Secretary to the Department of Industry, Tourism and Resourcesv Kimberly-Clark Australia Pty Limited [2005] FCAFC 188 (5 September 2005)

Last Updated: 7 September 2005

FEDERAL COURT OF AUSTRALIA

Secretary to the Department of Industry, Tourism and Resources v Kimberly-Clark Australia Pty Limited [2005] FCAFC 188

ADMINISTRATIVE LAW – subordinate legislation – statutory scheme to provide assistance to Australian textile, clothing and footwear manufacturers – determination by appellant that products manufactured by respondent are not eligible products for assistance – government determination upheld by Administrative Appeals Tribunal – decision of Administrative Appeals Tribunal set aside by primary Judge – whether respondent’s activities are "eligible TCF activities" – whether the respondent’s activities fall within Subdiv 21 or Subdivs 22-29 of the Australian and New Zealand Standard Industrial Classification 1993 – manufacturing process is integrated and seamless – primary emphasis placed on the end product in characterising the respondent’s activities – whether the respondent’s activities fall within Pt A4 of Schedule 1 to the Textile, Clothing and Footwear Strategic Investment Program Scheme 1999 (Cth)


Textile, Clothing and Footwear Strategic Investment Program Act 1999 (Cth) ss 8, 11(2), 14(2), 15(2)
Acts Interpretation Act 1901 (Cth) ss 13, 15AA(1), 15AB(1), 46(1)(a)
Administrative Appeals Tribunal Act 1975 (Cth) s 44
Textile, Clothing and Footwear Strategic Investment Program Scheme 1999 (Cth) ss 3, 5, 14, 15, 16, 23-26, 27, 28, 31, 52, 61(9), 64, 65, 66, 75, 76, 85A, 87(1), 88, Schedule 1, Schedule 2
Australian and New Zealand Standard Industrial Classification 1993 Div C
Textile, Clothing and Footwear Strategic Investment Program Scheme Amendment 2001 (No 2) (Cth)


Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85 referred to
Hope v Council of the City of Bathurst [1980] HCA 16; (1980) 144 CLR 1 discussed




SECRETARY TO THE DEPARTMENT OF INDUSTRY, TOURISM AND RESOURCES v KIMBERLY-CLARK AUSTRALIA PTY LIMITED

NSD 1765 OF 2005


WILCOX, MOORE AND TAMBERLIN JJ
SYDNEY
5 SEPTEMBER 2005

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1765 OF 2004

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	SECRETARY TO THE DEPARTMENT OF INDUSTRY, TOURISM AND RESOURCES APPELLANT
AND:	KIMBERLY-CLARK AUSTRALIA PTY LIMITED RESPONDENT
JUDGES:	WILCOX, MOORE AND TAMBERLIN JJ
DATE OF ORDER:	5 SEPTEMBER 2005
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.	The appeal be allowed with costs.
2.	The orders below be set aside and in lieu thereof it be ordered that the application be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1765 OF 2004

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	SECRETARY TO THE DEPARTMENT OF INDUSTRY, TOURISM AND RESOURCES APPELLANT
AND:	KIMBERLY-CLARK AUSTRALIA PTY LIMITED RESPONDENT

JUDGES:	WILCOX, MOORE AND TAMBERLIN JJ
DATE:	5 SEPTEMBER 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

THE COURT:

1 This is an appeal from a judgment of a Judge of this Court setting aside a decision of the Administrative Appeals Tribunal ("the Tribunal") which held that the respondent, Kimberly-Clark Australia Pty Limited ("KCA"), was not entitled to further grants under the Textile, Clothing and Footwear Strategic Investment Program Scheme ("the Scheme") in the total amount of $21,072,088.

2 The products in question included baby nappies and feminine hygiene and adult incontinence products. The products were found by the Tribunal to be ineligible products so as not to qualify for a grant under the Scheme.

3 As set out in the Appellant’s outline of submissions, the issues raised in this appeal are as follows:

"(a) What is the correct construction of the Textile, Clothing and Footwear Strategic Investment Program Scheme ("the Scheme") and, in particular:

(i) s 5(1);
(ii) s 5(2AB);
(iii) the definition of ‘eligible; TCF product’ in s 3; and
(iv) Item 4 of Part A of Schedule 1 to the Scheme?

(b) Did the Tribunal correctly construe the Scheme?

(c) Was the Tribunal’s characterisation of the respondent’s activities as the manufacture of nappies and incontinence products a finding of fact and, if so, whether was it [sic] open to the Tribunal?"

BACKGROUND

4 KCA is an Australian company that manufactures a range of products, including baby nappies and feminine hygiene and adult incontinence products, at processing plants in New South Wales and South Australia. It is a large enterprise generating annual sales in excess of $800 million and employing about 1800 people.

5 KCA says that 67 percent of its profits are generated from the manufacture and sale of non-traditional textiles, including laminated textiles. KCA has a vertically integrated business and most of the textiles it manufactures are used in the manufacture of KCA products. It does, however, buy in some textiles for use in its products. KCA also engages in textile finishing, a process aimed at enhancing the end-use properties of textiles.

6 On 31 May 2000, KCA lodged an application for registration under the Scheme in respect of grants for expenditure relating to new plant and equipment, research and product development activities, and textile, clothing and footwear ("TCF") value-adding.

7 On 1 November 2000, KCA was advised that its application for registration was approved, on the basis of an eligibility test, for the pre-program periods 1998/1999 and 1999/2000 and for the first year of the program, 2000/2001.

8 On 12 April 2001, KCA lodged an application for renewal of registration under the Scheme. On 11 May 2001, KCA was advised that its registration had been accepted, on the basis of an eligibility test, for the 2001/2002 period.

9 On 21 May 2001, officers of the Department of Industry, Tourism and Resources ("the Department") conducted an on-site inspection of KCA’s manufacturing plant at Albury, where KCA’s non-woven fabric is produced. On 28 June 2001, officers of the Department conducted an on-site inspection of KCA’s plant at Ingleburn, where disposable nappies are manufactured, incorporating non-woven textile imprints manufactured at the Albury plant. A report on these visits was subsequently produced by the Department.

10 On about 8 August 2001, KCA lodged a claim for Types 1, 2 and 3 grants under the Scheme and a request for determination of grant entitlement. There was then further correspondence between KCA and the Department as to the nature of the products manufactured and the expenditure in respect of which the claim was made. On 19 November 2001, a delegate of the respondent, the Secretary of the Department of Industry, Tourism and Resources ("the Secretary"), decided that KCA's maximum grant eligibility in relation to the 1998/1999 and 1999/2000 pre-program years and the 2000/2001 program year was $2,849,471. The delegate did not determine the final grant entitlement, as KCA had not yet provided a revised audited statement of its total eligible revenue.

11 KCA sought a reconsideration of this decision and supplied an independent audit report dated 6 December 2001. On 21 December 2001, a delegate of the Secretary confirmed KCA’s grant entitlement and determined the grant payable to KCA as $1,130,320. On 16 January 2002, KCA lodged an application with the Tribunal for a review of this decision (File No N2002/53).

12 On 7 November 2002, KCA lodged a request for determination of grant entitlement and claim form for the 2001/2002 program year with the Secretary, together with supporting financial documentation. On 25 November 2002, an officer of the Department requested further information regarding the claim for this year, the second year of the program, answers to which were provided by KCA to the Secretary on 2 December 2002.

13 On 12 December 2002, the Secretary advised KCA that its maximum eligible claim amount for the 2001/2002 program year was $698,614.68. It also advised that KCA’s claim for Types 1, 2 and 3 grants had been disallowed, as the products claimed were deemed ineligible activities.

14 On 8 January 2003, KCA requested a reconsideration of the grant. On 7 February 2003, a delegate of the Secretary confirmed the decision of 12 December 2002. On 6 March 2003, KCA lodged an application with the Tribunal for a review of the decision, in particular, that certain KCA activities were not eligible TCF activities as defined in the Scheme (File No N2003/377).

15 The applications to the Tribunal were in respect of the disallowance of grants for the years 1988/1999, 1999/2000, 2000/2001 and 2001/2002.

16 The relevant TCF products at issue in these proceedings fall into three categories:

(a) Adult incontinence products: DEPEND® Bed Protector, DEPEND® Shield, DEPEND® Pad Incontinence Product and DEPEND® Undergarment;
(b) Disposable nappies: HUGGIES®, VIP KIMBIES® and SNUGGLERS®; and,
(c) Feminine hygiene products: KOTEX® Maxi Pad, KOTEX® Ultrathin and POISE® Liner.

17 The Secretary does not dispute that part of the process of manufacturing these products includes laminating textile components.

LEGISLATIVE PROVISIONS AND EXTRINSIC MATERIAL

18 The primary legislation is the Textile, Clothing and Footwear Strategic Investment Program Act 1999 (Cth) ("the Act"), which came into effect on 22 December 1999. Section 8 of the Act obliges the Minister to establish a scheme for the making of grants and/or loans in connection with, or incidental to, the design and manufacture in Australia of eligible TCF products. The Scheme came into operation on 5 January 2000. The Scheme allows grants for the program years from 2000/2001 to 2004/2005 and for the pre-program years 1998/1999 and 1999/2000.

19 Section 11(2) of the Act provides that there are five types of grants. The relevant types of grants for present purposes are as follows:

"(a) the first type of grants are to be known as grants in respect of new TCF plant/building expenditure;
(b) the second type of grants are to be known as grants in respect of TCF research and development expenditure;
(c) the third type of grants are to be known as grants in respect of TCF value-adding;
..."

These three types of grant are reflected in the Scheme as Types 1, 2 and 3 respectively.

20 Section 14(2) of the Act sets a cap for grants in respect of TCF value-adding that are made to an entity for eligible activities and subsec 15(2) sets a cap for grants payable during a particular income year to an entity for various activities, including new TCF plant/building expenditure and research and development expenditure.

21 At the date the Tribunal made its decision, s 14 of the Scheme defined a Type 1 grant as:

"(1) ... a grant relating to eligible expenditure by the entity in connection with, or incidental to, any of the following activities carried on by the entity in respect of an eligible TCF activity:

(a) the acquisition or construction of new TCF plant or equipment, of which the entity is the financial owner, for use exclusively in Australia;

..."

22 Section 16 of the Scheme defined a Type 2 grant as:

"(1) ... a grant relating to eligible expenditure by the entity in connection with, or incidental to, any of the following activities carried on by, or on behalf of, the entity in respect of an eligible TCF activity:

(a) a research and development activity of a kind mentioned in section 17;
(b) a product development activity of a kind mentioned in subsections (2) and (3)."

23 Section 27 of the Scheme defined a Type 3 grant as:

"(1) ... a grant relating to eligible TCF value added by the entity in respect of eligible TCF activities carried on by the entity in a program year.

(2) A Type 3 grant may be made to an entity for a program year only if a Type 1 or Type 2 grant is also made to the entity for the program year."

24 Section 3 of the Scheme contains the following relevant definitions:

"eligible TCF activity has the meaning given by section 5.

eligible TCF product means a product resulting from an eligible TCF
activity mentioned in paragraph 5 (1) (a) ... or paragraph 5 (1) (e).

eligible TCF value added, for an entity, has the meaning given to section 28.
...

TCF plant or equipment means plant or equipment used in an eligible TCF activity."

25 Section 28 states:

"For an entity, the total eligible TCF value added by the entity, in respect of eligible TCF activities carried on by the entity for a program year, is worked out in the way set out in Schedule 2."

26 The Scheme requires the classification of manufacturing activities in order to determine whether they are eligible TCF activities. Section 5 of the Scheme provides a definition of "eligible TCF activity". The central issue in the present dispute is whether KCA’s activities qualify as eligible TCF activities. Section 5 relevantly provides as follows:

"(1) ... each of the following activities is an eligible TCF activity:

(a) a manufacturing activity of a kind mentioned in Parts A to E of Schedule 1 carried on in Australia by an entity; ...

...

(d) an activity of a kind mentioned in Part G of Schedule 1 carried on in Australia by an entity using an eligible TCF product resulting from a manufacturing activity mentioned in paragraph (a) carried on in Australia by the entity." (Emphasis added)

27 There is then the following exclusion in subsec 5(2AB) of the Scheme:

"Despite anything else in this section, a manufacturing activity of a kind referred to in Subdivision 21 or any of Subdivisions 23 to 29 of Division C of ANZSIC, and not mentioned in subsection 1, is not an eligible TCF activity." (Emphasis added)

28 The Scheme requires that if an entity intends to apply for a Type 1, 2 or 3 grant, they must apply to the Secretary to be registered for the Scheme (s 31(1)). An applicant is not eligible to register unless it carries on, or proposes to carry on, an eligible TCF activity (s 31(2)). The claim, which must be made in accordance with s 52, is then assessed by the Secretary (s 61(9)). The Secretary must be satisfied, if the claim is for a Type 1 grant, that the amount of expenditure is eligible within the meaning of s 15; if the claim is for a Type 2 grant, that the expenditure is eligible within the meaning of ss 23 to 26; and, if the claim is for a Type 3 grant, that the amount of the expenditure is the total eligible TCF value added by the entity in accordance with s 28 and worked out in accordance with Schedule 2. Sections 64, 65 and 66 provide caps, respectively, for Types 1, 2 and 3 grants. Section 85A imposes an overall limit on the total grants that become payable to an entity during a particular income year of that entity. At the time of making a claim for a Type 1, 2 or 3 grant, the applicant may request that the Secretary determine if the applicant is entitled to a grant (s 75). If the Secretary is satisfied that the applicant does qualify for a grant, then the Secretary must determine the amount to be paid under the Scheme (s 76). Section 87(1) provides that an entity affected by, and dissatisfied with, a decision may ask the Secretary to reconsider the decision. The Secretary must then reconsider the decision and confirm or revoke the decision or vary the decision in such manner as the Secretary thinks fit (s 88(1) and (2)). Section 88(6) empowers the Tribunal to review a decision that has been confirmed or varied by the Secretary.

29 Schedule 1 of the Scheme lists eligible TCF activities in Pts A to G. A note at the beginning of Schedule 1 states:

"The activities listed in this Schedule are based on Div C, Subdiv 22 of the Australian and New Zealand Standard Industrial Classification (ANZSIC)."

However, pursuant to subsec 13(3) of the Acts Interpretation Act 1901 (Cth) ("the Interpretation Act"), this note does not form part of the Act.

30 Division C, Subdiv 22 of the Australian and New Zealand Standard Industrial Classification ("ANZSIC") is headed "Textile, Clothing, Footwear and Leather Manufacturing". Pursuant to subsec 13(1) of the Interpretation Act, reference may be made to this heading as part of ANZSIC.

31 Subsection 5(2AB) of the Scheme expressly refers to ANZSIC and states that a manufacturing activity of a kind referred to in Subdiv 21 or any of Subdivs 23 to 29 of Div C of ANZSIC, and not mentioned in subsec 5(1) of the Scheme, is not an eligible TCF activity. Thus, manufacturing activities classified outside Subdiv 22 of ANZSIC and not mentioned in subsec 5(1) of the Scheme, fall outside the Scheme. Subsection 5(2AB) was inserted into the Scheme by the Textile, Clothing and Footwear Strategic Investment Program Scheme Amendment 2001 (No 2) ("the 2001 Amendment"), which took effect on 4 June 2001. The Explanatory Statement for the 2001 Amendment states:

"This amendment clarifies what is meant by eligible TCF activity under the TCF (SIP) Scheme by expressly aligning eligible TCF activities in the Scheme with Subdivision 22, Division C, Manufacturing, of the Australian New Zealand Standards Industrial Classifications (ANZSIC), published in 1993 by the Australian Bureau of Statistics. It is noted that the Productivity Commission also relied on ANZSIC to define the TCF industry in its review of the industry in 1997.

The amendment of Section 5 is intended to make it clear that activities of a kind mentioned in Subdivision 21 or any of Subdivisions 23-29 of Division C of ANZSIC are not an eligible TCF activity unless mentioned in subsection 5(1)." (Emphasis added)

32 The Parts of Schedule 1 of the Scheme that were considered by the Tribunal to be relevant for consideration in this matter were Pt A4, "Textile Finishing", Pt C3, "Sleepwear, Underwear and Infant Clothing Manufacturing", and Pt C4 "Clothing Manufacturing n.e.c" [not elsewhere classified]. However, Pts C3 and C4 were not raised on appeal before the primary Judge or the Full Court. Pt A4 of Schedule 1 reads as follows:

"A4 Textile Finishing

This category consists of any activities involved in the processes of dyeing, printing, and finishing, including any process of impregnation, coating or lamination for imparting particular end use properties to yarns, fabrics or other textiles.

• Textile dyeing, including textile pigmentation
• Textile printing, including flock printing
• Label, printed cloth, manufacturing
• Impregnation, coating or lamination" (Emphasis added)

33 Division C, Subdiv 25 of ANZSIC is headed "Petroleum, Coal, Chemical and Associated Product Manufacturing". Class 2543 of Subdiv 25 is headed "Medicinal and Pharmaceutical Product Manufacturing" and relevantly states:

"This class consists of units mainly engaged in manufacturing drugs, medicines, medicinal chemicals or other pharmaceutical products for human or veterinary use. Units mainly engaged in manufacturing herbal medicines are also included in this class.

Exclusions/References Units mainly engaged in manufacturing sheep or cattle dips or blowfly specifics or pesticides are included in Class 2544 Pesticide Mfg.
Primary Activities
...
Baby napkins mfg
Sanitary napkins mfg
Tampons mfg
...."

INTERPRETATION

34 Section 15AA(1) of the Interpretation Act provides:

"In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object."

Section 15AB(1) permits reference to extrinsic materials where they are capable of assisting in ascertaining the meaning of a provision of an Act in order to confirm the ordinary meaning of the text of the provision, taking into account its context in the Act and the purpose or object underlying the Act, or to determine the meaning of a provision where it is ambiguous or obscure or where the ordinary meaning leads to a result that is manifestly absurd or unreasonable. The "modern approach" to statutory interpretation supports this approach in a case such as the present as part of the context in which the provision must be considered: see Newcastle City Council v GIO General Ltd [1997] HCA 53; (1997) 191 CLR 85 at 101, 112-116. Section 15AB(2) sets out, non-exhaustively, the types of extrinsic material that may be referred to. These include the Explanatory Memorandum and the Second Reading Speech in relation to the relevant Bill.

35 Section 46(1)(a) of the Interpretation Act provides that, unless the contrary intention appears, delegated legislation made pursuant to a power in an Act shall be construed in the same manner as if it were an Act and as if each provision of the instrument were a section of an Act.

EXTRINSIC MATERIAL

36 The Explanatory Memorandum to the Textile, Clothing and Footwear Strategic Investment Program Bill 1999 ("the Bill") states (at p 2):

"The Bill establishes the framework for the implementation of the Textile, Clothing and Footwear Strategic Investment Program. The program aims to foster the development of sustainable, internationally competitive TCF industries in Australia during the transition to a proposed free trade environment under the Asia Pacific Economic Cooperation (APEC) by providing incentives which will promote investment, innovation and value adding in the Australian TCF industries and better exploit Australia's natural advantages in raw materials such as wool, hides and cotton."

37 The Second Reading Speech in respect of the Bill contains the following statement (Hansard, House of Representatives, 11 February 1999, at p 2455):

"The proposed Textile, Clothing and Footwear Strategic Investment Program Bill 1999 allows for the establishment of the TCF Strategic Investment Program as the key initiative for the TCF industries. The TCF Strategic Investment Program is a five-year, $700 million package aimed at encouraging additional investment in the TCF industries to add value to the products of early stage processing. The program aims to help in the development of sustainable, internationally competitive TCF industries in Australia during the transition to a freer global trade environment, by providing incentives which will promote investment, innovation and value adding in these industries. The program will also provide incentives to areas which are heavily dependent on TCF manufacturing industries, primarily regional areas.

The benefits available under the TCF Strategic Investment Program will be paid as cash, annually and in arrears. All firms engaged in textile, clothing, footwear and leather manufacturing in Australia, as defined by the Australian Bureau of Statistics, will be eligible to apply for assistance under the program." (Emphasis added)

TRIBUNAL REASONS

38 After reviewing the background history and legislation, the Tribunal member referred to the categories of products as being adult incontinence products, disposable nappies and feminine hygiene products. He recorded that it was common ground that part of the process of manufacturing those products included laminating textile components. In his discussion of the law and in his findings, the Tribunal member referred to the definition of "eligible TCF activity" in s 5 of the Scheme.

39 The Tribunal member referred to the note at the beginning of the Schedule 1 and stated that, where appropriate, reference could be made to ANZSIC as an extrinsic aid in the interpretation of the legislative provisions. He then referred to subsec 5(2AB) of the Scheme and noted that manufacturing activities classified outside Subdiv 22 of ANZSIC fall outside the Scheme.

40 The Tribunal member considered that the manufacture of the KCA products in issue fell outside the ambit of Pts A4, C3 and C4 of Schedule 1 of the Scheme. He accepted the submission of the Secretary that the claim that these activities could be described as textile finishing was artificial, because the manufacture of the products included a number of composite activities in which lamination occurs as only one element in the overall manufacturing process.

41 After referring to ss 15AA(1) and 15AB(1) of the Interpretation Act, and taking into account the Explanatory Memorandum and the Second Reading Speech in relation to the Bill, the Tribunal stated that it saw the purpose of the Act as being to provide incentives to encourage investment in the textile, footwear and clothing industries in Australia in order to foster the development of sustainable and internationally competitive TCF industries in Australia during the transition to a freer global trade environment. The Tribunal then proceeded to consider the legal issues.

42 The first question considered by the Tribunal member was whether the textile finishing which takes place in the course of, and in conjunction with, other manufacturing activities (for example, in the manufacturing of sanitary napkins) and which is not itself the end product of the manufacturing activity in question, should be identified as a discrete manufacturing activity under Pt A4. The Tribunal accepted the evidence of Professor Griffith to the effect that the manufacture of each of the relevant KCA products involved a process of lamination for imparting particular properties to the textile components of the end product. Thus, textile finishing, as defined in Pt A4 of Schedule 1 of the Scheme, was involved. However, the textile finishing itself was not seen by the Tribunal member to be the final product of KCA's manufacturing activity. The textile finishing occurred as a step in an overall manufacturing activity, where the end product was a manufactured textile product.

43 In the Tribunal's opinion, the Scheme only made sense if the focus was directed to the overall manufacturing activity rather than on each of its composite stages. So, for example, the end activity might be dyeing textiles or coating a textile with an impervious waterproof layer (both within Pt A4), or it could be manufacturing pyjamas or nightgowns (i.e. manufacturing sleepwear within Pt C3), or manufacturing handkerchiefs (within Pt C4). In each case, it was the overall manufacturing activity that was the critical activity when characterising activities for the purpose of the Scheme. Having so determined, regard was also had by the Tribunal to class 2543 of Subdiv 25, which is entitled "Medicinal and Pharmaceutical Product Manufacturing". In the Tribunal's opinion, given that the list of primary activities noted in class 2543 was non-exhaustive and was presumably intended to be indicative of the range of manufactured products included in that class, some latitude must be allowed in attributing a meaning to the terms "baby napkins" and "sanitary napkins". The Tribunal did not accept the submission that because class 2543 makes no reference to adult incontinence products, there was justification for interpreting the term "sanitary napkin" narrowly. In the Tribunal's opinion, adult incontinence products of the kind at issue in this matter, excepting the DEPEND® Bed Protector, were all forms of disposable napkin, the purpose of which, like sanitary napkins, was to absorb a bodily discharge. Furthermore, it considered that the word "sanitary", taken on its own, was sufficiently broad to cover bodily discharges other than those associated with menstruation, and therefore "sanitary napkin" could be interpreted more broadly to include all napkin-type products with the purpose of absorbing or containing bodily discharges.

44 Given that the primary activities listed in class 2543 are non-exhaustive and the class covers medicinal and pharmaceutical products for human use, it was the Tribunal's opinion that the DEPEND® Bed Protector should be treated as a like product to "baby napkins" and "sanitary napkins" since it is a product for human health and cleanliness. The Tribunal then said that the manufacturing activity involved was the manufacturing of an incontinence product and, notwithstanding that textile lamination was involved, the activity was not properly characterised as textile finishing or clothing manufacture.

45 The Tribunal member focused on Pt A4 of the Scheme, when read in conjunction with subsec 5(2AB) of the Scheme and Subdiv 25 class 2543 of ANZSIC. He also referred to Pts C3 and C4 of Schedule 1 of the Scheme, noting that Pt C3 specifically includes infants' clothing and underwear manufacturing. The Tribunal member decided that KCA’s products were not items of clothing and this conclusion has not been challenged on appeal.

46 The Tribunal member therefore concluded that the KCA products were specifically excluded from the Scheme by reason of subsec 5(2AB), as the products did not fall within Pts A4, C3 or C4 of Schedule 1. It was held that the products did not result from an eligible TCF activity, as defined in subsec 5(1) of the Scheme, and the decisions under review were affirmed.

DECISION BELOW

47 The primary Judge upheld the appeal and found several errors of law in the decision of the Tribunal. These are summarised in his Honour’s reasons for judgment at [105]-[108]. His Honour found that the Tribunal had failed to give proper and appropriate effect in its process of decision making, and as reflected in and by its reasons for decision, to the Scheme definitions of "eligible TCF activity" and "eligible TCF product", notwithstanding that the products of KCA resulted from

"an activity involved in the processes of finishing ... including any process of lamination for imparting particular end use properties to yarns, fabrics or other textiles".

His Honour expressed the view that if the Tribunal had given expression to those key phrases, it would have been likely to have found in favour of KCA’s claim in respect of its manufacturing activities. His Honour observed that although all issues of fact ultimately had to be resolved by the Tribunal, it was appropriate, given the extraordinary nature of this case, for the Court to make these comments. His Honour remitted the matter to the Tribunal for further consideration.

48 His Honour noted that the evidence of KCA’s expert witness, Professor Griffith, was not contradicted by the expert testimony of any other witness. His Honour also concluded that the provisions of ANZSIC had no decisive bearing upon the resolution of the issues falling for consideration and determination by the Tribunal and that the Tribunal appeared to have entertained in its reasons an incorrect view as to the operation of subsec 5(2AB) of the Scheme. In relation to this latter conclusion, his Honour’s reason for rejecting the operation contended for by the Secretary was the inclusion of the words "and not mentioned in subsection 1" in subsec 5(2AB). For that reason, his Honour considered it was unnecessary for him to closely examine the contents of Subdiv 22.

REASONS ON APPEAL

49 The Act provides for the establishment of a Scheme for grants or loans in connection with, or incidental to, the manufacture in Australia of products that, under the Scheme, are taken to be eligible textile, clothing and footwear products. The Scheme is to operate up to, and including, the 2004/2005 income year and the total assistance must not exceed $700 million.

50 The Explanatory Memorandum to the Bill reflects a concern that Australia’s TCF industries, that is, the industries that manufacture those products, are facing a decline in the domestic market as the consequence of increased competition from overseas products. There is a concern with the need to improve and maintain the competitiveness of the Australian industries that are engaged in making these products. There is a reference to the opportunities for Australia to build on its advantage in the production of natural fibres and other products, including processed wool, cotton, hides, fine yarns, woven and knitted fabrics, bed and bath products, carpets, domestic furniture and automotive leather, high fashion designer clothing and shoes. In addition, there is a reference to the growing market for woven and non-woven industrial textiles. The focus in the Explanatory Memorandum to the Bill is on the nature of the products manufactured and trade in those products.

51 The Minister’s Second Reading Speech reinforces this emphasis on competitive products and efficiency when it states (at p 2455):

"All firms engaged in textile, clothing, footwear and leather manufacturing in Australia, as defined by the Australian Bureau of Statistics, will be eligible to apply for assistance under the program."(Emphasis added)

52 The highlighted words are significant, as they support the inference that the Act was intended to incorporate the definitions adopted by the Australian Bureau of Statistics in ANZSIC.

53 Under s 3 of the Scheme, "eligible TCF activity" is given the meaning set out in subsec 5(1), which is extracted above at [26]. The reference to "entity" in s 5 is simply a reference to a legal entity, that is, a person or body corporate.

54 Subsection 5(2AB), in terms, is an overriding provision in respect of all the other subsections in s 5. It provides:

"Despite anything else in this section a manufacturing activity of a kind referred to in Subdivision 21 or any of Subdivisions 23 to 29 of Division C of ANZSIC, and not mentioned in subsection 1, is not an eligible TCF activity." (Emphasis added)

55 Part A of Schedule 1 is entitled "Textile Fibre, Yarn and Woven Fabric Manufacturing". Under subsec 13(1) and s 46 of the Interpretation Act, it is permissible to take this heading into account when interpreting the Schedule. The relevant section of Pt A of Schedule 1 is A4, which is entitled "Textile Finishing". Unlike the other sub-headings in Pt A, A4 refers to the "activities involved" in processes such as lamination. The other sub-headings in Pt A refer to the manufacturing of specific products. It is common ground that the manufacture of KCA end products involves a process of lamination.

56 It was common ground in this appeal that the facts were as revealed by the evidence of Professor Griffith and Mr Langer. Their evidence was to the following effect.

57 On the evidence of Dr Griffith, the manufacture of the KCA products is a seamless, integrated manufacturing process involving different but continuous stages. In the case, for example, of sanitary napkins, the process in his view could accurately be described as "sanitary napkin manufacturing".

58 It is important to note the nature of the manufacturing process in the course of which the lamination occurs. In view of the number of products included in the application, it is not feasible to describe in detail the processes involved for each product. However, the evidence of Mr Gabriel Langer, who is the Production Superintendent of KCA’s Warwick Farm Mill, is of assistance in understanding the nature of the manufacturing process in making these products. The Mill at Warwick Farm is a tissue and non-woven converting plant employing in the order of 250 people. After stating that the Mill has 28 different plant lines operating on a three shift, 24-hour basis for five days a week, Mr Langer describes the manufacture of the DEPEND Bed Protector in the following terms:

"... The DEPEND® Bed Protector is an absorbent sheet manufactured from layers of non-woven material, air-laid non-woven cellulose pulp impregnated with super-absorbent polymer and polyethylene film. These layers of material are combined on a purpose-built converting line to manufacture the final product.
...

The line ... is a converting line. ... it takes a number of raw materials and combines them, converting them into the finished product. In this case, the raw materials are 1 sheet of air-laid material, 1 sheet of polyethylene film and 2 sheets of non-woven material. ... The sheets arrive at the Mill in large rolls. These rolls are unwound and fed into the line mechanically to ensure tension. Adhesive is applied and the sheets are combined over a series of rollers. At various points the resulting laminates, or sheets of material adhered together, are cut and folded. The final product emerges folded and is packed for distribution.

The first two materials fed into the line are the sheet of airlaid cellulose pulp impregnated with superabsorbent material, which KCA purchases from a manufacturer in Canada, and the sheet of polyethylene film. 3 nozzles apply a construction adhesive in a swirl pattern to the polyethylene film, which is then pressed against the airlaid material over a roller, laminating the two materials together. The resulting laminate is cut into 810 mm by 800 mm rectangles. I will refer to these rectangles as the ‘absorbent core’.

The next two materials introduced to the line are introduced above and below this absorbent core. The material introduced from above forms what becomes the inner, or body-side, layer to the final sheet. The material introduced from below becomes the outer layer. These two materials are pressed against the absorbent core simultaneously over the one roller, laminating all the sheets together, ...

The inner layer is a spunbound non-woven textile manufactured by KCA at its Auburn Mill. This is fed into the line and passed under 5 nozzles. The middle 3 nozzles apply an adhesive in a swirl pattern, while the nozzles on either edge apply a fine straight line of adhesive to the edges of the spunbound non-woven textile. The spunbound non-woven textile is wider than the absorbent core and this patterning is designed to both adhere to the absorbent core and to the other non-woven layer being introduced underneath it. The swirl adhesive pattern applied by the 3 inner nozzles laminates the inner layer to the absorbent core, while the 2 fine lines of adhesive applied by the nozzles on either end adhere the inner layer to the outer layer beneath the absorbent core.

The outer layer is a spunbond/meltblown/spunbond ("SMS") non-woven textile that has had a 10g polyethylene coat sprayed on to it. KCA manufactures the SMS non-woven textile at its Albury Mill, however it contracts an external company, such as AMCOR Fiber Coatings, to apply the polyethylene coat. This is fed onto the line and passed under 10 extrusion nozzles which apply a slot coat of adhesive. This means the nozzles extrude the adhesive evenly onto the material so it covers most of the surface area (approximately 50 centimetres at either end of the outer layer are left clear). This is then pressed onto both the absorbent core and the inner layer over a roller and the slot coat of adhesive laminates to both absorbent core and the inner layer around the outside of the absorbent core (the fine line of adhesive applied to the inner layer forms an edge for the sheet).

After the three layers are laminated together, the resulting sheet is folded three times, cut to length and folded again. It is then packed for distribution."

59 It is evident from this statement that the product is manufactured in one line that takes a number of raw materials and combines them into the finished product. It is clear that there is one overall process leading to the production of the Bed Protector, in the course of which lamination occurs.

60 Subsection 5(2AB) of the Scheme expressly refers to ANZSIC, the Classification published by the Australian Bureau of Statistics in 1993. The Explanatory Memorandum in respect of the 2001 Amendment, which introduced subsec 5(2AB), states that this subsection clarifies what is meant by eligible TCF activities under the Scheme by expressly aligning eligible TCF activities in the Scheme with Subdiv 22 of ANZSIC. It further notes that the Productivity Commission relied on ANZSIC to define the TFC industry in its review of that industry in 1997. The use of the expressions "expressly aligning" and "clarifies" and the reference to the Productivity Commission using ANZSIC to "define" the TCF industry are significant. The Explanatory Memorandum reflects an intention to use ANZSIC as a relevant and close guide to classification or characterisation. In addition, the Explanatory Memorandum reflects an intention to exclude TCF activities of a kind mentioned in Subdiv 21 or any of Subdivs 23-29 of Division C unless they are mentioned in subsec 5(1).

61 The ANZSIC document states that the objective of ANZSIC is to identify groupings of businesses that carry out similar economic activities. Each grouping defines an industry, together with the similar economic activities that characterise the businesses concerned, which are referred to as activities primary to that industry. The purpose is to ensure that any individual business can be assigned an appropriate industry category on the basis of its predominant activities. The ANZSIC document makes it clear that ANZSIC is intended to be used to classify businesses and other kinds of statistical units. An activity is intended to be designated as primary to only one class, however, in a very few cases, there may be an overlap. Two examples of such an overlap are given in the ANZSIC document. In the circumstances of the present case, there is nothing to indicate any overlap.

62 The introductory description in the ANZSIC document refers to the classification principles employed in that document in the following terms:

"In the ANZSIC classes are created if certain conditions are met. The most important of these are that they represent recognizable segments of Australian and New Zealand Industry, meet user requirements for statistics, are homogenous in terns of industrial activity, are economically significant, and align as closely as practicable with the international standard."

63 The basic classification principle used in ANZSIC is that the category should reflect, as realistically as possible, the way in which activities are actually organised within business units, and the homogeneity requirement reflects the need to form classes which are made up of units that undertake similar economic activities. The reference to the need for homogeneity and alignment with international standards emphasises the need for specificity in classification.

64 The relevant division in ANZSIC is Div C, which is entitled "Manufacturing". Within Div C are Subdivs 21-29. The ANZSIC document states that Div C includes all units mainly engaged in "manufacturing", which, in broad terms, relates to the physical or chemical transformation of materials or components into new products. It refers to the manufacture of parts or components as a primary activity of the same class as the manufacture of the finished product except where the manufacture of parts or components is specifically shown as a primary activity of another class. In the present matter, the relevant class in Div C, Subdiv 22 of ANZSIC is class 2215, which is entitled "Textile Finishing". This class refers to the finishing of yarns, threads, fabrics or other textiles on a fee or commission basis. There is no reference in class 2215 to any product of a kind such as the end products made by KCA. However, in class 2543 of Subdiv 25 of Division C, which is entitled "Medicinal and Pharmaceutical Product Manufacturing", the designated primary activities include the manufacture of baby napkins, sanitary napkins, tampons and toilet lanolin. There is no reference to any such kind of KCA product in class 2215 or any other Part of Subdiv 22.

65 In our view, having regard to the above considerations, the reference to a manufacturing activity of a kind mentioned in Pt A to Schedule 1 does not include the process of lamination where the resulting product is a step in the integrated production of the KCA end products. The reference in the heading of Pt A to the manufacturing of textile fibre, yarn and woven fabric refers, in our opinion, to activities which produce these end products. In the present case, the products that result from the manufacturing process are the KCA products and not simply the lamination process, which is a step in the production process. It is common ground that the products actually produced in the manufacture are the KCA end products and not laminated textiles.

66 There is some ambiguity in the present case as to the meaning and effect of Pt A4 of Schedule 1 to the Scheme and it is therefore proper to have regard to extrinsic materials in interpreting this Part. These materials support the conclusion that Pt A4 does not include the KCA activities.

67 There is some cogency in the argument for KCA that, unlike other descriptions under Pt A, the description of "Textile Finishing" emphasises the activity process of lamination for imparting particular end use properties to yarns, fabrics or other textiles and does not focus on the end products. The manufacturing process of KCA involves lamination. However, in our view, to interpret this heading to encompass the incidental lamination carried out in the seamless operation that leads to the production of, for example, a sanitary napkin, is artificial. There is no dispute in this case that the manufacturing activity is the production of KCA end products. This activity involves lamination, however, it is not a manufacturing activity that easily fits within the description of manufacturing textile fibre, yarns or woven fabrics. This is a case in which the context and the explanatory material justify primary emphasis being placed on the end product of the manufacturing process when undertaking the characterisation of the activity.

68 It does not assist to contend that if the manufacturing activity had been structured in a different way, such that the lamination was carried out as a separate process resulting in the production of laminated material as an end product, the result would have been different. The Court must consider the process of manufacture that was actually implemented. This is a manufacturing activity specifically designed to produce a single end product and not a series of separate end products along the way. Having regard to ANZSIC and the specific inclusion of closely aligned products, such as baby napkins, sanitary napkins and tampons, in class 2543, we are persuaded that the lamination process in the present case is not an eligible TCF activity. A separate reason for reaching this conclusion is the wording of subsec 5(2AB) and its alignment of classification or characterisation with ANZSIC. There is a specific inclusion of like products in class 2543 in Subdiv 25 of ANZSIC and no such inclusion in class 2215 of Subdiv 22.

69 In these circumstances, the first stage of subsec 5(2AB) is satisfied. In relation to the second stage of the test in subsec 5(2AB), the KCA products do not fall within subsec 5(1). That is, the KCA products are not of a kind mentioned in Pts A to E of Schedule 1 of the Scheme. In particular, they do not fall within Pt A4 of Schedule 1. There is no mention of any activity that could be described as the manufacture of any KCA product. It is clear that, since the general intention of ANZSIC is to have mutually exclusive classes, except in unusual cases, that the appropriate classification for the KCA products is class 2543. For this reason also, the KCA products and the lamination activity involved in their production, are not eligible TCF activities.

70 If one stands back and looks at the overall process and asks whether the activity is one of manufacturing textile fibres, yarns or woven fabrics, the ordinary and natural conclusion would be that this is not what is manufactured. No violence is inflicted on the language by concluding that a manufacturing activity is properly characterised by reference to the product that results from the overall process and not by reference to component products that may be manufactured during that overall process.

FACT OR LAW

71 Counsel for the Secretary contends that the finding of the Tribunal that the textile finishing and laminating activities of KCA did not occur in relation to the manufacture of textile fibres, yarn or woven fabrics, but rather in relation to, or in the course of, manufacturing KCA end products, and therefore did not fall within Pt A4 of Schedule 1, was a finding of fact. Counsel submits that this finding was not open to review on appeal to this Court: see s 44 of the Administrative Appeals Tribunal Act 1975 (Cth). We do not agree with this submission.

72 The principles as to the distinction between a question of fact and law were considered by the High Court in Hope v Council of the City of Bathurst [1980] HCA 16; (1980) 144 CLR 1 (Hope). The leading judgment was given by Mason J, who pointed out that the question of whether the facts as found were within the provisions of a statutory enactment properly construed was a question of law. His Honour went on to say (at 7):

"... special considerations apply when we are confronted with a statute which on examination is found to use words according to their common understanding and the question is whether the facts as found fall within those words."

73 In Hope, his Honour accepted (at 8-9) that the term "business" in the subsection under consideration had the ordinary or popular meaning which it would be given in the expression "carrying on the business of grazing". In other words, it denoted grazing activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis.

74 In the present case, the question is whether the activity is a manufacturing activity of the kind mentioned in Pt A4 of Schedule 1. Resolution of this question involves interpretation of Pt A4. Although it is common ground that the activity is one of lamination, that is not the end of the matter. The issue is whether, having regard to the context and admissible extrinsic material, the determination of the question is to be resolved by having regard to the component activity or to the end product. In our view, this raises a question of law. Alternatively, this is a question of mixed fact and law because it involves the interpretation of s 5 and Pt A of the Scheme. The relevant expressions in this case are not used in what can be described as the popular or ordinary sense. There is a special statutory description of what is intended by the expression "manufacturing activity". For this reason, the Secretary’s submission that the matter is concluded by any finding of the Tribunal is not made out.

CONCLUSION

75 The appeal should be allowed with costs. The orders made by the primary Judge should be set aside and in lieu thereof it should be ordered that the application be dismissed with costs.

I certify that the preceding seventy five (75) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Wilcox, Moore and Tamberlin JJ.

Associate:

Dated: 5 September 2005

Counsel for the Appellant:	N J Williams SC and S B Lloyd
Solicitor for the Appellant:	Australian Government Solicitor
Counsel for the Respondent:	P W Gray SC and R C Titterton
Solicitor for the Respondent:	Deacons
Date of Hearing:	20 June 2005
Date of Judgment:	5 September 2005