Trackem Pty Ltd v Revenue Partners

[2021] WASC 245

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   TRACKEM PTY LTD (ACN 168 532 269) -v- REVENUE PARTNERS (A PARTNERSHIP) [2021] WASC 245

CORAM:   ARCHER J

HEARD:   20 MAY 2021 & 8 JUNE 2021

DELIVERED          :   26 JULY 2021

FILE NO/S:   CIV 2426 of 2019

BETWEEN:   TRACKEM PTY LTD (ACN 168 532 269)

Plaintiff (First Defendant by Counterclaim)

TRACKEM HOLDINGS PTY LTD (ACN 621 879 150)

Second Defendant by Counterclaim

KASHIF SALEEM

Third Defendant by Counterclaim

AND

REVENUE PARTNERS (A PARTNERSHIP)

First Defendant

REVENUE PARTNERS PTY LTD (ACN 622 084 673)

Second Defendant (First Plaintiff by Counterclaim)

REVENUE PARTNERS CONSULTING PTY LTD (ACN 625 055 941)

Third Defendant (Second Plaintiff by Counterclaim)

STEPHEN PATRICK McNALLY

Fourth Defendant (Third Plaintiff by Counterclaim)

KEYT JOHN ATKINSON

Fifth Defendant (Fourth Plaintiff by Counterclaim)

Catchwords:

Application to strike out parts of pleading - Factual foundation - Sufficient particularity - Ambiguity as to fraud

Legislation:

Nil

Result:

Application granted, parts of pleading struck out

Category:    B

Representation:

Counsel:

Plaintiff (First Defendant by Counterclaim)	:	Mr M L Bennett & Mr M Pullen
Second Defendant by Counterclaim	:	Mr M L Bennett & Mr M Pullen
Third Defendant by Counterclaim	:	Mr T J Porter
First Defendant	:	Mr M Holler
Second Defendant (First Plaintiff by Counterclaim)	:	Mr M Holler
Third Defendant (Second Plaintiff by Counterclaim)	:	Mr M Holler
Fourth Defendant (Third Plaintiff by Counterclaim)	:	Mr M Holler
Fifth Defendant (Fourth Plaintiff by Counterclaim)	:	Mr M Holler

Solicitors:

Plaintiff (First Defendant by Counterclaim)	:	Bennett + Co
Second Defendant by Counterclaim	:	Bennett + Co
Third Defendant by Counterclaim	:	Barry Nilsson Lawyers
First Defendant	:	Greg  Carter  Barrister & Solicitor
Second Defendant (First Plaintiff by Counterclaim)	:	Greg  Carter  Barrister & Solicitor
Third Defendant (Second Plaintiff by Counterclaim)	:	Greg  Carter  Barrister & Solicitor
Fourth Defendant (Third Plaintiff by Counterclaim)	:	Greg  Carter  Barrister & Solicitor
Fifth Defendant (Fourth Plaintiff by Counterclaim)	:	Greg  Carter  Barrister & Solicitor

Case(s) referred to in decision(s):

3meg.com Pty Ltd v TM & SM Pike Pty Ltd [2012] WASCA 128; (2012) 43 WAR 350

AVWest Aircraft Pty Ltd v Bombardier Inc [No 2] [2020] WASC 392

Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82

Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39

Deputy Commissioner of Taxation v Lafferty [2017] WASC 257

English v Vantage Holdings Group Pty Ltd [2021] WASCA 47

F & G Nominees Pty Ltd v Verdell Pty Ltd [2003] WASCA 290

Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 483

Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566

Metaxas v Legal Profession Complaints Committee [2020] WASCA 27

Murphy v State of Victoria & Anor [2014] VSCA 238; (2014) 289 FLR 337

National Australia Bank Limited v Rowe [2018] WASC 330

Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255

Patrick Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121

Re Tomker Pty Ltd (in liq) [2016] VSC 656

Rowe v National Australia Bank Limited [2019] WASCA 140; (2019) 46 WAR 1

Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398

Table of Contents

Overview

Background

The issues

Legal framework

Pleadings generally

Allegations of fraud

Where information known only to the opponent

Factual foundation

Applications to strike out

Prejudice, embarrass or delay the fair trial of the action

Abuse of process

Research and Development offsets

Research and development offsets

Assessment of entitlement to tax offsets

Amendment of assessment

The pleadings

Context

The challenged pleading in the Sixth Defence and Counterclaim

Defence par 38(b)(v)(A)(5), par 38(b)(xiv) and par 38(b)(xiv)(A)

Counterclaim pleading of Representation 14 and 15

Summary of challenged pleading

The written submissions

The Trackem parties' submissions

The defendants' response to the Trackem parties' submissions

Mr Saleem's submissions

The defendants' response to Mr Saleem's submissions

The hearing on 29 May 2021

The defendants' case explained

Factual foundation

Asserted material facts

The falsity of Trackem Representation 15

Opportunity to redraft

The Seventh Defence and Counterclaim

The hearing on 8 June 2021

Conclusive evidence provision

Is the challenged pleading embarrassing?

Is fraud alleged?

Conclusion

ARCHER J:

Overview

1. This is an application by the plaintiff and first defendant by counterclaim (Trackem) and the second defendant by counterclaim (Trackem Holdings) to strike out various paragraphs of the defence and counterclaim in these proceedings, under O 20 r 19(1)(c) and/or (d) of the Rules of the Supreme Court 1971 (WA). Under those rules, the court has the power to strike out a pleading, or part of a pleading, if it may prejudice, embarrass or delay the fair trial of the action or if it is otherwise an abuse of the process of the court.

2. The primary complaint of Trackem and Trackem Holdings (the Trackem parties) was that the challenged pleading was 'imbued with veiled allegations of fraud that are not specifically pleaded or particularised'.[1]  They submitted, in effect, that the pleading was at least ambiguous as to whether it alleged dishonesty, and that any such dishonesty would constitute serious tax offences. 

   [1] Submissions of the plaintiff and the first and second defendants by counterclaim filed 18 February 2021 [2].

3. The third defendant by counterclaim (Mr Saleem) is a director of Trackem.  He supported the application.  He did so primarily on the basis that the pleading failed to plead necessary material facts.

4. The defendants submitted that they do not plead or assert fraud.  They further submitted that they were unable to plead in more detail because the detail was solely in the knowledge of Trackem.

5. The strike out application was listed for hearing on 20 May 2021.  During the hearing, it emerged that the defendants' pleading did not reflect the case they sought to run.  Accordingly, I adjourned the hearing to 8 June 2021 to enable the defendants to file a further amended pleading.

6. The defendants duly did so, and the hearing was resumed. 

7. For the reasons that follow, I consider that the challenged pleading should be struck out.

Background

1. Trackem licenses tracking software to other businesses, primarily in the resources sector. 

2. The relationship between the parties began in 2017.  Much is in dispute.  In particular, it is disputed that a partnership existed between the fourth defendant, Mr McNally, and the fifth defendant, Mr Atkinson.  Both Mr McNally and Mr Atkinson are directors and officers of the second and third defendants, Revenue Partners Pty Ltd (RP) and Revenue Partners Consulting Pty Ltd.  The alleged partnership is the first defendant.  For the purpose of the current application, it is largely unnecessary to distinguish between the defendants.  Accordingly, I will use 'the defendants' to refer to one or more of the defendants, unless it is necessary to be specific. 

3. It is common ground that the defendants were engaged to undertake an assessment of Trackem.  The defendants were to assess Trackem's current capabilities and constraints to determine how the defendants could assist Trackem in accelerating its revenue growth.

4. Later in 2017, Mr Atkinson was engaged by Trackem in a sales role.

5. Subsequently, the defendants continued to do work for Trackem under a Memorandum of Understanding (MOU).  The work included giving effect to the defendants' plan for the implementation of the recommendations it had made in the earlier assessment.

6. In 2018, the MOU was terminated by mutual consent.  Following the termination, the defendants issued invoices to Trackem.  Trackem alleges it is not obliged to pay those invoices.  It alleges that:

   (a)the MOU was void or was terminated before the invoiced services were purportedly provided;

   (b)the invoices relate to services that were not provided; and

   (c)Trackem is entitled to a set off.

7. In addition, Trackem claims restitution against the defendants on various grounds, including that they made false representations.  Trackem also claims the defendants engaged in misleading or deceptive conduct, causing it to suffer a loss.

8. Trackem further claims that, if the MOU was a legal contract, it was breached by the defendants.

9. On 16 November 2018, Trackem lodged a writ of summons in the District Court.  On 20 March 2019, a Statement of Claim was filed.  On 10 June 2019, a defence and counterclaim was filed.

10. On 17 July 2019, the matter was remitted to the Supreme Court by consent.  Multiple amendments to the defence and counterclaim followed.  The matter was admitted to my CMC List on 9 July 2020.

11. On 24 December 2020, the Trackem parties filed an application to strike out parts of the defendants' fifth defence and counterclaim.[2]

    [2] Third Further Amended Defence and Third Further Amended Counterclaim filed 20 July 2020.

12. On 10 February 2021, the defendants filed a minute of what would be their sixth defence and counterclaim (Sixth Defence and Counterclaim).[3] 

    [3] Minute of Fourth Further Amended Defence and Fourth Further Amended Counterclaim filed 10 February 2021.

13. To accommodate the changes reflected in the Sixth Defence and Counterclaim, the Trackem parties filed an amended strike out application on 18 February 2021 (Application).  That Application is the focus of these reasons.

14. The Trackem parties, Mr Saleem, and the defendants filed written submissions.  Both the Trackem parties and the defendants sought indemnity costs.

15. The Application was listed for hearing on 20 May 2021.  As noted in the Overview, it emerged during the hearing that the defendants' pleading did not reflect the case they sought to run.  Accordingly, I adjourned the hearing to 8 June 2021 to enable the defendants to file a further amended pleading.  On 4 June 2021, the defendants filed a minute of their seventh defence and counterclaim (Seventh Defence and Counterclaim).[4]  The amendments improved the pleading to an extent.  However, they did not resolve the objections of the Trackem parties or Mr Saleem. 

    [4] Minute of Fifth Further Amended Defence and Fifth Further Amended Counterclaim filed 4 June 2021.

16. The hearing resumed on 8 June 2021.  After some exchanges, the defendants sought another opportunity to further amend their pleading.  Given the history of the matter, I considered that it would be more efficient to rule on the Application based on the Seventh Defence and Counterclaim.  My reasons will inform the defendants in determining their next steps and, in particular, whether they should persist in seeking to re-plead the challenged allegations and, if so, the manner in which they do so. 

The issues

1. In view of the submissions, there are two critical issues.  These are whether the challenged pleading:

   (1)sufficiently states material facts; and

   (2)implicitly raises an allegation of fraud.

Legal framework

Pleadings generally[5]

[5] This section reproduces or draws upon aspects of my judgment in AVWest Aircraft Pty Ltd v Bombardier Inc [No 2] [2020] WASC 392.

1. A pleading must define the issues to be tried and disclose an arguable claim.  This will provide the basis for determining what needs to be discovered and what evidence will be admissible.  A pleading must also inform the other party of the case that has to be met.  When determining the adequacy of a pleading, these purposes should be kept in mind.[6]

   [6] See Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 [4].

2. In Barclay Mowlem Construction Ltd v Dampier Port Authority,[7] Martin CJ observed that contemporary case management techniques and processes leave very little opportunity for ambush at trial.  At the time Barclay Mowlem was decided, the evidence of witnesses was generally contained in a witness statement filed prior to trial.  Now, the evidence is usually adduced orally.  However, an outline of the evidence‑in‑chief of lay witnesses must be disclosed pre‑trial, reducing the risk of ambush to the same degree as a witness statement.  In addition, in many cases in the CMC list, the parties will be required to identify, pre‑trial, the issues that will need to be determined by the trial judge. 

   [7] Barclay Mowlem [5] ‑ [6].

3. This does not mean that the need for proper pleading can be ignored.  The pleading must still fulfil its basic functions.[8]  A pleading will not, for example, inform the opposing party of the case it must meet unless it includes every material fact which, if not pleaded, might take an opposing party by surprise.[9]

   [8] Barclay Mowlem [7].

   [9] F & G Nominees Pty Ltd v Verdell Pty Ltd [2003] WASCA 290 [135] - [136]; 3meg.com Pty Ltd v TM & SM Pike Pty Ltd [2012] WASCA 128; (2012) 43 WAR 350 [73].

4. A pleading can, and should, fulfil those functions without including vast swathes of evidence or unnecessary particulars. 

5. Order 20 r 8(1) of the Rules of the Supreme Court relevantly[10] provides:

   [E]very pleading must contain, and contain only, a statement in a summary form of the material facts on which the party pleading relies for his claim or defence, as the case may be, but not the evidence by which those facts are to be proved, and the statement must be as brief as the nature of the case admits.

   [10] Pleadings are subject to the other provisions of O 20 r 8 (including that a pleading must state the effect of any document or any conversation but not the precise words), and to r 11 (pleadings to be consistent), r 12 (law may be pleaded) and r 13 (must contain necessary particulars, particulars required of certain allegations, and court may order particulars).

6. In National Australia Bank Limited v Rowe,[11] Vaughan J[12] observed (citation omitted):

   [T]he goal in O 1 r 4A of the Rules of the Supreme Court 1971 (WA) and the objects of O 1 r 4B are best achieved through conscientious adherence to O 20 r 8(1). Prolixity obscures identification of the true issues in contention and adversely impacts on the proper and efficient preparation of a case and its presentation at trial. …

   The requirements of O 20 r 8(1) should be observed in preparing a pleading. Practitioners may do so confident in the knowledge that a summary statement of the material facts - and only such a summary statement - is what is required by the rules.  The true significance of the case management authorities in this area is that it is unnecessary to encumber a pleading with unnecessary particulars, and all the more so evidence, as it is inevitable that there will be subsequent pre‑trial disclosure of the evidence to be adduced at trial.

   A pleading must identify the issues, disclose an arguable claim or defence, and inform the parties of the case to be met.  In doing so it should be clear and complete but concise.  That standard is not met by over‑complicating the pleading with unnecessary particulars and evidence.

   [11] National Australia Bank Limited v Rowe [2018] WASC 330 [4] ‑ [6].

   [12] As his Honour then was.

7. These observations were endorsed by the Court of Appeal.[13]

Allegations of fraud

[13] Rowe v National Australia Bank Limited [2019] WASCA 140; (2019) 46 WAR 1 [15], [165].

1. It was common ground that allegations which effectively are of fraud must be clearly pleaded and particularised, and must make plain that it is alleged that the person who made the statement knew it to be false or was careless as to its truth or falsity.[14] 

   [14] Forrest v AustralianSecurities and Investments Commission [2012] HCA 39; (2012) 247 CLR 483 [26] (French CJ, Gummow, Hayne and Kiefel JJ).

2. In Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd, Ipp J[15] noted:[16]

   In Fluor Australia Pty Ltd v State Energy Commission (WA), unreported; SCt of WA; Library No 6682; 10 April 1987 it was held that if allegations, effectively of fraud, are made in support of a plea of negligent misstatement, they must be pleaded with the same clarity as in an action in deceit.  Similar allegations apply to conduct said to be in breaches of s 52 of the Trade Practices Act:  See Gold Coast City Council v Pioneer Concrete Pty Ltd (1998) 157 ALR 135 where Drummond J said at 149:

   Precision in identifying the facts relied on as constituting the statutory cause of action is just as necessary as precision in pleading a case of common law fraud.'

   As the pleading in question did not identify in clear fashion the conduct said to be misleading or deceptive, the relevant paragraphs were struck out.

Where information known only to the opponent

[15] As his Honour then was.

[16] Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 [36], endorsed in English v Vantage Holdings Group Pty Ltd [2021] WASCA 47[116] and footnote 94 (Murphy and Vaughan JJA).

1. In Jingellic Minerals NL v Abigroup Ltd, the Court of Appeal noted that:[17]

   There is authority for the proposition that when one party knows the facts and the other does not, an insufficiently particularised allegation may be made in a statement of claim and the plaintiff be permitted to obtain discovery of documents and answers to interrogatories before providing the necessary particulars.

   [17] Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566, 570.

2. This does not mean, however, that allegations may be pleaded without a proper factual foundation.  The need for a factual foundation in this context was referred to by the Victorian Court of Appeal in Murphy v State of Victoria & Anor:[18]

   It is one thing to make an allegation without any basis for it - which is plainly impermissible - and quite another to make allegations - as the appellant did in this case - which ex facie were soundly based on the best particulars which could be given until after discovery (and which, it should be noted, were not sought to be struck out as being something else).  In a case like this, where ex hypothesi the documents needed to prove the appellant's allegations were within the respondents' exclusive possession or power, and the respondents refused to produce them, the appellant not only had no option other than to plead his case as he did but was perfectly entitled to do so.  The propriety of so proceeding is established by a long line of authority dating back to the nineteenth century.  [footnoting a number of cases including Egg and Pulp Marketing Board v K H Tocumal Trading Co Pty Ltd [1963] VR 378, 381; Jingelic Mineral NL v Abigroup Ltd (1992) 7 WAR 566, 570; and Trade Practices Commission v CC (New South Wales) Pty Ltd (1995) 58 FCR 426, 439.]

   … to foreclose a plaintiff's opportunity of obtaining discovery from the State in order to prove a case which is ex facie implied by so many of the documents as are presently available to him would be to subvert the justice process. 

Factual foundation

[18] Murphy v State of Victoria & Anor [2014] VSCA 238; (2014) 289 FLR 337 [35], [37].

1. In Metaxas v Legal Profession Complaints Committee, Quinlan CJ and Pritchard JA, with whom Mitchell JA agreed on this point, said:[19]

   The requirement for a 'proper' factual foundation for a pleading or submission is, therefore, simply an acknowledgement that a practitioner is required to critically evaluate the contention that he or she proposes to advance to the court to see that there is a reasonable basis for doing so.  It requires the practitioner to take steps to ensure that the court is not misled, while acknowledging that the practitioner's obligation is not a counsel of perfection and a practitioner often is not in a position to warrant the reliability of information supplied by other persons.

   What steps are necessary for there to be a proper factual foundation for a pleading or submission will, of course, vary with the circumstances of the case.  Relevant considerations may include the resources of the practitioner, the ability of the client to pay for legal work, whether it is reasonable to proceed on the basis of a client's instructions as to matters not personally known to the practitioner and the knowledge of the practitioner.  The nature of the pleading or submission will also be important.  In the case of an allegation of fraud or serious misconduct, for example, the steps necessary to ensure that there is a proper factual basis are likely to be greater than in the case of a pleading or submission relating to more quotidian matters.  Nevertheless, the principle remains one of general application.

   …

   The word 'proper' in this context is equivalent to 'reasonable', and is intended to capture the qualitative aspect of a practitioner's duty not to mislead the court. 

Applications to strike out

[19] Metaxas v Legal Profession Complaints Committee [2020] WASCA 27 [68] - [69], [71] (Quinlan CJ and Pritchard JA), [155] (Mitchell JA).

1. As noted in the Overview, the Trackem parties seek to strike out various paragraphs of the defendants' pleading under O 20 r 19(1)(c) and/or (d) of the Rules of the Supreme Court.  Under those rules, the court has the power to strike out a pleading, or part of a pleading, if it may prejudice, embarrass or delay the fair trial of the action or if it is otherwise an abuse of process of the court. 

2. In Vantage Holdings Group Pty Ltd v Donnelly [No 4], Smith J said (citations omitted):[20]

   (g)in considering a strike out application, it is now necessary to consider the role of pleadings in the context of case management techniques. Case management considerations are not, however, necessarily antithetical to the observance of pleading rules. The objects of O 1 r 4A and 4B of the Rules of the Supreme Court 1971 (WA) are often promoted by a clear and precise statement of the issues for decision;

   (h)provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action (or defence), and apprising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleading rules that evolved in, and derive from, a very different case management environment.

Prejudice, embarrass or delay the fair trial of the action

[20] Vantage Holdings Group Pty Ltd v Donnelly [No 4][2019] WASC 398 [60]. While this decision was reversed on appeal, the Court of Appeal nonetheless endorsed her Honour Smith J's synthesis of the relevant principles: see Vantage Holdings [2021] WASCA 47 [55] - [56].

1. In Vantage Holdings, Smith J also said (citations omitted):[21]

   (i)pleadings may be struck out on the ground that they may prejudice, embarrass or delay the fair trial of the action because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general.

Abuse of process

[21] Vantage Holdings [2019] WASC 398 [60].

1. In Patrick Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd,[22]  Vaughan J[23] explained the legal principles governing abuse of process.  His Honour said (citations omitted):[24]

   What amounts to an abuse of the court's process is insusceptible of a formulation comprising closed categories. It extends to all categories of case in which the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness.  Abuse of process occurs in any circumstance in which the use of the court's procedures would be unjustifiably oppressive to a party or would bring the administration of justice into disrepute.  However, the onus of satisfying the court that there is an abuse of process is a heavy one.  The power to dismiss proceedings as an abuse of process should be exercised with caution and only in the most exceptional or extreme case.

Research and Development offsets

[22] Patrick Jebb as trustee for the Trafalgar West Investments Trust v Superior Lawns Australia Pty Ltd [2019] WASC 121.

[23] As his Honour then was.

[24] Patrick Jebb [102].

1. By its Application, the Trackem parties sought to strike out the parts of the pleading which involved allegations that Trackem had falsely represented that Trackem was entitled to, and would receive, a research and development tax offset (R&D tax offset) for the 2016/2017 financial year.

2. It is common ground that Trackem lodged a tax return for the 2016/2017 financial year in which it claimed an R&D tax offset.  It is common ground that Trackem received the R&D tax offset.

3. In order to understand the parties' submissions, it is necessary to set out the legislative framework in some detail.

Research and development offsets

1. Taxpayers may be entitled to tax offsets for having undertaken research and development (R&D) activities.

2. Tax offsets for R&D activities are governed by the Industry Research and Development Act 1986 (Cth) (IRD Act).  To claim an offset, an 'R&D entity'[25] must be registered for R&D activities under Part III of the IRD Act. Trackem was so registered.[26]

   [25] Defined in s 355-35(1)(a) Income Tax Assessment Act 1997 (Cth) (ITAA 1997) as including a body corporate incorporated under an Australian law.

   [26] This appeared to be common ground.  See also the affidavit of Mr Saleem sworn 17 February 2021 (Saleem Affidavit) [6].

3. An R&D entity is entitled to a tax offset for, among other things, expenditure on 'R&D activities'.[27]

   [27] Section 355-100 of the ITAA 1997.

4. 'R&D activities' are defined to be 'core R&D activities' or 'supporting R&D activities'.  These terms are defined in the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) as follows:

   355-25 Core R&D activities

   (1)Core R&D activities are experimental activities:

   (a)whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:

   (i)is based on principles of established science; and

   (ii)proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and

   (b)that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

   (2)However, none of the following activities are core R&D activities:

   (a)market research, market testing or market development, or sales promotion (including consumer surveys);

   (b)prospecting, exploring or drilling for minerals or *petroleum for the purposes of one or more of the following:

   (i)discovering deposits;

   (ii)determining more precisely the location of deposits;

   (iii)determining the size or quality of deposits;

   (c)management studies or efficiency surveys;

   (d)research in social sciences, arts or humanities;

   (e)commercial, legal and administrative aspects of patenting, licensing or other activities;

   (f)activities associated with complying with statutory requirements or standards, including one or more of the following:

   (i)maintaining national standards;

   (ii)calibrating secondary standards;

   (iii)routine testing and analysis of materials, components, products, processes, soils, atmospheres and other things;

   (g)any activity related to the reproduction of a commercial product or process:

   (i)by a physical examination of an existing system; or

   (ii)from plans, blueprints, detailed specifications or publically available information;

   (h)developing, modifying or customising computer software for the dominant purpose of use by any of the following entities for their internal administration (including the internal administration of their business functions):

   (i)the entity (the developer) for which the software is developed, modified or customised;

   (ii)an entity *connected with the developer;

   (iii)an *affiliate of the developer, or an entity of which the developer is an affiliate.

   355-30 Supporting R&D activities

   (1)Supporting R&D activities are activities directly related to *core R&D activities.

   (2)However, if an activity:

   (a)is an activity referred to in subsection 355-25(2); or

   (b)produces goods or services; or

   (c)is directly related to producing goods or services;

   the activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting *core R&D activities.

Assessment of entitlement to tax offsets

1. Being a company, Trackem is a full self-assessment taxpayer.[28]  When a full self-assessment taxpayer lodges a return:[29]

   1.the Commissioner is taken to have made an assessment of, among other things, the total of the taxpayer's tax offset refunds;

   2.the assessment is taken to have been made on the day on which the return was lodged; and

   3.from that time onwards, the return is taken to be a notice of the assessment.

   [28] See the definition of 'full self-assessment taxpayer' in s 6 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936).

   [29] Provided it is the first return that the taxpayer has lodged for that financial year: see s 166A(3) of the ITAA 1936.

2. A notice of assessment is conclusive evidence that:[30]

   (a)the assessment was properly made; and

   (b)except in proceedings under Part IVC of the Tax Administration Act 1953 (Cth) (TAA) on a review or appeal relating to the assessment, the amounts and particulars of the assessment are correct.

Amendment of assessment

[30] Tax Administration Act 1953 (Cth) (TAA), sch 1 s 350-10(1) item 2. See also Deputy Commissioner of Taxation v Lafferty [2017] WASC 257 [22].

1. Under item 2 of s 170(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936), the Commissioner may amend an assessment of a company that is a small business entity within two years after the day on which the return was lodged. 

2. Trackem is a small business entity.[31]  It lodged the relevant return (for the financial year 2016/2017) on or about 15 March 2018.[32] Therefore, the Commissioner no longer had the power to amend it under item 2 of s 170(1) of the ITAA 1936 as of March 2020.

   [31] This appeared to be common ground, and see page 8 of the Saleem Affidavit.

   [32] Saleem Affidavit [7].

3. Under s 355-710 of the ITAA 1997, the Commissioner may amend an assessment after that two-year period has elapsed in certain circumstances.  In short, if the relevant board makes a particular finding within four years after the end of the income year, and gives the Commissioner a certificate setting out its finding,[33] the Commissioner has the power to amend the assessment so as to increase the taxpayer's liability in the two year period following the receipt of the certificate.

   [33] See s 355-705 of the ITAA 1997.

4. It was common ground that the relevant board had not made a finding in relation to Trackem's R&D tax offset for the financial year 2016/2017.  Its power to do so expired on 1 July 2021. 

5. Under item 5 of s 170(1) of the ITAA 1936, the Commissioner may also amend an assessment, without any time limitation, if he or she is of the opinion that there has been fraud or evasion.

6. Accordingly, the assessment could now only be amended if the Commissioner is of the opinion that there has been fraud or evasion.

The pleadings

1. To explain why I considered it appropriate to rule on the Application now, and to provide sufficient information from which suitable costs orders can be made, it is necessary to set out the relevant parts of both the Sixth and the Seventh Defence and Counterclaim.  It is also necessary to set out the way in which the defendants orally explained what they sought to allege.

Context

1. In its Statement of Claim, Trackem alleged that the defendants had engaged in misleading or deceptive conduct by making various representations.  The alleged representations included representations described as the 'Initial Representations'.[34]

   [34] The 'Initial Representations' alleged in the Statement of Claim are that the first defendant had the experience, capability and expertise to deliver services to Trackem that would result in Trackem achieving accelerated sustainable revenue growth; that Trackem would achieve accelerated sustainable revenue growth by engaging and working with the first defendant and that the first defendant's business engagement fees would be subsidised by the revenue growth it generated for Trackem.

2. In the Sixth Defence and Counterclaim, the defendants denied making the Initial Representations, but plead various matters in the alternative if it is found that they did make them.[35]  One of the matters pleaded is that they were relying on the truth of various representations made by Trackem (Trackem Representations).[36]  These included:

   1.Representation 6: the technology platform of Trackem was 'robust, modern and ready for growth'.[37]

   2.Representation 11: the next generation of Trackem’s technology platform could be built in 3 months.[38]

   3.Trackem Representation 14: Trackem was entitled to an R&D tax offset which would be around $213,000 with some variation (10 to 20%).[39]

   [35] Sixth Defence [38].

   [36] Sixth Defence [38(a)(1)].

   [37] Sixth Defence [38(b)(vi)]; Sixth Counterclaim [37].

   [38] Sixth Defence [38(b)(xi)]; Sixth Counterclaim [37].

   [39] Sixth Defence [38(b)(xiv)]; Sixth Counterclaim [41].

3. The defendants alleged that the Trackem Representations were false, misleading or deceptive or likely to mislead or deceive.  In these reasons, I will refer to this list of alternatives by the shorthand description 'false or misleading'.

4. Further, in the Sixth Counterclaim, the defendants alleged[40] that Trackem made additional representations which were false or misleading.  These included:

   1.Capital Raising Representation: 'Term 2' - if RP was successful in raising at least $700,000 in new equity capital for Trackem Holdings, Trackem Holdings would, at the completion of the Capital Raising, issue 15% of its total share capital to RP.[41]

   2.Capital Raising Representation: 'Term 3' - if Trackem Holdings failed to issue 15% of its total share capital to RP at the completion of the Capital Raising, Mr Saleem would forthwith transfer to RP an equivalent number of shares from his own shareholding in Trackem Holdings.[42]

   3.Further Capital Raising Representation: Mr Saleem agreed to vary Term 2 and Term 3 by reducing the percentage of shares from 15% to 10%.[43]

   4.Trackem Representation 15: Trackem would receive an R&D tax offset of $205,529.[44]

   [40] Sixth Counterclaim [47].

   [41] Sixth Counterclaim [7(b)], [8], [40].

   [42] Sixth Counterclaim [7(c)], [8], [40].

   [43] Sixth Counterclaim [10A], [40].

   [44] Sixth Counterclaim [42].

5. The defendants alleged[45] that they relied on these four representations, and Representations 6, 11 and 14 of the Trackem Representations, when RP acquired 500,000 shares in Trackem Holdings. 

   [45] Sixth Counterclaim [47].

6. The defendants alleged[46] that, if Mr McNally  and Mr Atkinson had known that the representations were false or misleading, they would have valued Trackem Holdings as having 'close to zero value' and would not have caused RP to acquire any shares in Trackem Holdings.  In short, the defendants were advancing a ‘no transaction’ case in relation to the acquisition of the shares.

The challenged pleading in the Sixth Defence and Counterclaim

[46] Sixth Counterclaim [48].

1. The Trackem parties sought to strike out par 38(b)(v)(A)(5), par 38(b)(xiv) and par 38(b)(xiv)(A) of the Sixth Defence.  They also sought to strike out par 41 to par 46 of the Sixth Counterclaim and the references to Trackem Representation 14 and Trackem Representation 15 in par 47 to par 49 of the Counterclaim. 

Defence par 38(b)(v)(A)(5), par 38(b)(xiv) and par 38(b)(xiv)(A)

1. The impugned parts of par 38(b) of the Defence, in bold, read as follows:

   38.In the alternative if, which is denied, the Initial Representations pleaded in paragraphs 32.1, 32.2 and/or 32.3 were made:

   …

   (b)the Initial Representations were made by Mr McNally and/or Mr Atkinson in reliance on the truth of representations expressly or impliedly made by Mr  Saleem, both personally and on behalf of Trackem, from May to November 2017, to Mr McNally, Mr Atkinson and or Revenue Partners in its capacity as trustee for the Revenue Partners Trust, which representations were false, misleading or deceptive, or likely to mislead or deceive, namely:

   …

   (v)that Trackem had the necessary financial capacity to   invest in growing revenue (Trackem Representation 5)

   …

   (v)(A)Trackem Representation 5 was false, misleading or deceptive, or likely to mislead or deceive as Trackem did not have the necessary financial capacity to invest in growing revenue, in that:

   …

   (5)despite its representation to the contrary, Trackem was not able to offset its GST and PAYG liabilities as it was not entitled to any R&D tax offsets as pleading in paragraph 38(b)(xiv) below.

   …

   (xiv) that Trackem was entitled to a Research & Development (R&D) tax offset which would be around $213,000 with some variation (10 to 20%) (Trackem Representation 14) [The representation is then particularised as having been in writing and contained in specified emails, and as relating to the 2017 financial year.]

   …

   (xiv)(A) Trackem Representation 14 was false, misleading and deceptive, or likely to mislead or deceive as Trackem was not entitled to any tax offset under Division 355 of the Income Tax Assessment Act 1997 (Cth) (ITAA) because Trackem did not conduct any 'R&D activities' as defined in Subdivision 355-20 of the ITAA as:

   (a)     none of the activities conducted by Trackem constituted 'Core R&D activities', as defined in section 355-25 of the ITAA, as Trackem's activities were not experimental activities:

   (i)whose outcome could not be known or determined in advance on the basis of current knowledge, information or experience, but could only be determined by applying a systematic progression of work that:

   (A)was based on principles of established science; and

   (B)proceeded from hypothesis to experiment, observation and evaluation, and led to logical conclusions; and

   (ii)that were conducted for the purpose of generating new knowledge (including new knowledge in the form or new or improved materials, products, devices, processes or services);

   (b)     none of the activities conducted by Trackem constituted 'Supporting R&D activities', as defined in section 355-30 of the ITAA, as none of Trackem's activities directly related to 'Core R&D activities' as defined in section 355-25 of the ITAA.

Counterclaim pleading of Representation 14 and 15

1. Paragraph 41 of the Sixth Counterclaim repeated the pleading of Trackem Representation 14 in par 38(b)(xiv), extracted earlier.

2. Paragraph 42 of the Sixth Counterclaim pleaded Trackem Representation 15 in these terms:

   On 6 March 2018 Mr Saleem represented to Mr Hugh Beggs and Mr McNally that Trackem would receive a R&D tax offset of $205,529 (Trackem Representation 15).

3. This alleged representation was particularised as having been made in various emails, read with other specified documents.  The defendants also repeated par 1 and par 2 of the particulars to the pleading of Trackem Representation 14.

4. Paragraph 43 of the Sixth Counterclaim alleged that Trackem Representation 14 and Trackem Representation 15 were false or misleading as pleaded in par 38(b)(xiv)(A) of the Defence, extracted earlier.

5. Paragraph 45 of the Sixth Counterclaim alleged that they were representations as to future matters.

6. Paragraph 46 of the Sixth Counterclaim alleged that they were misleading or deceptive or likely to mislead or deceive because they were false and, further or alternatively, Mr Saleem and Trackem had no reasonable grounds for making them.

7. The rest of the challenged pleading in the Sixth Counterclaim alleged other elements of an action in misleading or deceptive conduct. 

Summary of challenged pleading

1. In short, the challenged pleading alleged:

   1.Trackem and Mr Saleem represented that Trackem was entitled to an R&D tax offset which would be around $213,000 (Trackem Representation 14);

   2.Trackem and Mr Saleem represented that Trackem would receive an R&D tax offset of $205,529 (Trackem Representation 15);

3.The representations were false or misleading as Trackem was not entitled to an R&D tax offset because Trackem did not conduct any ‘R&D activities’ as defined in the legislation; and/or

4.Mr Saleem and Trackem had no reasonable grounds for making the representations.

The written submissions

The Trackem parties' submissions

1. The Trackem parties submitted, in effect, that the pleading was at least ambiguous as to whether the defendants alleged dishonesty, and that any such dishonesty would constitute a serious offence.

2. They submitted that the defendants filed the challenged pleading despite knowing that Trackem did in fact claim and receive an R&D tax offset for the 2016/2017 financial year and despite knowing that the claim had been made on the basis that Trackem had undertaken $472,480 of eligible R&D activities.

3. The Trackem parties noted that the challenged pleading in relation to Trackem Representation 15 particularised a letter to Trackem from RSM (RSM letter), in which RSM provided expert advice to Trackem in relation to its R&D claim for the 2016/2017 financial year.  In the letter, RSM made it plain that the assessment scheme was based on self-assessment, and that RSM relied upon the assertions made, and information provided, by Trackem.

4. In the letter, RSM stated:[47]

   Please note that the availability of the R&D Tax incentive to Trackem rests on the premise that all activities for which R&D expenditure has been claimed are eligible R&D activities as defined in the relevant R&D provisions as contained in Division 355 of the Income Tax Assessment Act 1997 (ITAA). The assessment of the eligibility of these activities, and associated expenditure, relies on the assertions made by Trackem personnel in relation to technical and financial aspects of the projects. We have met with the project teams and documented the claim for R&D Tax Incentive eligibility in light of the definition of R&D activities in Section 355-20 of the ITAA.

   …

   The R&D activities registered for the 2016/17 R&D claim have been jointly identified with Trackem based on the requirements for determining core and supporting R&D activities and Trackem maintaining appropriate documents. Trackem has reviewed and approved the R&D activities prior to the lodgement of the AusIndustry Registration.

   [47] Saleem Affidavit pages 39 and 42.

5. The Trackem parties submitted that, in these circumstances, in alleging that Trackem did not undertake any qualifying R&D activities, the defendants plainly alleged that Trackem claimed and received a tax benefit that it was not lawfully entitled to claim or receive, and that it must have obtained that benefit by providing false information.

6. They submitted that the provision of false information in these circumstances could be a crime or, at the very least, give rise to civil liability for negligence or breach of director's duties.

7. The Trackem parties asserted that the defendants must either:

   1.specifically plead the fraud (as it is an abuse of process to conceal such an allegation); or

   2.remove the ambiguity in the pleading by clarifying whether it is alleged that the false information was provided innocently, recklessly, or dishonestly (else it is embarrassing). 

The defendants' response to the Trackem parties' submissions

1. The defendants submitted that they did not allege fraud, and simply alleged a routine misleading or deceptive conduct claim.

2. They further submitted that, '[t]he absence of a separate, clear and particularised plea of fraud is confirmation no such plea is intended.'[48] 

Mr Saleem's submissions

[48] Outline of Submissions of the Defendants in Response to Submissions of the Plaintiff and the First and Second Defendants by Counterclaim filed 8 March 2021 [7].

1. Mr Saleem's written submissions helpfully summarised the statutory framework regulating tax offsets for R&D activities under the tax legislation.

2. In addition to stating support for the Trackem parties' submissions, Mr Saleem raised the following contentions.

3. First, Mr Saleem submitted, in effect, that the pleading did nothing more than mirror the terms of the legislation, without identifying any material facts such as why a particular activity of Trackem did not constitute an R&D activity.

4. Second, Mr Saleem pointed out that, under the legislative regime,[49] a notice of assessment is conclusive evidence that an assessment was properly made, and, except in proceedings under Part IVC of the TAA in a review or appeal relating to the assessment, that the amounts and particulars in the assessment are correct.

The defendants' response to Mr Saleem's submissions

[49] See sch 1 s 350-10(1) item 2 of the TAA.

1. In response to Mr Saleem's first contention, the defendants submitted that the details of the activities conducted by Trackem and claimed as qualifying experimental activities were matters peculiarly within the knowledge of Trackem.  They said, in effect, that they could not provide any further detail until after discovery.  They said that, in these circumstances, they were entitled to plead in this way, citing Jingellic Minerals, set out earlier.[50]

   [50] Defendants' Outline of Submissions in Reply to Outline of Submissions and Supplementary Submissions of the Third Defendant by Counterclaim filed 7 May 2021 (Defendants' Second Submissions) [3] and [8].  See also ts 44 - 47.

2. The defendants further submitted that Mr Saleem did know the case he had to meet, because it was pleaded:[51]

   that Trackem did not conduct any 'R&D activities' as defined in Subdivision 355-20 of the Income Tax Assessment Act 1997 (Cth) ('ITAA').  In particular it is pleaded in paragraph 38(b)(xiv)(A)(a) of the Defence that none of the activities conducted by Trackem constituted 'core R&D activities' as Trackem's activities were not experimental activities for various reasons identified in sub‑paragraphs (i) and (ii).  Nor were they 'supporting R&D activities' as none of Trackem's activities directly related to 'core R&D activities' meaning, in context, the experimental activities pleaded in paragraph 38(b)(xiv)(A)(a).

   [51] Defendants' Second Submissions [6].

3. The defendants also submitted:[52]

   Further, and consistent with where the knowledge lies, if an affirmative Defence is pleaded to the Counterclaim by Mr Saleem and the Trackem Parties by, for example, asserting that qualifying experimental activities were in fact conducted then those experimental activities will need to be identified and proved by Mr Saleem and the Trackem Parties. Absent such an affirmative Defence that case and affirmative evidence in support of it could not be run by Mr Saleem and the Trackem Parties.  They could do nothing more than put the Defendants to proof of the allegation that Trackem's activities were not qualifying experimental activities.

   [52] Defendants' Second Submissions [4].

4. In response to Mr Saleem's second contention, concerning the conclusive nature of a notice of assessment, the defendants said:[53]

   It is clear that any deemed assessment of the Commissioner concerning the Trackem Parties’ self-assessed entitlement to the R&D tax offset is conclusive against the taxpayer but can be amended by the Commissioner, as explained in Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39 at [92].

   [53] Defendants' Second Submissions [21].

5. In Commissioner of Taxation v Auctus Resources Pty Ltd, in the paragraph cited by the defendants,[54] the Full Court referred to the Commissioner's power to amend an assessment under s 355-710 of the ITAA 1997 (following a finding by the board) or under s 170 of the ITAA 1936 (the power to amend within two years or on the basis of fraud).

   [54] Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39 [92].

6. Prior to the hearing, the court notified the parties that, if the defendants were asserting that the assessment is conclusive proof only against the taxpayer, they were to provide any authorities (or legislative provisions) that might support or counter such a construction.  The court drew the attention of the parties to Re Tomker Pty Ltd (in liq).[55]  This issue became the subject of further submissions, which I will address later.

   [55] Re Tomker Pty Ltd (in liq) [2016] VSC 656.

The hearing on 29 May 2021

The defendants' case explained

1. During the hearing on 29 May 2021, counsel for the defendants submitted that the challenged pleading did not involve any allegation of fraud.  He submitted that Trackem's claim to have conducted R&D activities could have been wrongly made through carelessness, inattention to detail, lack of supervision, or lack of understanding of the requirements.[56]

   [56] ts 7.

2. Counsel explained that the point of the allegation was not directed to whether or not Trackem was a company that did substantial research and development.  The defendants were not alleging that they would not have invested in a company unless it was engaged in substantial research and development.  Rather, the defendants' case was that they would not have invested in a company that had poor processes and systems.  The defendants' case was, in effect, that, having been told that Trackem was entitled to, and would receive, an R&D tax offset, if they had known that it was not so entitled, they would have known that the company had poor processes and systems and would not have wanted to invest in it.[57] 

   [57] ts 5, 18 - 19.  See also ts 49.

3. In these reasons, I will use the expression 'innovative company' to mean a company engaged in substantial research and development.  I will use the expression 'competent company' to mean a company with proper processes and systems.

4. In the context of the tax legislation, it is difficult to see how the defendants will prove that Trackem was not entitled to the offset.  However, this is a matter for trial, not pleading.

5. What is a matter for pleading is that none of this could be gleaned from the Sixth Defence and Counterclaim.

Factual foundation

1. During the hearing, I asked counsel for the defendants what activities the defendants alleged Trackem had wrongly claimed to be R&D activities.  Counsel said that the defendants could not identify that until after discovery and perhaps subpoenas.  I then asked counsel to advise what the factual foundation for the pleading was.[58] 

   [58] ts 6.

2. Counsel for the defendants took instructions and advised, consistently with the pleading, that the defendants alleged that none of the activities were R&D activities.  Given the lack of factual particulars in the pleading, and in light of the defendants' written submission that they could not provide further detail until after discovery,[59] I repeated my request to be told the factual foundation for the pleading.[60]

   [59] As noted earlier, this was the effect of the defendants’ submissions: see the Defendants' Second Submissions [3] and [8] ('particulars of the qualifying … activities … are peculiarly within the knowledge of Trackem').  See also ts 44 - 47.

   [60] ts 7 - 8.

3. After a short adjournment to obtain instructions, counsel for the defendants advised that, during a period of time when Mr McNally and Mr Atkinson were working with Trackem, they came to understand that Trackem developed software to track materials and assets on construction projects.  Counsel advised that, when Mr McNally and Mr Atkinson saw the tracking software, it was apparent to them that 'it was nothing more than regular standard software development for customers, using known development tools and known skills to produce a predictable outcome'.  It was 'run-of-the-mill' or ' plain vanilla' software development.  Counsel said that, when Mr McNally and Mr Atkinson later became aware of the legislative requirements for R&D tax offsets, it was apparent to them that the development of the software would not meet the criteria of activities that would attract such an offset.[61] 

   [61] ts 9 - 10.

4. When asked the basis for the plea that none of Trackem's activities met the criteria, counsel clarified that the defendants did not know everything that Trackem did.  He said, in effect, that it could nevertheless be inferred that Trackem's claim related primarily to that software because Trackem was 'all about' that software.[62]

   [62] ts 10.

5. The description of the factual foundation was inconsistent with the defendants' written submission that they could not provide any further detail until after discovery. 

Asserted material facts

1. As noted earlier, in the defendants' written submissions, it was asserted that Mr Saleem did know the case he had to meet, because it was pleaded that none of the activities conducted by Trackem constituted 'core R&D activities' as they were not experimental activities for the reasons identified in subparagraphs (i) and (ii) of par 38(b)(xiv)(A)(a), and nor were they 'supporting R&D activities' as none of the activities directly related to 'core R&D activities' meaning the experimental activities pleaded in par 38(b)(xiv)(A)(a).

2. To similar effect, during the hearing, counsel for the defendants repeatedly asserted that the challenged pleading went well beyond merely pleading a conclusion that Trackem was not entitled to any R&D tax offset, and that the pleading included material facts.  Counsel submitted that the pleading did not just stop with an allegation that there was no entitlement.  He said it was also pleaded that there was no  entitlement because of the reasons that then followed in subparagraph (a) and subparagraph (b) of par 38(b)(xiv)(A).[63]  I will refer to those subparagraphs as 'the Subparagraphs'.

   [63] See ts 45.  See also, from the second hearing, ts 80.

3. Counsel for the defendants also asserted that the Subparagraphs demonstrated that the pleading was alleging a lack of 'factual entitlement' rather than a lack of 'legal entitlement'.[64]

   [64] ts 48.  See also ts 51.

4. The Subparagraphs are set out earlier.  They do nothing more than assert that the activities were not of the kind that would meet the  statutory definitions of Core R&D activities or Supporting R&D  activities.  The Subparagraphs add nothing whatsoever to par 38(b)(xiv)(A).  A reader of that paragraph would understand that it was alleged that none of Trackem's activities were activities that would meet the statutory definition of R&D activities, but would not know in what way they had failed to meet the statutory definition.  A reader who went on to read the Subparagraphs would not find this out.  All he or she would know is what the statutory definition of R&D activities entails.

5. For the same reasons, the Subparagraphs do not provide any reason to interpret the pleading as alleging a lack of 'factual entitlement' as distinct from a lack of a 'legal entitlement'.  In my view, the plain meaning of the pleading was that Trackem was not entitled to claim an R&D tax offset because it did not do anything that met the statutory definition of R&D activities.

6. I will later discuss whether a distinction between a factual entitlement and a legal entitlement can even be drawn, in this context. 

The falsity of Trackem Representation 15

1. Even if there could be a meaningful distinction between a factual entitlement and a legal entitlement in this context, this could not explain the pleading in relation to Trackem Representation 15 (the representation that Trackem would receive an R&D tax offset).  It is common ground that Trackem did receive an R&D tax offset.  Trackem Representation 15 was true.

Opportunity to redraft

1. In view of the exchanges with counsel for the defendants during the hearing, I raised whether it might be advisable to pause the proceedings to allow the defendants an opportunity to further amend the pleading to reflect what they had said their case actually was, and to also add detail to reflect the information that had provided the factual foundation for the pleading.[65]

   [65] ts 53.

2. Counsel for the defendants sought to take that opportunity, and the other parties did not oppose this.[66]

   [66] ts 54.

The Seventh Defence and Counterclaim

1. Following the adjournment, the Seventh Defence and Counterclaim was filed.  It amended the pleading in three ways.  First, by adding references to 'matters of fact'.  Second, by identifying software development as being the work that did not meet the statutory definition of R&D activities.  Third, by providing some particulars about the nature of the software development activities.

2. The alleged Trackem Representation 14 pleaded in par 38(b)(xiv) was amended to be that 'Trackem as a matter of fact was entitled to a R&D offset'.  The second particular was amended to state that the 'representation related to the factual basis for Trackem's entitlement to receive a tax offset' (and amended what followed to state 'for alleged software development R&D activities').

3. The reason Trackem Representation 14 was said to be misleading was amended as follows:

   Trackem Representation 14 was false, misleading and deceptive, or likely to mislead or deceive as Trackem had not engaged in software development activities which as a matter of fact was not entitled Trackem to any tax offset under Division 355 of the Income Tax Assessment Act 1997 (Cth) (ITAA) because Trackem had did not conducted any software development activities which in fact qualified as 'R&D activities' as defined in Subdivision 355-20 B of the ITAA that Act.

4. The Subparagraphs that followed were also amended to add 'software development' or similar terms, in various places.

5. Particulars were added, in these terms:

   Particulars

   1.Trackem's software development activities only involved:

   (a)the use and application of existing software development tools and platforms; and

   (b)the use of existing software industry knowledge, information and expertise,

   to develop business application software to achieve required and predictable technical outcomes, namely the ability to track assets, tools and materials in a number of industry settings.

   2.Trackem's software development activities did not involve the conduct of experiments:

   (a)the outcome of which could not be known or determined in advance by a software engineer, based on existing software industry knowledge, information or experience;

   (b)involving a systematic progression of work based on principles of established science, to prove or disprove a specific technical hypothesis in order to resolve a specific technical issue or risk; or

   (c)for the purpose of generating new knowledge.

   3.Further particulars will be provided after discovery.

6. The second of these particulars, in substance, puts the components of the statutory definition into the context of software development activities.  In substance, it gives no more information than that the software development activities did not meet the definition.  As with the Subparagraphs, the second particular does not assist the reader.

7. An amendment was also made to par 38(b)(v)(A)(5) as follows:

   [D]espite its representation to the contrary (namely Trackem Representation 14, as pleaded in paragraph 38(b)(xiv) below), as a matter of fact Trackem was not entitled able to offset its GST and PAYG liabilities as it was not at the time Trackem Representation 14 was made in fact entitled to any R&D tax offset as pleaded in paragraph 38(b)(xiv)(A) below.

8. The alleged Trackem Representation 15 was amended to be that 'Trackem had engaged in activities which as a matter of fact entitled Trackem to would receive a R&D tax offset'.

9. A new particular was added as follows:

   The representation related to the factual basis for Trackem’s entitlement to receive a tax offset for alleged software development R&D activities it had undertaken during the 2017 financial year, which tax offset it was in the process of claiming under Division 355 of the Income Tax Assessment Act 1997 (Cth).

10. Paragraph 43 was amended to plead that Trackem Representations 14 and 15 were false or misleading 'as Trackem was not as a matter of fact entitled to any tax offset under Division 355 of the Income Tax Assessment Act 1997 (Cth) (ITAA) because Trackem did had not as a matter of fact conducted any software development activities which qualified as 'R&D activities', or 'supporting R&D activities' as defined in Subdivision 355-20 and 355-30 of the ITAA, respectively, as pleaded in par 38(b)(xiv)(A) of the Defence.

1. As can be seen, with the amendments, Trackem Representations 14 and 15 were substantively identical.  However, they were separately pleaded as they are alleged to have been made at different times.

2. After receiving the amended pleading, Trackem alerted the defendants to case law which demonstrated that they could not maintain the assertion that Trackem Representations 14 and 15 were representations as to future matters.  The defendants conceded that that assertion should be struck out, and necessary consequential amendments made.[67]

   [67] ts 78.

The hearing on 8 June 2021

1. When the hearing resumed on 8 June 2021, the Trackem parties and Mr Saleem maintained their submissions that they did not know the case against them.  In particular, they said that they still did not know why it was contended that the activity did not constitute core R&D or supporting R&D activities.  They submitted that all they had was, in effect, a pleading that the activity did not fall within the statutory definitions.

2. The Trackem parties further submitted that the challenged pleading was an abuse of process, as it would require the court to explore whether Trackem's activities met the statutory definitions despite conclusive proof under the legislation that they did. 

3. The defendants maintained their submissions that the Trackem parties and Mr Saleem did know the case against them. 

4. As noted earlier, in the first hearing, counsel for the defendants repeatedly asserted that the challenged pleading went well beyond merely pleading a conclusion that Trackem was not entitled to any R&D tax offset, and included material facts because of the reasons that then followed in the Subparagraphs.  In the second hearing, counsel for the defendants submitted[68] that the pleading in the Subparagraphs

   confirms that this is a plea about whether the underlying things necessary to be done had been done rather than this issue of, 'Well, it's a self-assessment.  If you get the offset and enough time goes past, then it’s conclusive that you’re entitled to it as a matter of law.'  My point was to draw this distinction that we're not concerned about whether the offset could be retained or not in this plea.  This is a plea about whether the things necessary to qualify have in fact been done.

   [68] ts 84 - 85.

5. Counsel for the defendants addressed the submission that the pleading did not identify why it was contended that the activity did not constitute core R&D or supporting R&D activities, but simply asserted, in substance, that it did not. 

6. Counsel first submitted that the defendants did not want to close out any of the options before discovery and expert advice.[69]  I asked counsel how they would be closed out when pleadings could be amended after discovery.  I also indicated that the factual foundation that had been offered from the bar table during the first hearing should have allowed the defendants to identify the way in which it was alleged the software development did not meet the criteria instead of continuing to plead the entirety of the statutory definition.

   [69] ts 86.

7. Counsel for the defendants responded that this had not been done because they did not want to trespass into matters of evidence.[70]  I asked how deleting parts of the particulars (so as to leave the parts of the definition that the activities were alleged not to meet) would trespass into evidence.  The exchange that followed did not advance the defendants' position.[71]

   [70] ts 86.

   [71] See ts 86 - 87.

8. Ultimately, counsel appeared to concede that the defendants did have sufficient information from which they could identify the way(s) in which it was alleged that at least some particular activities did not meet the criteria.[72]  Counsel agreed the defendants 'can do more', and could do so either by seeking to further amend the pleading before the Application was ruled on or by re-pleading if the Application was successful.[73]

   [72] ts 87 - 88.

   [73] ts 88.

9. I also raised with counsel for the defendants that the pleading still gave no hint that the defendants' case was that they had been misled into thinking that Trackem was a competent company that had proper systems and processes in place such that, when Trackem claimed an R&D tax offset, the claim would be correct.  Counsel for the defendants confirmed that was the defendants' case, but advised that that had not been pleaded because it related to the 'reliance' element of a claim of misleading or deceptive conduct.[74] 

   [74] ts 92.

10. I do not find this persuasive. 

11. If the defendants' case is as counsel confirmed, the meaning alleged to have been conveyed by the statements, and alleged to have been understood to be conveyed by the statements, was that Trackem was a competent company and that this was the basis upon which the defendants acted.  None of this is pleaded. 

Conclusive evidence provision

1. By s 350-10(1) item 2 of the TAA, a notice of assessment is conclusive evidence that an assessment was properly made, and, except in proceedings under Part IVC of the TAA in a review or appeal relating to the assessment, that the amounts and particulars in the assessment are correct (conclusive evidence provision).  Given the passage of time, the assessment in this case could now only be amended if the Commissioner is of the opinion that there has been fraud or evasion.  The defendants have expressly disavowed an allegation of fraud.

2. The defendants submitted, however, that the conclusive evidence provision does not prevent them from proving Trackem was not entitled to the R&D offset.  They submitted that the provision only operates in proceedings involving the recovery of tax. 

3. The parties filed, with leave, 'short' submissions on this point after the hearing on 8 June 2021. 

4. In broad terms, the defendants emphasised the purpose of the provision, relied on statements that had been made in the context of judicial review proceedings, sought to distinguish Re Tomker, and asserted that a broader operation would lead to a manifestly absurd result.

5. The Trackem parties emphasised the plain meaning of the words, sought to distinguish the judicial review cases, and submitted Re Tomker was a clear example of a broader operation of the provision.

6. Mr Saleem submitted, in effect, that it did not matter. 

7. First, he submitted that the issue in these proceedings is whether an entitlement to an R&D tax offset exists, as between the taxpayer and the Commissioner.  He pointed out that there is no dispute that an entitlement presently exists and that the entitlement cannot be disturbed unless the Commissioner is of the opinion that there has been fraud or evasion.  He pointed out that fraud or evasion is not alleged.

8. Second, he submitted that, regardless of the operation of the conclusive evidence provision, the defendants have not adequately pleaded a cause of action in misleading or deceptive conduct because they have not pleaded material facts that, if found, are capable of establishing that the entitlement does not exist. 

9. I have reached the view that it is unnecessary, at this stage, to determine the scope of the operation of the conclusive evidence provision.  I intend no disrespect to the helpful submissions filed by the defendants and the Trackem parties on that issue.  It may become necessary to deal with the point in the substantive hearing, depending on what is ultimately pleaded.  However, it is not necessary for the purposes of resolving the current application.  As will be seen, I consider that the pleading is embarrassing even without having regard to the conclusive evidence provision.  In short, I agree with Mr Saleem's submissions.

Is the challenged pleading embarrassing?

1. The pleading of Trackem Representation 15 in the Sixth Defence and Counterclaim was plainly embarrassing.  It was impossible for the reader to discern how Trackem's representation that it would receive an R&D tax offset could constitute misleading or deceptive conduct when Trackem did receive the R&D tax offset.

2. The pleading in relation to Trackem Representation 14 in the Sixth Defence and Counterclaim was also embarrassing.  It failed to identify the actual case that had to be met, concealing at least some of the real questions in controversy.  It also failed to state the defendants' case with reasonable particularity. 

3. The pleading in the Seventh Defence and Counterclaim is an improvement.  However, I still consider it to be embarrassing.

4. First, the pleading still does not identify the actual case that the defendants seek to advance. 

5. The defendants' oral submissions reiterated that they did not allege fraud, nor a lack of legal entitlement to the R&D tax offset.  They reiterated that the core of their case was not that Trackem received an offset it should not have received, or that Trackem falsely represented it was an innovative company.  Rather, the core of their case is that they were misled into thinking that Trackem was a competent company.

6. The pleading does not disclose that the allegedly false meaning conveyed was that Trackem was a competent company.

7. Second, the pleading still fails to state the defendants' case with reasonable particularity, in several respects. 

8. First, although expressions such as 'as a matter of fact' have been added, and the activities limited to software development activities, the basic thrust of the allegations have not changed.  The defendants continue to allege that it was false to represent that Trackem was entitled to an R&D tax offset.  They continue to allege it was false because it had not done any (software development) activities which qualified as 'R&D activities' as defined in the ITAA.  Adding that it was false because it had not engaged in activities which 'as a matter of fact' would have entitled Trackem to an offset, because Trackem had not conducted any (software development) activities which 'in fact' qualified as 'R&D activities' does not alter the basic thrust of the allegation. 

9. Any entitlement is an entitlement under the tax regime.  That is, it is a statutory entitlement.  The entitlement only exists, or does not exist, under the ITAA 1997.  It is an entirely statutory concept.  Calling it a 'factual entitlement' or adding expressions such as 'as a matter of fact' does not alter the nature of the entitlement. 

10. No material facts are pleaded to explain how Trackem did not have an entitlement given the operation of the tax regime.  Unless and until the assessment is amended, Trackem is entitled to the R&D tax offset.  The reader of the pleading cannot discern how the alleged falsity of the representations will be proved.  It is not explained how, even if the defendants demonstrate that Trackem did not do any experimental activities, this would prove that it is not entitled to the offset, given that, as things currently stand, it is entitled to it.

11. This deficiency is not excusable on the basis that the details of the R&D tax offset claim are within the knowledge of Trackem.  Those details will not illuminate this issue.  It is a pleading issue.  As an aside, I observe that the issue would not have arisen if the pleading had reflected the case the defendants seek to run.

12. Second, the effect of the defendants' oral submissions was that their case was that Trackem had not done experimental activities, and had only done plain vanilla software development.  Despite this, the pleading does not adequately identify the way(s) in which it was alleged that the software development did not meet the statutory definition. 

13. As noted earlier, the second particular to par 38(b)(xiv)(A) was, in substance, no more than an assertion that the software development activities were not of the kind that would meet the statutory definitions. 

14. The first particular does set out some detail as to what the defendants allege the software development activities involved.  Counsel for Mr Saleem submitted that it is no more than a statement that the software development activities involved the opposite of what was defined to be Core R&D activities.[75]  In my view, it is more than that.  Nevertheless, I accept the overall point that the reader of the Seventh Defence and Counterclaim is still not told which part(s) of the definition was (were) not met by the software development activities.

    [75] ts 73.

15. Again, this is not excusable on the basis that the details are within the knowledge of Trackem.  The defendants claim to have a factual foundation for the pleading.  Such a factual foundation must permit the identification of at least one way in which it is alleged that the software development did not meet the statutory definition. 

16. Third, the defendants' Seventh pleading appears to assume that the software development activities were part of the claim for an R&D tax offset.  Presumably, the assumption is made because Trackem was 'all about' that software.  However, that the defendants do not actually plead as a material fact[76] that the software development activities were part of the claim for an R&D tax offset.

    [76] It is arguably implicit in the second particular to [38(b)(xiv)].

17. If there is not a factual foundation for such a plea, the pleading should not have been made.  If there is such a factual foundation, it should have been pleaded. 

18. If these last two points had been the only problems with the pleading, I would have invited the defendants to consider making further amendments.

    (1)In relation to the second last point, I would have invited the defendants to amend the second particular so as to identify the way(s) in which it was alleged that the software development described in the first particular did not meet the statutory definition. 

    (2)In relation to the last point, I would have invited the defendants to expressly plead that assertion, provided counsel was satisfied there was a sufficient factual foundation to justify such a plea.

19. The last two points were not, of course, the only deficiencies.  In view of the deficiencies as whole, in particular that the pleading did not disclose the defendants' actual case, I consider that the challenged pleading in the Seventh Defence and Counterclaim should be struck out.

20. This makes it unnecessary to consider Trackem's submissions as to whether fraud was alleged.  However, as it will be relevant to costs and any attempts to re-plead, I will do so briefly.

Is fraud alleged?

1. The Trackem parties asserts the defendants are alleging fraud, or that the pleading is at least ambiguous as to fraud.  The defendants deny this.  They assert that they merely alleging misleading or deceptive conduct, which does not require proof of any intention or knowledge.

2. The challenged pleading asserts that it was false to say that Trackem was entitled to receive an R&D tax offset.

3. This will only be an allegation of fraud if the defendants are asserting that Trackem provided false information to the ATO knowing it was false or recklessly indifferent to whether it was false. 

4. In my view, the Sixth Defence and Counterclaim was at least ambiguous as to whether fraud was alleged. 

5. First, it plainly asserted a lack of legal entitlement.  This was in the context of the RSM letter which expressly stated that the assessment of eligibility relied upon assertions made by Trackem.  In addition, Mr Saleem signed a declaration that the information provided to his tax agent was true and correct.

6. Second, unless and until the assessment is amended, Trackem is entitled to the offset.  Unless and until the assessment is amended, Trackem Representation 14 was true.  (I have already noted that Trackem Representation 15 in the Sixth Counterclaim was plainly true).

7. Third, there was no suggestion that the board had issued a certificate, such as to enliven the Commissioner's power to amend the assessment under s 355-710 of the ITAA 1997.

8. Fourth, given that, and given the passage of time, the Commissioner could only amend the assessment if he or she is of the opinion that there has been fraud or evasion.

9. Fifth, as noted earlier, the pleading did not identify why it was alleged that the activities did not meet the statutory definition.  Given the content of the statutory definition, it is conceivable that some aspects of the definition could only be incorrectly claimed to have been met dishonestly or with reckless indifference. 

10. The Seventh Defence and Counterclaim is not materially different in any of the above respects.  Although it refers to 'matters of fact' and the time at which the representations were made, it continues to refer to the entitlement under the legislation. 

11. At best, the position is unclear.

12. Nevertheless, it is plain from the defendants' submissions that the defendants do not intend to allege knowledge or reckless indifference.  Given that, I consider that the Trackem parties' concerns about ambiguity could have been dealt with by the defendants providing formal written confirmation that they did not allege knowledge or reckless indifference. 

13. That said, formal confirmation would not have been necessary if the pleading had reflected the actual case the defendants sought to run.  Indeed, it would have been plain that fraud was not alleged.  The defendants' actual case is that they were misled into thinking that Trackem was a competent company.  That is, their actual case is completely inconsistent with an allegation that an incorrect R&D claim was made dishonestly.  Rather, they allege that it was made because Trackem was an incompetent company with poor systems and processes.  Had the pleading reflected the actual case the defendants sought to run, it would have been plain that the defendants were not alleging fraud.

Conclusion

1. For the reasons given above, I will strike out the challenged pleading.

2. I will hear from the parties as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

AG
Research Associate to the Honourable Justice Archer

21 JULY 2021

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION: TRACKEM PTY LTD (ACN 168 532 269) -v- REVENUE PARTNERS (A PARTNERSHIP) [2021] WASC 245 (S)

CORAM:   ARCHER J

HEARD:   ON THE PAPERS

DELIVERED          :   19 NOVEMBER 2021

FILE NO/S:   CIV 2426 of 2019

BETWEEN:   TRACKEM PTY LTD (ACN 168 532 269)

Plaintiff (First Defendant by Counterclaim)

TRACKEM HOLDINGS PTY LTD (ACN 621 879 150)

Second Defendant by Counterclaim

KASHIF SALEEM

Third Defendant by Counterclaim

AND

REVENUE PARTNERS (A PARTNERSHIP)

First Defendant

REVENUE PARTNERS PTY LTD (ACN 622 084 673)

Second Defendant (First Plaintiff by Counterclaim)

REVENUE PARTNERS CONSULTING PTY LTD (ACN 625 055 941)

Third Defendant (Second Plaintiff by Counterclaim)

STEPHEN PATRICK McNALLY

Fourth Defendant (Third Plaintiff by Counterclaim)

KEYT JOHN ATKINSON

Fifth Defendant (Fourth Plaintiff by Counterclaim)

Catchwords:

Costs following strike out application - Indemnity costs - Costs of conferral

Legislation:

Nil

Result:

Application for indemnity costs order dismissed
Applications for costs orders allowed

Category:    B

Representation:

Counsel:

Plaintiff (First Defendant by Counterclaim)	:	No appearance
Second Defendant by Counterclaim	:	No appearance
Third Defendant by Counterclaim	:	No appearance
First Defendant	:	No appearance
Second Defendant (First Plaintiff by Counterclaim)	:	No appearance
Third Defendant (Second Plaintiff by Counterclaim)	:	No appearance
Fourth Defendant (Third Plaintiff by Counterclaim)	:	No appearance
Fifth Defendant (Fourth Plaintiff by Counterclaim)	:	No appearance

Solicitors:

Plaintiff (First Defendant by Counterclaim)	:	Bennett + Co
Second Defendant by Counterclaim	:	Bennett + Co
Third Defendant by Counterclaim	:	Barry Nilsson Lawyers
First Defendant	:	Greg  Carter  Barrister & Solicitor
Second Defendant (First Plaintiff by Counterclaim)	:	Greg  Carter  Barrister & Solicitor
Third Defendant (Second Plaintiff by Counterclaim)	:	Greg  Carter  Barrister & Solicitor
Fourth Defendant (Third Plaintiff by Counterclaim)	:	Greg  Carter  Barrister & Solicitor
Fifth Defendant (Fourth Plaintiff by Counterclaim)	:	Greg  Carter  Barrister & Solicitor

Case(s) referred to in decision(s):

Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39

Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95

Huntingdale Village Pty Ltd (Receivers and Managers Appointed) ATF Huntingdale Village Unit Trust v Perpetual Nominees Ltd [2013] WASC 352 (S)

Re Tomker Pty Ltd (in liq) [2016] VSC 656

Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S)

Trackem Pty Ltd (ACN 168 532 269) v Revenue Partners (A Partnership) [2021] WASC 245

ARCHER J:

Introduction

1. On 26 July 2021, I upheld an application to strike out various paragraphs of the defence and counterclaim in these proceedings, under O 20 r 19(1)(c) and/or (d) of the Rules of the Supreme Court 1971 (WA).[77]  Under those rules, the court has the power to strike out a pleading, or part of a pleading, if it may prejudice, embarrass or delay the fair trial of the action or if it is otherwise an abuse of the process of the court.

   [77] Trackem Pty Ltd (ACN 168 532 269) v Revenue Partners (A Partnership) [2021] WASC 245 (Strike Out Decision).

2. The application was brought by the plaintiff and first defendant by counterclaim (Trackem) and the second defendant by counterclaim (Trackem Holdings).  I will refer to Trackem and Trackem Holdings collectively as the 'Trackem parties'.

3. The third defendant by counterclaim (Mr Saleem) is a director of Trackem.  He supported the strike out application. 

4. After I handed down my decision, the parties were unable to agree as to the appropriate costs orders.  They sought to file written submissions and affidavit material.  I made programming orders permitting that to occur.  Between them, the parties filed 52 pages of submissions.  The Trackem parties also filed a short affidavit annexing an email chain.  The defendants filed a 115 page affidavit (albeit 66 pages of that was a draft pleading).

5. In my view, this case has already taken up more judicial time and resources than the stage of the proceedings justifies.  I consider that it is appropriate that I take a broad approach to the question of costs so as not to compound that position.  It is to be borne in mind that the strike out application was entirely successful.

The Strike Out Decision

1. The background to the litigation is set out in my judgment on the strike out application (Strike Out Decision).  These reasons should be read in conjunction with that decision.  However, for convenience, I will set out here, or summarise, relevant parts of the decision.

2. On 16 November 2018, Trackem lodged a writ of summons in the District Court.  On 20 March 2019, a Statement of Claim was filed.  On 10 June 2019, a defence and counterclaim was filed.

3. On 17 July 2019, the matter was remitted to the Supreme Court by consent.  Multiple amendments to the defence and counterclaim followed.  The matter was admitted to my CMC List on 9 July 2020.

4. On 24 December 2020, the Trackem parties filed an application to strike out parts of the defendants' fifth defence and counterclaim.[78]

   [78] Third Further Amended Defence and Third Further Amended Counterclaim filed 20 July 2020.

5. On 10 February 2021, the defendants filed a minute of what would be their sixth defence and counterclaim (Sixth Defence and Counterclaim).[79] 

   [79] Minute of Fourth Further Amended Defence and Fourth Further Amended Counterclaim filed 10 February 2021.

6. To accommodate the changes reflected in the Sixth Defence and Counterclaim, the Trackem parties filed an amended strike out application on 18 February 2021 (Application). 

7. The pleading challenged in the Application was as follows:

   1.Trackem and Mr Saleem represented that Trackem was entitled to a research and development tax offset (R&D tax offset) which would be around $213,000 (Trackem Representation 14);

   2.Trackem and Mr Saleem represented that Trackem would receive an R&D tax offset of $205,529 (Trackem Representation 15);

3.The representations were false or misleading as Trackem was not entitled to an R&D tax offset because Trackem did not conduct any 'R&D activities' as defined in the legislation; and/or

4.Mr Saleem and Trackem had no reasonable grounds for making the representations.

1. The Application was listed for 29 May 2021.  During the hearing, counsel for the defendants submitted that the challenged pleading did not involve any allegation of fraud.  He submitted that Trackem's claim to have conducted R&D activities could have been wrongly made through carelessness, inattention to detail, lack of supervision, or lack of understanding of the requirements.

2. Counsel explained that the point of the allegation was not directed to whether or not Trackem was a company that did substantial research and development.  The defendants were not alleging that they would not have invested in a company unless it was engaged in substantial research and development.  Rather, the defendants' case was that they would not have invested in a company that had poor processes and systems.  The defendants' case was, in effect, that, having been told that Trackem was entitled to, and would receive, an R&D tax offset, if they had known that it was not so entitled, they would have known that the company had poor processes and systems and would not have wanted to invest in it.

3. In the Strike Out Decision, I used the expression 'competent company' to mean a company with proper processes and systems.  I noted:

   In the context of the tax legislation, it is difficult to see how the defendants will prove that Trackem was not entitled to the offset.  However, this is a matter for trial, not pleading.

   What is a matter for pleading is that none of this could be gleaned from the Sixth Defence and Counterclaim.

4. In view of these exchanges with counsel for the defendants, I raised whether it might be advisable to pause the proceedings to allow the defendants an opportunity to further amend the pleading to reflect what they had said their case actually was, and to also add detail to reflect the information that had provided the factual foundation for the pleading.  Counsel for the defendants sought to take that opportunity, and the other parties did not oppose this.

5. Following the adjournment, a further amended pleading was filed[80] (Seventh Defence and Counterclaim).  It amended the pleading in three ways.  First, by adding references to 'matters of fact'.  Second, by identifying software development as being the work that did not meet the statutory definition of R&D activities.  Third, by providing some particulars about the nature of the software development activities.

   [80] Minute of Fifth Further Amended Defence and Fifth Further Amended Counterclaim filed 4 June 2021.

6. The hearing resumed on 8 June 2021.  I raised with counsel for the defendants that the pleading still gave no hint that the defendants' case was that they had been misled into thinking that Trackem was a competent company that had proper systems and processes in place such that, when Trackem claimed an R&D tax offset, the claim would be correct.  Counsel for the defendants confirmed that was the defendants' case, but advised that that had not been pleaded because it related to the 'reliance' element of a claim of misleading or deceptive conduct.

7. I did not find this persuasive.  In the Strike Out Decision, I said:

   If the defendants' case is as counsel confirmed, the meaning alleged to have been conveyed by the statements, and alleged to have been understood to be conveyed by the statements, was that Trackem was a competent company and that this was the basis upon which the defendants acted.  None of this is pleaded. 

The issues in dispute

1. The Trackem parties seek their costs of the Application, including the costs of conferral, on an indemnity basis to be paid forthwith.[81]

   [81] Plaintiff and First and Second Defendants by Counterclaim Costs Submissions Amended Strike Out Application Dated 18 February 2021 filed 2 August 2021 (Trackem's Submissions) [1] - [3].

2. The defendants concede that the Trackem parties should have some costs, but submit that:[82]

   a)the costs should not be on an indemnity basis;

   b)The Trackem parties should not have their costs of conferral; and

   c)The Trackem parties should not have their costs relating to the question of entitlement or the conclusive evidence provision (collectively, the 'tax issues'), alternatively those costs should be reserved to the outcome of trial, subject to what is pleaded in the substituted defence and counterclaim and responsive pleadings.

   [82] Submissions in Relation to the Costs of the Plaintiff and Second Defendant by Counterclaim on the Amended Strike Out Application Dated 18 February 2021 filed 9 August 2021 (Defendants' Trackem Submissions) [2].

3. The issues in dispute between the Trackem parties and the defendants are therefore:

   1.Should the Trackem parties' costs be awarded on an indemnity basis?

   2.Should the Trackem parties' costs include their costs in respect of the conferral?

   3.Should the Trackem parties' costs include their costs in respect of the tax issues?

4. Mr Saleem seeks his costs of the Application, including the costs of conferral between the parties in connection with the Application, to be taxed if not agreed and paid forthwith.[83]

   [83] Third Defendant by Counterclaim's Cost Submissions Amended Strike Out Application Dated 18 February 2021filed 9 August 2021 (Saleem's Submissions) [1].

5. The defendants concede Mr Saleem should have some costs on a party-party basis, but submit that:[84]

   a)Mr Saleem should not have his costs of conferral; and

   b)Mr Saleem should not have his costs relating to the tax issues, alternatively those costs should be reserved to the outcome of trial, subject to what is pleaded in the substituted defence and counterclaim and responsive pleadings.

   [84] Submissions in Relation to the Costs of the Third Defendant by Counterclaim on the Amended Strike Out Application Dated 18 February 2021 filed 2 August 2021 (Defendants' Saleem Submissions) [2].

6. The issues in dispute between Mr Saleem and the defendants are as follows:

   1.Should Mr Saleem's costs include his costs in respect of the conferral?

   2.Should Mr Saleem's costs include his costs in respect of the tax issues?

7. I will deal first with the dispute between the Trackem parties and the defendants.

The Trackem parties' costs dispute

Indemnity Costs

Legal framework

1. An order for indemnity costs 'will only be made if there is some special or unusual feature in the case to justify a departure from the ordinary practice'.[85]  Such an order 'may be appropriate in situations which are shown to involve some element of improper, or at least unreasonable, conduct by a party or the party's legal advisers'.[86]

   [85] Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95 [8] ‑ [9], endorsed in various Court of Appeal decisions, including Johnson v Denwest Nominees Pty Ltd t/as Cunderdin Roadhouse [2017] WASCA 200 [112].

   [86] Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [10].

2. The Trackem parties contend that the costs should be paid on an indemnity basis because the conduct of the defendants and their legal representatives in pleading and maintaining the embarrassing R&D pleas was unreasonable and deserves sanction.[87]

Responsibility for pleading

[87] Trackem's Submissions [3].

1. The following analysis requires consideration of whether the way in which the matter has been pleaded is conduct worthy of sanction.  In such circumstances, I consider it is appropriate to record that counsel for the defendants in the hearing of the Application did not sign either the Sixth or the Seventh Defence and Counterclaim, and did not sign the submissions that were filed in relation to this costs argument.

The Trackem parties' submissions

1. The Trackem parties contend the conduct was unreasonable in several respects:

   1.The pleading did not reflect the actual case;

   2.The defendants pleaded that it was false or misleading for Trackem to represent that it would receive an R&D tax offset, when Trackem did receive an R&D tax offset;

   3.The pleading was ambiguous in relation to fraud, and the ambiguity was not corrected when the pleading was amended following the hearing on 29 May 2021;

   4.The defendants changed their position in relation to whether the entitlement was legal or factual, and in relation to their ability to provide particulars;

   5.The defendants failed to adequately particularise the case they sought to run; and

   6.The defendants failed to rectify their embarrassing pleading.

Defendants' submissions

1. The defendants' primary submission appears to be that indemnity costs should not be ordered because the Trackem parties' conduct was unreasonable. 

2. First, the defendants refer to the fact that the Trackem parties did not object to the filing of the Second Further Amended Defence and Further Amended Counterclaim.  That pleading contained the first iteration of the R&D tax offset allegation.[88]  The defendants also submit that the 'obvious and only purpose of conferring' was to ascertain whether the other parties had any objections to the content of that pleading.[89]

   [88] Defendants' Trackem Submissions [3] - [12].

   [89] Responsive Submissions in Relation to the Costs of the Third Defendant by Counterclaim on the Amended Strike Out Application Dated 18 February 2021 filed 16 August 2021 [2].

3. I do not accept this.  It is plain from the evidence that the Trackem parties did not object because they considered it was not the type of amendment that required leave.[90]  Further, when communicating that they did not object, the Trackem parties expressly reserved their rights in relation to any amendments the defendants made to their pleadings (including as to costs).[91]  Finally, less than a fortnight after the pleading was filed, the Trackem parties raised their concerns.[92]

   [90] See, in particular, the Second Affidavit of Chloe Alyssa Tolley filed 16 August 2021 Annexure CAT-8 page 5 (email 13 May 2020).

   [91] Affidavit of Gregory James Carter affirmed 2 August 2021 (Carter Affidavit) Annexure GC1 pages 6 - 7 (email dated 15 June 2020).

   [92] The pleading was filed on 17 June 2020.  The letter was sent on 29 June 2020.

4. Second, the defendants refer to the fact that the Trackem parties 'prematurely and unreasonably rejected' their express disavowal that they were alleging fraud.  The defendants submit that the Trackem parties' demand that the defendants expressly plead fraud, or remove the pleading, in circumstances where the defendants had expressly disavowed any allegation of fraud was perverse.[93] 

   [93] Defendants' Trackem Submissions [7] - [9].

5. I do not accept this. 

6. In my Strike Out Decision, I noted that the Trackem parties' concern could have been met by a formal written undertaking.  This was a finding of what would have been a pragmatic solution.  Nevertheless, it was not perverse or even unreasonable for the Trackem parties to seek, in the first instance, that the defendants' pleading accurately reflect the case being brought against them.  On the contrary, this would be expected of competent lawyers.

7. Further, the defendants' disavowal was contained in conferral correspondence.  Even if a pragmatic solution was negotiated, the disavowal would have needed to be in an admissible form.

8. Third, the defendants assert that the Application could have been avoided 'had the Trackem parties accepted the express disavowal of fraud, or engaged in further conferral in relation to that express disavowal, including by seeking formal written confirmation that the Defendants did not allege knowledge or reckless indifference'. 

9. For similar reasons to why I rejected the previous point, I do not accept this. 

10. The 'express disavowal of fraud' was in conferral correspondence.  The Trackem parties were entitled to seek that the defendants' pleading accurately reflect the case being brought against them.  It was not only the Trackem parties who could have suggested a pragmatic solution to the problems created by the defendants' ambiguous pleading.  It was open to the defendants to do so.  Further, even if a pragmatic solution was able to be agreed, the disavowal would have needed to be in an admissible form.

11. I also observe that, if the parties had reached a pragmatic solution and the Application had not been brought, the litigation would have proceeded without the Trackem parties, Mr Saleem or the court being aware of what the defendants' actual case was.  It may be surmised that considerable costs would have been wasted before the true position was revealed at some later stage.

Failure to plead the actual case

1. In defending their failure to plead their actual case, the defendants submit, in effect, that their counsel believed that the pleading was proper and reasonable.[94] 

   [94] Defendants' Trackem Submissions [30].

2. In my view, the failure to plead the actual case in the Sixth Defence and Counterclaim was not unreasonable in the sense required.  Mistakes or differences of opinion as to the way in which a particular matter ought to be pleaded are common, and are largely due to the fact that the circumstances of each case are different and pleading is not a science. 

3. It is less easy to justify the failure to amend the defence after the first hearing so that the Seventh Defence and Counterclaim reflected the actual case.  Nevertheless, I do not consider it is conduct worthy of sanction.

The pleading of Trackem Representation 15

1. In the Sixth Defence and Counterclaim, the defendants alleged that it was false or misleading for Trackem to represent that it would receive an R&D tax offset.  Trackem did receive an R&D tax offset.  This pleading was plainly embarrassing.  Nevertheless, I do not consider it is conduct worthy of sanction.

Other matters

1. I accept each of the other criticisms made by the Trackem parties.  Each was based on findings I made in the Strike Out Decision.  Nevertheless, I do not consider that any of the matters individually would justify an award of indemnity costs. 

Conclusion on indemnity costs

1. I would uphold each of the Trackem parties' numerous criticisms of the defendants' conduct of the litigation.  In the circumstances, the Trackem parties' application for its costs on an indemnity basis is understandable. 

2. I am satisfied that, taken as a whole, the defendants' conduct fell significantly short of the standard required.  However, I am not satisfied that the extent to which it did so merits the sanction of an indemnity costs order. 

3. For these reasons, I would not order that the Trackem parties' costs be awarded on an indemnity basis.

Disputed Trackem parties' costs

1. Order 66 r 1(1) of the Rules of the Supreme Court provides that, subject to (among other things) the Court's discretion, the general order is that the successful party to any action or matter recovers its costs.  Order 66 r 1(2) and r 1(3) provide that the court may depart from the general order where the successful party caused costs to be unnecessarily or unreasonably incurred or failed on an issue that increased costs.  However, the circumstances in which the court may depart from the general order are not confined to such cases. 

2. The defendants contend that the general order should be departed from in two respects.  The defendants submit that the Trackem parties should not have their costs relating to the tax issues or their costs of conferral.

Entitlement and conclusive evidence provision (the tax issues)

1. As noted earlier, the defendants pleaded that Trackem Representations 14 and 15 were false or misleading as Trackem was not entitled to an R&D tax offset because Trackem did not conduct any 'R&D activities' as defined in the legislation. 

2. In his written submissions in support of the Application, Mr Saleem pointed out that, under the legislative regime,[95] a notice of assessment is conclusive evidence that an assessment was properly made, and, except in proceedings under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA) in a review or appeal relating to the assessment, that the amounts and particulars in the assessment are correct.  There had been an assessment that Trackem was entitled to an R&D tax offset.

   [95] See sch 1 s 350-10(1) item 2 of the Taxation Administration Act 1953 (Cth).

1. In responsive written submissions, the defendants said:[96]

   It is clear that any deemed assessment of the Commissioner concerning the Trackem Parties' self-assessed entitlement to the R&D tax offset is conclusive against the taxpayer but can be amended by the Commissioner, as explained in Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39 at [92].

   [96] Defendants' Outline of Submissions in Reply to Outline of Submissions and Supplementary Submissions of the Third Defendant by Counterclaim filed 7 May 2021 [21].

2. In the Strike Out Decision, I noted that in Commissioner of Taxation v Auctus Resources Pty Ltd, in the paragraph cited by the defendants,[97] the Full Court referred to the Commissioner's power to amend an assessment under s 355-710 of the Income Tax Assessment Act 1997 (Cth) (following a finding by the board) or under s 170 of the Income Tax Assessment Act 1936 (Cth) (the power to amend within two years or on the basis of fraud).

   [97] Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39 [92].

3. I also noted that, prior to the hearing, the court notified the parties that, if the defendants were asserting that the assessment is conclusive proof only against the taxpayer, the parties were to provide any authorities (or legislative provisions) that might support or counter such a construction.  The court drew the attention of the parties to Re Tomker Pty Ltd (in liq).[98]  This issue became the subject of further submissions, which I addressed in the Strike Out Decision as follows:[99]

   [98] Re Tomker Pty Ltd (in liq) [2016] VSC 656.

   [99] Strike Out Decision [134] - [142].

   By s 350-10(1) item 2 of the TAA, a notice of assessment is conclusive evidence that an assessment was properly made, and, except in proceedings under Part IVC of the TAA in a review or appeal relating to the assessment, that the amounts and particulars in the assessment are correct (conclusive evidence provision).  Given the passage of time, the assessment in this case could now only be amended if the Commissioner is of the opinion that there has been fraud or evasion.  The defendants have expressly disavowed an allegation of fraud.

   The defendants submitted, however, that the conclusive evidence provision does not prevent them from proving Trackem was not entitled to the R&D offset.  They submitted that the provision only operates in proceedings involving the recovery of tax. 

   The parties filed, with leave, 'short' submissions on this point after the hearing on 8 June 2021. 

   In broad terms, the defendants emphasised the purpose of the provision, relied on statements that had been made in the context of judicial review proceedings, sought to distinguish Re Tomker, and asserted that a broader operation would lead to a manifestly absurd result.

   The Trackem parties emphasised the plain meaning of the words, sought to distinguish the judicial review cases, and submitted Re Tomker was a clear example of a broader operation of the provision.

   Mr Saleem submitted, in effect, that it did not matter. 

   First, he submitted that the issue in these proceedings is whether an entitlement to an R&D tax offset exists, as between the taxpayer and the Commissioner.  He pointed out that there is no dispute that an entitlement presently exists and that the entitlement cannot be disturbed unless the Commissioner is of the opinion that there has been fraud or evasion.  He pointed out that fraud or evasion is not alleged.

   Second, he submitted that, regardless of the operation of the conclusive evidence provision, the defendants have not adequately pleaded a cause of action in misleading or deceptive conduct because they have not pleaded material facts that, if found, are capable of establishing that the entitlement does not exist. 

   I have reached the view that it is unnecessary, at this stage, to determine the scope of the operation of the conclusive evidence provision.  I intend no disrespect to the helpful submissions filed by the defendants and the Trackem parties on that issue.  It may become necessary to deal with the point in the substantive hearing, depending on what is ultimately pleaded.  However, it is not necessary for the purposes of resolving the current application.  As will be seen, I consider that the pleading is embarrassing even without having regard to the conclusive evidence provision.  In short, I agree with Mr Saleem's submissions.

The defendants' primary submission

1. The defendants submit that the Trackem parties[100]

   should not recover their costs relating to the matter of entitlement or the conclusive evidence provision. The Court should not require the Defendants to pay for the evolution of the strike-out argument from fraud to entitlement and the conclusive evidence provision after the strike-out application was commenced. That evolution constituted a fundamental shift in argument which should have been raised during conferral leading up to the filing of the Second Further Amended Defence and Further Amended Counterclaim, and certainly during conferral leading up to the commencement of the strike-out application.

   [100] Defendants' Trackem Submissions [23].

2. I do not accept this.

3. First, the question of entitlement was bound up in the Trackem parties' concern that the pleading was at least ambiguous as to fraud.[101]

   [101] See, for example, Submissions of the Plaintiff and the First and Second Defendants by Counterclaim filed 18 February 2021 [3] - [6].

4. Second, the Trackem parties raised the issue of entitlement in conferral.[102]

   [102] See the Affidavit of Charles Mark Dallimore dated 22 April 2021 Annexures CMD-1 pages 4 - 5 and CMD-3 page 28.

5. Third, the conclusive evidence provision issue was not raised by the Trackem parties and was raised by Mr Saleem only after the Application had been brought.  The Trackem parties cannot be criticised for failing to confer about it before it filed the Application.

6. Fourth, although the Trackem parties embraced the submissions made by Mr Saleem in relation to the conclusive evidence provisions, this was not a fundamental shift in their argument.  The Trackem parties continued to maintain their original complaints.

7. Fifth, the defendants' response to Mr Saleem raising the issue appeared to imply that the assessment was conclusive proof only against the taxpayer.  As a result, I notified the parties that, if the defendants were making that assertion, the parties were to provide any authorities (or legislative provisions) that might support or counter such a construction. 

8. Sixth, it is unlikely that the issue would have arisen at all if the defendants' pleading had reflected the case they intended to run.

The defendants' alternative submission

1. In the alternative, the defendants submit the costs should be reserved because:[103]

   1.In the Strike Out Decision, I found that whether or not Trackem was entitled to the offset was a matter for trial, not pleading; and

   2.I did not find it necessary to make any determination on the scope of operation of the conclusive evidence provision because I considered that the pleading was embarrassing even without having regard to the conclusive evidence provision.  I noted that it may become necessary to deal with the point in the substantive hearing, depending on what was ultimately pleaded.

   [103] Strike Out Decision [142].

2. The defendants submit that these costs should be reserved to trial because, if the next iteration of the defence raises  the tax issues, 'it would not be just for the Defendants to pay the costs of those questions now, in view of the lack of prior conferral, and the Court's reservation of those matters to trial'.[104]

   [104] Defendants' Trackem Submissions [27] - [28].

3. I do not accept this.

4. First, the Trackem parties should not be denied costs simply because I concluded it was unnecessary to fully deal with the tax issues.  It was only unnecessary because, regardless of those issues, I considered that the defendants' pleading was embarrassing and should be struck out.

5. Second, it is unlikely that the issue would have arisen at all if the defendants' pleading had reflected the case they intended to run.

Costs of conferral

Defendants' submissions

1. The defendants submit that the Trackem parties should not have the costs of conferral because they 'did not fulfil, or seek to fulfil the purpose of conferral, or the objects of Order 1 rule 4B in circumstances where they unreasonably rejected the Defendants' express disavowal of fraud made during conferral, without conferring further, and then made the [Application] when the Defendants maintained the pleading and did not plead fraud'. The defendants submit that the Trackem parties 'prematurely and unreasonably closed their minds to any possibility that the Defendants were alleging something other than fraud, and were determined to view the subject of entitlement through the prism of fraud'.[105]

   [105] The Defendants' Trackem Submissions [19] - [20].

2. The defendants also submit that the Trackem parties 'did not confer on the statutory aspects of entitlement or the conclusive evidence provision, as elucidated by [Mr] Saleem after the [Application] was made.  Instead those matters were ventilated in Court, wasting significant time and cost'.[106]

   [106] The Defendants' Trackem Submissions [21].

3. Finally, as noted earlier, the defendants contend it was unreasonable for the Trackem parties to bring the Application when it did not oppose the pleading being filed.  I have already explained why I do not accept this.

Analysis

1. The purpose of the requirement to confer is to ensure that:[107]

   (a)parties resolve issues between themselves so far as possible;

   (b)only those matters which are really in dispute are referred to the Court; and

   (c)on occasions when matters are to be determined by the Court all parties appreciate what the real issues in dispute are.

   [107] Consolidated Practice Directions [4.3.2(3)].

2. Order 1 r 4B provides, in effect, that cases will be managed in accordance with the objects of justice, efficiency, timeliness and proportionality.

3. I do not accept that the Trackem parties unreasonably rejected the defendants' express disavowal of fraud. 

4. First, I have already explained why it was not perverse or even unreasonable for the Trackem parties to seek, in the first instance, that the defendants' pleading accurately reflect the case being brought against them.  On the contrary, this was what would be expected of competent lawyers.

5. Second, the defendants' disavowal was contained in conferral correspondence.  The Trackem parties were entitled to insist, subject to an order of the court, that the defendants' pleading accurately reflect the case being brought against them. 

6. Third, it was not only the Trackem parties who could have suggested a pragmatic solution to the problems created by the defendants' ambiguous pleading.  It was open to the defendants to do so.  Further, even if a pragmatic solution was able to be agreed, the disavowal would have needed to be in an admissible form.

7. I accept that the Trackem parties did not confer in relation to the statutory aspects of entitlement or the conclusive evidence provision.  This was no doubt because these issues were only raised by Mr Saleem after the Application was made. 

8. Even if I was to accept that the Trackem parties ought to have conferred about these matters (which I do not), the defendants do not explain why this leads to a conclusion that the Trackem parties should be denied their costs of the conferral that they did do. 

9. For these reasons, I reject the defendants' criticisms of the adequacy of the Trackem parties' conferral. 

10. I also observe that the parties were conferring about a pleading that did not reflect the case the defendants actually sought to run.  In those circumstances, the defendants' attempts to criticise the Trackem parties for inadequate conferral could be considered to be ambitious.  Had the defendants properly pleaded their case, it would have been plain that fraud was not alleged - indeed their actual case was inconsistent with fraud.[108] 

Conclusion on the Trackem parties' costs

[108] See the Strike Out Decision [175].

1. There is no reason to depart from the general order.  The defendants should pay the Trackem parties' costs, including the costs in relation to the tax issues and the costs of conferral.

To be paid forthwith

1. Consolidated Practice Direction 4.7.1(3) provides that, as a general rule, where an order for costs is to be made against a party in interlocutory proceedings, the costs will be fixed and ordered to be paid forthwith or by a particular date.  This is now the general practice in this court.[109]

   [109] Huntingdale Village Pty Ltd (Receivers and Managers Appointed) ATF Huntingdale Village Unit Trust v Perpetual Nominees Ltd[2013] WASC 352 (S) [17].

2. There is no reason not to order that costs should be paid forthwith.

Costs of the application for costs

1. The Trackem parties have been substantially, but not entirely, successful in their application for costs.  I consider it is appropriate that the defendants pay half of the Trackem parties' costs of the costs submissions.

Mr Saleem's costs dispute

1. Similarly to its opposition to the Trackem parties' costs, the defendants submit that Mr Saleem should not have his costs relating to the tax issues or his costs of conferral.

2. Much of the defendants' submissions mirrored their submissions opposing the Trackem parties' costs.  I reject those submissions for the same reasons as I gave for rejecting the submissions relating to the Trackem parties' application for costs.[110] 

   [110] Like Trackem, Mr Saleem expressly reserved his rights in relation to the amended pleading - see the Carter Affidavit Annexure GC1 page 6.

3. The only difference of substance in the position of Mr Saleem compared to the Trackem parties is that Mr Saleem:

   1.did not confer with the defendants prior to supporting the Trackem parties' Application;

   2.did not confer with the defendants in relation to the tax issues, in circumstances where they were his submissions.

4. In my view, Mr Saleem ought to have conferred prior to supporting the Application and prior to making submissions in relation to the tax issues. I accept that O 59 r 9 of the Rules of the Supreme Court did not apply to Mr Saleem, as he was not the party who brought the Application. Nevertheless, O 59 r 9 reflects an underlying expectation that parties will endeavour to facilitate the administration of justice. This requires the parties to attempt to resolve issues between themselves so far as possible and ensure that only those matters which are really in dispute are referred to the court.

5. That said, I do not accept the defendants' submission that conferral would have avoided the need for a contested hearing on the tax issues or reduced the amount of time required.  Even after the issues were raised, and even after the hearing was adjourned to allow the defendants to plead the actual case they sought to run, the defendants persisted in pleading in a manner that did not reflect the case they sought to run. 

6. Further, Mr Saleem's submissions, both written and oral, were confined, succinct and helpful.  In particular, Mr Saleem's submissions set out the legislative framework that applied to the defendants' allegations that Trackem was not entitled to an R&D tax offset.  It was these allegations that the Trackem parties sought to have struck out in the Application.  It was necessary to understand the legislative framework in order to fully understand the defendants' pleading.  It might have been expected that the Trackem parties or the defendants would have included this detail in their written submissions.  As they did not, it was very helpful to the court and, I suspect, the other parties, that Mr Saleem did.

7. Finally, Mr Saleem's conferral costs were entirely wasted due to the fact that the defendants' pleading did not reflect the actual case that the defendants sought to run.

8. In all of the circumstances, I am not satisfied that I should depart from the general order.  The defendants should pay Mr Saleem's costs, including the costs of conferral and the costs in relation to the tax issues. 

Conclusion

1. For the reasons I have given, I will make the following orders:

   1.The defendants jointly and severally pay the Trackem parties' costs of the plaintiff's and first and second defendants by counterclaim's application to strike out parts of the defendants' Third Further Amended Defence and Third Further Amended Counterclaim dated 20 July 2020 (as subsequently amended) (Application), including costs relating to the matters of entitlement or the conclusive evidence provision and conferral in connection with the Application, to be taxed if not agreed and paid forthwith.

   2.The defendants jointly and severally pay half of the Trackem parties' costs of the costs submissions (including the responsive submissions), to be taxed if not agreed and paid forthwith.

   3.The defendants jointly and severally pay Mr Saleem's costs of the Application, including his costs relating to the matters of entitlement or the conclusive evidence provision and conferral in connection with the Application, to be taxed if not agreed and paid forthwith.

   4.The defendants jointly and severally pay Mr Saleem's costs of the costs submissions, to be taxed if not agreed and paid forthwith.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

KJ
Associate to the Honourable Justice Archer

19 NOVEMBER 2021