Hellay Laboratories Pty Ltd and Australian Trade Commission [2000] AATA 539 (29 June 2000)

Last Updated: 4 July 2000

DECISION AND REASONS FOR DECISION [2000] AATA 539

ADMINISTRATIVE APPEALS TRIBUNAL )

) No V98/1408

GENERAL ADMINISTRATIVE DIVISION )

Re Hellay Laboratories Pty Ltd

Applicant

And Australian Trade Commission

Respondent

DECISION

Tribunal Deputy President B.M. Forrest Mr D.L. Elsum, AM, Member Assoc. Prof. J.H. Maynard, Member

Date 29 June 2000

Place Melbourne

Decision The decision under review is set aside and a decision substituted that consultancy fees amounting to $79,452 are eligible expenses for the purpose of a grant for the 1996-97 grant year.

.......................................

Deputy President

EXPORT MARKET DEVELOPMENT GRANT - Eligible expenses - claim for grant for consultancy fees - whether consultant engaged on a short term basis - decision set aside.

Export Market Development Grants Act 1997 ss. 29, 33, 99, 107

Re Dinnet Holdings Pty Ltd and Australian Trade Commission (1998) 28 AAR 185

Re Robert Andrew Gordon Pottery Pty Ltd and Australian Trade Commission (1998-1999) 55 ALD 551

Maunsell v Olins and Another [1975] AC 373

REASONS FOR DECISION

29 June 2000 Deputy President B.M. Forrest Mr D.L. Elsum, AM, Member Assoc. Prof. J.H. Maynard, Member

1. The applicant Hellay Laboratories Pty Ltd ("Hellay") lodged a claim for a grant under the Export Market Development Grants Act 1997 ("the Act") for the 1996-1997 grant year.

2. Although the Act commenced on 1 July 1997, entitlement to a grant is governed by the provisions of the Act as the year commencing on 1 July 1996 is, as defined in s. 107, a "grant year" for the purposes of the Act.

3. In a determination made on 5 June 1998, a delegate of the respondent Australian Trade Commission disallowed the claim for a grant in respect of consultancy fees amounting to $79,452 paid to a marketing consultant, Austprom International Pty Ltd ("Austprom"), on the basis that Austprom was not engaged on a short term basis.

4. On internal review, at the request of Hellay, the decision of the delegate was confirmed. Hellay has applied to the Tribunal pursuant to s. 99 of the Act for a review of that decision.

5. For the respondent it was contended that the consultancy fees Hellay paid to Austprom are not eligible expenditure under Part 5 of the Act. Specifically, that they do not fall within the definition of an "eligible promotional activity" within Item 6 of the Table to s. 33 of the Act, on the basis that Austprom was not engaged as a consultant on a short term basis. If so, the consultancy fees are not claimable expenditure within the definition of eligible expenses under s. 29 of the Act.

6. Section 29 prescribes the conditions under which expenses incurred by an applicant are eligible expenses for the purposes of a grant. These conditions include a requirement that the expenses are claimable expenses under s. 33 in respect of an "eligible promotional activity", that is, an activity specified in Column 2 to the Table to s. 33 of the Act.

7. Section 29 relevantly provides:

"29. Subject to section 30, expenses incurred by an applicant for a grant in respect of a grant year are eligible expenses if the following conditions are satisfied:

(a) the expenses are, under section 33, claimable expenses in respect of an eligible promotional activity;

...

(d) the expenses, together with other expenses of the applicant that satisfy paragraphs (a) to (c), add up to $20,000 or more."

8. Section 33 provides:

"(1) The activity specified in column 2 of an item in the following table is an eligible promotional activity in relation to an applicant.

(2) The expenses specified in column 3 of an item in the following table, to the extent to which they are not excluded expenses under Subdivision 4, are claimable expenses of the applicant in respect of the activity specified in column 2 of that item.

Claimable expenses in respect of eligible promotional activities

Column 1 Column 2 Column 3

Item Activity Expenses

...

6 engaging as a consultant on a short term basis (either in or outside Australia) a person that, in Austrade's opinion, is not closely related to the applicant, to the extent to which the person undertakes market research, or marketing activities, related to an approved promotional purpose all reasonable expenses incurred by the applicant "

9. The expenses in question are not excluded expenses under Part 5, Subdivision 4. The issue before the Tribunal is whether in relation to the claim for the 1996-97 grant year Hellay engaged Austprom as a consultant on a short term basis. It was not in dispute and we accept that the engagement of Austprom by Hellay in the grant year commencing on 1 July 1996 satisfied all other elements of the activity specified in Item 6 Column 2 of the Table to s. 33 and that the expenses incurred by Hellay were reasonable, as required by Item 6 Column 3 of the Table.

10. We find the facts are as follows. Hellay is a privately owned Australian company which was established in 1990. It has a modern manufacturing facility in Dandenong, a Melbourne south-eastern suburb. Chemical additives, pharmaceutical, health-food, food and cosmetic products are manufactured. Hellay operates as a licensed manufacturer and toll manufacturer for large and small companies, including several well known brands. Hellay also wholesales products in Australia on its own behalf. Manufacturing, either under licence or for wholesaling is Hellay's core activity.

11. The Managing Director of Hellay, Dr Douglas Hawley, who has a PhD in biochemistry, decided in 1995 to investigate business opportunities in Asia and approached Mr Ross Harvey, the principal director of Austprom, for assistance in undertaking a preliminary assessment of the export potential into Asia in two broad categories, one for cereal based products and the other for chocolate based drinks.

12. Austprom is a consulting company which provides business development and marketing advice and services to Australian food and beverage companies seeking to market their products in South East Asia.

13. The first substantive discussions between Dr Hawley and Mr Harvey took place in September 1995. Austprom presented Hellay with a business development and marketing proposal (Exh. D). The document, which contained broad ranging proposals for marketing initiatives by Hellay throughout South East Asia, concluded:

"8.1 I trust the above proposal sets out the broad parameters of the project. Fine tuning and detailed planning is obviously necessary but the project is a major undertaking and necessitates long term corporate commitment. The above is the start of a project which will change the structure and significantly enhance the value of Hellay Laboratories."

14. Austprom hoped to develop a long term relationship with Hellay which if established would be of mutual benefit to Austprom and Hellay. Indeed the report suggested that at a future time it was possible that consideration could be given to Mr Harvey joining Hellay. In evidence Dr Hawley said that that particular matter had at no time been taken further.

15. On 29 January 1996 Dr Hawley wrote to Mr Harvey in the following terms:

"Further to our recent discussions and your proposal concerning assistance to Hellay in our export plans to Asia, I would like to confirm our decision for Hellay to engage Austprom International for this project along the guidelines outlined in your proposal.

As discussed with you, we would like to initially limit our expenditure to a net figure of approximately $60,000.00 taking into account any benefits received from export market development grants."

16. The offer was accepted and during the period January-June 1996, Austprom conducted extensive field and consumer research into the export potential to Asia of various nutritious cereal mix and drink products and produced a number of reports, including a project status report dated 4 March 1996 which revealed that there was significant potential for Hellay's products in Asia. This report indicated that further technical research and development needed to be carried out by Hellay before several identified export projects could be advanced. According to Dr Hawley, Austprom's role was to provide specific input into testing the market viability of the products while Hellay was responsible for direct liaison with the potential customer on technical research and development, commercial negotiations and logistics.

17. Hellay obtained a grant under the Act for the grant year 1995-96 for consultancy fees paid to Austprom during the period January-June 1996.

18. On 1 July 1996 Austprom provided a Trip Report to Hellay (Exh. F Attachment 2) which essentially summarised the identified opportunities. This report identified eleven distinct major projects with seven different companies in five different countries. Following further discussions, Austprom was engaged to proceed with further work on three projects considered to be viable, a cereal beverage in Singapore, a multigrain cereal porridge in the Philippines and a chocolate beverage product in Singapore. Austprom recommended that the commercialisation phase for these products should commence immediately. Hellay decided that the other projects were to be put on hold or progressed slowly as they were regarded as secondary.

19. The report also proposed additional consultancy work to be performed by Austprom for Hellay. It was Dr Hawley's evidence that he did not then nor subsequently commit to the extra work as a total package. He believed that the export opportunities that Austprom had uncovered were worth pursuing, but as Hellay's resources were limited, it would be better for Hellay to play a bigger role implementing its export plan than that proposed by Austprom. Accordingly, Hellay decided to engage Austprom for specific assignments where assistance was required, which was the basis of the work undertaken by Austprom in the 1996-97 grant year.

20. During the 1996-97 grant year six overseas assignments were undertaken by Austprom on behalf of Hellay each one separately agreed to by Dr Hawley. These are listed in Table 1 to the applicant's Statement of Facts, Matters and Contentions. Each assignment had one or two prime objectives related to the key projects referred to above. Other secondary objectives usually related to secondary projects were generally included in the overseas visits because it made financial sense that they be advanced when Mr Harvey was in the region.

21. The role of Austprom in advancing the projects was confined to particular aspects of the marketing plan as a cost control mechanism relative to Hellay's responsibilities in carrying out the plan. The work undertaken by Austprom for Hellay during the 1996-97 grant year is detailed in paragraph 3 of Mr Harvey's statement (Exh. C). It is unnecessary to recite the detail here. At the end of the 1996-97 grant year Hellay had no commitment to Austprom and there was no understanding of further work that Austprom might undertake for Hellay.

22. Mr Harvey's evidence corroborated Dr Hawley as to the business arrangement between Hellay and Austprom. Dr Hawley approved the expenditure at each step and did not approve all the proposals/recommendations made by Austprom. Mr Harvey understood that Austprom did not have an ongoing retainer and that the approval and agreement of Dr Hawley was required before any proposed assignment could be commenced. The arrangements ranged from advanced marketing support for hot cereal products for the Philippines to exploratory development work on instant pre-packed meals for Indonesia and China. As well several variations and formulations of chocolate beverage products were being developed with differing product characteristics for particular countries. In evidence both Dr Hawley and Mr Harvey impressed as credible witnesses.

23. The question of whether the engagement of a consultant was on a "short term" basis was considered by the Tribunal in two earlier decisions.

24. In Re Dinnet Holdings Pty Ltd and Australian Trade Commission (1998) 28 AAR 185 at 190 the Tribunal (Barnett (Deputy President), Hotop (Senior Member) and Wood (Member)) considered it "unlikely that a consultancy of more than 12 months' duration would ordinarily be considered to be "short term". Each matter, however, would need to be considered in the light of its own facts and circumstances."

25. Briefly stated the relevant facts in that matter were that the applicant had engaged a marketing consultant to advance the sale of live seafood in Asia for the grant year 1996-97 and for substantially the same work in the preceding four grant years. Between 1993-94 and 1995-96 there was one agreement signed by the parties in each year to effect the engagement. The applicant claimed to have made three separate agreements in relation to the 1996-97 grant year however the Tribunal rejected these agreements as bona fide finding they were drawn up to bolster the applicant's claim after the work in question had been completed. The Tribunal found that the marketing agreements entered each year between the applicant and the consultant evidenced an ongoing relationship which was not an engagement on a short term basis.

26. In Re Robert Andrew Gordon Pottery Pty Ltd and Australian Trade Commission (1998-1999) 55 ALD 551 the Tribunal (Forgie (Deputy President), Woodard and Argent (Members)) found that an export marketing agreement entered into by the applicant with a consultant for a period of two years with either party having the right to terminate the agreement at any time on six months' notice was not an engagement on a short term basis. The agreement provided that the consultant was to act as the export arm of the applicant. The agreement restricted the applicant from having any discussions regarding its representation outside Australia without the consultant's agreement and the consultant could not, without the applicant's consent, represent any other firm which offered merchandise made of similar materials to that made by the applicant.

27. Both of these cases were decided on their particular facts. The Tribunal did not in either case attempt to prescribe a time beyond which a consultancy could not be regarded as "short term". Unlike Dinnet where the Tribunal in effect found that engagement was renewed annually over five years, and in Robert Andrew Gordon Pottery where the contract was actually in force for three and a half years, in the present matter the engagement of Austprom by Hellay was project based rather than time based. The fact that some overlap occurred with the various projects, does not in our view detract from the nature of the consultancy.

28. The Act does not seek to define "short term" by prescribing a maximum period beyond which a consultancy will not be considered short term. However, Austrade has formulated Public Policy Ruling 1997-2 in an attempt to clarify the interpretation of "short term" for the guidance of officers in determining whether a consultant has been engaged on a short term basis. Under the heading "Key assessment principles" the Policy Ruling reads:

" ? A consulting assignment lasting up to 3 months will generally be eligible. In particular cases the assignment may extend over a period of up to 12 months.

* Consultancies will not be regarded as short term where a consultant is engaged on an ongoing basis.

* Where the consultant is not engaged on an ongoing basis, one assignment per consultant will be allowed except in particular circumstances.

Austrade will allow any consulting arrangement which falls into one of the following categories:

1. An assignment lasting less than 3 months. Only one assignment per consultant except in the following circumstances:

* the consultant's assignments are clearly for different markets (countries) or for different products; and

* the consultant works for other clients, and

* there is a gap between consulting assignments of at least one month, and there is no arrangement in place (written or unwritten) for the applicant to use the consultant on an ongoing basis. Repeated assignments or renewed arrangements could indicate that there is an ongoing arrangement in place.

2. An assignment lasting 3-12 months which is for a one-off project and which is based on a specified product and market region or on other specific terms. Austrade will only allow one assignment per consultant and no renewals would be allowed for this category of assignment."

29. In refusing the claim for a grant, the Austrade officer relied on this Policy Ruling in deciding that Austprom was not engaged on a short term basis but on a continuous ongoing basis.

30. While the Policy Ruling provides guidance to which regard will obviously be had it does not have legislative force. The Tribunal in Robert Andrew Gordon Pottery cautioned against slavish adherence to the terms of the Policy Ruling and pointed to the need to consider all relevant factors including (but not limited to) the nature of the relationship between the applicant and the consultant, the particular needs of a business the applicant is developing and the purpose for which the consultant was engaged. We agree with this approach.

31. The Macquarie Dictionary defines the adjective "short term" as "1. Covering a comparatively short period of time. 2. Having a maturity within a comparatively short time: a short term loan." The definitions include a qualification that such a period of time is comparative that is, it is not an absolute in time but relative.

32. In a temporal sense, the meaning of "short term" depends upon the context in which it is used. For example in the money market, "short term" refers to within a day or overnight, whereas in the mining industry where horizons are long "short term" may mean years.

33. Statutory language must always be given presumptively the most natural and ordinary meaning which is appropriate in the circumstances: Maunsell v Olins and Another [1975] AC 373 at 391. In our opinion the answer to the meaning of the term "short term" is to be found in the ordinary meaning of the language in the context in which the expression is used. There was no evidence to suggest that the expression "short term" was intended in the Act to have a commercial or special meaning distinct from its ordinary meaning. In accordance with its dictionary meaning, it refers to a comparatively short time.

34. Consultancy on a short term basis is not, in the present circumstances, capable of a precise definition because there is no benchmark for time in the marketing activities of the products being developed by Hellay. Its meaning has to be considered in the context of the activities undertaken. The object and purpose of the Act is to encourage export markets for Australian goods, by providing an assistance scheme to small and medium enterprises. Establishing a product presence in Asia requires a commitment over time. This is recognised in Austrade advice and publications. It was clearly in Mr Harvey's mind in making his initial proposals to Hellay and was certainly understood by Dr Hawley. Viewed in this way, Austprom's work for Hellay covered a comparatively short period of time given the product development and marketing required for the particular markets. That is not to say that it is necessary to look to the purpose of the Act in determining the meaning of the term which is to be found in its ordinary meaning.

35. A close examination of the facts reveal that the consultancy was not for a fixed period. It was not an exclusive arrangement in that Austprom was free to engage in other consultancy work. At first it was a broad ranging brief to investigate export marketing opportunities followed by specific identified projects. Austprom's broad proposals provided the basis to encourage Hellay to make its first real steps towards marketing in Asia.

36. The initial proposal by Austprom dated 21 September 1995 (Exh. D) was intended as a discussion document and formed the basis of the first project, undertaken in the 1995-96 grant year following the letter of acceptance. The 1 July 1996 proposals (Exh. F Attachment 2) were broad in scope to the extent that almost any subsequent activity could be said to be included. It does not follow however nor do we accept that as a consequence of initial broad proposals, that all subsequent engagements necessarily were part of a continuing engagement. While it is true that Austprom undertook consultancy work for Hellay from January 1996 to February 1999, we are satisfied that during the grant year 1996-97, the relevant period under consideration, that Austprom was engaged as a consultant on a short term basis. The fact that consultancy work was done in other periods before and after the grant year while instructive is not necessarily conclusive of the issue. By that we do not mean to say that we are quarantining the work done in the grant year in determining whether the engagement was on a short term basis. The nature of the consultancy was a series of engagements for particular projects with monitoring reappraisal and renewal from time to time. There was no overall obligation for either party to continue the association beyond the grant year notwithstanding that further work was done after the grant year.

37. In oral evidence and by production of his diary entries Dr Hawley was able to demonstrate that the relationship with Austprom was one based on a series of separate limited objectives. Some projects fell within the umbrella of the original Asian market strategy. Others were opportunistic or emergency for instance, where action was required regarding a troubled market launch in the Philippines and on another occasion with financial problems arising from the Asian economic crisis. Dr Hawley, being a prudent man, was anxious to ensure that any commitment was limited and not open ended.

38. Although the projects were closely related, this does not negate the fact that Austprom was separately engaged on various projects. A relationship between projects does not in itself create a long term engagement nor in our opinion is it correct to say that the projects "were aspects of the applicant's core business" as submitted by the respondent. Hellay's core business is concentrated in Australia and is directed largely towards manufacturing and wholesaling in Australia. The entry into Asia was a new venture requiring an adaptation of skills and knowledge of the Asian markets which Hellay lacked and Austprom was able to provide. The services provided by Austprom were on an "as required" basis and as a series of short term assignments.

39. For these reasons the decision under review is set aside and a decision substituted that consultancy fees amounting to $79,452 are eligible expenses for the purpose of a grant for the 1996-97 grant year.

I certify that the 39 preceding paragraphs are a true copy of the reasons for the decision herein of

Deputy President B.M. Forrest

Mr D.L. Elsum, AM, Member

Assoc. Prof. J.H. Maynard, Member

Signed: .....................................................................................

Associate

Date/s of Hearing 17 and 18 April 2000

Date of Decision 29 June 2000

Solicitor for the Applicant Mr G. Raitt, Anderson Rice

Counsel for the Respondent Mr P. Hanks QC

Solicitor for the Respondent Tuckers, Lawyers