VDRZ and Innovation Australia
[2016] AATA 729
•21 September 2016
VDRZ and Innovation Australia [2016] AATA 729 (21 September 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number(s)
2014/2186
Re
VDRZ
APPLICANT
And
Innovation Australia
RESPONDENT
DECISION
Tribunal Justice Duncan Kerr, President
Date 21 September 2016 Place Hobart The Tribunal refers the matter for conciliation pursuant to s 34A of the Administrative Appeals Tribunal Act 1975 (Cth) and sets a hearing schedule, as specified in its directions made 21 September 2016.
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PRESIDENT KERR
Catchwords
PRACTICE AND PROCEDURE – Administrative Appeals Tribunal – where parties informed the Tribunal they expect the matter to settle – where the Tribunal made a series of consent directions to facilitate parties’ settlement discussions – where the Commissioner of Taxation, not the respondent, has been the primary entity negotiating with the applicant – where negotiations “in substance” tripartite – where the matter has not settled – where the applicant has sought an ADR process at which a non-party likely to be helpful in that regard be authorised to attend – whether permissible – whether there would be utility in directing proceedings be referred to conciliation – directions made.
Legislation
Administrative Appeals Tribunal Act 1975 (Cth), ss 2A, 33(1AB), 34A
Industry Research and Development Act 1986 (Cth), s 39J
REASONS FOR DECISION
Justice Duncan Kerr, President
21 September 2016
This matter involves a dispute regarding the applicant’s entitlement to research and development tax concessions pursuant to s 39J of the Industry Research and Development Act 1986 (Cth).
The applicant seeks a direction that the proceeding be referred to an alternative dispute resolution (ADR) procedure (conciliation) pursuant to s 34A of the Administrative Appeals Tribunal Act 1975 (Cth) (the Act). It further submits that the parties and/or the person appointed to undertake the ADR procedure be authorised to invite representatives of the Commissioner of Taxation (the Commissioner), subject to undertakings of confidentiality, to participate in the conciliation. The applicant submits that although the Commissioner is not formally a party, the Commissioner has played an active role in the settlement discussions which have occurred to date and that such a course would assist with the potential resolution of the dispute. The respondent opposes the making of any direction pursuant to s 34A. These are short reasons for my decision to make the direction sought.
This matter is undoubtedly complex. Detailed directions for the preparation of a hearing and for its conduct were first made on 7 December 2015. At that time counsel estimated it would require 15 hearing days. The matter was listed for hearing between 4 and 22 April 2016.
However, on 24 February 2016 the applicant, by its solicitors Allens wrote to the Tribunal advising:
[t]he applicant and respondent have been in settlement discussions and […] it is now likely that the matter will settle ahead of the April hearing. The parties have discussed and reached consensus on many issues concerning the structure of the settlement and are now working through the details and agreeing with the ATO how the proposed settlement will impact the applicant’s tax position in the relevant years.
The letter noted that this position was shared by the respondent and that they were in agreement in requesting the Tribunal both to vacate the April 2016 hearing dates and to relieve the parties from complying with such of the Tribunal’s previous directions for the preparation of the hearing yet to be complied with. The parties undertook to write to the Tribunal by 8 April to advise whether the matter had been resolved and, if not, the further orders they would seek.
Directions by consent were made accordingly.
On 5 April 2016 the applicant, again with the agreement of the respondent, advised that the matter had not settled but:
[T]he applicant and respondent have progressed settlement discussions and still anticipate that the matter will settle.
The parties undertook to write to the Tribunal by 10 May 2016 to advise if the matter had settled and for further orders as might be appropriate.
Directions by consent again were made.
The parties then sought a further extension to 30 June 2016. Again that was granted, but the Tribunal’s Directions of 11 May 2016 included an order that if the matter had not resolved by that date the parties were to inform the Tribunal of their counsel’s availability for a future hearing. This order reflected the Tribunal’s concern that to further postpone a hearing where the matter had not settled would be inconsistent with the Tribunal’s statutory duty to provide a mechanism of review which was fair, just, economical and quick.
On 17 June 2016 the applicant advised:
[T]he applicant and the respondent have continued to progress settlement discussions and still anticipate that the matter will settle. We note that the parties are trying to achieve what in substance is a tri-partite settlement between the respondent, applicant and the Commissioner of Taxation. … We are instructed that the parties still require further time to progress those discussions and time to consider settlement deeds, and that a further two months should be sufficient.
On that understanding the Tribunal again extended the time for the parties to provide advice of their counsel’s availability until 31 August 2016.
Unfortunately the expectation that the matter might finally settle by that date proved illusory.
Each of the applicant and the respondent wrote to the Registrar by separate letters dated 31 August 2016 advising dates when their counsel might be available for a three week hearing and proposing timetables for the pre-hearing processes which included similar steps in substance but to occur within a different set of dates.
The Tribunal held a directions hearing in Sydney on Wednesday 14 September 2016. At that hearing the applicant was represented by Ms Stern SC and the respondent by Ms Allars SC.
The Tribunal was told that the first three week period when both counsel would be available was 27 April to 17 May 2017.
The Tribunal sought to explore whether, in light of previously asserted progress in settlement discussions, the Tribunal’s earlier directions of 7 December 2015 that assumed a three week hearing (and which, with consequential changes of dates remained the underlying basis of each party’s proposed timetable for preparation and the hearing) may be streamlined. However, neither party advanced any proposal to narrow the issues or shorten the time required for evidence or submissions.
Ms Stern again submitted that there had been highly productive discussions between the parties. Her instructions were that there was only “something of a mechanistic sticking point and something which is of limited ambit” preventing the matter settling. If the Tribunal was to make a direction for a conciliation, likely to require only two hours, that might assist the parties overcome that final sticking point.
Ms Stern accordingly sought a direction that conciliation be held in the next four weeks and further that the ATO or officers of the ATO be permitted to attend the conciliation “because … the negotiations thus far have been tripartite and are likely to be most fruitful if they continue to have that character”.
Ms Stern noted that the extensive negotiations that had taken place had all involved the respondent, the Commissioner and the respondent. Her instructions were that the “mechanistic stumbling block” involved an interaction between the Commissioner and the respondent. Given the repeated adjournment of these proceedings to facilitate negotiations these would be merit in ordering conciliation as a “final prompt [involving] all of those that were involved in the negotiations”.
Ms Allars opposed that proposed course. She said she had no instructions that there was some merely technical sticking point in the way of settlement. There would be no utility in any two-hour conciliation given that a mediation had taken place in June 2015 before the Honourable Kevin Lindgren and then six months had been spent on negotiations in the course of this year.
Ms Allars further submitted that the Tribunal had no power to direct that the Commissioner be a party to a defined ADR process because the Commissioner was not a party to the proceeding. Ms Allars noted that the Commissioner had not been represented in the earlier mediation ordered by the Tribunal. That was because the respondent had a separate statutory role to that of the Commissioner. She submitted:
This case involves a decision by the respondent and merits review of the respondent’s decision. The Commissioner makes different decisions under other sections of the Act at a later stage if and when required, and they’re very separate roles.
Ms Stern intervened to observe that the applicant was not proposing that the Commissioner be directed to participate in the proposed conciliation. Ms Stern accepted that because the Commissioner was not a party to the proceeding that could not be done. However, Ms Stern submitted that it was open to the President to make directions inviting the Commissioner to participate to assist the ADR process given that the Commissioner “was very much interested in the financial consequences of any settlement” and had played an active role in discussions towards settlement to date.
To clarify the position I then asked Ms Allars whether, as a matter of fact, the respondent accepted that the Commissioner had been involved in earlier settlement discussions.
Ms Allars: The Commissioner has been primarily the entity negotiating with the applicant, but it doesn’t follow from that that any ADR process under the auspices of the Tribunal should involve the Commissioner. … [i]t was the applicant’s choice to negotiate with the Commissioner; with the respondent knowing what was happening but not playing a very active role. ….
President: But it’s also the Commissioner’s choice, and the respondent’s choice to permit it. I mean, how could settlement occur if the Commissioner has no capacity to affect the decision made by the respondent or to influence it?
Ms Allars: Settlement of these proceedings can occur if the applicant and the respondent agree to terms of settlement that the tribunal is prepared to order and is within its jurisdiction; it has nothing to do with the Commissioner in that respect. …
President: If the respondent has … allowed the Commissioner to take a lead in seeking to find a settlement here, isn’t it a bit odd to put the proposition that the Commissioner should not play any part in the possibility of bringing a resolution to these proceedings? ...
Then:
Ms Allars: Well, your Honour, the legal representatives of the respondent in this matter have not been directly involved in those negotiations, they have been very much between the client [which in this context I understand to be a reference to the applicant], and as a less active entity [the respondent], and the Commissioner. …
President; How could progress be made by a party having no accountability under the law and having no relationship statutorily to the decisions under review unless there is a form of agency or agreement, tacit or otherwise, the Commissioner is entitled to play a part in these proceedings?
Ms Allars; There’s no form of agency I’m aware of, your Honour, nor could there be; and I entirely appreciate your Honour’s response, but that is indeed what has occurred.
I have set out those passages from the transcript to illustrate that, whatever may be an explanation for that course having been adopted and notwithstanding the respondent and the Commissioner have distinct and separate statutory functions, the Commissioner, as Ms Allars puts it, “has been primarily the entity negotiating with the applicant” on behalf of the respondent for the past six months.
The Tribunal would be shutting its eyes to the reality of that position were the President to direct a conciliation be held as between the applicant and the respondent without regard to the potential advantage of inviting the Commissioner to participate.
Section 33(1AB) of the Act provides that a party to a proceeding before the Tribunal has a duty to assist the Tribunal to carry out its functions under s 2A of the Act. Those functions extend to ADR under s 34A.
Given that the respondent to date has taken a largely passive role and has permitted the Commissioner to act as the prime entity negotiating on the respondent’s behalf, it plainly would be helpful to have the officers of the Commissioner who have taken the lead role in the earlier negotiations present at any conciliation. To accept the proposition that those officers of the Commissioner may be able to assist in a s 34A procedure is not inconsistent with Ms Allar’s plainly correct observation that the respondent must not act at the behest or direction of the Commissioner in the discharge of its distinct statutory responsibilities.
There is a further reason why the Commissioner’s participation is likely to be of assistance.
I have been given no reason to doubt Ms Stern’s characterisation of the settlement negotiations that have been proceeding as having been “in substance” tripartite. That was the position stated in correspondence sent to the Tribunal on behalf of both parties by the applicant dated 17 June 2016 referred to above. Settlement discussions are privileged from disclosure. I have no knowledge of which elements of those discussions might justify that description. However given the “in substance” tripartite nature of the negotiations to date, the participation of the Commissioner in any conciliation that is directed would seem greatly to be desired.
Thus, if this proceeding is referred to conciliation, the Tribunal would expect that the respondent would act consistently with s 33(1AB) and join with the applicant in inviting the Commissioner (subject to providing undertakings of confidentiality) to participate. It cannot be required, but it may be hoped, that in the interests of assisting with the conciliation of this proceeding the Commissioner would accept any such invitation as may be extended and participate in good faith. I note that Ms Allars ultimately accepted that there is “no clear and direct excessive power in inviting another entity, which is not a respondent, … to be present at a conciliation”.
Finally I turn to the pragmatic question of whether there would be any utility in directing that these proceedings be referred to an ADR process as proposed by the applicant.
I place little weight on the assertion made on behalf of the applicant that the only thing standing in the way of a settlement is a mechanistic sticking point of limited ambit. Ms Allars says she has no instructions from the respondent to that effect. However, I am entitled to proceed on the basis that both parties have repeatedly reassured the Tribunal that they had reached consensus on many issues concerning the structure of a possible settlement and expected the proceeding to settle. Those assurances could only have been given on the assumption that only a limited range of issues remained to be resolved.
For that reason I do not accept Ms Allars’ submission that there would be no utility in referring this matter to a short conciliation. The inconvenience and cost of a failed conciliation must pale into insignificance set against even a small prospect of avoiding the very much greater inconvenience and cost to the public and the parties of a three week contested hearing when everything, including those issues the parties think may be agreed, will be put in issue and the Tribunal required to decide. Having regard to the balance of inconvenience and what appears to me to be a not unreasonable chance that that might be the nudge required to assist the parties to reach an agreement, I will refer the proceeding to an experienced Senior Member for that purpose. The conciliator will have authority to determine a convenient time and place for the conciliation to be held. It will be the duty of the parties to co-operate in identifying the issue or issues which stand in the way of settlement.
Finally I should briefly address the few remaining issues discussed at the directions hearing.
Dates for the hearing of this matter, assuming it will not settle, will be firmly set by for the first three week period (27 April to 17 May 2017). The dates are convenient to both of the parties’ senior counsel.
Each of the parties proposes a timetable modelled on the Tribunal’s original directions of 7 December 2015. There is only one significant difference. On the basis that there is now no reason for urgency the respondent proposes that the steps required by those directions begin October 2016. The applicant, by contrast, submits that the matter may yet settle. Front-end loading of the costs of the proceeding to October may waste money when the matter will not be heard until April and secondly, starting that early is not desirable because those whose minds require to be focussed only do so in the close lead-up to the hearing.
I am persuaded by the respondent that there is a good case to bring forward the timetable to commence earlier than 16 March 2017, but am mindful that there is also merit in the submissions made on the applicant’s behalf. I therefore will make directions commencing the timetable for the applicant to provide its list of the Registered Activities it claims to have carried out et al as at 26 January 2017. Other dates will be adjusted to accommodate that earlier starting date.
Directions will be made accordingly.
I certify that the preceding 40 (forty) paragraphs are a true copy of the reasons for the decision herein of Justice Duncan Kerr, President ................................[sgd]........................................
Associate
Dated 23 September 2016
Date(s) of hearing 14 September 2016 Counsel for the Applicant Ms K Stern SC Solicitors for the Applicant Mr T Knight, Allens Counsel for the Respondent Ms M Allars SC Solicitors for the Respondent Ms R Pattison, King & Wood Mallesons
Key Legal Topics
Areas of Law
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Administrative Law
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Civil Procedure
Legal Concepts
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Judicial Review
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Procedural Fairness
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Standing
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Jurisdiction
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