Stokes Ltd v Narciso Jose Perez (T/A Grow Fast Consulting)
[2019] VCC 876
•27 June 2019
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-18-01261
| STOKES LIMITED (ACN 004 554 929) | Plaintiff |
| v | |
| NARCISO JOSE PEREZ (TRADING AS GROW FAST CONSULTING) | Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4, 5, 6, 11 June 2019 | |
DATE OF JUDGMENT: | 27 June 2019 | |
CASE MAY BE CITED AS: | Stokes Ltd v Narciso Jose Perez (T/A Grow Fast Consulting) | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 876 | |
REASONS FOR JUDGMENT
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Subject: Breach of contract; moneys paid under mistake
Catchwords: Research and Development consultancy agreement providing for fee calculated as a percentage of grant; grants received and fees paid; Commissioner of Taxation revisits or queries grant; taxpayer abandoned claim and agreed to repay grant; whether consultant entitled to retain fees
Legislation Cited: R13.07 County Court Rules; s355-210 Income Tax Assessment Act 1997; Explanatory Memorandum to Tax Laws Amendment (Research and Development) Bill 2010; s15AB ActsInterpretation Act 1901; s59(1), s64(3), s69(1) Evidence Act 2008; Income Administration Act 1953
Cases Cited:Australian Financial Services & Leasing Pty Ltd v Hills Industries Limited (2014) 253 CLR 560; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; Jones v Dunkel (1959) 101 CLR 298; Moreton Resources Limited v Innovation and Science Australia Taxation [2018] AATA 3378; Deputy Commissioner of Taxation v Club Culture Pty Ltd [2017] FCA 338; Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Judgment: 1. Within 14 days the parties must bring in short minutes to give effect to these reasons. 2. Costs reserved.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Connors | Rothwell Lawyers Pty Ltd |
| For the Defendant | Mr I Percy | CME Legal Pty Ltd |
HIS HONOUR:
1 Mr Peter Jinks served an apprenticeship and qualified as an electrician, working first with the then Victorian Railways. Eventually, he established his own company known as the KLM Group, which employed 800 people at its peak. Mr Jinks and his brother had KLM listed on the Australian Stock Exchange in 2003 and operated that listed company until they sold their interests in 2010. (Transcript (“T”) 46, Line (“L”) 19-T47, L15) Following the sale of KLM Group, Mr Jinks went into semi-retirement. In July or August 2012, he met a Mr Con Scrinis. (T74, L17-18) At the urging of Mr Scrinis, Mr Jinks and his brother, Mr Greg Jinks, decided to invest in a distressed publicly listed company. Mr Scrinis identified the plaintiff, then known as Stokes Limited (“Stokes”), the plaintiff in the proceeding, and the three of them took a controlling shareholding interest. (T46, L2-9) At that stage, Mr Jinks was a non-executive director and chairman of directors. Mr Scrinis was the managing director. (Ibid L10-14)
2 According to Mr Jinks:
“When we took over Stokes it was an appliance parts business selling parts, turning over circa $14m and it was a difficult business and Scrinis had this view that he would consolidate the appliance parts business and bring it all together and make it one bigger, stronger business. The only thing we found was when we got there that it was effectively had a – had a factory down in Ringwood that was running three shifts, day, afternoon and night and, effectively, going backwards and prior the Christmas, Stokes would not have lasted at – within the first three months without the three of us putting in money to step it up and – and support it. Um, and we found ourselves having to pay $1m worth of redundancies in the first three or four months. So when I say he went looking for a distressed business, that's exactly what he did. So we were in some ways – I'm not going to say led because I've been around too long to be led into something – but we were certainly – we'd come out of our own previous business that was successful. We're in a window of time where we never had anything on our plate that we were doing and this seemed like a good idea at the time and so we put our faith in that individual to in some ways take us down a path.” (T74, L30-T75, L21)
Mr Jinks said, “[s]ome of the paths that Mr Scrinis took [us] down … led to some grief.” (T75, L26-27) According to Mr Jinks, Mr Scrinis “in some ways was a bit of a one-man band and was very domineering … and effectively run (sic) his own race” as managing director. (T70, L12-14)
3 In 2017, Mr Scrinis resigned as managing director and sold his shareholding. He now has nothing to do with the company, though he continues in business in Victoria in competition with the plaintiff. (T48, L30-T49, L10)
4 In October 2018, Stokes changed its name to Enevis Limited. (T45, L9-15)
5 Mr Jinks had had no involvement in his business life with the research and development grant regime operated by the Commonwealth of Australia in association with its income tax regime. (T47, L18-20) As chairman of Stokes, Mr Jinks was aware of a proposal for the company to obtain an R&D Grant under Mr Scrinis’s leadership. (Ibid L27-31) Apparently, Mr Perez, the defendant, who is an R&D consultant and registered tax agent, met Mr Scrinis at a party and told him that he, Mr Perez, could assist Stokes with an R&D Grant relative to a project which it was carrying out, known as the Ascendancy project. (T48, L3-8) This project entailed creation of a product appealing to the “smaller end of the market”, providing a system “that controls not only just lighting, but audio-visual”. (Ibid L12-21) This led to the execution of an agreement between Stokes and Mr Perez trading as “Grow Fast Consulting” on 1 April 2016. (Court Book (“CB”) 204-210) The agreement was signed on behalf of Stokes by Mr Scrinis as managing director and Mr Hemant Amin as secretary. The agreement stated:
“The Recipient [that is, Stokes] requires the supply of the consulting services required to be performed by the Contractor [viz Mr Perez] under this Agreement including as set out in bolded Item 3 of the Schedule, and the Consultant agrees to supply the Services to the Recipient, on the terms and conditions set out in this Agreement.”
The services were defined in Item 3 of the Schedule as follows:
“SERVICES: Assisting Company to obtain a Research and Development Grant in the capacity of a Consultant. The consultant facilitates seminars for individual companies to educate the company on the types of activities that may be eligible for an R&D tax incentive/concession. The consultant will assist the company to identify the eligibility of each company's project under the new R&D tax incentive regime and or any other Federal or State government grant. The consultant will educate on how a company can proactively track and identify their projects for the future. Identify potential commerciality and benefit to each company, Work with the company's individual Accountants as they collect and confirm each company's expenditures and liabilities. Each Accountant needs to be satisfied after verification of all invoices included in recipient's application of each of the invoices validity prior to lodgement of the application. The consultant does not work with any of the recipient's invoices at any stage. The consultant will assist each company's technical person with project documentation which is always reviewed by a highly experienced technical person recommended by the recipient. The consultant does not do any form of tax agent work. The consultant only assists companies with Part A of the application prior to lodgement of applications which is completed by the company and its appointed officers. The consultant does not lodge any application at any stage.” (CB 209)
6 It will be seen that this definition of services includes a miscellany of inclusions and exclusions, along with a number of statements of contractual intent or obligation. The words, “The consultant will assist the company to identify the eligibility of each company’s project under the new R&D tax incentive regime …” have proved the most contentious in the course of this proceeding.
7 Item 4 of the Schedule obliged Stokes to pay, and entitled Mr Perez to receive as a fee, “20 per cent of R&D Grant obtained plus GST, 10 per cent…”.
8 This arrangement led to an application being lodged with the Commonwealth Department of Industry, Innovation and Science for R&D Tax Incentive registration relative to two projects, namely, the Ascendancy system and a second project known as the BPS-Cable Free Table Project. This nominated Mr Amin, Stokes’ then company director, as the nominated contact person and related to the income year 2014-15. (CB 32-48)
9 The Department accepted the registration application for that income year. (CB 125) This application led to a refundable tax credit of $1,058,374.35, accruing to Stokes as of June 2016. (CB 652-653) Company secretary, Mr Amin, requested Mr Perez to “render his invoice and to attend a meeting at Stokes’ premises on 24 June [2016] or following week”. (CB 654) The meeting took place and it was attended by Mr Scrinis. According to Mr Perez, Mr Scrinis said to him. “Look, Jose, um, you’ve got two options, mate. Right. I mean, I’m not willing to pay you.” (T230, L13-15) Mr Perez had rendered an invoice dated 19 June 2016 for a total of $252,076.66 inclusive of Goods and Services Tax. (CB 202B) According to Mr Perez, Mr Scrinis told him that “this project that we’re running, right, will be run for three years”. (T231, L18-20) He continued:
“And I'm gonna give you, right, the same benefit for you to be our consultant for the next three years'. Right. 'But I cannot afford to pay you 20 per cent, mate. I'm sorry. I'm not gonna pay you the money.” (T231, L18‑24)
10 Unsurprisingly, Mr Perez protested and Mr Scrinis agreed to pay rates for three years ― the first year 15 per cent, the second year 10 per cent, and the third year 8 per cent. (Ibid L21-31) Mr Perez said that Mr Scrinis asked him what would happen if Stokes were selected for review by the Australian Tax Office. Mr Perez said he replied, “I will assist you free of charges, but I have to run the audit.” (T232, L12-13) He said that he had to run the audit and:
“… ‘Nobody else’, I said to him. ‘Nobody else, because I have to protect myself, right? I cannot trust another person to do it. It's like you buying an iPhone, and go up to a Chinese guy to fix your phone. You'd rather do it – you know, go to the Apple and get the guarantee'.” (Ibid L16‑21)
11 Mr Perez said that Mr Scrinis accepted this proposal. (Ibid L21‑22) Mr Perez said he warned Mr Scrinis that, “‘The only condition – the only condition I put to you – that the information must be spot on for both sides. If information is not spot on, it will be your fault, not mine’.” (Ibid L28-31) Mr Scrinis accepted. (T233, L6) Mr Perez then rendered a revised account calculated at 15 per cent and was paid $174,631.77. (CB 202A, T233, L25-31)
12 As to the revised terms of the agreement Mr Perez said, “I have to write something very quickly”. (T234, L3-4) This revised agreement (CB 117) was in the same form as the earlier agreement and was signed by the parties. In Item 4, the fees were set at “15 per cent of R&D Grant obtained plus GST for the first year, 10 per cent for the second year, and 8 per cent for each following year”. It included a special condition at Item 5 in the following terms:
“SPECIAL CONDITIONS, no fees to be charged until Grant is obtained. No Grant No Fees. Once Grant has been obtained Recipient has seven (7) days to pay the consultant's invoice in full. In the event payment is late and warrants no extension by the consultant then interest will be calculated daily at a rate of 9%.” (CB 124)
This special condition at Item 5 was in the same terms as Item 5 in the previous version of the Agreement. (CB 210)
13 The effect of the transaction was a cash payment to Stokes in the face of an otherwise loss-making year. Mr Jinks regarded it as “pennies from heaven”. There was then an application for the second income year which, in Mr Jinks’ words, just “rolled from one year into the next”. (T74, L6-13)
14 The second application was for the financial year 1 July 2015 to 30 June 2016. This application referred again to the Ascendancy system and the BPS‑Cable Free Table project, adding a third project W2D TW project. (CB 50-74) Following lodgement of Stokes’ tax return for that year, Mr Perez rendered an invoice dated 17 January 2017 for $132,000 inclusive of Goods and Services Tax, which was apparently paid.
15 The Deputy Commissioner of Taxation wrote a letter addressed to Mr Scrinis, care of Pitcher Partners, which firm acts as auditors and tax agents for Stokes. The letter stated inter alia:
“The purpose of this letter is to advise you of the Commissioner of Taxation’s concerns regarding R&D tax incentive claims and to provide you with the opportunity to review and correct your tax affairs as necessary.” (CB 76)
The letter suggested that Stokes should refer to the “record keeping requirements guidance and Taxpayer Alerts referred to in the letter and review:
·your claim(s) for the R&D tax incentive to ensure it is correct and that you are not claiming expenditure related to ordinary business activities; and
·your records to ensure they demonstrate the R&D activities being undertaken support the associated R&D tax incentive claim(s).” (CB 77)
16 Stokes was requested to complete a questionnaire in a schedule attached to the letter which required it to elect as follows:
Option 1: “I have identified an error in my R&D tax incentive claim/s and will lodge a self-amended income tax return”; or
Option 2: “I have reviewed my R&D tax incentive claim/s and do not believe there to be errors.” (CB 79)
17 By the time of the letter, Mr Scrinis had departed as managing director and shareholder, and had been succeeded by Mr Jinks. Mr Jinks said this letter came to his attention shortly after the date it bore. (T51, L20-21) He said “When you get a … letter like this from the ATO … you do get somewhat concerned.” (Ibid L23-25)
18 Mr Jinks said in company with Mr Miller, who was by then chief financial officer for Stokes, and Mr Jinks’ son, Matthew, who was the chief operating officer, Mr Jinks telephoned Mr Perez from his office. (T51, L28-T52, L3) Mr Perez said that Stokes was welcome to identify him as the consultant concerned in the R&D application. (T52, L6-11) Mr Perez advised Mr Jinks to adopt Option 2. (Ibid L13-17) Mr Jinks did not accept this advice because he said that following even preliminary discussions with Mr Miller and Mr Jinks junior, it appeared to him “that the claims that were made were substantially overstated”. (Ibid L23-24) Accordingly, he could not select Option 2. (Ibid L25-27) Mr Jinks determined that Stokes needed to obtain “external advice”. (T53, L11-14) Stokes approached Pitcher Partners, initially through its audit partner, Mr Stuart Dall. (T53, L18-29) These approaches led to the dispatch of a letter dated 28 November 2017 from Pitcher Partners to Mr Matthew Jinks, Stokes’ chief operating officer. This letter set out the scope of Pitcher Partners’ engagement and the services which it agreed to provide. The services enumerated were as follows:
― Review of the R&D Tax Incentive applications lodged with AusIndustry for 2015 and 2016;
― Consideration of whether the R&D activities registered with AusIndustry were eligible R&D activities;
― Review of R&D Tax Incentive Schedules lodged as part of the 2015 and 2016 income tax returns;
― Review of expenditure claimed as part of the R&D Tax Incentive for the 2015 and 2016 income years;
― Review of documentation retained by Stokes to support the expenditure identified as directly relating to the R&D activities registered with AusIndustry;
―Preparation of report outlining results of review;
― Assistance with addressing Australian Tax Office’s (“ATO”) initial correspondence dated 3 November 2017; and
― Teleconferences and meetings as required to discuss queries and other matters arising from our review.
The letter identified three persons who would provide the services ― a Mr Ali Suleyman, an executive director and signatory of the letter; Ms Maria Paradisis, a senior manager; and James Trotman, a senior analyst.
19 In light of Stokes’ status as a listed public company, it was judged that the ATO’s review constituted price sensitive information which required a public announcement to the exchange, which announcement was made on 22 December 2017. It referred to the Australian Tax Office’s inquiries relative to the R&D expenditure claims for 2015 and 2016 and continued:
“Stokes engaged an independent consultant to assist in preparation of those prior R&D claims.
Stokes auditors (Pitcher Partners) are assisting in liaising with the ATO and a response to the letter and associated questionnaire is due by the Company to the ATO on 12 January 2018. At this stage, the Company has not received formal advice on the appropriate responses to the enquiry but the Company will keep the market fully informed of any material developments.” (CB 82)
20 By letter dated 12 January 2018 addressed to the relevant officer at the ATO, Pitcher Partners, as Stokes’ tax agent, stated on its behalf:
“…we wish to advise that the company will be making a voluntary disclosure seeking to amend its R&D Tax Incentive claim for the income years ended 30 June 2015 and 2016. Accordingly, we are currently assisting the Taxpayer with the preparation and lodgement of an amended income tax return for the respective income years.” (CB 83)
The letter was signed by Mr Suleyman. The ATO had granted an extension to Stokes to make its selection between the two options until 12 January 2018. (T178, L24-27)
21 Amended tax returns were lodged by Pitcher Partners which withdrew the R&D Grant applications in their totality. (Confidential Exhibit A).
22 This surrender by Stokes was made without reference to Mr Perez. Mr Miller, Stokes’ chief financial officer, told Mr Suleyman of Pitcher Partners, in an email of 27 November 2017:
“… we contacted the consultant involved [viz Mr Perez] just to get his perspective. He did not seem concerned about us providing his details but wanted us to provide him with details of the claim calculations which he indicated he was not directly involved with. Provided a range of comments on the process and indicated he was available to assist although overseas until 22 January.” (CB 531)
23 This proposal proved unsatisfactory to Mr Miller. He said:
“We had an obligation to respond to the Tax Office, so I was not going to provide information across WhatsApp [the suggested mode of communication to Mr Perez in Thailand] to someone in Thailand … public company's information.” (T151, L20-24)
24 Mr Miller said that Stokes “wanted a completely independent review from another party”. (T152, L1-2)
25 Mr Stuart Dall, a chartered accountant specialising in corporate and business taxation gave evidence on behalf of Stokes. He was and is the tax agent who signs off Stokes’ annual tax returns. (T173, L16-17) His department, according to Mr Dall, was “aligned” with the department at Pitcher Partners which deals with research and development grant issues. (T174, L17-20) It will be recalled that the partner or director who signed the engagement letter referred to above was Mr Suleyman. There was a meeting at Stokes’ premises attended by Mr Dall, Mr Suleyman and Ms Paradisis, chief financial officer, Mr Miller, managing director. Mr Jinks and chief operating officer, Mr Matthew Jinks were also in attendance on behalf of Stokes. Mr Suleyman and Ms Paradisis sent a memorandum in the nature of a questionnaire to Mr Miller and this document in landscape format appears with the answers provided by Stokes at CB 403ff. Under the heading “Core activity – prototyping” the following question appears:
“Who owned the IP (if applicable) that was developed as a result of this activity?”
The answer in the far right column was as follows:
“OEM agreement with CommBox denotes they are the owner of the IP however our understanding is that under the guidelines of the R&D, we initiated the project, paid for and drove the technical advice and scope which was directly related to the outcome – Agreement attached.” (CB 406)
26 According to Mr Dall, the significance of this question was that:
“… it's one of the critical threshold tests for having an eligible R&D claim, is that the entity – the company that's purporting to make the claim must have ownership of the relevant know-how and IP in relation to the relevant R&D expenditure.” (T180, L18-22)
27 This threshold requirement Mr Dall explained was:
“… that the relevant claimant has, ah, ownership, ah, or is a major benefactor of the relevant intellectual – intellectual property or know-how that arises out of the R&D expenditure.” (T182, L9-13)
28 It followed, according to Mr Dall, that in light of the answer already quoted, the reviewer needed to go no further (Ibid, L14-16). The R&D claimed for the Ascendency system was invalid for that reason alone. In Mr Dall’s view, there was no exception to this principle. It was “an absolute requirement that there needs to be ownership”. (Ibid L25-26) The Agreement attached with CommBox Pty Ltd appears at CB 91ff. The Agreement is signed on behalf of CommBox and on behalf of “Stokes Technologies” by Mr Scrinis. His signature is witnessed by Mr Matthew Jinks. The Agreement itself is undated but the year “2014” appears in line 1 at page 94. The recital states that CommBox was the owner of the intellectual property rights identified in Schedule A and that Stokes Technologies required CommBox to develop a control product for resale under the Stokes Technologies brand as manufactured by CommBox set out in Schedule A. Schedule A included some three items, namely:
(i) Little Boy (project name only – Stokes to advise product name);
(ii) Big Boy (project name only – Stokes to advise product name);
(iii) Editing and control software for both of above (CB 111).
29 In light of Mr Dall’s analysis, Clause 12 was the vital provision for the purposes of assessing eligibility for an R&D grant for Stokes. That clause provided as follows:
12. OWNERSHIP OF RIGHTS
(a) For the avoidance of doubt Stokes Technologies acknowledges that
CommBox Pty Ltd retains the full and unfettered right to use and
licence the Specifications, Software and the Firmware throughout
the world.
(b) All rights, title and interest in and to the Specifications, Software,
Firmware and Trade Marks including all Intellectual Property Rights are
owned by CommBox Pty Ltd and Stokes Technologies acknowledges
that it has no rights to ownership in the Specifications, Software, Firm-
ware or the Trade Marks. Nothing in this Agreement may be
construed as an assignment of any such right, title and interest to
Stokes Technologies.
(c) All right, title and interest in or to the Software and the Firmware,
together with all modifications, enhancements or adaptations to the
Software and the Firmware whether created by CommBox Pty Ltd or
any other person) are the property of, or vest in CommBox Pty Ltd as
an assignment of future copyright.
(d) Stokes Technologies must execute all documents and do all things
which are reasonably necessary to assign any intellectual property
rights in any modifications, enhancements or adaptations to the
Software and Firmware to CommBox Pty Ltd. (CB 101-102)Mr Dall said:
“It – it became apparent that a significant portion were not, absolutely, which – what's referred to in that first bullet-point is ordinary expenses which are quite clearly not, ah, eligible for the, ah – for the concession.” (T185, L27-31)
30 As to the documents said to substantiate the application, he said:
“…The findings we made in relation to them were – what we just discussed a moment ago is that they didn't, um – they appeared to be ordinary business expenses rather than expenses that were directed at, um, the relevant R&D incentive. Ah, so when I refer to costs of goods sold, it's essentially putting the componentry together and then selling that to a customer. So the R&D concession doesn't work in a manner where, um, costs of goods sold are eligible. Ah, in relation to other costs, which includes salary costs, ah, contractors, ah, and, ah, relevant administration and overhead, ah, there needs to be, for the purposes of claiming the concession, ah, accurate records that reflect an appropriate allocation of what precisely of those expenses were directed towards R&D.” (T186, L6-20)
31 As to the other two projects, Mr Dall said that Pitcher Partners identified no threshold issue as to eligibility, but concluded that the substantiating material was insufficient. (T187, L2-7) The only option, as Mr Dall saw it, was to adopt Option 1 in the Commissioner’s questionnaire, that is, to abandon the claims for the grants. (T188, L27-29) With the Agreement in principle made to abandon these claims, the unwinding of the grant transactions was negotiated principally between a representative or representatives of the Australian Tax Office and Mr Miller, Stokes’ chief financial officer (T190, L12-17)
32 An agreement in principle was reached between Stokes and the Australian Tax Office, whereby Stokes would repay some $2.5-odd million, with an initial payment of $400,000 and the balance payable progressively over some two years. (T57, L7-13) This agreement in principle was announced to the market on 21 February 2018. The announcement described the Agreement as entailing a cash refund of $2,332,682. The announcement said:
“Importantly … it is understood that no penalties will be imposed given the voluntary nature of the disclosure”. (CB 86)
33 Mr Dall, the executive director and audit partner of Pitcher Partners, signed a letter dated 8 November 2018, which constituted Pitcher’s formal report upon its review. This seems to have been done as a matter of formality because all actions and decisions, save for the final documentation of the arrangements with the Australian Tax Office had been completed months before that date. (CB 87-90) The arrangements with the Commissioner were elaborately documented with Deeds executed as recently as 28 May this year, consisting of:
(i) a General Security Deed consisting of some 69 pages (CB 543-611);
(ii)a Deed of Security consisting of some 25 pages. (CB 612-637)
This proceeding
34 Solicitors acting for the plaintiff filed a Writ commencing this proceeding on 27 March 2018.
The plaintiff’s Statement of Claim
35 In its Statement of Claim, Stokes alleged that it entered into an agreement in writing dated 1 April 2016 with Mr Perez described as “Supply of Services Agreement”. It alleged a number of terms as forming part of this agreement, including that one of the services to be provided by Mr Perez was “to assist [Stokes] to identify the eligibility of each project under the new R&D tax incentive regime”. It referred to the special condition stating that no fees were to be charged until the grant was obtained and if there was no grant there would be no fee charged. Next, the Statement of Claim referred to receipt of the grant of $2,332,682 and to the receipt by Mr Perez of $174,631.77 on 19 June 2016 and $132,000 on 17 January 2017 paid by Stokes to him in “satisfaction of the invoices”. It was said that Pitcher Partners had advised that Stokes “had no basis for the application for its research and development activities in the financial years 2015 and 2016” and that such a conclusion had been reached by the Australian Taxation Office “upon review”, with the result that Stokes “was required to repayment [sic] of $2,332,682 plus interest, to the ATO”.
36 It was said that Mr Perez failed to comply with his obligations under the agreement by advising Stokes that its research and development activities for financial years 2015 and 2016 “were eligible for a Research and Development Grant”, whereas they were not in fact eligible. This advice was said to be given in breach of Mr Perez’s obligation to his due skill and care in providing his services to Stokes, as required by Clause 1.1 of the Agreement. Stokes, it was said, had suffered loss and damage as a result, in particular fees of $306,631.77 wrongly claimed and paid to Mr Perez. There was also reference to interest payable to the Australian Tax Office and $44,000 inclusive of goods and services tax charged by Pitcher Partners on its review.
37 It was also said that, in the circumstances, Mr Perez owed Stokes a duty of care “in the exercise of [his] duties as consultant in performing the services” referred to, which duty of care had been breached, resulting in loss and damage for Stokes.
38 Further and alternatively it was said that Stokes had paid Mr Perez the sum of $306,631.77 “in the mistaken belief that sum was due and owing to [Mr Perez] as a consequence of Mr Perez’s advice in obtaining a research and development grant in the sum of $2,332,682 plus interest.” It was said that Stokes has been required to repay that amount to the Australian Tax Office and that it would be unjust for Mr Perez to retain the sum paid to him for his fees. Accordingly, it was said Mr Perez had been unjustly enriched in the sum of $306,631.77.
39 The prayer for relief sought damages in the sum of $350,631.77. Alternatively, restitution of $306,631.77, together with statutory interest from the date of issue of the proceeding to the date of judgment, costs, and further or other relief.
40 At the outset of the trial, Mr Connors, on behalf of Stokes, announced a willingness to settle the proceeding for $200,000 all in. (T21, L17-25).
Defence
41 By his Defence, Mr Perez admitted that he agreed to supply services in accordance with the relevant agreement but denied the plaintiff’s characterisation of those services, pleading the terms of Item 3 of the Schedule to the agreement, which was set out in full. Denying the allegations of special conditions, he set out Item 5 in full in the Particulars. In paragraph 5, he denied the general allegation that he had supplied services to Stokes to apply for a research and development grant in the relevant year saying, “he only provided services by way of training and education that enabled the plaintiff to make an application”. Mr Perez did not admit that the Australian Taxation Office had accepted that there was no basis for the making of a relevant grant or that Stokes “was required” to make repayment of more than $2 million. He denied being in breach of the terms of the Agreement, saying in some detail in the Particulars to the denial that he assisted Stokes with education and resources that allowed Stokes to identify, track and develop eligible programs for tax incentives, and worked with Stokes’ personnel, accounts and others, to equip them with the skills to make application. He said Stokes was “solely responsible for identifying the opportunity in preparing and submitting the application”. He said:
“Any frustration of the process approximately 18 months after the grant was paid by the plaintiff and its advisors was not relevant to the training and other services provided by the defendant nor the successful outcome of the application.”
42 He denied the allegation of loss and damage, stating:
“The grant was obtained and the fee to the defendant became payable at [the] time. Subsequent expenses incurred by the plaintiff and potentially erroneous advice received by the plaintiff from its advisors is not the defendant’s responsibility.”
43 Mr Perez denied that he was under a duty of care or that he had breached such duty of care.
44 Mr Perez said that the payment of his fees was made in accordance with the contractual terms and were “due and payable”. He did not admit that Stokes had been required to repay any sums of money to the Australian Tax Office and denied that it would be unjust for him to retain the fees which he had received, nor that he had been unjustly enriched by receiving and retaining them. Accordingly, he denied any entitlement to relief on the part of Stokes against him.
45 In closing submissions, Mr Percy relied on a defence of change of position in resisting the plaintiff’s claim for the recovery of monies paid under mistake. I had not appreciated until then that this defence was to be advanced. It seems that Mr Connors was likewise taken by surprise.
46 I put it to Mr Percy that such a defence, if it were to be relied on, needed to be pleaded. He initially contended that the defence could be pressed without a specific plea, but later said, if necessary, he sought leave to amend. Any leave to amend was opposed by Mr Connors on the footing that the evidence and cross-examination, which was complete with the cases of both parties closed, would likely have taken a different course had he known that this defence was to be relied upon. In any event, said Mr Connors, there was no evidentiary process on which the defence could be advanced.
47 Rule 13.07(1) of the Court’s rules states inter alia:
“1. A party shall, in any pleading subsequent to a statement of claim plead specifically any fact or matter which –
(a)the party alleges makes any claim … of the opposite party not maintainable; or
(b)if not pleaded specifically, might take the opposite party by surprise;
…”
48 In my view, the proposed defence fits squarely within paragraph (a) of the quoted rule and, perhaps, also within paragraph (b). It goes beyond a mere denial. It is an affirmative defence. I reject the contention that it can be relied upon without having been pleaded.
49 Mr Percy referred to and relied on the decision of the High Court of Australia in Australian Financial Services & Leasing Pty Ltd v Hills Industries Limited (2014) 253 CLR 560. Mr Percy said there were two relevant changes of position. First, the renegotiation of fees which led to the execution of the second version of the contract between the parties in the circumstances described and secondly, Mr Perez having spent the money.
50 In Mason and Carter’s Restitution Law in Australia (3rd ed, 2016) by Mason, Carter and Tolhurst, the learned authors state:
“Expenditure of the money received on ‘ordinary living expenses’ will generally not constitute a change of position. However, an uncustomary splurge on a luxury holiday, or unsuccessful gambling or a luxury car that is stolen uninsured, or even increases in daily outgoings may qualify.” ([2415] p. 872)
51 In their joint judgment in David Securities Pty Ltd v Commonwealth Bank of Australia, Mason CJ, Deane, Toohey, Gaudron and McHugh JJ, reviewed the authorities on the defence of change of position in a number of overseas countries, including Canada, the United States and England, also looking at the Australian authority. They concluded:
“In no jurisdiction, however, can a defendant resort to the defence of change of position where he or she has simply spent the money received on ordinary living expenses.” [(1992) 175 CLR 353, 386 at [59])
52 In the present case, the thought that Mr Perez spent the fees which he derived on ordinary living expenses or, for that matter, spent the money at all, is a mere matter of inference. It was not explored in evidence.
53 Mr Percy submitted that I should draw the inference that the money was spent because Mr Perez had shown himself willing to step back from his legal entitlement of a 20 per cent fee or commission, under the original agreement, to 15 per cent, under the revised one. (T253-4) This reasoning, if adopted, would necessarily exclude a change of position of defence. The liabilities which, upon these premises, Mr Perez was discharging, had been incurred before the receipt of the relevant monies.
54 Again, assuming that negotiating the revised fee structure could be regarded as a change of position, it was not made in reliance upon the receipt of the money. As Mr Connors observed, it was done before any money was received. What Mr Perez did in this negotiation, if it could be so described, was to trade one promise of payment for a different promise.
55 The factual basis for a defence of change of position has not been made out. It is therefore unnecessary for me to rule upon the late amendment application made by Mr Percy.
Scope of defendant’s contractual duties
56 Cross-examining Mr Perez, Mr Connors said: “As part of your services, you are to assist the company [viz Stokes] to identify the eligibility of each company’s project under the new R&D incentive scheme. Correct?” Mr Perez answered: “Yes, but no. No, because Stoke did not require that. Stoke only say, ‘I want you to help us to put it all together’. I didn’t provide that to Stoke they didn’t require that.” (T282, L10-16)
57 The project description which appeared in the relevant tax return was provided by Stokes. Mr Perez said that he cut and pasted it whilst he reviewed it. He did not find it required any amendment. (T343-4)
58 This is the evidence, it would seem, which is said to underpin the assertion in paragraph 5 of Mr Perez’s defence that he “only provided services by way of training and education that enabled Stokes to make its application”. In the particulars to paragraph 12 of the Defence it was said, “The plaintiff company [viz Stokes] was solely responsible for identifying the opportunity in preparing and submitting the application”.
59 Both versions of the contract, which was prepared by Mr Perez, included standard boilerplate provisions, including the following:
“9.2 Entire Agreement. This Agreement constitutes the entire agreement between the Parties in connection with its subject matter and supersedes all previous agreements or understandings between the Parties in connection with its subject matter.
9.3 Amendment. This Agreement may only be amended in writing signed by the Parties.” (CB 207)
60 Mr Perez’s Defence admitted execution of the first agreement. There was no assertion that the “true” agreement between the parties was partly oral or included any other written portions. Nor was there an assertion of any implied term which might modify or affect the terms of the written agreement.
61 It was not obvious to me, therefore, how it could be contended, in the absence of an assertion that there were further or different terms in the contract other than those in the written document, that the limitation on Mr Perez’s contractual duties entailed by the Defence could be sustained. I raised this matter with Mr Percy in the course of final submissions and received no explanation as to how this could be. The Defence raises no issues as to rectification, waiver, or any other such doctrine.
62 Item 3 of the second contract states, “The consultant will assist the company to identify the eligibility of each company’s project under the new R&D tax incentive regime and/or any other Federal or State grant.” This sentence was the subject of Mr Connor’s question in cross-examination quoted above. Whether in fact Mr Perez did assist Stokes to identify the eligibility of the relevant projects or not, it was within the scope of his contractual duties to do so.
63 In any event, I cannot accept Mr Perez’s account of his dealings with Stokes. Mr Perez said he understood his duties as a registered tax agent to have imposed on him a duty not to become involved in an application for a grant for a non-eligible project. He said:
“If I find out that the project is not eligible, I must say to the company as soon as I become [aware] – ‘it’s just not eligible, don’t do it.
… because it’s against me too.” (T326, L25-28)
64 He specifically denied approaching his involvement with the tax returns and the grant application with the view “never mind whether it’s legal or not, let’s proceed so that I can derive my fee”. (T307, L29 – T308, L10) He explained why he could not have approached these matters in any such cynical frame of mind and:
“Now, for – on the R&D consultant, we are subject to, ah, promoter penalty laws, which give me a fine between 1m and 4m bucks. On top of that, I'm risking my licence. So I need to have consideration before I do, ah, or start to do any job, because I'm otherwise, ah, maybe getting, you know, little pennies here – I lost the whole thing and – means I lose my job, I lose my business, I lose everything. So I cannot think like that. I must, ah – ah, look after myself that way because, ah, if I getting, ah, too many issues like this one, when customers, you know, withdraw with this allegation, it's very sure and the – the – the fact is what is happening now. Right? They – the ATO is allocating a, um – um, a case manager (indistinct words) say, well, if your (indistinct) if you doing this (indistinct) you're gonna be suspended.
So now the ATO is allocating a case manager. Is that to your situation?‑‑‑It's for – pretty much for my situation for this, yes.” (T308, L13-31)
65 Mr Perez is now the subject of an investigation by the Australian Tax Office relative to the transactions concerned in this proceeding. (T309, L1-5)
66 Against the background of these matters, it is difficult to accept that Mr Perez would have gone along with a regime in which he left it entirely to Stokes to determine the eligibility of the projects, making absolutely no enquiry himself. This view derives from the stand being taken by the Australian Tax Office. But even if the matter is viewed narrowly as between Mr Perez and Stokes without any consideration of the ethical obligations imposed by the Australian Tax Office on R&D consultants, Mr Perez’s account is implausible.
67 Mr Perez’s account of his involvement with Stokes entails him giving seminars and instructions to the Stokes’ personnel involved in the projects relative to how to obtain R&D grants, which was largely, if not entirely, confined to the provision of publicly available materials which could be downloaded from relevant websites, and cutting and pasting text provided entirely by Stokes in circumstances where he accepted no responsibility for the eligibility of the relevant project. On all the evidence, Mr Scrinis emerges as a ruthless businessman. It is difficult to conceive that such a ruthless figure, obviously prepared to resort to ethically dubious measures to minimise his company’s consultancy outlays, would agree and have his company pay 15 per cent of the R&D grant derived for so slender a slice of services, as Mr Perez said he provided, with no acceptance of responsibility on key issues such as eligibility.
68 The rejection of Mr Perez’s evidence as to a modification or restriction of his contractual obligations under the written contract by oral communications with Stokes’ officers is, however, complicated by the fact that we have heard no evidence from the individuals with whom Mr Perez communicated.
69 The most obvious absentee from the list of witnesses is Mr Scrinis. His departure from the company, apparently not on the friendliest of terms to a role in competition with the present regime, perhaps supplies an explanation for the plaintiff not calling him. The validity of this explanation appears to have been accepted by Mr Percy. (Defendant’s closing submissions (“DCS”), paragraph 16)
70 Another obvious absentee is Mr Amin, the company secretary, who seems to have had the role of liaising day to day with Mr Perez. There is no evidence as to what happened to him after he left the employ of Stokes in November 2017. On Mr Perez’s account, as I understand it, it would have been in conversations with Mr Amin that Stokes agreed to, or stipulated, the limited scope of Mr Perez’s role as R&D consultant.
71 In the famous case of Jones v Dunkel (1959) 101 CLR 298, the High Court said that where a witness whom a party might have been expected to call did not give evidence a jury should be directed that it could infer that the witness, if called to give evidence, would not have given evidence favourable to that party. The absence of Mr Scrinis from the witness box has been partially or, perhaps, wholly explained. The situation of Mr Amin and others, such as Mr Lakeman and Mr Jinx junior, has not.
72 This leaves open the inferences which the High Court says may be drawn from a failure to call a witness or witnesses in one’s own camp. These inferences are, however, merely items for consideration in the process of fact finding. They are not, as I understand Jones v Dunkel or any of the many cases which have followed it, to be treated as irresistible or unanswerable.
73 Giving due weight to these considerations, I nevertheless reject Mr Perez’s evidence on this point, viz the limitation upon the scope of his contractual responsibility, as being intrinsically implausible, and also contrary to his other evidence as to the consciousness which he brought to these matters of his responsibilities and possible liabilities as an R&D consultant involved in the making of a claim for a project which proved to be ineligible.
Ownership of intellectual property
74 It will be recalled that in the view of Mr Dall, what rendered Stokes’ grant applications ineligible in limine was that the relevant intellectual property was not owned by Stokes. His conclusion in this regard was said to flow from s355-210 of the Income Tax Assessment Act 1997, which is headed “Conditions for R&D Activities”. This section is unsurprisingly somewhat lengthy and detailed. The relevant portion appears at the very beginning. The section states inter alia:
“355‑210 Conditions for R&D activities
(1) An *R&D activity covered by one or more of the following paragraphs is an activity to which this section applies:
(a) the R&D activity is conducted for the *R&D entity solely within Australia”
75 The requirement as to the ownership of intellectual property is said to derive from the requirement that the relevant R&D activity be conducted “for the R&D entity” – viz for Stokes.
76 At one stage, Mr Percy said that he would challenge the interpretation which Mr Dall gave to this part of the section. Ultimately, however, he did not press that challenge.
77 The meaning attributed to this portion of the section by Mr Dall and by the plaintiff’s case is not self-evident. Mr Connors said, however, that it could be derived from the Explanatory Memorandum accompanying the Tax Laws Amendment (Research and Development) Bill 2010, when it was under consideration by the House of Representatives. Sections 3.52-3.55 of the Explanatory Memorandum deal with this issue, stating as follows:
“R&D expenditure that can be eligible for a notional R&D deduction
The standard case — activities conducted by or for the R&D entity
3.52 Generally, an R&D entity is only entitled to a tax deduction in
relation to R&D activities conducted for the entity (whether by the R&D
entity for itself or by another entity for it). Also, an entity cannot deduct
its expenditure on R&D activities if it conducts those activities to a
significant extent for another entity. [Schedule 1, item 1, section 355-210]
3.53 This retains a key rule from the existing law commonly known
as the ‘on own behalf’ rule. This rule is intended to limit eligibility for a
notional R&D deduction to where an R&D entity is the major benefactor
from the expenditure it incurs on the R&D activities. In certain situations,
the rule also prevents duplication of claims by different R&D entities.
[Schedule 1, item 1, section 355-210]
3.54 Determining the major benefactor of expenditure on R&D
activities involves examining the extent to which R&D activities are
carried out for the R&D entity compared to the extent to which they are
carried out for any other entity. This is tested by weighing up three key
criteria, namely who:
• ‘effectively owns’ the know-how, intellectual property or
other similar results arising from the R&D entity’s
expenditure on the R&D activities;
• has appropriate control over the conduct of the R&D
activities; and
• bears the financial burden of carrying out the R&D activities.
In short, the question of whether an R&D activity is conducted for an
R&D entity is a question of fact, determined by whether the activity is
conducted in substance to provide the majority of knowledge benefits
resulting from the activity, such as access to intellectual property, to this
entity.
3.55 Whether an R&D entity has effective ownership involves
reviewing all the circumstances surrounding the conduct of the relevant
activities and the ownership and control of, and/or ability to utilise, the
intellectual property or similar results obtained from the expenditure on
the R&D activities.
78 The upshot of this explanation is that, unless ownership in the intellectual property generated by R&D vests in the tax payer company, it cannot be said that the relevant research is being carried out “for” that company as the relevant R&D entity.
79 Mr Connors said that he had consulted the standard texts and annotations on the Income Tax Assessment Act, and that there were no court decisions or decisions of the Administrative Appeals Tribunal elucidating the meaning of this phrase in the section.
80 Mr Percy identified a decision of the Administrative Appeals Tribunal, Deputy President Forgie, Moreton Resources Limited v Innovation and Science Australia Taxation [2018] AATA 3378 and Deputy Commissioner of Taxation v Club Culture Pty Ltd [2017] FCA 338 as touching upon this section, without contending, however, that these decisions provide any guidance on the particular point now under consideration.
81 In my view, aided by the Explanatory Memorandum, which I am entitled to consider in accordance with s15AB of the Acts Interpretation Act 1901, the relevant section bears the interpretation attached to it by Mr Dall. If the evidence establishes that the intellectual property generated by the Ascendency project was to vest in CommBox rather than Stokes, the Ascendency project would not have been an eligible project for grant purposes.
82 If the evidence demonstrates that the product of the Ascendency System research would not have been the property of Stokes, I would find that the Ascendency project was not an “eligible” project. Mr Percy submitted that the burden of proof on this issue lay with the plaintiff and it had not been discharged. Mr Connors did not, as I understand, dispute that his client bore the onus on this point.
83 I have already quoted or summarised the pertinent provisions of the CommBox agreement. Clause 12 read in conjunction with the other parts of the Agreement including, in particular, the recital, establishes that the intellectually property referred to in the Schedule and any derivatives of that intellectual property would vest in CommBox. If I can conclude that that intellectual property represented the intellectual property under developments in the Ascendency project, Stokes makes good its case on this point. Mr Percy noted that the CommBox agreement was undated. The printed year “2014” in the first line indicates an agreement taking effect some time in 2014. The signature or execution clauses appear to have been regularly completed. In the absence of any evidence to the contrary I infer that the CommBox agreement was executed and took effect some time in 2014. The more difficult issue is whether one should conclude that the intellectual property identified in the Schedule constitutes the subject matter of the project. Mr Percy referred to the description of the project to be found in the tax returns and the evidence of Mr Perez to the effect that the Ascendency project was complex, involving the drawing together of a number of items subject to a central control system. The answer to the questionnaire administered by Pitcher Partners to be found at CB 406 asserts that CommBox owned the intellectual property developed as a result of the research and development and referred to the CommBox agreement. As a matter of general evidentiary analysis, this questionnaire could be regarded as self-serving hearsay as evidence of a previous representation made by a person to prove the existence of a fact, namely, the ownership of the intellectual property that it can reasonably be supposed that person intended to assert. (Evidence Act 2008, s59(1)) If the maker of the statement gave evidence, s64(3) of the Evidence Act 2008 provides an exception to the general exclusion of hearsay evidence. The authorship of the questionnaire, or perhaps more precisely, the answers furnished, was not clearly established by evidence, nor did the evidence prove who were persons at Stokes at the time of the questionnaire who might be thought to have had personal knowledge of the ownership of the intellectual property. They would not include Mr Miller, who gave evidence, but was employed after the relevant transactions and research had taken place. Mr Jinks did not purport to have had a detailed involvement in the research and development project at all. The questionnaire and the answers might be thought to fall within the definition of “business records” in s69(1) of the Evidence Act 2008, which states as follows:
“(1) This section applies to a document that—
(a) either—
(i) is or forms part of the records belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business; or
(ii) at any time was or formed part of such a record; and
(b) contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business.”
84 There is an important restriction upon the exception in ss(3), which provides:
“(3) Subsection (2) does not apply if the representation—
(a) was prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with, an Australian or overseas proceeding; or
(b)was made in connection with an investigation relating or leading to a criminal proceeding.”
85 The evidence of Mr Miller and Mr Dall, and perhaps Mr Jinks, was all to the effect that this questionnaire was prepared as part of the process of Stokes’ responding to queries from the Commissioner of Taxation as to its taxation affairs and its entitlement to a research and development grant. That matter has now become litigious, but there has been no suggestion that litigation was in the immediate contemplation of any of those involved in the questionnaire process when it was undertaken. There is a definition of the expression “business” in Clause 1 of the dictionary forming part of the Evidence Act 2008. The conduct of Stokes is within the scope of paragraph (a) of the definition. It is a “profession, calling, occupation, trade or undertaking”. Dealing with the Tax obligations relative to such a business can be regarded as conduct for the purposes of the business and the record is kept as part of the business’ records. In the circumstances, it is reasonable to suppose that the persons at Stokes, having knowledge of these matters, would have made their contribution. There is the further evidence of Mr Miller having made his own investigations on the subject independently of Pitcher Partners and reaching the same conclusions. (T101-107) The probabilities are that Mr Miller’s review and response to the Pitcher Partners questionnaire were not hasty superficial errors. The evidence disclosed that there were consultations between Stokes’ officers and representatives of Pitcher Partners. In the absence of any evidence to the contrary from the defendant, Mr Perez, or for that matter any challenge to the conclusions relative to the ownership of intellectual property in cross-examination, I am prepared to regard the ineligibility of the Ascendency project to have been established on the balance of probabilities based on the ownership of the resulting intellectual property. Mr Miller calculated that the Ascendency project represented 84 to 85 per cent of the total grant receipt, the subject of this proceeding. (T101, L6-21) The ineligibility of the R&D projects is established to the extent of 84 per cent of the total claimed based on these matters.
86 The conclusion that the balance of the grant income was derived in circumstances where the relevant projects were ineligible was based on the view that they were not properly substantiated. (T107, L6-20) This was the opinion of Mr Miller and also, it would seem, of Pitcher Partners. In their delayed written report dated 8 November 2018 and signed by Mr Dall, it was stated:
“5.2For the residual claims [viz the non-Ascendancy claims], it was apparent from available records that:
· significant amounts that were included as part of the R&D Tax Incentive claims were not incurred on the relevant R&D activities. For example, ordinary business expenses such as cost of goods sold were claimed; and
·arbitrary and / or unsupportable apportionment was applied in respect of employee salaries and wages that could not be substantiated by documentation.” (CB 88)
87 These are matters of opinion, and the opinion and the underlying facts are not divided in the manner in which such evidence is now required to be given (see Order 44 of the Court’s Rules). In addition, the matter as referred might not be regarded as pure expert opinion in any event. It may be that the documents referred to in the letter are part of the Court Book which is evidence before the Court. It might be possible by analysis of those documents to derive factual findings which would support Pitcher Partner’s conclusions. No attempt was made in the course of the trial to go through any such material and demonstrate the correctness of Pitcher Partner’s conclusions. Standard texts on Australian income tax law include extensive commentaries on what it is necessary to substantiate matters for the purpose of the expense claims and so forth. The Commissioner’s letter initiating his review of these grants referred to a number of other publications with website references and so forth. Mr Percy contended, correctly so far as I can see, that since these referenced items are not in evidence, it would be wrong for me to follow the references and consider such material. Plaintiff’s counsel referred to no statutory provision on the subject of substantiation, either generally under the income tax regime or specifically, relative to research and development. This Court exercises no jurisdiction under the income tax legislation except a debt-collecting one, which is confined to a regime of assessments creating liabilities in themselves, independently of proof of underlying fact, and certificates conclusive and prima facie provided for in the Schedule to the Income Administration Act 1953. Accordingly, I am not, myself, familiar with the substantiation regime. I do not think it appropriate to set out an investigation of it for a number of reasons, not least of them, that anything which I might find would not have been the subject of submissions from either party and which could be regarded as contrary to the rules of natural justice.
88 Therefore, the only basis upon which to conclude that the balance of 15 or 16 per cent of these grants were not validly claimed is the conclusory statements by Pitcher Partners and Mr Miller, which do not, in my opinion, constitute a proper evidentiary basis for making such a finding.
89 Confining myself, now, to the 84 per cent of the grants representing the Ascendency project, I conclude that the employment of “due skill and care” by the consultant, Mr Perez, would have disclosed the ineligibility of the Ascendency project for an R&D offset credit. Due skill and care would have led to the abandonment of any such application, with the result that that portion of the defendant’s total fee pertaining to the grants in the two income years for the Ascendency project would not have been incurred by the plaintiff, the principal stated plainly in the special condition to the Agreement “no fee no grant” will have ensured that. Mr Perez said he gave the issue of eligibility the go by entirely. This was not the exercise of due skill and care. The issue of form when the research was being carried out was crucial. Proper inquiries would have disclosed the ineligibility of the Ascendancy project to Mr Perez just as it was discovered by Pitcher Partners. The payment of that fee by Stokes to Mr Perez can therefore be properly regarded as loss and damage sustained by Stokes as the result of a breach of contract by Mr Perez. The damages sought are in the sum of $350,631.77. This is $14,000 or so in excess of the fee outlay made by the plaintiff. The make-up of that $14,000 approximate addition was not explained in the course of the trial. It may be that it represents interest paid or payable to the Commissioner under the arrangement to “unwind” the grants which has been entered into by the plaintiff. On the other hand, if the grant had not been received in the first place, the plaintiff would not have had the benefit of the moneys which it is now obliged to repay. This was not a matter much explored by Mr Percy, though he did place some emphasis on the fact that the plaintiff had not, as at the date of the written Statement of Claim or as at the date of trial, repaid more than about $400,000 of the principal sum representing the grant. The evidence was that, at any rate, after the agreements were signed with the Commissioner, the interest rate was taken to a non-penal level. The loss and damage on the interest front might be regarded as the excess of interest costs charged or chargeable by the Commissioner over and beyond the rate of which would have been payable by the plaintiff on a commercial borrowing. It may be that it is necessary for me to hear further submissions on the damages payable for breach of contract. In light of what I have already concluded, any damages awarded should be reduced by some 16 per cent from the amount claimed by the plaintiff.
90 Given that there is a presumption against recognition of a duty of care in tort to avoid purely economic loss in circumstances where the law of contract already provides a remedy to the agreed person, there is no occasion for resort to a duty of care in those circumstances. I pass on, therefore, from the claim in tort. (Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27)
91 I turn, finally, to the plaintiff’s case for the recovery of the fee as money paid under a mistake of fact. Mr Percy made the point repeatedly in submissions and cross-examination that, despite what was said in the Statement of Claim, Stokes had not been “required” to repay the grants by the Commissioner of Taxation. He said the repayment was voluntary and perhaps over-conservative on Stokes’ part. Inferentially, he contended that by unnecessarily abandoning its entitlement to the grants, Stokes could not impose an obligation on Mr Perez to disgorge his fee. Mr Percy correctly identified the assertion in the plaintiff’s Statement of Claim that it had been “required” to refund the grant. This may be a ground for finding that the Statement of Claim overstated the position. The overall tone of the evidence on behalf of Stokes was that, despite formalities, arrangements to reimburse the Commissioner were made not so much voluntarily as with a gun pointed at the plaintiff’s head. Ultimately, it is unnecessary to resolve this issue because the cause of action for moneys paid under a mistake does not depend upon the plaintiff’s having acted under some form of compulsion. It is sufficient as to this element of the cause of action that the plaintiff acted in making the initial fee payments under a mistake. I have already made findings to the effect that 84 per cent of the grants were not properly payable. The premise upon which the payments to Mr Perez were made was that these grants were so payable. The moneys were, therefore, paid under mistake, whether or not under compulsion. Mr Percy, however, relied upon a statement by the learned authors of Mason and Carter (3rd ed):
“If the money paid was actually due under a contract between the payer and the payee, there can be no recovery on the ground of mistake unless the contract itself is held void for mistake or is rescinded by the plaintiff, or can otherwise be set aside. This is the corollary of the principle that restitution law respects a contractual allocation of risk in a transaction.” p.183 [446].
92 The learned authors referred to the dictum of Brennan J, as he then was, in David Securities Pty Ltd v Commonwealth Bank of Australia –
“If a defendant has a right to receive a payment, whether under a statute, in discharge of a liability owing to him or pursuant to a contract, a mistake by the plaintiff in making the payment does not convert the receipt into an unjust enrichment. To the extent that a payment satisfies a defendant’s right to receive it, the defendant gives good consideration and is not unjustly enriched. If the defendant receives more than his due, he may be unjustly enriched to the extent of the excess and restitution may be ordered pro tanto.” (1992) 175 CLR 353, 392)
(Footnotes omitted.)
93 In one sense, it may be thought that this dictum is supportive of an entitlement “pro tanto”, to use his Honour’s words, for Stokes to recover the fees which it outlaid in circumstances where upon the true facts no such fee was payable, or at least was not payable except as to 16 per cent. More generally, however, the passage from Mason and Carter supports the view that restitution law should not intrude here where the matter is already dealt with by way of a damages entitlement for the plaintiff under contract law. The present contract has not been set aside either prospectively or retrospectively as being void or voidable. In those circumstances, the allocation of risk and loss made by the contract should be respected and no restitutionary claim should be countenanced. Mr Percy cross-examined the plaintiff’s witnesses so as to bring out the duties as to verification resting on Stokes itself (via the public officers) and Pitcher Partners as the agent lodging the tax returns. The effect is that as against the Commissioner, neither of these parties can be heard to disclaim responsibility by saying the R&D issue had been delegated to Mr Perez. Those matters do not preclude Mr Perez and Stokes by private contract agreeing that as between themselves responsibility lay with Mr Perez. There was no plea of contributory negligence nor any reliance on Part IVAA of the Wrongs Act 1958.
Relief
94 I will direct the parties to bring in short Minutes to give effect to these reasons and to make any further submissions they may desire to make as to the relief to be granted.
Costs
95 I have heard no submissions on the question of costs and so I will reserve them too.
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