Re RACV Sales & Marketing Pty Ltd and Innovation Australia
[2012] AATA 386
•26 June 2012
CATCHWORDS – INNOVATION – registration of activities of company as being research and development activities – company wanting to claim allowable taxation deduction for expenditure incurred in carrying out activities concerning crash testing – certificate issued with effect that activities are not research and development activities – whether activities are research and development activities - activities to be characterised as systematic, investigative and experimental – activities to involve innovation or high levels of technical risk.
CATCHWORDS – PRACTICE AND PROCEDURE – private hearing – s 39T of the Industry Research and Development Act 1986 makes hearing private in the Tribunal – does not operate to automatically prohibit publication of names of parties or evidence – separate consideration occurs under s 35 of the Administrative Appeals Tribunal Act 1975 in terms of ordering that publication of any information in the proceeding be restricted.
Acts Interpretation Act 1901, s 15AB(1)(a)
Administrative Appeals Tribunal Act 1975, ss 35, 37, 44
Designs Act 2003
Income Tax Assessment Amendment (Research and Development) Act 1986 Act No 59 of 1988, ss 5(d), 5(e), 16
Income Tax Assessment Act 1936, ss 73B(1), 73B(4), 73B(1AAA), 73B(2A), 73B(2B), 73B(2BA), 73B(2C), 73B(10), 73B(11), 73B(12), 73B(14), 73B(33A), 73B(33C), 73B(34), 73BF(4), 73BM(4), 124ZF(1), 124ZG(2A)
Industry Research and Development Act 1986, ss 4(1), 39, 39AA, 39HG, 39HI, 39HH(1), 39J, 39JA(5B), 39K, 39KA, 39L, 39N, 39P, 39S(4), 39T(1)(a), 39T(4)
Part IIIA
Industry Research and Development Act 1986, Act No 82 of 1996, s 3, Sch 1, item 12
Matrimonial Causes Act 1857, s 46
National Companies and Securities Commission Act 1979, s 36(2)
National Security Act 1939
Olympic Insignia Protection Act 1987
Patents Act 1990, ss 3, 7(1), 9(a), 18(1), 18(1A), Sch 1
Personal Injury Proceedings Act 2002 (Qld), s 30
Plant Breeder’s Rights Act 1994
Statute of Monopolies (UK), s 6
Tax Laws Amendment (Research and Development) Act 2011; Act No 93 of 2011, s 2, item 6 and s 3, Sch 3, Part 6, item 44, s3 and Sch 4
Taxation Administration Act 1953, ss 14ZZE, 14ZZJ
Taxation Laws Amendment Act (No 3) Act 1996, Act No.78 of 1996, s 3 and Sch 4, item 53
Taxation Laws Amendment Act (No 4) 1989, Act No. 167 of 1989, s34
Taxation Laws Amendment (Research and Development) Act 2001, Act No.170 of 2001, s 3, Sch 1, items 1, 2, 5, 6, 7
Tax Laws Amendment (2007 Measures No.5) Act 2007, s 3, Sch 11, item 1
Trade Marks Act 1995
Australian Trade Commission v F & F Asia Pty Ltd (1996) 69 FCR 252; 42 ALD 197
Attorney-General (NSW) v Mayas Pty Ltd (1988) 14 NSWLR 342
Avel Pty Ltd v Attorney-General for New South Wales (1987) 11 NSWLR 126
Azuko Pty Ltd v Old Digger Pty Ltd [2001] FCA 1079; (2001) 52 IPR 75; [2001] AIPC 91-741
Blacktown Workers’ Club Ltd v O’Shannessy [2011] NSWCA 265; (2011) 183 LGERA 184
Brown v Commissioner of Taxation [2001] FCA 276; (2001) 47 ATR 143
Clements v Independent Indigenous Advisory Committee [2003] FCAFC 143; (2003) 131 FCR 28; 37 AAR 309
Confidential and Industry Research and Development Board [1997] AATA 67
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60; 24 ALR 577; 46 FLR 409
Heggie v Minda Incorporated [2006] SAIRComm 9
HR Products Pty Ltd v Collector of Customs (1990) 20 ALD 340
Hodgson v Imperial Tobacco Ltd [1998] EWCA Civ 224; [1998] 2 All ER 673
Industry Research Board v Coal & Allied Operations Pty Ltd [2000] FCA 979; (2000) 101 FCR 405; 44 ATR 541
Industry Research Board v Unisys Information Services Australia Ltd (1997) 77 FCR 552; 37 ATR 62
Jones v Dunkel [1959] HCA 8; (1985) 101 CLR 298; 32 ALJR 395
Kuswardana v Minister for Immigration and Ethnic Affairs [1981] FCA 66; (1981) 54 FLR 334; 35 ALR 186
McKeown v Repatriation Commission (1995) 39 ALD 30; 22 AAR 229
National Companies and Securities Commission v Bankers Trust Australia Ltd [1989] FCA 530; (1989) 24 FCR 217; 91 ALR 321
Pepsi Seven-Up Bottlers v Commissioner of Taxation (1995) 62 FCR 289; 132 ALR 632
Queensland v Allen [2011] QCA 311
Re Australian Federation of Construction Contractors; Ex parte Billing [1986] HCA 74; (1986) 68 ALR 416; 61 ALJR 37
Re Bolton; Ex parte Beane [1987] HCA 12; (1987) 162 CLR 514; 70 ALR 225; 61 ALJR 190
Re Charles IFE Pty Ltd and Industry Research and Development Board [1995] AATA 224; (1995) 39 ALD 635; 95 ATC 2149; 32 ATR 1226
Re Fermenter and Distiller and Industry Research and Development Board [2000] AATA 888; (2000) 45 ATR 1122
Re HZXD and Innovation Australia [2010] AATA 879
Re Mobil Oil Australia Limited and Industry Research and Development Board [1995] AATA 133; (1995) 95 ATC 2042; 30 ATR 1364
Re North Broken Hill Ltd and Industry Research and Development Board [1993] AATA 254; (1993) 30 ALD 200; 18 AAR 177; 26 ATR 1262
Re The Applicant and Industry Research and Development Board [1999] AATA 468; (1999) 55 ALD 784; 42 ATR 1116
Scott v Scott [1913] AC 417; [1911-1913] All ER 1
Secretary, Department of Social Security v Ekis (1998) 85 FCR 382; 52 ALD 246; 28 AAR 36
Transport Accident Commission v Bausch [1998] 4 VR 249; 13 VAR 61
Whitten v Falkiner (1915) 20 CLR 118
Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers
The Macquarie Dictionary, revised 3rd edition, 2001, The Macquarie Library Pty Ltd
The New Shorter Oxford English Dictionary
Income Tax Assessment Amendment (Research and Development) Bill 1986, Second Reading Speech, Hansard, Senate, 2 June 1986 at 3152
Income Tax Assessment Amendment (Research and Development) Bill 1986, Explanatory Memorandum
Ross on Crime 5th edition, Lawbook Co, 2011
Taxation Laws Amendment (Research and Development) Bill 2001, Explanatory Memorandum
DECISION AND REASONS FOR DECISION [2012] AATA 386
ADMINISTRATIVE APPEALS TRIBUNAL )
) 2010/1396
GENERAL ADMINISTRATIVE DIVISION )
Re RACV SALES AND MARKETING PTY LTD
Applicant
And INNOVATION AUSTRALIA
Respondent
DECISION
Tribunal: Deputy President S A Forgie
Senior Member E Fice
Date: 26 June 2012
Place: Melbourne
Decision:The Tribunal:
(1)decides to affirm the decision of the respondent dated
27 September 2007 and confirmed by a further decision dated 25 February 2010 to the effect that it is not satisfied that the applicant’s activities are research and development activities as those activities are defined in s 73B(1) of the Income Tax Assessment Act 1936; and(2)remits the matter to the respondent to give the Commissioner of Taxation a certificate to that effect under s 39L of the Industry Research and Development Act 1986.
S A Forgie
Deputy President
REASONS FOR DECISION
Where an eligible company incurs research and development expenditure (other than contracted expenditure) greater than an aggregate of $20,000 during a year of income, the amount of that expenditure multiplied by 1.25 is allowable as a deduction from its assessable income in that year of income.[1] Among other criteria that it must meet, research and development expenditure must be expenditure in respect of research and development activities.
[1] Income Tax Assessment Act 1936 (ITAA36), s 73B(14)
RACV Sales and Marketing Pty Ltd (RACV Sales),[2] which is a wholly owned subsidiary of RACV Holdings Pty Ltd, is an eligible company. It was registered under s 39J of the Industry Research and Development Act 1986 (IRD Act) in respect of research and development activities in each of the eight years of income in issue being 1998-1999 to 2005-2006 inclusive.[3] Although a pre-requisite for entitlement to a deduction, registration does not confer entitlement. The Research and Development Board (now Innovations Australia)[4] may or, if requested by the Commissioner for Taxation (Commissioner), must issue a certificate stating whether the activities are research and development activities. The Commissioner is bound by that certificate. The consequences of the certificate are not for us to decide. We note, though that if, as in this case, the Board decides that the activities, whether registered or not,[5] are not research and development activities, the Commissioner cannot allow a deduction under s 73B of ITAA36[6] for expenditure in relation to it in the year of income concerned.
[2] RACV Sales was identified in the Tribunal’s records by the letters “KSLZ”. No order, however, has been applied for, or made, under s 35 of the Administrative Appeals Tribunal 1975 (AAT Act) restricting publication of RACV Sales’ identity. Section 39T(4) of the IRD Act requires that the Tribunal’s hearing of a proceeding relating to a decision under the IRD Act must take place in private. Without an order prohibiting disclosure, a private hearing does not, of itself, prohibit or restrict disclosure of what is said and the evidence that is given at that private hearing. Therefore, we have identified the applicant. The parties had no objection to our doing so and, indeed, Innovation Australia asked that the applicant’s name be disclosed. We explain our reasons more fully in Attachment C.
[3] All but the first two years are references to financial years. The first two relate to slightly different periods but the differences are of no consequence in this case. Although there is no document recording registration, the statement prepared by the Board under s 37(1)(a) of the AAT Act states that “The applications for registration were accepted by the Respondent for these years.”: T documents at 3.8, [18]. The registered activities are described as the RSM-1 Project but, in 2005, the project became the RACV Sales 05-01 Project. Nothing turns on this change of name.
[4] References in the IRD Act to the “Board” are references to Innovation Australia: IRD Act, s 4(1).
[5] There is no material in the documents we have been given that shows that the Board has registered RACV Sales in relation to the research and development activities in relation to which it has applied for registration under s 39J. Apart from the issue relating to the characterisation of RACV Sales’ activities, the Board was not satisfied that RACV Sales has given it material showing that RACV Sales had “… while the activities were carried on, maintained records that substantiate the carrying on of the activities”: IRD Act, s 39JD(ba). The Board noted at its meeting on 27 July 2009 that it had also asked RACV Sales for information on the RSM1 project and, if necessary, a technical opinion following its meeting held in March 2007:T documents, T3 at 6. Earlier communications regarding that material took place in November 2005: T documents, T37 and T38 at 769-775.
[6] Section 73B of ITAA36 was repealed with effect from 8 September 2011: Tax Laws Amendment (Research and Development) Act 2011; Act No 93 of 2011, s 2, item 6 and s 3, Schedule 3, Part 6, item 44. The application of s 73B and the relevant provisions of the IRD Act such as s 39L is continued in relation to acts done or committed and the state of affairs existing before 8 September 2011; Act No 93 of 2011, s 3, Schedule 4.
In respect of each of those years, RACV Sales has claimed that it is entitled to the deduction under s 73B of the Income Tax Assessment Act 1936 (ITAA36) on the basis that it has incurred the requisite level of expenditure in respect of research and development activities carried on by it or on its behalf. The research and development activities conducted by RACV Sales in those years were generally described as:
“Development of Crash Testing Methodology, to be carried out as part of the Australian New Car Assessment Program (ANCAP) investigating the impact of [the] Automotive Structural Design and Safety Features on serious injuries and fatalities, and Associated Development of Use Car Safety Ratings (UCSR).”[7]
[7] A more detailed description appears at [7] below.
Innovation Australia decided on 4 October 2007 that RACV Sales’ activities did not satisfy the eligibility criteria under s 73B(1) of ITAA36 as the activities did not involve innovation or high levels of technical risk. Therefore, it also decided to issue a certificate under s 39L of the IRD Act to reflect that decision. At the request of RACV Sales, Innovation Australia reviewed its earlier decision at its meeting held on 25 February 2010. Under s 39S of the IRD Act, it confirmed that earlier decision and commented that the activities were not systematic, investigative and experimental.[8] We have decided that Innovation Australia is correct in deciding that RACV Sales’ activities are not research and development activities as those activities are defined in s 73B(1) of ITAA36. Therefore, we have decided to affirm its decision to issue a certificate under s 39L of the IRD Act to that effect.
BACKGROUND
[8] T documents at 6 and ST documents at 1493. We consider these decisions in more detail at [39]-[44] below
RACV Sales
For the purposes of this hearing and as providing part of the background to it but for no other purpose, we have assumed that RACV Sales forms part of the corporate structure associated with the Royal Automobile Club of Victoria (RACV). We have also assumed that RACV Sales and other corporate entities within that structure operate as part of a tax consolidated group.[9] The RACV, in one corporate guise or another, is a member of the Australian Automobile Association (AAA). Given that our role is limited to matters relevant to the decision made under s 39L of the IRD Act and not s 73B of ITAA36, we do not need to explore that issue further.
[9] Exhibit C at [1.6]
The activities for which RACV Sales is registered
The activities registered by RACV Sales may be categorised as crash testing activities conducted by RACV Sales through ANCAP; data interpretation and presentation activities conducted by RACV Sales through ANCAP; low speed crash testing activities conducted by IAG for RACV Sales and others; supporting activities conducted by RACV Sales through ANCAP; and supporting activities conducted by RACV Sales through the Australian National Crash In-depth Study (ANCIS).
The following table was provided by RACV Sales. It sets out the nature of the activity being conducted under the headings we have referred to above; the period during which those activities were conducted; and whether those activities are properly described as systematic, investigative and experimental (SIE) or directly related (DR):
| Activity Number | Activity Description | Period in Dispute | Type |
| 1 | Technology Review Review of the existing international vehicle safety testing techniques and the applicability of these tests to Australian motor vehicles. Assessment of the applicability of these techniques in Australia based upon consideration of the types of motor vehicle accidents that result in fatalities and serious injuries, and the nature of the Australian road and traffic environment. Attendance, presentation and review of conference papers considering the issue of testing techniques utilised in global consumer crash test programs. | 1 July 1998 - | DR |
| 2 | Continual review of test data The first series of vehicle testing to utilise the full frontal test method only. Full frontal testing simulates the impact of a collision occurring evenly across the front of the vehicle. The objective of this test is to evaluate the vehicle’s restraint system. The testing investigated the safety of a range of new, previously untested, vehicle models. Expand test methods to incorporate a variety of different car types and styles - small car, compact 4WD, and large car. Review testing data as required for each test performed. | 1 July 1998-30 June 2006 | DR |
| 3 | Continual development of data interpretation and presentation techniques This activity involves the development of interpretations, which simulate the real world, and development of an appropriate format in which to convey the information obtained in these tests to consumers. It was determined that this information should contain both the testing results and the full technical report. In addition, a colour-coded human figure was included to indicate the extent of head and chest injuries. Further investigation was undertaken to observe and research additional safety testing techniques, offset testing, being employed globally. The applicability of this testing technique in Australia was also investigated. An offset test using a deformable barrier was added. The test is internationally recognised, and the barrier design is specified for both consumer crash test programs and for compliance with regulatory standards. Further series of vehicle tests were undertaken, incorporating the offset test. Offset testing simulates a collision of one vehicle with another. The objective of this test is to evaluate the vehicle's structure resistance to intrusion; the crash forces are concentrated on the driver’s side of the vehicle. | 1 July 1998 - | SIE |
| 4 | Further development of the National Crashed Vehicle Database Establish a database of crashes in NSW, QLD and Victoria to look in detail at a small number of crashes each year. | 1 July 1998 - | DR |
| 5 | Development of low speed crash testing Involves a pendulum device colliding with the front driver’s side of a vehicle, equivalent to a barrier impact at 15 kph as a consistent method of rating the repairerability of a vehicle. By 1999 RACV Sales had provided test results for 27 models in use in Australia. The test method is being introduced to all new vehicles, particularly to the application of small 4WDs and larger vehicles. | 1 July 1998 - | SIE |
| 6 | Continual development of side impact testing A trolley fitted with a deformable front is towed into the driver's side of the car to simulate a side on crash. A specialised dummy is used in this test to collect maximum information on the scale of injury present. Readings taken from dummies are used to assess protection given to the front occupant. It has been found in testing that this method is unsatisfactory for larger and 4WD vehicles, as the impact boom has a tendency to push underneath the sill panels, contact the chassis rails and in some cases tip the vehicle. This has returned problematic and inconclusive data. This has led to the further development of the side impact test-outlined in the development of the pole test. | 1 July 1998 - | SIE |
| 7 | Development of a pole crash test Approximately a quarter of all serious-to-fatal injuries happen in side impact collisions. Many injuries occur when a car hits a pole or a tree. To encourage manufacturers to fit head protection devices, pole/head protection tests have been added to ANCAP protocols. Side impact airbags help to make this kind of crash survivable. They are also very effective in other types of side impact accidents such as being hit by another vehicle where the bonnet enters the window at head height. In the new test, the car tested is propelled sideways at 29 kph (18 mph) into a rigid pole. The pole is relatively narrow, so there is major penetration into the side of the car. This development has been incorporated into the testing of larger vehicles and 4WDs. The hardware and test rig currently do not exist, RACV Sales will be developing the testing methods and equipment. Application to 4WD vehicles RACV Sales will be rolling out a three stage 4WD testing regime relating to various vehicles. This will enable validation of tests and results to provide meaningful crash performance information. | 1 July 1998 - | SIE |
| 8 | Development of a pedestrian crash test A series of tests are carried out to replicate accidents involving child and adult pedestrians where impacts occur at 40 kph (25 mph). Impact sites are being assessed and rated fair, weak and poor. For 2004/2005, RACV Sales undertakes to further develop the pedestrian impact test which has to date been based on overseas programs. Further test development is required for local conditions, for example incorporation of pedestrian tests for higher vehicles and vehicles fitted with bull bars. | 1 July 1998 - | SIE |
| 9 | Continual development of key information presentations The concentration on ANCAP injury content was considered to be too obscure for the intended audience and a simplified format was required to retain the integrity of that data. The following four information releases were amended to adopt a new primary rating system, that being the risk of life-threatening injury. The presentation of test results has evolved through a process of continuous review. After a review of the presentation methods adopted by a number of international organisations, a rating system was adopted which ranked the likelihood of serious injury as good, acceptable, marginal or poor. With the availability of additional information for consumers, further redevelopment was undertaken in relation to the manner in which the information was conveyed. It was determined that the most useful method for presenting this information would be through the calculation of an overall risk score, which would simulate real world frontal crashes. | 1 July 1998 - | SIE |
| 10 | Development and evaluation of interpretations with real world data This involves the relationship between laboratory crash testing and real-world crashes in Australian conditions. A vehicle’s crashworthiness is assessed on the basis of structure, restraints, injury measurements and head restraint design. This combined overall evaluation is determined on the basis of both the full frontal and offset crash test results. | 1 July 1998 - | DR |
| 11 | Re-design and development of data interpretation and information presentation Interpretations are evaluated based on a comparison with real-world data and interpretation and presentation techniques are redesigned. Further investigations will be undertaken in relation to the possible addition of further testing which can assess vehicle safety in side impact, pedestrian impact, and vehicle rollover susceptibility. | 1 July 1998 - | DR |
| 12 | Continual design of testing procedure and data manipulation Incorporation of new testing techniques to assist vehicle safety. New tests performed assist in identifying vehicle safety in side impact and pedestrian impact. The pedestrian impact test was trialled for the first time in September 2000. The results from the tests were encouraging, and vehicle testers worldwide have mirrored the ANCAP research within their own vehicle evaluation procedures. | 1 July 2001 - | SIE |
| 13 | New car crash test programs Small car program The small car program is the first stage of ANCAP testing and has been designed and developed to allow harmonisation with EuroNCAP testing procedures. The ANCAP harmonisation project saw ANCAP undertake a program whereby it reused test data from EuroNCAP tests and evaluated their applicability to European cars available for sale in Australia. The technical committee learnt many valuable lessons from the first and subsequent launches of this program, for example, crash tests cannot be directly transferred from European conditions to Australian conditions. In many cases standards, components and environmental conditions can vastly influence the test result. Modifications need to be made to the tests and the analysis to allow for factors such as differences in passenger restraint systems between Australian and European models. Pedestrian impact tests were included for the first time. These tests have subsequently become an adopted standard with many of the NCAP Programs worldwide. Large car program Large cars account for approximately one third of all new car sales in Australia. It is a rapidly changing market with new models and safety systems being released at an alarming rate. For ANCAP to be of any use it must test and analyse these new systems in a timely and efficient manner. 2000/2001 has seen significant occupant protection upgrades across all vehicles within the large car market. These upgrades must be assessed by ANCAP and analysed. Often the testing and analysis equipment must be reconfigured to adapt to new testing parameters arising from new vehicle components. 4WD program (formerly utility program) A new testing procedure has been designed for utilities. Utilities have not been assessed since 1995, and the market has increased significantly in this time. This series will also be used to investigate the effect of sill height on the response of vehicles in a side impact test, e.g. 4WD utility vehicles. Vehicles with H-points above or below the 700 mm threshold specified in ADR 72 (Australian Design Rules) for exemption will be tested and information from this will be used in the development of an approach to testing other ‘high vehicles’ such as 4WDs. Rollover vehicle tests (2005/06) RACV Sales will undertake development of a new locally developed roll over test. The test will be dynamic, in that it is based on a ratio of centre of gravity and track width. US tests are based on a ‘fish hook’ methodology - the vehicle is driven at speed around a fish-hook shaped test track with increasing velocity on a test bed until it is on the verge of rollover. Electronic Stability Control Testing (2005/06) With the onset of mainstream vehicle electronic stability control systems, RACV Sales has identified the need to develop testing regimes that can assess ESC systems for new vehicles. Currently the development is at infancy, further basis for the tests will follow in the 2004/05 year and beyond. | 1 July 2001 - | SIE |
| 14 | Review of divergence from European Testing Procedures Development of new processes to overcome the divergence of Australian vehicle testing requirement methods from European and offshore testing. In particular new testing processes, the shortfalls of existing processes will need to be developed to overcome the specific parameters of the Australian market, including the prevalence of 4WD vehicles and the fact that Australian vehicles are not as well specified as European models. | 1 July 2001 - | DR |
Key participants and terms
As we have said, RACV Sales did not carry on any of the activities itself. For the purposes only of setting the background to the limited issues we must decide, we have made findings relating to the way in which ANCAP, ANCIS and IAG operated and RACV Sales’ involvement with them.
A.ANCAP
On the basis of the evidence of Mr Michael Case,[10] we find that ANCAP was established on 30 May1992 by the Roads and Traffic Authority of New South Wales (RTA), Queensland’s Department of Transport (Qld DOT), the Roads Corporation of Victoria (VicRoads), South Australia’s Commissioner for Highways (SADRT) and the Australian Automobile Association (AAA). Each contributed funds of various amounts:
“… for the operation, management and development of a program for crash testing, collating and publishing the relevant performance of the total occupant protection system of popular motor vehicles sold on the Australian market with the aim of facilitating improvement in motor vehicle occupant protection through consumer education and buying power influence.”[11]
[10] Mr Case is the Manager, Vehicle Engineering, with RACV Sales
[11] Participation Agreement dated 22 December 1992, Attachment 2, item A: Exhibit C at MC 2
Since then, the membership of the consortium has expanded to include all State and New Zealand Transport Departments, all Australian automobile clubs through the AAA, the New Zealand Automobile Association, the Victorian Transport Accident Commission and the FIA Foundation.[12] Between 1999 and 2006, the RACV first contributed to ANCAP by means of funds and participation through the AAA and later as a Contributing Member to ANCAP. It also contributed services in the form of work undertaken for ANCAP by Mr Case.[13]
[12] Exhibit C at MC 6, at 6
[13] T documents at 1288 and Exhibit C at [2.5]
B.ANCIS
In 2004, Monash University, the AAA and the RACV together with other State transport authorities, the automotive industry and insurance and consumer groups formed a consortium to finance and support “The Australian National Crash In-depth Study” (ANCIS). The study was to be undertaken by the Accident Research Centre at Monash University. Its purpose was described at cll B and C of the Consortium Agreement:
“B. ANCIS was formed to provide detailed in-depth data on a random sample of vehicle crashes that occur in a number of states in Australia (‘the Data’). Its objectives are to undertake a retrospective in-depth examination of a sample of passenger vehicle crashes where at least one occupant was injured sufficiently to be hospitalised to determine the extent of the damage to the vehicle, the severity of the crash, the level of injuries and the cause of the injuries to the occupants and to undertake a retrospective examination of the likely factors associated with the crash.
C.The underlying purpose of the collection of data is for research and the data will be used primarily for improvement of vehicle occupant safety through vehicle regulation, design, infrastructure and road user safety initiatives …”[14]
[14] Consortium Agreement, Exhibit C at MC 4, 2
C.IAG
IAG is the Insurance Australia Group. It was previously known as Insurance Australia Group Limited. Before that, it had been known as the NRMA Insurance Group Limited, which had been formed when the National Roads and Motorists Association (NRMA) demutualised in 2000.
LEGISLATIVE BACKGROUND
Since RACV Sales first applied for registration in respect of the 1988-89 income years, the IRD Act and ITAA36 have been amended on several occasions. Those amendments may be relevant to the assessment of any deduction to which RACV Sales may be entitled but we have referred only to amendments to provisions that are either relevant to the issues we must decide or set the background against which they are decided. We have done so at Attachment A to these reasons and it forms part of these reasons no less than any of its other paragraphs. It sets out the context of the relevant provisions, which informs an understanding of them but, at this point, we have set out only the pivotal provisions.
Those of ITAA36 are:
(1)An eligible company may claim a deduction from its assessable income when it incurs “research and development expenditure”: ITAA36, s 73B(14).
(2)“Research and development expenditure” includes expenditure incurred directly in respect of “research and development activities carried on by or on behalf of the company”: ITAA36, s 73B(1).
(3)“Research and development activities” are:
“(a) systematic, investigative and experimental activities that involve innovation or high levels of technical risk and are carried on for the purpose of:
(i)acquiring new knowledge (whether or not that knowledge will have a specific practical application); or
(ii)creating new or improved materials, products, devices, processes or services; or
(b)other activities that are carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (a).”: ITAA36, s 73B(1).
(4)“… the following activities are taken not to be systematic, investigative and experimental activities:
(a)market research, market testing or market development, or sales promotion (including consumer surveys);
(b)-(c) …
(d)the making of cosmetic modifications or stylistic changes to products, processes or production methods;
(e)-(h)…
(i)routine collection of information, except as part of the research and development process;
(j)-(m) …
(n)any activity related to the reproduction of a commercial product or process by a physical examination of an existing system or from plans, blueprints, detailed specifications or publicly available information.”: ITAA36, s 73B(2C).
(5)“For the purposes of the definition of research and development activities in subsection (1):
(a)activities are not taken to involve innovation unless they involve an appreciable element of novelty; and
(b)activities are not taken to involve high levels of technical risk unless:
(i)the probability of obtaining the technical or scientific outcome of the activities cannot be known or determined in advance on the basis of current knowledge or experience; and
(ii)the uncertainty of obtaining the outcome can be removed only through a program of systematic, investigative and experimental activities in which a scientific method has been applied, in a systematic progression of work (based on principles of physical, biological, chemical, medical, engineering or computer sciences) from hypothesis to experiment, observation and evaluation, followed by logical conclusions.”: ITAA36, s 73B(2B).
(6)“If the Board gives to the Commissioner a certificate stating whether particular activities carried on by or on behalf of a specified eligible company were research and development activities, that certificate is binding on the Commissioner for the purpose of making an assessment of the company’s taxable income of any year of income in which those activities were carried on.”: ITAA36, s 73B(34) complementing s 39L of the IRD Act.
Those of the IRD Act are:
(1)Part IIIA of the IRD Act complements s 73B of ITAA36 by giving Innovation Australia the role of determining whether an eligible company satisfies the requirements for the incentive in the form of the deduction available under that provision: IRD Act, s 39AA(1).
(2)“(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.
(2) If the Board issues a certificate to the effect that particular activities were not or are not research and development activities, the Board must give notice in writing to the person concerned stating the reasons for issuing the certificate.”: IRD Act, s 39L.
SCOPE OF REVIEW
Decision under review
On 25 February 2010, the Board confirmed its decision dated 27 September 2007 that:
“The activities undertaken in the project entitled ‘RSM1 – Understanding the Results of Crash Testing and the Impact of Automotive Structural Design and Safety’ carried out in the 1998-99 to 2005-06 years of income do not satisfy the eligibility criteria under section 73B(1) of the Income Tax Assessment Act 1936, as the activities did not contain innovation or high levels of technical risk.”[15]
[15] Supplementary Documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (ST documents) at 1493. The Board added by way of comment:
Scope of decision under review: one project or two
RACV Sales applied for registration in relation to activities described as the “RSM1 project” in respect of the years 1998-99 to 2003-04 but, in the last two years, was registered in relation to very similar activities under the project name of “RACV05-01”. RACV Sales and their legal representatives have treated them as the one and the same project and their activities as one and the same. The Board has recognised that the activities were described in materially identical terms[16] but its decision gives no recognition to RACV05-01.
[16] Respondent’s Statement of Facts, Issues and Contentions at [6.2]
As s 39T(1)(a) provides that an application may be made to the Tribunal for review of a decision that has been confirmed under s 39S(4), that means that the application is made, in this case, in respect of the Board’s initial decision made on 27 September 2007. In view of the Board’s reference to all of the years and on being satisfied that the activities under each project were described in materially identical terms, we have understood the decision under review to refer to the activities whether described under one project name or the other.[17] This view is consistent with the scheme of registration provided for under s 39J of the IRD Act. It allows registration only “in relation to those research and development activities, in respect of that year of income”[18] and so only those for which registration has been sought. In the 2004-05 and 2005-06 years, RACV Sales sought registration only for the activities described under the RACV05-01 project and not under the RSM1 project. As the Board could have registered only the activities for which registration was sought, its certificate under s 39L could relate only to those activities and so only to RACV05-01 activities in those two years. It would seem, therefore, that the reference to the activities under RSM1 in the decision should be read as a reference to the activities under the relevant projects in relation to which registration was sought in each of the years.
Scope of the decision under review: meeting the eligibility criteria under s 73B(1) of ITAA36 or under the IRD Act?
[17] During the course of the hearing and subsequently, there has been some disquiet between the parties regarding some matters that have been raised and the manner and time at which they have been raised. We have addressed these at Attachment B.
[18] IRD Act, s 39J(1)
The Board’s decision refers to the relevant activities’ not satisfying “the eligibility criteria under section 73B(1)”. We are a little uncomfortable with framing that issue in this way because it tends to suggest that the decision is being made under ITAA36 when it is acknowledged that it has been made under s 39L of the IRD Act.
The issue under s 39L(1) is whether the “particular activities that have been or are being carried on by or on behalf of a person were or are research and development activities.” In view of ss 39A(2) and (3), what amount to “research and development activities” is defined by reference to s 73B of ITAA 36 unless the contrary intention appears from Part IIIA of the IRD Act. Other expressions are defined by reference to their definitions in provisions of ITAA36 other than s 73B.
Certainly it is the case that, since 2001, s 39AA(1) has stated that the object of Part IIIA, and so of the Board’s role under s 39L, is to complement the tax incentive provided under, among others, s 73B of ITAA36. Having a role to complement a tax incentive does not mean that the Board makes a decision under the provision under which that tax incentive is provided. It does not mean that it is making a decision applying the criteria specified in ITAA36. Its decision must be made within the confines of the IRD Act and so within the confines of its definition of “research and development activities”. Had the IRD Act provided that the Board was to make its decision under s 73B(1) of ITAA36, it would have been obliged to do so. There is no such provision. All that s 39A(2) has done is to ensure that, in interpreting what amounts to “research and development activities” under the IRD Act, the Board does so by reference to the meaning of the expression set out in s 73B. That does not mean that the Board makes its decision under s 73B or that it is deciding whether it is satisfied whether an eligible company meets “the eligibility criteria under section 73B(1)”. It is deciding whether the particular activities carried on or being carried on by an eligible company are research and development activities. It is making that decision under s 39L by reference to the provisions of the IRD Act which are to be interpreted for some purposes by reference to s 73B.
Scope of review
Having regard not only to the definition of the expression “research and development activities” in s 73B(1) but also to the qualifications to it in ss 73B(2B), (2BA) and (2C), the following steps need to be taken in deciding whether or not activities are research and development activities:
Identifying the activities
(1)Have the activities been, or are they being, carried on by or behalf of a person[19] as required by s 39L of the IRD Act?
[19] That person would have to be registered in respect of those activities in order to claim a deduction under s 73B of ITAA36.
(a)If they are not – as would be the case if they were merely proposals – the Board has no basis on which to issue a certificate under s 39L of the IRD Act; and
(b)if they are, the Board does have a basis on which to issue that certificate.
Paragraph (a) of the definition of “research and development activities” in s73B(1)
(2)Are the activities properly characterised as “systematic, investigative and experimental activities …”?
(a)If the activities are activities specified in s 73B(2C), they are not “systematic, investigative and experimental activities …”; and
(b)if they are not specified in s 73B(2C), they must be characterised.
(3)If the activities are not properly characterised as “systematic, investigative and experimental activities …”, they are not research and development activities within the scope of paragraph (a) of the definition of “research and development activities” in s 73B(1).
(4)If the activities are properly characterised as “systematic, investigative and experimental activities …”, do they “… involve innovation or high levels of technical risk”?
(a)Whether activities involve innovation must be decided by reference to s 73B(2B)(a); and
(b)whether activities involve high levels of technical risk must be decided by reference to both limbs of s 73B(2B)(b) and having regard to s 73B(2C).
(5)If the activities are not properly characterised as involving innovation or high levels of technical risk, they are not research and development activities within the scope of paragraph (a) of the definition of “research and development activities” in s 73B(1).
(6)If the activities are properly characterised in that way, are they carried on for the purpose of either:
(a)acquiring new knowledge (whether or not that knowledge will have a specific practical application); or
(b) creating new or improved materials, products, devices, processes or services?
(7)If the activities are carried on for neither purpose, they are not research and development activities within the scope of paragraph (a) of the definition of “research and development activities” in s 73B(1).
Paragraph (b) of the definition of “research and development activities”
(8)If they do not come within the scope of paragraph (a) of the definition of “research and development activities” in s 73B(1), the question becomes:
(a)Are they activities that are carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (a) of the definition of “research and development activities” in s 73B(1)?
(i)If they are, they are research and development activities within the scope of paragraph (b) of the definition of “research and development activities” in s 73B(1).
(ii)If they are not, they are not research and development activities within the scope of paragraph (b) of the definition of “research and development activities” in s 73B(1).
Exclusion of activities otherwise coming within definition of “research and development activities”
(9)Are the activities on and after 1 July 2002 excluded by s 73B(2BA) on the basis that they were not carried on in accordance with a plan complying with guidelines formulated by the Board under s 39KA of the IRD Act?
(a)This criterion applies only to the years from 2002-03 to 2005-06 and not the earlier years.
(10)If the activities on and after 1 July 2002:
(a)were not so carried on, they are not research and development activities within the definition of “research and development activities” in s 73B(1); or
(b)were so carried on, they are research and development activities within the definition of “research and development activities” in s 73B(1).
Our role is confined to a consideration of whether the particular activities in relation to which RACV Sales has sought registration or been registered and which we have identified at [7] above have been, or are being, carried on by RACV Australia and, if so, whether they are research and development activities. It is not to decide whether RACV Sales is entitled to a deduction under s 73B of ITAA36. That is a matter for a separate decision by the Commissioner and, if an application is made to it, of separate review by the Tribunal.
SUMMARY OF CONCLUSIONS OF ANALYSIS OF THE LEGISLATIVE PROVISIONS AND CASE LAW
At Attachment B, we have set out a detailed analysis of the provisions and the case law. Again, that Attachment forms part of our reasons and underpins our consideration of the evidence in the following section of our reasons. In this section, we set out some of our main conclusions:
(1)Criteria identifying “research and development activities”
Two main criteria must be met:
(a)there must be “activities”;
(b) the activities must be of a certain kind:
(i)either they are activities that are:
•“systematic, investigative and experimental activities”; and
•“involve innovation or high levels of technical risk”; and
•are carried on for the purpose of acquiring new knowledge or creating new or improved materials, products, devices, processes or services;
(ii)or they are activities that are:
•“other activities carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (a).”
Regard must be had to s 73B(2B) in determining whether the activities involve innovation or high levels of technical risk.
(2)What are activities?
(a)“Activities” are the things that people do.
(b)In order to understand their import, the background in which they were carried out must be understood.
(c)We are concerned with characterisation of the activities and not with that of the project of which they form a part.
(3)When are activities “systematic, investigative and experimental”?
(a)The use of the conjunction “and” between the second and third signifies that each of the words qualifies the activities i.e. they must be “systematic, investigative and experimental activities” (emphasis added). It is not enough, for example, to be systematic and investigative if the activities are not also experimental. They must meet all three descriptors and one descriptor does not qualify another.
(b)The qualifications set out in s 73(2C) to the activities that are regarded as “research and development activities” limit the activities but do not limit the interpretation of those words in the first instance.
(c)The words “systematic, investigative and experimental activities” should be given their ordinary meanings:
“systematic”: “… 1 making use of, or carried out according to, a clearly worked-out plan or method. 2 methodical …”[20]
[20] Chambers
“investigative”:“investigate … verb … to carry out a thorough, detailed, and often official inquiry into, or examination of, something or someone. … investigative … adj. …”[21]
[21] Chambers
“experimental”“… 1 consisting of or like an experiment. 2 relating to, or used in, experiments. 3 trying out new styles and techniques. …”[22]
[22] Chambers
[“experiment” “… 1 trial carried out in order to test a theory, a machine’s performance, etc or to discover something unknown. 2 the carrying out of such trials. 3 an attempt at something original. …”[23]]
[23] Chambers
(4)When do systematic, investigative and experimental activities “involve” innovation or high levels of technical risk?
(a)In its context, the word “involve” means “to require as a necessary part. … ” rather than simply “To include, contain or comprehend within itself or its scope” to that of “to require as a necessary part. … ”.
(b)That does not mean that every part of the activity must be a necessary part of, and so involved in, innovation or high levels of technical risk but, when viewed as a whole, the particular activities under consideration must have as a necessary part of them, and so involve, innovation or high levels of technical risk.
(5)When do systematic, investigative and experimental activities involve “innovation or high levels of technical risk”?
(a)The word “innovation” as it appears in paragraph (a) of the definition of “research and development activities” in s 73B(1) of ITAA36, should be given its ordinary meaning i.e. something new be it a new method or process, a new thing, or new knowledge. It must have that element of “newness” if it is to be innovative.
(i)We do not agree with the statement at [9.55] in the Explanatory Memorandum that it is relevant to consider whether “the activities are likely to result in patentable or other protectable intellectual property.”
(b)Cases either decided before or dealing with the law before its amendment on 23 July 1996[24] are not relevant in deciding whether the ordinary meaning of “innovation” is qualified by the addition of s 73B(2B)(a) on that date i.e. by the requirement that “activities are not taken to involve innovation unless they involve an appreciable element of novelty”.
[24] Industry Research Board v Unisys Information Services Australia Ltd (1997) 77 FCR 552; 37 ATR 62; Industry Research Board v Coal & Allied Operations Pty Ltd [2000] FCA 979; (2000) 101 FCR 405; 44 ATR 541; Re Charles IFE Pty Ltd and Industry Research and Development Board [1995] AATA 224; (1995) 39 ALD 635; 95 ATC 2149; 32 ATR 1226; Re Fermenter and Distiller and Industry Research and Development Board [2000] AATA 888; (2000) 45 ATR 1122 and Re The Applicant and Industry Research and Development Board [1999] AATA 468; (1999) 55 ALD 784; 42 ATR 1116
(c)The expression “an appreciable element of novelty” should not be interpreted by reference to any similar concept in patents law.
(d)It should be interpreted according to its ordinary meaning and so require the following questions to be asked and answered after viewing the activities as a whole and in context:
(i)Do the activities claimed to be research and development activities have a feature(s) or compent(s) that is new (and so an element of novelty);
(ii)If so, is that element of novelty something that is significant in some way (appreciable)?
(6) Activities must involve high levels of technical risk
(a)The ordinary meaning of the expression “technical risk” is that there is a chance or possibility that the processes or means (be they classified as mechanical, electrical, scientific, technological or in some other way that can be described as “technical”) involved in the activities will fail to work, to play the part intended for them or to achieve an outcome intended for them.
(b) How failure is described and what amounts to failure will depend upon the particular technical discipline concerned. Whether there is a chance or possibility of failure depends upon evidence relevant to that discipline.
(i)Technical processes or means may themselves fail and yet, for reasons not necessarily foreseen, achieve their purpose. Achievement of the purpose for which the activities are carried out is not a relevant consideration in assessing technical risk.
(c)In order to establish “high levels of technical risk” there must be a significantly greater chance or possibility that the technical processes or means involved in the activities will fail than would normally be the case.
(i)What would normally be the case will be ascertained by reference to the industry or field of endeavour in which the activities are being conducted.
(ii)It will be a matter of evidence.
(iii)What will normally be the case, and so the level of risk, cannot be measured by reference to legal standards such as whether it is “more likely than not” that there will be technical failure.
(d)In determining the qualifications in s 73B(2B)(b):
(i)Whether the probability of obtaining the technical or scientific outcome of the activities cannot be known in advance on the basis of current knowledge or experience is an objective test i.e. it is not determined by reference to the knowledge or experience of those undertaking the activities.
(ii)Whether the uncertainty of obtaining that technical or scientific outcome can be removed only through a program as described in s 73B(2B)(ii) requires:
• a “program” and so a plan or schedule of “systematic, investigative and experimental activities”;
• “scientific method” must be applied in that program and so in a manner according to “an ordered set of procedures or an orderly system. …”[25] as it would be in science and “… displaying the kind of principled approach characteristic of science”. The reference to science does not limit the method to any particular activity for it extends to “… any area of knowledge obtained using, or arranged according to, formal principles. …” but must be based on principles of physical, biological, chemical, medical, engineering or computer sciences.
[25] Chambers
(iii)The program must be conducted in an orderly way beginning with an hypothesis i.e. “… 1 a statement or proposition assumed to be true for the sake of argument. 2 a statement or theory to be proved or disproved by reference to facts. 3 a provisional explanation of anything.”[26]
[26] Chambers
(iv)It is implicit that the hypothesis be framed so that it is relevant in, or directed to, removing the uncertainty of obtaining the technical or scientific outcome of the activities. That means that it is relevant in, or directed to, determining the probability of obtaining the technical or scientific outcome of the activities.
(v)There must be a “progression” of that work so that it can be said to be “… moving forwards or advancing in stages …” to “experiment, observation and evaluation”.
•the experiment, observation and evaluation must be directed to testing the hypothesis;
•what work amounts to experiment, observation and evaluation depends on the particular discipline in which it is being undertaken and is a matter for evidence.
•having done so, the work must move to drawing logical conclusions from the experimental, observational and evaluative work. Those logical conclusions must relate back to the hypothesis.
(7)“activities … carried on for the purpose of” acquiring new knowledge or improved materials etc”
(a)The purpose for which activities are carried on is the object or aim for which they were carried on at the time.
(i)It is not determined according to a rationale developed at a later time to explain why those activities were carried on.
(b)We do not need to decide in this case whether the purpose need be the sole purpose, a dominant purpose etc.
(c)The activities must be carried on for the purpose of:
(i)acquiring new knowledge in the sense of materials not previously known or discovered or creating materials not previously known or, in the case of materials, materials of a higher or better quality or value.
(8)“other activities that are carried on for a purpose directly related to the carrying on of activities of the kind referred to in paragraph (a)”of the definition of “research and development activities”
(a)The requirement that the activities be “of the kind referred to in paragraph (a)” must be a reference to the activities being “of the same sort” as those referred to in paragraph (a) of the definition of “research and development activities”.
(i)A taxpayer may seek a deduction in respect of other activities referred to in paragraph (b) of the definition and not of those referred to in paragraph (a). That might arise if, for example, the taxpayer were not carrying on the activities of the kind referred to in paragraph (a).
(b)The purpose for which the other activities are carried on need not be the sole, dominating or actuating purpose.
(c)Whether and activity is carried on for a purpose directly related to the carrying on of activities in paragraph (a) of the definition of “research and development activities”:
(i)depends on the evidence; and
(ii)it will be relevant to consider whether there are other factors that need come into play or steps that need to be taken before it can be said that one activity is carried on for a purpose related to another.
CONSIDERATION
In light of our analysis of the legislative provisions and case law, we have examined the activities which RACV Sales has described in the table at [7] above more carefully in order to determine the precise nature of each activity. We will commence with the SIE (systematic, investigative and experimental) activities as the DR (directly related) activities must be related to those SIE activities we find satisfy the legislative requirements for research and development activities.
Activity 3:Continual development of data interpretation and presentation techniques
While the heading describing the research and development activities refers only to the development of data interpretation and presentation techniques which simulate the real-world, the activity to which RACV Sales referred appears to also involve investigation undertaken to observe and research additional safety testing techniques. The additional safety testing techniques include using a deformable barrier incorporating an offset test, which simulates the collision of one vehicle with another, the impact being recorded on the driver's side of the front of the vehicle.
Mr Michael Colin Case, who is the Manager, Vehicle Engineering at RACV Sales, explained in his supplementary witness statement made on 16 August 2011 that what is required of ANCAP is to ensure its safety ratings correlate with real-world crashworthiness for given motor vehicles. He said that the following questions needed to be posed:
“(a) how well the test protocols and configurations simulate real-life crash scenarios, having regard to variables like common accident types in Australia and the Australian vehicle mix;
(b)do the test protocols and configurations produce undesirable results, such as prioritising structural integrity at the expense of aggressivity to other vehicles and pedestrians;
(c)is sufficient data recorded or should additional information be taken into account in assessing crash test performance, including by way of modification; and
(d)are there safety devices and features that the ANCAP rating should specifically give weight to that because they will reduce the risk of injury and fatalities in Australian road traffic accidents?”
Mr Case said that between 1999 and 2006 RACV Sales, through ANCAP, investigated all of these issues to establish whether there were compelling safety and technical reasons to either deviate from the harmonised testing protocols or to suggest improvements to those protocols. Harmonised testing protocols were introduced in 1999 so that ANCAP could use EuroNCAP ratings for imported vehicles which had identical specifications to the vehicles already tested by EuroNCAP. This would avoid duplication of effort and additional costs. In a June 1998 article entitled International NCAP Programs in Review, which was co-authored by Mr Case, the authors state that ANCAP recognised the global nature of the car manufacturing industry and developed a crash testing program to align with the existing overseas programs. The article states that in addition to a full frontal test, an offset test using a deformable barrier was added in 1994. This test was developed for the European Experimental Vehicle Committee (the EEVC) by the Transport Research Laboratory in the United Kingdom.
The article co-authored by Mr Case also refers to the presentation of results which has evolved by a process of continuous review, including focus group evaluations. At that time (1998), the presentation format used ratings of good, acceptable, marginal and poor. That format was considered to be the best available by organisations visited during an international ANCAP study tour.
In addition, the article refers to four areas of vehicle crashworthiness which were evaluated. They were vehicle structure, restraints, injury measurements and head restraint design. The authors also noted that the ANCAP rating based on data provided by overseas organisations might differ from the ratings assigned by these organisations. That appeared to be because the ANCAP rating included assessment of the results of full frontal crash tests and took into account passenger injury measures and restraint performance in these tests. ANCAP ratings tended to place less emphasis on footwell intrusion and lower leg injury and more emphasis on structural performance. The authors recognised the desirability of having the same rating system used by all organisations but stated that this would have several disadvantages for the Australian new car fleet.
In a witness statement dated 15 August 2011 Mr Michael Philip Paine, a mechanical engineer who has provided consulting services to ANCAP since 1996, said that ANCAP uses essentially the same test protocols as EuroNCAP and has sought to do so since harmonisation in 1999. Attached to Mr Paine's witness statement was a copy of ANCAP notes on the assessment protocol as at April 2011. Those notes state that ANCAP conducts crash tests and associated assessments in accordance with the test protocols issued by EuroNCAP. Mr Paine noted that ANCAP ceased conducting a full frontal crash test following harmonisation with EuroNCAP in 1999.
The protocols for crash testing and the scores allocated to individual tests may vary from the scores allocated by EuroNCAP. A star rating of five stars maximum is used by both ANCAP and EuroNCAP. As is set out in the ANCAP Notes issued in April 2011, where a star rating is limited by an individual score, ANCAP reduces the overall score to the maximum that is available for that star rating. However, for a vehicle to be awarded a five-star rating, it must meet the additional ANCAP requirements, being the earning of at least one point in a pole impact test and vehicles must be equipped with an electronic stability control (ESC) system that meets the requirements set out in the Notes. ANCAP also has a departure from EuroNCAP testing and assessment protocols for side impact protection for occupants of high seat vehicles as those vehicles are common in Australia but not in Europe. For all vehicles, including high seat vehicles, a successful pole test is required to achieve five stars. Where ANCAP uses crash test data from EuroNCAP, the pole test score will only be included in the overall score where a vehicle has achieved at least a four-star rating without a pole test.
In his supplementary witness statement Mr Case said that each vehicle tested by ANCAP follows the EuroNCAP test protocols for the configuration, speed and other aspects of the conduct of each test. Data such as acceleration, force and displacement are measured through sensors in various locations on a fully instrumented dummy (the EuroNCAP Euro SID II) which is captured by on-board data acquisition equipment. In his witness statement Mr Paine explained that data from the data acquisition unit is downloaded to a computer which has algorithms to process it and produce injury values such as Head Injury Criteria (HIC). The scoring and rating process assigns a score to the injury values for each body region. Further analysis is conducted of video information and in the case of the offset test, measurements of intrusion of the steering wheel, pedals and the cabin structure are taken into account. These may result in deductions from the injury scores. The scores are evaluated to give an overall star rating.
Mr Paine said that after considering all the data and measurements, as well as making a record of his own observations from the crash tests, he analysed the data in accordance with the Assessment Protocol and prepared a scoresheet with a provisional overall score and star rating. This scoresheet is then provided to the manufacturer of the vehicle and a public datasheet is prepared which becomes the ANCAP webpage for that vehicle. Mr Paine said that where he makes observations concerning a vehicle’s performance in a crash test that is outside the assessment protocol, he includes those observations in a detailed report provided to the car manufacturer. He gave the example where a fuel tank was damaged by the tail shaft in a crash test. He said that from time to time ANCAP reported such safety-related equipment failures to the relevant federal department for possible further investigation. He said that several vehicle recalls have resulted from this process.
Mr Paine also explained that ANCAP has sought to improve the format and presentation of its public datasheet to convey information to consumers as effectively as possible. Attached to his witness statement were a series of reports on different vehicles demonstrating the change in the format used for earlier public datasheets. The significant difference between the various datasheets is that the earlier publications of test results (1998–1999) give ratings indicating good, acceptable, marginal or poor while from 2000, the test data provides a star rating. Furthermore, the number of injury measurements taken has increased to include injuries to the neck, abdomen and pelvis.
In his witness statement Mr Paine said that the tests undertaken by ANCAP seek to simulate only four crash scenarios. Since the late 1980s, the Monash University Accident Research Centre (MUARC) has analysed crash statistics (real accidents) and produced estimates of risk of serious injury to drivers of most models of car in Australia. These are known as Used Car Safety Ratings (UCSR). Soon after ANCAP commenced crash tests, MUARC began analysing links between USCR and ANCAP ratings. Mr Paine said that he conducted informal analyses of USCR and the individual components of the ANCAP scoring system to check that an appropriate balance was given to the scoring process.
Mr Paine explained that the problem with ANCAP testing is that it seeks to simulate only four crash scenarios. In contrast, real-world vehicle crashes can take endless permutations, involving different vehicle numbers and types, impact areas, causes and consequences, such as rollover. However, subject to those limitations, Mr Paine said he compared the results of ANCAP tests with the outcome of real-world crashes and noted that the comparisons showed a reasonable correlation between ANCAP's crash testing and assessment results and real-world crash data. However, Mr Paine admitted there was a limit to the use to which ANCAP can put the information produced by MUARC, as the real-world crash data is, by its nature, retrospective, with a typical delay of about three years before the new model has had sufficient number of serious crashes to be statistically valid under the UCSR methodology. Furthermore, he said that ANCAP does not necessarily wait for real-world crash data to become available before setting its policy.
Innovation Australia contended that RACV Sales had not provided any contemporaneous records, including records of any experiments, which would enable the Tribunal to be satisfied that Activity 3 involved systematic, investigative and experimental activities. It contended that RACV Sales’ description of this particular activity was at such a high level of generality that it was not possible to identify what was actually done. That is to say, it was not possible to identify the activities undertaken. It referred to phrases used by RACV Sales such as development of interpretations which simulate the real world and further investigations… to observe and research additional safety techniques, offset testing, employed globally.
Professor Manfred Zockel, a highly qualified mechanical engineer with some 40 years’ experience in the areas of research, academia and industry, provided a witness statement dated 28 September 2011 which was taken into evidence. Professor Zockel said that in the course of his research career, he had undertaken a range of projects in which he proposed hypotheses, designed experiments to test those hypotheses and undertook those experiments. He retired as an Associate Professor and has held the title of Honorary Research Fellow in Mechanical Engineering at the University of Adelaide. In our opinion, Professor Zockel is well qualified to offer an opinion about experimental research.
Although Professor Zockel did not specifically address Activity 3, he made some general comments about the development of existing processes or protocols. Professor Zockel said that in his opinion, to demonstrate substantial development of existing processes or protocols, there should be test data from the application of a range of variables to show how the new or different test specifications and protocols have been developed. He said that in the material provided to him, he could not find any test data from which new or different test specifications and protocols were developed.
In the course of his cross-examination by Mr G McCarthy of counsel, who appeared on behalf of Innovation Australia, Mr Paine agreed there were three parts to the work conducted by ANCAP: the conducting of the tests; the recording, analysing and assessing of that data; and the presentation of the data to consumers. Mr Paine said that was the routine part of ANCAP's work. Mr Paine also agreed that the breaking down of the 14 activities was something which RACV Sales had done rather than the way in which those activities were viewed by ANCAP.
Mr McCarthy referred Mr Paine to an article which he co-authored entitled Crash Testing for Safety – Possible Enhancements to ANCAP Test and Rating Methods. The article, which is undated, appears to have been published in November 2008. In it the authors stated it became evident that the side impact test was not particularly demanding and most vehicles scored well in that test. It was also observed that this effect was, in some cases, disguising poor frontal offset test results. The authors stated that ANCAP had raised these concerns with EuroNCAP and suggested that a minimum score should be required for each type of crash test in order to earn a certain star rating, in addition to overall score criteria. Mr Paine agreed that this was a policy decision about how ANCAP would go about assigning certain star ratings according to the number of points that had been given, and to limit the ability of a vehicle to get a higher star rating than ought to have been given by doing well in the side impact test which was not worth much in any event. According to Mr Paine it was a policy decision to control the weighting given to scores achieved on the two tests. The article co-authored by Mr Paine also stated that ANCAP considered increasing the points for a good pole test to encourage manufacturers to fit head protecting airbags but ultimately decided to remain aligned with EuroNCAP.
Mr Paine also agreed that as part of the harmonisation with EuroNCAP, ANCAP adopted the same pedestrian protocols as those used by EuroNCAP. He also agreed that while ANCAP had a slightly different system for giving star ratings for the pedestrian test, it was nevertheless in accordance with the memorandum of understanding which gave rise to harmonisation.
In re-examination Mr Paine was asked to describe the non-routine part of ANCAP's work. He described the process as identifying vehicles which should be crash tested, the arranging of the crash tests, acquiring vehicles and organising the test laboratories. He said that after the tests were conducted and ANCAP received injury data and reports produced by the test laboratories regarding intrusion and any other observations about structural issues, an employee would look for what is described in the protocol as modifiers which would then be used to deduct points from the scores to reflect injury hazards which were not picked up in the dummy measurements. Mr Paine was then asked whether he would describe the information in the knowledge that has come from that as new he said: that's – those steps are all, as I say, fairly routine and straightforward. I’ve developed forms to try and make them as objective and quantitative as possible.
In cross-examination Mr Case agreed with Mr McCarthy's suggestion that the giving of star ratings, the scoring and the data collection techniques are consistent with those used by EuroNCAP. Any deviations from what Euro NCAP does is reflected in the protocol.
While we have no doubt that the way data collected from crash testing is interpreted and presented is significant in producing useful results from crash testing, it appears to us that the process is deductive rather than innovative. It is a process of determining from the data how to best present the information so that it accurately reflects the risk of injury to the occupants of a motor vehicle involved in a crash or a pedestrian who might be struck by a motor vehicle. Although the presentation of the data between 1998 and 2006 has varied in content and in form, we are unable to detect evidence of innovation. There is no new method or process, a new thing or new knowledge.
Essentially, points are awarded according to the values of a number of measurements taken both from the dummy representing a vehicle occupant, and the deformation of the vehicle; the points being weighted to reflect the risk of serious injury and a star rating assigned to the weighted points. There was no evidence of any test data or testing of the process of data interpretation or presentation techniques as one might expect if the process were innovative.
In our opinion, Mr Paine expressed it accurately when he referred to the process of recording, analysing and assessing the data and the presentation of the data to consumers as routine. Furthermore, since the adoption of EuroNCAP Protocols following harmonisation, data interpretation and presentation appears to have been largely standardised with ANCAP following the established protocols. We find that this activity does not satisfy the definition of research and development activities as defined in s 73B(1) of ITAA36 because it does not involve innovation or high levels of technical risk. It does not involve something new or new knowledge. Nor does it involve an appreciable element of novelty. There is no technical risk as the activity involving data interpretation and presentation must, even if not an accurate account of real-life accident outcomes, necessarily produce the outcome intended.
Activity 5:Development of low speed crash
On its application form for registration for the income years 2000, 2001 and 2002, RACV Sales stated it was involved in the development of low speed crash testing. RACV Sales stated that crash test procedures involved a unique weighted pendulum device colliding with the front of the car. The weight impacted with the front driver's side, resulting in a crash equivalent to a barrier impact at 15 km/h.
In his witness statement dated 27 June 2011 Mr Case stated that this test was developed by IAG on behalf of RACV Sales and others. He said that the low speed test was not simply a test for safety but also for assessing the reparability of vehicles and as a consequence had an impact for consumers on costs and other factors such as insurance premiums.
According to Mr Case, the unique pendulum suspension system was developed by IAG. The system suspends the impact barrier, which is mounted on a large bucket, from four suspension points in a parallelogram configuration. This enables the impact barrier to be accurately swung in front of the test vehicle. He said that this system differs from those used overseas.
In his witness statement dated 23 September 2011, Mr Anthony Hyde, a former Director of Engineering and Design with GM Holden, referred to the pendulum test and said it was a common vehicle crash test which was in use in Australia and other parts of the world well prior to the early 1990s. He said the pendulum was used to simulate impact forces generated by a vehicle involved in a low speed collision. Vehicle manufacturers used the pendulum system to test bumper systems and, more recently, to verify airbag deployment calibrations because it could be accurately repeated and controlled in terms of speed, size and point of impact. One of the main users of the pendulum test is the insurance industry because insurers want to know results of low speed crash testing to assess the costs of repair of low impact crashes in order to set their insurance premiums. Mr Hyde exhibited to his witness statement an article from the Sydney Morning Herald, Latest low-speed crash tests favour large cars, dated 4 March 1999, in which it is stated that the 15 km/h pendulum tests were in their ninth year.
In cross-examination Mr Case was referred to the article in the Sydney Morning Herald and asked if he disagreed with what Mr Hyde had said about it. Mr Case said that he was concerned with the timing of the development of the test as he was not certain when it was developed. He said that he did not wish to commit to stating the time or date when the test was developed because he didn't have that knowledge. However, Mr Case said he did not dispute what was stated in the newspaper article.
The evidence before us at the hearing of this matter points to the fact that the low speed crash tests were developed by IAG well before the 1999 income year which is the first year in question in this matter. There was no evidence at all before us about any further test development conducted by IAG or by RACV Sales. The examples of crash testing results produced by RACV Sales between 1999 and 2006 make no mention whatsoever of the low speed crash test. This is despite the fact that Mr Case said in his witness statement that the low speed crash test system is tested and simulated on an ongoing basis on different vehicles to ensure that the hypothesis remains correct.
On the evidence before us on hearing this matter, we find that there was no activity which could properly be described as the development of low speed crash testing during the years in question. It was not a research and development activity conducted by or on behalf of RACV Sales between 1999 and 2006.
Activity 6:Continual development of side impact crash testing
This test is usually described as the mobile deformable barrier side impact crash test. In his witness statement dated 15 August 2011 Mr Paine said that ANCAP continually investigates and researches all aspects of crash testing. This general description does not identify the activities undertaken by RACV Sales.
In a paper prepared by Mr Paine which is dated 28 March 2004, he analysed the Potential Use of the Pole Test for Assessing Side Impact Performance. By way of background, Mr Paine said that ANCAP was looking at the introduction of the pole impact crash test, as that test was described in the EuroNCAP test protocol (Version 4.0), to replace the current EuroNCAP side impact test. He said nearly all vehicles scored well in the current side impact test and there appeared to be limited opportunity to spread the field with this type of test.
Mr Paine described the mobile barrier side impact test. He said that a 950 kg trolley with a crushable aluminium barrier is propelled into the side of the test vehicle at 50 km/h. A Euro SID II dummy, representing an average size adult male, is located in the driver’s seat for this test and the risk of head, chest, abdomen and pelvic injury is determined from dummy sensors. Mr Paine explained that this test was based on a test conducted for the purposes of satisfying Australian Design Rule (ADR) 72, although the ADR was introduced after ANCAP commenced using this test. He said EuroNCAP started using this test in 1996. ANCAP commenced using the test in 1999 when it aligned its test protocols with those of EuroNCAP.
In cross-examination Mr Paine confirmed that EuroNCAP commenced using the side impact test in 1996 and that prior to harmonisation, ANCAP did not use the test. In fact, in order to bring about harmonisation with EuroNCAP, Mr Paine agreed that ANCAP ceased conducting its full frontal test and adopted the mobile barrier side impact test. Mr Paine also agreed that the test has remained the same, subject to variations in the protocol, since ANCAP commenced using it. Mr Paine said that the side impact test was the same test manufacturers were required to perform in order to obtain a compliance plate by complying with ADR 72.
The ANCAP Notes on the Assessment Protocol as at April 2011, which was an exhibit to Mr Paine's witness statement, states that ADR 72 was not applicable to high-seat vehicles. It stated that in 2004 ANCAP identified that there was little value to consumers in continuing to conduct the side impact test on high-seat vehicles in Australia and decided to award all high-seat vehicles a default score of 16 points for that test. Mr Paine confirmed that the ADR exempts vehicles with the seat height of 700 mm or greater from the regulation. Mr Paine also confirmed that in about 2004 when EuroNCAP introduced the Euro SID II dummy, in accordance with harmonisation, ANCAP also switched to that dummy. Mr Paine was then asked whether, except for the 16 point default score and the fact that the side impact test was not applied to vehicles with a seat-height exceeding 700 mm, any other change occurred with respect to the mobile impact test from 1999 until 2006. His response was: no significant changes, no. Minor things like how the head restraints are adjusted and things like that. But only very minor stuff.
In his witness statement dated 27 June 2011 Mr Case said that as part of considering crash test results from overseas and simulations in Australia, a review is made of real-world accident data from Australia to evaluate interpretations from crash testing and to ensure interpretations are made which simulate actual crash situations. He said it was discovered that by simply adopting the EuroNCAP mobile deformable barrier testing procedures, crash testing did not replicate real-world events and yielded higher safety observations than real-life empirical data.
Mr Case referred to an article entitled: Crash testing for safety-possible enhancements to ANCAP test and rating methods which was co-authored by Mr Paine. The introduction to the paper states that it was prepared for discussion purposes and should not be regarded as a policy statement. The paper refers to the fact that it became evident that the side impact test was not particularly demanding and most vehicles scored well in that test. Mr Case also described the problems experienced by ANCAP when performing the side impact test on vehicles with an elevated seat-height. He said the existing testing techniques were unsatisfactory for such vehicles as the impact boom from the side impact trolley had a prevalence to push underneath the sill panels, contacting the chassis rails and tipping the vehicle. This led to inconsistent data. A low barrier test was considered not appropriate for four-wheel-drive vehicles. According to Mr Case, this led to the development of side impact testing including the development of a new pole crash test.
In cross-examination Mr Case was referred to a statement he made in his witness statement after he explained the problems with the side impact test. Mr Case said: as a consequence, ANCAP has been developing side impact testing, including for four-wheel drives. He agreed that that was a reference to the pole test program.
Mr Case annexed to his supplementary witness statement dated 16 August 2011 a paper entitled: ANCAP Future Technical Directions, authored by Mr Christopher Coxon. The paper is not dated. It appears to have been written in about 2003. In his paper, Mr Coxon referred to a proposed speed increase for the side impact test. He also stated that EuroNCAP had made upgrades to use the Euro SID II dummy at the end of 2002 as well as changing the deformable face of the barrier to a progressive deformation construction. Mr Coxon then said that ANCAP would incorporate those changes in its side impact test during 2003.
In his witness statement Professor Zockel said that in the documents provided to him he had not found any records of investigations undertaken to determine options for modifying the side impact crash test. He also said he had not seen any records of experimental activities.
As Innovation Australia submitted, there was no evidence that RACV Sales undertook any developmental work regarding the side impact crash test. The adjective developmental means of or pertaining to development; evolutionary.The word development is defined in The Shorter Oxford English Dictionary as: a gradual unfolding; a full working out the details of anything. In our opinion, the most that can be said of the work done is that RACV Sales identified shortcomings when the side impact crash test was performed on vehicles with a seat height exceeding 700 mm. Those shortcomings were discovered in the course of its ordinary testing program. It was not the result of any innovative research conducted by RACV Sales for the purpose of developing the side impact crash test.
While we have no doubt that the shortcomings identified in using the side impact crash test led RACV Sales to substituting the pole test for the side impact crash test, we are unable to discern, from the evidence before us, any activity of a research and developmental nature, or of any kind at all which can be described as a development of the side impact crash test. We therefore find that the activity described by RACV Sales as continual development of side impact crash testing does not satisfy the definition of research and development activities for the purposes of
s 73B(1) of ITAA 1936.
Activity 7Development of a pole crash test
The evidence regarding development of a pole crash test was contradictory. In his witness statement dated 27 June 2011 Mr Case said that RACV Sales identified the need for a pole crash test because the side impact test did not replicate real-world injury outcomes when conducted on four-wheel drive vehicles. He said the hypothesis adopted by ANCAP was that head-protecting side impact airbags would generate positive safety outcomes. This statement does not sit well with what is stated in a paper co-authored by Mr Paine entitled: Consumer crash tests: the elusive best practice. This paper was presented at a symposium in December 1999. The paper states that there is a provision in the EuroNCAP protocol for a side impact pole test to be conducted at the manufacturer’s expense. It was said to apply where a maximum head score is achieved in the side impact barrier test and a head protecting side airbag was provided. The pole test was said to earn the vehicle an additional two points and, if the total score exceeded 32 points, a fifth star.
In a paper prepared by Mr Paine in March 2004 entitled: Potential Use of Pole Test for Assessing Side Impact Performance, he stated that ANCAP was looking at the introduction of the pole impact crash test as described in the EuroNCAP test protocol to replace the current EuroNCAP side impact test. He referred to the fact that some new cars at that time had a new head protection device, like a curtain airbag. Therefore, pole impact and other tests should be introduced to evaluate these kinds of devices and head injury risk. Mr Paine also explained that the pole test vehicle travelled sideways at 29 km/h and impacted a fixed pole of 300 mm diameter which was lined up with the driver's head. He said that the same injury measurements as those for the side impact test are required to be recorded although only the head injury measurements are reported and taken into account in the assessment. Mr Paine then said that ANCAP wished to determine the likely effect of scoring the pole test in the same way as the side impact test.
Mr Case said in his witness statement that ANCAP needed to develop a process, hardware and rig to meet the features of the Australian fleet, which involved smaller lighter vehicles on average, with different safety features to those found in the United States of America. He then said that the pole crash test developed by ANCAP broadly followed the EuroNCAP protocols and involved propelling the vehicle sideways at 29 km/h into a narrow rigid pole. He said that the hardware and rig to incorporate standard pole testing of this type to four-wheel drive vehicles did not exist in Australia and had to be developed by ANCAP. Mr Case referred to answers given to questions posed by Innovation Australia regarding the development of a pole crash test where it was said that the hardware and test rig currently did not exist and that RACV Sales would be developing this testing method and equipment. He also said that a three stage process of analysing the effectiveness of the rig and hardware and to trial the testing methodology was developed.
In a discussion paper prepared by Mr Paine which is dated 19 January 2001, he explained the EuroNCAP optional pole test. He said that at that time about eight pole impact tests had been conducted in Europe. No pole impact tests had been conducted in Australia. He also explained that although a fully instrumented Euro-SID I dummy was used in the pole test, only the head acceleration was currently used in the assessment. He said the relevance of the other injury measurements needed to be assessed. Mr Paine also said: no pole tests have been conducted in Australia, although Crashlab has the capability to conduct such tests. Crashlab is one of the crash testing laboratories utilised by ANCAP.
In another paper co-authored by Mr Paine which is undated but appears to have been written in about 2001, the authors state that no vehicle tested by Australian NCAP has been eligible for the pole test. The authors state that pole tests were conducted according to the EuroNCAP protocol in Europe. They also state that head, chest and abdomen and pelvis injury measurements are recorded on the driver dummy.
In cross-examination Mr McCarthy put to Mr Case that when he talked about the pole crash test developed by ANCAP, he didn't mean the test itself, because that was already in place, but rather about a program to find out how effective that would be on four-wheel drive vehicles. Mr Case responded: not the test itself, or its protocol, but about its application. Mr Case confirmed that what RACV Sales was looking into was how useful that test might be on four-wheel drive vehicles. He also confirmed that while RACV Sales considered adopting a scoring system which differed from EuroNCAP, that did not occur because the protocol remained the same. When it was put to Mr Case that exploring the possibility of analysing and validating appropriate test protocols was something which was common with all tests in order to determine whether they were providing useful information, he agreed.
In cross-examination, Mr Paine confirmed that the pole test was first done by EuroNCAP 1999. ANCAP did its first pole test in 2003. He also confirmed that EuroNCAP was concerned that the side impact test did not really challenge the protection system for head injury and that concern was universal. Mr Paine also agreed that ANCAP, as result of the memorandum of understanding which led to harmonisation, needed to adopt the pole test where Australian vehicles were fitted with side protecting airbags. He agreed that the test itself, in terms of what the test actually is, remained constant at all times.
Despite what Mr Paine said in the paper he wrote in 2001 where he referred to Crashlab having the capability to conduct the pole test, in cross-examination he agreed that ANCAP did not have the facilities to do a pole test in the early 2000s. He did however agree that in due course facilities did become available. He said that when the first test was conducted for ANCAP in Japan, an engineer from a local test organisation went with him to look at the way in which that test was conducted and that was part of the process of developing a trolley on which the motor vehicle was placed to enable it to be propelled into the fixed pole. Mr Paine also confirmed that ANCAP was anxious to make sure that its test was conducted with sufficient precision and quality control so that it complied with the protocol.
Given the prevalence in Australia of four-wheel drive vehicles with a seat height exceeding 700 mm, Mr Paine said it occurred to him that using the pole test might be a good way to record information not simply about head injuries, but injuries which occurred to other parts of the body in such accidents. This is what prompted him to produce a discussion paper in 2001. Although in his discussion paper Mr Paine suggested that the pole test could be substituted for the side impact test, he agreed that this suggestion did not proceed although ANCAP decided to make it a requirement that vehicles needed to score at least one point on the pole test for a five-star rating. That decision was made in about 2004.
In re-examination Ms Baker asked Mr Paine to describe the non-routine part of ANCAP’s work. Mr Paine said the non-routine work included:
(a) identifying vehicles that should be crash tested or results that should be republished from EuroNCAP, in other words, keeping an eye on the Australian car market;
(b) coming up with a short list of vehicles that should be considered for crash testing;
(c) arranging crash tests, acquiring vehicles and organising the test labs;
(d) attending the Crashlab immediately before a test to make sure that everything was in accordance with the protocol and that there were no problems;
(e) obtaining injury data and test lab reports of intrusion data and other observations looking for modifiers (reasons to deduct points from scores from injury scores to reflect injury hazards not picked up in the dummy measurements);
(f) quality testing to make sure labs have followed protocols; and
(g) exchanging information with other NCAPs.
Ms Baker asked Mr Paine whether any of the information or knowledge that came from the testing was new. His answer was that all of the steps were fairly routine and straightforward as he had developed forms to try and make them as objective and quantitative as possible.
The description used by RACV Sales regarding this activity is, in our opinion, misleading. There was no evidence before us whatsoever of any developmental activity undertaken regarding the pole crash test itself. For example, there was no evidence of the testing of various sizes of poles or speeds at which the trolley carrying the motor vehicle was directed at the pole. Nor was there any evidence of testing various positions at which the motor vehicle would strike the pole, other than ensuring that it was in line with the head of the driver of the vehicle. In fact, in cross-examination, Mr Case admitted as much stating that the development was not of the crash test itself or the protocols but rather the application of the test. By that statement, we understood Mr Case to be stating that RACV Sales simply applied the test to a variety of vehicles. While we have no doubt that the initial testing conducted by RACV Sales on four-wheel drive vehicles of the kind commonly used in Australia would have commenced with some degree of uncertainty about the validity or usefulness of test results, the process of conducting those tests was not novel nor was it new. The EuroNCAP protocols for conducting those tests were established and followed by ANCAP.
Although Mr Case referred to the development of the hardware and test rig, in cross-examination he made it clear that RACV Sales was not involved in the development of the hardware or the rig. In fact, he agreed that what RACV Sales did was to simply develop programs for the testing of vehicles using established hardware and protocols. In his 2001 discussion paper, Mr Paine stated that the capability to conduct a pole crash test already existed in Australia. There was no evidence before us at all that RACV Sales modified or adapted that test either prior to or after commencing its testing of four-wheel drive vehicles. All that occurred was an existing test process was applied to a different style of motor vehicle and the results obtained from that testing were compared with real-world data in order to evaluate the usefulness of the results. There is nothing in this activity which can be described as innovative or involving high levels of technical risk. Activity 7 does not have any feature which is new. There is no chance that the process involved in this activity will fail to work or achieve an outcome which was unintended. The measurements taken from the testing are what they are. We therefore find that this activity does not satisfy the definition of research and development activities set out in ITAA 1936.
It must, though, be a purpose “directly related to” the carrying on of activities of the kind referred to in paragraph (a) of the definition of “research and development activities”. As Lindgren J said in Coal & Allied:
“… One activity can be carried on ‘for a purpose directly related to’ the carrying on of another activity even though that other activity is completed by the time the activity in question begins.”[158]
[158] [2000] FCA 979; (2000) 101 FCR 405; 44 ATR 541 at [106]; 431; 564
Whether one activity is “directly related to” another suggests that relationship between the two is immediate but the words are dependent upon their context. When considering whether mesh screens opened “directly to the outside” Basten JA said:
“… In ordinary usage, the word ‘directly’ is to be contrasted with ‘indirectly’. It may well have different connotations in different contexts: compare the Constitution, ss 7 and 24 requiring that members of Parliament be ‘directly chosen by the people’; Insurance Commission (WA) v Container Handlers Pty Ltd (2004) 218 CLR 89, discussing ‘injury ... directly caused by, or by the driving of, the vehicle’. In relation to an opening in a wall, the term suggests a lack of space between the place in question and ‘the outside’. The context does not permit a precise meaning for the phrase taken as a whole. Clause 6, in common with s 23 of the Act, appears to distinguish between ‘an enclosed public place’ and ‘a covered outside area’: cl 6(1). In relation to a public place within a building, it may be, as the magistrate appears to have assumed, that ‘the outside’ means outside the building. Even if the outside is beyond the limits of a building, there may well be, as the magistrate explained, practical considerations, such as those created by an opening onto a verandah or an area under eaves.”[159]
[159] Blacktown Workers’ Club Ltd v O’Shannessy [2011] NSWCA 265; (2011) 183 LGERA 184; Basten JA, Handley and Sackville AJJA at [52]; 197 per Basten JA
Like an opening in a wall, whether an activity is directly related to another will be a matter to be decided in a particular case. It will be relevant to consider whether there are other factors that need come into play or steps that need to be taken before it can be said that one activity is carried on for a purpose related to another. If there is such a need, it may be one is not directly related to the other.
The requirement that the activities be “of the kind referred to in paragraph (a)” must be a reference to the activities being “of the same sort”[160] as those referred to in paragraph (a). That means that there will need to be an analysis of the activities to which they are said to be directly related. That analysis may have already been undertaken because a taxpayer may seek a deduction in respect of activities claimed to come within both paragraphs of the definition of “research and development activities” as understood by reference to s 73B(2B). It may not have been undertaken if a taxpayer claimed a deduction only on the basis of activities said to come only within paragraph (b) of the definition of “research and development activities”. That might arise if, for example, the taxpayer were not carrying on the activities of the kind referred to in paragraph (a).
[160] Chambers
PRIVATE HEARING
Section 39T(1) of the IRD Act provides that an application may be made to the Tribunal for review of certain decisions made by the Board. There is no question that the decision of which RACV Sales seeks review is such a decision. Section 39T(4) provides:
“The hearing of a proceeding relating to a decision covered by subsection (1) must take place in private and the Administrative Appeals Tribunal may, by order:
(1)give directions as to the persons who may be present; and
(b)give directions of a kind referred to in paragraph 35(2)(b) or (c) of the Administrative Appeals Tribunal Act 1975.”
In the absence of an order under s 35 of the AAT Act, we do not consider that this section either justifies or permits an applicant to be identified by a pseudonym. We will explain why we hold that view.
What is a “private hearing”?
The word themselves suggest that a private hearing is a hearing that is “not open to … the general public. …”.[161] As Lockhart J described it in National Companies and Securities Commission v Bankers Trust Australia Ltd:[162]
“… The essence of a private hearing before the Commission is that what takes place is in private and, therefore, by definition and of necessity not open or accessible to the public.”[163]
[161] Chambers
[162] [1989] FCA 530; (1989) 24 FCR 217; 91 ALR 321; Lockhart, Beaumont and Einfeld JJ
[163] [1989] FCA 530; (1989) 24 FCR 217; 91 ALR 321 at 221; 325
What restrictions are consequent upon a private hearing?
The mere fact that a hearing is not open to the public does not automatically lead to the conclusion that what is said and done at that hearing cannot be spoken of publicly. This was addressed by the House of Lords in Scott v Scott.[164] That was a case in which the majority of the House of Lords decided that the Judge at first instance had not had jurisdiction to order that a nullity suit in the matrimonial causes jurisdiction be heard “in camera” and so in his chambers (room or office) at the court. Therefore, neither Mrs Scott nor her solicitor had been in contempt of court when they sent copies of the transcript of the proceedings to certain persons in order to defend her reputation.
[164] [1913] AC 417; [1911-1913] All ER 1
Despite that conclusion, their Lordships went on to consider when a matter should be heard in private and whether what transpired in private could be made known. In this case, the former issue is not relevant for it has been determined by Parliament that the hearing will take place in private. The latter issue is relevant. In summary, their views were:
Viscount Haldane LC
“… While the broad principle is that the Courts of this country must, as between parties, administer justice in public, this principle is subject to apparent exceptions … As the paramount object must always be to do justice, the general rule as to publicity, after all only the means to an end, must accordingly yield. But the burden lies on those seeking to displace its application in the particular case to make out that the ordinary rule must as of necessity be superseded by this paramount consideration. The question is by no means one which, consistently with the spirit of our jurisprudence, can be dealt with by the judge as resting in his mere discretion as to what is expedient. The latter must treat it as one of principle, and as turning, not on convenience, but on necessity.”[165]
[165] [1913] AC 417; [1911-1913] All ER 1 at 437-438; 9
Earl of Halsbury
The Earl of Halsbury agreed generally with Viscount Haldane but added that “… as to the injunction of perpetual secrecy, there is not a judgment of authority to justify it. …”[166]
[166] [1913] AC 417; [1911-1913] All ER 1 at 442 and 443; 12
Earl Loreburn
Lord Loreburn decided that s 46 of the Matrimonial Causes Act 1857 permitted the trial judge to order a private hearing. It permitted rules to be made regulating hearings otherwise than in open court but no such rules had been made. As they had not “… the Divorce Court is bound by the general rule of publicity applicable to the High Court and subject to the same exception. …”[167]
Lord Atkinson
The order made by the trial Judge meant:
“… what on its face it plainly says, and nothing more, namely, this, that the place where the case is to be heard shall be a private chamber, not a public Court. … The order was, I think, spent when the case terminated, and had no further operation beyond that date. …”[168]
[167] [1913] AC 417; [1911-1913] All ER 1 at 447; 14
[168] [1913] AC 417; [1911-1913] All ER 1 at 453; 17
Lord Shaw
“ I am of the opinion that the order to hear this case in chambers was beyond the power of the judge to pronounce. I am further of the opinion that, even on the assumption that such an order had been within his power, it was beyond his power to impose a suppression of all reports and what passed at the trial after the trial had come to an end. …”[169]
[169] [1913] AC 417; [1911-1913] All ER 1 at 476; 29
Scott v Scott has been considered in a number of cases in Australia. In Attorney-General (NSW) v Mayas Pty Ltd,[170] Mahoney JA summarised:
“ There are two basic principles affecting proceedings in courts. Stated broadly they are: that the hearing of proceedings in a court — and, I think, of criminal proceedings in particular — should be open to the public; and that what takes place in those proceedings may be the subject of a fair and accurate report and of appropriate discussion. These two principles, while they are related, are distinct, in their operation and their rationale.
These principles are, of course, not absolute. They are subject to qualifications. In particular, they are subject to, as I shall describe it, the Scott qualification … Over-simplified, the Scott qualification authorises the court to depart from these principles if it is necessary to do so in order that justice be done in accordance with law.
The Scott qualification, that is, the considerations on which it is based, can authorise both in camera and non-publication orders. Proceedings may be ordered to be held in private and some or all of the public excluded: this is what was in issue in the McPherson case. And it may prevent the publication of what took place: this was what was in issue in the Scott case. A nonpublication
order may be made for the purpose of making effective the exclusion of the public: this was what was discussed, for example, by Earl Loreburn in the Scott case. But it may also be made for other reasons. Thus, where proceedings are not held in camera, a non-publication order may be made to protect an informer …Non-publication may, I think, be ordered in blackmail cases:... Non-publication orders may, in my opinion, be made where necessary in the interests of national security. …
As I have indicated, sometimes the making of a non-publication order is justified because otherwise an in camera order would be ineffective and the purposes for which it was made would not be achieved. It is, I think, obvious that in some cases this may be so. The extent of the restrictions imposed by an in camera order, as such, is not free from doubt. It might be thought that, at least in some cases, the reason why an in camera order can validly be made should lead the court to conclude that, by implication, the in camera order also restricts publication. But in England it has been said that an in camera order does not, as such, restrict the subsequent publication of what has taken place in the court: see the Scott case (at 483) and Halsbury’s Laws of England, 4th ed, vol 9, par 20(10) at 17. If this be so, then it would follow that in some but not all cases in which it is appropriate that an in camera order be made, the considerations which made the in camera order appropriate would justify the making of a non-publication order: see, eg, the Scott case (at 447, 451).”[171]
[170] (1988) 14 NSWLR 342; Hope, Mahoney and McHugh JJA
[171] (1988) 14 NSWLR 342 at 345-346
These principles were considered by the Full Court of the Federal Court in National Companies and Securities Commission v Bankers Trust Australia Ltd. Although Lockhart J dissented regarding the terms of the order that had been made, the Full Court agreed that s 36(2) of the National Companies and Securities Commission Act 1979 conferred, by necessary implication in its context, power upon the Commission to take all reasonable steps, at least during the hearing itself, that were necessary to ensure that the hearing was conducted privately.[172]
[172] Section 36(1) provided that the Commission might hold hearings for the purpose of performing its functions. Section 36(2) provided that it might direct that the hearing take place in public or in private. Where a private hearing was held, s 36(5) permitted the Commission to direct those who might be present at the hearing. Where a public hearing was held, s 36(6) permitted the Commission to direct that part might take place in private, direct those who might be present and prevent or restrict the publication of the evidence.
In England, the issues have also been considered. In Hodgson v Imperial Tobacco Ltd,[173] Lord Woolf took the view that, even when there is a private hearing, the public continues to have the right to know and observe what happens in that private hearing and arrangements need to be made to accommodate that right.
[173] [1998] EWCA Civ 224; [1998] 2 All ER 673 at 686
The principles as they apply to a statutory tribunal
These are but a handful of the authorities that consider the issue but they set out the fundamental principles. They are that:
(1)a private hearing, whether required by legislation or ordered by a court or tribunal with appropriate power:
(a)limits those who may attend the hearing;
(b)does not of itself impose any restrictions on the publication of the evidence given at, or material or information relating to that private hearing;
(2)a particular enactment may:
(a)specify the consequences of a private hearing;[174] and/or
[174] The IRD Act does not provide for any consequences but an enactment such as the Taxation Administration Act 1953 (TA Act) does. Section 14ZZE provides that:(b)confer power, either expressly or implicitly, on the court or tribunal to make orders specifying the consequences;[175]
(3)a tribunal such as the Administrative Appeals Tribunal, whose power is conferred by statute:
(a)has no power to impose any restrictions on publication unless:
(i)the power to do so has been expressly, or by necessary implication, conferred upon it; and
(ii)it has exercised that power within the bounds upon which it has been conferred;
(4)the matters relevant to Parliament’s deciding that proceedings should be conducted in private in a court or tribunal’s ordering that they be conducted in private may not equate precisely or at all with the matters that are relevant to whether an order should be made restricting publication of those proceedings.[176]
[175] The IRD Act does so expressly but an Act such as the TA Act does so implicitly for there is no specific reference to the Tribunal’s powers under s 35 of the AAT Act. Justice Emmett took this view in[176] It is clear from the passage from Lord Loreburn’s speech in Scott v Scott that there are many reasons for a private hearing but not all of them would justify a non-publication order:
Section 39T of the IRD Act
In drafting s 39T(4) of the IRD Act, the Parliamentary draftsman appears to have been guided by these principles. After stating that the hearing must be in private, the provision goes on:
“… the Administrative Appeals Tribunal may, by order:
(a)give directions as to the persons who may be present; and
(b)give directions of a kind referred to in paragraph 35(2)(b) or (c) of the Administrative Appeals Tribunal Act 1975.”
Section 39T(4)(a) is self-explanatory but ss 35(2)(b) and (c) of the AAT Act to which s 39T(4)(b) refers, are not. They provide:
“Where the Tribunal is satisfied that it is desirable to do so by reason of the confidential nature of any evidence or matter or for any other reason, the Tribunal may, by order:
(a) …
(b)give directions prohibiting or restricting the publication of evidence given before the Tribunal, whether in public or in private, or of matters contained in documents lodged with the Tribunal or received in evidence by the Tribunal; and
(c)give directions prohibiting or restricting the disclosure to some or all of the parties to a proceeding of evidence given before the Tribunal, or of the contents of a document lodged with the Tribunal or received in evidence by the Tribunal, in relation to the proceeding.”
No reference is made to directions that the Tribunal might give under ss 35(2)(a) and (aa) for they refer to whether the hearing, or part of it, shall be in private and those who may be present as well as to restricting or prohibiting the publication of the names and addresses of witnesses. The matters dealt with in s 35(2)(a) are already the subject of s 39T(4). Arguably, the power to restrict or prohibit the publication of the the names and addresses of the witnesses is encompassed within the power to prohibit or restrict the publication of evidence for those details will themselves be a matter of evidence whether given in written or verbal form.
When the Tribunal makes directions of the sort provided for in ss 35(2)(b) or (c), it must do so having regard to the matters set out in s 35(3) of the AAT Act.[177] It does not follow that those matters are relevant in considering whether to make an order when considering an application for review of a decision under the IRD Act. It does not follow because in proceedings relating to the review of a decision under the IRD Act, ss 35(2)(b) and (c) of the AAT Act do not confer power on the Tribunal to make the orders. The power is conferred by s 39T(4)(b) of the IRD Act. That provision is very specific in providing that the Tribunal may give directions “of a kind referred to in paragraph 35(2)(b) or (c) …” (emphasis added) of the AAT Act. That is a power to make directions “of the same sort”[178] as those made under ss 35(2)(b) or (c) but not a power to make them under those provisions.
[177] “… the Tribunal shall take as the basis of its consideration the principle that it is desirable that hearings of proceedings before the Tribunal shall be held in public and that evidence given before the Tribunal and the contents of documents lodged with the Tribunal or received in evidence by the Tribunal should be made available to the public and to all the parties, but shall pay due regard to any reasons given to the Tribunal why the hearing should be held in private or why publication or disclosure of the evidence or the matter contained in the document should be prohibited or restricted.”
[178] See [234] above
That is not to say that some of the matters of the kind referred to in s 35(3) of the AAT Act are not relevant even though the section itself is not relevant. The matters are not relevant in so far as they refer to its being desirable that hearings of proceedings in the Tribunal shall be held in public. Parliament has already decided that hearings of proceedings relating to the review of decisions made under the IRD Act are to be held in private.
It is clear from Scott v Scott that the remaining matters referred to in s 35(3) are among those that continue to be relevant. They are that:
“The Tribunal shall take as the basis of its consideration the principle that it is desirable … that evidence given before the Tribunal and the contents of the documents lodged with the Tribunal or received in evidence by the Tribunal should be made available to the public and to all parties, but shall pay due regard to any reasons given to the Tribunal why the hearing should be held in private or why publication or disclosure of the evidence or the matter contained in the document should be prohibited or restricted.”
These matters would be moulded by considerations arising from the nature of the evidence and material in a particular case and a more detailed consideration of the IRD Act. We do not need to engage in that as RACV Sales has not asked that an order be made protecting its identity. It should be identified by its name.
I certify that the preceding two hundred and forty nine paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie and Senior Member E Fice.
Signed: ....................................................................
Leah Berardi Associate
Dates of Hearing 12, 13, 14 and 15 December 2012
Date of Decision 26 June 2012
Counsel for the Applicant Ms Melanie Baker
Solicitor for the Applicant Ms Joanne Dunne
Minter Ellison
Counsel for the Respondent Mr Geoffrey McCarthy
Solicitor for the Respondent Ms Rebekha Pattison
Mallesons Stephen Jaques
“Based on the information available the activities undertaken in the project, ‘RSM1 – Understanding the Results of Crash Testing and the Impact of Automotive Structural Design and Safety’, carried out in the 1998-99 to 2005-06 years of income were not systematic, investigative and experimental.” (ST Documents at 1493)
“26. … I accept that the process in which PCH [Prince Charles Hospital) engaged upon the advice of its solicitor was a systematic enquiry of the doctors who might be able to provide information about the medical procedure and related matters. That overall process might be regarded as an ‘investigation’ within the ordinary meaning of that word, but the question is whether a particular document is itself an ‘investigative report’. None of the documents in issue has that quality. None is a report of the result of the overall process recommended by the solicitor. Rather, each doctor separately prepared (or separately supplied information to a solicitor who prepared) a record of that doctor's recollections of and, in some cases, opinions about, the procedure and related matters. No doctor was asked to conduct any investigation or research for the purpose of expressing an opinion or otherwise. The resulting record of information is no more ‘investigative’ in character than any witness statement or solicitor’s file note of information within the witness’ own knowledge. In a particular case, such a record might be attached to a broader report of an investigation by, for example, a loss assessor, and thereby form part of that ‘investigative report’,… but there was no such report here. Each document was simply retained by PCH in its files for subsequent use in the anticipated litigation.
27. In my opinion, a statement by a witness to an incident alleged to have caused personal injury to a claimant, or a solicitor's file note, which records that person’s recollection of the circumstances of the incident and the person's opinion about the incident for use in anticipated litigation, is not, in ordinary parlance, an ‘investigative report’. Acceptance of the respondent’s submission to the contrary would result in the widespread abrogation by s 30(2) of privilege in witness statements taken by solicitors for use in existing or anticipated litigation or for the purpose of giving confidential legal advice, since every witness statement should be the product of focused and systematic enquiries by solicitors. There is no indication in s 30 that such a result was intended.” (citations omitted)
(Beaumont, Heerey and Gyles JJ) Heerey J concluded that:
“147 The evidence permitted of only one conclusion. Production of fifteen or twenty hammers in a condition ready for commercial sale, an order having been received for five or six, cannot be considered a matter of trial and experiment, let alone only trial and experiment. …
148 There is a total lack of evidence from Mr Giehl as to what trials or experiments were carried out on the Adelaide hammers. The reasonable inference is that there were none. Even if he were making a limited number to see if production was commercially viable, I do not think that would be the kind of trial and experiment of which s 9(a) speaks. The provision is limited to trial or experiment to see how the product of an invention performs and whether any improvements are needed, as distinct from commercial or marketing assessments. But in any event Mr Giehl did not suggest his manufacture was for the limited purpose found by his Honour. The inference to be drawn is simply that Mr Giehl manufactured hammers because he proposed to sell them.”
“… The accident is simply left unexplained. No doubt the conclusion is reasonably open that at the moment of actual impact the right side of the forward part of the International truck and the front of the diesel truck were in violent contact. The inference is also open that the diesel truck was swung round to face the other way. Strange as such an effect of the forces may seem, perhaps it might also be reasonably concluded that the left-hand door flew open and was torn off as the truck went round, notwithstanding the absence of evidence of marks upon any of the posts at the edge of the road. But the all important question of the cause of the vehicles hitting one another is left unresolved by the circumstantial evidence. It is possible of course to say that if you have an empty diesel truck coming down a winding road on the outside at thirty-five miles per hour and an International truck going up the road on the inside at twenty-five miles per hour, the former is more likely than the latter to be over the centre line of the road on its wrong side. But that is only to say that of two guesses one is more probable than another. It may be remarked that these are not the only two guesses open as to the cause of the accident. But in any case we are not concerned with a choice among rival conjectures. In an action of negligence for death or personal injuries the plaintiff must fail unless he offers evidence supporting some positive inference implying negligence and it must be an inference which arises as an affirmative conclusion from the circumstances proved in evidence and one which they establish to the reasonable satisfaction of a judicial mind. It is true that ‘you need only circumstances raising a more probable inference in favour of what is alleged’. But ‘they must do more than give rise to conflicting inferences of equal degree of probability so that the choice between them is mere matter of conjecture’. These phrases are taken from an unreported judgment of this Court in Bradshaw v. McEwans Pty. Ltd. … which is referred to in Holloway v. McFeeters …, by Williams, Webb and Taylor JJ. The passage continues: ‘All that is necessary is that according to the course of common experience the more probable inference from the circumstances that sufficiently appear by evidence or admission, left unexplained, should be that the injury arose from the defendant's negligence. By more probable is meant no more than that upon a balance of probabilities such an inference might reasonably be considered to have some greater degree of likelihood.’ … But the law which this passage attempts to explain does not authorise a court to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the others. The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied.” [1959] HCA 8; (1985) 101 CLR 298; 32 ALJR 395 at [2]; 305; 396-397 (citations omitted)
“Despite section 35 of the AAT Act, the hearing of a proceeding before the Tribunal, other than the Small Taxation Claims Tribunal, for:
(a) a review of a reviewable objection decision; or
(b) a review of an extension of time refusal decision; or
(c) an AAT extension application;
is to be in private if the party who made the application requests that it be in private.”
The consequence is specified in s 14ZZJ. It provides that s 43 of the AAT Act is to be read as if it included ss 43(2C), (2D) and (2E). Their effect is that the fact that a hearing of a proceeding is conducted in private does not prevent the Tribunal from publishing its reasons for decision but it must ensure, as far as practicable, that its reasons are framed so as not to be likely to enable the identification of the person who applied for review.
in Brown v Commissioner of Taxation [2001] FCA 276; (2001) 47 ATR 143 at 145-146 when he said that: “... it would be a most unusual case where the tribunal, if asked, did not give directions that are contemplated by s 35(2) in a proceeding to which s 14ZZE applies. The tribunal is empowered to give directions for any reason, where it is satisfied that it is desirable to do so. Where a party exercised the right, under s 14ZZE, to have a hearing in private, that would be a very cogent reason for the tribunal to make an order under s 35(2)(b).”
“ It has been held that when the subject-matter of the action would be destroyed by a hearing in open Court, as in a case of some secret process of manufacture, the doors may be closed. I think this may be justified upon wider ground. Farwell LJ aptly cites Lord Eldon as saying, in a case of quite a different kind, that he dispensed with the presence of some of the parties ‘in order to do all that can be done for the purposes of justice rather than hold that no justice shall subsist among the persons who may have entered into these contracts.’ An aggrieved person, entitled to protection against one man who had stolen his secret, would not ask for it on the terms that the secret was to be communicated to all the world. There would be in effect a denial of justice.
Again, the Court may be closed or cleared if such a precaution is necessary for the administration of justice. Tumult or disorder, or the just apprehension of it, would certainly justify the exclusion of all from whom such interruption is expected, and, if discrimination is impracticable, the exclusion of the public in general. Or witnesses may be ordered to withdraw, lest they trim their evidence by hearing the evidence of others. Or, to use the language of Fletcher Moulton LJ, in very exceptional cases … where a judge finds a portion of the trial is rendered impracticable by the presence of the public, he may exclude them so far as to enable the trial to proceed. It would be impossible to enumerate or anticipate all possible contingencies, but in all cases where the public has been excluded with admitted propriety the underlying principle, as it seems to me, is that the administration of justice would be rendered impracticable by their presence, whether because the case could not be effectively tried, or the parties entitled to justice would be reasonably deterred from seeking it in the hands of the Court.” [1913] AC 417; [1911-1913] All ER 1 at 445-446; 3-14
Lord Woolf has discussed the issues more recently in Hodgson v Imperial Tobacco Ltd [1998] EWCA Civ 224; [1998] 2 All ER 673 at 686. He said that a hearing in private may contribute:
“... to the administration of justice. They allow issues to be determined informally and expeditiously. They allow less strict rules as to representation to apply. They allow matters to be discussed which the parties might not wish to discuss in open court. They encourage openness. They are less intimidating to litigants which is particularly important in the case of the small claims jurisdiction ...”
4
6
23