Polar Pacific Pty Ltd and Australian Trade Commission [2011] AATA 19 (19 January 2011)

Last Updated: 20 January 2011

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 19

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2009/4667

GENERAL ADMINISTRATIVE DIVISION		)
	Re		POLAR PACIFIC PTY LTD

Applicant

And

AUSTRALIAN TRADE COMMISSION

Respondent

DECISION

Tribunal

Senior Member S E Frost

Date 19 January 2011

Place Sydney

Decision

The decision under review is affirmed.

....................[sgd]..........................
S E Frost
Senior Member

CATCHWORDS

TRADE AND COMMERCE – industry assistance – export market development grant – whether applicant was genuinely carrying on business in Australia – whether the products are eligible goods – application of administrative guidelines – decision under review affirmed

WORDS AND PHRASES – “genuinely carrying on business in Australia”, “eligible goods”, “eligible services”

Export Market Development Grants Act 1997 (Cth) ss 7, 24, 25

Export Market Development Grants (Significant Net Benefit) Guidelines 2006

Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634

Re Port Jackson Fine Art Pty Ltd and Australian Trade Commission [2003] AATA 140

REASONS FOR DECISION

19 January 2011

Senior Member S E Frost

1. The Export Market Development Grants (EMDG) scheme is designed to provide financial assistance to eligible Australian businesses that carry on export promotion activities. Grants under the EMDG scheme have the practical effect of subsidising “eligible expenses” incurred in relation to “eligible products”.
2. The main questions raised by this application are:
   • whether, from 1 October 2007, the applicant was genuinely carrying on business in Australia; and
   • if it was – whether certain of the applicant’s products are eligible products – either “eligible goods” or “eligible services”.
3. The Australian Trade Commission (Austrade) has taken the view that since 1 October 2007 the applicant has not been genuinely carrying on business in Australia, but even if it has been, that its products are not eligible products. As a result the applicant was denied a grant to which it considered itself entitled. I have come to the view that Austrade was correct to deny the grant to the extent that it did. My reasons follow.

THE APPLICANT’S ACTIVITIES AND PRODUCTS

4. The applicant was incorporated in 1999. Mr David Bensimon, the sole shareholder, decided that the applicant would concentrate on providing analysis and forecasting in relation to the financial markets. The applicant applied for and was granted a futures adviser’s licence by the Australian Securities and Investments Commission (ASIC).
5. By September 2000 the applicant had started publishing the analyses and forecasts. Mr Bensimon described the applicant as a “very basic one-man operation operating from a home office” wherever he and his wife were living at the time – first in Noosa, and later in inner-city Sydney. Mr Bensimon himself contracted to the applicant, providing to it the daily written report that the applicant “packaged, marketed, sold and delivered” electronically to its clients.
6. In about March 2001 the applicant moved to weekly reporting, and for the next three years or so it continued in this way as what Mr Bensimon described as “a consistent Australian based financial advisory firm”.
7. In 2004 the applicant moved into a new phase of its operations. The retail newsletter came to an end, and the applicant, now with an Australian Financial Services (AFS) licence authorising wholesale (but not retail) financial advisory services, established a monthly electronic reporting service, called “Polar View”, exclusively for wholesale clients.
8. After about a year, Mr Bensimon decided to package the historical material that he had built up through the Polar View reports into a book. He spent most of 2006 drafting the manuscript and making arrangements for the preparation and printing of the book. The book, titled “Polar Perspectives”, was printed in Singapore. Mr Bensimon would be paid by the applicant a set amount for each book sold, just as he had been paid a set amount for the provision of each of the monthly Polar View reports. This “royalty” had become $US100 for each Polar View report sold (for which the revenue to the applicant was $US300) and would be $US300 for each copy of the book sold (for which the revenue to the applicant would be $US800). The book was a limited edition, coffee table-style product with only 1618 copies produced.
9. After some time Mr Bensimon decided that, for the benefit of the applicant and to enable it to expand, he would physically relocate from Sydney to Singapore. He said that during the period October to December 2007 he was in the process of moving to Singapore, but that he did not finally take up residence there until the beginning of January 2008, when he obtained his green card. Austrade took the view that his relocation occurred at the start of his transition period – that is, in October 2007. It was for this reason that Austrade paid the EMDG, in relation to the 2007/2008 grant year, for the period July to September 2007, but formed the view that the applicant had no grant entitlement after the end of September 2007 because from that time onwards, the applicant was not “genuinely carrying on business in Australia”: see s 7 of the Export Market Development Grants Act 1997 (EMDG Act), which specifies when a person, including a company, is eligible for a grant.
10. To comply with the Corporations Act requirement that the applicant have an Australian resident director, Mr Malcolm Cooper was appointed a director of the applicant around the time that Mr Bensimon started to relocate to Singapore. Since then, the applicant has had a resident director and a registered office located in Australia, but no employees and no business assets (unless the AFS licence, and cash held in two bank accounts with the Commonwealth Bank are to be regarded that way).
11. It must follow from the lack of any genuine business presence or business activity in Australia from the time that Mr Bensimon decided to relocate to Singapore, that the applicant has not been “genuinely carrying on business in Australia” since 1 October 2007, even if it took him another three months to be classed as “resident” in Singapore.

THE GENERAL RULES FOR ELIGIBILITY

12. Section 7(1)(a) of the EMDG Act provides that a claimant that is a company “is eligible for a grant in respect of a grant year if ... [it] was, in the opinion of the CEO of Austrade, genuinely carrying on business in Australia during the grant year”.
13. Where, as here, a claimant is “genuinely carrying on business in Australia” for only part of a grant year, there is a question as to whether the claimant is entitled to any grant at all. One meaning of the word “during”, according to the Macquarie Dictionary, is “throughout the continuance of”, and to apply that meaning (the “narrow approach”) would result in a claimant meeting the eligibility requirement only if it genuinely carried on business in Australia for the entire grant year. An alternative, broader approach (the “broad approach”) would be to take the word “during” to mean “at any time during”, in accordance with an alternative meaning given by the Macquarie Dictionary, namely “in the course of”. Austrade has avoided both the narrow and the broad approach, choosing instead to treat distinct parts of the grant year separately. This has the effect of allowing a grant for the part of the year when a claimant is genuinely carrying on business in Australia, but not otherwise.
14. My initial impression was that the broad approach to the interpretation of the word “during” was the correct one, but on reflection I do not think this is so. It would result in eligibility for a claimant that might carry on business in Australia only for a minor or insignificant part of a grant year. That cannot be what Parliament intended. While there is something to be said for the narrow approach, it seems to me that the third approach adopted by Austrade is the one that achieves the appropriate outcome of assisting Australian businesses while their activities are carried on here but not while their activities are carried on elsewhere. On that approach, I agree with Austrade’s conclusion that the applicant was not genuinely carrying on business in Australia from 1 October 2007 onwards, and that it is not eligible for a grant after that date.

THE ELIGIBILITY OF PRODUCTS

15. My conclusion in relation to s 7(1)(a) of the EMDG Act makes it unnecessary to consider the eligibility of the applicant’s products, but in case I am wrong with that conclusion, and also for completeness, I should record my views.
16. The eligibility of products depends on ss 24 (relating to goods) and 25 (relating to services) of the EMDG Act. Section 24 provides as follows:

24 Eligible goods
Goods are eligible goods if:
(a) they are made in Australia; or
(b) the CEO of Austrade is satisfied, in accordance with guidelines determined under paragraph 101(1)(baa), that Australia will derive a significant net benefit from the sale of the goods outside Australia.
Note: Decisions under this section are subject to guidelines determined by the Minister under section 101.

17. The version of s 25 that applies to the 2007/2008 grant year is the version that existed immediately prior to its amendment in June 2008 by Act No. 33 of 2008: see clause 57 in Schedule 1 to that Act. That version drew a distinction between “internal services” and “external services” but provided that either category of service was an eligible service if it was supplied “to a person that is not a resident of Australia”. However, s 25(4) provided that any such service was not an eligible service if:

the CEO of Austrade determines, in writing, having regard to all the facts available to him or her, that the Australian input in the service is not sufficient to ensure that Australia will derive a significant net benefit from the supply of the service.

18. Relevant to s 24(b) are the legislative guidelines determined under s 101(1)(baa) of the EMDG Act and known as the Export Market Development Grants (Significant Net Benefit) Guidelines 2006 (the SNB Guidelines). Although called “guidelines”, they are legislative in nature and must be complied with. When originally made, they provided relevantly as follows:

4 Significant net benefit
(1) In determining, for paragraph 24 (b) of the Export Market Development Grants Act 1997, whether Australia will derive a significant net benefit, Austrade must comply with the following guidelines.
(2) Austrade must consider whether:
(a) the business assets which are used in making the goods ready for sale (other than assets used in manufacture) are primarily or substantially based in Australia; and
(b) the activities (other than manufacture) which result in the goods being made ready for sale are primarily or substantially carried on in Australia; and
(c) a significant proportion of the value of the goods is added within Australia; and
(d) any sale of the goods generates, or would generate, substantial economic benefits for Australia, including employment.

19. Although a new paragraph 4(2)(d) was substituted on 4 June 2010, subsection 4(3) of the current version of the SNB Guidelines explains that the version shown above “is taken to apply to an application made in relation to a grant year commencing before 1 July 2009” and is therefore the version that applies for the purposes of these proceedings.
20. There is a further set of guidelines relevant to both s 24 and s 25, although these are administrative, rather than legislative, in nature. They are known as the Export Market Development Grants Administrative Guidelines (the Administrative Guidelines), and while they are not binding upon the Tribunal, they do provide guidance, and they are not to be ignored unless they are unlawful or unless their application would produce an unjust result: see Re Port Jackson Fine Art Pty Ltd and Australian Trade Commission [2003] AATA 140 at [46]; Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 at 645.
21. Miss Henderson, who appeared for Austrade, confirmed that the version of the Administrative Guidelines to which I should have regard is that published in June 2009. That version states in paragraph 4.1.4:

Goods not ‘made in Australia’ must meet all of the four assessment criteria [in the SNB Guidelines] to be eligible under paragraph 24(b) of the EMDG Act.

22. In my view, that particular statement is not correct. The SNB Guidelines provide that Austrade “must consider whether” the circumstances in paragraphs 4(2)(a) to (d) exist. If all those circumstances exist in any given case, then Austrade would be bound to determine that Australia will derive a significant net benefit from the sale of the goods outside Australia. But it will not necessarily follow that the non-existence of one or more of the circumstances will cause Austrade to determine that Australia will not derive a significant net benefit. It may be that the non-existence of one or more of the circumstances is so far outweighed by the existence of the others that Austrade could properly determine a significant net benefit in the particular case. What is required is a proper consideration of all the questions, and a reasonable and considered (rather than mechanistic) assessment of the answers to them.

THE APPLICANT’S PRODUCTS

23. There are three products to consider, and they need to be considered in the context of Mr Bensimon’s decision, taken around 1 October 2007 and implemented over the next three months, to take up residence in Singapore.
24. The first is the “Polar Perspectives” book. Like all manufactured goods, it was “made” where it was manufactured – that is, in Singapore, where it was printed and bound – and so it cannot be regarded as eligible under s 24(a) of the EMDG Act.
25. It then becomes necessary to consider whether, having regard to the SNB Guidelines, I am satisfied that Australia “will derive” a significant net benefit from the sale of the books outside Australia. That enquiry must, as already mentioned, focus on the period that commenced on 1 October 2007, for there is no suggestion that Austrade’s acceptance of the book as “eligible goods” prior to that date should be re-opened. Whether the period of examination is restricted to the grant year (which ended on 30 June 2008) or can extend beyond that date into the future, it is difficult to see how a consideration of the four relevant circumstances in s 4(2) of the SNB Guidelines can result in any favourable outcome for the applicant, as the following summary demonstrates:
    • Paragraph (a) – there are no business assets based in Australia; alternatively, if the AFS licence is to be regarded as a “business asset”, Mr Bensimon’s evidence is that “the books do not technically require the licence”;
    • Paragraph (b) – with no genuine presence in Australia after 1 October 2007, there can be no activities carried on here;
    • Paragraph (c) – there is no value added after 1 October 2007; and
    • Paragraph (d) – while it is true that the proceeds of sale may find their way to the applicant’s bank accounts in Australia, Mr Bensimon’s evidence is that only about 700 of them were ever sold (and only about 100 of those in 2007/2008). That does not, on any measure, amount to the generation of “substantial economic benefits for Australia”.
26. The “Polar Perspectives” book is not an eligible product.
27. The second product is the “Polar View” report (and the compilations derived from it and known as “Polar Passages”). Austrade has taken the view that they are goods, but since the applicant does not deliver the reports to its clients in tangible form, this cannot be right. They are delivered electronically, and they must be regarded as services.
28. Because Austrade regarded the reports as goods, it has made no determination under s 25(4) of the EMDG Act. However, in light of the evidence that Mr Bensimon has been based in Singapore since at least January 2008, Austrade would be obliged to determine under s 25(4) that the Australian input in the service “is not sufficient to ensure that Australia will derive a significant net benefit from the supply of the service”. In the absence of such a determination from Austrade, the Tribunal makes a determination to that effect. As a result, the reports are not eligible services.
29. The third product is “Polar Presentations”, which are, as the name suggests, physical presentations that Mr Bensimon makes on behalf of the applicant to its clients. As with “Polar View”, because of Mr Bensimon’s location in Singapore, the Australian input in this particular service is not sufficient to ensure that Australia will derive a significant net benefit from the supply of the service, and they are similarly not eligible services.

CONCLUSION

30. It follows that the decision under review must be affirmed.
    

I certify that the 30 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member S E Frost

Signed: ............[sgd]....................................................................

Associate

Dates of Hearing 4-5 November 2010

Date of Decision 19 January 2011

Appearance for the Applicant Mr D Bensimon

Counsel for the Respondent Miss R M Henderson

Solicitor for the Respondent Mr C Tucker, Lachlan Partners Legal