FEDERAL COURT OF AUSTRALIA Candacal Pty Ltd v The Industry Research & Development Board [2007] FCA 914 ADMINISTRATIVE LAW – administrative decision – period covered by decision – omission of one of a number of relevant years by oversight – proceedings seeking declaration that decision applied to relevant year – settlement of proceedings – proposal for unopposed declaration that administrative decision covered relevant year – declaration within power and appropriate – Industry Research and Development Board – registration of research and development syndicate for successive financial years – application for a number of financial years – registration decision inexplicably omitting first financial year – slip – application for declaration that registration decision applied to first financial year – declaration unopposed on agreed facts – no consent order – declaration within power and appropriate – declaration made Income Tax Assessment Act 1936 (Cth) Industry Research and Development Act 1986 (Cth) s 39P, s 39S Australian Competition and Consumer Commission v McCaskey (2000) 104 FCR 8 cited CANDACAL PTY LTD, ERINBOL PTY LTD, LELEQUE PTY LTD, KENASHA PTY LTD, WASLYN PTY LTD, MAYGAIN PTY LTD, GAPMINT PTY LTD, TREVYN PTY LTD, NARDIA PTY LTD, IDGCC NO 1 INVESTMENTS PTY LTD, ROMBAR PTY LTD v THE INDUSTRY RESEARCH AND DEVELOPMENT BOARD WAD522 OF 2001 FRENCH J 14 JUNE 2007 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD522 OF 2001 BETWEEN: CANDACAL PTY LTD, ERINBOL PTY LTD, LELEQUE PTY LTD, KENASHA PTY LTD, WASLYN PTY LTD, MAYGAIN PTY LTD, GAPMINT PTY LTD, TREVYN PTY LTD, NARDIA PTY LTD, IDGCC NO 1 INVESTMENTS PTY LTD, ROMBAR PTY LTD Applicants AND: THE INDUSTRY RESEARCH AND DEVELOPMENT BOARD Respondent JUDGE: FRENCH J DATE OF ORDER: 14 JUNE 2007 WHERE MADE: PERTH THE COURT DECLARES THAT: 1. The decision made by the Board on 15 March 1995 constituted a decision to register Candacal Pty Ltd and Erinbol Pty Ltd jointly under section 39P of the Industry Research and Development Act 1986 (Cth) in respect of the 1993/94 to 1997/98 years of income in relation to the IDGCC Project. 2. Candacal Pty Ltd and Erinbol Pty Ltd were on 15 March 1995 and are jointly registered under section 39P of the Industry Research and Development Act 1986 (Cth) in respect of the 1993/94 to 1997/98 years of income in relation to the IDGCC Project. 3. The purported decisions by the Respondent on 2 July 2001 and 18 September 2001 were of no force or effect as regards Candacal Pty Ltd and Erinbol Pty Ltd. 4. Candacal Pty Ltd, Erinbol Pty Ltd and the Respondent is to bear its own costs of the proceedings, including any costs previously ordered or reserved by the Court. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD522 OF 2001 BETWEEN: CANDACAL PTY LTD, ERINBOL PTY LTD, LELEQUE PTY LTD, KENASHA PTY LTD, WASLYN PTY LTD, MAYGAIN PTY LTD, GAPMINT PTY LTD, TREVYN PTY LTD, NARDIA PTY LTD, IDGCC NO 1 INVESTMENTS PTY LTD, ROMBAR PTY LTD Applicants AND: THE INDUSTRY RESEARCH AND DEVELOPMENT BOARD Respondent JUDGE: FRENCH J DATE: 14 JUNE 2007 PLACE: PERTH REASONS FOR JUDGMENT ON UNOPPOSED APPLICATION FOR DECLARATIONS 1 On 30 June 1994 a syndicate of companies was formed for the purpose of developing power generation technology for lower cost and more efficient generation of electricity from low rank coals, otherwise known as brown coal. The core technology was based upon the results of research and development activities undertaken over a period of many years by the State Electricity Commission of Victoria. The syndicate comprised eleven companies each of whom was named as an applicant in these proceedings. The syndicate paid a total of $182 million by way of a core technology licence fee to HRL Treasury Pty Ltd (HRL) under a Licence, Development and Marketing Agreement. Various of the syndicate members contributed to the payment. 2 Under the Income Tax Assessment Act 1936 (Cth) (the ITAA) there were substantial incentives which encouraged companies and others to engage in research and development activities with prospects of commercial exploitation. The ITAA contemplated that such activities might be carried out by eligible companies in partnership or as a syndicate. For a syndicate member to be able to obtain tax deductions for relevant expenditure for a year of income s 73B(10) of the ITAA required them to be jointly registered under s 39P of the Industry Research and Development Act 1986 (Cth) (IRD Act). 3 Registration under the IRD Act was a function conferred upon the Industry Research and Development Board (the Board). Section 39P of the IRD Act provided, inter alia: (1) A person may apply to the Board on behalf of 2 or more eligible companies for the joint registration of those eligible companies in respect of a year of income or years of income in relation to a proposed project or proposed projects comprising or including research and development activities. (2) The application shall: (a) specify the companies concerned; (b) contain such particulars of the project, or each project, as the Board requires; (c) specify the total amount of the expenditure expected to be incurred by the companies in the year of income or years of income in respect of the research and development activities comprised or included in the project or projects; (d) specify, in respect of each company in relation to the research and development activities comprised or included in the project or each project, the amount of expenditure expected to be incurred in the year of income or each year of income in each of the following classes of expenditure: (i) research and development expenditure other than contract expenditure; (ii) plant expenditure; and (e) set out proposals for the exploitation of any results of the research and development activities. (3) If the Board is of the opinion in relation to the project, or in relation to a particular one or more of those projects, that: (a) the activities in respect of which the expenditure is proposed to be incurred are research and development activities; (b) at least one of the companies is not related to any of the others; (c) the total amount of the expenditure expected to be incurred as mentioned in paragraph (2)(c) will exceed $500,000; (d) if there was or is a finance scheme in relation to the research and development activities – the finance scheme is not an ineligible finance scheme; (f) the results of the research and development activities will be exploited: (i) on normal commercial terms; and (ii) in a manner that is for the benefit of the Australian economy; (g) the research and development activities will have an adequate Australian content; and (h) there are no grounds on which the Board would be entitled to refuse to register either or any of the companies in respect of the year of income or any of the years of income under section 39J if the companies had made separate applications for registration; the Board may register the companies jointly in respect of the year of income or the years of income in relation to that project or in relation to that particular one or more of those projects, as the case requires. 4 Section 39S of the IRD Act provided for reconsideration by the Board of decisions made under a number of sections including subs 39P(3). Section 39S(2) provided: A person who is affected by a decision of the Board may, if dissatisfied with the decision, by notice given to the Board: (a) within the period of 21 days after receiving notice of the decision; or (b) within such further period as the Board allows; request the Board to reconsider the decision. The Board was required, by s 39S(4), upon receipt of the request, to reconsider the decision. It was empowered to confirm or revoke the decision or to vary it in such manner as it thought fit. 5 There was provision under s 39T for applications to be made to the Administrative Appeals Tribunal (the AAT) for review of decisions of the Board that had been confirmed or varied under s 39S. 6 Section 39U provided that where the Board made a decision to which s 39S applied and gave to a person whose interests where affected by the decision notice in writing of it, that notice had to include a statement to the effect that the person might, if dissatisfied with the decision, seek a reconsideration by the Board in accordance with subs 39S(2) and if still dissatisfied could apply to the AAT. 7 An agent of the members of the syndicate forwarded to the Board a letter and application form seeking registration of the companies under s 39P on 6 March 1995. The application was in respect of the income years 1993/1994 to 1997/1998 inclusive. In fact the application sent on that date was a revised application as the names of parent companies of the investor companies had been used rather than those of the investor companies themselves. The application was headed up "150% Research & Development Tax Concession Application for Syndicate Registration". The name of the syndicate was the "IDGCC R & D Syndication". The letters "IDGCC" stand for Integrated Drying and Gasification Combined Cycle, a reference to the relevant technology. 8 Under the heading "Year or Years of Income for which registration is being sought" the application form set out "1993/94, 94/95, 95/96, 96/97, 97/98". Those expenditures were shown in a column headed "Total" preceding the break-up of expenditure by years of income, as amounting to $99,346,689. In addition the sum of $182 million was shown in the total column for core technology. There was no expenditure under that description for the years of income 1994/95 through to 1997/1998. That amount represented the core technology fee paid to HRL on 30 June 1994. 9 Additional financial information included in the application for registration showed a break up of expenditure by reference to each investor in the syndicate. In the case of Candacal Pty Ltd (Candacal) it was shown to have research and development expenditure of $2,398,074 in 1993/94 and to have contributed to the core technology expenditure the amount of $18,200,000 in that year (ie 10% of the core technology fee). Investor 2, Erinbol Pty Ltd (Erinbol) was shown to have an expenditure of $10,467,591 on research and development in 1993/94 and to have contributed to the core technology expenditure the sum of $79,443,000. For the year 1993/94 Erinbol was therefore claiming a total s 73B tax deduction of $89,910,591. 10 It was common ground in an agreed statement of facts provided to the Court that the material made available to the Board referred to activities to be conducted and moneys to be expended in relation to the project in the income years 1993/94 to 1997/98 inclusive and that the project commenced on 30 June 1994. It was also an agreed fact that the financial information provided in the application form lodged on behalf of the syndicate indicated that a claim would be made in respect of the income year 1993/94 for core technology expenditure incurred in that year and totalling, across the various investors, $120,390,790. The balance of $61,609,210 would be claimed as deductions for the income year 1994/95. The Board had material available to it that the total cost of the core technology was $182 million. 11 On 15 March 1995 the Board wrote to the agent for the syndicate members, Mr Popplewell of Bain Structured Finance Ltd, in the following terms: The Board has determined that the above syndicate satisfies the requirements of section 39P of the Industry Research and Development Act 1986 and is now registered for the Tax Concession in relation to the 1994/95, 1995/96, 1996/97 and 1997/98 financial years. 12 The omission of any reference to 1993/94 was not noticed for some six years. It is not in dispute that by letters dated 5 February 2001 and 15 June 2001 the syndicate members, through Deutsche Bank and Candacal, asked the Board to provide notification that they had been jointly registered in relation to the IDGCC project in respect of the 1993/94 year of income. These requests did not elicit the desired result. Indeed it appears that on 2 July 2001 the Board or its Taxation Concession Committee purportedly refused registration for the 1993/94 year and in September 2001 purported to confirm that refusal. 13 The present proceedings were commenced on 9 November 2001. Relief sought by the applicants included a declaration that each applicant was jointly registered under s 39P of the IRD Act in relation to the project in respect of the 1993/94 year of income. The proceedings have been characterised by a number of interlocutory hearings and amendments to the pleadings. They have been protracted by ongoing negotiations between the applicants and the Board. Of the 11 applicants, agreement has been reached with nine who have discontinued. The remaining two applicants, Candacal and Erinbol, have also reached agreement with the Board and have executed a deed to give effect to that agreement. The deed requires that as a condition of settlement declarations and an order be made in accordance with terms set out in Annexure A to the deed. This is done on the basis that the companies will seek the declarations from the Court and that the Board will not oppose the making of those declarations. 14 The declarations sought are in the following terms: The Court: 1. declares that the decision made by the Board on 15 March 1995 constituted a decision to register Candacal Pty Ltd and Erinbol Pty Ltd jointly under section 39P of the Industry Research & Development Act 1986 (Cth) in respect of the 1993/94 to 1997/98 years of income in relation to the IDGCC Project; 2. declares that Candacal Pty Ltd and Erinbol Pty Ltd were on 15 March 1995 and are jointly registered under section 39P of the Industry Research & Development Act 1986 (Cth) in respect of the 1993/94 to 1997/98 years of income in relation to the IDGCC Project; 3. declares that the purported decisions by the Respondent on 2 July 2001 and 18 September 2001 were of no force or effect as regards Candacal Pty Ltd and Erinbol Pty Ltd. 4. orders that each of Candacal Pty Ltd, Erinbol Pty Ltd and the Respondent is to bear its own costs of the proceedings, including any costs previously ordered or reserved by the Court. It may be noted that in the proceedings the applicants had claimed alternative relief by way of the issue of a writ of mandamus requiring the Board to register them pursuant to s 39P. 15 It was submitted on behalf of Candacal and Erinbol that it is appropriate for the claimed declarations to be made on the basis that: (a) The Court has jurisdiction to make the declarations. (b) The declarations sought are similar to those which have been sought and contested by the Respondent since the commencement of the proceedings. (c) It may be inferred that both parties have had the benefit of considerable legal advice in relation to the proceedings and its resolution. (d) There is no other reasonably available remedy which would make the granting of declarations inappropriate. (e) The making of the declarations is in the parties' interests in facilitating the resolution of the litigation. (f) The resolution of the proceedings is in the public interest in bringing to an end the expenditure and Court time associated with the litigation. 16 It was an agreed fact between the parties for the purposes of the proposed declarations that: The Board on or before 15 March 1995, formed the opinion that all of the requirements of section 39P(3) of the Act were met as regards the Companies and on 15 March 1995 the Board decided to register the Companies jointly in relation to the IDGCC project. 17 In its submission in relation to the proposed declarations, the Board accepted, for the purposes of the application, the statement of facts. It stated that it does not oppose the making of the declaratory orders and acknowledges that the making of those orders would be in the parties' interests and the public interest in facilitating resolution of the litigation. The Board also stated to the Court in an outline of its position that: For the purposes only of the hearing on 5 June 2007, the Respondent Board makes no submission as to the legal or factual contentions of the Applicants as set forth in their Outline of Submissions. The Respondent Board expressly reserves its entitlement (both in these proceedings and in proceedings before the Administrative Appeals Tribunal) to adduce evidence and to make such legal and factual submissions as it sees fit, should the proceedings not be resolved in the manner sought by the Applicants on 5 June 2007. 18 As I observed in Australian Competition and Consumer Commission v McCaskey (2000) 104 FCR 8 at 21 ([30]): The approach of the Court to the making of consent orders is informed by a general principle of judicial restraint. It is not the function of the Court to impede settlements between parties who are legally represented and able to understand and evaluate the desirability of agreeing to a settlement. Nor will the Court refuse to give effect to the terms of a settlement by refusing to make orders or accept undertakings where they are within jurisdiction and otherwise unobjectionable. The Court will not substitute orders which it thinks appropriate if those proffered are within power and within the range of appropriate dispositions of the case. But in making orders by consent or otherwise, the Court must ensure that the orders are within power and appropriate for it is exercising a public function in doing so and must have regard to the public interest: Australian Competition and Consumer Commission v Real Estate Institute (WA) Inc (1999) 95 FCR 114 at 131. 19 I consider I should take a similar approach to these unopposed orders. In this case I do not doubt their appropriateness. The only question is whether they are within power in the sense that they are supportable on the basis of the undisputed facts having regard to the legal submissions which have been made. 20 The undisputed facts are that the applicants made an application for registration in respect of years of income including 1993/94. Given that the Board was prepared to grant registration for the years 1994/95 onwards there was nothing on the materials before it to indicate any relevant distinction between expenditure in the years 1993/94 and the successive financial years. Nor was there anything in the response given by the Board to the applicants to indicate such a distinction. In my opinion the failure of the Board to include the 1993/94 year in its registration of the syndicate was a slip and the Board's decision was intended to cover that year. It is frankly surprising that this matter was not able to be resolved administratively and at far less expense to the public purse a long time ago. The rather equivocal attitude adopted by the Board before the Court was, in the circumstances, puzzling. The orders proposed do not come before the Court as consent orders. They are simply not opposed by the Board. Nevertheless, having regard to the agreed facts and in the absence of opposition, I am satisfied that the proposed declaration reflects the factual and legal realities. It would seem to follow that the purported decision of 2 July 2001 and 18 September 2001 refusing registration and confirming that refusal were of no force or effect. I will therefore make the declarations which are proposed. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 14 June 2007 Counsel for the Applicant: Mr BJ Sullivan SC and Mr TM Thawley Solicitor for the Applicant: Norton & Smailes Counsel for the Respondent: Dr G Flick Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 5 June 2007 Date of Judgment: 14 June 2007