RBPK and Innovation and Science Australia
[2018] AATA 1404
•10 May 2018
RBPK and Innovation and Science Australia [2018] AATA 1404 (10 May 2018)
Division:TAXATION & COMMERCIAL DIVISION
File Number: 2017/3183
Re:RBPK
APPLICANT
AndInnovation and Science Australia
RESPONDENT
DECISION
Tribunal:The Hon. Justice D G Thomas
Deputy President Bernard J McCabe
Date:10 May 2018
Place:Sydney
1.The applicant’s request for a split hearing is premature.
2.The parties shall confer and prepare draft directions that give effect to these reasons within 7 days.
3.Given the confidential nature of the proceedings and the matters discussed at the Interlocutory Hearing, the Tribunal directs pursuant to s 35(4) of the Administrative Appeals Tribunal Act 1975 that these reasons for decision be published to the parties and their legal representatives but the Tribunal will not make them available to any other person or publish them on the internet for 7 days from the date of these reasons to allow the parties to file written submissions incorporating any proposed redactions before publication on the internet.
4.Each party is at liberty to apply.
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The Hon. Justice D G Thomas
CATCHWORDS
PRACTICE AND PROCDURE – application for a split hearing – where submitted that economies will be derived from two-stage hearing process – application opposed – where submitted that first stage of hearing will inform process approach to second stage of hearing – where application for split hearing made before all evidence filed – where decided application for a split hearing is premature
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) – ss 2A, 33(1)(a), 33(1)(b), 33(1)(c), 33(1AA), 33(1AB), 43
Income Tax Assessment Act 1997 (Cth) – subdivision 355-B
Industry Research and Development Act 1986 (Cth) – ss 27D, 27J, 30D(2)
CASES
Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259
Sullivan v Civil Aviation Safety Authority [2014] FCAFC 93
Sullivan v Department of Transport (1978) 1 ALD 383
Shi v Migration Agents Registration Authority [2008] HCA 31
REASONS FOR DECISION
The Hon. Justice D G Thomas; Deputy President Bernard J McCabe
10 May 2018
INTRODUCTION
The applicant says the final hearing in this matter may run for between 8-10 weeks if all of the claims are dealt with together. That would be enormously costly for the parties and impose upon the limited resources of the Tribunal. To ameliorate that situation, the applicant says the Tribunal should now order a two-stage process in which two of its claims would progress to an early hearing. The rest of the claims would proceed according to a different timetable. The applicant says the Tribunal’s decision in relation to the earlier claims would inform the approach of the parties to the balance of the claims; ideally, a hearing in relation to those other claims might be shortened, or a settlement might be facilitated. The respondent is skeptical of the proposal.
There is a good deal of commentary in the case law about the wisdom of split hearings. Experience suggests split hearings often fail to save time or costs. Indeed, they may add significantly to the cost and complexity of the proceedings if it becomes apparent issues or evidence cannot be cleanly separated. Part of the challenge for the Tribunal arises out of the fact the Tribunal is often asked to agree to a split hearing before all of the evidence (or even all of the issues) have been settled. There is a danger – and it is a serious risk in mega-litigation – that the Tribunal will lock itself into a hearing process that does not conform to the genuine contours of the dispute as it evolves. That makes it less likely the Tribunal will reach the correct or preferable decision.
For reasons we will explain, we do not propose at this stage to accede to the applicant’s request for a split hearing. In our view, it would be premature to commit ourselves to a dispute resolution strategy that includes a split hearing until the Tribunal and the parties have had the opportunity to form a clearer view of the metes and bounds of the whole dispute. As it happens, the task of preparing all of the evidence is likely to be so large, and the date of a final hearing is likely to be sufficiently far into the future, that it would make sense to prepare the evidence in a staged process in any event.
We will invite the parties to submit revised draft directions that prioritise the preparation of evidence in relation to two aspects of the applicant’s case so that material can be considered by the respondent. We can then revisit the question of whether those claims should be dealt with in an expedited process. To assist the parties in reaching an agreed position on that issue if possible, we propose they engage in a dispute resolution process conducted by an experienced Tribunal member. We will then hold a case management directions hearing where we will consider further directions – including directions that we split the hearing. We would also consider making further directions at that juncture with respect to the balance of the evidence.
The background to the application
The applicant is a large commercial organisation. Between 2008 and 2013, the applicant invested a significant amount of money in what is sometimes called a ‘digital transformation’ of its business. To that end, it developed a range of software and information technology solutions. The applicant claims some of those activities were either core or supporting research and development activities (‘core R&D activities’ and ‘supporting R&D activities’) within the meaning of subdivision 355-B of the Income Tax Assessment Act 1997 (Cth). If the applicant is right, it may be entitled to significant tax offsets in the years of income in question in respect of expenditure on eligible activities.
In order to obtain the tax offsets, the applicant was required to register projects describing the activities with Innovation and Science Australia, the respondent. The respondent duly registered two projects under s 27D of the Industry Research and Development Act 1986 (Cth) (IR&D Act). The first project was registered on 12 April 2013. The second was registered on 30 April 2014. In 2015, the respondent conducted a review which progressed to a formal examination of the registrations in both years. On 17 June 2016 the respondent issued a certificate recording its finding that enumerated activities registered under the Act were not core or supporting R&D activities for the purposes of the legislation. The certificate was issued under s 27J of the IR&D Act. The applicant sought internal review but the internal review decision dated 4 May 2017 effectively affirmed what had already been decided. The applicant seeks review of that decision which was made under s 30D(2) of the IR&D Act.
The applicant has already prepared a statement of facts, issues and contentions. It has framed its case with reference to at least six claimed activities. The respondent questions whether those activities properly correspond with the registered activities: the respondent points out the reviewable decision relates to registered activities and the Tribunal’s power under s 43 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) extends to affirming, varying or setting aside that decision. The respondent provided us with a diagram that sought to map the relationship between the claimed activities and the registered activities. It says there are gaps and overlaps in the applicant’s approach. The respondent enlarged on that critique in written submissions provided after the hearing.
The respondent’s point is well-made. The proceedings are liable to miscarry if the questions isolated for determination are not framed appropriately. The applicant would do well to keep that issue in mind as it prepares its case; the Tribunal, with the assistance of the respondent, will certainly be diligent in maintaining a clear focus on the issues that require resolution. But for all that, the applicant says there is no doubt the claimed activities it wants to advance first are all registered activities.
The question before us today is whether two of those claimed activities – CA1 and CA4 – should be progressed more quickly than the balance of the dispute.
The power of the Tribunal to determine its own procedure
Section 33(1)(a) of the AAT Act makes clear the Tribunal is the master of its own processes. Cases in the General and Taxation & Commercial divisions tend to be more court-like. That approach is not inconsistent with the requirement in s 33(1)(b) that the Tribunal conduct its proceedings with as little formality and technicality, and with as much expedition, as the law and circumstances permit. The courts provide a tried and tested model of dispute resolution, and the Tribunal is carrying out a similar function to courts in many of the disputes litigated in the General and Taxation & Commercial divisions. In a large proportion of those cases, the Tribunal is finding facts and determining binary questions of law much as a court would do. There are still differences. As the Tribunal works toward the correct or preferable decision in every case, it is explicitly entitled to inform itself “in such manner as it thinks appropriate”: s 33(1)(c). In doing so, it is not bound by the rules of evidence. We do not say those rules are wholly irrelevant; those rules are, to some extent, a codification of rules of procedural fairness and they embody the wisdom of years of experience in fair, just and effective dispute resolution in the courts. But the Tribunal is not a judicial body, even though it is required to act judicially: see Sullivan v Department of Transport (1978) 1 ALD 383 at 402 per Deane J. It is part of the executive and exercises the executive power rather than the judicial power of the Commonwealth. It would not be appropriate to reflexively and rigidly constrain the Tribunal’s exercise of executive power with rules and procedures that were developed to shape and restrain the exercise of judicial power. The Tribunal is also entitled to rely more extensively on the assistance of the parties, especially the decision-maker who is expressly charged with assisting the Tribunal to discharge its obligation to make a decision: s 33(1AA). That assistance is vital as the Tribunal undertakes its executive function which is inevitably more inquisitorial than a court.
There are other differences but the important point for present purposes is this: the Tribunal’s obligation in each case is to devise a dispute resolution strategy that is appropriate to the questions arising in that case. That strategy must take account of the issues of law and policy and the evidentiary challenges which are likely to be encountered in the proceedings. The strategy must also meet the objective referred to in s 2A of the AAT Act, which refers to the need to create a dispute resolution process that is (a) accessible, (b) fair, just, economical, informal and quick, (c) proportional, and (d) likely to enhance public trust and confidence in the Tribunal’s decision-making. (Those aspirations may be in tension with each other; balancing them requires an exercise of judgment.) Overlaying all that is the need for the Tribunal to adequately perform the unique role cast for it in Australia’s system of administrative law: the Tribunal must be an advocate for good government, a function it discharges by modelling good decision-making behaviour in individual cases.
That flexibility is a defining feature of the Tribunal. The obligation to be flexible is inherent in the instruction in s 33(1)(b) to avoid unnecessary formality and technicality, which builds on the reference to the desirability of informal proceedings in s 2A. (The various references in the AAT Act to the desirability of informality in the Tribunal are sometimes misunderstood as referring purely to the atmospherics and ambience of proceedings. The statutory references to informality are also – and perhaps more importantly – an instruction to avoid the danger of rigid and uncritical adherence to forms and procedures that are not well-adapted to purpose.)
Both parties referred to a number of authorities which discussed the circumstances in which it might be appropriate (or unwise) to split proceedings. We will not repeat the discussion in those cases here. Such general pronouncements about the appropriateness or desirability of splitting proceedings are valuable but the authorities also acknowledge (as they logically must) that each case turns on its own facts. It follows those pronouncements are not determinative of how a tribunal should approach its task. We are obliged to decide what is appropriate in these proceedings before this tribunal: see, generally, Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259 at 282 per Brennan CJ, Toohey, McHugh and Gummow JJ; see also Sullivan v Civil Aviation Safety Authority [2014] FCAFC 93 at [61] per Flick and Perry JJ.
Crafting a dispute resolution strategy that makes sense in the circumstances of this case
The challenge of crafting an appropriate strategy for this case is complicated by the fact the Tribunal knows much less about the case than the parties at this stage. The applicant is presumably in the best position to know its own case but even the applicant cannot fully anticipate how the proceedings might evolve in response to material provided by the respondent – material the respondent might not yet have gathered – or in response to questions from the Tribunal. It must be remembered the Tribunal has a different perspective from the parties. While the Tribunal steps into the shoes of the decision-maker when re-making the decision, it ordinarily acts on the evidence before it, rather than being confined to the evidence before the original decision-maker: see Shi v Migration Agents Registration Authority [2008] HCA 31. That fresh evidence might prompt the Tribunal to ask questions which did not occur to the original decision maker, or which might cast other evidence in a different light. The Tribunal is also an independent generalist decision-maker informed by its expertise in good government. That means the Tribunal’s findings of fact and analysis of the law might be quite different from the original decision-maker. Indeed, the possibility of that occurring underlines the point of merits review.
In this case, the fact-finding process is likely to be challenging. We received an affidavit from the applicant’s lawyer who explained it would be necessary for the Tribunal to receive many, many thousands of pages of documents. We will also hear from a number of technical experts. By definition, proceedings in cases like this deal with scientific and technological questions on the cutting edge. We will have our work cut out for us when it comes to fact-finding. The law is also complex. We are told the case-law provides limited guidance.
The respondent does not seriously challenge the estimate of a final hearing that would run for 8-10 weeks if all aspects of the dispute remain in play. Quite apart from the logistical challenges involved in a hearing of that length, and the likely delay if all of the evidence has to be assembled before we proceed, a single hearing is likely to be expensive – for the parties, but also for the Tribunal.
We have already referred to the affidavit filed by the partner responsible for the conduct of the matter on the applicant’s behalf. It appears to lay out an objective and informed assessment of the challenge that lies ahead. We have no reason to doubt this application represents a serious attempt to deal with the proceedings in a way that is consistent with the applicant’s duty to the Tribunal set out in s 33(1AB). But nor are we critical of the respondent for questioning the argument that a split hearing would have advantages. That skepticism is understandable given the current state of information about the applicant’s case. That is not unusual at this stage of the proceedings in a case like this. Much of the preparatory work remains to be done.
Ms Pritchard, who appeared for the respondent, was careful to emphasise the respondent would, as a model litigant, be flexible. She said it would certainly welcome genuine opportunities to engage in alternative dispute resolution processes and other steps that had a chance of success. But she urged against a split hearing on the current state of knowledge about the applicant’s case lest the Tribunal be locked in to a process that is not well-adapted to dealing with a factual matrix and expert opinion that defies the sort of compartmentalised approach the applicant says will be followed in this case. Ms Pritchard warned that evidence from different experts in relation to different claims might overlap, resulting in double-handling of witnesses. She worried that evidence about one claim might be seen in the wrong light if it were not informed by relevant evidence in relation to separate but related claims. She also raised practical questions about the status of a decision in relation to part of the case. Would the unsuccessful party be able to appeal against a decision made at an early hearing when the reasons for that decision were delivered – or would the appeal have to wait? Would the unsuccessful party treat the reasons for the earlier decision as a form of draft and attempt to re-agitate the issues at a later point because the Tribunal was not functus officio until it disposed of the rest of the case?
That is all fair enough. Ms Stern, counsel for the applicant, said it would be possible to deal discretely with the two claimed activities the applicant proposes advancing at an initial hearing. She said such a hearing may only take 10 days (although she conceded at one point such a hearing might take 15 days, which rather underlines the respondent’s concern). She argued the two claims selected for early treatment raised, between them, all of the issues of interpretation and policy in a proper way for a comprehensive consideration. Ms Stern submits that no cost will be wasted in following this approach. She argues the Tribunal would be able to make an informed decision about its approach to most or all of the important matters of law and policy at issue in relation to all of the claimed activities. An early decision on these matters would arm the parties with the information they need to undertake alternative dispute resolution processes aimed at resolving the balance of the dispute. At a minimum, Ms Stern argued an alternative dispute resolution process that was informed by the Tribunal’s views on part of the case would enable the parties to further refine the scope of the ultimate hearing and limit its length and cost.
The applicant does not suggest the course it proposes will deliver a clear answer on a discrete point that has the capacity to dispose of the larger proceedings in their entirety. It argued there are likely to be advantages in a split hearing even so.
We accept the applicant has every incentive to assist the Tribunal to manage these proceedings efficiently. It is a private enterprise. It is unlikely to waste shareholders’ monies on prolonging a dispute. It is represented by reputable and experienced lawyers. Their assessments of how the case will unfold must be given considerable weight. And yet we acknowledge the wisdom that underlies the respondent’s skepticism. These proceedings will inevitably be expensive. It would be unfortunate if we committed to a hearing process that turned out to be inappropriate.
The applicant says the risk of a false start is mitigated by the way in which the proceedings are likely to unfold if they were to conclude with a single hearing. Ms Stern suggested the applicant anticipates at this stage it is likely to deal with each of the claims separately at a final hearing in any event. She argued the parties are going to need to prepare evidence in relation to the different claims and deal with them consecutively. While there might be limited overlap between experts, she argued that could be addressed easily enough through the provision of supplementary affidavits used at a second hearing. It is also possible that, in the larger scheme of this litigation, the need to recall one or two witnesses at a second hearing may not make that much difference to what is already bound to be an expensive process.
Ms Pritchard doubted whether estimates of time for a final hearing that were calculated on the basis suggested by the applicant were entirely reliable. She suggested efficiencies at a single final hearing might become apparent once the parties knew more. She said it was likely some of the common issues could be dealt with at a single hearing in ways which made that hearing shorter.
Both parties make good points. We are wary of the lure of easy procedural fixes to complex and lengthy disputes. The respondent is right to say those fixes often fail to realise the promises made for them, and may even complicate the Tribunal’s task. And yet we are reluctant to reject out of hand the potential for avoiding, or at least substantially reducing, the cost and length of these proceedings.
We are satisfied the best approach is a pragmatic one. The Tribunal and the parties may have no alternative but to bite the bullet and proceed to a single final hearing. We should leave ourselves free to proceed on that basis. But we are also satisfied it would be possible and desirable for the applicant to be given the opportunity to prepare its evidence in relation to two claimed activities in priority to the balance of its case. That material should be filed with the respondent in accordance with a timetable set out in the directions. Armed with the detail about the applicant’s case in relation to the two claimed activities, the respondent will be able to prepare its evidence in reply. It will also be able to formulate a draft statement of facts, issues and contentions in answer to the applicant’s entire case. In the course of doing so, it may become apparent that the two claimed activities can be dealt with at an early hearing as the applicant contends. In any event, the respondent will be able to offer more informed opinion about how the case should unfold, and whether opportunities exist for a split hearing or alternative dispute resolution in relation to some or all of the substantive issues.
Once the respondent has been given an appropriate time to provide its material to the applicant and prepare a draft statement of facts issues and contentions in respect to the entire case (but focusing in particular on the two claimed activities), we are minded to require the parties to engage in a dispute resolution process before an experienced Tribunal member to see if there can be any agreement about the process. If the parties can reach agreement on draft directions for the future conduct of the matter (either independently or through the Tribunal’s alternative dispute resolution mechanism), those directions can be discussed at a resumed case management directions hearing. That hearing will be set down for an agreed date in October. For now, the Tribunal will set aside time in December 2018 and (in the alternative) February 2019 to accommodate a ten day hearing in the event it is agreed or directed that a split hearing is the best approach after all. The parties should keep those tentative dates in mind as they prepare their respective cases.
CONCLUSION
It would be premature to grant the applicant’s request for a split hearing but we propose the parties proceed in a way that keeps the option of a split hearing alive until everyone is in a better position to assess whether it is desirable. We are satisfied this pragmatic course will not inconvenience the parties, impose additional cost or occasion further delay as the evidence and the arguments in relation to the two claimed activities will need to be prepared in any event.
The parties have each already suggested draft directions. They should confer and provide revised draft directions that give effect to these reasons within 7 days of the date of these reasons.
I certify that the preceding 28 (twenty-eight) paragraphs are a true copy of the reasons for the decision herein of The Hon. Justice D G Thomas and Deputy President Bernard J McCabe
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Associate
Dated: 10 May 2018
Date of interlocutory hearing: 16 April 2018 Counsel for the Applicant: Ms K Stern SC with Ms C Burnett Solicitors for the Applicant: Herbert Smith Freehills Counsel for the Respondent: Ms S Pritchard SC with Mr B Lim Solicitors for the Respondent: Maddocks
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