Federal Court of Australia

Ultimate Vision Inventions Pty Ltd v Innovation and Science Australia [2022] FCA 606

ORDERS

THE COURT ORDERS THAT:

1.    The appeal is dismissed.

2.    The applicant may file and serve any written submissions on costs, not exceeding two pages, by 4.00 pm on 31 May 2022.

3.    If the applicant files and serves written submissions in accordance with order 2, the respondent may file and serve written submissions in response, not exceeding two pages, by 4.00 pm on 7 June 2022.

4.    Subject to further order, the question of costs will then be determined on the papers.

5.    If the applicant does not file and serve written submissions in accordance with order 2, then it is ordered that the applicant shall pay the respondent’s costs of the proceeding, including reserved costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

WHEELAHAN J:

Introduction

1    The applicant appeals a decision of the Administrative Appeals Tribunal dated 27 June 2019 pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) upon questions of law. Although referred to in s 44 of the Act as an “appeal”, the proceeding is in the original jurisdiction of the court, and is in the nature of judicial review: see generally, Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) [2001] HCA 49; 207 CLR 72 at [15] (Gaudron, Gummow, Hayne and Callinan JJ).

2    The Tribunal’s reasons are published: Ultimate Vision Inventions Pty Ltd and Innovation and Science Australia (Taxation) [2019] AATA 1633. The Tribunal affirmed a decision of the respondent which found that none of the applicant’s activities registered under s 27A of the Industry Research and Development Act 1986 (Cth) (IR&D Act) engaged the definition of “R&D activities” in s 355-20 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) for the years ended 30 June 2014 and 30 June 2015. References hereafter in these reasons to years are references to the income years ending on 30 June.

Background

3    Having regard to the volume of material before the court, and the issues raised by the questions of law and grounds of appeal to which I will refer later, it is necessary to set out the background in some detail.

The key legislative provisions

4    The following outline of the key legislative provisions draws in part on the outlines given in Moreton Resources Ltd v Innovation and Science Australia [2019] FCAFC 120; 271 FCR 211 at [13]-[25] (Davies, Moshinsky and Steward JJ), and Coal of Queensland Pty Ltd v Innovation and Science Australia [2021] FCAFC 54; 285 FCR 286 at [11]-[24] (Logan, Griffiths and Moshinsky JJ).

5    Division 355 of the ITAA 1997 provides for tax incentives in the form of a tax offset for research and development activities if they constitute “R&D activities”, which is defined as “core R&D activities” or “supporting R&D activities”, which are themselves defined in Division 355.

6    The respondent owes its existence to s 6 of the IR&D Act. From 11 September 2021, the respondent has continued in existence under a new name, “Industry Innovation and Science Australia”: Industry Research and Development Amendment (Industry Innovation and Science Australia) Act 2021 (Cth), s 3. The respondent is referred to in the Act as “the Board”, and is constituted by members appointed in writing by the Minister. One of the functions conferred on the respondent is to decide whether to register or refuse to register an entity for one or more specified “core R&D activities” and one or more specified “supporting R&D activities” conducted during an income year. The respondent may make findings about activities that are the subject of an application, which are the subject of a certificate which the respondent is required to give to the Commissioner of Taxation: IR&D Act, s 27B, s 27C. A certificate given to the Commissioner of Taxation under the IR&D Act by the respondent that sets out its findings is binding on the Commissioner for the purposes of assessments for the relevant income years: ITAA 1997, s 355-705(1).

The ITAA 1997

7    As I have mentioned, the relevant provisions of the ITAA 1997 are contained in Division 355 (Research and Development). Section 355-1 explains that an R&D entity may be entitled to a tax offset for R&D activities. To be entitled to the tax offset, the R&D entity needs one or more notional deductions under the Division. Section 355-1 also explains that there are two kinds of notional deductions: one is for expenditure on R&D activities; the other is for the decline in value of tangible depreciating assets used for R&D activities. A note under s 355-1 states that all of these notional deductions require the R&D entity to be registered for the R&D activities under Pt III of the IR&D Act.

8    The term “R&D entity” is defined in s 355-35. The definition includes a body corporate incorporated under Australian law.

9    The object of Division 355 is set out in s 355-5 –

355-5    Object

(1)    The object of this Division is to encourage industry to conduct research and development activities that might otherwise not be conducted because of an uncertain return from the activities, in cases where the knowledge gained is likely to benefit the wider Australian economy.

(2)    This object is to be achieved by providing a tax incentive for industry to conduct, in a scientific way, experimental activities for the purpose of generating new knowledge or information in either a general or applied form (including new knowledge in the form of new or improved materials, products, devices, processes or services).

10    The expression “R&D activities” is defined in s 355-20 to mean “core R&D activities” or “supporting R&D activities”.

11    The term “core R&D activities” is defined in s 355-25. The elements of sub-section (1) in particular are important –

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.

12    The term “supporting R&D activities” is defined by s 355-30 –

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.

13    Subdivision 355-D deals with notional deductions for R&D expenditure. In broad terms, the effect of this Subdivision is that an R&D entity can notionally deduct its expenditure on registered R&D activities for which certain conditions are met.

The IR&D Act

14    Section 4 of the IR&D Act provides that the terms “core R&D activities”, and “supporting R&D activities” have the same meaning as in the ITAA 1997.

15    Registration of an R&D entity for R&D activities is dealt with in Pt III of the IR&D Act. Under that Part (in particular, Division 2 of that Part) –

(1)    the Board may register an R&D entity for R&D activities conducted during an income year;

(2)    the Board may make findings about the nature of an R&D entity’s activities, both before and after registration; and

(3)    such findings bind the Commissioner for the purposes of any entitlement of the R&D entity to a tax offset under Division 355 of the ITAA 1997 for the activities.

16    Section 27A of the IR&D Act deals with registering R&D entities for R&D activities. Sub-section 27A(3) provides in relation to the registration of supporting R&D activities –

(3)    For each activity registered under subsection (1) as a supporting R&D activity for an R&D entity for an income year, the registration is to also specify:

(a)    one or more activities as the corresponding core R&D activities; and

(b)    if any of those activities specified as a core R&D activity is not registered under paragraph (1)(a) for the R&D entity for the income year—each income year for which that core R&D activity:

(i)    was registered under paragraph (1)(a) for the R&D entity; or

(ii)    is proposed to be registered under paragraph (1)(a) for the R&D entity.

17    Sub-section 27F(1) provides that the Board may conduct one or more examinations of all or part of an R&D entity’s registration under s 27A for an income year for the purposes of making one or more findings under s 27J(1) (set out below). The note under s 27F(1) explains that a finding under s 27J(1) will support the entity’s registration, or cause the variation of that registration.

18    The key provision of the IR&D Act for present purposes is s 27J –

Findings about a registration

(1)    The Board may make one or more findings to the following effect about an R&D entity’s registration under section 27A for an income year (the registration year):

(a)    that all or part of a registered activity was a core R&D activity conducted during the registration year;

(b)    that all or part of a registered activity was not an activity of a kind covered by paragraph (a);

(c)    that all or part of a registered activity was a supporting R&D activity conducted during the registration year and in relation to:

(i)    one or more specified registered core R&D activities; or

(ii)    one or more specified core R&D activities for which the entity has been registered in an earlier income year; or

(iii)    one or more specified core R&D activities yet to be conducted for which the entity could be registered in the registration year if those activities were conducted during the registration year; or

(iv)    several specified core R&D activities, each covered by subparagraph (i), (ii) or (iii);

(d)    that all or part of a registered activity was not an activity of a kind covered by paragraph (c).

Note 1:    A finding is reviewable (see Division 5).

Note 2:    The Board could make a finding under paragraph (b) if, for example, the Board has insufficient information to make a finding under paragraph (a). Similarly, the Board could make a finding under paragraph (d) if it has insufficient information to make a finding under paragraph (c).

(2)    If the Board makes a finding under subsection (1) in relation to the R&D entity’s registration, the Board may specify in the finding the times to which the finding relates.

Example:    A finding under paragraph (1)(a) could specify the times during the registration year that a registered activity was a core R&D activity.

(3)    This section has effect subject to section 32B (findings cannot be inconsistent with any earlier findings).

19    The effect of s 27J is that the Board may make findings as described in paragraphs (a), (b), (c), or (d) of sub-section (1) in respect of registered activities. For example, if an activity is registered for a particular income year, the Board may make a finding pursuant to paragraph (a) that the activity was a “core R&D activity” and that it was conducted during the income year. By way of further example, if an activity is registered for a particular income year, the Board may make a finding pursuant to sub-paragraph (c)(ii) that the activity was a “supporting R&D activity” conducted in the income year, in relation to one or more specified “core R&D activities” for which the entity was registered in an earlier income year. In addition, under s 27J(1)(c)(iii), the Board could make a finding that all or part of a registered activity was a supporting R&D activity conducted during the registration year in relation to “one or more specified core R&D activities yet to be conducted for which the entity could be registered in the registration year if those activities were conducted during the registration year”. If activities were registered as “core R&D activities”, the Board could nevertheless find that they were “supporting R&D activities” pursuant to paragraph (c).

20    Section 27K deals with notice of the Board’s findings, or of decisions refusing to make findings. Section 27L deals with automatic variations so that an R&D entity’s registration is consistent with the Board’s findings.

21    Division 5 of Pt III of the IR&D Act deals with the review of decisions of the Board. Section 30D provides for a process of internal review, and s 30E provides for external review by the Tribunal of internal review decisions.

The applicant’s applications for registration

22    The applicant lodged applications for the registration of R&D Activities for each of 2014, 2015, and 2016. In circumstances that I will explain later, only the respondent’s reviewable decisions in relation to the applications for the 2014 and 2015 years were before the Tribunal in the proceeding the subject of this appeal.

2014 year

23    In relation to the 2014 year, the applicant’s application to the respondent listed its R&D projects and activities as follows –

1 -    UVI001 Design and Development of an integrated Health and Fitness program and Cloud based Decision Support Systems

1.1    Design of Fitness management algorithms for calorie consumption measurement

1.1.1 -    Supporting

1.2 -    Design of Health management algorithms for calorie intake measurement

1.2.1 -    Supporting

1.3 -    Conceptual design and evaluation of a potential implementation of Cloud based Decision Support Systems

1.3.1 -    Supporting

24    Activity 1.1 which the applicant claimed it had undertaken as a core activity in the 2014 year, being the design of the fitness management algorithms for calorie consumption measurement, was described by the applicant in its application for registration as follows –

HYPOTHESIS

Create a set of Fitness Algorithms (decision software driver modules) capable to personalize a predefined Fitness Program in accordance with the fitness objectives and personal health information of the end user, based on a set of generic rules to be determined – our hypothesis is that the consumption of calories for the same amount of Fitness exercises is dependent upon the age, activity habits and health condition of each individual.

EXPERIMENTS

The experiments targeted groups of individuals of different ages, sex, personal habits and health status, who performed for a predetermined period of time the same type of physical exercises confined to the same number of repeats, w[e]ights and time of the day.

Experiment 1 – Determine the consumption of calories for a set of pseudo-fix parameters such as Inactive people, active people, gym fanatics, same sex, different sex and same age participants, different age groups, overweight and normal weight.

Experiment 2 – Determine consumption of calories for an (sic) set of variable parameters such as time of day for the exercises, relaxed and under stress moods, healthy and sick medical status, and number of repeats for the experiments with the same group type.

OBSERVATION OF THE RESULTS

The outcome of the tests provided us with the basic set of criteria which will be used in the development of Fitness algorithms:

•    A static person consumes more calories than an active person for the same amount of physical activity;

•    An elderly person consumes more calories for the same amount of physical activity;

•    A sick person consume[s] more calories than a healthy person for the same amount of physical activity.

CONCLUSION

The unknown element of this core activity was the process of combining the personal variables listed in Experiment 1 with the time and mental status of the individuals tested with Experiment 2. These results combined with the personal set of Fitness Objectives enabled us to move from empirical observation to mathematical model[l]ing of calorie consumption for each age and sex group and make use of existing fitness measurement devices, programs and libraries containing statistical information.

25    The supporting activity 1.1.1 that the applicant claimed was carried out in the 2014 year was described in its application for registration as follows –

In order to test our hypothesis that the consumption of calories is dependent upon the personal parameters of each individual we researched an extensive number of Fitness and Medical magazines. In addition, we have reviewed the functional specifications of the latest fitness data capture devices (i.e. Android mobile phones, FitBit smart watches, Up 24 trackers, etc), fitness programs (GOOGLE, SAMSUNG, etc) and Industry problems (potential health hazards and physical body damage).

Our preparation for testing included but was not limited to designing a set of PC based generic interfaces for devices which record the calorie consumption for various activities (i.e. walking, swimming, rowing, gym, etc) and a set of models to determine the outcome of various Fitness activities in relation to the personal health status and personal fitness objectives.

-    Define the set of pseudo-fix personal parameters

-    Define the set of variable program parameters

-    Define a set of most likely Fitness objectives

-    Establish sets of Fitness activities for each Fitness objective

-    Create a set of tables for calories consumption taking into consideration the parameters listed herein above

This comprehensive set of references has created a[n] intelligence framework for developing the Fitness Algorithms targeted by our hypothesis.

26    Activity 1.2 which the applicant claimed it had undertaken as a core activity in the 2014 year, being the design of health management algorithms for calorie intake measurement, was described by the applicant in its application for registration as follows –

HYPOTHESIS

Create a set of Health Algorithms (decision software driver modules) capable to personalize a predefined Health Program in accordance with the health objectives and personal health information of the end user, based on a set of generic rules to be determined – our hypothesis is that the retention of calories from the same amount of food and beverages is dependent upon the age, activity habits and health condition of each individual.

EXPERIMENTS

Our objective was to determine a set of generic rules which taking into consideration the personal details and the personal fitness goals will personalize the Dietary program accordingly by performing experiments targeting groups of individuals of different ages, sex, personal habits and health status, who will consume for a predetermined period of time the same amount and types of foods and beverages at the same time of the day.

Experiment 1 – Determine the intake of calories for a pseudo-fix set of personal parameters – inactive people, active people, health fanatics, same sex and different sex individuals, same age and different age groups, overweight and normal weight.

Experiment 2 – Determine the intake of calories for a set of variable parameters – time of day for meals, relaxed and stress moods, healthy and sick medical status and number of experiment repeats with the same groups.

OBSERVATION OF RESULTS

The outcome of the tests provided us with a basic set of criteria which will be used in the development of Health algorithms.

•    For a static person the intake of calories is greater than an active person from the same amount of food and beverages;

•    For an elderly person the intake of calories is less than for a young person for the same amount of food and beverages;

•    For a sick person the intake of calories is less than for a healthy person; ETC

CONCLUSION

The unknown element of this core activity was the process of combining the personal variables listed in Experiment 1 with the time and mental status of the individuals tested with Experiment 2. These results combined with the personal set of Health Objectives enabled us to move from empirical observation to mathematical modelling of calorie intake for each age and sex group and make use of existing calorie measurement devices (i.e. food, beverages, medicines), programs and libraries containing statistical information.

27    The supporting activity 1.2.1 that the applicant claimed was carried out in the 2014 year was described in its application for registration as follows –

In order to test our hypothesis that the intake of calories is dependent upon the personal parameters of each individual we researched an extensive number of Medical magazines and Dietary programs. In addition, we have reviewed the functional specifications of existing calorie measurement and capture devices (i.e. food scanners, food scales, heart bit monitors, blood pressure monitors, etc), calorie content of prescribed drugs and likely industry problems (potential health hazards).

Our preparation for testing included but was not limited to designing a set of PC based generic interfaces for devices which record the calorie intake for various calories sources (i.e. foods, beverages and drugs) and a set of models to determine the outcome of various Directory programs in relation to the personal Health status and personal Health objectives.

-    Define the set of pseudo-fix personal parameters

-    Define the set of variable program parameters

-    Define a set of most likely Health objectives

-    Establish sets of dietary programs for each Health objective

-    Create a set of tables for calories contents taking into consideration the parameters listed herein above

This comprehensive set of references has created a[n] intelligence framework for developing the Health control Algorithms targeted by our hypothesis.

28    Activity 1.3 which the applicant claimed it had undertaken as a core activity in the 2014 year, being the conceptual design and evaluation of a potential implementation of cloud based decision support systems, was described by the applicant in its application for registration as follows –

HYPOTHESIS

Create a “well being” Decision Support System program, Cloud based, which combines 3rd party Health and Fitness programs with personal Health and Fitness objectives with the personal Medical and Fitness status, to ensure a correct interpretation of collision possibilities between such programs and personal objectives.

Since such an integrated program does not currently exist we should build one based on the models resulting from the Core activities 1 and 2 above and the set of decision rules determine[d] by a new set of experiments.

EXPERIMENTS

A set of experiments was defined to determine the validity of our hypothesis and of the proposed decision making process. This has required the careful consideration of certified health programs made available by medical practitioners, the availability of personal details and health status data and the existence of fitness programs developed and made available by professional fitness specialists.

Experiment 1: Design and implement a Cloud based Fitness monitoring program to captures (sic) the results of various Fitness exercises undertaken by the user in accordance with Fitness programs certified by reputable organizations or individual trainers.

Experiment 2: Design and implement a Cloud based Dietary monitoring program which captures the results of Food, Beverages and Pharmaceutical products intake by the user in accordance with personal Dietary programs certified by reputable organizations or individual diet experts.

Experiment 3: Design and implement a Cloud based Decision Support System which will process the inputs received from the Fitness and Dietary programs and of the personal Health and Fitness status and objectives for the purpose of ensuring that the individual’s health is not damaged or endangered by either the personal Fitness program of (sic) by the personal Dietary program and that the personal Health and Fitness objectives are achieved.

OBSERVATION OF RESULTS

Whilst performing the tests it was found that the dynamic tailoring of predefined Health and Fitness programs in accordance with the personal Health and Fitness status and the personal Health and Fitness objectives did not reach our desired accuracy of 100% (as required by the Health Industry) and therefore more mathematical modelling is required. The main obstacle encountered by our experiments was the complexity of mathematical models which required strict observance of the 4 input sets of parameters for the production of one health safe Health & Fitness program.

CONCLUSION

It was found that there are no statistics or comparable models for reference and therefore the outcome of these Cloud based Health and Fitness algorithms and programs is unknown and therefore it represents the greatest risk for us as developers since any errors may endanger the health or even the life of its users.

29    The supporting activity 1.3.1 that the applicant claimed was carried out in the 2014 year was described in its application for registration as follows –

In order to test our hypothesis we have researched a number of typical Cloud based applications, infrastructure services and storage facilities which can be used in conjunction with the proposed Health and Fitness programs (i.e. APPLE, Samsung, Google, etc). The prevention of health hazards was the underlying element of the development of Cloud based Decision Support Systems, accessible by mobile phone users, which MUST ensure compliance between the 6 types of programs (generic health and fitness programs and personal health fitness status and personal health and fitness objectives).

A set of intelligence gathering models have been designed to support the decision support system which combines the Core activities 1 and 2 herein before described. We plan to attract Health and Fitness experts to evaluate the results of our Health and Fitness mathematical models and assist us in offering a reliable Health and Fitness Application for mobile phone users. Further, we will seek acceptance by accredited medical organizations, government agencies and health insurance companies which will also be beneficiaries of a healthy population (i.e. reduced health bills at national level and lower insurance risks).

2015 year

30    In relation to the 2015 year, the applicant’s application to the respondent listed the R&D Projects and Activities as follows –

1 -    UVI001 Design and Development of an integrated Health and Fitness program and Cloud based Decision Support Systems

1.1 -    Improvements of Fitness monitoring algorithms and Multi level Search Engine

1.1.1 -    Supporting

1.2 -    Improvements of Diet monitoring algorithms and Multi level Search engine

1.2.1 -    Supporting

1.3 -    Improvements of Cloud based anti-collision systems with smoothing algorithms

1.3.1 -    Supporting

31    Activity 1.1 which the applicant claimed it had undertaken as a core activity in the 2015 year, being the improvement of the fitness monitoring algorithms and multi-level search engine, was described by the applicant in its application for registration as follows –

Our hypothesis was that calorie burning is directly dependent on personal fitness and health status and health history. After a comprehensive number of systematic experiments we have found a number of limitations and inaccuracies in our hypothesis. We had to experiment how a set of apparently unrelated factors (i.e. elevation, temperature, humidity, etc) would affect the calorie burning rate and how could the accuracy and speed of search for suitable fitness programs can (sic) be improved.

The outcome of the experiments demonstrated that our original hypothesis was limited and that we have to include in our program search engines and calorie burning calculation algorithms these variables.

The logical conclusion was that we have to modify our fitness program search engine and calorie burning calculation algorithms within the context of user’s fitness objectives, health and fitness status and health history.

32    The supporting activity 1.1.1 that the applicant claimed was carried out in the 2015 year was described in its application for registration as follows –

In order to test our hypothesis that the consumption of calories is dependent upon the personal parameters of each individual we researched an extensive number of Fitness and Medical magazines, as part of the preliminary preparation of the experimental phase, we have developed a comprehensive testing plan of the experiments to determine the outcome of various fitness activities in relation to the personal health history, health status and personal fitness objectives of the individual.

Determine the accuracy and efficiency of the fitness search engine and auto-correction fitness program:

-    Test the effects of pseudo-fix personal parameters (age, height, weight, gender, fat %)

-    Test the effects of variable program parameters (blood pressure, cholesterol, sugar level, activity)

-    Test the limitations imposed by the Fitness objectives (reduce weight, increase strength, etc)

-    Identify and retain sets of Fitness activities for each Fitness objective

-    Establish links to tables listing calorie burning rates for various fitness exercises taking into consideration the parameters listed above

This comprehensive set of experiments has resulted in the creation of an intelligence framework which enhances the accuracy and processing speed of the Fitness Algorithm and search engine supporting our revised hypothesis.

33    Core activity 1.2 which the applicant claimed it had undertaken in the 2015 year, being the improvements of diet monitoring algorithms and multi-level search engine, was described by the applicant in its application for registration as follows –

Our hypothesis was that the calorie intake is directly dependent on personal fitness and health status and health history. After a comprehensive number of systematic experiments we have found a number of limitations and inaccuracies in our hypothesis.

We had to experiment (sic) [demonstrate] how a set of apparently unrelated variables (i.e. elevation, temperature, stress etc) would affect the calorie intake rate and how could the accuracy and speed of search for suitable health programs can (sic) be improved.

The outcome of the experiments demonstrated that our original hypothesis was limited and that we have to include in our program search engines and calorie intake calculation algorithms the new variables.

The logical conclusion was that we have to modify our health program search engine and calorie intake calculation algorithms with the context of the user’s health objectives, health status and health history to obtain a greater degree of accuracy.

34    The supporting activity 1.2.1 that the applicant claimed was carried out in the 2015 year was described in its application for registration as follows –

In order to test our hypothesis that intake of calories is dependent upon the personal parameters of each individual we researched an extensive number of Fitness and Medical magazines, as part of the preliminary preparation of the experimental phase, we have developed a comprehensive testing plan of the experiments to determine the outcome of various dietary programs in relation to the personal health history, health status and personal health objectives of the individual.

Determine the accuracy and efficiency of the health search engine and auto-correction health program:

-    Test the effects of pseudo-fix personal parameters (age, height, weight, gender, fat %)

-    Test the effects of variable program parameters (blood pressure, cholesterol, sugar level, activity)

-    Test the limitations imposed by the Health objectives (reduce blood pressure, reduce sugar level, reduce cholesterol, etc)

-    Expand the setoff variable program parameters (temperature, altitude, stress level, time of day)

-    Identify and retain sets of Health diets for each Health objective

-    Establish links to tables listing calorie contents of various foods and beverages taking into consideration the parameters listed above

This comprehensive set of experiments has resulted in the creation of an intelligence framework which enhances the accuracy and processing speed of the Health Algorithm and search engine supporting our revised hypothesis.

35    Core activity 1.3 which the applicant claimed it had undertaken in the 2015 year, being the improvements of cloud based anti-collision systems with “smoothing” algorithms, was described by the applicant in its application for registration as follows –

We have determined from our experiments that our Cloud based anti-collision program elimination hypothesis was unsustainable in extreme cases such as the absence of suitable Fitness and/or Health programs due to user’s personal health restrictions and personal wellbeing Objectives.

To offer end users suitable Health & Fitness programs we have to rethink our strict anti-collision approach and modify the decision support systems logic to accommodate part of, if not all of the end users’ Objectives, without compromising their health. A number of “smoothing” algorithms have been appended to the AI search engines and DSS integration programs with the purpose of offering the most suitable diets and fitness exercises which achieve part of, if not all of the user’s Objectives.

It should be noted that without re-thinking our AI and DSS architectures, the proposed H&F Programs will be singularly relevant to a limited number of end users. The flexibility offered by the proposed “smoothing” algorithms will generalise the outcome and applicability of this project.

Whilst performing the tests it was found that the dynamic tailoring of predefined Health and Fitness programs in accordance with the personal Health and Fitness status and the personal Health and Fitness objectives did not reach our desired accuracy of 100% (as required by the Health Industry) and therefore more mathematical modeling (sic) is required. The main obstacle encountered by our experiences was the complexity of mathematical models which required strict observance of the 4 input sets of parameters for the production of one health safe Health & Fitness program. This complexity was further expanded by the addition of the new sets of environmental parameters listed in the Core activities 1 and 2.

In terms of knew (sic) knowledge it was found that the addition of environmental factors (variables) affecting calorie intake and burning and the extension of our AI algorithms and DSS engines resulted in faster and more accurate calculation algorithms and the provision of at least one suitable H&F program. The extreme case of no suitable programs should be automatically referred in the future to medical and fitness experts for resolution.

36    The supporting activity 1.3.1 that the applicant claimed was carried out in the 2015 year was described in its application for registration as follows –

In order to test our modified hypothesis we have researched a number of typical Cloud based health and fitness programs offered by leading organizations such as APPLE and Google. A comprehensive test plan was developed including experiments deemed as necessary not only to prevent health hazards but improve the AI algorithms and DSS engines in terms of accuracy and speed through the integration of additional factors affecting the calorie intake and burning and the “smoothing” of end user’s Objectives.

We have tested design test simulation tools to test the accuracy of our AI algorithms and DSS engines for:

-    Normal conditions (strict observance of health restrictions)

-    Boundary conditions (employing “smoothing” algorithms), and

-    Transient conditions (dynamic changes on the health and fitness status)

The outcome of our experiences helped us to clearly define the end users’ choices: discard programs which do not fit, or revise and modify personal objectives, or tailor recommended programs to fit personal objectives and to build the support framework needed by this Core activity.

2016 year

37    In relation to the 2016 year, in its application for registration the applicant identified two core and two corresponding support activities as follows –

1-1:    Design and development of an integrated Health and Fitness program and Cloud based Decision Support Systems

1.1    Core 1: Development and testing of Cloud based emulations of payment applications using POE, IKM and tokenisation methods.

1.1.1-    SUPPORT 1: Development and testing of several mobile payment applications

1.2    Core 2: Development and testing of Cloud based decision support systems and artificial intelligence engines for integrated health and fitness programs

1.2.1-    SUPPORT 2: Development and testing of a range of health fitness mobile applications

38    Core activity 1.1 that the applicant claimed was carried out in the 2016 year, being the development and testing of cloud based emulations of payment applications using “POE”, “IKM” and tokenisation methods, was described by the applicant in its application for registration as follows –

HYPOTHESIS (OF EXPERIMENTS): Our hypothesis was that by tokenising payment transactions, in the same way we do for medical records, we could use non-secure mobile phones to perform local and international electronic fund transfers in a secure manner.

EXPERIMENTS: The difficulty was in finding how to authorize and capture payment transactions from "unknown" end-users' devices and transaction processors.

Experiment 1: determine how EFT transactions can be performed between the accounts of the same user within the same bank and between different banks;

Experiment 2: determine how EFT transactions can be performed between the accounts of two different users within the same bank and between different banks;

Experiment 3: determine how EFT transactions can be performed between the accounts of the same user or of two different users internationally;

Experiment 4: demonstrate how the overall system reacts to the 3 types of testing domains (normal, boundary and transient).

UNKNOWN OUTCOME OF EXPERIMENTS/OBSERVATION: There was no prior known methodology to enable us or other skilled persons to predict the outcome of the experiments in advance since for the first time POE, IKM and TOKENISATION were combined into a unitary CLOUD based Payment System.

EVALUATION: It was determined that tokenised payments can be performed via a CLOUD based transaction processor which is known to a local bank such as a Retail Integrator or as a PayPal user or as a SWIFT client.

NEW KNOWLEDGE/OUTCOME: The positive outcome of this core activity was the creation of a new CLOUD paradigm (POE and IKM) for local and international Electronic Payments.

CONCLUSION: We demonstrated that non-secure devices can perform sensitive tasks such as payments in a secure manner is operating in conjunction with Cloud based token security.

39    The supporting activity 1.1.1 for the 2016 year was described by the applicant in its application for registration as follows –

Cloud based International payments (via SWIFT)

•    Deposits - Prior to any fund transfers the user will be required to transfer from his/her bank the intended transfer amount plus the transfer fee or a larger amount to be used for multiple transfers into GSS trust account. The funds are managed by a "trusted" bank and used for international fund transfers via SWIFT.

•    Withdrawals - Members may withdraw at any time their funds held by GSS in the trust account, since GSS maintains a real-time account balance for each member.

•    Balance Enquiries - Members may get at their discretion, at any time, their balances of their accounts held by GSS in the trust account, since GSS maintains a real-time account balance for each member.

•    Fund Transfers - Members will be able to transfer funds internationally to pre-defined overseas accounts (repetitive-line accounts list) subject to funds availability by requesting GSS CLOUD APP to process their request under the strict security rules mentioned above.

Cloud based Local payments (via PayPal)

•    Requesting Funds (REQUEST) -This function will enable the end-user to get certified value TOKENS from the CLOUD based Service Provider APP (GSS). Several certified TOKENS may coexist. GSS will validate the end-user credentials (ID, PSW and DEVICE) and get the requested amount from the end-user's bank account, in case the “virtual” account balance held by GSS is insufficient. GSS will then send a certified value TOKEN representing the amount and flag the TOKEN as “issued”.

•    Transferring Funds (TRANSFER) - APP users will be able to transfer funds (value TOKENS) to other APP users who will accept the funds and provide the goods or services or cash upon receiving confirmation from the GSS Service Provider that the value TOKEN certificate is valid. RECIPIENT DEVICES are smart-phones, EFTPOS devices and ATMs. GSS will validate the value TOKEN certificated and in accordance with AMLCTA act, will save the transfer trace for future audit.

40    Core activity 1.2 that the applicant claimed was carried out in the 2016 year, being the development and testing of cloud based decision support systems and artificial intelligence engines for integrated health and fitness programs, was described by the applicant in its application for registration as follows –

HYPOTHESIS (OF EXPERIMENTS): Our hypothesis was that we could integrate 3 generic dietary, fitness and drug prescription programs with the personal health and fitness status within the context of personal health and fitness objectives in an interactive manner within strict safety and security regulations.

EXPERIMENTS: The challenge was how such a complex framework of parameters can be integrated into a safe personal well-being program in order to develop the decision support engines required to select the most adequate health and fitness programs and build the artificial intelligence engines required to eliminate collision of such programs and adjust the end-user’s goals and objectives within pre-determined safety boundaries.

•    Experiment 1: determine how a fitness program is impacted by the other 5 programs.

•    Experiment 2: determine how a dietary program is impacted by the other 5 programs.

•    Experiment 3: determine how a medical program is impacted by the other 5 programs.

•    Experiment 4: demonstrate how the overall system reacts to the 3 types of testing domains (normal, boundary and transient).

UNKNOWN OUTCOME OF EXPERIMENTS/OBSERVATION: After in-depth research we could not find any system or known methodology to enable us or other skilled persons to predict the outcome of the experiments in advance since for the first time DIETARY and FITNESS programs were combined with the personal HEALTH and FITNESS STATUS, OBJECTIVES and PROFILE of the end-user into a unitary CLOUD based Health and Fitness system.

EVALUATION: It was determined that the interaction of the generic and personal programs can be merged into a satisfactory level of safety through the implementation of “smoothing” of the anti-collision algorithms.

NEW KNOWLEDGE/OUTCOME: The positive outcome of our experiments was the creation of a CLOUD based paradigm (H&F) for integrated Health and Fitness programs.

CONCLUSION: We demonstrated that it was possible to integrate the 6 types of programs and resolve the safety and security problems encountered by specialised health and fitness programs available at the time on the market.

41    The supporting activity 1.2.1 for the 2016 year was described by the applicant in its application for registration as follows –

Test Plan considerations:

The variable nature of the amount of calories received from food and beverages intake and the amount of calories spent as a result of various fitness exercises must be combined with the personal information of the individual (Profile and H&F Status).

Since we have introduced another variable in the form of Medical Prescriptions monitoring we have to rethink the Test Plan of the DSS and A1 engines in order to ensure compatibility across the entire spectrum of H&F algorithms.

R&D focus – Fitness DSS algorithm

The DSS Fitness algorithm identifies the most suitable Fitness programs which fit the end-user’s Fitness Objectives within the limitations of the end-user’s Personal Profile and H&F Status.

R&D focus – Diet DSS algorithm

The DSS Diet algorithm identifies the most suitable Dietary programs which fit the end-user’s Health Objectives within the limitations of the end-user’s Personal Profile and H&F Status.

R&D focus – Anti-collision A1 engine

The Anti-Collision A1 engine ensures that the Fitness and Diet programs, when integrated, do not exclude each other within the context of end-user’s Personal Profile and H&F Status

R&D focus – H&F program smoothing A1 Engine

The Smoothing A1 engine ensures that the end-user’s Objectives are revised when all the selected fitness and Diet programs have been excluded by the Anti-Collision A1 engine in order to enable the end-user to participate to an H&F program within realistic Objectives.

The respondent’s findings

42    On 3 November 2016, the respondent notified the applicant of findings that had been made in relation to the 2014 and 2015 years, namely that the applicant’s registered activities for those years were ineligible as core R&D activities, or as supporting R&D activities. The applicant then sought an internal review of the findings.

43    On 3 March 2017, the respondent advised the applicant of the result of the internal review, which was to confirm the decision that the applicant’s registered activities for 2014 and 2015 were not eligible. On the same day, the respondent also notified the applicant of findings made at first instance in relation to the applicant’s registered activities for the 2016 year, namely that those activities also were not eligible. The respondent’s decision upon its internal review in respect of the 2014 and 2015 years was reviewable by the Tribunal at this stage, but not the findings in relation to the 2016 year because at that stage there was no reviewable decision following internal review: IR&D Act, s 30A, s 30E.

The application to the Tribunal

44    On 9 March 2017, the applicant lodged an application with the Tribunal seeking review of the decision of the respondent upon internal review relating to the applicant’s registered activities for 2014 and 2015. The application also referred to the 2016 year and attached a copy of the respondent’s certificate dated 3 March 2017 containing its findings in respect of the 2016 year, notwithstanding that at that point in time the respondent had not made a reviewable decision in relation to the 2016 year.

45    Subsequently, on 25 April 2017, the applicant sought an internal review of the respondent’s findings in relation to the 2016 year.

Preliminary steps before the Tribunal

46    There was evidence before the court about the progress of the applicant’s applications before the Tribunal, and about two telephone directions hearings before the Tribunal conducted on 14 September 2018 and 23 October 2018. This evidence was tendered with leave, and was relevant to those grounds of appeal that complained that the Tribunal had erred in failing to consider the application for review in respect of the 2014 and 2015 years together with an application for review in respect of the 2016 year. The evidence on these matters was extensive. It included affidavits of Mr Werner Nicolau, the sole director of the applicant, and his father Mr Mark Nicolau about what occurred at the directions hearings, in circumstances where there was no transcript available to the court. The evidence also included an affidavit of the respondent’s solicitor sworn 26 October 2020 which comprised 456 pages, including its 60 annexures.

47    In relation to the review before the Tribunal, there were communications between the solicitors for the respondent and the solicitors then acting for the applicant, Halperin & Co. In a letter from the respondent’s solicitors to the applicant’s solicitors dated 3 May 2017, it was specifically put to the applicant’s solicitor that he had advised that the applicant would not seek to stay the proceedings before the Tribunal pending the outcome of the respondent’s internal review in respect of the 2016 year. Draft timetabling orders were proposed by the respondent consistently with this position.

48    On 30 June 2017, new solicitors for the applicant, Portfolio Law, filed a statement of issues with the Tribunal. The reviewable decision that was referred to at [10] of that statement was the respondent’s decision of 3 March 2017 to uphold the respondent’s decision of 3 November 2016, which was in respect of the 2014 and 2015 years.

49    There is evidence that on 31 October 2017, the respondent notified the applicant of the result of its internal review for the 2016 year, which was to confirm the decision. The evidence is in the form of a copy of an email produced by the respondent dated 31 October 2017 to Mr Werner Nicolau, which attached the respondent’s decision upon internal review for the 2016 year. The copy email is accompanied by a read receipt from what appears to be the email address of Mr Werner Nicolau, which would support an inference that the email was read on 31 October 2017 at 9.26 pm. However, it is a curiosity that the read time is precisely the same as the send time, down to the second. The way the read receipt was generated, and its significance, were not explained by the evidence. As I indicate below, there was a dispute on the evidence as to whether that notification was received by the applicant.

50    On about 16 November 2017, the applicant filed and served a statement of facts issues and contentions before the Tribunal. That statement at [2] referred only to the 2014 and 2015 years as being the relevant income years in issue.

51    On about 1 February 2018, the Tribunal listed the matter for hearing on 16 and 17 May 2018.

52    On 7 March 2018, the respondent filed and served its statement of facts issues and contentions before the Tribunal. The respondent referred to the applicant’s application for internal review of the decision in respect of the 2016 year, but not to the fact that the review had been determined, or to the notification dated 31 October 2017. However, the statement squarely advanced the contention that the respondent’s application to the Tribunal did not extend to a reviewable decision in respect of the 2016 year.

53    There were delays by the applicant in filing evidence in reply, and on 26 April 2018, its solicitors withdrew. At a directions hearing on 27 April 2018 the Tribunal directed the applicant to file its reply evidence by 4 May 2018, and confirmed the hearing dates, which were then 16 and 17 May 2018. At a further directions hearing on 11 May 2018, the time for the applicant to file reply evidence was further extended to 16 May 2018, and the May hearing dates were vacated.

54    On about 17 May 2018, the applicant, which by now was not legally represented, filed and served a statement of facts issues and contentions in reply.

55    A further directions hearing was conducted by the Tribunal on 19 June 2018 at which the matter was referred to a listing clerk. On about 1 August 2018, the Tribunal issued notices advising that the proceeding was listed for hearing on 29 and 30 October 2018.

56    On 7 August 2018, the applicant filed and served a brief further witness statement of Mr Werner Nicolau. The material substance of that statement was that Mr Nicolau had not received a response from the respondent to its request to review its decision in respect of the 2016 year.

57    In response, on 20 August 2018 the respondent’s solicitors wrote to the applicant and to the Tribunal drawing attention to the respondent’s decision on 31 October 2017, to which I referred at [49] above. The letter attached a copy of the internal review decision for the 2016 year, the covering letter to the applicant, the email attaching those documents and a copy of the read receipt from Mr Nicolau. The respondent’s solicitors foreshadowed that the respondent would resist any attempt to bring the reviewable decision for the 2016 year into the proceeding on the basis that it may require additional evidence and a further delay in the proceedings. The solicitors for the respondent invited the applicant to approach the Tribunal for directions if it intended to press the Tribunal to consider the 2016 year.

58    Mr Werner Nicolau stated in an affidavit before this court affirmed 8 December 2020 that he did not receive the respondent’s reviewable decision dated 31 October 2017 in relation to the 2016 year until the respondent emailed a copy on 20 August 2018. Mr Nicolau was not cross-examined on this evidence, and to the extent that it is relevant to this appeal I accept that Mr Nicolau was not aware until 20 August 2018 that the respondent had made reviewable findings in relation to the 2016 year. Mr Nicolau’s direct affidavit evidence on this point is supported by the surrounding circumstantial evidence. If Mr Nicolau had become aware of the findings for the 2016 year when they were apparently sent to him by the respondent, it is likely that he would have taken steps earlier than he did to apply to have the findings reviewed. The issues on appeal do not call for any findings to be made about whether the respondent succeeded in sending the findings for the 2016 year to Mr Nicolau by email as its business records would indicate, and if the email had been sent on 31 October 2017, the reasons why Mr Nicolau did not become aware of the email at about that time.

59    In the applicant’s reply submissions to the court the applicant claimed that the respondent’s statement of facts issues and contentions before the Tribunal dated 7 March 2018 had omitted to state that that a reviewable decision had been made in respect of the 2016 year, as a result of which the applicant remained unaware of the decision until 20 August 2018 which led to the application at the directions hearing on 14 September 2018. The evidence does not support any inference that the respondent consciously omitted in its statement of 7 March 2018 to draw the applicant’s attention to its reviewable decision of 31 October 2017 in respect of the 2016 year. This is for three reasons. First, the business records of the respondent in the form of the copy email dated 31 October 2017 would have indicated to the respondent that the decision was sent to the applicant. Second, there is no inference to be drawn that the respondent had any knowledge prior to 20 August 2018 that the applicant was unaware of the decision. The third reason is that when it became apparent in August 2018 that the applicant was unaware of the decision, the respondent’s solicitors provided a copy of the decision to the applicant: see [57] above.

60    At a telephone directions hearing before the Tribunal conducted on 14 September 2018, the applicant sought to have the review of the decisions for the 2014 and 2015 years heard together with a review of the respondent’s decision in respect of the 2016 year. Mr Mark Nicolau set out in his affidavit affirmed 8 December 2020 his account of what occurred at the directions hearing on 14 September 2018 –

9.    At the hearing, amongst other things, I recall that I asked the Tribunal to include the review of the Respondent’s decision in respect of the 2015/2016 year. I made submissions to the Tribunal setting out 6 points as to why the Tribunal should include the Respondent’s 2015/2016 year’s decision in its review. I made submissions to the Tribunal based upon notes that I had with me, which stated as follows:

“Why Should the Tribunal include an external review of the Respondent’s R&D decision in the 2015/16 year?

1.    BECAUSE the UVI Application for Review to the Tribunal on 9 March 2017 was in respect of three years that is the RD incentives for the years ended 30 June 2014 30 June 2015 and 30 June 2016.

2.    BECAUSE: the R&D decisions in each year that are the subject of our Application for review arise out of the RD activities into the development of the Health and Fitness System Application.

3.    BECAUSE: UVI’s complaints and application to review in respect of each year arise from the same facts relating to the conduct and decisions of the Respondent. Each of the years raise common questions of law or fact.

4.    BECAUSE: reviewing all three years is necessary to ensure that all questions in the proceeding are effectively and completely determined and decided upon

5.    BECAUSE: it is just and convenient and in the interests of justice to determine the issues in respect of all three years in one proceeding rather than having UVI commence separate proceeding which may not even be possible in respect of 2015/16.

6.    We did not know until about three weeks ago on 20 August 2018 that a review decision had been made in the 2015/16 year. That does not change the fact that our Application for Review to the Tribunal sought a review of the RD decision for the 2015/16 year.

10.    I recall that Counsel for the Respondent said that the Respondent opposed the inclusion of the decision in the 20152016 year in the review.

11.    The Tribunal agreed with the Respondents position

(Emphasis in original.)

61    Mr Nicolau’s account was not challenged, and is not inconsistent with the account of the solicitor for the respondent, Ms Rebekha Pattison, in her affidavit of 26 October 2020 –

73    The parties appeared for a directions hearing on 14 September 2018 before Member Maryniak QC. Ms Melanie Baker of Counsel appeared for the Respondent, instructed by myself. The Member decided that the Applicant would not be allowed to rely on the evidence of Mr Surdut in the absence of a witness statement. The parties then agreed that the Applicant could rely upon the Third Mark Nicolau Statement despite the late service.

74    The parties also discussed the 2015/16 income year during that directions hearing. The Member decided that the 2015/16 income year was not a part of the Application for Review before the Tribunal.

62    I find that at the 14 September 2018 directions hearing the Tribunal determined that any review of the respondent’s findings for the 2016 year would not be considered as part of the extant application for review that the Tribunal had fixed for the hearing, and which was due to commence on 29 October 2018. I find that the Tribunal came to the same conclusion at a further telephone directions hearing on 23 October 2018. That finding is supported by the direct evidence of Ms Pattison in her affidavit –

76.    The parties appeared for a further directions hearing by telephone before Member Maryniak QC on 23 October 2018. Ms Melanie Baker of Counsel appeared for the Respondent, instructed by myself. Member Maryniak QC again decided that the 2015/16 income year would not be addressed in the upcoming hearing.

63    Ms Pattison’s evidence is corroborated by an email to the Tribunal dated 23 October 2018 from Mr Mark Nicolau which stated –

Today at the hearing we have been informed by Member Marinyak that our application to include the review of AusIndustry’s decision alongside the reviews of AusIndustry’s decision for years 2013/2014 and 2014/2015 is rejected since it was lodged too late and that the Respondent is opposing such inclusion in our action (2017/1319) listed for trial on 29 and 30 October 2018.

No date was given to us to lodge this application for review.

We have been forced to represent ourselves [due] to financial constraints.

We get limited pro-bono assistance and the finalisation and lodgement of our request for review was delayed due to the busy schedule of our pro-bono lawyer.

We respectfully ask AAT to consider the attached application signed by the principal of the Applicant for a review as a new application and list it for hearing in due course.

64    With this email, the applicant submitted out of time an application to the Tribunal to review the findings of the respondent upon the internal review relating to the 2016 year. Subsequently, the applicant applied for an extension of time to commence the application, which the respondent did not oppose, and on 3 January 2019 the extension was granted by a Deputy President of the Tribunal.

65    I also record here that the affidavit of Mr Werner Nicolau affirmed 8 December 2020 that was before the court annexed almost 2,000 pages of documents relating to evidence that the applicant filed with the Tribunal in its separate application to the Tribunal for review of the respondent’s decision relating to the 2016 year. I admitted this evidence on the limited basis that its use was confined to the identification of what evidence might have been available to the applicant to place before the Tribunal but for the alleged errors of law that it raised by its notice of appeal. The affidavit’s admission into evidence on that basis was not opposed by the respondent.

The statements of facts issues and contentions

66    I have referred already to the parties’ statements of facts issues and contentions that were filed ahead of the hearing before the Tribunal. The applicant’s statement of facts issues and contentions, which was prepared by its then solicitors, was brief, framing the issues in succinct terms, and identifying the conclusions that were contended for.

67    The respondent, by its statement of facts issues and contentions, put in issue whether there was any evidence to establish that the activities that were claimed for the 2014 and 2015 years were conducted, and submitted, amongst other things, that even if they were, there was insufficient material to conclude that the activities were experimental activities whose outcome could not be known or determined in advance on the basis of current knowledge, information or experience so as to engage the definition of “core R&D activities” in s 355-25 of the ITAA 1997. The respondent submitted, inter alia, that the applicant’s descriptions of claimed supporting R&D activities were too vague to allow the Tribunal to understand the precise nature of the activities claimed to have been undertaken, and further that if the applicant did not demonstrate activities that engaged the definition of “core R&D activities”, then there could not be any associated “supporting R&D activities” as defined in s 355-30(1) of the ITAA 1997. In the alternative, the respondent submitted to the Tribunal that there was insufficient evidence that the dominant purpose of the supporting R&D activities was to support the core R&D activities.

68    The applicant’s statement of facts issues and contentions in reply was prepared by the applicant itself. Many of the contentions appeared to critique the respondent’s processes in arriving at the decision under review, and alleged errors in the respondent’s reviewable decision as if on an application for judicial review under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR Act) claiming (inter alia) that the respondent had “breached principles of administrative law”, took irrelevant considerations into account, failed to take account of relevant considerations, failed to act in good faith, failed to act without bias, and acted contrary to law. To the extent that there was reference to evidence, it was generally high-level, such as “the evidence provided by the Applicant of thousands of pages of supporting documents substantiate the research and development carried out, including in great detail the tasks and steps in respect of each Activity”.

69    The applicant’s statement of facts issues and contentions in reply also purported to bring the 2016 year into the Tribunal’s review, referring to each of the 2014, 2015, and 2016 years as the “relevant years”. Paragraph [25] of the reply statement claimed that the respondent had made findings in respect of the 2016 year “arbitrarily without a proper basis”, referring to the respondent’s findings in respect of the 2016 year issued on 3 March 2017. The applicant also claimed in its reply statement to the Tribunal at [25] –

…

(c)     Although the Applicant’s research and development activities were different in the 2015/2016 income year from the 2013/2014 income year and the 2014/2015 income year, it appears the Respondent cut and pasted the wording in the certificate of findings as the wording was virtually the same in the 2015/2016 year as it was for the previous year.

(d)     The Respondent's findings in respect of the 2015/2016 year is probative in relation to the Respondent’s process of decision making to make the findings in the 2013/2014 and 2014/2015 years. Accordingly, the Applicant seeks that the Tribunal have regard to the Respondent’s 2015/2016 decision when considering the Respondent's findings on the previous years, whether or not the Respondent’s 2015/2016 decision will be reviewed by the Tribunal.

(e)    [T]he Respondent did not act in good faith and did not properly consider the merits of the case in respect of the income year ending 30 June 2016.

70    The heading above [30] of the reply statement claimed, that “[t]he correct or preferable decision on the facts is that the R&D activities of the Applicant in the income years ending 2014, 2015 and 2016 are core R&D Activities and Supporting R&D Activities”.

The applicant’s written evidence

71    The parties filed statements of evidence with the Tribunal. The applicant filed two witness statements of Mr Werner Nicolau and three witness statements of Mr Mark Nicolau. The first witness statement of Mr Werner Nicolau, which was prepared by the applicant’s then solicitors, was accompanied by 330 pages of annexures. The annexures included conceptual diagrams, flow charts, and spreadsheets. A significant number of documents comprised “Test Plan” forms identifying the tester as “N Nicolau”, some of which were completed by hand, and others entirely in print. These forms appeared to record things such as diet, exercise, and observed weight loss in the tester. By way of example, one form that was expressed to cover the five week period from 26 May 2014 to 29 June 2014 had written in hand under the heading “test actions” –

Eliminate take-away food i.e. Indian, Chinese, Pizza as well as any other processed i.e. Mexican and/or sweets dairy ice cream and cakes.

Overall [loss] of weight since start in Nov ‘13 (135.5 kg) is 20 kg which indicates that the objective of 5 kg per period was unrealistic.

Resume proper walking distances i.e. 5-6 km 2 times a day and some exercises.

72    Under the heading “test results” the following was completed –

Weight [loss] was at the same pace as before although increased exercises were introduced.

73    Other documents appeared to record what was described as a “personal diet”, presumably of the tester. Amongst the annexures was a document of 45 pages described as “User Requirements & Feasibility Study” for “Health Fitness Clubs transaction processing system” prepared by Mr Mark Nicolau. Another document was described as an index of research and development manuals, noted as “Version V5 – 15/11/2017”. A document titled “Health & Fitness Systems existing service providers” was produced and identified as “draft V.2”. Finally, there was included a copy of a spreadsheet that was described as a “Daily Activities Log” spanning the period to 1 July 2013 to 30 June 2016 and comprising 155 pages.

74    The second witness statement of Mr Werner Nicolau was dated 7 August 2018, to which I have already referred at [56] above. The statement was brief, comprising two pages and two annexures. The substance of the statement was that by email dated 25 April 2017 the applicant had requested the respondent to reconsider its determination in respect of the 2016 year, and that it had not received a response. This statement went to the contested issue of fact to which I referred earlier, concerning whether the applicant ever received the respondent’s notification dated 31 October 2017 affirming its decision in respect of the 2016 year on internal review. At the hearing of the review, the Tribunal did not admit this statement into evidence on the ground that it related to the 2016 year which was not before the Tribunal.

75    The first witness statement of Mr Mark Nicolau was also prepared by the applicant’s former solicitors. The statement set out Mr Nicolau’s background, and described research that was said to have been undertaken “to develop an end to end health and fitness system that comprised mobile phone and PC based applications that individuals could use to easily and cost-effectively find on the internet health and fitness programs that meet and track and help them attain their health and fitness objectives…”. Mr Nicolau stated that through R&D activities that his company Akyman Investments Pty Ltd (Akyman) had performed for the applicant, six algorithms were created and tested for the applicant, comprising –

(a)    a health and fitness algorithm;

(b)    a health and fitness dietary algorithm;

(c)    an anti-collision algorithm;

(d)    a smoothing algorithm; and

(e)    two calorie measurement algorithms (intake and consumption).

76    Mr Mark Nicolau then described the activities that he said were undertaken by reference to the core activities for the 2014 and the 2015 years. The statement was accompanied by over 860 pages of attachments which included a diagrammatic plan, the index that Mr Werner Nicolau had also produced to the research and development manuals, and tables that referred to different algorithms in their titles. A very large number of conceptual diagrams and flow charts were included in the attachments. The “User Requirements & Feasibility Study” to which I referred above was produced again, and other documents bearing the same title with respect to “Find Phone mobile appellant” and “ZAP Contact mobile APP” were also produced. Included in the attachments were miscellaneous emails and a number of handwritten notes which appeared to record ideas, musings, and mathematical formulae including matrix equations. A copy of the same document titled “Health & Fitness System existing service providers” to which I referred above was produced again, though under a different coversheet which identified it as version “V.1”. There were a number of other documents described as industry surveys on various matters. A document titled “Health & Fitness mobile system conceptual design” was produced. A number of documents that were described as specifications or detailed designs of various systems were produced, comprising hundreds of pages. A number of documents appearing to be test plan forms identifying “N Nicolau” as the tester, and the “personal diet” documents to which I referred above were produced again, including the document referring to Chinese food and pizzas that I extracted at [71] and [72] above. A table titled “Fitness Test Records” for Werner Nicolau was produced, recording data such as weight, body mass index, heart rate, and exercise activity for various days during the period 12 May 2014 to 29 September 2017. Some conceptual design, specification and feasibility study documents related to what was described as a “ZAP Contact mobile APP” were also produced.

77    Mr Mark Nicolau prepared a second statement dated 17 May 2018. This statement referred to a meeting on 4 June 2015 between Mr Werner Nicolau, Mr Mark Nicolau, and representatives of “AusIndustry”, including Dr Jessie Hiu Kiu to whom I will refer later. Attachments to the second statement included a 45 page report prepared by Mr Mark Nicolau and a 12 page spreadsheet containing information about the claimed activities. The report spoke to the applicant’s health and fitness system and to the claimed core R&D activities for the 2014, 2015, and 2016 years, and addressed the respondent’s findings. The report contained summaries of information set out in a number of tables spanning 23 pages. In respect of the 2016 year, Mr Nicolau’s report stated at page 7 –

2015/2016

•    The test results from the previous year enabled us to consider additional ECO system parameters affecting the calorie intake and burning rates and improve our self-learning AI engines. Wind, Grip, Gradient, etc affect the calorie burning rate. At the same time blood pressure, sugar level, cholesterol level and stress level affect the calorie intake rate.

•    The protection of end-users' confidential health information became the key objective in the 3ʳᵈ year of H&F project. We have to determine what confidential information to protect and how to protect it considering that end-users, medical practitioners, dieticians and fitness instructors are equipped with off-the-shelf non-secure devices such as mobile phones and personal computers. In this respect we have considered the tokenization of access identification and the encryption of confidential information. Since end-users' devices are non-secure we had to determine how to use Cloud security and Tokenization of critical data to protect information access and exchange.

•    Now that the end-to-end security aspects of the H&F system have been defined we had to consider the monetary implications associated with the provision of mobile and PC based applications to end-users, medical practitioners, dietician and fitness instructors. We have designed a Cloud based payment system to enable the purchase of H&F applications and on­ going maintenance fees. The problem to be resolved was the processing of access requests and payments initiated by non-secure devices. After considering a number of retail payment solutions we had to adopt the Point Over End (POE) solution where both sender and recipient are located in the Cloud and sharing a unique security module for encryption/decryption, authentication/verification and signing/un-signing.

78    A third witness statement of Mr Mark Nicolau dated 30 July 2018 was filed by the applicant. This statement recounted that Mr Nicolau had requested a dietician, Mr Surdut, to provide an expert report and that he had declined. Mr Nicolau stated that he had consulted Mr Surdut on the referral of his general practitioner on four occasions over the course of six months in late 2013 and early 2014. He recounted that he lost weight after following the advice of Mr Surdut, and incorporated that advice into his research and development of the health and fitness system, and applied the “methodology that was developed from my consulting Mr Surdut” to his other “test subjects” whom he identified as his wife and his two sons. Mr Nicolau stated that documents that he prepared in 2014 and 2015 and which he attached were prepared with the benefit of Mr Surdut’s advice. Mr Nicolau also attached a letter that he wrote to the Tribunal dated 8 July 2018 requesting that the Tribunal interview Mr Surdut.

The respondent’s written evidence

79    The respondent relied on reports of two expert witnesses: Dr Deborah Kerr, and Dr Jean-Guy Schneider.

80    Dr Kerr, in her first report which was dated 7 March 2018, stated that she was a research academic with a particular interest in assessing diet and diet behaviours using technology. She stated that she was employed as Associate Professor, Nutrition, Food Science and Dietetics, at Curtin University, and was an accredited practising dietitian with qualifications in nutrition and dietetics. Dr Kerr referred to her extensive experience in applying dietary assessment methods such as food records and food frequency questionnaires. She stated that she had a special interest and expertise in the use of technology, including the development of mobile dietary assessment applications to assess diet. She stated that she was currently conducting a large intervention study that used a fitness tracker app and a mobile food record app, and that she was a named inventor on two US patents for a mobile food record app covering the methods and the systems.

81    The respondent provided Dr Kerr with a number of documents that were listed in the letter of instructions that was attached to the report. Those documents included but were not limited to the applicant’s R&D Tax Incentive applications for the 2014 and 2015 years, the first witness statement of Mr Werner Nicolau with some of the attachments to that statement, and the first witness statement of Mr Mark Nicolau together with some of the attachments to that statement. Dr Kerr was asked to address questions about the applicant’s claimed core R&D activities 1.1 and 1.2 for each the 2014 and 2015 years.

82    At the commencement of her first report, Dr Kerr made the following overarching comments, where “UVI” is a reference to the applicant –

After undertaking a review of the documentation provided to me, my key points are:

•    UVI has not carried out scientific experiments that follow the principles of established science in the fields of nutrition, exercise science and mobile applications to assess diet and exercise.

•    UVI have not provided evidence that they have developed anything new or innovative and instead confirm or re-state what was already known in the field at the time.

•    Throughout the documentation, UVI have used terminology either incorrectly or not in the correct context (for example, the use of terms “calorie consumption”, “algorithms” as explained in paragraph [106].

•    Details of scientific experiments are lacking and show no linking between the objectives, methods, the scientific findings and conclusions. In addition, the documentation of the experiments described in the testing records (for example, documents [MN-4L] and [MN-4M] is of poor quality and does not follow the principles of established science).

•    The evidence provided on the “experiments” conducted by the Applicant appears to be on one or two participants detailing their daily food intake, exercise routine and weight loss over time (for example see [MN-4L], [MN-4M]). The outcomes of these experiments could easily be determined by a competent health professional in the field of nutrition and exercise science who carries out this type of monitoring with clients and interprets the findings to guide them in improving their health and fitness. This is not a scientific method that can address the alleged objectives or provide scientific proof in support of the hypotheses as described.

83    In relation to each of the four claimed core activities that Dr Kerr was asked to address, some of the principal opinions expressed in the report were as follows –

(a)    Dr Kerr considered Activity 1.1 in respect of the 2014 and 2015 years together, as she could find no evidence that improvement in the fitness monitoring algorithm occurred during the specified time period. Dr Kerr stated that there was essentially no evidence that the applicant had conducted experiments employing scientific method or generating new knowledge, and no evidence that the principles of established science had been followed. Dr Kerr stated that the incorrect use of terminology throughout the documentation showed a lack of understanding of the established body of science underpinning nutrition and exercise metabolism. Further, there was simply nothing novel about the activities that the applicant was undertaking. There was nothing in the material that showed any evaluation of testing by the applicant, and there was no evidence of any conclusions being reached by the applicant following any testing of its hypothesis.

(b)    As to Activity 1.2 in respect of the 2014 and 2015 years, Dr Kerr considered them together, stating that she could find no evidence of two distinct activities. Dr Kerr stated that the documents that she had reviewed did not contain evidence that the applicant had developed any algorithm to measure dietary intake, or any control algorithms, and that on the evidence available the applicant appeared only to have synthesised existing knowledge and literature in the field. Dr Kerr stated that from her experience as a nutrition scientist who has been involved in the development of mobile apps that she could find no evidence that the development of a calorie intake app had been undertaken. Further, Dr Kerr stated that the applicant had not provided any evidence to indicate that these registered activities were undertaken. As to the records of food intake, Dr Kerr stated that the applicant undertook monitoring of one or two individuals by recording of their diet using a paper-based food record; however neither of these “experiments” was relevant to either of the activities as they were purely observational and anecdotal on a single person and did not provide measurable empirical evidence linked to the relevant hypothesis, and that keeping a food log was nothing new.

(c)    Overall, Dr Kerr stated that based on the material provided she did not accept that the experimental activities employed a scientific method, and that she did not accept that anything was actually done by the applicant beyond generating documents based on publicly available information, and some limited monitoring of diet and exercise by one or two individuals.

84    Dr Kerr provided a second report dated 6 August 2018 consequent upon a request by the respondent’s solicitors to consider further material. The further material was listed in the letter of instructions and included but was not limited to the applicant’s statement of facts issues and contentions in reply, the second witness statement of Mr Mark Nicolau and in particular his report that was attached to that statement, the third witness statement of Mr Mark Nicolau that referred to his personal consultations with his dietician Mr Surdut, and a letter dated 4 July 2018 provided by Mr Surdut. The key point made by Dr Kerr in her second report was that after undertaking a review of the additional documents she could find no evidence that changed, altered, or qualified her opinions in her first report.

85    Dr Schneider, in his first report dated 7 March 2018, stated that he had over 26 years’ experience in software engineering, and had post-graduate degrees from the Institute of Computer Science and Applied Mathematics at University of Berne in Switzerland. At the time of writing the report Dr Schneider held the position of Associate Professor, Faculty of Science, Engineering and Technology at the Swinburne University of Technology in Melbourne. Dr Schneider was provided with a large number of documents, including but not limited to the applicant’s R&D Tax Incentive applications for the 2014 and 2015 years, the first witness statements of Mr Mark Nicolau and Mr Werner Nicolau, and a number of the attachments to those statements. Dr Schneider stated that while a vast amount of material had been provided by the applicant, few documents were actually relevant to the activities being claimed or were helpful in assisting him to understand what the applicant was actually doing. Dr Schneider said that the materials provided contained a significant amount of duplication, with various documents being provided multiple times, and multiple versions of the same document being included. Some documents were wrongly labelled, which in context I take to mean wrongly titled by the applicant. A number of documents in Dr Schneider’s opinion appeared to be irrelevant to the claimed activities, including those relating to the Zap Contact App, and there were very few relevant documents in all of the material provided. Dr Schneider stated that there was no evidence in the relevant documents that the claimed activities went beyond the concept stage, and no evidence that any testing took place beyond the applicant’s claim that it undertook “extensive testing”. In Dr Schneider’s opinion there was an array of deficiencies in the information in the documents.

86    Dr Schneider considered activities for the 2014 and 2015 years together. As to the claimed core activities that Dr Schneider was asked to address, some of the principal opinions expressed in his report were –

(a)    As to claimed activities within Activity 1.1, Dr Schneider stated that the development of the algorithm was beyond his expertise, and he looked at the questions as a software engineer who nonetheless knew what level of detail had to be contained in an algorithm to write executable code. Amongst other things, Dr Schneider said that there was no evidence that the activity moved beyond the conceptual stage. No source code or executable binary code had been provided, and there was no evidence of any prototyping, testing or experimentation in relation to software development. There was no evidence that the relevant algorithm was developed to a level of detail suitable for implementation. As to the test records that were completed by hand and to which I  referred earlier, Dr Schneider stated that any conclusions drawn from those records were very unlikely to withstand scrutiny from the scientific community, as no generally accepted scientific method was used to demonstrate the validity of the stated hypotheses. From a software engineering perspective there was no evidence that the applicant was trying to resolve a technical uncertainty, and it seemed unlikely that could have been the case anyway.

(b)    As to claimed activities within Activity 1.2, Dr Schneider was of the opinion that as with Activity 1.1, nothing moved beyond the conceptual stage. Dr Schneider stated that he was unable to describe the activities, because there was no evidence of what the health monitoring algorithm looked like, or what if any software development took place.

(c)    As to claimed activities within Activity 1.3 for the 2014 year, being the conceptual design and evaluation of a potential implementation of cloud based decision support systems, Dr Schneider expressed the opinion that there were no specific technical unknowns that had to be tested or investigated, and that from a conceptual perspective there was nothing particularly novel about the proposed system. Dr Schneider stated that by 1 July 2013, decision support systems were established technology and cloud based systems had been around for at least a decade. There was no evidence of any experiments or testing, or in fact that the “cloud based decision support system” was ever created.

(d)    As to the claimed activities within Activity 1.3 for the 2015 year, being improvements of cloud based anti-collision systems with smoothing algorithms, Dr Schneider stated that the idea of these algorithms was not new. In view of the lack of detail and that the respective flowcharts provided were incorrect, one could not ascertain whether the applicant ever went past the conceptual stage. There was no evidence of specification, design, implementation, or testing of the algorithms. There was nothing novel about smoothing algorithms, which had been studied for decades, and similar search algorithms could have been adapted by the applicant. Dr Schneider pointed to some inconsistencies in the activity logs in relation to the anti-collision engine, and stated that the documents did not explicitly state what specific R&D activities this activity was supposed to include, and that the material provided did not describe any specifics of experiments or testing that was conducted. Other observations made by Dr Schneider pointed to the lack of information or details, and the lack of evidence.

87    Dr Schneider provided a second report dated 6 August 2018. That report was in response to a request by the respondent’s solicitors to consider further material. As with the further material given to Dr Kerr, the further material provided to Dr Schneider was listed in the letter of instructions and included but was not limited to the applicant’s statement of facts issues and contentions in reply, the second and third witness statements of Mr Mark Nicolau and his report that was attached to the second statement, a letter dated 4 July 2018 provided by the dietician Mr Surdut, and complete versions of a number of documents previously provided. The principal opinions expressed by Dr Schneider in his second report were that that additional materials had not led him to change the opinions expressed in his first report, and that he was unable to identify any further evidence of research and development activities carried out by the applicant during the 2014 and 2015 years.

The hearing before the Tribunal

88    The hearing before the Tribunal took place over three days: 29 and 30 October, and 8 November 2018. The applicant corporation was not represented at the hearing before the Tribunal by a legal practitioner, but was represented by Mr Werner Nicolau, and his father, Mr Mark Nicolau, both of whom also gave evidence before the Tribunal. Mr Mark Nicolau was also the sole director of Akyman to which I referred earlier, which was registered as a research services provider under s 29A of the IR&D Act for the relevant years. It was part of the applicant’s claim that Akyman had provided services which contributed to the undertaking of the registered R&D activities. The respondent was represented at the hearing before the Tribunal by counsel, instructed by solicitors.

89    The applicant provided to the Tribunal a written opening dated 29 October 2018. As with the statement of facts issues and contentions in reply, the applicant’s written opening to the Tribunal raised a number of claims of error by the respondent as if on judicial review, and sought to put in issue whether the applicant had undertaken R&D activities for the 2014, 2015, and 2016 years.

90    In his oral opening before the Tribunal, Mr Mark Nicolau representing the applicant made some incidental references to the 2016 year. However, in the course of ruling upon an objection to evidence towards the conclusion of the opening, the Tribunal stated that the 2016 year was not before the Tribunal, which was consistent with the rulings it had made at the directions hearings on 14 September and 23 October 2018. The particular ruling on evidence was to exclude the brief second statement of Mr Werner Nicolau dated 7 August 2018 which referred to the applicant’s request to the respondent to review the decision in respect of the 2016 year. Counsel for the respondent made a brief opening, referring the Tribunal to the relevant legislation.

91    Over the course of three hearing days all four witnesses were cross examined at length. The two expert witnesses were interposed without objection by the applicant. The Tribunal allowed both Mr Mark Nicolau and Mr Werner Nicolau to cross-examine Dr Kerr.

92    The Tribunal was actively engaged in the course of the hearing, seeking clarification of the evidence from time to time, disallowing certain questions, disallowing the tender of some documents, and giving general guidance to the applicant’s representatives about the issues that were before the Tribunal to encourage them to focus on those issues. In particular, in response to attempts by the applicant to identify errors in the respondent’s decision-making, the Tribunal stated that the hearing was a de novo hearing which the Tribunal described to the applicant’s representatives as involving a fresh decision. The Tribunal conveyed this to the applicant’s representatives on a number of occasions. Early in the hearing, the Tribunal stated to Mr Mark Nicolau that it was for him to put the case again. The Tribunal also assisted the applicant by taking Mr Werner Nicolau through his evidence-in-chief.

93    At the conclusion of the hearing on 8 November 2018, the Tribunal directed that written submissions be filed by the parties. The applicant filed submissions with the Tribunal dated 23 November 2018 that were signed by Mr Werner Nicolau on behalf of the applicant comprising 64 numbered paragraphs and 38 numbered endnotes within 17 pages. Within those submissions the applicant contended, amongst many other things, that information relevant to the 2016 year was probative of the nature of the project that was being developed in 2014 and 2015 –

20.    In order for the Tribunal to properly understand the Health and Fitness System in its entirety, the Tribunal needs to include consideration of all of the components of the Health and Fitness System including the transaction processing, exchange of information, security, and integration of the functions required to process the Health and Fitness transactions. While the Tribunal proceeding has been limited to the years ended 30 June 2014 and 30 June 2015 (and has excluded the 2016 year), this should not limit consideration of the Health and Fitness System in its entirety. That is, the Tribunal needs to consider all of the components of the Health and Fitness System regardless of when the components were being developed.

21.    The proposed product required the bringing together of several existing and new technologies in an innovative way. The Health and Fitness System did not spring fully formed in 2014 or 2015. The information on the Health and Fitness System relating to the year ended 30 June 2016 is probative of the nature of the R&D project into the Health and Fitness System that was being developed in 2014 and 2015.

94    The applicant then submitted to the Tribunal that a number of necessary essential components designed in the 2014/2015 year for use in the Health and Fitness System were created and claimed in the 2016 year, identifying a transaction processing system, applications for exchange of information being the “Find Phone mobile APP”, the “Prescription Monitoring mobile APP”, and the “ZAP Contact mobile APP”, a security system for the exchange of medical information, and the integration of functions required to process the health and fitness transactions, which was described as follows –

In addition to the above stated by-products and prototypes, the Cloud based Health & Fitness System required the integration of various Decision Support Systems (DSS) and Artificial Intelligence (Al) algorithms (search engines, non-collision, smoothing, etc), and the testing of each algorithm individually and also in conjunction with the other 5 algorithms. The linking was conceptually developed but had not been coded at that time.

A comprehensive Test Plan was developed for the Health and Fitness System, however, due to the lack of funding, the development of test drivers and stubs (the stubs contain the data to be tested and the expected results), and the testing of each function with the context of normal, boundary and transient conditions was shelved.

(Footnote omitted.)

95    The respondent filed written submissions of counsel in response dated 6 December 2018 comprising 67 numbered paragraphs with 95 numbered footnotes within 15 pages.

96    The applicant replied to the submissions of the respondent by written submissions dated 18 December 2018, which were again signed by Mr Werner Nicolau on behalf of the applicant. The reply submissions were 12 pages in length, including an attached chart, and contained 110 endnotes referring to documents filed with the Tribunal and to transcript references.

The Tribunal’s statement of reasons

97    The Tribunal affirmed the decision under review. The Tribunal’s statement of reasons comprised 33 pages, containing 100 numbered paragraphs. Within those paragraphs, the Tribunal copied without attribution almost the entirety of the respondent’s written outline of submissions dated 6 December 2018, and included them as part of the Tribunal’s own reasons. However, the paragraphs of the respondent’s submissions that were copied were not presented in the same order in the Tribunal’s reasons, and they were placed amongst other paragraphs that were not copied.

98    Prior to the hearing of the appeal, I made an interlocutory order that the respondent file a copy of the Tribunal’s reasons that highlighted in yellow those passages of the reasons that the respondent accepted had been copied verbatim, or at least substantially, from the respondent’s submissions to the Tribunal, and that the respondent also file a copy of its closing submissions to the Tribunal which had corresponding highlighting. Those documents were helpful. Most of the respondent’s submissions to the Tribunal, from start to finish, were copied verbatim. However, as I have mentioned, the paragraphs were not all copied in the same order as they appeared in the respondent’s submissions to the Tribunal. A small number of paragraphs, while not copied verbatim in their entirety, were copied for the most part. The substance of the two concluding paragraphs was replicated in the Tribunal’s reasons. Of the 67 numbered paragraphs of the respondent’s written submissions, 65 were copied by the Tribunal in this way.

99    Viewed from the perspective of the Tribunal’s statement of reasons, of the 100 paragraphs, about 65 paragraphs and their footnotes comprise unattributed copying of the respondent’s written submissions. Those paragraphs that were not copied from the respondent’s written submissions included –

(a)    [3] to [20] setting out uncontroversial matters such as the identification of the applicant’s registered activities, and the relevant statutory provisions;

(b)    a framing of the issues at [47];

(c)    identification of the witnesses who gave evidence at [50];

(d)    summaries of the applicant’s submissions at [52] to [59], including observations by the Tribunal at [52], [53], [57] and [59] in response to the submissions that were put;

(e)    references to and summary of the applicant’s submissions in reply at [60] and [61];

(f)    identification of the Tribunal’s conclusion at [62]; and

(g)    a comment about the oral testimony of the applicant’s witnesses at [70].

100    Otherwise, the Tribunal’s consideration of the evidence comprising [63] to [69], and [71] to [97] were copied essentially verbatim from the respondent’s submissions, although as I have stated there was some re-ordering of things. The copying included the footnotes in the respondent’s submissions, most of which were reproduced as footnotes in the Tribunal’s statement of reasons. The footnotes included detailed references to authorities, and to the documentary evidence and transcript. The copying extended to the reproduction of the following typographical errors that were contained in the respondent’s written submissions –

(a)    at [37], which was copied from [22] of the respondent’s submissions, “field” was misspelled as “filed” in a quotation from [2.13] of the explanatory memorandum to the Tax Laws Amendment (Research and Development) Bill 2010 (Cth); and

(b)    at [71], which was copied from [39] of the respondent’s submissions, “ZAP contact mobile app”, which was referred to on a number of occasions in the evidence before the Tribunal, was misspelled as “ZAP contract mobile app” (underlining added).

101    However, balanced against the above are other typographical errors in the respondent’s submissions that the Tribunal did not adopt –

(a)    footnotes (62), (76), and (89) of the Tribunal’s reasons contain corrected references to documents before the Tribunal that were cited in footnotes (51), (65), and (78) of the respondent’s submissions; and

(b)    at [81], the Tribunal corrected the date on which the report of an expert, Dr Kerr, had been filed with the Tribunal.

102    Because of the root and branch nature of the applicant’s challenge to the Tribunal’s reasons, it is necessary to refer to its reasons at some length. Putting the question of copying to one side, the Tribunal’s reasons were as follows.

103    At [2], the Tribunal identified the reviewable decision of the respondent which affirmed that none of the applicant’s activities registered under s 27J of the IR&D Act for the two years the subject of the review satisfied the definition of “R&D activities” in s 355-20 of the ITAA 1997.

104    At [4], the Tribunal set out the activities for the 2014 and 2015 years, to which I referred at [23] and [30] above.

105    At [5] to [20], the Tribunal set out an overview of the relevant provisions of the ITAA 1997 and IR&D Act, substantially adopting the overview given by Forgie DP in Moreton Resources Ltd and Innovation and Science Australia (Taxation) [2018] AATA 3378 at [4]-[19], which the Tribunal cited. An appeal from the Tribunal’s decision in Moreton Resources Ltd was subsequently allowed, but nothing turns on that for present purposes: Moreton Resources Ltd v Innovation and Science Australia, cited above.

106    At [21]-[29], the Tribunal made further references to the statutory framework.

107    At [36]-[41], the Tribunal addressed the first limb of the statutory test in s 355-25(1)(a) of the ITAA 1997 in the following terms –

36.    To be an eligible core R&D activity, the outcome of the activity cannot be known or determined in advance without conducting a systematic progression of experimental work based on principles of established science.

37.    The words ‘cannot be’ in s 355-25(1)(a) of the ITAA 1997 are absolute. For an experimental activity to qualify as a ‘core R&D activity’, there must be a high level of uncertainty as to whether the outcome can be known or determined in advance based on current knowledge, information or experience, and prior to any experimentation taking place. Further, s 355-25(1)(a) requires that the ‘only’ way in which the outcome of the activities can be determined is through the application of, in effect, the scientific method (see paragraph 36 above). The 2010 R&D EM explains at paragraphs 2.13 to 2.15 that this requirement is a ‘threshold… knowledge gap’ and the ‘threshold will not be met if the knowledge of whether something is scientifically or technologically possible, or how to achieve it in practice, is deducible by a competent professional in the filed [sic] on the basis of current knowledge, information or experience’. Further, there must be ‘a clear risk that the outcome of the experiment will not be the desired one’.

38.    Both the way in which s 355-25(1)(a) of the ITAA 1997 is drafted, and the reference to the ‘competent professional in the field’ in paragraph 2.13 of the 2010 R&D EM, makes it clear that the uncertainty of outcome associated with the activity must be objectively determined. It is not enough that unqualified individuals without any knowledge, information or experience of the principles of established science cannot determine the outcome of the activity before undertaking it. Similarly, it is not enough that the product sought to be made is ‘new’ if it could be produced by a competent professional. The question is whether the outcome of the activity could or could not be known or determined in advance based on current knowledge information and experience, and the only way in which the outcome can be achieved is through a systematic progression of work that conforms with subparagraphs 355-25(1)(a)(i) and (ii) of the ITAA 1997.

39.    The juxtaposition of the words ‘cannot be’ and ‘but can only be determined’ in s 355-25(1)(a) of the ITAA 1997, when considered together with the objects of Div 355 and the extrinsic materials, support the logical interpretation of s 355-25 that requires that there is, objectively, a high degree of uncertainty about the outcome of the activities, and that the risk must be scientific or technical in nature. Paragraph 2.18 of the 2010 R&D EM makes this clear when it states:

“The need to employ the scientific method also reflects the degree of novelty in the ideas being tested. That is, the knowledge being sought must go beyond validating a simple progression from what is already known and beyond merely implementing existing knowledge in a different context or location….”

40.    For an activity to be a core R&D activity, the Applicant must establish that it developed a hypothesis capable of being tested by conducting an experiment. The hypothesis must be focused on one or more technical or scientific areas of uncertainty that can only be resolved through experimentation. A hypothesis focused on commercial objectives is not sufficient.

41.    The Applicant must also establish that it observed and evaluated the results of its experiment. This requires, at a minimum, that the Applicant observed, measured and recorded the information and results relating to the experiment, before analysing and evaluating those results. The Applicant must therefore demonstrate that the systematic progression of work led to logical conclusions as to whether the hypothesis is right or wrong.

(Footnotes omitted.)

108    At [42]-[44], the Tribunal addressed the requirement in s 355-25(1)(b) of the ITAA 1997 that an activity be conducted for the purpose of generating new knowledge –

42.    Section 355-25(1)(b) of the ITAA 1997 further requires that an activity be conducted for the purpose of generating new knowledge (including knowledge in the form of new or improved materials, product, devices, processes or services). The reference to ‘the purpose’ in s 355-25(1)(b) is not a reference to a dominant or prevailing purpose. However, the use of the definite article ‘the’ indicates that the relevant purpose must be substantial.

43.    The purpose for which activities are carried on ‘is the object or aim for which they were carried on at the time’ and is not determined ‘according to a rationale developed at a later time to explain why those activities were carried on’. Moreover, the purpose of the claimed activity must be proved by evidence (which will almost always be in the form of contemporaneous documentation).

44.    Under the express terms of s 355-25(1)(b), the knowledge being sought must also be ‘new’. ‘New knowledge’ in this context means knowledge not already available in the public domain at the time the activities are conducted, in the relevant technology, on a reasonably accessible worldwide basis. It does not mean knowledge that is new only to the Applicant.

(Footnotes omitted.)

109    At [47], the Tribunal framed the issues before it as follows (formatting as per the Tribunal’s reasons) –

47.    The Tribunal is to determine these three issues:

(1)    Did the Applicant conduct the Activities?

Has the Applicant proved, on the balance of probabilities, that it conducted the activities as registered by it in each of the years ending 30 June 2014 and 30 June 2015?

(2)    If the Applicant did conduct one or more Activities that it registered as “core R&D activities”, do any one or more of those Activities satisfy the requirements for “core R&D activities” in s 355-25 of the ITAA 1997?

(3)    If the Applicant conducted any “core R&D activities”, and proved that it also conducted other Activities, do any of those other Activities satisfy the requirements for “supporting R&D activities” in s 355-30 ITAA 1997?

If the answer to question 2 is “yes” in respect of any one or more Activities registered as “core R&D activities”, and there are other Activities that the Applicant proved on the balance of probabilities were conducted in the years ending 30 June 2014 and 30 June 2015, then do any of those other Activities meet the requirements for “supporting R&D activities” under s 355-30 ITAA 1997?

The Applicant’s claim fails for any Activities in respect of which the answer to the above questions is “no”.

110    At [48], the Tribunal elaborated on the issues that it framed, stating (inter alia) –

48.    Hence, the fundamental issue for determination by the Tribunal is not whether the Applicant had an idea that, when described in general terms, could be characterised as being ‘innovative’. The question is whether the actual activities were carried out by or on behalf of the Applicant as registered in the Relevant Years and, if so, whether any one or more of those registered activities was an ‘R&D activity’, as defined. …

111    At [51], the Tribunal made a finding about the activities that the applicant had registered –

51.    The way in which the Applicant registered its activities for the Relevant Years is set out above. Critically, the detail of the registrations makes it clear that the experimental activities associated with registered activities 1.1 and 1.2 in the Relevant Years were exercise-related for the purposes of determining calorie consumption for use in the proposed ‘fitness algorithm’ and diet-related for the purposes of determining calorie intake for use in the proposed ‘health algorithm’, respectively. The Applicant cannot now endeavour to disavow the description of the activities as registered, by attempting to recharacterise its activities as purely software engineering related, as discussed below. The Tribunal’s review is constrained by the focus in s 27J of the IR&D Act on the registered activities.

(Footnotes omitted.)

112    At [52]-[59], the Tribunal summarised the submissions of the applicant –

52.    The Applicant submitted its system would integrate the user’s health and fitness objectives, with their physical characteristics and their medical history. It would communicate with the gym equipment, smartwatches and the bathroom scale. It would communicate with a secure, contemporary, database of scientific knowledge. It would seek an optimal solution for the user. It would track results and work pragmatically with user preferences, to take the path that takes the individual to his or her goal. As discussed above, far more than an idea or concept is required to meet the criteria in s 355-25 ITAA 1997.

53.    The Applicant submitted that it had an idea to build something new in 2013. In its written closing, it submits that the ‘key to this case’ is catching what the Respondent has missed. However, clearly it was for the Applicant to put before the Tribunal the necessary material required to support a finding by the Tribunal in its favour.

54.    The Applicant submitted that the research before the Tribunal produced several algorithms which were explained in the Functional Specifications and Detailed Design documents. It submitted that the experimentation completed was based on principles established in science, being software engineering, and not fitness or dietary domains of the health industry.

55.    The Applicant submitted in software engineering the experiments are carried out for each development phase starting with the conceptual design, functional specifications and detailed design; where concepts are tested for viability, functionality and logic and followed by test planning, source code testing and alpha and beta testing. It was claimed the R&D Manuals contain the evidence of the work progress in accordance with principles of established science.

56.    The Applicant submitted that the independent experts, called by the Respondent, were confused about the project scope in stating that the Applicant was trying to develop another fitness or dietary program and not the world’s first integration of existing programs with end-user’s personal profile, health status and objectives.

57.    The Applicant was critical of Dr Kerr’s expertise as a dietician, rather than in software engineering. She was said to be ‘unable to see the evidence of the software engineering work that was in front of her’. However, she did testify, relevantly, “based on the evidence that I had, there is a – you have a concept and an idea that you’ve presented, however, there is no experimentation or evidence to support the work actually exists”.

58.    The Applicant submitted that Dr Kerr and Associate Professor Schneider didn’t know what its system was about. “It was an innovative system, such as done by Apple and Google. An iPod is simple, once you’ve seen it. Not before. The Applicant’s Health and Fitness System had not been seen before. It is all easy after it has been done. Then you don’t need research”.

59.    By reason of s 27J of the IR&D Act, it is necessary for the Tribunal to focus upon the registered activities as opposed to the generality of ideas and determine what if any relevant research and development work, in compliance with the IR&D Act, as analysed above, has been completed by the Applicant during the Relevant Years.

113    At [60], the Tribunal expressly referred to the applicant’s closing submissions in reply –

60.    The Applicant, in its written Closing Submission in Reply, maintained, again, that it is the Respondent which has “failed to substantiate its case”. The Applicant purported to assert discrepancies in the evidence of the Respondent’s experts in respect of their evidence on design and specifications, innovation and experimental activities.

114    The Tribunal concluded its summary of the applicant’s submissions, by extracting and summarising a part of the applicant’s closing submissions in reply –

61.    The Applicant submitted that “the systematic progression of work that proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions is applied in the development of its Health and Fitness System as a whole”, and the registered activities which form part of that system are evidenced by:

(a)    algorithms;

(b)    the five Tables at Tab 9.3 on page 492 of the Tribunal Book (Ex R4 pp 492-496);

(c)    the documents referenced in the five Tables;

(d)    the existence of different versions of such documents; and

(e)    that part of the specification and design of transaction processing and the exchange of information, components of the Health and Fitness System which was commenced in the 2015 year falling within the Relevant Years.

115    The Tribunal then made an overarching factual finding at [62], expressed in the following terms –

62.    However, on balance, after a thorough analysis of the documentary evidence in this matter together with consideration of the oral testimony, the Tribunal finds that insufficient evidence exists to indicate that any of the registered core R&D activities were conducted as discussed below.

116    In elaboration of its overarching conclusion, the Tribunal referred to the witness statements that had been filed and admitted into evidence, and stated -

66.    These witness statements contained insufficient direct evidence of what was actually done by the Applicant, or by Akyman, in the way of experimental activities in the Relevant Years at a level of detail to support the finding by the Tribunal that the registered activities were either ‘core R&D activities’ or ‘supporting R&D activities’, as defined. Rather, the witness statements comprise conclusory assertions expressed in general terms.

67.    The witness statements do attach documents, but many of those documents are irrelevant, as discussed below. Of the remaining documents, which do appear, on their face, to relate to the Applicant’s proposed ‘health and fitness program’, there are multiple versions of these documents, most of which show very little progression in terms of the work purportedly done by the Applicant – and none of which record anything in the way of actual ‘experimental activity’ in the form of a systematic progression of work based on the principles of established science, as required.

68    Further, such documents were demonstrated to be unreliable. According to the Applicant’s witnesses, the dates on the documents did not necessarily correspond to the actual date of the document. There were also numerous errors in the documents. For instance, by Mr Mark Nicolau’s own admission, the invoices produced by Akyman included work not actually performed.

69.    The Applicant’s witnesses also gave answers during cross examination that were often contradictory, confused or evasive, and not based on any independent recollection of the purported work actually performed on the Applicant’s registered R&D activities. By way of specific example:

(a)    Whereas Mr Werner Nicolau gave evidence that his mother was a test subject, Mr Mark Nicolau characterised his wife’s (being Werner’s mother) involvement as being in an administrative capacity only.

(b)    Mr Mark Nicolau could not confirm when he first met with the dietician, Mr Surdut, nor whether he met him four or five times.

(c)    The evidence concerning when work began on the health and fitness ‘field tests’ (or ‘pilot program’) was inconsistent and confusing, with Mr Mark Nicolau ultimately admitting he had no independent recollection of when work began. Similarly, neither witness appeared to know when testing ended.

70.    The oral testimony of the Applicant’s witnesses did not add any of the requisite detail to the unsatisfactory state of the documentary evidence relied upon by it.

(Footnotes omitted.)

117    At [71] to [75], the Tribunal referred to material before it that it considered to be irrelevant to its determination –

71.    Much of the material relied on by the Applicant before the Tribunal was irrelevant to the Tribunal’s review. This included all the material relating to its registered activities in the 2016 year, in addition to documents relating to the Near Field Communication (NFC) work performed by Akyman on behalf of a different company, as well as the transaction card processing system, ‘Find Phone Mobile App’, the ‘ZAP contract mobile APP’ and a ‘power socket rotative adaptor’.

72.    None of these activities are mentioned in the Applicant’s registrations for the Relevant Years. They are therefore irrelevant to the question of whether any of the Applicant’s registered activities in the Relevant Years were actually conducted either as core R&D activities within the meaning of s 355-25 of the ITAA 1997 or as supporting R&D activities within the meaning of s 355-30 of the ITAA 1997, in either of both of the Relevant Years. The Applicant’s continued attempt to rely on irrelevant material, in an impermissible attempt to extend the scope of its activities, only highlighted the lack of material before the Tribunal relating to the actual registered activities for the Relevant Years.

73.    Records of personal diets and personal gym programs of the Applicant’s witnesses relied on by the Applicant are also irrelevant.

74.    In addition, the Applicant persisted in its attempts to rely on notes and documents prepared by staff of the Department during earlier reviews of the Applicant’s activities. Notwithstanding that this material was irrelevant to the Tribunal’s review of the decision made by the Respondent under s 30D of the IR&D Act.

75.    In any event, the decision under review is in no way inconsistent with the conclusion reached by Dr Jessie Hiu Kiu on the original compliance review completed on or around 9 July 2015. By letter dated 9 July 2015, Dr Jessie Hiu Kiu informed the Applicant that its registration had been rated as having a ‘medium risk of non-compliance’, and that the Applicant had been ‘flagged for further review upon the next registration submission’.

(Footnotes omitted.)

118    The Tribunal then considered in turn the registered activities for the two relevant years, and made findings of fact at [76]-[97] which I will now summarise.

Activity 1.1

119    At [78]-[82], the Tribunal found that the evidence did not disclose that any experimental activity of the type described in the registrations was carried out by or on behalf of the applicant. The Tribunal found that no more than two or three members of the Nicolau family completed test record forms relating to their exercise. No women participated. The Tribunal held that it was difficult to conclude that a scientific method was followed, that no objective baseline measurements were established, and that the test record forms all recorded highly subjective handwritten annotations. There was no evidence of any meaningful analysis or evaluation, none of the activity was carried out in accordance with the principles of established exercise science, the outcome of registered activity 1.1 could have been known in the relevant years, and that the purported “algorithms” that were produced were so deficient, that one of the experts, Dr Kerr, did not recognise the diagrams as algorithms.

Activity 1.2

120    At [83]-[88], the Tribunal held that the evidence did not disclose that any experimental activity of the type described by the registrations was carried out. The Tribunal stated that, rather, the documents suggested that the “experiment” consisted of no more than Mr Mark Nicolau following a diet that he had been given by a dietician because of his own personal health issues. The Tribunal held that there was no “experiment” as such, because nothing was being tested, and that no scientific method was followed. The Tribunal held that none of the activity was carried out in accordance with the principles of established dietary science, and that the outcome of the activity could have been known in advance in the relevant years. The Tribunal further held that the purported “algorithms” as a result of this activity were deficient, and that there was no objective evidence that the applicant had a purpose of generating new knowledge in relation to the activity.

Activity 1.3

121    At [92]-[96], the Tribunal held that it could not be satisfied that the registered activity occurred in the relevant years at all, and that there was no contemporaneous evidence of what the purportedly experimental activity associated with registered Activity 1.3 was in the relevant years. In particular, the Tribunal held that the compelling aspect of the evidence of one of the experts, Dr Schneider, was that there was insufficient evidence of what was done (if anything) in the way of experimental activity associated with registered Activity 1.3 to evaluate whether the outcome could have been known in advance for the purposes of s 355-25(1)(a) of the ITAA 1997. The Tribunal expressed agreement with the respondent’s case that there was no evidence that anything was created, let alone implemented, as a result of activities that were conducted in accordance with the applicant’s registrations for the registered activities. The Tribunal further held that there was no evidence that the outcome of the applicant’s registered activities could not be known or determined in advance on the basis of current knowledge, information or experience for the purposes of s 355-25(1)(a) of the ITAA 1997. The Tribunal concluded at [97] that, on balance, there was no objective, contemporaneous evidence before it to support any finding or conclusion that the applicant had a purpose of generating new knowledge associated with registered Activity 1.3.

The appeal to this court

122    The applicant relied on an amended notice of appeal filed 15 December 2020 which raised six questions of law, and 18 individual sub-grounds of appeal which were contained within ground 2. The grounds of appeal are set out in the schedule to these reasons. The 18 sub-grounds of appeal within ground 2 overlap, and were not expressed in a way that corresponded to any of the six questions of law that was raised, although by a process of analysis the grounds can be aligned with one or more questions of law. Many of the applicant’s grounds and submissions appear to complain of factual findings made by the Tribunal on the basis that the Tribunal failed to take into account “relevant considerations”, being other factual matters relied on by the applicant to impugn the Tribunal’s decision. There is also a deal of overlap between different parts of the applicant’s submissions. I will seek to synthesise the claims made in the grounds of appeal by addressing the six questions of law that were raised, which are the subject-matter of the appeal, and in doing this I have considered all the grounds. Even with the questions of law there is overlap in relation to the subject-matter of the applicant’s claims, and this is particularly so with Questions 1 and 5. I will not set out in terms at this stage all the questions of law raised. An indicative summary of the matters that were raised is as follows, adopting the applicant’s numbering of the questions of law –

(1)    Did the Tribunal err by refusing to admit evidence of the applicant’s R&D activities for the 2016 year?

(2)    Did the Tribunal err by failing to take account of the totality of the product being developed by the applicant?

(3)    Did the Tribunal apply the wrong test to the applicant’s R&D activities by incorrectly construing s 355-25(1) of the ITAA 1997?

(4)    Did the Tribunal err by taking irrelevant considerations into account, or by failing to take relevant considerations into account? This question and the corresponding ground were directed to seven sub-grounds.

(5)    Did the Tribunal fail to accord the applicant procedural fairness in five respects that the applicant alleged?

(6)    Was there error of law as a result of the substantial reproduction, without attribution, of the applicant’s submissions within the Tribunal’s written statement of reasons?

123    The genesis of a number of the matters raised by the amended notice of appeal is a claim that the Tribunal did not consider facts and matters relating to the 2016 year which the applicant contended were relevant to an understanding of what activities had taken place in the anterior years, 2014 and 2015. As I outlined earlier, the applicant filed with the Tribunal an application to review the respondent’s decision in respect of the 2016 year out of time, and did not obtain an extension of time until 3 January 2019.

124    The principal relief sought by the applicant was that the matter be remitted to the Tribunal to be heard and decided again. A claim for an order by the court giving the applicant the relief that it sought from the Tribunal was abandoned at the hearing of the appeal.

Question 6 – substantial reproduction by the Tribunal of the respondent’s submissions

125    I will consider Question 6 first, because logically it comes first. If by reason of the unattributed copying of the respondent’s submissions the Tribunal failed lawfully to discharge its review function, then the review before the Tribunal will have wholly miscarried, and the matter will have to be remitted for re-hearing. I will therefore consider Question 6 before other issues are decided: see in the context of apprehended bias, Concrete Pty Ltd v Parramatta Design and Developments Pty Ltd [2006] HCA 55; 229 CLR 577 at [116]-[117] (Kirby and Crennan JJ) and [172] (Callinan J).

126    Question 6 raises the following questions of law and corresponding grounds of appeal –

[Questions of law]

…

6.    In the circumstances that the Tribunal’s reasons for decision substantially reproduced the Respondent’s written submissions, without attribution, did the Tribunal make an error of law:

a.    amounting to a constructive failure to exercise its jurisdiction;

b.    by failing to exercise independent judgment;

c.    by acting unreasonably;

d.    by failing to take into account relevant considerations;

e.    by taking into account irrelevant considerations; or

f.    by failing to carry out its statutory functions in a way that would promote public trust and confidence in the decision-making of the Tribunal?

…

[Corresponding grounds of appeal]

2.    The Tribunal incorrectly affirmed the Respondent’s decision, as a consequence of the following conduct that amounts to errors of law.

…

r.    In substantially reproducing the Respondents’ written submissions, without attribution, as the Tribunal’s reasons for decision, the Tribunal made errors of law in:

(i)    failing to exercise its jurisdiction:

(ii)    failing to exercise independent judgment:

(iii)    acting unreasonably:

(iv)    failing to take into account relevant considerations:

(v)    taking into account irrelevant considerations: and

(vi)    failing to carry out its statutory functions in a way that would promote public trust and confidence in the decision-making of the Tribunal.

127    The applicant referred to the extent of unattributed copying by the Tribunal of the respondent’s written submissions, which I outlined earlier. The applicant submitted that what the Tribunal said of the applicant was substantially what the respondent had submitted, rather than reflecting any submissions of the applicant. The applicant submitted that the decision “therefore could not give a reasonable observer confidence that the Tribunal fairly dealt with, or considered the applicant’s case; or examined all the evidence and made appropriate findings”.

128    At the hearing, it was submitted on behalf of the applicant that the wholesale adoption of the primary decision-maker’s submissions to the Tribunal detracted substantially from the idea that the Tribunal would act independently, and that the Tribunal failed to conduct its review in a way that promoted public trust and confidence in the decision-making of the Tribunal, as required by s 2A of the AAT Act. It was also submitted that the Tribunal had failed to discharge its statutory function in a way that involved a denial of procedural fairness.

129    In written reply submissions the applicant submitted as follows –

A reasonable person could not look at this unattributed copying of the Respondent’s Submissions, combined with the fact that the Tribunal made no comparative evaluation of the Applicant’s counterarguments in the Applicant’s Closing Submission in Reply, and conclude the Applicant had been treated justly or fairly. The Decision was, in effect, the Respondent’s Submissions, errors and all. It cannot seriously be asserted that this unattributed copying would not cause a well-founded doubt the Tribunal had independently, properly and fairly executed its statutory task.

A fair reading of the Tribunal Decision does not establish, as the Respondent argues, that the Tribunal brought its own independent mind to bear. A fair reading establishes that the Tribunal, in a complex matter requiring rare technical expertise to assess or describe, relied on the Respondent to have correctly assessed and stated every fact, issue and conclusion in a way that could be safely duplicated by the Tribunal.

130    The applicant pointed to aspects of its case before the Tribunal that it submitted required consideration, and submitted that the Tribunal’s decision “did not provide refutation of the applicant’s arguments”. The applicant submitted that the Tribunal’s reference to the applicant’s submissions were “inaccurate and dismissive” and gave cause to conclude that the Tribunal had not actively applied its own reasoning to the matter, and had not given proper consideration to the matter or dealt with the applicant fairly, had not accorded the applicant procedural fairness, and had not properly performed its fact-finding task. The applicant also complained that the Tribunal’s findings as to the presentation and reliability of witnesses called on behalf of the applicant were the product of the adoption of the respondent’s submissions. As to specifics, the main matters that the applicant submitted the Tribunal had not considered as a result of copying the respondent’s submissions were –

(a)    the 2016 R&D material;

(b)    the applicant’s written closing submissions in reply;

(c)    the purpose and objective of the applicant’s R&D activities;

(d)    the contemporaneous evidence of the applicant’s R&D activities;

(e)    circumstances that were favourable to the reliability of the evidence of the applicant’s witnesses;

(f)    evidence of a Dr Jessie Hiu Kiu that was favourable to the applicant;

(g)    evidence that the applicant had carried out testing; and

(h)    claimed limitations on the expertise of the respondent’s witness, Dr Kerr.

131    The applicant submitted that various other specific errors which were the subject of other grounds of appeal were the result of the Tribunal acting on the respondent’s submissions which it had copied into its reasons, which I will identify and consider below.

132    The respondent accepted that of the 100 paragraphs of the Tribunal’s reasons, between 65 and 67 paragraphs were copied, more or less, from the submissions of the respondent. The respondent submitted that the fact that the Tribunal adopted a significant portion of the respondent’s written outline of submissions did not demonstrate legal error. The respondent accepted that unattributed copying, whether by Tribunal members, academics, or judges is undesirable, but submitted that the copying in this case did not mean that the lawful exercise of jurisdiction by the Tribunal had failed. It was submitted that although there were substantial similarities between the Tribunal’s reasons and the respondent’s submissions, a fair reading of the Tribunal’s reasons established that the Tribunal brought its own independent mind to bear upon the correct or preferable decision on review. The respondent advanced five principal arguments. First, the respondent submitted that the applicant had not identified any critical material before the Tribunal that the Tribunal had failed to take into account. Secondly, it was submitted that the Tribunal had regard to the applicant’s submissions as evidenced by [52]-[61] of its reasons, which had not been copied from the respondent’s submissions. Thirdly, it was submitted that the Tribunal’s conclusions at [62] and [70] of its reasons about the unsatisfactory state of the applicant’s documentary evidence had not been copied from the respondent’s submissions. Fourthly, it was submitted in relation to the expert evidence that although the Tribunal adopted the respondent’s submissions, the findings were congruent with that evidence. Fifthly, it was submitted that the Tribunal’s findings about the presentation and reliability of the oral evidence called on behalf of the applicant was also supported by the evidence with the result that there was no error in adopting the respondent’s submissions on the issue.