Go Medical Industries Pty Ltd and Australian Trade Commission [1996] AATA 308 (11 September 1996)

ADMINISTRATIVE APPEALS TRIBUNAL

GO MEDICAL INDUSTRIES PTY LTD v. AUSTRALIAN TRADE COMMISSION
No. W95/428
AAT No. 11228
Number of pages - 9
Export Market Development Grant

COURT

ADMINISTRATIVE APPEALS TRIBUNAL
GENERAL ADMINISTRATIVE DIVISION
K L BEDDOE (Senior Member)

CATCHWORDS

Export Market Development Grant - Claim for export development grant - applicant's managing director researched and developed medical technology - applicant licensed to commercially exploit intellectual property rights - applicant's wholly owned American subsidiary company entered a contract with an American company - respondent only allowed grant for a portion of export earnings claimed by applicant - eligible expenditure.

Export Market Development Grants Act 1974 ss.11A, (1), 11Z(8), (9), 12, 13, 13A, 14,

House v Department of Defence (1996) 22 AAR 464

HEARING

PERTH, 12 August 1996
11:9:1996

Counsel for the Applicant : Ms R Graieg (Director of Go Medical)

and Dr A O'Neil (Managing Director
of Go Medical)

Counsel for the Respondent : Mr P Macliver

Solicitor for the Respondent: Australian Government Solicitor's
Office

ORDER

The Tribunal decides that the decision under review is affirmed.

DECISION

K L BEDDOE On 18 October 1994 the respondent made a determination of grant under the Export Market Development Grants Act 1974 ("the Act") notifying a grant amounting to $102,646.00. The applicant sought review of that decision and on 25 October 1995 the respondent confirmed that determination by letter addressed to the applicant (T3). By application dated 22 November 1995 the applicant sought review in this Tribunal.

2. The determination made on 18 October 1994 allowed export earnings amounting to $1,360.615.00 rather than the amount claimed of $4,699,977.00 and expenses of $800,888.00 were disallowed out of the total claim of $1,300,888.00 (T3 and T24).

3. Section 12 of the Act provides for the payment of grants by the respondent and s.13 provides in part that a person desiring to obtain a grant shall submit a claim to the respondent. Section 13A provides for the periods in relation to which payments may be made; there is no dispute in this case that the applicant has made what is called a full year claim in relation to the financial year ended 30 June 1994 (T4).

4. Eligibility for grant is determined by s.14 of the Act which provides in particular that a claimant is eligible for a grant in respect of a claimed period if the claimant has incurred eligible expenditure in the claimed period and the amount of the claim is $30,000.00 or more.

5. Eligible expenditure has the meaning given by s.11A. Subsection (1) of that section provides that expenditure is eligible expenditure of a person only if it is incurred by the person and to the extent to which it is claimable expenditure. The expenditure must also be qualifying export development expenditure for the particular person and qualifying export development expenditure as set out in s.11Z(8) which reads as follows:

"(8) Expenditure is qualifying export development
expenditure of a person to whom this section applies if:
(a) in the Commission's opinion, it is incurred primarily
and principally for the purpose of:
(i) creating or seeking opportunities for; or
(ii) creating or increasing demand for;
the disposal, by that person, to persons resident outside
Australia for use and enjoyment outside Australia of:
(iii) eligible industrial property rights owned by that
person;
or
(iv) eligible know-how owned by that person; and
(b) the disposal by that person is for reward and in the
course of carrying on business in Australia."

6. Section 11Z(9) is also relevant on the facts of this case and reads as follows:

"(9) If:
(a) a person to whom this section applies disposes of:
(i) eligible industrial property rights owned by the person;
or
(ii) eligible know-how owned by the person; and
(b) the disposal by that person is for reward and in the course of
carrying on business in Australia; and
(c) the disposal is to a person resident outside Australia for use
and enjoyment outside Australia; and
(d) the person incurs expenditure which, in the Commission's
opinion, is incurred primarily and principally for the purpose of
increasing the person's return on the disposal;
that expenditure is qualifying export development expenditure."

7. Claimable expenditure is expenditure which comes within the terms of ss.11C to 11YA of the Act. Sections 11N to 11YA set out expenditure which is classed as non-claimable expenditure. For present purposes s.11C is the relevant provision but I need not set the section out as no issue arises before me in relation to it.

8. The applicant's case was conducted before the Tribunal by two directors for the company and Mr Macliver appeared for the respondent Commission. The documents filed in the Tribunal pursuant to s.37 of the Administrative Appeals Tribunal Act 1975 were put into evidence as the T documents and further documents were put into evidence and marked as exhibits. Oral evidence was given by the two directors of the company. Exhibit A is a statement of agreed facts and I set out the agreed facts in full as follows:

The applicant is a company incorporated in Australia (A.C.N. 009 018 339). The applicant commenced trading on July 1, 1986.

Since the early 1980's the applicant's managing director has researched and developed new and innovative medical devices for use in common medical procedures in hospitals and homes. The applicant is licensed to exploit the industrial property rights for such devices on a world wide basis.

One of the devices the applicant has developed is the O'Neil Sterile Field Urinary Catheter ("the O'Neil Catheter"). The applicant has been licensed to commercially exploit the industrial property rights of the O'Neil Catheter on a world wide basis.

Medical Marketing Group Inc ("MMG") is a company incorporated in America. The applicant and its directors and shareholders have no interest in MMG. MMG, it's directors and shareholders have no interest in the applicant . (T13 p117, 118)

In 1987 the applicant sold a quantity of O'Neil Catheters to MMG for marketing and sale in the United States of America and Canada ("USA").

In 1988, MMG became involved in the manufacture in addition to the marketing and sale of the O'Neil Catheter in USA.

In October 1988, the applicant incorporated a wholly owned American subsidiary company, Go Medical USA Inc. (T13 p119, 120) Go Medical USA Inc and MMG are unrelated and independent companies. In October 1988 a written contract was signed between Go Medical USA Inc and MMG. (T4A p26-28)

That written contract under clause 5, PROFIT SHARING stated that: "the parties agree that the net profit margin will reflect MMG's administrative, selling and overhead costs on the patented O'Neil Catheter products manufactured by MMG will be shared equally by both companies and that full details would be available if requested by Go Med or MMG." (T4A p27)

In 1988 the O'Neil Catheter business formed a small portion of MMG's existing business which at that time had a turnover of approximately US$1M. In the 1993/94 financial year, the O'Neil Catheter business constituted approximately 85% of MMG's business. The turnover relating to the O'Neil Catheter business was US$5,199,649.40.

In 1993/94 in USA, the average selling price of the O'Neil Catheter was about US$3.00 whereas the average selling of a standard urinary catheter was US$0.50.

In July 1991 the applicant submitted a claim for an Export Market Development Grant ("EMDG") for the 1990/91 financial year to the respondent. For purposes of assessing the claim an officer of the respondent Mr Neville Wilson attended the applicant .

By facsimile letter dated 6 December 1991 from the applicant to Mr Bruce Quartermaine of the respondent, the applicant sought clarification as to the appropriate income figure arising from its dealings with MMG which should be included as export earnings in future EMDG claims. Mr Quartermaine, the then Manager (WA) of the respondent, responded with a letter of advice dated 20 December 1991. (T16 p125)

In July 1992, the applicant lodged an EMDG claim for the 1991/92 financial year with the respondent in accordance with its understanding of the written advice in the letter of 20 December 1991.

Following consideration of the claim by the respondent's officer Mr Quartermaine, the respondent accepted the applicant's export earnings as submitted by the applicant and assessed the 1991/92 grant on that basis.

In the same manner as in the previous year, in July 1993, the applicant lodged an EMDG claim for the 1992/93 financial year with the respondent. After consideration by the respondent's officer, Mrs Judy Muir, the respondent accepted the applicant's export earnings as submitted by the applicant and assessed the 1992/93 grant on that basis.

During the 1993/94 financial year, a total sum of US$2,599,824.70 (AUS$3,727,472.00) was deposited into Go Medical USA Inc's account in respect of the O'Neil Catheter business. (T33)

$US
7 July 1993 187,031.38
13 August 1993 185,926.35
8 September 1993 206,227.98
4 October 1993 195,007.25
4 November 1993 219,152.03
13 December 1993 219,219.63
5 January 1994 234,256.40
3 February 1994 228,349.59
7 March 1994 233,983.85
12 April 1994 258,545.33
5 May 1994 221,821.30
9 June 1994 210,303.88
TOTAL: 2,599,824.70

During the 1993/94 financial year, a total sum of US$2,237,097.22 (AUS$3,209,287.00) was withdrawn from Go Medical USA Inc's account to meet Go Medical USA Inc's share of expenses relating to the O'Neil Catheter business. (T33)

US$
7 July 1993 160,846.99
13 August 1993 159,896.66
8 September 1993 177,356.06
4 October 1993 167,706.23
4 November 1993 188,470.75
13 December 1993 188,528.88
5 January 1994 201,821.52
3 February 1994 196,380.65
7 March 1994 201,226.11
12 April 1994 222,348.98
5 May 1994 190,766.32
9 June 1994 181,748.07
TOTAL: 2,237,097.22

During the 1993/94 financial year, a total sum of AUS$388,110 was telegraphically transferred by GO Medical USA Inc to the applicant in

DATE US$ AUS$
08/07/93 26,000 37,884
18/08/93 21,000 30,860
09/09/93 23,000 34,722
07/10/93 20,000 30,372
05/11/93 25,000 36,824
14/12/93 20,000 29,629
07/01/94 26,000 37,708
04/02/94 25,000 34,741
10/03/94 27,000 37,599
18/04/94 31,000 42,588
14/06/94 26,000 35,183
TOTAL: 270,000 388,110

During the 1993/94 financial year, Go Medical USA Inc paid a total sum of AUS$130,175 in respect of the applicant's expenses including product components, patent (including patent protection, maintenance and litigation) and other expenses. (T33)

In the same manner as in the two previous years, in July 1994 the applicant lodged an EMDG claim for the 1993/94 financial year with the respondent. The applicant claimed the amount of AUS$3,727,472 as export earnings relating to the O'Neil Catheter business in USA; this being the sum referred to in paragraph 16 above. (T4)

Following investigation and consideration by the respondent's officers, Mr Adrian Monck-Mason and Mr Lindsay Collins, the respondent by its Notice of Determination dated 18 October 1994 did not accept the applicant's submitted claim for export earnings relating to the O'Neil Catheter business in the USA as it had in the two previous years, and assessed as export earnings in connection with the O'Neil Catheter business in the USA the sum of AUS$388,110 which was the amount telegraphically transferred by Go Medical USA Inc to the applicant in Australia during that year, this being the sum referred to in paragraph 18 above. (T24, T26)

By the respondent's Notice of Determination dated 18 October, 1994 the respondent determined the applicant was entitled to and was thereafter paid and EMDG for the 1993/94 financial year of AUS$102,646. (T24)

If the respondent had accepted the applicant's claimed export earnings in respect of the O'Neil Catheter business for the 1993/94 financial year, then the applicant would have been entitled to a maximum EMDG for that year of AUS$250,000. (T4 p24)

The applicant lodged an appeal with the respondent against Notice of Determination on 15 November 1994. (T29)

On 25 October 1995 the respondent advised the applicant that the appeal had been disallowed. (T3)

On 22 November 1995 the applicant sought a review of that Decision, inter alia, on the basis that the applicant's export earnings should include, in addition to those sums remitted to the applicant by Go Medical USA Inc, the expenses of AUS$130,075 as referred to in paragraph (s) above. (T34)

By a further Notice of Determination dated 28 November 1995, the respondent accepted that the applicant's export earnings should include those expenses paid by Go Medical USA and adjusted the applicant's allowed export earnings from AUS$1,360,615 to AUS$1,490,690. This increased the applicant's EMDG entitlement for the 1993/94 financial year to AUS$111,802 and a further payment of AUS$9,756 was than made to the applicant . (T35, T36, T37, T38)

9. The evidence of Mrs Graieg, a chartered accountant and director of the applicant established that catheter procedures prior to the O'Neil Catheter included gowning the nurse who was going to catheterise the patient. The patient was then covered in drapes. The nurse would then swab the urethra and thereafter a catheter would be introduced into the urethra. She said it is a well documented fact that bacteria exists in the first 1.5cm of the urethra and as such the catheter that is being introduced would come into contact with the bacteria as well as push the bacteria into the urethra. If catheterisation is repeated several times or if the bacteria in the bladder is allowed to multiply, a urinary tract infection occurs. These problems are specifically addressed by the O'Neil Catheter which overcomes the risk of introducing bacteria. It is clear on the material before the Tribunal that the procedures required for the use of the O'Neil Catheter were different to the procedures required to insert other catheters and that procedure requires an education program which was undertaken by the joint venture in the United States and resulted in considerable outgoings in promotion of the product in the Unites States of America.

10. Oral evidence by Dr Alexander O'Neil a practicing obstetrician and gynaecologist and managing director of the applicant company established that the company's contribution to the "joint venture" in the United States involved sharing the technology, providing training, providing resources in terms of producing components and ongoing support. I am satisfied in the light of Dr O'Neil's evidence, and so find, that the intention of the arrangements with MMG in the United States was to allow the exploitation of the applicant's patents and technology in return for a 50% share of the profits of that exploitation in the United States being returned to the applicant company with the remaining 50% of the profits from that exploitation belonging to MMG.

11. I am satisfied and find on the material before the Tribunal that there was a joint venture arrangement under which both interests would use their resources and share in the profit margin available from exploiting the patent rights owned by the applicant company. The problem that I have with the submissions of the applicant in this regard is that in fact the joint venture was between Go Medical USA Inc and MMG. There is nothing in the material before me on which I can find that the applicant company was a party to that joint venture. In this regard I am satisfied that the applicant was seriously misled by the determinations made in relation to export market development grants for the financial years ended 30 June 1992 and 30 June 1993. However, I am also satisfied that the fact that the respondent made errors in its determinations for prior years does not act as any form of estoppel against this Tribunal making the correct decision in relation to the financial year ended 30 June 1994. In that regard I am taking into account the evidence as to the difficulties which arose with the applicant's relationship through it's American wholly owned subsidiary with MMG and the decline in the profitability of the joint venture because of the difficulties raised by the change in the respondent's attitude to the claims for the grants by the applicant.

12. Go Medical Inc of the USA also acts as an intermediary between the joint venture and the applicant company. I accept the evidence that Go Medical USA Inc is a no profit company and has been accepted as such by the Internal Revenue Service of the United States. I am unable to accept however that the United States company is merely a bank account for the Australian company. The agreement which forms the basis for the joint venture is clearly an agreement between Go Medical USA Inc of the United States and MMG. I cannot see any basis for suggesting that this Tribunal should, in effect, pierce the corporate veil and take the view that the applicant company is to be assumed to be the same as the wholly owned subsidiary incorporated in the United States. There are clearly good reasons and those were explained during the course of the hearing as to why it was necessary to incorporate a company in the United States and the fact of that incorporation cannot be set aside by this Tribunal for the purpose of these proceedings. I am satisfied that there was a joint venture in the United States but as I think I have already made clear I am not satisfied that the applicant company was a member of that joint venture and if there be any doubt about that I would have thought that doubt should be resolved in the light of the written agreement which forms the basis of the joint venture which is document T4A in these proceedings and is a "contract" between Go Medical USA Inc and MMG. The so-called contract is dated 1 November 1988. The evidence before the Tribunal makes it clear, in my view, that that document is still the basis upon which the wholly owned subsidiary and MMG operate the joint venture.

13. There is no dispute before the Tribunal and the applicant accepts that the catheters sold through the joint venture are not eligible goods for the purposes of s.5 of the Act. What is in dispute in this Tribunal is the exploitation of the industrial property rights disposed of by the applicant to the joint venture in 1988 when the agreement was entered into between the wholly owned subsidiary company and MMG.

14. Acknowledging that the applicant is a separate legal entity to it's wholly owned subsidiary and also taking into account the fact that the transactions took place in the United States and were confined to sales of O'Neil Catheters in the United States (including Canada) insofar as those transactions involved and were related to the sale of the catheters, I think I am forced to the view that the applicant can only claim a grant in relation to qualifying export development expenditure in relation to the creating or seeking opportunities for, or the creating of an increase in demand for use and enjoyment outside Australia of the applicant's eligible industrial property rights including eligible know how. In this case as I have already noted the eligible industrial property rights being exploited is the applicant's ownership of the patent in relation to the O'Neil Catheter and I have come to the very clear view that is what the applicant company was doing in relation to the business of its subsidiary company in the United States.

15. I am also satisfied that the applicant effectively disposed of its eligible industrial property rights in relation to the United States of America by arranging for its subsidiary company to enter into a joint venture agreement with MMG and as a consequence the applicant has incurred expenditure which was incurred primarily and principally for the purpose of increasing the applicant's return on that disposal. As to the other elements of subsection 11Z(9) those elements were not really in dispute so on the basis of either subsection 11Z(8) or subsection 11Z(9) I am satisfied that the expenditure incurred by the Australian company in relation to exploitation of the O'Neil Catheter in the United States of America is qualifying export development expenditure within the terms of s.11Z of the Act. I am not however, satisfied that expenditure incurred by the wholly owned American subsidiary is such qualifying export development expenditure.

16. Insofar as the applicant claims there is an issue estoppel in this matter I think that can be dealt with very easily. There is now a line of authority which says that this Tribunal is not estopped from making a decision which is the correct or preferable decision because a decision-maker has made a different decision on a prior occasion distinct from the decision which is under review. The proposition is, with respect, so obvious that I hardly need to cite authority but one only needs to consider what was said by Cooper J in House v Department of Defence (1996) 22 AAR 464, which is authority for the proposition that where the Tribunal is required to consider a different set of facts to those considered under previous decisions then there is no question of either res judicata or issue estoppel being applied to the Tribunal's proceedings. As his Honour makes clear at page 470, even to consider that the doctrines have any application there must a coincidence of issues or causes of action before there is any relevant operation for either doctrine. In the present case the issue before this Tribunal is different if only because it is a claim in relation to a different year of grant to the claims upon which the applicant relies for its argument that there is an issue estoppel which operates in its favour. The decisions relied on were made by the respondent in relation to earlier years of grant.

17. For these reasons I am satisfied that the decision under review is correct and the Tribunal's decision will be to affirm that decision.