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Federal Court of Australia |
Last Updated: 10 February 1999
TRADE - Export market grants - eligibility - licensing of data base of travel and tourism information - whether Tribunal erred in finding of primary and principal purpose - whether Tribunal erred in finding on ownership of copyright - whether Tribunal erred in application of anti-avoidance provision.
Export Market Development Grants Act 1975 (Cth), s 11Z(8), s 11ZE, s 38
Nomad Films International Pty Ltd v Export Development Grants Board (1986) 11 FCR 67, discussed
Australian Trade Commission v F & F Asia Pty Ltd (unreported Federal Court, Carr J, 29 August 1996), applied
Australian Trade Commission v Correia and Zaknich Holdings Pty Ltd (1992) 38 FCR 153, applied
Parker Pen (Aust) Pty Ltd v Export Development Grants Board [1983] FCA 77; (1983) 67 FLR 234, followed
Gould v Vaggelas (1985) 157 CLR 175, referred to
Hughes v WA Cricket Association (1986) 19 FCR 10 at 38, cited
Darling v Dalgety Australia Ltd [1992] FCA 35; (1992) 34 FCR 109, referred to
Waterford v The Commonwealth [1987] HCA 25; (1987) 163 CLR 54 at 77, applied
Australian Trade Commission v Film Funding and Management Pty Ltd [1989] FCA 188; (1989) 24 FCR 595, followed
Emory University v Biochem Pharma Inc (Lindgren J, unreported, Federal Court of Australia, 31 July 1998), referred to
Computer Mate Products (Aust) Pty Ltd v Ozi-soft Pty Ltd (1988) 83 ALR 492 at 495, cited
Australian Trade Commission v World Geoscience Corporation Ltd (Kiefel J, unreported, Federal Court of Australia, 20 August 1997), applied
AUSTRALIAN TRADE COMMISSION v DISKTRAVEL
WAG 24 OF 1998
R D NICHOLSON J
5 FEBRUARY 1999
PERTH
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| WESTERN AUSTRALIA DISTRICT REGISTRY | WAG 24 OF 1998 |
|
BETWEEN: | AUSTRALIAN TRADE COMMISSION
Applicant |
|
AND: | DISKTRAVEL
First Respondent
JOHN GAETANO MARIO FIOCCO Second Respondent
DIVOT PTY LTD Third Respondent
HOLDEN BARLOW Fourth Respondent
CECK INVESTMENTS Fifth Respondent
TRAVEL VISION INTERNATIONAL PTY LTD Sixth Respondent |
|
JUDGE: | R D NICHOLSON |
| DATE OF ORDER: | 5 FEBRUARY 1999 |
| WHERE MADE: | PERTH |
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondents' costs of the application.
3. The matter be remitted to the Administrative Appeals Tribunal for consideration of outstanding issues.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| WESTERN AUSTRALIA DISTRICT REGISTRY | WAG 24 OF 1998 |
|
BETWEEN: | AUSTRALIAN TRADE COMMISSION
Applicant |
|
AND: | DISKTRAVEL
First Respondent
JOHN GAETANO MARIO FIOCCO Second Respondent
DIVOT PTY LTD Third Respondent
HOLDEN BARLOW Fourth Respondent
CECK INVESTMENTS Fifth Respondent
TRAVEL VISION INTERNATIONAL PTY LTD Sixth Respondent |
JUDGE:
R D NICHOLSON DATE: 5 FEBRUARY 1999 PLACE: PERTH
Factual setting
2 As the reasons of the Tribunal recount, the respondents and Coral Acorn Pty Ltd (which is not a respondent in this matter) sought review of decisions made by the applicant under the Act refusing their respective applications for the grant of amounts claimed in relation to expenditure incurred by each of them during two claim periods. The first half year claim was from 1 July 1994 to 31 December 1994. The balance of the year claim was from 1 January 1995 to 30 June 1995. The two claims together comprised the claim year 1994-1995. In each instance the respondents claimed that they had incurred qualifying "export development expenditure for marketing" in respect of "eligible industrial property rights" and "eligible know-how" licensed to five of them by the proprietor of the relevant copyright, namely the sixth respondent ("TVI").
Issues before Tribunal
3 The Tribunal described the "core issue" before it as "whether there existed, at the time at which the expenditure was incurred, the alleged industrial property right and know-how". The Tribunal accepted that if none existed the applications before it should be dismissed. However, in the event the Tribunal found as a question of fact that the alleged industrial property right and know-how existed and was either owned by or licensed to the various applicants then it considered five further issues arose, namely:
* Was the expenditure claimable expenditure in terms of the Act;Evidence and findings
* Was the claimable expenditure (if any) qualifying export development expenditure in terms of the Act;
* Were there any reimbursement agreements or arrangements between any of the applicants and TVI or Plutora Pty Ltd as trustee of the M & M Trust ("Plutora")?
* Were any of the parties to the marketing agreements within the relationship of "associated companies" or "prescribed associates"?
* Do the provisions of s 38 of the Act operate to eliminate or reduce the claims?
4 The hearing before the Tribunal proceeded on the basis of agreed facts and evidence from nine witnesses, five of whom were called by the respondents (Messrs Wilson, Gallash, Snow, Martinson and Fiocco) and four by the applicant (Messrs Lukas, Boum, Morrissey and Rector).
5 The following agreed facts were common to all present respondents other than TVI:
"(a) That about June 1993 TVI retained Microbase Business Systems to develop a software program utilising multimedia CD-ROM technology to assist travel agents in selling accommodation and related products (`the Travel Vision software').
(b) The Travel Vision software was developed for use in an international travel and tourism advertising system using CD-ROM disks for storing images and text of products offered by travel industry retailers and wholesalers in Australia and internationally with the aim of creating a comprehensive database of travel and tourism information (`the Travel Vision system').
(c) The Travel Vision system envisaged the production of two types of CDs for each country involved in the network, although countries with small tourism infrastructures might be consolidated into one or more multi-country CDs. The two CD types to be produced would be as follows:
i) the `Outbound Packages disk' - this would contain information and images relevant to outbound packages promoted by travel wholesalers. It could point to pages of specific brochures and complement the existing brochure system, covering overseas countries and destinations sought by travellers from within that country. It would be distributed domestically to travel retailers within that country only. In all cases, it would direct potential travellers back to travel retailers using the Travel Vision system to make bookings;6 The Tribunal found that each of the first to fifth respondents entered into one or more licence agreements ("the Licence Agreements") with TVI granting them the right to use and commercially exploit the intellectual property and the product associated with the Travel Vision system in the manner set out in the agreement within their respectively designated overseas territory for a period of one year and upon payment of an initial fee. In each instance the fee was duly paid. In the case of the first, third and fifth respondents a deed of variation to the Licence Agreements was concluded between them and TVI removing certain onerous obligations imposed under that agreement by certain clauses.
ii) the `Product disk' - this CD would include general information on the particular country for the benefit of local and international tourists and would feature domestic packages offered by in-bound tourism operators and wholesalers, as well as a wide range of accommodation and other tourist facilities, events and options. It would be distributed to all participating travel agents worldwide.
(d) At all times TVI has owned the intellectual property rights in and associated with the Travel Vision system."
7 On the same day each of the same respondents entered into separate agreements with TVI to be licensed, for one year, to use and commercially exploit the Travel Vision system within the Australian territory as designated to each respondent, for the payment of a further initial fee. In all cases the fees were duly paid.
8 Contemporaneously with entering into the Australian Licence Agreements each of the first to fifth respondents entered into a marketing agreement (" the Marketing Agreements") with Plutora and a limited recourse loan agreement with the same company. The terms of the former agreements were that Plutora, as agent of each of these respondents, would market each of their rights under the Licence Agreements for their respective territory. The terms of the latter agreements were such that Plutora agreed to lend those respondents a sum in part to enable each of them to make payment of operating expenses within the Australian licensed territories.
9 TVI did not enter into any marketing agreement with Plutora and to that extent its position differed from the other five respondents.
Provisions of the Act 1968
10 As the reasons of the Tribunal also recounted, the Act at the relevant date provided that where the applicant determines that a claimant for an export market development grant is entitled to it pursuant to subs 12(2) of the Act, the applicant is obliged to pay the claimant that amount. The amount is determined in accordance with s 16 and is calculated in respect of an amount deemed to be "eligible expenditure". Pursuant to s 11A of the Act expenditure is "eligible expenditure" of a person only if it has been "incurred" by the person, is "claimable expenditure" in accordance with s 11C and is "qualifying export development expenditure" pursuant to s 11Z.
11 Under Div 2 of Part 1A of the Act s 11C provides that expenditure is "claimable expenditure" if it is incurred by way of expenses of, contribution toward expenses of or payments made to an agent for the purpose of carrying out marketing research or the obtaining of market information or the advertising of other means of securing publicity or soliciting business. Such expenditure does not qualify as claimable if it is paid or payable to a person ordinarily employed by "the claimant" or by "an associate company" or by a "prescribed associate" of the claimant: ss 11C(1)(b)(i)(B) and 11C(1)(b)(i)(C). These latter two terms are defined in subs 3(1) of the Act. Relevantly "an associated company" is one which is capable of being controlled, either directly or indirectly, by the claimant and a "prescribed associate" is someone who is not at arms length.
12 Subsection 11Z(8) provides:
"(8) Expenditure is qualifying export development expenditure of a person to whom this section applies if:13 There are two qualifying sections. The first is subs 11ZE(3) which reads:
(a) in the Commission's opinion, it is incurred primarily and principally for the purpose of:
(i) creating or seeking opportunities for; or
(ii) creating or increasing demand for;
the disposal, by that person, to persons resident outside Australia for use and enjoyment outside Australia of:
(iii) eligible industrial property rights owned by that person; or
(iv) eligible know-how owned by that person; and
(b) the disposal by that person is for reward and in the course of carrying on business in Australia."
"(3) For the purposes of this section, qualifying export development expenditure is taken to be reimbursed to a person where:14 Relevantly to the definition in subs 11Z(8) the term "eligible industrial property rights" is defined in subs 3(1), subject to any contrary intention, as rights in relation to inventions or trademarks or copyright in relation to works, designs and other things being: "(a) inventions, works, designs or things that, in the opinion of the Commission, have, to a substantial extent, resulted from research or work performed in Australia...". "Know-how" is also defined as know-how that, in the opinion of the Commission, has to a substantial extent resulted from research or other work performed in Australia. "Know-how" is defined as knowledge or information in relation to industrial or other operations, and includes drawings, models or other material things or services, supplied for the purpose of the naming or facilitating the use or enjoyment of such knowledge or information, of rights in relation to inventions or trademarks or of copyright in relation to works, designs or other things.
(a) a claimant incurs any qualifying export development expenditure; and
(b) the Commission is satisfied that:
(i) there is an agreement or arrangement between the claimant and another person; and
(ii) under that agreement or arrangement, consideration received or receivable by the claimant for the disposal of:
...
(E) any eligible industrial property rights; or
(F) any eligible know-how;
...
was or is more than it would have been if that expenditure had not been incurred; and
(iii) a purpose of or an effect of the agreement or arrangement, would, but for this section, be to allow the claimant to claim a grant in respect of expenditure for which the claimant will be compensated by the increased consideration."
15 The Tribunal also referred to the overriding effect of s 38 which it describes as in effect allowing the Commission to reduce a claim in circumstances where the applicant is of the opinion that steps had been taken to rearrange a business activity or business activities to increase a grant.
Tribunal's reasons
16 The Tribunal considered the questions which required answers were as follows. (1) Did the respondents have relevant eligible industrial property rights and or eligible know-how? 17 The Tribunal said the agreed facts were insufficient to establish such ownership. It reviewed the evidence before it. Having considered the evidence the Tribunal found that by sometime in mid-1994 TVI, through the agencies of Microbase Business Systems ("Microbase") had developed copyright or at least had an exclusive licence in a unique software system. TVI entered into a series of licensing agreements with the other respondents to give them exclusive area licences or sub-licences to exploit the copyright in the system. The respondents, other than TVI, then entered into agreements with Plutora to undertake marketing of their respective rights in the system to procure overseas sub-licences.
18 The Tribunal was also of the view that whilst, at law, the copyright may reside in Microbase "for all intents and purposes Microbase had granted TVI an exclusive licence to it".
19 For the respondents it had been submitted to the Tribunal that the existence of copyright in them was supported by reference to subs 10(1) of the Copyright Act (Cth) and a number of cases, including Nomad Films International Pty Ltd v Export Development Grants Board (1986) 11 FCR 67. The Tribunal said of this decision:
"The Full Federal Court case of Nomad Films International concerned it having entered into a certain agreement which provided, inter alia, that it should have an exclusive licence to distribute a film throughout the world, to deal in and exploit the film world-wide. The question before the court was whether in these circumstances it had relevant ownership for the purpose of the Export Market Development Grants Act 1974. The court decided by majority (Smithers and Northrop JJ with Sweeney J dissenting) that it did possess "rights in relation to copyright" which was sufficient for the purposes of that Act."20 The Tribunal cited the following passage from the reasons of Smithers J at 73-74:
"The question is whether upon its proper construction the expression `eligible industrial property rights' means, in relation to copyright, the right comprised in copyright, in relation to works, designs or other things, conceived of as copyright and every right therein being in the ownership of some person.21 The citation continued from p 75:
It is clear that s4(1)(h) of the Act [since repealed] is the relevant operative statutory provision of the Act. It is designed to identify expenditure which will constitute eligible expenditure upon which a claim for an export grant may be founded. One category of such expenditure is that it was incurred in seeking opportunities for disposal overseas of rights in industrial property. It is disposal of rights in property, not property itself which is contemplated. Section 3(1) of the Act contains the definition of rights spoken of in s4(1)(h). If the expression `eligible industrial property rights' is to be defined, that objective might be achieved by defining the relevant classes of rights in property, or the relevant classes of property in which the rights might be held, or both. The word "industrial' is satisfied by the nature of the property in which the relevant rights are stated to exist, namely inventions, trade marks and copyright. All of these are industrial in nature.
So far as the definition purports to define the property which is to qualify as industrial property, that also is satisfied by the specification of three kinds of property, namely, inventions, trade marks and copyright. The question than arises whether the definition purports to specify the kind of rights in the specified property which qualify for the purposes of the definition, as rights in that property, or, whether, on the other hand, the definition is unconcerned with the kind of rights, for example original ownership, ownership by assignment, exclusive licence or mere licence or any other class of right, and is satisfied by the existence of any kind or right in specified property.
The definition, so far as it related to inventions and trade marks, does not concern itself with the kind of right in those classes of property which qualify. It is satisfied where rights of any kind exist in such property. It is suggested, however, that the position is different in relation to copyright and that, for some reason, the definition in relation to copyright descends to deal with the nature of the rights held by the person concerned and specifies that the only right in copyright which satisfies the definition is the right of absolute ownership. I cannot accept this.' "
" `Accordingly, ...the definition is to be interpreted as saying that eligible industrial property rights means each of those rights which appertain to the class of property known as copyright in relation to works, designs and other things. According to circumstances persons other than the original owner of the copyright, namely, an assignee, and exclusive licensee and a bare licensee, will have those same rights or one or more of them' (P.75)."22 The Tribunal then stated:
"Nothing in Northrop J's separate majority decision is at odds with that of Smithers J in this regard. His Honour found that Nomad, which had rights under a distribution agreement for a film, the copyright of which resided in the other party to the agreement, had all the attributes of ownership of eligible industrial property rights. (at p.103)."23 It had been submitted to the Tribunal on behalf of the applicant that the Travel Vision system which had been taken overseas by consultants lacked a "sophisticated data entry programme" or "back-end" to enable the ready input of text and images. Consequently it was submitted that TVI had not then developed nor had it since developed any eligible industrial property rights capable of commercial exploitation. After reference to the evidence, the Tribunal concluded the system as it existed at that time in June 1994 was commercially exploitable. The Tribunal therefore concluded that the respondents through their respective interests in the licences granted by TVI and TVI in its own right, through the exclusive licence which it had from Microbase, had relevant ownership in eligible industrial property rights. It said:
"In the opinion of the Tribunal the licences granted by TVI to the other applicants establish the relevant ownership of industrial property rights, namely rights under copyright in the Travel Vision system. It was those rights, to the eligible industrial property, which the Licensee sought to sub-licence through the agency of Plutora and which, by reason of the licence agreements with TVI, were enable to do so."24 Turning to know-how, the Tribunal found that the evidence established it was intricately linked to the eligible industrial property right. On the authority of Australian Trade Commission v F & F Asia Pty Ltd, (unreported Federal Court, Carr J, 29 August 1996) the Tribunal concluded the mere entry into the Licence Agreement did not in the case of know-how automatically confer ownership of the relevant know-how on the applicants (other than TVI). It found the expertise of Plutora gained through its consultants was not relevant eligible know-how. The Tribunal therefore concluded that the respondents, other than TVI, did not own eligible know-how. (2) Were the applicants carrying on business in Australia? 25 Having considered the evidence the Tribunal found the five respondents other than TVI were carrying on the business in the claim year, through their agent Plutora, a resident of Australia. Similarly, TVI having undertaken overseas trips through its employees and contractors to secure further licences was found to be carrying on business in Australia during the claim year. (3) Notwithstanding the foregoing, did the applicants incur claimable expenditure in terms of s 11C? 26 The conclusion of the Tribunal was that, subject to one qualification which it is not necessary to develop, the respondents other than TVI did incur claimable expenditure pursuant to s 11C of the Act. (4) Is the claimable expenditure "qualifying export development expenditure" pursuant to s 11Z(8) of the Act? 27 The Tribunal found that TVI had the requisite purpose in incurring its claimable expenditure.
28 In relation to the remaining respondents the reasoning of the Tribunal was as follows:
"135. The objective purpose of these [respondents] in incurring the expenditure to Plutora was to provide Plutora with sufficient funds to acquit its obligations to the [respondents] pursuant to the agreements. That is, to promote the disposal of the licences by way of granting sub-licences. That is what the expenditure was intended to achieve; .... The investment or outlay of each applicant was motivated by an expectation that in achieving the objective purpose, it would generate income, in the form of royalties. And more remotely, there was the hope that, in due course sufficient income would be generated to repay the limited recourse loans and provide a return on the original investment. .... Those were the objectives and motives of the [respondents]. As a result of entering into the agreements with Plutora the [five] [respondents] had a reasonable expectation, on the basis of the information provided to them by Mr Snow, and in Mr Fiocco's case, on the basis of advice of advice from his accountant, that they would receive income tax relief and an export market development grant.(5) Does s 11ZE operate to preclude any claimable expenditure from being qualifying export development expenditure? 29 Relevantly the Tribunal found that in a case of Disktravel (the first respondent) the amount of $90,000 and in the case of CECK (the fifth respondent) the amount of $200,000 was to be ignored from those claimants respective amounts of qualifying export development expenditure as a consequence of the application of these provisions. (6) Does s 38 of the Act allow the respondents' claims or some part thereof to be reallocated among the respondents by the applicant? 30 The Tribunal concluded that s 38 had no application. It did so by the following process.
136. The evidence is that the directors of TVI, the consultants and Mr Martinson, at the time of their overseas promotional trips and the incurring of the expenditures in question; believed they would succeed in "selling" sub-licences. Mr Fiocco's evidence is that he too thought that was a possibility but not without considerable risk. He saw the prospect of the financial effect of enhanced income tax deductions and an export market development grant as the incentive. That is subjectively, it was those possible consequences of making the investment which induced the [respondents] to enter into the arrangement. But the purpose of their investment was as stated. If the arrangement offered by TVI lacked commercial realism then it would be open to a tribunal of fact to conclude that the subjective purpose, of obtaining financial gains, through exploitation of the income tax and export market development grants laws, was dominant. On that basis the requisite purpose would not be met. However, this Tribunal finds, on the evidence, that the arrangement entered into between TVI and the [respondents] and Plutora and the [respondents], at the time, was sufficiently commercially plausible to be considered, objectively, as a reasonable investment, the risk of which had been considerably reduced by the prospect of income tax and export grant financial benefits."
31 It commenced by referring to the decision in Australian Trade Commission v Correia and Zaknich Holdings Pty Ltd (1992) 38 FCR 153 in which the scope and application of s 38 of the Act was considered. The Tribunal said:
"155.It continued:
...
At page 165 his Honour [Hill J] notes that for the section to apply, firstly the provision is concerned with the effect of the act done, not the motive or purpose of the act, or the motive or purpose of the person doing the act. The second condition identified by his Honour is that the section will only come into operation if there is an act done which produces the relevant effect - that is, to distribute or transfer expenditure among some of all of the persons affected by the doing of the act, or to transfer or re-arrange a business activity or business activities between person affected by the doing of the act."
"157. The `act done' is, in the opinion of the Tribunal, two fold. Firstly, it is the entering into of the various overseas territory licence agreements between TVI on the one hand and the other six applicants on the other. Secondly, it is the entering into of the six marketing agreements between each of the six applicants (other than TVI) on the one hand and Plutora on the other.(7) Tribunal's conclusion and decision 32 The Tribunal therefore concluded:
158. The Tribunal must therefore hypothesise what would have been the effect had those acts not been done. It seems quite apparent from the evidence that had TVI not granted the various overseas territory licences to the six applicants it would not have received the several fees which it did. Further, without the grant of the licences there would have been no marketing fees paid to Plutora. Those fees even excluding the $540,000 payable by Coral Acorn Pty Ltd which was more illusory than real, were significant. The various T documents for the applicants show considerable expenditure incurred by Plutora as agent, notwithstanding that not all the fees paid by the applicants to Plutora were necessarily disbursed directly by Plutora on behalf of the applicants. The only reasonable conclusion open the Commission and therefore the Tribunal, given that hypothesis, is that the claimed expenditure or a large part of it would not have been incurred by TVI as it would not have had the resources to sustain the amount of expenditure incurred. The evidence shows that the actual expenditures were sourced in the marketing fees and possibly, in the case of TVI, from the licence fees. The Tribunal is of the opinion that these circumstances apply equally to sub-sections (1) and (2) of s38. That is, the relevant `acts done' in terms of the section are the same and the hypothesis in relation to each is the same - that it is reasonable to hypothesise that without the relevant acts there would have been very little, if any, claimable expenditure incurred by TVI and, in consequence, its business, being that of exploiting the licences, would have been otiose.
159. The Tribunal concludes that s 38 has no application in the present case."
(a) That all [six] [respondents] owned, for the purposes of the Act, eligible industrial property rights.Grounds of appeal
(b) That only TVI owned, for the purposes of the Act, eligible know-how related to its ownership of eligible industrial property rights.
(c) That to the extent that TVI incurred expenditure to Plutora which has been claimed that amount has been incurred to an associated company and is not claimable expenditure in terms of s11C of the Act.
(d) That, subject to paragraph (c) above in relation to TVI, all seven [respondents] incurred claimable expenditure, in terms of s11C of the Act in relation to their respective ownership of eligible industrial property rights or in the case of TVI only, also its eligible know-how. However, the matter is remitted back to the parties to determine the quantum thereof.
(e) That all [six] [respondents] incurred qualifying export development expenditure in terms of s11Z(8) of the Act. However, the matter is remitted back to the parties to determine the quantum thereof.
(f) That, in relation to the applicant Coral Acorn Pty Ltd, its claimed qualifying export development expenditure is to be ignored. This finding is based on s11ZE.
(g) That in relation to Disktravel, is claimed qualifying export development expenditure, to the extent of $90,000, is to be ignored. This finding is based on s11ZE.
(h) That in relation to CECK Investments, its claimed qualifying export development expenditure, to the extent of $200,000, is to be ignored. This finding is based on s11ZE.
(i) That none of the claimed qualifying export development expenditure, in relation to any of the [respondents], should be re-allocated among any of the[respondents]. This finding is based on the finding that s38 of the Act has no operation."
33 The grounds of appeal are directed to the Tribunal's findings and conclusions in relation to the primary and principal purpose of the respondents in incurring expenditure to Plutora; in respect of the ownership and disposal of eligible industrial property rights; and in the application of s 38 of the Act.
Notice of contention
34 A notice of contention filed on behalf of the respondents raises the sole contention that the Tribunal erred in law in concluding there was any evidence of an "act" done by any of the respondents within the meaning of subss 38(1)(a) or 38(2)(a) of the Act.
Primary and principal purpose
35 For the appellant it is contended that the correct application of s 11Z(8)(a) in its requirement of the expenditure being incurred "primarily and principally" for the purposes there spelt out is to look first at the subjective purpose of each of the respondents and then, by looking to the objective facts, test the credibility or reliability of the subjective purpose. It is submitted this is particularly important because only one claimant, namely the second respondent, chose to give evidence.
36 It is said that what the Tribunal did in fact, however, was to look first at objective purpose and purport to look at the objective purpose of all the respondents together. The appellant's case accepts that when the Tribunal considered subjective purpose it correctly identified it as "obtaining financial gains, through exploitation of the income tax and export market developments grants laws". However it is said the Tribunal then confused the question of the commercial plausibility of the investment with each of the claimant's purpose and asked itself the wrong question, namely, whether that plausibility had the result that the subjective purpose was "dominant". It is submitted the approach taken by the Tribunal treated as the purpose of the expenditure the objective purpose unless the lack of commercial realism meant the subjective purpose was "dominant". It is submitted this is contrary to the requirements of subs 11Z(8). It is said that subsection should not be construed so as to ascribe to each claimant (the respondents) the purpose of an entity such as TVI which is not the agent of any of the claimants. Additionally, it is said the effect of subs 3(2) of the Act is not to ascribe the agent's purpose to the principal.
37 It is said for the appellant that the only conclusion open to the Tribunal was that the primary and principal purpose of each of the respondents was the subjective purpose as found by it and hence not the requisite statutory purpose. The Tribunal, it is submitted, should have held that each of the respondents was in the business of making investments and the disposal of eligible industrial rights was not in the course of that business. It should in all the circumstances have held that Plutora was carrying on its own business and not the business of any of the respondents, it being a requirement of subs 11Z(8) of the Act that the carrying on of business in Australia be that of each claimant. The Tribunal should have considered as relevant the lack of relationship between the payments to Plutora and any disposal of any disposal of eligible property rights owned by the respondents.
38 In support of this it is said that the evidence of Mr Fiocco, the second respondent, could not have been relevant to the position of the other respondents and it was necessary for each of the respondents to persuade the Tribunal of all matters necessary to be made out under subs 11Z(8). For the respondents it is accepted that Mr Fiocco's evidence can have no application beyond his own case but it is submitted that this does not inhibit the making of findings of fact and if evidence were necessary that point should be reserved for further consideration.
39 These contentions crystallise around the grounds of appeal. The first is that the Tribunal erred in law in determining the first to fifth respondents' primary and principal purpose in incurring expenditure to Plutora by reference to their objective purpose as opposed to their subjective purpose and by then assessing which was dominant.
40 In the course of its reasoning the Tribunal referred to the observation by Lockhart J in Parker Pen (Aust) Pty Ltd v Export Development Grants Board [1983] FCA 77; (1983) 67 FLR 234 at 242 where he said:
"The word `purpose' is of course, susceptible of a variety of meanings depending on its context. In the context of s4(1) the inquiry must be to ascertain whether the expenditure was incurred by the person primarily and principally for the purpose of creating or seeking opportunities or creating or increasing demand for the stipulated objects, including the sale by that person for export of eligible goods manufactured in Australia. This involves a subjective element. The purpose must be someone's purpose. It is the purpose of the person mentioned in the subsection. To ignore subjective elements is wrong. There is, of course, a difference between the essential elements in the notion of purpose and the means whereby purpose is ascertained. Purpose may be gleaned either from subjective or objective elements or, more usually, both. A person may say what his purpose is, but the objective facts may cast doubt upon the credibility or reliability of his statement. It is for the tribunal of fact to consider all the circumstances and conclude whether the requisite purpose has been established. Objective facts are usually more reliable than mere protestations of purpose, intent or state of mind, which although susceptible of testing in cross-examination, are intrinsically impenetrable and inscrutable."41 In doing so the Tribunal correctly instructed itself on the law. Furthermore that law made apparent that "purpose may be gleaned either from subjective or objective elements or, more usually, both". Accordingly, it was open to the Tribunal to consider which purpose was "dominant" in all the circumstances. Furthermore the absence of evidence of subjective intention is not a matter which must be cured by the provision of such evidence. There is no requirement either in relation to subs 11Z(8) or generally in the law that intention cannot be ascertained by reference only to objective facts: cf Gould v Vaggelas (1985) 157 CLR 175; Hughes v WA Cricket Association (1986) 19 FCR 10 at 38 and Darling v Dalgety Australia Ltd [1992] FCA 35; (1992) 34 FCR 109.
42 The grounds of appeal then allege the Tribunal erred in law and that it was not reasonably open to it on the evidence to find the objective purpose as found. The objective facts before the Tribunal were the provision of funds to Plutora by the first to fifth respondents to enable it to acquit its obligations to them pursuant to the Licence Agreements and the Marketing Agreements. In the case of the second respondent there was his evidence of subjective purpose. There was evidence in the case of each respondent upon which the Tribunal was entitled to reach a conclusion. There is therefore no room for any error of law. There is no error of law in the Tribunal simply making a wrong finding of fact when there is evidence from which the finding can be reasonably made: Waterford v The Commonwealth [1987] HCA 25; (1987) 163 CLR 54 at 77. There is no substance in this and other grounds to the same effect that the Tribunal's conclusions were not open to it or could not have been reached.
43 I do not consider therefore that grounds (i) - (vii) can succeed. For the same reasons grounds (viii) and (ix) relating to the Tribunal's conclusion concerning the carrying on of business in Australia within the meaning of subs 11Z(8)(b) of the Act are also not made out In any event, none of these grounds applied to the sixth respondent.
Ownership and disposal of eligible industrial property rights
44 Ground (x) contends that the Tribunal erred in law in finding that, on the proper construction of the Licence Agreements and related ancillary agreements between each of the first to fifth respondents and the sixth respondent that any of the first to fifth respondents owned the eligible industrial property rights within the meaning of subs 11Z(8) of the Act. Again this ground does not concern the sixth respondent.
45 There are two aspects to the appellant's argument in support of this ground. The first is directed to the Tribunal's understanding of prior decisions. The second is directed to the interpretation of the Licence Agreement and related provisions before the Tribunal.
46 In respect of the former limb of the argument it is said for the appellant that the predecessors of the present provision have been considered in Nomad and in Australian Trade Commission v Film Funding and Management Pty Ltd [1989] FCA 188; (1989) 24 FCR 595. It is submitted that Nomad proceeded on the basis that the rights referred to in the subsection were exclusive rights. This is supported by reliance on Film Funding at 613 and Australian Trade Commission v F & F Asia Pty Ltd (1996) 69 FCR 252 at 265 per Carr J. In relation to Nomad it is contended for the appellant that the Full Court did not decide to the effect stated by the Tribunal. Rather there was an obiter statement by Smithers J. Northrop J did not decide and Sweeney J, in dissent disagreed.
47 For the respondents it is contended that the Tribunal correctly instructed itself as to the law by referring to Nomad. Also in response reliance is placed on what was said by Gummow J in Film Funding at 613.
48 In Nomad the Court was called upon to decide whether a Tribunal had been right to hold that rights in which the only interest was that of an exclusive licensee of rights of copyright did not satisfy the requirements of the definition of "eligible industrial property rights". That required the Court to interpret the words in the definition of that phrase in subs 3(1) of the Act where it refers to "rights in relation to inventions or trademarks, or copyright in relation to works, design and other things ...". The Court held, by majority, that in the circumstances of the case an exclusive licensee in respect of certain rights only comprised in a copyright was an "owner" of copyright for the purposes of the definition: cf Emory University v Biochem Pharma Inc (Lindgren J, unreported, Federal Court of Australia, 31 July 1998). Smithers J (at 75) said:
"It is my view that even if the expression `in relation to' or `rights in relation to' in this definition are not to be read as qualifying `copyright', the definition is to be interpreted as saying that eligible industrial property rights means each of those rights which appertain to the class of property known as copyright in relation to works, designs and other things."At 79 he concluded:
"The collection of rights known as copyright is a subject of personal property the very nature of which is that it consists of rights in respect of any one of which, separate rights in others may be created by assignment or licence. It is the exclusive right to do any one or more of those acts which constitutes a right of copyright. When the exclusive right to do those same things is granted to another by way of licence, that grant is of a property right in the relevant sense. Expenditure in seeking opportunities for the disposal of such a right will qualify as a support for a claim for a grant under the Act."Northrop J (at 101) said that:
"It is to be stressed that the copyright is the exclusive right to do all or any of the specified acts ... Section 30 of the Copyright Act recognises this and makes provision for cases where different persons are the owners in respect of different rights of copyright in the same mark or thing.Sweeney J, in dissent, concluded (at 93):
In these circumstances, it is not necessary for me to consider whether, in the definition of `eligible industrial property rights' the words `rights in relation to' apply to or qualify the word `copyright".
"When one reads the words `rights in relation to inventions or trademarks, or copyright in relation to works, designs and other things' one sees that the legislature is making two prescriptions, one in relation to inventions or trademarks and the other in relation to works, designs and other things ...in relation to works, designs and other things the draftsman preferred the specific word `copyright' to the general word `rights'. The comma which separates the two phrases serves to emphasise the separate treatment of the two subject matters."49 For the applicant it is contended that the view of Sweeney J is to be preferred. This Court, of course, is bound by the decision of the majority of the Full Court. While it is true that there is no absolute identity between the reasoning of Smithers J and Northrop J who constituted the majority, the effect of each of their conclusions was stated by the Tribunal. Northrop J's separate reasoning is different from, rather than "at odds with", that of Smithers J but I do not consider that vitiates the Tribunal's reasoning based on the authority of Nomad.
50 The text of the passage in Film Funding (at 613) on which the applicant's case places reliance, reads:
"In my view, a person who facilitates the grant by another of a licence to a third party of that other's industrial property rights, by seeking out that third party does not thereby dispose of the licensor's industrial property rights. He does not do so either in ordinary legal parlance, or within the meaning of s 3A(1)(d) of the Grants Act. Still less is it sufficient for such a person not himself to seek out such licensees, but to engage a fourth party, in this case RPTA, to do so."However Gummow J preceded that passage by the following passage:
"Ordinarily, one disposes of industrial property by dealing with it so as to transfer or create interests of an incorporeal proprietary character. To grant an exclusive licence of a copyright, within the meaning of s 10 of the Copyright Act, would ordinarily be so regarded, given the special status afforded such licences by that Act. The grant of a bare permission or licence may not be a disposition of the relevant industrial property itself. But a bare licence is a right, albeit a personal right, `in relation to' a copyright. Consistently with Nomad Films International Pty Ltd v Export Development Grants Board (1986) 11 FCR 67 at 75-76, this may be enough to meet the Grants Act meaning of `disposal' of `eligible industrial property' rights.This passage confirms the authority of Nomad. The former passage, which follows it in the text, cannot be read as reflective upon the authority of Nomad. This is confirmed by reference to the following passage at 611 where Gummow J said:
What is disposed of in all these instances are rights to do some or all of those acts, the monopoly in respect of which is conferred by the law as part and parcel of the invention, trademark, copyright or design."
"The respondent was not the owner of any copyright; title was vested in the investors. The respondent was appointed sole and exclusive agent of the investors `to market and distribute the relevant copyrights, and in particular it was specifically authorised to enter the second agreement as agent of the investors. Pursuant to the second agreement, the institution was granted the sole and exclusive licence of the copyrights. That grant was, in my view, a disposition by the investors of eligible industrial property rights within the meaning of the Grants Act: Nomad Films International Pty Ltd v Export Development Grants Board at 75-76, 102-103. The disponee was the institution. The disponee, as the holder of relevant eligible industrial property rights, then granted to the respondent a sole and exclusive agency, but also acknowledged the `continuing role' of the respondent in marketing and distribution of the film as agent for the investors and of the institution (Pt 3, Recital D). This, in my view, was not a disposition by the institution of eligible industrial property rights."51 In Australian Trade Commission v F & F Asia Pty Ltd (1996) 69 FCR 252 at 265 Carr J said:
"A contractual arrangement whereby a party who owns know-how merely agrees with another contracting party to supply that know-how to a third party does not, in my view, confer ownership of that know-how on the other contracting party within the meaning of the Act."That was in relation to know-how. It also addresses a conferral of rights on a third non-contracting party. In my opinion, it does not reflect on the authority of Nomad.
52 I therefore do not consider the Tribunal erred in law in its understanding of the reasoning of the Court in Nomad.
53 Turning to the issue of construction of the Licence Agreements in the present case, the case for the applicant points to the following features. By cl 2 the Licensee obtains a "licence to use and to commercially exploit the Intellectual Property and the Product in the manner set out in this Agreement within the Territory and for the Term." Clause 4 requires the Licensee to use best endeavours to procure advertisers from within the Territory to contribute material relating to each country within the Territory for incorporation into a Disk and imposes obligations on the Licensee. By cl 8.1 the Licensee is required to use its best endeavours to procure travel agencies within the Territory to enter into the Travel Agency Licences to use the product. By cl 14.1 the Licensee acknowledges, confirms and agrees that it "will not contest or impugn in any legal proceedings or otherwise the proprietorship, ownership and interest of the Licensor in the Intellectual Property." By cl 14.1(2) it is provided "the rights granted to the Licensee under this Agreement shall in no way affect the exclusive ownership by the Licensor of the Intellectual Property". By cl 14.1(4)(a), in relation to the use of any part of the Intellectual Property, the Licensee agrees that if required by the Licensor in any specific instance, it will "indicate clearly that the Licensor is the owner of the Intellectual Property". Corresponding provisions appear in the sub-licences and in the Australian Licence Agreements.
54 It is submitted for the applicant that cl 14 establishes that the licence is not exclusive. See the definition of "exclusive licence" in s 10 of the Copyright Act and cf Computer Mate Products (Aust) Pty Ltd v Ozi-soft Pty Ltd (1988) 83 ALR 492 at 495.
55 I agree with the submissions for the respondents that these provisions, including cls 14.1(2) and 14.1(a) in particular, in no way affect the right which the first to fifth respondents have by way of licence to publish within the Territory. The effect of cl 2 is to permit the Licensee to sell to the public within the Territory for the Term and that, by implication, this is the exclusive right of each respondent in its Territory. Furthermore, TVI remained the copyright owner outside the Territory to which the licence related: cl 14.1(3). What cls 14.1(2) and (4)(a) do is to make it clear that the licence is not an assignment of copyright. The Tribunal's conclusion that the licences granted "established the relevant ownership ... of ... rights under copyright" is correct on a proper reading of the Licence Agreements.
Application of s 38
56 The remaining grounds of appeal are directed to the correctness of the Tribunal's application of s 38 of the Act. Again none of these grounds involve the sixth respondent.
57 The respondents' notice of contention is conveniently considered first. It contends the Tribunal erred in law in concluding there is any evidence of an "act" done by any of the respondents within the meaning of subs 38(1)(a) or 38(2)(a) of the Act. As will be recalled, the Tribunal concluded in par 157 that it was the entry into the Licence Agreements and the Marketing Agreements which constituted the acts.
58 The Tribunal was required by s 38 to consider whether there were acts, the effect of which were to "distribute or transfer expenditure or income" or to "transfer or re-arrange a business activity or business activities between persons affected by the doing of the act". It is contended for the respondents that the Licence Agreements and Marketing Agreements did not have such effect.
59 In support the case for the respondents relies upon the statement by Hill J in Australian Trade Commission v Correia & Zaknich Holdings Pty Ltd (1992) 38 FCR 153 at 164 to the effect that s 38 is an anti-avoidance section. That being so, it is submitted the section only applies where there is an artificial re-allocation of income or expenditure or an artificial transfer or re-arrangement of business activities between existing parties, to gain a higher grant than would have been the case without the artificial re-allocation or artificial or transfer or re-arrangement. It is said neither the Licence Agreements nor the Marketing Agreements provide any evidence of such artificial re-allocation of expense or income or artificial transfer or re-arrangement of business activities. Consequently, the Tribunal should be seen to have erred in law in concluding there was an `act' within the meaning of s 38.
60 In Correia at 165 Hill J said of s 38 of the Act:
"... it must be noted that s 38, like its predecessors, is concerned with the effect of the act done, not the motion or purpose of the act, or the motive or purpose of the person doing the act."61 So far as the notice of contention contends for an interpretation based on motive or purpose, it cannot succeed other than perhaps where motive or purpose is relevant to the exercise of a discretion: cf Australian Trade Commission v World Geoscience Corporation Ltd (Kiefel J, unreported, Federal Court of Australia, 20 August 1997). Furthermore, the Tribunal was correct in concluding the entry into the Licensing Agreements and Marketing Agreements was an act relevant to be considered in terms of the subsections. However, whether it was "an act" which qualified within the terms of the subsections depended on its "effect".
62 It is submitted for the applicant that implicit in the finding of the Tribunal that an act was done is that the effect of each "act done" was to distribute or transfer expenditure or income or to transfer or re-arrange a business activity among or between the participants.
63 The applicant's grounds also question the manner in which the Tribunal reached its conclusion. It is said the Tribunal had to ask itself the question whether "the total amount by way of grant that exceeds the total amount (if any) by way of grant that would have been payable to the participants" if the acts had not been done. This meant the Tribunal was required to adopt the hypothesis that the acts had not been done: pars 38(1)(b)(i) and 38(2)(b)(i) of the Act, in order to compare the actual with the hypothetical position under the Act with respect to grants if the acts had not been done. It is said for the applicant that in pars 158 and 159 of its reasons the Tribunal proceeded on the basis that the relevant hypothesis was that what actually happened was to be treated as if it had not happened for all purposes. It therefore concluded that s 38 had no application because there would have been no claimable expenditure if the acts had not happened.
64 Alternatively it is submitted for the applicant the Tribunal ignored the words "if any" in pars 38(1)(b) and 38(2)(b) of the Act and said the section was inapplicable if there would have been very little, if any, claimable expenditure. However, it is submitted for the applicant, s 38 is not rendered inapplicable by the mere fact that there would have been no grant if the acts had not been done. Because the Tribunal took this view of s 38 it did not take into account the relevant consideration whether some other agreement would have been in place instead, for example, the question whether, if the multiple agreements had not been entered into, the investors might have invested in TVI.
65 Additionally, it is said for the applicant that in view of the Tribunal's finding that if TVI had not granted overseas Territory Licence Agreements to the participants there would have been no marketing fees paid to Plutora, the only conclusion open to the Tribunal was that s 38 did apply. It is submitted therefore the Tribunal erred in law in concluding that s 38 had no application.
66 For the respondents, in reliance on Correia at 166, it is submitted the Tribunal correctly concluded that if there had been no "act" - that is no Territory Licence Agreements and no Marketing Agreements - there would have been no expenditure at all. Thus, it is said, there was no rearrangement of affairs by an act which increased the amount of the grant. Without those acts there would have been no activity at all. As a result of this finding of the Tribunal, it is submitted, the conclusion of the Tribunal is unchallengeable on this appeal.
67 To support these contentions the case for the respondents seeks to rely on the decision in World Geoscience Corporation. There World Geoscience Corporation ("WGC") had carried on the business of airborne geophysical surveying. It decided to establish a wholly owned subsidiary ("WGP") to concentrate its efforts on the provision of airborne oil exploration services. WGC entered into an agreement with BP for the transfer of all of its rights in airborne laser fluoroscensor technology ("ALF system") for a royalty. Later WGC and BP agreed (in "the Assignment Agreement") to assign all of WGC's entitlements under these agreements to WGP. By a further agreement ("the Representation Agreement") WGP engaged a consultant ("Mr Williams") to market and promote the ALF system in the United Kingdom and other parts of the world.
68 Before Kiefel J it was contended the relevant "act" for the purpose of s 38 was either the entry into the Assignment Agreement or the Representation Agreement. Kiefel J concluded the Tribunal had correctly concluded that there was not a relevant "distribution or transfer" in the sense of there having been a "movement" of expenditure and that the mere entry into the Representation Agreement had not had that effect. Her Honour said:
"There was no transfer or distribution of expenditure by the [A]ssignment Agreement which could have the "effect" of which para (a) speaks. The expenditure was not incurred until the [R]epresentation [A]greement was entered into between WG and the consultant, Mr Williams. Whilst the Assignment Agreement did have the effect of re-arranging a business activity (s 38(2)(a)) the result of it was not to create an entitlement to a grant. It merely placed WGP in a position to incur expenditure on its own account, and with respect to marketing the technology it acquired."
For the applicant it is said Plutora stands in the same relationship as did Mr Williams to the relevant claimant.
69 I do not consider the applicant's submissions succeed, for the following reasons:
(1) Contrary to the submissions for the applicant, I consider the reasoning in World Geoscience Corporation supports the Tribunal's reasoning and is a correct application of the requirements of the subsections. The effect of the agreements before the Tribunal was not to distribute or transfer expenditure or income. Where the Licensing Agreements and Marketing Agreements had the effect of re-arranging a business activity, the result was not to create an entitlement to a grant but to create a position where expenditure could be incurred.
(2) The Tribunal did not misapply the statutory test. Once the application of the hypothesis of non-occurrence had yielded a nil or next to nil result it followed in the particular circumstances and subject to (3) below, the precondition (of distribution or transfer of expenditure or income) to the Commission treating income or expenditure as re-allocated, did not exist.
(3) There was no evidence brought to the attention of this Court that the relevant consideration said to have been overlooked by the Tribunal was in fact before it.
In Correia at 166 Hill J said:
"A difficulty may be thought to arise if the act to which the section refers is, or includes, the entry into the agreement under which the eligible expenditure is incurred. The present is such a case ... It may be said that if that agreement had not been entered into, there would have been no grant at all payable; on that basis the hypothesis would literally always be satisfied in such a case. Although this is a possible interpretation of the section, it is not, in my view, the correct interpretation. If the relevant act be, or include, the entry into the agreement pursuant to which the relevant expenditure was incurred, it does not follow that the adoption of the hypothesis that this agreement was not entered into requires the conclusion that the Tribunal could not form the view that some other agreement would on the balance of probabilities have been entered into instead.
Indeed, in the present case it would have been open to the Commission or on a review to the Tribunal to form the opinion that if the single agreement had not been entered into, there would have been three separate agreements entered into, just as there had been in the preceding years.
If the Commission has formed the necessary opinion, it may then, to the extent it considers necessary to prevent or limit the consequences of the act done, act to negate those consequences by reallocating the expenditure or income among the participants or some of them and thereby reducing the grant payable as far as possible to that which would otherwise have been payable had the expenditure or income not been distributed or transferred."
No submission elucidated whether the Tribunal was invited to consider whether, if the multiple agreements had not been entered into, the investors might have invested in TVI. The Court is asked to speculate on what other factors the Tribunal could have taken into account.
Conclusion
70 For these reasons I consider the notice of contention should be allowed and the appeal be dismissed.
|
I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable
Justice R D NICHOLSON. |
Associate:
Dated: 5 February 1999
|
Counsel for the Applicant: | Mr A Robertson SC & Mr P Macliver |
| Solicitor for the Applicant: | Australian Government Solicitor |
| Counsel for the Respondent: | Mr G J L Pullin QC & Mr G E Castledine |
| Solicitor for the Respondent: | Minter Ellison |
| Date of Hearing: | 22, 23 October 1998 |
| Date of Judgment: | 5 February 1999 |
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