Australian Tea Tree Oil Research Institute Ltd (in liq) v Commissioner of Taxation

BETWEEN: AUSTRALIAN AGRICULTURE RESEARCH INSTITUTE LIMITED (IN LIQUIDATION)

Introduction 1 These are two sets of appeals pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth), the first by Australian Tea Tree Oil Research Institute Limited (in liquidation) ('ATTORI') against objection decisions dated 4 August 2004 made by the respondent ('the Commissioner') in respect of the years of income ended 30 June 1996 ('the 996 year'), 30 June 1997 ('the 1997 year'), 30 June 1998 ('1998 year') and 30 June 1999 ('the 1999 year'); and the second by Australian Agriculture Research Institute Limited (in liquidation) ('AARI') against objection decisions dated 13 October 2004 made by the Commissioner in respect of the 1997 year, the 1998 year and the 1999 year. 2 These appeals were heard immediately following the hearing of the appeals by Business and Research Management Limited (in liquidation) ('BARM'). Notwithstanding that the issues in these appeals are not coterminous with the issues in the BARM appeals, there is a possible common issue and they arise out of the same factual background, which is set out in [4] - [41] of the reasons for judgment in Business & Research Management Pty Ltd v Commissioner of Taxation [2008] FCA 1652. The roles of ATTORI and AARI as the researchers in the Budplan projects are referred to at various parts of that background. In particular, it is noted at [8(3)] that ATTORI was engaged to conduct research and development for all projects except for Budplan 'A' Series No. 1 and Personal Budplan No. 5, where AARI was engaged to conduct the research and development activities. Unless the context indicates otherwise, terms defined in the BARM reasons that are used in these reasons, have the same meaning. 3 While the issue in the BARM appeals concerned the quantum of the management fees to be brought to account as assessable income in the hands of BARM, the issue of the quantum of the research fees to be brought to account as assessable income in the hands of ATTORI or AARI only arises if the income of ATTORI or AARI is not exempt from income tax on the ground referred to below. 4 There is at least one, but possibly two issues before the Court. 5 There was a third issue concerning additional tax. On the hearing of the appeals, I was informed that the parties had agreed on a level of further remissions of additional tax in the event that the applicants were unsuccessful 'in any significant way' and that in those circumstances it was unnecessary for me to address this issue. I indicated I was content to adopt that course.

Issue 1 6 Whether the applicants are exempt from income tax: (1) in respect of the 1996 year (ATTORI only) and the 1997 year pursuant to s 23(e) of the Income Tax Assessment Act 1936 (Cth) ('the ITAA 1936'); and (2) in respect of the 1998 year and the 1999 year pursuant to ss 50-1 and 50-5 (Items 1.1, 1.3 or 1.4) of the Income Tax Assessment Act 1997 (Cth) ('the ITAA 1997').

Issue 2 7 This issue - the quantum of the research fees to be brought to account as assessable income in the hands of each of ATTORI and AARI in the relevant years of income - only arises if the Court finds that one or both of the applicants was not exempt from income tax in any of those years of income.

Issue 1: Are ATTORI and AARI Scientific Institutions in the Relevant Years of Income

Statutory Context 8 Section 23(e) of the ITAA 1936 as in force in the years of income up to and including the 1997 year provided: 'The following income shall be exempt from tax: … (e) the income of a religious, scientific, charitable or public educational institution.' 9 In those years, each of ATTORI and AARI is entitled to exemption if it is either a scientific or a charitable institution. 10 Sections 50-1, 50-5 (Items 1.1, 1.3 and 1.4) and 50-55 of the ITAA 1997 applied in respect of the 1998 year and later years and relevantly provided: '50-1 Entitles whose ordinary income and statutory income is exempt The total *ordinary income and *statutory income of the entities covered by the following tables is exempt from income tax. In some cases the exemption is subject to special conditions. Note 1:Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6-20. The note to subsection 6-15(2) describes some of the other consequences of it being exempt income. Note 2:Even if you are an exempt entity, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936. 50-5 Charity, education, science and religion Charity, education, science and religion Item Exempt entity Special conditions 1.1 charitable institution See sections 50-50 and 50-52 1.2 religious institution See section 50-50 1.3 scientific institution See section 50-55 1.4 public educational institution … …

50-55 Special conditions for items 1.3, 1.4, 6.1 and 6.2 An entity covered by item 1.3, 1.4, 6.1 or 6.2 is not exempt from income tax unless the entity: (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or …'

Factual Background 11 The relevant facts are not in dispute, although there is an issue as to what is relevant and what is not. It is common ground that facts going to: '[W]hat is the true nature and the objects and activities of the [entity]', to use the words of the Lord President (Clyde) in The Commissioner of Inland Revenue v The Aberdeen Medico-Chirurgical Society (1931) 16 TC 237 at 249 quoted with approval by Latham CJ in Royal Australasian College of Surgeons v Federal Commissioner of Taxation ('the Surgeons' Case') (1943) 68 CLR 436 at 444, are relevant. But the Commissioner says that facts going to the commercial imperatives that drove both the entity's incorporation and its activities, as well as the arrangements through which, or the manner in which, it carries on its activities, and the lack of public availability or utility of the results of those activities, reflect on the 'true nature' of ATTORI and AARI and their activities and for that reason, are also relevant.

ATTORI's Submissions 12 ATTORI submitted that the facts set out in [13] - [39] below were relevant to its true nature, objects and activities.

Constitution and membership of ATTORI 13 ATTORI is a company incorporated on 24 November 1995 as a company limited by guarantee. 14 The objects for which ATTORI was established are stated in cll 2(b) to 2(d) of its Memorandum of Association: '(b) The furtherance of scientific research into the properties and uses of plant species and into all the properties of such plant species including such products as may be extracted or derived therefrom. (c) To promote and encourage other organisations and individuals in the same endeavour and undertake scientific research into uses flowing from results of its primary research. (d) To subscribe to, become a member of and co-operate with any other association or organisation, whether incorporated or not, whose objects are altogether or in part similar to those of the Company provided that the Company shall not subscribe to or support with its funds any association or organisation which does not prohibit the distribution of its income and property among its members to an extent at least as great as that imposed on the Company under or by virtue of Clause 3 of this Memorandum.' 15 ATTORI is prohibited from distributing its assets to its members and on dissolution must ensure that the assets are transferred to another body with the same objectives. Clause 3 of the Memorandum provides: 'The income and property of the Company whensoever derived, shall be applied solely towards the promotion of the objects of the Company as set forth in this Memorandum of Association; and no portion thereof shall be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise howsoever by way of profit, to the members of the Company.' 16 Clause 6 provides: 'If upon the winding up or dissolution of the Company there remains after satisfaction of all its debts and liabilities any property whatsoever the same shall not be paid to or distributed among the members of the Company but shall be given or transferred to some other institution or institutions having objects similar to the objects of the Company and which shall prohibit the distribution of its or their income and property among its or their members to an extent at least as great as is imposed on the Company under or by virtue of Clause 3 hereof such institution or institutions to be determined by the members of the Company at or before the time of dissolution and if and so far as effect cannot be given to the aforesaid provision then to some charitable objects.' 17 The objectives of those establishing ATTORI were to 'conduct research into the properties of tea tree oil' and to 'conduct bona fide research … to verify these properties … to provide the scientific underpinning for … claims' of therapeutic benefits. 18 At its establishment, the directors of ATTORI were the subscribers to its Memorandum of Association, Messrs Donald Charles Priest, Glendon Michael Stotter, Alan James Gallagher, Peter Charles Lucas, Dennis Charles Lear and Gordon Quah-Smith. Mr Quah-Smith retired as a director on 5 December 1995, Mr Lear on 17 October 1996, Mr Lucas on 15 September 1997, Mr Gallagher on 31 January 1998, Mr Stotter on 19 June 1998 and Mr Priest on 21 May 1999. 19 At the time ATTORI went into liquidation on 6 June 2000, its directors were Messrs Stanley Nelson Coupe (formerly managing director of George Weston Ltd, from 16 October 1997), James Joseph Collins (formerly managing director of Parke Davis Pty Ltd, from 18 December 1997) and Robin Trevor Gray (formerly Premier of Tasmania, from 21 May 1999), none of whom were or had been directors or shareholders of BARM. 20 Each of the new directors became a member of ATTORI in May 1999, as did Dr Harvey Craig Bell. Mr Richard John Burns, who was then appointed business manager and company secretary, became a member in August 1999. In January 2000, Mr Stephen Leonard Law, who had preceded Mr Burns as company secretary, and Mr John Huntley Knox, a chartered accountant, also became members. Messrs Quah-Smith (December 1995), Lear (July 1998) and Priest (March 1999) resigned as members and Mr Gallagher was excluded from membership in April 2000.

Activities of ATTORI 21 Throughout its existence, ATTORI has had no activity other than to: (a) enter into contracts that secured to it funds with which to undertake research (including contracts for research entered into with the Budplan syndicates and with other parties), and (b) undertake (by its employees and contractors) scientific research activities in fulfilment of those contracts. 22 Between April 1996 and June 1999, ATTORI received expendable resources (including interest of $21 million and cash research fees of $94 million but excluding the 'non-recourse' portions of the fees payable to it) of some $115 million, and after expenditure on research activities of $101 million was left with an 'operating surplus' of $14 million. 23 ATTORI contracted with BARM as agent for the Budplan syndicates to undertake research into the properties and applications of tea tree oil for use in acne treatment, hospital, antiseptic and oral hygiene applications; in tinea and other foot problems, dandruff, and candida;in skin care and personal hygiene; and to identify the composition of superior quality oil to prepare genetic maps of suitable families of Melaleuca to identify genetic markers to correlate with high oil yield and optimum oil composition, to cross Melaleuca with appropriate gene structures in order to produce high quality unique hybrids which qualify for commercial protection under plant variety rights legislation and to adapt tissue culture and growth protocols in order to mass produce Melaleuca seedlings by cloning using robotic tissue culture systems. ATTORI also contracted with BARM to research the properties and applications of celery seed extract and development of products specifically for use in treatment of arthritis, gout, and use as a diuretic; the properties and applications of Coenzyme Q10 for measuring general cellular bioenergy in humans and products to improve general energy, health and lifestyle; and the pet care products based on Australian essential oils and natural ingredients. 24 The research work so contracted for was undertaken and the results reported to the Research Advisory Board (as to which, see below). 25 The contracts with BARM were to do research work for a period of two years. They did not delimit the activities of ATTORI: for example, ATTORI took a lease of its premises for 10 years and invested in equipment with a useful life well beyond the term of the BARM contracts. 26 Commencing in January 1998, ATTORI undertook research contracts from other clients, for work in related research areas including analysis of lemon myrtle oil and provision of formulations, analysis of major actives in garlic, analysis of herbal extracts and of herbal raw materials, and research directed to formulations for personal care products, from a variety of independent businesses. Brochures offering its research services were prepared and distributed. Shortly before it was placed under external administration ATTORI was negotiating research and development contracts with both the Strathclyde Institute of Drug Research and Bio-Gene Bioprospecting Ltd from which its estimated revenue would have been $8 million over a four year research period.

Research Advisory Boards 27 ATTORI established Research Advisory Boards ('RABs') with members of the highest scientific qualifications. The Lismore RAB comprised Professor Barneston of Sydney University, Professor Baverstock of Southern Cross University, Professor Wyllie of UWS and Mr Collins, former managing director of Parke Davis. The Melbourne RAB comprised Emeritus Professor Linnane of the Centre for Molecular Biology and Medicine in Victoria, Professor Johnston of Melbourne University, Professor Nagley of Monash University and Dr Bell. 28 The role of the RABs was to: (a) identify the key research areas and formulate the broad parameters of the research to be undertaken by the Institute; (b) develop detailed research plans in conjunction with ATTORI's general manager and with scientists who had the particular expertise in the areas to which the planned research related; (c) identify, and assist in the engagement or secondment of, key scientists; (d) supervise the conduct of the research, both in implementation and in reviewing regular reports; (e) adjust the detailed research plans, in consultation with the scientists performing the research, as required in light of the reports. 29 The RABs met regularly, generally every two months, and kept detailed minutes recording their deliberations on ATTORI's research. They reported regularly to the Board of ATTORI.

Research Expertise 30 ATTORI employed directly 10 scientific research staff, three technical officers and three administrative staff. The research staff was highly qualified: five doctorates and three other postgraduate or honours degrees, four with research experience of at least 20 years. Dr Leach, the most experienced staff member, had published 35 academic articles. 31 Further research resources were obtained by: (a) subcontracting research work to other research institutions who had specialised scientific expertise or equipment not possessed by ATTORI or its staff. These included the University of Western Sydney, Monash University, University of Sydney, Southern Cross University, University of Tennessee, the Centre for Molecular Biology, the Sydney Centre for Reproductive Health Research, Xanadu Consulting Pty Ltd (statistical analysis specialists) and Technical Consultancy Services Pty Ltd; (b) making grants to universities on terms which provided research or facility benefits to ATTORI, such as the performance of contract work on equipment purchased with the grant; (c) providing scholarships to universities for study in the areas of ATTORI's research, so making the skills and expertise of the scholarship holders available to ATTORI; (d) sponsoring Chairs and Fellowships at the university, so providing access to the expertise of the holders thereof. By these means, ATTORI gained access to the experience and expertise of two exceptionally qualified scientists, Dr Lin and Professor Waterman. 32 Obtaining access to expertise resources in this way was a common practice for research institutes.

Research Equipment and Premises 33 ATTORI initially leased offices and laboratory space from Southern Cross University but when a new building was erected on campus, it took a 10 year lease of a floor of the building, on which it established extensive research facilities including a flameproof room, a pilot scale formulation room, a formulation room, walk-in stability ovens and an analytical laboratory. In these facilities it installed, inter alia, six gas chromatographs and three liquid chromatographs with the ability to perform Gas Chromatography with Mass Spectrometry detection (GC-MS), Liquid Chromatography with Mass Spectrometry detection (LC-MS), Critical Fluid Extraction (CFE), headspace analysis and Atomic Emission Detection (AED) analysis. By June 1999, some $1.5 million had been spent on laboratory equipment and $650,000 on laboratory fit-out as well as further sums on other (office, vehicle, etc) equipment. 34 In establishing its premises on the university campus, ATTORI followed a course common for research bodies, so that the very expensive research equipment may be shared and research results may also be shared. 35 Where equipment beyond that possessed by ATTORI was required, ATTORI contracted the work out to other researchers.

Sharing and Publication of Research Results 36 When work was subcontracted out, or made the subject of collaborative research, the results of the research became known to the scientists with or by whom the work was done, although the intellectual property in the results remained with the party for whom the work had been done. 37 The outcome of the research done by the staff of ATTORI was also published in scientific journals, in conference papers and in conference proceedings. Many of the published papers were the fruit of collaboration among ATTORI's staff and researchers at other institutions, in the course of which the advances resulting from the research were shared among the collaborating parties. Other institutions whose staff participated in and shared research results included the University of Western Sydney, the CSIRO and the University of Bristol. 38 Published papers acknowledged the sponsorship or participation of ATTORI in the research and posters exhibited at conferences. The staff of and contractors to ATTORI also published papers resulting from the research done. 39 The papers presented and published by researchers conducting the research undertaken by ATTORI have achieved wide recognition as being of scientific value, as evidenced by their citation by other scientists. The scientists who participated in the research were of high international standing, and the work done was, in the unchallenged opinion of Professor Baverstock, himself a scientist of the highest standing, of a very high calibre.

The Commissioner's Submissions Concerning ATTORI 40 The Commissioner did not dispute these facts and circumstances, but pointed to the matters set out in [41] to [112] below, as bearing on the true nature of ATTORI and its activities.

Promotion of Objects for Private not Public Benefit or Utility 41 ATTORI was formed to undertake the contractual obligations set out in the prospectus documents. That is, it was incorporated to meet the objectives of a broader commercial endeavour. Its activities after incorporation were directed predominantly, if not solely, to that commercial endeavour. It was not concerned with benefiting the public or advancing science for science's or the public's sake. No one was intended to benefit from the research but BARM and the Participants.

The Real Purpose of Incorporation - Fulfillment of Contractual Obligations 42 Despite the stated objects in its Memorandum of Association, the Prospectus, Management Agreements and Research Agreements for the Budplans suggest that the incorporators had a rather different purpose in bringing ATTORI into existence, namely: · To undertake research for reward pursuant to contractual obligations arising under the Personal Syndicate Deed for Budplan Personal Syndicate or the Research Agreements for the remainder of the Budplans entered into with the Participants and others. · To provide the Budplan Participants and BARM, as Manager, with the 'Research Results' so that those results could be commercially exploited for the benefit of Participants and BARM. · To further the commercial interests of the Mainstar group of companies, particularly in relation to sales of the product, Main Camp Premium Pharmaceutical Grade Tea Tree Oil. · To perform the research function in a large commercial venture with a view to making profits and securing tax advantages for the various players.

Budplan Personal Syndicate Prospectus 43 The prospectus revealed that the Budplan Personal Syndicate would carry on business, part of which would comprise undertaking the development for potential manufacture and sale of specified products and markets, with business profits being returned to the Participants. It stated that the Syndicate would contract with ATTORI to undertake necessary scientific research including enhancing existing product formulae and product concepts and to develop new products. 44 Itis significant, in assessing the purpose of ATTORI, that the 'research' of ATTORI was to be limited to the tea tree oil from a single source (i.e. Main Camp). The prospectus noted that ATTORI would develop 'Product Packages' incorporating formulae and concepts of the Syndicate using Main Camp Pharmaceutical Grade Tea Tree Oil. The Main Camp Tea Tree Oil Group owned the world's largest tea tree plantation and was set up by Mr Glen Stotter, who was also one of the members of ATTORI and a director from 27 November 1995 - 19 June 1998. The prospectus disclosed the fact that five of the directors of ATTORI were also directors of companies comprising the Main Camp Group, who were the suppliers of Main Camp Premium Pharmaceutical Grade Tea Tree Oil. 45 The prospectus revealed that a number of potential uses for Main Camp Pharmaceutical Grade Tea Tree Oil had already been identified from past research and three potential uses (i.e. acne treatment, hospital and antiseptic products and oral hygiene) had been 'singled out for further research and development work with a view to enhancing existing work and commercialising the results of this work on world markets'. Main Camp Group was aware of or had conducted its own research into the uses for Main Camp Tea Tree oil. ATTORI was incorporated to further that research and develop product packages for commercialisation by the Participants and BARM (and at all times using the Main Camp Tea Tree Oil). Indeed the prospectus stated that the research of ATTORI was intended to 'overcome limitations … [in the form of] … the lack of controlled clinical efficacy trials with defined chemical composition oil'. ATTORI subsequently conducted clinical trials. 46 Under the heading 'Research Approach', it is clear that an element of the business of the Participants was to bring products to world markets in the shortest possible time. In this regard, it was noted that the best possible resources would be used by the manager and ATTORI so that they could achieve the required results in a timely manner. The reference to time-frame is significant because it makes it clear that ATTORI's activities were to be conducted with the commercial imperatives of the Participants in mind. 47 Under the heading '12. Nature of your business', it was noted that if the research of ATTORI was not proving to be successful or in the opinion of the manager, might not produce a satisfactory commercial return, then the Manager would request ATTORI to substitute an alternative area of research, which, in the Manager's opinion, would provide a better return to the Participants. It was never the intention for ATTORI to be free to simply extend the boundaries of science. Rather the intention was for ATTORI to conduct successful research for the Participants that was going to be of commercial value and produce a satisfactory commercial return.

Budplan Personal Syndicate Deed 48 The Budplan Syndicate Deed was between ATTORI, the Participants and BARM. It made clear that ATTORI was engaged by the Participants (under cl 6) to conduct the Research and Development (as defined) and in consideration would be paid research fees by the Participants. 49 The research was to be conducted in the manner set out in the Deed: cl 6.1. ATTORI was not free to pursue 'something higher and larger' (the Surgeons' Case 68 CLR at 447 per Starke J) in the promotion and advancement of science. Its objective instead was to create 'relevant' Research Results (cl 6.6) for the purposes of the Budplan Participants and BARM. 50 The 'Research Results' (cl 1.1.14) were to be the property of the Participants: cl 5.1. If those results had any commercial significance BARM would pursue commercialisation at its cost: cl 5.2. ATTORI was to provide BARM, with such follow-up support and data as was necessary to enable BARM to obtain the necessary licences and registrations for the fruits of AARI's research (that is, the 'Research Results') and to do all acts and things necessary to 'commercialise or patent such research and development or any part thereof': cll 6.4 and 6.8. 51 ATTORI agreed to keep confidential all information in respect of the research and development and covenanted that such information would only be used by ATTORI (and its employees and advisers) for the purposes of transactions contemplated by the agreement: cl 13. 52 ATTORI retained BARM as the manager for ATTORI to carry out 'all administrative and management functions … including but not limited to the sourcing of suitable premises, facilities and personnel for the conduct of the research and development and the maintenance of all books accounts registers and licences necessary for its administration and conduct of research': cl 6.7. For this, ATTORI paid very substantial administration fees ($1,200 from each participation for each of the first two years): cl 6.10. It was also liable for ongoing fees after the first two years. 53 Importantly, proceeds from the 'commercialisation' of the Research Results were not to flow back to ATTORI to be re-invested for further scientific research in accordance with ATTORI's stated 'objects'. Rather, ATTORI was providing a service, as a part of a commercial scheme, to Participants and the Manager, who would be entitled to the proceeds of sale of the fruits of the research: cl 5. In other words, the proceeds derived from the fruits of ATTORI's research were intended 'to be diverted into the pockets of individuals': The Incorporated Council of Law Reporting of the State of Queensland v Federal Commissioner of Taxation (1971) 125 CLR 659 at 672.

Other Budplans for which ATTORI was appointed to conduct research in the relevant years 54 As well as the Budplan Personal Syndicate, ATTORI was also appointed to conduct research in the following Budplans: (a) Personal Budplan No. 2 - prospectus dated 3 June 1996 (b) Personal Budplan No. 3 - prospectus dated 6 November 1996 (c) Personal Budplan No. 4 - prospectus dated 16 April 1997 (d) Company Budplan No. 1 - prospectus dated 8 May 1996 (e) Company Budplan No. 2 - prospectus dated 3 June 1996 (f) Company Budplan No. 3 - prospectus dated 26 May 1997 (g) Melaleuca Biotics Budplan - project summary dated June 1996 55 It is apparent that a generic set of documents were used in relation to all of the abovementioned Budplans that were similar in nature to the Budplan Personal Syndicate Deed (although for these other Budplans there was a separate Management Agreement and Research Agreement rather than these being encompassed in one deed as was the case for the Budplan Personal Syndicate). 56 The Research Agreement in each Budplan had the following similar clauses to the Budplan Personal Syndicate Deed: (a) Clause 2.1: The Participant engages ATTORI to conduct the Research and Development (as defined). (b) Clause 2.2: In consideration of conducting the Research and Development, ATTORI will be paid research fees by the Participants. (c) Clause 5.1: ATTORI will provide follow-up support and data required to assist the manager to obtain necessary licences and registrations for the Research Results including Product Packages. (d) Clause 5.3: ATTORI is to undertake responsibilities (as defined) having regard to its objective to create relevant Research Results including Product Packages. (e) Clause 5.4: ATTORI undertakes to keep the manager informed at all times as to progress and developments in respect of the Research and Development and will immediately on completion of any facet of the Research Results that may be commercialised and/or patented, advise the manager and assist and do all things necessary to commercialise or patent the research and development or any part of it. (f) Clause 7.1: The Research Results will be the property of the Participant (subject to cll 7.3 and 7.4). (g) Clause 7.3: BARM is entitled to a lump sum royalty amounting to 50% of the gross sale proceeds of the sale of any of the Research Results and the Participants to the balance. (h) Clause 8.1: ATTORI agrees to pay an Administration Fee to BARM. (i) Clause 11.1: ATTORI agrees to keep confidential all information provided to it in the course of performing its duties under the agreement. 57 Personal Budplan No. 2, Company Budplan No. 1, Company Budplan No. 2 and Melaleuca Biotics Budplan, also involved 'research' using Main Camp Premium Pharmaceutical Grade Tea Tree Oil. 58 The Melaleuca Biotics Budplan also included in cl 2.1 a statement that ATTORI would have the rights to publish the research results unless there were compelling commercial reasons not to publish. It was further stated that such publications were expected to enhance credibility and market acceptance of the improved plants. In other words, results would only be published if that would benefit BARM, the Participants and the Main Camp Group (i.e. by preserving commercially valuable information and releasing non-commercially valuable information that might still have a benefit for Main Camp Group in terms of market acceptance). 59 Personal Budplan No. 3 concerned the development by ATTORI of product packages comprising the data required to manufacture, package, label, register and market a number of anti-inflammatory products using a recently developed 'celery seed extract'. It is noted that the Participants were required to pay a royalty to the owner of the intellectual property, Mobius Consultancy Pty Ltd (the managing director of whom was a current employee of Main Camp Marketing Pty Ltd that was to work with the manager to market the end product). Under the heading 'Methodology to Achieve the Technical Objectives', it is noted that 'New product development will be preceded by basic research work on the Main Camp celery seed extract relevant to the specific areas covered by this prospectus'. 60 The 'Supply of celery seed' was revealed to be from an Indian based company (Sri Mobius Pharma Private Limited) that was controlled by Main Camp Group through its 51% ownership. Sri Mobius Pharma Private Limited had a crude product using celery seed extract which would be replaced at a time when new and better information had been generated by Personal Budplan No. 3, thus giving a source of income to Participants from the time the new enhanced product was sold. The purpose of the 'research' to be conducted by ATTORI for Budplan No. 3 represented a way to improve a crude product currently marketed by a Main Camp group controlled company and the development of a new product that would be of ultimate benefit to the Main Camp Group. 61 In relation to all Budplans, equivalent submissions are made to those above in [43] - [53] in respect of the Budplan Personal Syndicate.

Purpose of Incorporation: Relationship Between ATTORI and other Entities 62 ATTORI was, in reality, incorporated for the purposes of a wider commercial scheme. This is apparent from the nature of the Research Agreement and associated transactions, as set out above, which make it clear that its purpose was the fulfillment of contractual obligations. Its purpose was, ultimately, to facilitate the making of commercial profits for individuals and companies associated with Mainstar One companies. It did not have altruistic motives. 63 The relatives (Ms Gail Stotter and Mr Jordan Stotter) of one of the members of ATTORI (Mr Glendon Stotter) were beneficial owners of shares in entities that ultimately owned all of the shares in BARM and thus stood ultimately to benefit from any 'commercialisation' of the research results of ATTORI. 64 As already noted above, the Stotter family and the Mainstar group of companies also stood to benefit from the use and sales of Main Camp Pharmaceutical Grade Tea Tree Oil in the product packages ATTORI was to develop in accordance with the Budplans. 65 The members of ATTORI as listed in the Memorandum of Association were: Alan James Gallagher Dennis Charles Lear Peter Charles Lucas Gordon Quah-Smith Glendon Michael Stotter 66 The shareholding in BARM for the 1996, 1997, 1998 and 1999 years was as follows: (a) BARM was wholly owned by Mainstar One Funds Management Pty Limited (formerly Land & Assets Developments Pty Ltd). (b) Mainstar One Funds Management Pty Limited was wholly owned by Mainstar One Holdings Pty Limited. (c) The holdings of all issued shares in Mainstar One Holdings Pty Limited were: - 1 fully paid ordinary share: Ms Gail Dawn Stotter - 422,295 fully paid ordinary shares: Mainstar One Investments Pty Limited (d) The holdings of all issued shares in Mainstar One Investments Pty Limited were: - 1 fully paid ordinary share: Ms Gail Dawn Stotter ; and - 1 fully paid ordinary share: Mr Jordan Michael Stotter 67 ATTORI and BARM had common directors, for example, Glendon Michael Stotter was a director of ATTORI from 27 November 1995 to 19 June 1998 and also a director of BARM from 4 September 1995 to 30 June 1998.

Lump Sum Royalty to be Paid to BARM on Commercialisation 68 Pursuant to the terms of the Research Agreements in respect of the various Budplans, in the event of any sale of the Research Results, BARM was entitled in its own right to the payment by the Participant of a lump sum royalty equal to 50% of the gross sale proceeds of the relevant Research Results.

Administration Fees Paid to BARM 69 ATTORI also paid very substantial administration fees in respect of each of the Budplans to BARM. The amount varied from Budplan project to project, but took a similar form: (a) A fee payable for year 1, per unit of Participation subscribed by investors; (b) a fee payable for year 2, per unit of Participation subscribed by investors; and (c) smaller fees payable annually thereafter, per unit of Participation subscribed by investors, although the smaller fee was to be increased and compounded by annual CPI. 70 In respect of the year ended 30 June 1999, BARM received from ATTORI $9,415,562 in 'administration fees'.

Assumption by ATTORI of Part of BARM's Obligation to Pay Commissions 71 The evidence also reveals that BARM benefited financially from a decision by ATTORI to assume part of BARM's obligation to pay commissions to licensed securities dealers in respect of 'signing up' Participants to the Budplans. 72 The prospectus for the Budplan Personal Syndicate, for example, disclosed that commissions were payable as follows: (a) A commission of 4% of the total management fee and research fees payable over 24 months ($12,000 x 2 years x 4% = $960) was payable per unit of Participation; and (b) a commission of $480 per Participant payable to Monpro Limited to 'introduce Participants on behalf of the Manager'. 73 The obligation to pay commissions under the Budplan Personal Syndicate was an obligation of the manager, BARM. However, the minutes of a meeting of the directors of ATTORI held on 20 June 1996 record that: 'The Chairman [Mr Stotter] pointed out that except for the Participation of investors in Budplan the Institute is unlikely to attract any significant research fees for services accordingly, the receipt of such fees is directly linked to the activities of Security Dealers [sic] serviced by Monpro and the Institute therefore derives a direct benefit from such activity. The meeting considered the obligation of the Company to pay commissions to Security's Dealer for services rendered in engaging Participants in Budplan Personal Syndicate Prospects.' 74 The minutes of the meeting record that it was resolved: 'That the company pay its proportion of commissions payable to Security's Dealers so entitled in proportion to its benefit receipt of research fees in accordance with the relevant Prospectus'. 75 In a memorandum of BARM dated 3 May 1996 from Mr Lear to Mr Gallagher, both also directors of ATTORI, Mr Lear stated: 'As agreed all payments required to be made to external parties in relation to Budplan will be arranged by Business and Research Management Limited ('BARM'). This will require that on all future settlements the commissions to advisers will be borne by BARM and The Australian Tea Tree Oil Research Institute Limited ('ATTORI') in the proportion of 10%/90%, except for the Monpro Limited commission which will be borne solely by BARM.' 76 It is clear from the terms of the resolution of the meeting that this arrangement would apply to other prospectuses. The arrangement is disclosed in the prospectuses for some of the other Budplans: (a) Personal Budplan No. 3. (b) Personal Budplan No. 4. (c) Company Budplan No. 3. 77 The significance of the amounts of commissions payable by ATTORI is apparent from its financial statements. In the 1996 year, commissions expenditure amounted to 57% of ATTORI's total income.

Purpose as Revealed by the Financial Arrangements 78 The nature of the agreements with PGF to loan research fees is also inconsistent with what would be expected of a 'scientific institution'.

The 1996 Year 79 In the first appeal year being 1996, ATTORI was in existence (having been incorporated on 24 November 1995), but does not appear to have carried out any research activities. The earliest that scientists and researchers were employed by ATTORI appears to have been July 1996 (i.e. subsequent to the 1996 year) - this is also the time that ATTORI is said to have commenced its research and development activities. An advertisement brochure for ATTORI, undated, also refers to it having been established in July 1996 by the Main Camp Tea Tree Oil Group (i.e. after the 1996 income year). 80 An external consultant's report relating to Budplan No. 2 refers to ATTORI as having officially opened on 15 October 1996 (i.e. well after the 1996 year). 81 On no view was it a scientific institution. It had been set up to undertake specific contractual obligations and had not even commenced fulfilling them.

The 1997 Year 82 There were a total of six employees engaged in the 1997 year by ATTORI. Importantly, all but one of the agreements included clauses assigning to ATTORI any 'inventions' (as defined) and preventing disclosure of information. 83 There were a total of seven agreements entered into by ATTORI with external research organisations whereby ATTORI out-sourced research activities. Importantly, all agreements protected on behalf of ATTORI, any intellectual property created and developed in the course of the project and all contained confidentiality clauses.

The 1998 Year 84 There were a total of six employees engaged during the year and all agreements contained agreements included clauses assigning any 'inventions' (as defined) to ATTORI and preventing disclosure of information. 85 There were five agreements entered into by ATTORI with external research organisations whereby ATTORI out-sourced research activities. Importantly, all agreements protected for ATTORI any intellectual property created and developed in the course of the project and all contained confidentiality clauses. Importantly, agreements with universities contained a clause requiring the approval of ATTORI in order to be able to publish findings. Further, in the case of the agreement with the University of Tennessee, the University could publish results provided the confidential proprietary information of ATTORI was publicly known. 86 Importantly, there was a research agreement with the Centre for Molecular Biology & Medicine that appears to represent a complete out-sourcing of all the research and development obligations of ATTORI under Personal Budplan No. 4. In other words, the actual scientific activity in relation to Co-enzyme Q10 appears to have been entirely carried out by the Centre for Molecular Biology & Medicine at the Austin & Repatriation Medical Centre, West Heidelberg.

The 1999 Year 87 There was a single employee engaged in the 1999 year. Consistently with other employment agreements, the relevant employment agreement contained a clause assigning any 'inventions' (as defined) and preventing disclosure of information. 88 There were seven agreements entered into by ATTORI with external research organisations whereby ATTORI out-sourced research activities. Again, consistently with prior years, the agreements protected for ATTORI any intellectual property created and developed in the course of the project and all contained confidentiality clauses. Importantly, agreements with universities contained a clause requiring the approval of ATTORI in order to be able to publish findings.

Protection of Intellectual Property and Confidentiality 89 That ATTORI was not concerned with providing any scientific benefit to the public is also made apparent by its concern to keep confidential all of the research it was carrying out for BARM and the Participants, and to ensure that ownership of the intellectual property created would vest in BARM and the Participants as it had contractually agreed. 90 The suggestion it was motivated by altruistic purposes or intended to engage in its activities for the public benefit should be rejected.

Employment Agreements 91 In the relevant income years, it appears that ATTORI entered into approximately 15 employment contracts. On an examination of these contracts, all but one included clauses whereby the relevant employee assigned to ATTORI all right, title and interest to 'Inventions' and all contracts contained non-disclosure of information clauses.

Research Agreements 92 In relation to research agreements entered into between ATTORI and third parties during the relevant years, all of these agreements contained clauses stating that: (a) The intellectual property created or developed in the course of a project would be owned by ATTORI (cl 5.2 in most agreements); (b) the researcher would assist ATTORI in relation to patent and other protection of the intellectual property (cl 5.4 in most agreements); and (c) the researcher agreed to maintain confidentiality (cl 8 in most agreements). 93 Furthermore, in relation to research agreements concluded with academic institutions (e.g. Southern Cross University, University of Western Sydney), there was an additional clause in the agreements to the effect that the university could, but only with the written approval of ATTORI, publish findings of scientific significance which might arise from the project (cl 5.5 in most agreements). In research agreements with Southern Cross University from August 1999, there were further clauses in the agreements to the effect that: 1. ATTORI's consent was required for disclosure of any of the results in any published article or at any conference, or in the making of any public statements relating to the research services or either party's involvement in the research services (cl 5.6 in most agreements); and 2. ATTORI could withhold its consent to a disclosure or statement if, in ATTORI's opinion, the disclosure or statement 'may adversely affect the ATTORI's commercial or scientific interests' (cl 5.7 in most agreements). 94 Research agreements concluded with the Centre for Molecular Biology, Asia Pacific Health (Monash University) and St Vincent's Hospital, all contained clauses requiring ATTORI to pre-approve articles to be published and ATTORI was entitled to withhold consent if it was of the opinion that the material was: (a) 'commercially sensitive'; or (b) 'the information was not publicly known'; or (c) where ATTORI believed it would 'jeopardise trade-mark or patent applications'; or (d) that it 'may adversely affect ATTORI's 'commercial or scientific interests'.

Sponsorship and Fellowship Agreements 95 A single sponsorship agreement was entered into. It was between ATTORI and Southern Cross University and was not entered into until 14 January 1998. It protected the commercial interests of ATTORI and ultimately BARM and the Participants. Clause 3.6 noted that students may have to sign a confidentiality agreement in respect of their own research and their knowledge of other research in progress. All intellectual property (as defined) that was created or developed by the student in the course of a project that had vested in the University was to become the property of ATTORI: cl 8.2. Clause 8.3 provided that neither a student, nor any University staff member could publish findings of scientific significance during the term of a project or for an agreed period, following completion of the project, without the written approval of ATTORI: cl 8.3. Even examiners of the thesis of a student were required to enter into confidentiality agreements if ATTORI so required: cl 8.4. 96 A single fellowship agreement was entered into. It was not entered into until 1 January 1998 between Southern Cross University and ATTORI regarding Dr David Lin. Clause 3.1 provided that ATTORI and the Head of School were to agree on the content of any project and the Head of School would not unreasonably disagree with the content, research direction and priority of projects proposed by ATTORI. The fellowship agreement protected the commercial interests of ATTORI and ultimately BARM and the Participants. Clause 7.2 provided that any intellectual property (as defined) that was created or developed by Dr Lin in the course of an ATTORI project (as defined) would become the property of ATTORI. In relation to Joint Projects (as defined), cl 7.3 also protected the interests of ATTORI and ultimately BARM and the Participants by ensuring that whilst the intellectual property was shared, either party could exploit or deal in the intellectual property without further consent of the other party. 97 An unsigned copy of a letter dated 23 February 1999 purports to relate to the ATTORI sponsorship of a Chair of Phytochemistry. Clause 3 protected the commercial interests of ATTORI and ultimately BARM and the Participants by providing ATTORI with a right of first refusal for all intellectual property developed by non-contracted research by the current holder of the Chair.

Consultancy Agreement 98 A single consultancy agreement was entered into on 4 September 1998 with Professor Waterman. Under the agreement, all existing and future intellectual property rights developed in carrying out the services were assigned to ATTORI and all future intellectual property rights vested in ATTORI from the date of their creation: cll 3.2(a) & (b). ATTORI's prior written consent was required before Professor Waterman could disclose any of the results in any published article or at any conference or make any public statement relating to the services or any party's involvement in them: cl 3.3. Importantly, ATTORI could withhold its consent in relation to a disclosure or statement referred to in cl 3.3, if 'in ATTORI's opinion the disclosure or statement may adversely affect ATTORI's commercial or scientific interests': cl 3.4. Clause 8 required Professor Waterman to keep confidential all intellectual property and research results and commercial arrangements between the parties in relation to the services.

Research Advisory Board Minutes 99 The first meeting of the RAB was held at 85 Tamar Street, Ballina, the registered office of the Main Group companies. Mr Stotter opened the meeting and gave an overview of the establishment of ATTORI. It was agreed that each member of ATTORI would sign a confidentiality agreement. All of the discussion then related to fulfilling contractual obligations to BARM and the Participants. 100 The confidentiality agreements were signed at the second meeting, also held at 85 Tamar Street. It was noted that three staff members from Main Camp Plantation had now been employed by ATTORI. 101 The subsequent meetings were held variously at 85 Tamar Street, the Mainstar One Holdings Ltd boardroom in Governor Phillip Tower, Sydney and the Southern Cross University. 102 The minutes make clear that the RAB concerned itself predominantly, and in fact, almost exclusively, with advancing the commercial interests of BARM and the Participants. It is clear that they acted in accordance with the directions of the ATTORI Board. Thus, it is recorded: 'Don Priest advised those present that the ATTORI Board have been looking at all programs and their ongoing costs, especially now some of the Budplans have closed. Before any further projects are committed to, in relation to closed Budplans, the ATTORI Board wants a full value assessment of any new proposal forwarded to them for approval.'

Exhibit 1 103 The majority of papers and slide-packs contained in Exhibit 1 make references to 'Main Camp Group' and reveal an intimate connection between the research being carried out by ATTORI and the tea tree oil produced by the Main Camp Group (e.g. sensitivity studies were carried out using Main Camp Pharmaceutical Grade (or PG) Tea Tree Oil, ATTORI was undertaking extensive trials of non-chemical insect control systems, where Main Group was noted to be producing tea tree oil using organic farming methods). The relevant references to the evidence are set out in the paragraphs immediately below. 104 A slide-pack, undated, for a presentation for ATTORI refers to certain conclusions reached in relation to sensitivity studies carried out using 'Main Camp PG tea tree oil'. 105 A report entitled 'Australia Tea Tree Oil' by Mr David Leach, which appears to have been included at a conference on 1-3 September 1997, refers to an investigation into the biosynthetic pathway of tea tree oil formation and as part of the ISO 9000 oil production process, Main Camp plantation has patented a post-distillation process that improves water separation, oil clarity and odour. There is an acknowledgement in the report of the support of Don Priest of the Main Camp Tea Tree Oil Group. 106 A report, undated, which appears to relate to Dr Craig Bell's article for Cosmetics, Aerosols and Toiletries, states that ATTORI was set up in late 1996 by the Main Camp Tea Tree Oil Group with the primary aim of conducting research into tea tree oil and developing products based on the better understanding of its properties and mode of action. It also provides that 'The Institute is funded by investors. Dividends are to be paid from the sale of the formulations, the intellectual property or 'discoveries' and in some cases sale of finished goods'. It is noted that 'Main Camp produces tea tree oil using organic farming techniques. As part of this program, ATTORI has carried out extensive trials of non[-]chemical insect control systems'. 107 A report by David Leach, which is said to relate to a conference in November 1997, refers to the ISO 9000 certified production process at Main Camp plantation that may be a significant contributor to the production of low irritancy oil whilst ensuring uniformity of product from batch to batch and season to season. Importantly, it says that ATTORI is following up this irritancy/sensitivity study with additional trials on panelists that displayed sensitisation. 108 An advertisement brochure for ATTORI, undated, refers to it having been established in July 1996 by the Main Camp Tea Tree Oil Group. 109 In the report, 'Progress in Essential Oil Research', 1-3 September 1997, David Leach acknowledges the support of Don Priest of the Main Camp Tea Tree Oil Group.

Exhibit 2 110 There is no evidence to suggest that ATTORI made any significant contribution to scientific journals or the scientific community more generally. Only one article was published in 1998 by a number of authors, the principal one apparently being Mr John Gustafson from Genetica Biotechnologies in Western Australia. A second article was also accepted for publication. Otherwise, Exhibit 2 contains the results of research for potential commercialisation for BARM and Participants. Each of the seven volumes is expressed on the first page to contain 'confidential information', which it is 'strictly prohibited' to reproduce or access without written approval. None of it was intended for consumption by the scientific community.

Minimal 'outside work' performed 111 The total research fees payable to ATTORI by Participants in the Budplan syndicates, for which it was the researcher, was $335,608,700. 112 Dr Harvey Bell has given evidence of the 'research' conducted for 'other clients and research organisations'; that is, non-Budplan research. The nature of the research and the fees generated indicates that: (a) The total fees generated for 'outside work' are de minimis, amounting to $26,450.42, or 0.007% of the total research fees payable by Budplan Participants; and (b) on closer examination, the 'research' appears to be almost entirely in the nature of sample analysis. ATTORI provided potential customers with a standard pre-printed request form on which the customer was requested to 'please tick if required' against the relevant type of analysis.

Constitution and Membership of AARI 113 AARI is a company incorporated on 20 January 1997, as a company limited by guarantee. 114 The objects for which AARI was established are stated in cll 2(a) to 2(c) of its Memorandum of Association: '(a) The furtherance of scientific research into agricultural products, animals and animal husbandry, plants and plant husbandry, uses of animal and plant species and into all the properties of such animal and plant species including such products as may be extracted or derived therefrom. And in furtherance of this main object: (b) To promote and encourage other organisations and individuals in the same endeavour and undertake scientific research into uses flowing from results of its primary research. (c) To subscribe to, become a member of and co-operate with any other association or organisation, whether incorporated or not, whose objects are altogether or in part similar to those of the Company provided that the Company shall not subscribe to or support with its funds any association or organisation which does not prohibit the distribution of its income and property among its members to an extent at least as great as that imposed on the Company under or by virtue of Clause 3 of this Memorandum.' 115 AARI is prohibited from distributing its assets to its members and on dissolution must ensure that the assets are transferred to another body with the same objectives. Clause 3 of the Memorandum provides: 'The income and property of the Company whensoever and howsoever derived, shall be applied solely towards the promotion of the objects of the Company as set forth in this Memorandum of Association; and no portion thereof shall be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise howsoever by way of profit, to the members of the Company.' 116 Clause 6 provides: 'If upon the winding up or dissolution of the Company there remains after satisfaction of all its debts and liabilities any property whatsoever the same shall not be paid to or distributed among the members of the Company but shall be given or transferred to some other institution or institutions having objects similar to the objects of the Company and which shall prohibit the distribution of its or their income and property among its or their members to an extent at least as great as is imposed on the Company under or by virtue of Clause 3 hereof such institution or institutions to be determined by the members of the Company at or before the time of dissolution and if and so far as effect cannot be given to the aforesaid provision then to some charitable objects.' 117 At its establishment, the directors of AARI were three of the five subscribers to its Memorandum of Association; Messrs Priest, Stotter and Gallagher. Mr Gallagher retired as a director on 10 June 1998, Mr Priest on 24 February 1998 and Mr Stotter on 26 March 1999. 118 At the time AARI went into liquidation on 6 July 2000, the directors of AARI were Ms Maree Patricia McCaskill (from 24 February 1998) and Messrs Coupe (from 26 March 1999) and Gray (from 10 June 1998), none of whom were or had been directors or shareholders of BARM. 119 Each of the new directors became a member of AARI in May 1999, as did Mrs Gray. Mr Burns became a member in August 1999. Mr Priest resigned as a member on 26 February 1999.

Activities of AARI 120 Throughout its existence AARI has had no activity other than to: (a) enter into contracts that secured to it funds with which to undertake research (including contracts for research entered into with two Budplan syndicates and with other parties); and (b) undertake (by its employees and contractors) scientific research activities in fulfilment of those contracts. 121 Between February 1997 and June 1999, AARI received expendable resources (including interest of $4 million and cash research fees of $19 million but excluding the 'non-recourse' portions of the fees payable to it) of some $23 million, and after expenditure on research activities of $21 million was left with an 'operating surplus' of $1.6 million. 122 AARI contracted with BARM as agent for two Budplan syndicates to undertake research into the properties and structures of the plant and fruit of table grapes and the development of new or enhanced varieties, and the development of genetically improved cultivars and rootstock of selected traditional wine grape varieties. These contracts were for performance of work over a period of two years. 123 The research work, so contracted for, was undertaken and yielded original research results in identifying molecular markers, discovering genes and transformation. The research work was successful at an early stage, with (for example) 'Thaumatin-like genes' being discovered by AARI's research and made the subject of patent applications relating to disease resistant genetic engineering only two years after the commencement of research. The research that led to this patent application also generated 'highly original' research results in relation to micro-satellites that were useful in patenting new grape varieties. 124 The research results were reported to the RAB, which sought means of commercialising the research. For example, in December 1998, the generation of saleable plants using disease resistance resulting from the transformation research was under consideration. 125 AARI also sought research contracts with other clients, for work in related research areas. One contract secured by AARI was for research into a mutant strain of cabernet sauvignon that produced bronze grapes.

Research Advisory Boards 126 AARI established a Research Advisory Board ('RAB'), the members of which included Professor Baverstock, Professor Henry, the Director of the Centre for Plant Conservation Genetics at Southern Cross University, Mr Robin Gray and Mr Coupe. 127 The role of the RAB was to: (a) identify the key research areas and formulate the broad parameters of the research to be undertaken by the Institute; (b) develop detailed research plans in conjunction with AARI's general manager and with scientists who had the particular expertise in the areas to which the planned research related; (c) identify, and assist in the engagement or secondment of key scientists; (d) supervise the conduct of the research, both in implementation and in reviewing regular reports; (e) adjust the detailed research plans, in consultation with the scientists performing the research, as required in the light of the reports. 128 The RAB met regularly, generally every two months, and received reports on the status of research projects. The deliberations on AARI's research activities were recorded in the minutes of the meetings. The RAB reported to the Board of AARI.

Research expertise 129 AARI employed directly three senior scientific research staff: Associate Professor Lee, Dr Rossetto and Dr Seaton, each of whom was highly qualified. In addition the University seconded to AARI to work exclusively with it, Dr Ablett, Dr Scott, Dr He, Dr Arnold and Ms Akula, as well as technical staff. 130 Further research resources were obtained by: (a) subcontracting research work to other research institutions which had specialised scientific expertise or equipment not possessed by AARI or its staff. These included FioBio Ltd, the Cooperative Research Centre for Tropical Plant Pathology, E. I. du Pont de Nemours & Co and Southern Cross University; (b) providing scholarships to universities for study in the areas of AARI's research, making the skills and expertise of the scholarship holders available to AARI; (c) engaging in collaborative research agreements with the university, whereby Southern Cross University provided research facilities to AARI. 131 Obtaining access to expertise resources in this way was a common practice for research institutes.

Research equipment and premises 132 AARI conducted its research for the table grape project and the wine grape project at Southern Cross University's CPCG laboratory. The entire CPCG tissue culture laboratory facility including preparation lab, tissue culture lab, instrument and incubator room, cold room and controlled-environment growth room, was provided for AARI's exclusive use for most of the time that the research projects ran, along with a significant portion of the separate and main CPCG laboratory and facilities. The laboratories used by AARI were at the forefront of plant genetics research facilities and compared very favourably on an international standard. Pursuant to the Research Contract, the University made available to AARI the use of a range of advanced equipment for its research including a Perkin-Elmer UV-vis spectrophotometer (valued at approximately $50,000), multiple PE thermal cycler 9700 PCR machines (valued at approximately $10,000 each), ABI 310 Genetic Analyser (valued at approximately $120,000), DNA microarray reader (valued at approximately $50,000), several sterile environment laminar flow cabinets (valued at approximately $15,000 each), -80°C ultra-low temperature freezers (valued at approximately $20,000 each), and controlled-environment incubators (valued at approximately $20,000 each). In addition, the University gave AARI access to the whole range of routine general biological laboratory apparatus required to conduct the kinds of research outlined above, equipment collectively worth many thousands of dollars. 133 In establishing its premises on the university campus, AARI followed a course common for research bodies, so that both the very expensive research equipment and the research results obtained from its use may be shared.

Sharing and publication of research results 134 When work was subcontracted out, or made the subject of collaborative research, the results of the research became known to the scientists with or by whom the work was done, although it was the ordinary course that the intellectual property in the results remained with the party for whom the work had been done. 135 The outcome of the research done by the staff of AARI was also published in scientific journals, in conference papers and in conference proceedings. Many of the published papers were the fruit of collaboration among AARI's staff and researchers at other institutions, in the course of which, the advances resulting from the research were shared among the collaborating parties. Other institutions whose staff participated in and shared research results included the Institute for Cell and Animal Biotosy, Edinburgh University, Queensland Agricultural Biotechnology Centre, University of Queensland and Tropical Plant Sciences, James Cook University. 136 The data generated by AARI's genome research was known of and sought by other research institutions world wide, and AARI negotiated with other researchers concerning the terms of access to the data. Parts of the data have been made available to institutions in Chile, Switzerland and Japan. 137 Published papers acknowledged the sponsorship or participation of AARI in the research and so did posters exhibited at conferences. The staff of and contractors to AARI also published papers resulting from the research done. 138 The papers presented and published by researchers conducting the research undertaken by AARI have achieved wide recognition as being of scientific value, as evidenced by their citation by other scientists. The scientists who participated in the research were of high international standing, and the work done was, in the unchallenged opinion of Professor Baverstock, himself a scientist of the highest standing, of a very high calibre.

The Commissioner's Submissions Concerning AARI 139 The Commissioner did not dispute these facts and circumstances, but pointed to the matters set out in [140] - [189] below as bearing on the true nature of AARI and its activities.

Promotion of Objects for Private not Public Benefit or Utility 140 AARI was formed to undertake the contractual obligations set out in the prospectus documents. That is, it was incorporated to meet the objectives of a broader commercial endeavour. Its activities after incorporation were directed predominantly, if not solely, to that commercial endeavour. AARI was not concerned with benefiting the public or advancing science for science's or the public's sake. No one was intended to benefit from the research but BARM and the Participants.

The Real Purpose of Incorporation - Fulfillment of Contractual Obligations 141 Despite the stated objects in its Memorandum of Association, the Prospectus, Management Agreements and Research Agreements for the Budplans - Budplans 'A' Series No. 1 (Prospectus dated 10 March 1997, containing unexecuted copies of the Management Agreement and Research Agreement) and Personal Budplan No. 5 (Prospectus dated 16 June 1997, containing unexecuted copies of the Management Agreement and Research Agreement) - suggest that the incorporators had a rather different purpose in bringing AARI into existence, namely: · To undertake research for reward pursuant to contractual obligations arising under Research Agreements entered into with the Participants and others. · To provide BARM, as Manager, with the 'Research Results' so that those results could be commercially exploited for the benefit of Participants and BARM. · To perform the research function in a large commercial venture with a view to making profits and securing tax advantages for the various players. 142 The Research Agreement for Budplan 'A' Series No. 1 is between AARI, the Participants, BARM and Australian Rural Group Limited ('ARG'). It is dated 16 June 1997. It makes clear that AARI is engaged by the Participants (Recital A) to perform the research and development: cl 4.1. 143 The research was to be carried out in keeping with the 'aims and parameters' set out in the relevant Research Agreement and its terms and conditions. AARI was not free to pursue 'something higher and larger' in the promotion and advancement of science. Its objective instead was to create 'relevant' Research Results (cl 5.3) for the purposes of the Budplan Participants and BARM. 144 The 'Research Results' (cl 1.1) were to be the property of the Participants: cl 7.1. If those results had any commercial significance, BARM would pursue commercialisation at its cost: cl 7.2. AARI was to provide BARM with such assistance, support and data as was necessary to enable BARM to obtain the necessary licences and registrations for the fruits of AARI's research (that is, the 'Research Results') and to do all acts and things necessary to 'commercialise or patent research and development or any part thereof': cll 5.1 and 5.4. 145 AARI agreed to keep confidential all information in respect of the research and development and covenanted that such information would only be used by AARI (and its employees and advisers) for the purposes of transactions contemplated by the agreement: cl 10. 146 AARI retained BARM as the Manager for AARI to carry out 'all administrative and management functions … including but not limited to the maintenance of all books accounts registers and licences necessary for its administration and conduct of research': cl 6.1. For this, AARI paid very substantial administration fees ($1,250 from each participation for each of the first two years): cl 8. It was also liable for ongoing fees after the first two years. In the year ended 30 June 1999, BARM received from AARI $298,750 in 'administration fees'. 147 Further, AARI was liable to pay BARM 90% of the brokerage and commissions payable by BARM in respect of obtaining the Participants: cl 13.2. 148 As noted below, the research was in fact carried out by the University and ForBio. They were under strict confidentiality regimes and passed on intellectual property to AARI or its nominee and, later, ARG: see [163], [164] and [171] below.

Purpose of Incorporation: Relationship between AARI and Other Entities 149 AARI was, in reality, incorporated for the purposes of a wider commercial scheme. This is apparent from the nature of the Research Agreement and associated transactions, as set out above, which make it clear that its purpose was the fulfillment of contractual obligations. Its purpose was, ultimately, to facilitate the making of commercial profits for individuals and companies associated with Mainstar One companies. It did not have altruistic motives. 150 One of the members of AARI (Ms Gail Dawn Stotter), was also the beneficial owner of shares in entities that ultimately owned all of the shares in BARM and thus, stood ultimately to benefit from any 'commercialisation' of the Research Results. 151 The members of AARI as listed in the Memorandum of Association were: Glendon Michael Stotter Gail Dawn Stotter Alan James Gallagher Donald Charles Priest Peter Charles Lucas 152 It may be observed that those people evidently considered AARI formed an integral part of the 'Mainstar One Group'. The ultimate shareholding in BARM at 30 June 1996, 30 June 1997, 30 June 1998 and 30 June 1999 was as follows: (a) BARMwas wholly owned by Mainstar One Funds Management Pty Limited. (b) Mainstar One Funds Management Pty Limited was wholly owned by Mainstar One Holdings Pty Limited. (c) The holdings of all issued shares in Mainstar One Holdings Pty Limited were: - 1 fully paid ordinary share: Ms Gail Dawn Stotter - 422,295 fully paid ordinary shares: Mainstar One Investments Pty Limited (d) The holdings of all issued shares in Mainstar One Investments Pty Limited were: - 1 fully paid ordinary share: Ms Gail Dawn Stotter; and - 1 fully paid ordinary share: Ms Jordan Michael Stotter 153 The AARI, BARM and Mainstar companies shared a number of directors. By way of example: · The original directors of AARI from 20 January 1997 were Mr Stotter, Mr Gallagher and Mr Priest, each of whom was a director of Mainstar One Holdings Pty Ltd, Mainstar One Funds Management Pty Ltd and BARM in 1997. · Mr Law was the original secretary of AARI. In the 1997 year, Mr Law was the secretary of Mainstar One Holdings Pty Ltd, Mainstar One Funds Management Pty Ltd and BARM. 154 Mr and Mrs Stotter continued to be members of AARI and ATTORI at all material times. 155 Pursuant to the terms of the Research Agreements, in the event of any sale of the Research Results, BARM was entitled in its own right to the payment by the Participant of a lump sum royalty equal to 50% of the gross sale proceeds of the relevant Research Results. 156 There was no purpose other than fulfilling contractual obligations to BARM and to the Budplan Participants. Certainly, that was the predominant purpose of it being set up.

The 1997 Year 157 In the first appeal year being 1997, AARI did not carry out any activities. It was incorporated on 20 January 1997. It did not employ anyone. The research only commenced in early 1998. 158 On no view was it a scientific institution. It had been set up to undertake specific contractual obligations and had not even commenced fulfilling them.

The 1998 Year 159 The earliest AARI is said to have employed a scientist is 9 April 1998; Dr Seaton was employed as a bioinformatician. In fact, he was not appointed until 25 May 1998. 160 Professor Lee, who was primarily responsible for overseeing the fulfillment of AARI's contractual obligations to BARM, was employed from 1 May 1998. 161 In the year ended 30 June 1998, AARI employed a total of four people (scientists and non-scientists). 162 The actual research - that is, the actual scientific activity - was carried out by the Centre for Plant Conservation Genetics at the University and charged to AARI. It was not in fact performed by AARI at all. 163 Thus, on 23 December 1997, AARI, ARG and the Southern Cross University entered into a 'Research Agreement': · The purpose of the agreement was for the University (described as 'The Researcher') to undertake the Project. · Project was defined to mean the work described in Schedule 1 (cl 1.1). It is clearly the research that AARI had contracted to provide to BARM. · All the 'Intellectual Property' would be AARI's (cl 4). · The University was not permitted to disclose any of the research or the 'Results' in any published article or conference (cl 4.3). AARI might consent to disclosure if, in AARI's opinion, the disclosure might affect AARI's 'commercial or scientific interests' (cl 4.4). The University had to keep all Intellectual Property confidential (cl 12). · The agreement did not constitute AARI as a joint venturer or partner of the University (cl 10). · The 'Principal Researchers' (cl 1.1) were ForBio Limited and the Centre for Plant Conservation Genetics (sch 4). · Itis clear that the activities were only to commence in early 1998. 164 As contemplated by the agreement with the University, the remaining research was carried out by ForBio pursuant to an agreement dated 1 June 1997: · Itcontained similar clauses vesting intellectual property in AARI (cl 3) and preserving confidentiality (cl 10). · The commencement date was 1 July 1997: see Second Schedule at page 467.

· Invoices for work issued in amounts totalling $5.6 million. The evidence does not disclose whether these were all paid (although some appear to have been). 165 The fact that it was the University and ForBio, and not AARI that carried out all of the scientific work is also evident from the University progress reports to AARI from 29 January 1998 to March/April 2000. It is also clear from the 'Deed of Commercialisation' between the Southern Cross University and ARG, unsigned and undated, but apparently entered into. 166 AARI's primary concern was, in reality, ensuring that the research was undertaken by the University and ForBio according to the agreements made with them, and considering aspects of commercialisation of that research for the benefit of BARM and the Participants. It did not have a laboratory in which to conduct its own research. 167 The scientific activities carried out by the University were carried out atthe University's laboratory, namely the CPCG laboratory. All of the equipment in the University laboratory belonged to the University and not to AARI. AARI did not have a laboratory; the research it was to procure for BARM was conducted by others. 168 Neither did it undertake any activities of a scientific nature in any endeavour apart from those it was to provide pursuant to the Research Agreements with BARM (namely those provided by the University and ForBio).

The 1999 Year 169 In the 1999 year, AARI employed seven people. 170 Again, all of the actual research activities were undertaken by the University, pursuant to the agreement of 23 December 1997, and by ForBio. The University, in turn, entered into an agreement with DuPont in January 1999 to facilitate DNA sequencing. 171 On 6 May 1999, an 'Amending Deed To Research Agreement' was entered into with the University which, amongst other matters, replaced cl 4.2 such that the 'Intellectual Property' was assigned to ARG (for the Participants) rather than to AARI or its nominee (BARM). 172 AARI did not undertake any research activities apart from those carried out by the University and ForBio for it that were aimed at the commercial venture associated with the Budplans. Although AARI seeks to suggest it undertook one other activity, it is clear that the contract entered into by AARI was done so as agent forBARM. Even if this could have constituted some venture of AARI's not associated with the Budplans, it could hardly be regarded of such significance so as to transform the fundamental nature of AARI's activities.

Protection of Intellectual Property and Confidentiality 173 That AARI was not concerned with providing any scientific benefit to the public is also made apparent by its concern to keep confidential all of the research it was carrying out for BARM and the Budplan Participants and to ensure that ownership of the intellectual property created would vest in the Budplan Participants as it had contractually agreed (see [143] and [144] above). 174 The suggestion it was motivated by altruistic purposes or intended to engage in its activities for the public benefit should be rejected.

Employment Agreements 175 All inventions during Dr Lee's employment would be disclosed to and assigned to AARI: cl 10. That provision would survive any termination of employment. Dr Lee was forbidden from disclosing any information concerning 'the affairs or secrets' of AARI: cl 11. Dr Lee and AARI would not be in a relationship of joint venturers or partners: cl 13. 176 As noted above, by cl 10 of the Research Agreement, AARI agreed to keep confidential all information in respect of the research and development and covenanted that such information would only be used by AARI (and its employees and advisers) for the purposes of transactions contemplated by the agreement.

Research Agreements 177 Although AARI was to undertake the research under the Research Agreement, the real research activities were undertaken by the University and ForBio: see [163], [164] and [171] above. They, like AARI, were under strict confidentiality requirements (see [163] and [164 above). 178 Leaving aside those research agreements, only one other research agreement was entered into between AARI and CRC (associated with the Universtity of Queensland). However, this was entered into by AARI 'on behalf of' (that is, as agent for) BARM. It contained a strict confidentiality regime (cll 4.11 to 4.14) and all intellectual property would be owned by AARI (as agent for BARM) (cl 4.1). Invoices totalled $308,000.

Sponsorship and Fellowship Agreements 179 The Sponsorship Agreement was not entered into until 19 December 1997. It protects the commercial interests of AARI, BARM and the Participants. Clause 3.6 requires students to sign a confidentiality agreement in respect of their own research and their knowledge of other research. Nothing in the agreement operates to constitute AARI as agent or employee of the University, or joint venturer with it: cll 7.2 and 17.1. All intellectual property (as defined) shall become the property of AARI: cl 8.2. Clause 8.3 provides that neither a student nor any University staff member shall, without the written approval of AARI, publish findings of scientific significance during the term of a Project. Even examiners of the thesis of a student would be required to enter into agreements to maintain confidentiality: cl 8.4. 180 AARI paid two amounts for scholarships: $20,000 in relation to an invoice dated 30 July 1998 and $84,000 on 12 July 1999. 181 The provision of the scholarships was solely directed to the work which AARI had contracted to perform for BARM. Itwas not a scholarship for someone to pursue an area of research of their choice funded altruistically by AARI. 182 It paid nothing by way of sponsorship fees in the 1997 and 1998 years.

Research Advisory Board Minutes 183 The RAB meetings were initially chaired by Mr Gallagher and held at the offices of Main Camp in Ballina. 184 The first meeting, for which minutes are available, was on 27 October 1997. They determined not to invite CSIRO to participate on the Board and were placing adverisements for staff recruitment. Dr Lee had been 'seconded' to the position of program leader. BARM had appointed Dr Reed to the position of scientific auditor. It was clear from the outset that AARI's activities were conducted to fulfill its contractual obligations to BARM and that it would be audited throughout. 185 It is clear from the terms of the minutes that AARI was concerned solely with conducting the activities it was set up to undertake, namely those it had contracted to perform for BARM. It was dependent upon BARM for its funding. It did not engage in projects outside of those activities.

Scientific Papers and Poster Presentations 186 The reliance by AARI on scientific papers is, in fact, quite instructive. Employees of AARI were not permitted to (see [175] and [176] above) and did not publish material of any commercial value (see below). 187 A number of matters should be noted about the articles in evidence: · It is apparent on the face of them that they were authored by people who included people who were not apparently associated with AARI. · No articles were written in 1997 or 1998. · One article was written in 1999. In comparison to later articles, it is short and general. More significantly, however, it was only permitted to be submitted for publication because the material in it was the subject of a provisional patent application and AARI had approved it. · As noted above, employees were forbidden from disclosing material without AARI's consent. · The remaining articles were written from 2000 to 2005. Its activities in those years are of marginal, if any, relevance to the characterisation of its activities in the relevant years, namely 1997 to 1999. AARI went into administration on 19 May 2000. At that time, the research projects were not at a stage where it was likely that commercial realisation of the results could be achieved. 188 A number of observations should be made about the conferences or oral presentations summarised in the evidence: · There were none in 1997 or 1998. · There was one in 1999. · As noted above, employees were forbidden from disclosing material without AARI's consent. · The remaining conferences were from 2000 to 2002. Its activities in those years are of marginal, if any, relevance to the characterisation of its activities in the relevant years, namely 1997 to 1999. AARI went into administration on 19 May 2000. At that time, the research projects were not at a stage where it was likely that commercial realisation of the results could be achieved. 189 On a careful analysis, it is evident that AARI is placing great emphasis on one article in 1999 and one conference in 1999.

Analysis and Conclusion 190 The leading authority in this area, as to whether an entity is a 'scientific institution' within s 23(e) of the ITAA 1936, even though it was decided over 60 years ago, remains the Surgeons' Case 68 CLR. 191 A summary of the facts of that case assists an understanding of what was said by each of the members of the High Court and what can be drawn from those reasons by way of application to the facts of the present case. 192 The Royal Australasian College of Surgeons was registered in Victoria as a limited company. Some of its objects as stated in its memorandum of association were for the promotion of the professional interests of its members and others were for the promotion of the science of surgery. The members of the College were all surgeons. Its principal activities included: the holding of conferences of surgeons for the discussion and study of surgical matters and the dissemination of knowledge of surgery; the provision of a technical surgical library for the use of its members and the publication of a surgical journal; the conduct of examinations for admission to fellowship of the College; and the administration of funds for surgical research and for the award of scholarships to medical students. The Commissioner assessed the College to tax income received by it from investments. A case was stated before the Full Court of the High Court that asked the question whether the income of the College was exempt from income tax as being the income of a scientific, charitable or public educational institution within the meaning of s 23(e) of the ITAA 1936. 193 It was argued before the High Court by counsel for the College that it was a scientific or charitable institution within the meaning of s 23(e) in that its main object was the advancement of surgery and that any benefit that may accrue to its members was secondary. Counsel for the Commissioner argued that a scientific institution is one which has for its sole or dominant object the enlargement of scientific knowledge; that if there are two coordinate objects, one of which is outside the exception, the exception cannot apply. The College had two objects, namely, the advancement of science and the professional advancement of its members and it was impossible to say that one predominated over the other. 194 Each of the members of the High Court held that the College was a 'scientific institution' within the meaning of s 23(e) of the ITAA 1936 because the main, substantial, dominant or primary object of the College was to promote the science of surgery and the existence of another object, namely, the promotion of the professional interests of its members did not, in those circumstances, mitigate against that ultimate conclusion. 195 A more detailed and complete analysis of their Honours' respective reasons is given by Lockhart J presiding on a Full Court of this Court in Cronulla Sutherland Leagues Club Limited v Commissioner of Taxation (1990) 23 FCR 82 at 90 - 93; see too, Beaumont J at 111 - 113 and 117, and Foster J at 123. 196 While the ultimate issue in the present case is the same as it was in the Surgeons' Case, the real or substantive underlying issues are not. In the Surgeons' Case it was, according to Starke J at 447, '… rightly conceded, that the College was an institution'. And in Federal Commissioner of Taxation v Word Investments Ltd (2007) 164 FCR 194, Allsop J noted at [8] and [9] that there was no dispute that 'Word' was an institution; the only question was whether it was a 'charitable institution'. In the present case, there is a real issue as to whether ATTORI and AARI are institutions. As Gibbs CJ observed in Stratton v Simpson (1970) 125 CLR 138 at 158: 'Although its meaning must depend on its context, [an institution] would not ordinarily connote a mere trust.' 197 The mere fact that ATTORI and AARI are companies limited by guarantee does not make them institutions; any more than the fact that they call themselves an 'Institute': see Pamas Foundation (Inc) v Commissioner of Taxation (1992) 35 FCR 117 at 125 per Beaumont and Lee JJ. As their Honours there said in the immediately preceding sentence: 'The context in which the expression "religious institution" appears includes the juxtaposed term "public benevolent institution" which tends to suggest that the word "institution" is to be given a meaning greater than a structure controlled and operated by family members and friends.' 198 As Gibbs CJ further observed in Stratton v Simpson 125 CLR at 158: 'In its ordinary sense "institution" means "an establishment, organization, or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational etc." (The Shorter Oxford English Dictionary).' This suggests to me that before an entity can be a 'scientific institution', it must be established for an object or objects of public utility. 199 Nevertheless, it is unnecessary to break the task up into component parts: Is it an institution? And if so, is it a scientific institution? Rather, as Allsop J said in Word Investments at [14]: 'The relevant task, as stated in the Surgeons' Case 68 CLR 436, is to assess the true character or nature of the entity by reference to its objects, purposes and activities. It is an integrated, holistic inquiry directed to whether a body of facts and circumstances satisfies a legal category or conception.' 200 This really echoes what Starke J said in the Surgeons' Case at 448: 'And I rather think that the question we have to determine is one of fact (Inland Revenue Commissioners v. Forrest [(1980) 15 App. Cas. at 341]; Inland Revenue Commissioners v. Yorkshire Agricultural Society [(1928) 1 K.B. 611 at 625, 634]; Usher's Wiltshire Brewery Ltd. v. Bruce [(1915) A.C. 433 at 466]), but all the relevant facts are stated in the case and may perhaps be regarded as raising a mixed question of law and fact proper to be stated for the opinion of this Court pursuant to s. 198 of the Act.' 201 See, also, Cronulla Sutherland Leagues Club 23 FCR at 117 per Beaumont J. 202 In the Surgeons' Case, Starke J at 448 indicated that it was permissible to look outside the objects of the entity to its activities in determining whether the qualification for exemption was met, at least where the memorandum did not make it clear which objects of a mixed character are its main or dominating characteristics. 203 Williams J went further when, at 452, he observed: '[I]n order to determine what is the main or dominant purpose of the College, it is a mistake to examine the objects contained in the memorandum in … [a] disjunctive fashion. They should be examined in conjunction with one another and in the light of the circumstances in which the College was formed and of the manner in which the College is fulfilling the purposes for which it was incorporated.' 204 In other words, one can look to the circumstances in which the subject entity was formed and the manner in which it is fulfilling the purposes for which it was incorporated, but there remains the issue of whether one can examine the subjective motives and intentions of the promoters of the subject entity and its directors for the purpose of ascertaining if the statutory exemption from income tax operates. In Cronulla Sutherland Leagues Club 23 FCR at 98, Lockhart J referred to this issue by reference to the decision of the High Court in Brookton Co-operative Society Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 441 where the ultimate issue was whether the taxpayer was a co-operative company within the meaning of s 117 of the ITAA 1936. One of the elements of the statutory definition was that the company 'is established for the purpose of carrying on any business having as its primary object or objects one or more of the following … [objects]'. 205 Gibbs CJ did not find it necessary to decide whether, in considering whether a company came within s 117(1), the subjective motives and intentions of the promoters should be taken into account, although he said that it was clear that the court must consider the activities that the company actually carried on (at 445). 206 Mason J said at 450 - 451: '[I]n ascertaining the purpose for which a company "is established" it is necessary to look, not only to circumstances existing at the time of incorporation, but also to the activities of the company at the time when its status as a co-operative company is to be determined. No doubt it was the presence of the words "is established" and the purpose of the section that led Fullagar J in A & S Ruffy Pty Ltd v Commissioner of Taxation (Cth) (1958) 98 CLR 637 … and Menzies J in Renmark Fruitgrowers Co-operated Ltd v Commissioner of Taxation (1969) 121 CLR 501 … to adopt this approach. To my mind it is evidently correct, allowing, as it does, that the purpose for which a company is established may change in the course of time and that with the change of purpose there may come a change in status as a co-operative company. Moreover, in Ruffy … the Court explicitly rejected the suggestion that the objects of the business were to be gathered solely from the objects clause in the memorandum. In that case the Court, in characterising the object of the business, looked to the business activities of the company after its incorporation as well as to the purpose of its incorporation -- … In Revesby Credit Union Co-op Ltd v Commissioner of Taxation (Cth) 112 CLR 564 … McTiernan J said: "The main test to be adopted in ascertaining the primary object is to ask what the actual activities of the appellant society indicate it to be."' 207 His Honour added at 453: [I]n determining the purpose for which the taxpayer is established the courts below were entitled to look not merely to the activities of the taxpayer and its directors, but also to the intentions of the promoters. In general a distinction is to be drawn between purpose on the one hand and motives and intentions of the promoters on the other hand, but I do not see why the intentions of the promoters may not be relevant in determining what is the purpose for which a company is established.' 208 Aickin J said at 461: '[T]he expression "is established" indicates that the company and its activities must be looked at year by year, and not merely at the time of its incorporation. That expression therefore has the significance of "maintained" or "kept in operation". This Court has held that the objects as set out in the company's memorandum of association or other constituent documents cannot be decisive and perhaps may be of only remote relevance.' 209 His Honour added at 463: '[T]he subjective intentions of the promoters, the original subscribers or shareholders and the original directors, whether formed prior to or at the time of incorporation are of no assistance in determining whether the taxpayer company is … a co-operative company within the meaning of s 117 … what matters is what the company did. The purpose of its incorporation must be ascertained from what it did.' 210 Murphy and Wilson JJ agreed with Mason J. 211 The diversity of opinion in Brookton had previously been commented on by Ormiston J of the Supreme Court of Victoria in SSAU Nominees Pty Ltd v Federal Commissioner of Taxation (1985) 16 ATR 992 at 1011: 'Here it is clear that all members of the court on each occasion [Brookton and Ruffy] held the view that the primary object or objects of the appellant's business could not be determined solely, or even initially, by reference to its memorandum of association, and that evidence of its history, setting up and activities, had to be examined. In this instance Mason J (at 453), with the concurrence of Wilson J, thought that the intentions, if not the motives, of the promoters could be looked at, although Aickin J strongly disagreed: at 463.' 212 A little later his Honour said at 1011, 1012: 'Upon a careful consideration of all these cases, both in England and Australia, I have reached the conclusion that there is neither binding nor persuasive authority which requires me to resolve this case solely on a construction of the plaintiff's constituent documents. In the first place, it is obvious that a variety of opinions have been expressed from time to time in the highest appellate courts on this issue and they are by no means consistent. … I therefore conclude that there is no authority which binds me to exclude evidence of the activities of the plaintiff company, or of the surrounding circumstances which led to the setting up of the scheme. What I am concerned with in the present case is an alternative test based on either exclusive or principal purpose and that entitles the court to have regard to a wide range of relevant factual circumstance, although I would not think that motive was one of the relevant circumstances. Of course it is necessary to look at the constituent documents, but in the present case, as with many of the cases which I have cited, those documents are of relatively little assistance, certainly in determining what is the principal purpose of the plaintiff company. This is not a matter to be resolved merely by the construction of a deed of trust, for it requires a realistic appraisal of whether the chief or major purpose of the scheme is the advancement of "the interests of a university or a school" of the relevant kind. For this purpose I would adopt the passage set out above (at 40) from Williams J's judgment in the Royal Australasian College of Surgeon's case, supra, at 452.' 213 This last-mentioned reference is to the passage reproduced at [203] above. 214 SSAU Nominees involved a claim for a sales tax exemption for 'goods for use … by a society, institution or organisation established and carried on exclusively or principally for the promotion of the interests of a university or school conducted by an organisation not carried on for the profit of an individual'. Some 17 years later, Mandie J of the Supreme Court of Victoria said in Capital Club Pty Ltd v Commissioner of State Revenue (2007) 66 ATR 606 at [41]: 'Ormiston J referred to Ruffy and Brookton noting that the High Court held the view that the primary object or objects of the company's business could not be determined solely or even initially by reference to its Memorandum of Association and that evidence of its history, setting up and activities had to be examined. The case otherwise turned on its own facts and the particular legislation.' 215 The balance of authority seems to favour the view that one can have regard to the motives and intentions, if they be different, of the promoters, in addition to the activities of the company and its directors, in determining the purpose for which a company is established. On the other hand, in the present case, I do not know that it is necessary to go that far; indeed, I do not know that there is any direct evidence of such motives and intentions; I was certainly not taken to any. As the Commissioner's submissions make clear, there is evidence of the circumstances in which ATTORI and AARI were formed and of the manner in which each has carried out its activities and both of those are relevant to the determination of what is the main or dominant purpose of ATTORI and AARI: see Williams J in the Surgeons' Case at [203] above. From that evidence, which is not disputed, certain conclusions can be drawn. 216 Put another way, in undertaking the task of deciding whether ATTORI and AARI are 'scientific institutions' for the purposes of s 23(e) of the ITAA 1936 or s 50-5 (item 1.3) of the ITAA 1997 in each of the relevant years of income, I do not think I am confined to a consideration of the objects in their respective memoranda of associations and their respective activities in vacuo. I am entitled to consider, in so far as there is evidence of such matters, the following: (1) The circumstances in which ATTORI and AARI were formed. (2) The framework, if any, other than one imposed by reference to its objects, within which it carries on its activities in pursuit of these objects. (3) The imperatives, if any, which drove the activities, other than those imposed by reference to its objects, and an assessment of the purpose of such activities, in the light of any such imperatives. (4) The public accessibility to the results of research, both within the scientific community and the community at large; the public utility aspect. 217 As noted earlier at [199], the inquiry is an integrated holistic one directed to whether a body of facts and circumstances satisfied a legal category or conception; and that is the way each of the members of the High Court approached the task in the Surgeons' Case 68 CLR. 218 I have come to the conclusion that neither ATTORI nor AARI was a 'scientific institution' for the purpose of the applicable statutory provision in the relevant years of income. My reasons for coming to this conclusion are set out below, but it would be fair to say that these reasons in large part reflect my acceptance of the Commissioner's submissions at [41] - [112] and [140] - [189] above. 219 While the objects for which ATTORI and AARI were established (see [14] and [114] above) are consistent with those of a scientific research institute, and the prohibitions contained in the memoranda of associations against the distribution of income and property to their members either by way of dividend, bonus or otherwise or upon a winding up or dissolution are consistent with what one would expect to find in the constitution of such an institute (see, for example, the Surgeons' Case at 448), and both bodies carried out scientific research activities consistent with those objects; such matters or considerations only tell half the story. They do not tell you, by reference to objective indicia rather than the motives or intention of the promoters, why ATTORI and AARI were brought into existence; they do not tell you anything about the commercial/contractual framework within which ATTORI and AARI were to pursue their objects; they do not tell you anything about the commercial/contractual imperatives which drove those activities so as to enable an informed conclusion to be drawn as to their real purpose; and they do not tell you anything about the public utility of such activities. These are all matters or considerations that fall under the umbrella of why ATTORI and AARI were brought into existence and why and how they carried on their activities in pursuit of their objects. It is to those matters that I now turn. 220 In summary, the Commissioner submitted that the Court should make the following findings: (a) The main, substantial or predominant purpose of ATTORI and AARI was the discharge of contractual obligations undertaken pursuant to agreements entered into in respect of the various Budplan prospectuses. Each was a service provider, performing a function which was essential to the commercial success of the investment projects described in the prospectuses; (b) the research activities were not aimed at altruistically improving or benefiting the state of scientific knowledge, but rather were aimed at providing the Participants in the Budplan arrangements with intellectual property rights that they would be able to commercially exploit. The research results were to be the property of the Participants; (c) the proceeds of the commercial exploitation of the scientific research were to flow to the Budplan Participants and the manager, for their individual benefit, rather than to the researcher; (d) in six of the Budplans, apart from administration fees and commissions paid to BARM, the Main Camp Group of companies also stood to benefit from commercial exploitation of the scientific research through their interests in the supply and sale of tea tree oil and celery seed extract (such products having been the sole products used in the 'scientific research'); (e) rather than generally disseminating the results of the scientific research, steps were taken to ensure that the results would be kept confidential - which was no doubt important for their commercial exploitation; (f) much of the scientific research that each of ATTORI and AARI was obliged to carry out for the Budplan syndicates was in any event not carried out by them, but was carried out by other persons pursuant to contracts entered into for that purpose (e.g. Southern Cross University, Centre for Molecular Biology & Medicine at the Austin & Repatriation Medical Centre). In such instances, each of ATTORI and AARI acted as, in effect, a middleman, by undertaking a contractual obligation and then engaging a sub-contractor to perform work so that its primary obligation would be discharged; (g) Some sponsorship and fellowship arrangements were entered into, but in circumstances where the recipients had to enter into confidentiality agreements, any resultant intellectual property would be vested in ATTORI and AARI; (h) examination of the circumstances of publication of scientific papers and conference poster presentations, provides no support for the contended 'scientific institution' status. Employees of ATTORI and AARI were not permitted to publish material of any commercial value. In relation to academic institutions that were third-party contractors for ATTORI, their 'scientific findings' could only be published with the written approval of ATTORI and such approval could be withheld to the extent that disclosure of the findings might 'adversely affect ATTORI's commercial or scientific interests'. With isolated exceptions, the material pointed to in AARI's evidence was published from the year 2000 onward (i.e. after the period to which the present proceedings relate), and at a time when it was known to be unlikely that the research results could be commercially exploited. 221 Generally, I accept the Commissioner's submissions and find that: (1) ATTORI and AARI were formed to undertake the contractual obligations set out in the prospectus documents. (2) They were incorporated to meet the objectives of a broader commercial endeavour. (3) Their activities after incorporation were directed predominantly, if not solely, to that commercial endeavour. (4) Their activities were not concerned with benefiting the public or advancing science as ends in themselves; no one was intended to benefit from the research but BARM and the Participants. 222 More specifically, I accept the Commissioner's submissions that the contractual framework constituted by the Prospectus, Management Agreements and Research Agreements for the Budplans allow me to find that ATTORI and AARI were brought into existence: (1) To undertake research for reward pursuant to contractual obligations arising under the Personal Syndicate Deed for Budplan Personal Syndicate or the Research Agreements for the remainder of the Budplans entered into with the Participants and others. (2) To provide the Budplan Participants and BARM, as Manager, with the'Research Results' so that those results could be commercially exploited for the benefit of Participants and BARM. (3) In the case of ATTORI, to further the commercial interests of the Mainstar Group of companies, particularly in relation to sales of the product, Main Camp Premium Pharmaceutical Grade Tea Tree Oil. (4) To perform the research function in a large commercial venture with a view to making profits and securing tax advantages for the various players. 223 The findings in [221] and [222] manifest themselves in a number of different ways that are referred to in the Commissioner's submissions above. It serves no purpose to repeat them; they are all antithetical to a conclusion of status as a 'scientific institution'. 224 Viewed holistically, ATTORI and AARI were components of a larger commercial venture which had as its objective the commercialisation of the 'research results' for the financial benefit of the Participants and BARM. They did not manifest an independence and freedom, subject of course to financial constraints, in the activities each undertook in pursuit of the advancement of science. This is not to say that an entity claiming status as a 'scientific institution' cannot enter into contractual obligations to undertake scientific research for reward for a particular third party, but its entitlement to such status will be impaired if that is all it does or if such activities comprise the great bulk of its overall activities. Rather than being a scientific institution, it will be seen for what it is: a 'captive' scientific researcher undertaking research work for the benefit of a third party and its associates. In his oral submissions, senior counsel for the Commissioner referred to such a body as a 'service provider' and the description is apt; he suggested as an analogue, a company that undertook scientific research exclusively, or nearly exclusively, for a research-based pharmaceutical group; such a company, he submitted, would not be a scientific institution even though all its activities were devoted to the advancement of science. In my view, the analogue is also apt. 225 Finally, there is the absence of public benefit, except to the extent it can be said that the public benefits from scientific development for private commercial gain. The research results were kept strictly confidential by all concerned and the results were not to be published if ATTORI or AARI considered them to be of any commercial value. The material that did reach the public domain was minimal and was more in the nature of a mere by-product of ATTORI's or AARI's activities than the sole or even predominant or significant purpose for which each company was established. For an entity to claim status as a 'scientific institution', the results, albeit not necessarily the ownership, of the subject entity's activities should be freely available to the community at large; the public community as well as the scientific community. Neither ATTORI nor AARI qualified on this score. 226 My findings that ATTORI and AARI were not 'scientific institutions' within the applicable statutory provision in the relevant years of income necessitates that I address issue 2.

Issue 2: The Quantum of the Research Fees to be Brought to Account as Assessable Income in the Hands of each of ATTORI and AARI 227 This is the same issue that arose, was considered and decided in Business & Research Management Pty Ltd v Commissioner of Taxation [2008] FCA 1652 in respect of the management fees. Here, it is in respect of the research fees, but it arises out of the same factual background. 228 While the arguments in the present case were not identical to those that were ventilated in the BARM case, they do traverse common ground. For the reasons given in that case, the applicants in the present case cannot succeed on this issue. 229 The applications must be dismissed with costs. I certify that the preceding two hundred and twenty-nine (229) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Counsel for the Applicant: Mr AH Slater QC and Mr PM Fraser and Mr BL Jones

Counsel for the Respondent: Mr BJ Sullivan SC, Mr TM Thawley and Ms M Hirschorn

Solicitor for the Respondent: Australian Government Solicitor