FEDERAL COURT OF AUSTRALIA Industry Research and Development Board v Bridgestone Australia Ltd [2000] FCA 1588 ADMINISTRATIVE LAW – Industry Research and Development Act 1986 (Cth) – interpretation of the words "normal commercial terms" – whether persons dealing with each other from "positions of comparable bargaining power" – whether Tribunal's procedures reveal an error of law Industry Research and Development Act 1986 (Cth) ss 39C, 39D, 39L(1) 39M, 39M(2)(b)(i)(A) Income Tax Assessment Act 1936 (Cth) s 73B, s 122 Acts Interpretation Act 1901 (Cth) s 15AA MacQuarie Dictionary (Rev Ed) Farmer v Cotton's Trustees (1915) AC 922 applied Commissioner of Taxation v Miller [1946] 73 CLR 93 cited Hayes v Federal Commissioner of Taxation [1956] 96 CLR 47 cited Hope v Bathurst City Council [1980] 144 CLR 1 cited Collector or Customs v Agfa-Gevaert Ltd [1995-1996] 186 CLR 389 applied Brutus v Cozens [1973] AC 854 applied NSW Associated Blue-Metal Quarries Ltd v Federal Commissioner of Taxation (1956) 94 CLR 309 applied K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 applied Collector of Customs v Pozzolanic enterprises Pty Ltd (1993) 43 FCR 280 cited INDUSTRY RESEARCH AND DEVELOPMENT BOARD v BRIDGESTONE AUSTRALIA LIMITED NO N 741 of 1999 O'LOUGHLIN J ADELAIDE 10 NOVEMBER 2000 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 741 OF 1999 BETWEEN: INDUSTRY RESEARCH AND DEVELOPMENT BOARD APPLICANT AND: BRIDGESTONE AUSTRALIA LIMITED RESPONDENT JUDGE: O'LOUGHLIN J DATE OF ORDER: 10 NOVEMBER 2000 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicant pay the costs of the respondent which costs are to be taxed in default of agreement. 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 N 741 OF 1999 BETWEEN: INDUSTRY RESEARCH AND DEVELOPMENT BOARD APPLICANT AND: BRIDGESTONE AUSTRALIA LIMITED RESPONDENT JUDGE: O'LOUGHLIN J DATE: 10 NOVEMBER 2000 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 The appellant in these proceedings is the Industry Research and Development Board ("the Board"); the respondent is Bridgestone Australia Ltd ("Bridgestone"). The Board seeks an order that the decision of the Administrative Appeals Tribunal ("the Tribunal") that was given at Adelaide on 2 July 1999 be set aside. It seeks a further order that the matter be remitted to the Tribunal, differently constituted, to be determined according to law. The Tribunal had decided, contrary to the view taken by the Board, that, for the purposes of s 39M(1)(b)(i)(A) of the Industry Research and Development Act 1986 (Cth) ("the Act"), the results of Bridgestone's research and development activities that were under review in the Tribunal had been exploited on ordinary commercial terms. Section 39M forms part of Pt 111A of the Act. That Part, which comprises ss 39A to 39V (inclusive) is entitled: "Functions of Board in Relation to Income Tax Concessions". 2 The business that is now conducted by Bridgestone started life as "SA Rubber Mills Ltd". In due course of time, a holding company was incorporated under the name of SA Rubber Holdings Ltd and that company was listed on the Stock Exchange of Adelaide in 1949. In 1963, the United States Rubber Company (which changed its name to Uniroyal Inc) acquired a 25 per cent interest in the holding company; by 1970, that holding had increased to 51 per cent. Following on the increase in the interest of Uniroyal Inc, the two South Australian companies changed their names: SA Rubber Mills Ltd changed its name to Uniroyal Pty Ltd and SA Rubber Holdings Ltd became Uniroyal Holdings Ltd. In 1980, Uniroyal Inc, which by then had increased its holding in the South Australian public company – Uniroyal Holdings Ltd – to 60 per cent, sold its entire interest to Bridgestone Tyre Co Ltd, a Japanese tyre and rubber company. 3 In about 1981, as a result of a corporate restructuring, Uniroyal Pty Ltd converted to a public company and changed its name to Bridgestone Australia Ltd – that is, the party which is the respondent in these proceedings. At about the same time, the Japanese company changed its name from Bridgestone Tyre Co Ltd to Bridgestone Corporation. Bridgestone and its Japanese parent company entered into an agreement on 21 August 1981; it was called the "Technical Assistance and Licence Agreement" and was referred to by the Tribunal and the parties as the "TALA"; I will continue its use. With the entry of the Japanese, the local South Australian company thereafter looked to Japan for technical know-how and assistance. The Tribunal addressed that subject in its reasons at par 96 finding that: "… at the time the TALA was entered into it was essential for the applicant's predecessor to obtain the relevant technology, and that it had no other option but to get this technology from the parent company. The Tribunal also notes the evidence put before it that, had the applicant not acquired the technology from the parent company, it is more likely than not that it would have gone out of business. The Tribunal finds this evidence to be credible and is satisfied that such was the case." 4 The Tribunal revisited that finding at par 125 of its reasons, adding, however, a most important observation about the bargaining position in which Bridgestone would have found itself: "The Tribunal notes its finding that it was essential that the applicant get the technology it needed, and that the only people from whom it could get the technology was the parent company. It is obvious therefore, that upon entering the negotiations over the TALA, the parent company had a much greater ability to insist upon terms being included in the TALA than the applicant did, given that it was essential that the applicant acquire the technology. The applicant therefore, did not have a strong bargaining position from which to manoeuvre. The obvious question arises out of this, that if, upon entering into the negotiations, the applicant clearly had a great deal less bargaining power than the parent company, does this not preclude the possibility that the applicant would be able to assert it bargaining power, given that the applicant simply had to have the technology." 5 The TALA named Bridgestone Tyre Co Ltd, the Japanese parent company, as the Licensor and the Australian company, the respondent in these proceedings, then called, Bridgestone Australia Pty Ltd, as the Licensee. At that stage the Japanese parent owned 60.4 per cent of the shares in Bridgestone Holdings Ltd which then owned all the shares in the respondent. 6 The TALA commenced with a recital to the effect that the licensor was, subject to certain conditions about the extent of shareholdings, willing to provide to the licensee certain technical assistance for the manufacture of "automotive tyres and tubes". Article 1 of the agreement defined "Technical Information" in very wide terms; it also defined "Rubber Products" to mean "automotive tyres and tubes" as listed in the schedule to the agreement. 7 Article 2 of the TALA called upon the Japanese parent to provide to the Australian subsidiary: "… such Technical Information as will enable the Licensee to manufacture the Rubber Products to the then current Specifications used by the Licensor from time to time in its commercial production of the Rubber Products. The technical assistance under this Article-2 shall be provided, not at one time, but on a continuing basis as the Licensee actually requires it and is ready to commence commercial production of the particular type of the Rubber Products for which the technical assistance is necessary. When and how such technical assistance is provided to the Licensee shall be determined by agreement of the parties hereto from time to time." Article 3 of the TALA then provided as follows: "The Licensor hereby grants to the Licensee a non-transferrable license, without right to grant sub-licenses, to use the Technical Information and Patents in the manufacturer of Rubber Products in Australia and the sale of such Rubber Products anywhere in the world in accordance with Article-9 hereof. Limited to the use of the Technical Information by Licensee, the License granted hereunder shall, except to the extent the same is inconsistent with any licenses licensor may have granted to third parties as of the date hereof, be exclusive to manufacture Rubber Products in Australia and to sell in Australia Rubber Products so manufactured by the Licensee, but shall otherwise be non-exclusive." 8 Article 6 set out the royalties that were payable by the Australian company to the Japanese parent. These were payable annually on the net sales value of the Rubber Products that were to be manufactured and sold by the Australian company. In addition to the payment of royalties, the licensee also had to furnish to the licensor any technical information which it acquired "with respect to the Rubber Products or its manufacture". Article 7.1 further required the licensee to grant to the licensor: "… a non-exclusive, irrevocable, worldwide royalty free licence (except to the extent the same may be contractually prohibited) with the right to grant sub-licenses thereunder except, in Australia, New Zealand and Papua New Guinea to use and cause to be used any information supplied under this Article-7." 9 On 4 February 1992 Bridgestone lodged with the Board its application for registration for the income tax concessions for research and development for the calendar year that ended 31 December 1991 – that also being Bridgestone's financial year for accounting and income tax purposes. To obtain registration, it was necessary for Bridgestone to provide to the Board such information, in relation to its actual or proposed research and development activities, as the Board reasonably required. It was, of course, open to the Board to refuse registration if the activities were not, or did not include, research and development activities: s 39K. In its application for registration, Bridgestone listed ten projects in its "Automotive Components" division, one in its "Consumer Products" division and fifteen projects in its "Tyre Division". Total expenditure on all research and development projects was said to be almost $2m. A "desk assessment" of the application was completed on 27 March 1992 with an endorsement "probably OK, more careful check next year". 10 Between 1992 and 1996, the Board gathered additional information from Bridgestone and from the Commissioner of Taxation ('The Commissioner") about the relationship between Bridgestone and its parent company. The Board did this at the request of the Commissioner pursuant to s 39L(1) of the Act. That subsection provides as follows: "(1) The Board may, and shall if requested in writing by the Commissioner to do so, give to the Commissioner a certificate stating whether particular activities that have been or are being carried on by or on behalf of a person were or are research and development activities." 11 Section 73B of the Income Tax Assessment Act 1936 (Cth) ("the Income Tax Assessment Act") grants a deduction to an eligible company in respect of expenditure in relation to research and development activities so long as the company is registered under s 39J of the Act. The concessional deduction was 150 per cent of the research and development expenditure; the purpose of the legislation was to make sure that those benefits, which were provided by the Australian community by way of foregone tax, were benefits which accrued in Australia for the benefit of Australia. Subsection 73B(33A) of the Income Tax Assessment Act operates to deprive a company of a tax deduction if the Board gives to the Commissioner a certificate stating that a company has failed to comply with a notice under s 39N of the Act in respect of particular activities. 12 The relevant provisions of s 39M of the Act are as follows: "39M (1) Where: (a) expenditure has been incurred by a company registered under section 39J or 39P: (i) in particular research and development activities; or (ii) …; and (b) the Board is of the opinion that: (i) any of the results of those research and development activities have been exploited otherwise than: (A) on normal commercial terms; or (B) in a manner that is for the benefit of the Australian economy; or (ii) those research and development activities do not have an adequate Australian content; or (iii) … the Board may, subject to subsection 39E(4), give a certificate in writing to the Commissioner: (c) stating that it is of that opinion; (d) specifying the research and development activities concerned; and (e) giving the reasons for its opinion." 13 The Board is not to issue such a certificate under subs 39M(1) of the Act however, unless it has first given notice in writing to the company stating that it is considering giving the certificate, specifying the activities to which the certificate would relate and informing the company of the reasons why it is considering giving the certificate; the Board must also invite the company to make a written submission to the Board in relation to the matter within ninety days and the Board must have regard to the matters that may be raised in any such submission: see subs 39M(2). Acting under subs 39M(2), the Secretary of the Tax Concession Committee ("the Committee") of the Board wrote Bridgestone on 8 October 1996 in these terms: "The Board hereby issues written notice to Bridgestone Australia Pty Ltd of its intention to issue a certificate under Section 39M of the Act, after 90 days from the date of this letter, to the Commissioner of Taxation that the results of the activities claimed under the following projects have not been exploited: a) on normal commercial terms; or b) in a manner that is for the benefit of the Australian economy." The Secretary then listed eight projects, adding that the Board had formed the opinion that the TALA did not appear to have been granted "on normal commercial terms because the agreement offers vastly superior benefits to Bridgestone Japan". Whilst the Board stated that it considered that the arrangements in the TALA for royalty payments was reasonable, it also said: "The Board determined that the provision under sections 7.1 and 7.2 of the Agreement for Bridgestone Japan to obtain irrevocable, world-wide, royalty free license on any technology generated by Bridgestone Australia Ltd under the 150% tax concession is contrary to exploitation under normal commercial terms and is not to the benefit of the Australian economy." 14 Bridgestone made lengthy submissions to the Board by letter dated 23 December 1996, but without success. On 2 April 1997, the Secretary of the Committee wrote the Commissioner, identifying the same eight projects and advising that the Board was of the opinion that the results of the research and development activities had not been exploited: · on normal commercial terms; or · in a manner that is for the benefit of the Australian economy. 15 On the same day, the Committee wrote Bridgestone advising it that the Board had given a certificate in writing to the Commissioner in the terms contemplated by subs 39M(1) of the Act. The activities that were the subject of the Committee's letter were each from Bridgestone's Tyre Division and it was agreed that all of them fell within the definition of "Rubber Products" in Schedule A of the TALA. 16 As I have said, that decision was successfully challenged by Bridgestone in the Tribunal and the Board now challenges the decision of the Tribunal in this Court. 17 The issue that was before the Tribunal and the issue that is before this Court revolves around the meaning of the words "normal commercial terms" appearing in s 39M(1)(b)(i)(A). Despite some initial uncertainty at the early stage of the Board's inquiries, it was agreed that the nature of Bridgestone's activities were properly classified as research and development. It was also agreed that the Board was no longer pursuing a proposition that the research and development activities had been exploited otherwise than in a manner that was for the benefit of the Australian economy; nor was it argued that the research and development activities did not have an adequate Australian content. The question of the research and development activities being – or not being – for the benefit of the Australian community therefore does not arise: nor does the question of the adequacy of the Australian content. The sole issue that was before the Tribunal was whether or not the results of Bridgestone's research and development activities had been exploited otherwise than on normal commercial terms. Although the Board identified seven questions of law that were said to arise in this appeal, each is, in one way or another, a derivative of the problem that is attendant upon the correct interpretation of "normal commercial terms". 18 The expression "normal commercial terms" appearing in s 39M(1)(b)(i)(A) is expanded upon in s 39C of the Act by relating it to persons dealing with each other at arm's length and from positions of comparable bargaining power. The section states: "39C. The exploitation of a particular result of any activity shall be taken for the purposes of this Part to be an exploitation otherwise than on normal commercial terms if, in the opinion of the Board, any contract or transaction relating to that exploitation would not have been entered into, or contained terms that would not have been contained or would have been different, if the contract or transaction had been entered into by persons dealing with each other at arm's length and from positions of comparable bargaining power. 19 The Tribunal came to the conclusion that when the Japanese and Australian parties negotiated the terms of the TALA, they were persons who were dealing with each other at arm's length. Mr Basten QC, counsel for the Board, did not suggest that such a finding was not open to the Tribunal. Thus the issue in the case that was left for the decision of the Tribunal was whether the TALA had been entered into by the Japanese and Australian interests from positions of comparable bargaining power. 20 As to the issue of "comparable bargaining power", counsel for the Board advanced two propositions. In the first place, he submitted that the Tribunal rejected, as immaterial, the relative positions of power of the two companies. The relevant passage on this subject in the Tribunal's reasons appears at par 126. Having already described the Australian company in par 125 of its reasons as not having "a strong bargaining position from which to manoeuvre", the Tribunal, in par 126 of its reasons, proceeded to explain how, notwithstanding its "weak bargaining position" the Australian company was still able to assert its bargaining power. The Tribunal held: "It is clear as a matter of fact, that despite its apparently weak bargaining position, the applicant was still able to assert its bargaining power during the negotiations, and effect real and tangible changes to the TALA which advanced its position. The Tribunal considers therefore, that although the evidence put before it as to the relative positions of the parties upon entering the negotiations in respect of the TALA is important to determining such positions, this evidence becomes immaterial to the question of comparable bargaining power once, as a matter of fact, the applicant has demonstrated such bargaining power during the negotiations and Tribunal so finds." The latter part of this statement, was, according to the submissions of counsel for the Board, erroneous. 21 Counsel for the Board submitted that a second error in par 126 from the Tribunal's reasons arises by way of implication. The argument was to this effect: having satisfied itself, as a matter of fact, that the Australian subsidiary had achieved some change to the terms of the TALA as originally presented by the Japanese holding company, the Tribunal incorrectly assumed that the achievement of these changes satisfied the test that the contract or transaction had been entered into by persons dealing with each other from positions of comparable bargaining power. 22 Although, as a matter of fact, it might be difficult for a subsidiary to satisfy the Board that the necessary measure of independence was present so that the Board could be satisfied that there had been comparable bargaining power, Mr Basten did not suggest, for the purpose of his argument, that there never could be "comparable bargaining power" when a holding company was negotiating with its subsidiary; Mr Basten's attack came from another direction. He submitted that the Tribunal had overlooked the evidence that the Australian company was desperate for the Japanese technology: indeed it was so desperate that it ran the risk of going out of business if the technology was not forthcoming. This meant, according to his submissions, that the persons who represented the Australian interests were in such a supplicant situation that there could not be any "comparable bargaining power". In response to an inquiry from me, Mr Basten said that the situation so described could exist even when two companies were unrelated. In other words, if the information that the licensor was willing to licence was so important to the licensee, the needs of the licensee could mean the absence of comparable bargaining power. 23 In par 5 of the Explanatory Memorandum that accompanied the Bill when it was introduced in the House of Representatives, an emphasis was placed on the expression "exploitation otherwise than on normal commercial terms": "The Board's powers are to be broadened so as to ensure that large claims may not be made for projects which have an insufficient Australian content. The Bill also tightens up existing provisions which are designed to enable the Board to cause the loss of tax benefits where a company fails, in any significant way, to exploit the results of revenue subsidised R&D on normal commercial terms and to the benefit of the Australian economy." 24 That emphasis was stressed when the Explanatory memorandum discussed the proposed s 39C: "Proposed section 39C defines the expression 'exploitation otherwise than on normal commercial terms'. The expression applies to the situation where the terms of a contract or transaction are different from those that would have been included if the parties had been dealing at arm's length and from positions of comparable bargaining power. This provision will prevent the loss of the return that should result from successful research and development. The taxation consequence of exploitation of an activity otherwise than on normal commercial terms is set out in proposed section 39N of the IR&D Act and clause 5 of this Bill (proposed subsection 73B(33) of the ITAA)." 25 Mr Basten submitted that the Tribunal did not address the terms and conditions of the TALA because of its findings that the TALA had been entered into by persons who were dealing with each other at arm's length and from positions of comparable bargaining power. This approach by the Tribunal was, so he claimed, an error. It was his submission that the task of the Tribunal was to examine the substance of the TALA – that is, the Tribunal should not have looked at the dealings or the negotiations that had preceded the making of the TALA, but at the terms of the TALA. 26 I cannot accept that submission; I do not see how a reading of s 39C could allow for such an interpretation. 27 Some might think, for example, that a licensing arrangement, under which the licensor granted an exclusive, non transferable, right in return for the payment of royalties and also in return for a undertaking from the licensee to grant to the licensor a non-exclusive, irrevocable, worldwide, royalty free licence in respect of any technical information that the licensee might acquire, could possibly classify as an exploitation on normal commercial terms. The obligation that was on the Board, was, in my opinion, an obligation to have regard to commercial standards as they applied in the relevant industry. In performing that exercise, it would not have been sufficient for the Board to limit its inquiries to the terms of the contract or transaction that was under scrutiny if the Board, as a result of such a scrutiny, formed the opinion that one or more of the terms suggested that the parties were not dealing at arm's length or from positions of comparable bargaining power. In such a case the Board had a further obligation to examine the history of the matter, for that history, which would involve an examination of the early dealings and negotiations between the parties might confirm or refute the initial opinion of the Board. Only by an examination of the terms of the contract or transaction in conjunction with the history of the parties' earlier dealings and negotiations could the Board properly form the opinion to which s 39C of the Act refers. 28 Mr Basten submitted that the effect of the Tribunal's decision was that any change in the original terms of a proposed contract or transaction that were implemented at the request of one party, would indicate that the parties were in "positions of comparable bargaining power". Such a proposition would be incorrect, but I do not think that such a statement fairly reflects the decision of the Tribunal. It would be a question of fact for the Tribunal to investigate. All that could be said at this level is that the greater the effect of the changes, the more it points to "positions of comparable bargaining power". Having said that however, it must not be overlooked that, in the particular circumstances of a particular case, an appropriate inquiry might legitimately reveal "positions of comparable bargaining power" even though the supplicant party does not seek any alterations to the proposed contract or transaction or, conversely, is denied its request for an amendment. It is a task for the Tribunal of fact to investigate and to adjudicate upon all the relevant material. 29 Counsel for the Board was critical of the Tribunal's reliance on the contents of other agreements that were received into evidence; he commented, for example, that there was no evidence before the Tribunal about the various licensee's bargaining power. This criticism was, in my opinion, a derivative of the Board's principal argument that s 39C strikes down those contracts and transactions where a supplicant Australian company must have the technology that is in the hands of the licensor. I cannot accept that argument. It assumes, wrongly in my opinion, that the needs of the supplicant can be the determining factor. In my view, the proper approach is to remind oneself that the needs of the supplicant may be one of many determining factors in ascertaining whether the persons were dealing with each other from positions of comparable bargaining power. 30 The Tribunal undertook the task of examining, in some detail, the history of the negotiations; counsel for the Board criticised aspects of that examination. It is not the province of this Court to adjudicate on the Tribunal's fact finding procedures unless, of course, those procedures reveal an error of law on the part of the Tribunal. The fact that the Tribunal might draw a particular conclusion from its inquiry is not readily open to review by this Court. In this case the Tribunal, in my opinion, correctly examined the evidentiary material that had been placed before it. It examined the history of the negotiations that preceded the execution of the TALA; it compared the contents of the TALA with other like agreements between unrelated parties; it formed an opinion on these facts that was reasonably open to it. 31 Counsel for the Board acknowledged that it was not open to this Court to engage on a fact finding exercise; he explained that his purpose in seeking a review of the Tribunal's inquiry into the facts was to establish that the Tribunal had proceeded down the wrong path; it had, so it was claimed, diverted itself from the statutory test in that it failed to consider whether the respective positions of power of each company was such that they could be described as comparable. Comparable, in the statutory context, so it was argued, required that the parties have "a level of similarity". It was not necessarily "equality" but it was, according to the Board's submission, "such a level of similarity as would allow the positions of power to be compared". The fact that the Tribunal was able to identify three areas where the Australian company successfully negotiated changes to the proposed TALA might have been an indication that the Australian company had some input into the final document but that did not mean, so the argument concluded, that the persons had been dealing with each other from positions of comparable bargaining power. It was then submitted that this translated into an error of law when the Tribunal assumed that, because it had identified three changes that had been made to the proposed TALA at the instigation of the Australian company, it had identified positions of comparable bargaining power. 32 If the Tribunal were to do no more than observe the presence of changes to a draft agreement and thereafter conclude that the changes, because they were made at the instigation of the licensee, established positions of comparable bargaining power, that would be wrong. But that does not do merit to exercise that was undertaken by the Tribunal. It assessed the nature of the changes, the circumstances under which they were made during the course of the negotiation process and then compared the end result with the contents of like agreements that had been entered into by unrelated companies; in fact the Tribunal made a very detailed analysis of all relevant facts before coming to its conclusions that the nature of the changes aided it in reaching its conclusion that the persons dealt with each other from positions of comparable bargaining power. That exercise was a fact finding exercise; that this Court might have reached a different conclusion if it had been charged with the responsibility of examining the facts is not to the point; it was a finding that was reasonably open to the Tribunal on the material that was before it. Some might say that the Tribunal's finding was inconsistent with its earlier findings in par 96 that Bridgestone "had no other option but to get this technology from the parent company" and in par 125 that it "did not have a strong bargaining power from which to manoeuvre". Indeed counsel for the Board went so far as to submit that the Tribunal dismissed them as immaterial. There is obvious merit in this proposition, but the answer must lie in recognising the role of the fact-finding Tribunal. It had pointed to weaknesses in Bridgestone's position, yet, despite those weaknesses, it felt able to conclude that the parties dealt with each other "from positions of comparable bargaining power". In my opinion, that finding was open to the Tribunal on the evidence that it had before it. 33 Although the word "comparable" is found in s 39C of the Act, the legislation uses the word "commensurate" in s 39D – the provision that deals with exploitation otherwise than for the benefit of the Australian community. Subsection 39D(1) reads as follows: 'The exploitation of a particular result of an activity shall be taken for the purposes of this Part to be an exploitation otherwise than in a manner that is for the benefit of the Australian economy if, in the opinion of the Board, the profits or gains to residents of Australia accruing directly from the exploitation of a significant aspect of that result are not commensurate with the amount expended in the carrying on of that activity in Australia." 34 The Macquarie Dictionary (Rev Ed) defines "comparable" as meaning "capable of being compared" or "worthy of comparison"; it then attributes several meanings to "comparison", one of which is "that function of any adverb or adjective used to indicate degrees of superiority or inferiority in quality, quantity or intensity". "Commensurate", on the other hand has a measure of equality: thus its first meaning is "having the same measure; of equal extent or duration". "Compare" has been described by some writers as a "troublesome" word. Much depends on whether one is asked to "compare with" or asked to "compare to". The former notes similarities whereas the latter calls for an examination and discussion about points of similarity and dissimilarity. 35 The Tribunal, in my opinion quite correctly, drew attention in its reasons to the presence of these two words – "comparable" and "commensurate". It then said: "The Tribunal considers that, on its understanding of the ordinary usage of the word, 'comparable' cannot be said to mean 'equivalent' or 'commensurate'." Later the Tribunal said: "The words 'commensurate' and 'equivalent' are descriptive words, which connote a particular state of being. Things can be compared to determine if they are 'comparable' or 'equivalent'. The word 'comparable' itself simply connotes a situation where two objects, acts or things have aspects that are capable of being compared to each other, by virtue of possessing similar aspects. If two objects, acts or things have such aspects, they can be said to be comparable." 36 That statement was, according to the submissions of counsel for the Board, wrong. The Tribunal, in the course of its reasons had noted that one could not compare apples with oranges because of the fundamental differences in the two fruits. Mr Basten for the Board attacked that observation, noting that if the purpose of the exercise was to determine whether an object was animal, vegetable or mineral, it would be proper to compare the two fruits and thereby determine that both were vegetable. The short answer, in my opinion, is that both interpretations could be correct; it all depends, as counsel for the Board emphasised, on first ascertaining the purpose for the comparison. If the purpose was to determine taste, it would not be appropriate to compare apples with oranges – there are no similarities; if the purpose was to determine whether matters were vegetable or not, it would be appropriate to compare the two fruits – but one would then be comparing apples to oranges – not comparing apples with oranges. 37 In my opinion, the Tribunal was correct when it concluded that the expression "positions of comparable bargaining power" did not mean "equivalent" positions. The expression, most appropriately called for an examination and discussion of the similarities and dissimilarities of the respective bargaining powers of the Australian and Japanese interests. As I have already noted, the Tribunal examined other agreements and compared their provisions against the provisions of the TALA as part of its exercise before concluding that the provisions of the TALA: "… when considered separately, and in their entirety, cannot be considered so dissimilar to the terms and entirety of the other agreements before it in evidence, so as to be considered an agreement that would not have been entered into by unrelated parties …" The Tribunal thereafter concluded: "By virtue of the applicant being able to achieve this result, it has demonstrated real bargaining power, which is therefore comparable to the real bargaining power of the parent company." The Tribunal found that the TALA represented an agreement that had been entered into by parties who were dealing with each other at arms length and from positions of comparable bargaining power. 38 In my opinion, the phrase "positions of comparable bargaining power", and the interpretation of that phrase, does not give rise to a question of law. Lord Parker of Waddington in Farmer v Cotton's Trustees (1915) AC 922 at 932, whilst acknowledging the difficulties and lack of unanimity, gave his opinion as to what amounts to a question of law in these terms: "… where all the material facts are fully found, and the only question is whether the facts are such as to bring the case within the provisions properly construed of some statutory enactment, the question is one of law only." That passage has been accepted in the High Court in Commissioner of Taxation v Miller [1946] 73 CLR 93 at 97 per Latham CJ, in Hayes v Federal Commissioner of Taxation [1956] 96 CLR 47 at 51("Hayes") per Fullagar J and in Hope v Bathurst City Council [1980] 144 CLR 1 at 7 ("Hope") per Mason J. Mason J, in Hope quoted with approval the following passage from the judgment of Fullagar J in Hayes: "… this seems to me to be the only reasonable view. The distinction between the two classes of question is, I think, greatly simplified, if we bear in mind the distinction, so clearly drawn by Wigmore, between the factum probandum (the ultimate fact in issue) and the facta probantia (the facts adduced to prove or disprove that ultimate fact). The 'facts' referred to by Lord Parker … are the facta probantia. Where the factum probandum involves a term used in a statute, the question whether the accepted facta probantia establish that factum probandum will generally – so far as I can see, always – be a question of law." 39 That passage was also referred to with approval in the unanimous decision of the High Court in Collector or Customs v Agfa-Gevaert Ltd [1995-1996] 186 CLR 389 at 394-395. Mason J in Hope went on to state that "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 these words". He gave, as an example, the presence of the word "insulting" in Brutus v Cozens [1973] AC 854. The only question raised in that case was whether the appellant's behaviour was "insulting". As it was not unreasonable to hold that his behaviour was insulting, the question was one of fact. On the other hand, in NSW Associated Blue-Metal Quarries Ltd v Federal Commissioner of Taxation (1956) 94 CLR 309, Kitto J observed that the question whether certain operations answered the description "mining operations upon a mining property" within the meaning of s 122 of the Income Tax Assessment Act 1936, as amended, was a mixed question of law and fact. First, it was necessary to decide, as a matter of law whether the legislation had used "mining operations" and "mining property" in any other sense than that which they have in ordinary speech. Then, if that question was answered in the negative, the common understanding of the words was to be determined as a question of fact. However, that common understanding was not to be reached by an examination of the words in isolation. As Mason J pointed out in his dissenting judgment in K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 at 315: "However, to read the section in isolation from the enactment of which it forms a part is to offend against the cardinal rule of statutory interpretation that requires the words of a statute to be read in their context: Cooper Brookes (Wollongong) Pty. Ltd. v. Federal Commissioner of Taxation (1981) 147 CLR 297 t 304, 319-320; Attorney-General v. Prince Ernest Augustus of Hanover (1957) AC 436 at 461, 473. Problems of legal interpretation are not solved satisfactorily by ritual incantations which emphasize the clarity of meaning which words have when viewed in isolation, divorced from their context. The modern approach to interpretation insists that the context be considered in the first instance, especially in the case of general words, and not merely at some later stage when ambiguity might be thought to arise." 40 Furthermore, regard must always be had to the purpose or the object of the Act of which the legislative provision forms part. Thus s 15AA of the Acts Interpretation Act 1901 (Cth) provides as follows: "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." 41 In Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280, a Full Court of this Court advanced five general propositions which have emerged from the cases. Those propositions were, in turn, set out in the judgment of the High Court in Collector of Customs v Agfa-Gevaert Ltd [1995-1996] 186 CLR 389 at 395. They are as follows: (references to authorities have been omitted): "1. The question whether a word or phrase in a statute is to be given its ordinary meaning or some technical or other meaning is a question of law. 2. The ordinary meaning of a word or its non-legal technical meaning is a question of fact. 3. The meaning of a technical legal term is a question of law. 4. The effect or construction of a term whose meaning or interpretation is established is a question of law. 5. The question whether facts fully found fall within the provision of a statutory enactment properly construed is generally a question of law." 42 The High Court expressed some reservations about the efficacy of the fourth of those points but that is not an issue that requires any consideration in the present case. The High Court also pointed out that the Full Court had qualified the fifth proposition by saying that, when a statute uses words according to their ordinary meaning and it is reasonably open to hold that the facts of the case fall within those words, the question whether they do or do not is one of fact. Nevertheless the High Court sounded a note of restraint. It said: "Such general expositions of the law are helpful in many circumstances. But they lose a degree of their utility when, as in the present case, the phrase or term in issue is complex or the inquiry that the primary decision-maker embarked upon is not clear. Thus, the phrase 'silver dye bleach reversal process' is not easily pigeon-holed in terms of the general rules summarised in Pozzolanic because Jenkinson J construed the phrase by reference to the trade or technical meaning of 'silver dye bleach process' and the ordinary meaning of 'reversal'." The words in the phrase "from positions of comparable bargaining power" are ordinary, non-technical words. There is no cause to consider giving them some meaning over and above their ordinary meaning. This case is one which, in my opinion, comes within the Full Court's qualification to its fifth proposition; I see this as a case where a statute has used words according to their ordinary meaning; I also see it as one where it was reasonably open for the Tribunal to hold that the facts of the case fell within those words. In those circumstances, the question whether the facts do or do not so fall was therefore a question of fact for the Tribunal to determine. I do not agree with the submissions of counsel for the Board that the exercise that the Tribunal was required to perform was one that involved the construction of a statutory provision and, hence, a question of law. 43 The Tribunal adopted the submission, put on behalf of Bridgestone, that the term "comparable" simply means "able to be compared" or "capable of comparison" and interpreted the phrase "comparable bargaining power" as requiring that a party "demonstrate that it has some power to effect changes to whatever agreement or instrument might be the subject of the bargaining". The Tribunal construed the phrase as meaning: "… that in the case where a company (for example, a subsidiary) does not make any changes to their advantage when entering into an agreement with their parent company, but merely adopts what is proposed by the parent company, they could not be said to have bargaining power as required by the section". 44 That last statement, taken in isolation, is not correct in my opinion. It assumes that, because no changes were made and because there was an acceptance of that which was proposed by the parent company, there was no comparable bargaining power. Such a conclusion could mean that there had only been a superficial examination of the background facts that led to the execution of the agreement, whereas a proper examination might conceivably reveal that the contents of the document as proposed by the parent company reflected demands that had earlier been made and insisted upon by the subsidiary. I do not suggest that such facts existed in this case but the hypothetical example serves to show that the decision-maker is expected to make a thorough examination into all the surrounding circumstances. However, it would not be fair to the Tribunal to say, as was submitted by counsel for the Board, that this error on the part of the Tribunal established that it incorrectly focused only on whether changes to the draft of the TALA had been made for the purpose of determining whether the contract had been entered into by persons dealing with each other from positions of comparable bargaining power. 45 I am satisfied that the Tribunal engaged in its fact finding exercise in an appropriate manner. This appeal must therefore be dismissed with costs. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Loughlin. Associate: Dated: Counsel for the Applicant: Mr J Basten QC Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Mr R F Edmonds SC Solicitor for the Respondent: Piper Alderman Lawyers Date of Hearing: 19 April 2000 Date of Judgment: 10 November 2000