had actually taken place as at the time of that expenditure, the expenditure was not eligible because the amount expended was eventually reimbursed to the applicant as part of the sale price actually paid for the goods by the buyer. The expenditure was therefore paid by the buyer and was excluded under s 4(2) of the Act which provides: [later]

Fourthly, it was submitted that the expenditures were ineligible because they were merely part of, and incidental to, the carrying on of the applicant's normal business. In support of these contentions, the respondent emphasised the fact that apart from minor variations in the number of Dorset and Suffolk rams under the "Xinjiang contract'' the sales of sheep of the number and kind sought by the two delegations were effected within parameters that closely conformed to, or only slightly deviated from, those stipulated in the 'contracts'.

(b) Applicant's submissions

In response, the applicant submitted, firstly, that contrary to the respondent's view of the arrangements entered into with the Chinese and Mongolian authorities, the documents executed by the applicant with those parties were not legally binding contracts. They were merely documents entered into to satisfy the bureaucratic requirements of the Chinese government.

In this respect the applicant put considerable store on the different view of legal obligations attending commercial dealings that are taken by the Chinese. In support, Mr Dean cited a number of commentaries and writings on the point. ^[3] The different Chinese attitude to business dealings may be summed up by Lucian Pye in Chinese Commercial Negotiating Style (p 21) where he says that "the Chinese culture traditionally shuns legal considerations and instead stresses ethical and moralist principles, whereas [Westerners] are thought to be highly legalistic''. These cultural attitudes, so it was submitted, contrast markedly with Western, and in this case Australian, understandings of the law of contract. To the Chinese, documents of the kind entered into were not binding. They simply served a bureaucratic need and formed a step in an ongoing process of negotiation. In that sense they were essential pre-requisites to dealing, but no more. No sale occurred until each delegation had come to Australia and selected the particular sheep to be purchased by the applicant.

Besides the attitude of the Chinese, culturally and commercially, that in their nature the agreements were not enforceable, the applicant, subjectively, for its part did not regard them as based on an intent to create legal obligations. The applicant would not have been prepared to seek enforcement through Australian civil courts for breach, as, regardless of outcome, that would have meant the end of any future business with the Chinese.

He further submitted that, considered in their terms, there was considerable doubt anyway whether the "contracts'' in question could be legally enforceable in an Australian court. This is evidenced by the variations in quantities in the various breeds of sheep, and the price to be paid for them, in the Guangdong "contract''. The contract was arguably void for uncertainty. Furthermore the clauses in the contract were dependent upon future agreement including additional steps to be taken by the parties, such as the selection, the purchase of sheep by the applicant, and compliance with quarantine requirements and the health protocol. As such, the arrangements were incomplete and not legally effective. The contracts should therefore be regarded merely as in the nature of letters of intent, indicating an expression of interest by the Chinese in buying sheep within certain parameters but not of themselves amounting to complete agreements (as in Re Nuclear Waste Management Pty Ltd and Australlan Trade Commission (1991) 23 ALD 797.

Similarly and consistently, so it was submitted, the Chinese and Mongolian authorities did not consider the letters of credit to be binding. They regarded themselves as free to reject and vary elements of the arrangements right up to the time of payment. In fact, this was evidenced by a dispute over payment in the case of the Xinjiang contract. No agreement could be said to have been reached until all elements of inspection, quarantine, importation and the like had been completed to the satisfaction of the Chinese.

Even if an agreement to sell sheep had been concluded, that did not preclude a party continuing to be engaged in an element of soliciting. The decision in Re Ampol did not command that conclusion.

In response to the respondent's contention that the claimed eligible expenses had not been incurred because the applicant had recovered its costs for the travel and accommodation of the delegations, the applicant submitted that on the evidence there was no basis for holding that the applicant had received reimbursement either directly from the Chinese or through building in a factor of recovery of the expenditure in the purchase prices.

Finally, it was submitted, the tribunal should reject the respondent's claim that the expenditure in question was merely a business expense of the applicant carrying out concluded business or incidental to its normal business.

Discussion of issues and conclusion

(a) Tribunal's approach to problem

The task of the tribunal in this instance is to determine whether the expenditure in issue was:

(i)

by way of soliciting or advertising in the sense used in s 4(2)(a)(ii) of the Act;

(ii)

if so, whether the primary and principal purpose of that expenditure was to create or seek opportunities, or create or increase demand for the export of eligible Australian goods; and

(iii)

whether the expenditure ultimately was not paid by the applicant because the expenses were paid by, or recouped from, the Chinese and Mongolian authorities.

Guidance as to what constitutes "soliciting'' is given by Smithers J in Export Development Grants Board v Geoffrey Thompson and Growers Cooperative Co Pty Ltd (1985) 6 AAR 276 at 277. He said:

The essential feature of advertising or soliciting is communication of something thought likely to induce another to purchase goods which one wishes to sell. The dictionary meanings most apt in the context are "to entreat or petition a person for, to urge or importune, or to draw on or allure by some specious representation or argument'': see Shorter Oxford Dictionary . There is no suggestion in these meanings that soliciting involves giving assurances or making representations that action of some kind will be taken to attempt to induce a potential purchaser to buy one's goods by giving assurances that one intends to, or will take action such as to install new or improved machinery to give better service, or to engage in some other action which will operate as an inducement to another party to enter into the purchase that would surely be an exercise of soliciting business. And the expense of communicating such matters of inducement would be an expense of soliciting.

It appears that in the transaction under consideration in the present case, assurances were given that services such as those performed by Mr Stokes would be provided by the respondent. It appears also that but for these assurances the relevant contract for the purchase of fruit would not have been entered into by the purchaser. The question is whether the expenditure involved in carrying out the assurances was expenditure of soliciting.

When, in the exercise of soliciting business, one gives assurances or represents that one will do any one of many possible things the prospect of which being done may induce the potential customer to do business, the performance of that which is assured or represented may or may not become a term of the contract. If it becomes a term of the contract then what was initiated as an exercise in soliciting has been converted into negotiation and then into contract. In that case the performance in accordance with the contract is not an exercise of soliciting and the expense of so performing is not an expense of soliciting. It is carrying out business obtained by soliciting.

But if what was assured or represented does not become a term of the contract and performance of it rests merely in moral obligation of commercial policy, there may yet be a relationship between that performance and the exercise of soliciting.

In its approach to determining the purpose of the expenditure, the tribunal has also taken into account the comments of Lockhart J in Parker Pen (Australia) Pty Ltd v Export Marketing Development Grants Board (1983) 67 FLR 235 at 242; 46 ALR 612: at 621

The purpose must be someone's purpose. It is the purpose of the person mentioned in the subsection. To ignore subjective elements is wrong. There is, of course, a difference between the essential elements in the notion of purpose and the means whereby purpose is ascertained. Purpose may be gleaned either from subjective or objective elements or, more usually, both. A person may say what his purpose is, but the objective facts may cast doubt upon the credibility or reliability of his statement. It is for the tribunal of fact to consider all the circumstances and conclude whether the requisite purpose has been established. Objective facts are usually more reliable than mere protestations of purpose, intent or state of mind, which, although susceptible of testing in cross-examination, are intrinsically impenetrable and inscrutable.

It accepts that the subjective intentions of the parties to the transactions in issue are a relevant consideration, though they must be considered within the matrix of objective facts.

Finally, it is the applicant who must satisfy the tribunal that it is entitled to a grant: Speedo Knitting Mills Pty Ltd v Commonwealth (1981) 37 ALR 417.

(b) Conclusions

The fundamental point of departure between the parties was whether the 'contracts' were legally binding and enforceable. The applicant contended they were not, but were more in the nature of letters of intent. The respondent contended they were legally effective, in that a "sale'' of the animals took place upon the signing and execution of each "contract'', in consequence of which the expenditure in contest was made to fulfil a condition of that concluded contract. Notwithstanding, the tribunal takes the view that it is not necessary, in the end, to form a conclusion about whether the contracts were legally enforceable or not.

If it were necessary to so decide, the tribunal leans to the view that the documents in question could well be regarded, from the point of view of domestic Australian law, as founding legally enforceable agreements, but the practicalities of enforcing them would have prevented that happening. Many of the terms and expressions in the documents are couched in the language of enforceable undertakings. For example, the Xinjiang contract provides that the contract shall come into force upon the signature of both parties whilst under the Guangdong contract, failure to arrange an auction would render the contract null and void. Details of freight and insurance as well as prices, are provided for in the contracts or in the telexes^[4] that preceded the signing of the contracts. The number of sheep and prices in the Xinjiang contract, subject to stated variation, are stipulated and though the Guangdong contract sets out optional limits as to numbers and price, the parameters of the requirements of the purchasing corporation were reasonably capable of being ascertained in the course of execution of the arrangements. The different prices for lower and higher numbers of sheep can be calculated from the formula set forth in it. The tribunal does not see, if it became relevant, that the contract was void for uncertainty on that account. The case of G Scammel and Nephew Ltd v Ousten [1941] AC 251 on which Mr Dean relied is distinguishable. In that case there were a multitude of hire purchase forms into which the parties could subsequently enter after their preliminary negotiations, giving rise to uncertainty. Under the "contracts'' in the present case, there was no such indeterminate, open-ended discretion about numbers and price.

Again, if it were necessary to decide whether the 'contracts' were legally binding, the fact that the agreements were with respect to unascertained goods is no bar, under s 5(1) of the Sale of Goods Act 1895 (WA), to a contract arising, if enforcement were sought in Western Australia. ^[5]

Certainly if subsequent occurrences are taken into account, a close conformity in outcomes with the "terms'' of those documents is evident. The variations, disputations and rejections by the Chinese can be seen to be either amendments sought by the latter, or arising from allegations by them of breach on the part of the applicant in complying with the agreements (eg the supply of underweight animals). The difficulties experienced in procuring payment under the Xinjiang letter of credit is consistent with the fact that the Chinese corporation was in dispute with the applicant over compliance with terms of the sales agreement in respect of particular sheep.

For all the above reasons, a case objectively can be made out that these were legally binding agreements between the parties.

To focus simply on the legal incidents of the contracts, however, is to lose sight of the real issues before the tribunal. ^[6] To determine those, it is necessary to view the role of the "contracts'' in the total context of the dealings of the parties right through to the eventual importation of the various sheep to China. This requires an assessment also of the subjective elements of the transactions in contention. In all this the tribunal has to answer the question: what was the purpose or purposes behind the applicant undertaking to bring the two delegations to Australia? In the latter regard, it also becomes necessary to distinguish between the different functions performed by the various members of those delegations. Analysed in those terms, it becomes evident, in the opinion that there were, in fact, two sets of quite distinct purposes served by bringing the delegations to Australia.

Looking first to the roles played by the "contracts'' and having regard to the subjective attitudes of the parties to them, the tribunal accepts that the execution of the "contracts'' was a necessary prerequisite in procuring agreement by the Chinese government to the financing of the sheep purchases and to secure travel documents for the members of the delegations. It does not accept, however, that that necessarily was the only purpose for the documents.

As indicated in the findings set forth earlier in these reasons, the tribunal accepts that the Chinese^[7] did not regard themselves as bound by the "contracts''. Those documents were not regarded as determinative in regulating the conduct of the parties. Irrespective of their legal status, however, the tribunal sees the "contracts'', after preliminary negotiations had proceeded to a point of serious intent on the part of the Chinese and Mongolian authorities to purchase livestock, as part of a complicated set of understandings which provided a framework of commitments in which further steps would be taken to secure sheep of particular numbers and breeds, within stipulated parameters, based on the specific needs of the livestock users and the availability of scarce funds. They established a basis for implementing a programme involving serious undertakings which would, within the parameters set forth in those documents, largely be adhered to. If not a strictly binding agreement, each contract did include obligations or commitments which gave rise to expectations that they would be honoured. One of these was the undertaking by the applicant to provide the fares and accommodation for members of the delegation and letters of credit would be arranged. If those undertakings were met, the sale of animals within the particular specifications sought by the Chinese would be consummated and the applicant would finally receive payment. ^[8]

What is clear is that the documents set forth prescriptions of the kinds of animals which the Chinese and Mongolian authorities were actually seeking. The "contracts'' in this respect should be read in the light of the negotiations evidenced in the letters and telexes that led up to them. ^[9] Those supporting documents make it quite clear what kind of sheep and at what price the corporations were requiring (ie which were in demand with them). The actual number and kinds were open to a degree of variation, though minor, but even so they indicated an existing requirement, need or demand on the part of the Chinese. In other words, within a fairly narrowly defined and settled spectrum the demand on the part of the Chinese and Mongolians was already in existence and had crystallised. The filling in of the particular integers in respect of sheep that fulfilled their requirements was left to be satisfied by the steps laid down in those documents. This was so, even though there still had to be the process of selection, and perhaps further negotiation about final numbers within each group of sheep sought.

In all this, the purchases of sheep depended upon the amount of finance the Chinese authorities had been able to secure under the letters of credit, on the one hand, and the availability of satisfactory sheep, including the Merinos purchased through the auction system, that were available to fulfil the need of the Chinese, on the other. There was as the tribunal sees it, so far as implementing the programme of selection, purchase and export was concerned, no enticement of the Chinese to enter into new purchases or the creation on their part for an expanded demand. They may well have wished to purchase more and perhaps better sheep but the fact is they were already restricted in that regard by external consideration of available finance. The tribunal also accepts that, had, for any reason, the sheep on offer not met their specifications, then they simply would have refused them. The demand would not have been met.

In this respect, the arrangements entered into under the contracts differs from that considered by the tribunal in Re Nuclear Waste Management Pty Ltd and Australian Trade Commission (1991) 23 ALD 797, a decision upon which the applicant relied. In that case, it was clear that a document described as a "letter of intent'', connoting more than interest but less than agreement was "no more than a step in incomplete negotiations'': reasons, para (23). An examination of the terms of the document including references to a "preliminary feasibility study'' at no cost to a Chinese nuclear power authority, and expressions such as "if this demonstration is successful'' and "if the preliminary feasibility study is approved'' underscore the highly conditional, contingent nature of the proposal and the lack of any binding commitment to purchase the nuclear waste system the applicant in that instance was attempting to sell to the Chinese. The arrangements fell well short of, and are distinguishable from, those under present consideration which define within specified limits the livestock that the Chinese and Mongolian authorities were seeking.

It cannot be doubted that those sales would not have resulted had the delegations not been brought to Australia. But that does not change the nature of the expenditure of bringing to Australia members of the delegation for the purpose of selecting sheep so that it could be characterised as being expenses in the course of soliciting or advertising to entice or create new opportunities and demands for export markets. What it would have meant, if the delegations had not come, is that an existing demand for sheep would not have been satisfied.

That however does not alter the conclusion which the tribunal has reached, that within the prescriptions laid down in the "contracts'', an established demand to be met by the sale of particular sheep had already crystallised before the delegations were brought to Australia.

In saying this, the tribunal accepts the point made by Mr Dean for the applicant that one has to appreciate the different attitude, culturally and legally, in which the Chinese approach negotiations such as those in issue. There is no doubt a more flexible and less prescriptive approach commercially is adopted on the part of the Chinese to the entry into binding obligations. The tribunal has taken into account the views expressed by authors such as Lucian Pye that suggest the Chinese approach is somewhat sui generis and is more directed to ongoing negotiation before each party finally secures what they seek.

That conclusion does not determine the matter. The tribunal also accepts that there was a second purpose behind bringing the delegations, that of interesting the delegations in new technology and improved breeds, and in establishing a relationship of trust, with a view to securing future purchases. ^[1]0 In this respect, the tribunal would draw a relevant distinction concerning the membership of the delegations.

It is evident that some members of the delegations were brought to Australia principally for their technical expertise. Their function was to be involved in the selection, inspection, testing and quarantine of the animals to fulfil the Chinese and Mongolian corporations' requirements. Other technical members and the remaining members of the delegation had a more general function. This group included persons described as "end-users'' and officials. Bringing them to Australia was necessary to ensure future goodwill and served to build up trust which was essential to securing further dealings in livestock with China. ^[11]

When the tribunal raised this distinction between the roles of the delegates with counsel for the applicant he pressed upon the tribunal the view that each member of the respective delegations had an equal part in making decisions about the purchases and dealings concerning livestock. Even accepting that, in terms of the functional reasons for the different members being in the delegation, it seems to the tribunal that the primary and principal purpose in bringing some members was different from the primary and principal purpose in bringing others.

Thus in regard to the "technical'' members who were primarily involved with selection, their participation in acquiring knowledge about Australian production or giving advice for future purchases was a collateral or secondary purpose in their being here.

With respect to the other members, though they may have had some say in the selection process, the main purpose of the applicant bringing them to Australia, as the tribunal sees it, was to establish an ongoing relationship with the Chinese authorities and corporations with a view to future export sales. Their presence was not essential to determine which sheep satisfied the corporations' demands. As such, paying their expenses to come here should properly be viewed as an enterprise in soliciting for expanding future export opportunities and, hence, within the purposes contemplated in s 4(1) and (2) of the Act.

The tribunal therefore has concluded that this is a case where an apportionment should be made between the expenditure referrable to bringing to Australia the truly technical members of the delegations, that is, the veterinary members and those of the "inspectors'' who were primarily to select the sheep to be acquired by the applicant for export sale to the Chinese and Mongolian livestock corporations - which expenditure did not qualify for a grant - and the expenditure in respect of the other members which, in its opinion, did.

The tribunal accepts that the second group of the Mongolian delegation (the end-users) were not part of the inspection and selection process of the sheep since that process was effectively completed by the time they arrived. Instead they were here for possible future market expansion.

Apart from that group, no specific evidence was led about which of the particular members fell into either category^[12] so the tribunal must remit the determination of that matter to the respondent, in the first instance, with a view to the parties agreeing [on] the appropriate apportionment. Failing that, the parties may apply to the tribunal to determine the matter upon further evidence.

Though it is unnecessary to deal with the other contentions of the respondent, the tribunal would comment that it rejects the submission of the respondent that the expenses for travel and accommodation incurred by the applicant were simply a business expense resulting from the carrying out of the terms of the contract. Even if the contract were binding and there was a clearly enforceable obligation on the Chinese to purchase the requisite number of animals, there were still two distinct purposes being served in bringing the delegations to Australia. Distributively, the basic reason for bringing some members was related more immediately and directly to the purpose of carrying through the agreement for the sale of sheep, whereas the prime reason for bringing the others was longer-term. The fact that the undertaking to bring the latter group might have been embodied in a contract does not, of itself, preclude it from giving rise to expenditure that is, in its nature, primarily directed to enlarging future export prospects.

The tribunal, in light of the evidence, is further of the view that there is no basis for holding that the applicant, in effect, had been reimbursed for its expenses because these were built into the contract price. It is undeniable that as a prudent measure, in calculating a margin for profit the applicant would have made some allowance for the various expenses, including the expenditure in question, so as to avoid a loss. That does not constitute reimbursement or payment within s 4(1)(k) of the Act as the tribunal understands it.

The tribunal also rejects, on the evidence, any suggestion that the applicant made allowance in its prices for the anticipated amount for an export grant. The tribunal accepts that it was essential to bring the delegations to Western Australia in order to conclude the sale of livestock. But in relation to the purchase of the animals within the numbers laid down in the "contract'' the tribunal does not see the purpose of bringing the technical members as a situation where the applicant had to push those delegates over some brink of uncertainty as to whether the purchases would be made or not. There were pressures and commitments which worked to ensure that, provided animals of the requisite kind and quality were available for purchase within the price parameters laid down by the Chinese, the demands for livestock on the part of the Chinese would be met. Even though, in the long term, successful dealings on this occasion would have been a stepping stone to future opportunity, that was not the primary and principal purpose behind bringing those delegates to Australia. The enhancing of opportunities for future sales, however, was the main reason for agreeing to pay the expenses of the other members. The Chinese authorities dictated that they had to come. Though those members had some part to play in the purchase of the two lots of sheep in 1989, the significance of meeting the Chinese request to include them had a predominantly longer-term objective.

The expenditure on the first category (ie those primarily engaged in inspecting, testing and selecting) cannot be attributed to advertising or soliciting in order to create new demand or new opportunities for export sales. It could not attract an export development grant. The expenditure on those members in the second category (end-users and others) can be so attributed, and does qualify for a grant. The decision under review is varied accordingly.

D C PEARCE

BARRISTER AND SOLICITOR