Australian Tea Tree Oil Research Institute v Industry Research & Development Board

(2) The Board shall, in consultation with the Commissioner, as soon as practicable (and, in any event, within 90 days) after the commencement of this Part, formulate in writing criteria to be met by bodies wishing to be registered under this section and shall cause the criteria so formulated to be made available to any person upon request, without charge, and to be published in the Gazetteand in such other manner as the Board considers appropriate.

(3) Where a body purported before the commencement of this Part to make an application to the Board for registration as an Australian research agency, the application shall be taken to have been as valid as it would have been if this section has been in force when the application was made.

(4) Subject to subsection (9), where an application has been made in accordance with subsection (1) and the Board is satisfied that the applicant meets the criteria, the Board shall register the applicant as an Australian research agency in respect of such class of Australian research and development activities as the Board considers the applicant is qualified to perform and shall give to the applicant notice in writing of the result of the application.

(5) The registration of an Australian research agency shall be taken to have had effect on and from:

(a) if the body concerned was, on 30 June 1988, an approved Australian research institute - 1 July 1988; or

(b) otherwise - the date on which the application for registration was received by the Board.

(6) Subject to subsections (7) and (9), the Board may, on application made by a registered Australian research agency in writing, in accordance with a form approved by he Board, vary the class of Australian research and development activities in respect of which the agency is registered and shall give to the agency notice in writing of the result of the application.

(7) The Board shall not vary the class of Australian research and development activities in respect of which an Australian research agency is registered so as to include additional activities unless the Board is satisfied that the agency is qualified to perform those additional activities.

(8) The date of effect of such a variation is the date on which the variation is made to the register of Australian research agencies.

(9) Where the Board considers that it will be necessary for the purpose of dealing with an application under this section to make inquiries as to the applicant's qualifications to perform particular Australian research and development activities, the Board may, before dealing with the application, by notice in writing given to the applicant, require the applicant to pay such amount (not exceeding $1,000 or such higher amount as is prescribed) as the Board determines in or towards meeting the cost of the inquiries.

(a) refuses an application to register a body as an Australian research agency; or

(b) refuses an application to register a body as an Australian research agency in respect of, or to vary the registration of a body that is a registered Australian research agency so as to include, particular Australian research and development activities;

the notice to the applicant stating the result of the application shall also state the reasons for the refusal.

(10A) The Board may, in consultation with the Commissioner at any time and whether or not within 90 days after the commencement of this Part, by writing, repeal, replace or amend criteria made under subsection (2).

(11) An instrument formulating criteria under subsection (2), or repealing, replacing or amending such criteria, is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.

Guideline instrument published in gazette 6 The criteria that an organisation must meet in order to become a registered research agency ("RRA") under s 39F were published in the Commonwealth of Australia Gazette on 26 April 1995 (No. GN 16) under the title "Industry Research and Development Board Guideline - REGISTERED RESEARCH AGENCIES" ("Gazetted instrument"). The Gazetted instrument contained some 28 numbered paragraphs, with various subheadings and subparagraphs. Paragraph 1 states: "These criteria are issued pursuant to section 39F(2) of the Industry Research and Development Act 1986." 7 Paragraph 14 is as follows: "REGISTRATION CRITERIA FOR RRAS The Board, pursuant to subsection 39F(2) of the [IRD Act] has formulated the following criteria to be met by bodies wishing to be registered as research agencies under section 39F: Employment criterion For an organisation to be considered an RRA: · it must employ a minimum of one full-time research person and another four full-time, or full-time equivalent, research staff; · the full-time researcher must have tertiary qualifications to university degree level in science or technology; and · of the balance of the minimum of four full-time or four full-time equivalent staff, each staff member must have either - tertiary qualifications to university degree level in science or technology; or - no less than five years of referable research experience in a particular scientific or technological field. Facilities criterion Organisations seeking RRA status must have research and development facilities in Australia: · which shall be sufficient for the research staff to undertake their work; and · which shall be appropriate to the field or fields of research in which the RRA seeks to be registered Pricing structure criterion · The fee and charges structure of the applicant must be on normal commercial terms. Multiple client criterion · An organisation seeking RRA status must hold itself available to undertake work on behalf of companies which are not related to the organisation as determined for the purposes of The Corporation Law." 8 It was not in contention that the criteria set out in paragraph 14 are criteria within s 39F(2) of the IRD Act. There was, however, no such agreement as to the status of other provisions of the Gazetted instrument, including paragraph 17, which is as follows:

In addition to the criteria, the Board will consider the following matters when assessing an application for RRA status:

Competence The competence of the applicant to manage and perform R & D [Research and Development] will be assessed against: · the administrative arrangements to plan and overseas [sic] the performance of R&D; · any achievements which are relevant to the performance of the R&D including that which yielded commercial results; · the annual value of R&D undertaken; and · the principle source of income of the organisation: Independence The applicant will be required to demonstrate that: · there are no grounds for a conflict of interest between itself and its clients; · it will act in the best interests of its clients; · clients will have control over the R&D undertaken; and · it can maintain the confidentiality of its R&D on behalf of clients and the security of information obtained from clients. Pricing Policy · The applicant must satisfy the Board that, where its pricing policy is not based on normal commercial terms, as may be the case with a public sector entity, the price involves neither a use of government resources to subsidise the price nor is it intended as a means of unfairly exploiting the incentive." 9 Paragraph 15 of the Gazetted instrument provides that in specified circumstances neither a Government research organisation nor an organisation owned and controlled by a tertiary education institution is required to satisfy criteria 1 and 2 (which are presumably references to the employment and facilities criteria). Paragraph 16 exempts certain named organisations from those criteria. Paragraph 20 provides for the cancellation of registration if an RRA ceases to meet the criteria. Paragraphs 22 to 27 set out other responsibilities of an RRA. These relate to appropriate management structures, maintaining financial records, ownership of research and development results and submission of annual reports and returns to the respondent.

Questions raised on appeal 10 The notice of appeal purports to raise fifteen questions of law. It should be noted at the outset that the respondent does not accept that all fifteen are questions of law. As set out in the notice of appeal the questions are: "(a) Whether the relevant date for reconsidering the applicant's application for registration as a Registered Research Agency is (i) the date of the original application for registration; (ii) the date of the Board's decision; or (iii) the date of the hearing.

(b) If the answer to (a) is the date of the original application, whether the Board has a residual discretion to grant registration as a Registered Research Agency if the applicant meets the criteria for registration as at the date of the Board's decision;

(c) Whether the Board has a residual discretion to grant registration as a Registered Research Agency even if the criteria for registration formulated pursuant to section 39F(2) of the [IRD Act] are not satisfied;

(d) Whether the criteria formulated pursuant to section 39F(2) of the [IRD Act] are confined to paragraph 14 of the document headed "Industry Research and Development Board Guideline - Registered Research Agencies" published in the Commonwealth Gazette on 26 April 1995 or include or are qualified by paragraph 17 of that document;

(e) Whether the statement that "the applicant must satisfy the Board that, where its pricing policy is not based on normal commercial terms, as may be the case with a public sector entity, the price involves neither a use of government resources to subsidise the price nor is it intended as a means of unfairly exploiting the incentive" in paragraph 17 of the document headed "Industry Research and Development Board Guideline - Registered Research Agencies" published in the Commonwealth Gazette on 26 April 1995 effected a qualification of and/or formed part of the Pricing Structure Criterion in paragraph 14 of the same document;

(f) What is the meaning of "normal commercial terms" in paragraph 14 of the "Industry Research and Development Board Guideline - Registered Research Agencies" published in the Commonwealth Gazette on 26 April 1995;

(g) Whether the Tribunal erred, having concluded that the applicant's pricing structure was not on "normal commercial terms", in not considering whether the pricing policy was "intended as a means of unfairly exploiting the incentive";

(h) Whether, on the proper construction of the Research Agreements entered into between the applicant and each of the participants in Personal Budplan, and Company Budplan No. 1 and No. 2, each of the participants in those plans became, as a matter of law, clients of the applicant;

(i) Whether as a matter of law and on a proper construction of the Research Agreements, the Tribunal erred in holding that the applicant only undertook work on behalf of Business and Research Management Pty Limited and not the participants in Personal Budplan, and Company Budplan No. 1 and No. 2;

(j) Whether the legal effect of the contractual arrangements entered into between the applicant and each of the participants in Personal Budplan, and Company Budplan No. 1 and No. 2 meant that the applicant satisfied the multiple client criterion;

(k) Whether the Tribunal erred in holding that the applicant and Business and Research Management Pty Ltd were related companied [sic] for the purposes of Chapter 1 of Division 6 of the Corporations Law;

(l) Whether the Tribunal erred in law in failing to consider whether the applicant had held itself available to undertake work on behalf of companies which were not related to the applicant "as determined for the purposes of the Corporations Law";

(m) Whether the Tribunal erred in law in failing in failing [sic] to state its reasons for its (implicit) conclusion that the applicant had not held itself available to undertake work on behalf of companies which were not related to the applicant "as determined for the purposes of the Corporations Law", and thus failed to meet the "multiple client criterion";

(n) Whether the Tribunal erred in law in taking into account irrelevant considerations, viz. the financial arrangements between participants in the Budplans, Project and General Finance Pty Ltd and Business and Research Management Limited and the tax benefits obtained by participants in the Budplans." 11 The respondent's amended notice of contention claimed that the Tribunal erred in law in its construction of certain expressions occurring in paragraph 14 of the Gazetted instrument including "tertiary qualifications to university degree level in science or technology" in the employment criterion and "sufficient for the research staff to undertake their work" occurring in the facilities criterion. The amended notice of contention also claimed that the Tribunal erred in failing to hold that the applicant and the relevant management company were related entities within the meaning of s 9 of the Corporations Law.

TRIBUNAL Decision 12 The Tribunal noted that the application for a review of the decision of the respondent involved a re-exercise of the respondent's administrative powers, and that the Tribunal was therefore not restricted to considering the grounds of rejection stated by the respondent. It stated that, "[p]robably the most important matter to be decided is the relevant date for reconsidering the application." There were three possibilities: (i) the date on which the applicant's application was received by the respondent, being 25 September 1996; (ii) the date of the respondent's decision; or (iii) the date of the hearing before the Tribunal. The respondent contended for (i), the applicant contended for (iii), but neither party seriously contended for (ii). 13 Having considered the statutory provisions and a number of authorities, the Tribunal stated that it was "beyond question" that it could take account of material other than the material that had been before the respondent. The Tribunal went on to note, however, that this did "not necessarily give the result that in each case the Tribunal must decide the issue as at the [Tribunal] hearing date." The Tribunal, for reasons discussed below at [18] - [21], concluded that the applicant's entitlement to registration was to be examined as at the date on which application was made.

14 The Tribunal then turned to an examination of whether the applicant met the necessary criteria, as formulated pursuant to s 39F(2) of the IRD Act, at the date of its application. Argument from both parties focussed on the Gazetted instrument (see [6] above). Pursuant to s 39F(11), this instrument is a disallowable instrument for the purposes of s 46A of the Acts Interpretation Act 1901 (Cth). The Tribunal observed that the Gazetted instrument contains criteria and guidelines, the criteria being found only in paragraph 14. Although the Tribunal was not explicit, it would appear that this conclusion was based on the heading to paragraph 14 which expressly refers to the criteria in the paragraph as being formulated under s 39F(2) as well as the heading and opening words of paragraph 17 (see [8] above). In addition the Tribunal commented that:

"The document that was published deals with both criteria and guidelines. It also deals with explanatory matter clearly intended for the guidance of the public. The whole document does not resemble instruments that are commonly promulgated as disallowable instruments. The general informative part of the document is more like a pamphlet."

15 This distinction that the Tribunal drew between criteria and guidelines was critical to its decision because, in its view, the respondent's duty and power under s 39F(2) only extended to promulgating criteria. In its view the inclusion of "guidelines" in the same instrument as the criteria did not give the guidelines the force of law, despite publication in the Gazette and despite what it described as the validation of criteria and guidelines by the Industry Research and Development Amendment Act 1995 (Cth). The Tribunal was not strictly correct in its summary of this amending Act as, insofar as the Act applies to s 39F, it does not purport to apply to guidelines but only to criteria; s 4(1)(b). The Tribunal found that the only parts of the Gazetted instrument binding on it were to be found in paragraph 14 of the document and held that the other parts of the Gazetted instrument did not constitute a disallowable instrument, which had "no greater force or effect by reason only of their publication in the Gazette."

16 The Tribunal did not accept the respondent's submission that the criteria set out in paragraph 14 of the Gazetted instrument also had to include a subparagraph of paragraph 17. This submission was based on the use of similar headings in the subparagraphs ("pricing structure" in paragraph 14 and "pricing policy" in paragraph 17) and the presence of the words "normal commercial terms" under each of those headings. The Tribunal found that the subparagraph in paragraph 17 had nothing to do with the similarly named subparagraph in paragraph 14 and that the only binding paragraph pursuant to s 39F(2) was paragraph 14.

17 The Tribunal held that the requirements of the four criteria in paragraph 14 were cumulative and failure to meet any one of them would be fatal to the application. Applying those criteria, the Tribunal found that the applicant did not meet the requirements of the pricing structure and the multiple client criteria and consequently was not entitled to registration.

Date for compliance with criteria 18 The applicant asserts that the Tribunal erred in law in determining that the relevant date for reconsidering its application was the date of the original application and not the date of the hearing before the Tribunal. A consequence of this determination appears to be that facts favourable to the application were not considered by the Tribunal. 19 The Tribunal relied on the views expressed by Hill J in Comptroller-General of Customs v Akai Pty Limited (1994) 50 FCR 511 ("Akai"). His Honour stated at 521, "[T]he Tribunal, within the ambit of the jurisdiction conferred upon it as a review authority, decides the matter by reference to the evidence before it and not the evidence before the decision-maker, taking into account events that may have occurred to the date of decision: … It is true that the review to be conducted by the Tribunal is a review of a specific decision and if that decision has to be made by reference to a particular point of time the Tribunal will be limited to deciding the question by reference to that point of time … but ordinarily in such a case the Tribunal will not be limited to the evidence before the decision-maker although obliged to address the question the decision-maker addressed." 20 Bearing in mind Hill J's comment in the second paragraph quoted above, the Tribunal considered whether s 39F(5) of the IRD Act (see [5] above) fixed "a point of time with reference to which both the initial and review decisions must be made?" This was an important question because in the Tribunal's words: "On the facts put before me, the applicant would have a much better chance of success today than it would have had at 25 September 1996. Since then, the applicant has acquired larger and better equipped facilities, more skilled staff and more clients, enabling it to undertake research in fields other than those related to tea tree oil. … the relevant facts were quite different when this application was first made to the Board." 21 The Tribunal found that the "relevant date" was the date of the original application for registration (25 September 1996), not the date of the Tribunal hearing. In coming to this conclusion the Tribunal rejected the applicant's claim that s 39F(5) operated in futuro and that s 39F(1) contemplated the performance of research and development activities by an applicant at some future time. The Tribunal found that s 39F(5) was intended to remedy any disadvantage to applicants caused by the time taken for the respondent to make its decision by providing that, if successful, an applicant would be entitled, retrospectively, to receive benefits from the date of the application.

22 The Tribunal rejected a submission by the applicant that the respondent had a residual discretion to allow registration under s 39F(4) of the IRD Act, even if an applicant did not satisfy the prescribed criteria. The Tribunal rejected this submission, noting that s 39F(4) "gives an entitlement to registration only when the applicant meets the criteria" (emphasis added). The entitlement to registration was to be examined as at the date the applicant claimed to have met the criteria, that being the date of application. In considering the arguments made by the parties the Tribunal commented:

"The applicant sought to show that this approach to construction might have "a number of unattractive consequences". It suggested that an applicant confronted with a lengthy investigation process could continuously file applications during the course of that process as more equipment had been acquired, further employees' [sic] retained or further clients identified. As the applicant's eligibility position improved from month to month, it could file a succession of applications. It was suggested that it could not have been the legislative policy to encourage multiple overlapping applications. Whilst I recognise the practical difficulties that could emerge from such a procedure, the argument does not seem to me to go to the proper construction to be put on the subsection according to its own terms. There is just as much substance in the respondent's submission that the subsection may have been designed to avoid the very situation to which the applicant points. It may well have been designed to discourage a mere shell of an applicant lodging an application and then building up its eligibility qualifications over the investigation period until such time as it could claim total compliance with the criteria." 23 The Tribunal derived little help from the object of the IRD Act which, as set out in s 3, is to promote the development, efficiency and international competitiveness of Australian industry by encouraging research and development activities. The Tribunal found the provision for cancellation of registration in s 39G of more assistance, noting that the power to cancel registration "may well indicate that criteria may be met obliging the Board to register an applicant but as circumstances change in an applicant's activities, the question of cancellation of registration is to be considered." 24 The IRD Act provides if an Australian research agency meets the criteria formulated under s 39F(2) it is entitled to registration; s 39F(4). Moreover, a research agency is only entitled to remain registered while it continues to meet the relevant criteria; s 39G(2). Under s 39F(6) the respondent has power to vary the class of Australian research and development activities in respect of which an agency is registered but it may not exercise this power unless it "is satisfied that the agency is qualified to perform those additional activities"; s 39F(7). Section 39F(7) makes clear that the respondent is not entitled to exercise its power to vary the class of Australian research and development activities in respect of which an agency is registered in a way that would jeopardise the ability of a registered agency to continue meeting the criteria for registration. 25 The IRD Act expressly states that the registration of an Australian research agency such as the applicant is to take effect "on and from" the date on which its application for registration is received by the respondent; s 39F(5). It does not, however, make any express statement about the date by which the criteria laid down by the respondent must be met. The Tribunal accepted, correctly in my view, the general approach identified by Davies J in Jebb v Repatriation Commission (1988) 80 ALR 329 at 333 where his Honour said: "[T]he general approach of the tribunal has been to regard the administrative decision making process as a continuum and to look upon the tribunal's function as a part of that continuum so that, within the limits of a reconsideration of the decision under review, the tribunal considers the applicant's entitlement from the date of application, or other proper commencing date, to the date of the tribunal's decision. That function was enunciated in Re Tiknaz and Director-General of Social Services (1981) 4 ALN No 44. The approach there taken has since been generally adopted." 26 As Hill J pointed out in Akai however, it is necessary to determine whether the Act gives any indication that the decision as to registration has to be made by reference to a particular point in time. If so, facts occurring after that date cannot be taken into account. The Tribunal interpreted s 39F(5) as providing such a point in time. The Tribunal based this conclusion on its understanding of the purpose of s 39F(5) as being: "intended to confer benefits on applicants where the investigation of their claims (as in this case) was lengthy. … If the applicant was ultimately successful, then it was deemed to have the benefits of registration retrospectively to the date on which the application was received by the Board." 27 I do not disagree with this statement of the purpose of s 39F(5). The Tribunal, however, concluded that this purpose made the date the application was received by the respondent the relevant date for considering the application "as it was the date on which the Board would have continued to focus over the 15 months of its investigation." With respect, there appears to be circularity in this reasoning. The respondent would be required to focus on the application date only if that date were the date by which the criteria are to be met. Logically it is not valid to use the statement that the respondent would focus on the application date as a premise in the argument, the conclusion of which is that the application date is the date by which the criteria are to be met. 28 Before me, as before the Tribunal, the applicant submitted that s 39F(1) indicates that the application is concerned with something that is to be done in the future and is therefore consistent with the conclusion that the criteria do not have to be met at that point in time. I am not convinced by this submission. The words, "an Australian research agency for the purpose of performing a particular class of Australian research and development activities on behalf of registered eligible companies" might just as well be seen as a compound description of the type of research agency with which the subs (1) is concerned. Some support for the applicant's position can be found in subs (4), which uses the present tense in requiring the respondent to be satisfied that the "applicant" (rather than the application) meets the criteria and "is qualified to perform" the relevant activities. Subsection (4) is also subject to s 39F(9) which recognises that the respondent may need to make inquiries as to an applicant's qualifications. It is implicit in s 39F(4) and s 39F(9) that, irrespective of whether an applicant met the criteria at the date of the application, if the respondent found that as a result of events occurring since that time the applicant was no longer able to meet the criteria then it would not be eligible for registration. It might be expected that if the legislature intended that the respondent ignore any improvement in an applicant's qualifications occurring after the date of the application this would have been made explicit. 29 The applicant also put an argument as to the "unattractive consequences" of the respondent's view. Like the Tribunal, I do not find this argument convincing. As the Tribunal said, there is as much substance in the opposing scenario painted by the respondent. The position is that the IRD Act gives little, if any, guidance as to the date by which the criteria for registration must be met. I am certainly unable to discern any support for the respondent's position that the Act requires the decision to be made with reference to a particular point in time. 30 The respondentsubmitted that any view other than that the criteria must be met by the date of the application would result in a body being "validly registered at a time before it met the statutory criteria." Strictly speaking this is correct but as it could only occur once the criteria have been met it would not render the criteria otiose. I do not accept that in this limited sense such a result would be so inconsistent with the purpose of the legislation that the possibility should be rejected. 31 The object of the Act is to promote the development, improved efficiency and international competitiveness of Australian industry by encouraging research and development activities; s 3. Registration (with its attendant advantages) is a means of facilitating that object and a central concern is the necessity for an applicant to meet the criteria before being registered and while remaining registered. I am unable to see how the conclusion that the criteria must have been met at the date of application is any more consistent with the purpose of the Act, or with the promotion of registration as a means of facilitating that purpose, than a conclusion that the criteria must have been met at the date of the respondent's decision or the date of the Tribunal's decision. I see no inconsistency between the policy of the Act and the possibility that an applicant may become registered having met the criteria for registration after the date its application was made. 32 For these reasons I find that the Tribunal was in error in not deciding the question of the applicant's entitlement to registration on the basis of the facts before it, including evidence of events that occurred after the date of the application to the respondent. The matter should therefore be remitted to the Tribunal for further consideration. Having come to this conclusion, question (b) in the notice of appeal (see [10] above) does not arise.

The criteria for registration 33 Section 39F(4) of the IRD Act provides that if the respondent is satisfied that the applicant meets the criteria, it "shall" register the applicant. While the use of the imperative, "shall" is not sufficient to conclude that the section is mandatory rather than discretionary, the ordinary meaning of the imperative form gives some guide to the legislature's real intention which it is necessary to ascertain; Ward v Williams (1955) 92 CLR 496 at 505. In this regard the Explanatory Memorandum to the Research and Development Legislation Amendment Bill 1988 also provides some assistance. Referring to the then proposed s 39F the memorandum states at paragraph 43(f): "The Board in conjunction with the Commissioner for Taxation is to establish criteria for registration and is required to register applicants that comply with the criteria." (emphasis added) 34 The imperative tone of this comment can be contrasted with the comment made later in the same paragraph of the memorandum: "The Board may, on application by a registered agency, vary the activities to which the agency's registration relates. … The Board is entitled to charge an applicant up to $1,000 … towards the cost of determining an applicant's qualifications …." (emphasis added)

The memorandum reverts to the imperative when, referring to a refusal to register a body as a research agency, it states that in such case the respondent is "required" to give reasons for its refusal. 35 It is reasonable to assume that the choice of language is not without significance. In my opinion the Explanatory Memorandum confirms the impression created by the words of the IRD Act, namely that compliance with the criteria established pursuant to s 39F is necessary and sufficient to entitle an applicant to be registered. It follows that I reject the applicant's submission that the respondent (or the Tribunal) has a discretion to register an applicant as a research agency if the applicant has not met the criteria at the time the decision is to be made. The absence of discretion at the point at which applications are to be considered is not surprising given that the respondent has the initial right to formulate the criteria for registration (including to express the criteria in a manner that allows the respondent some leeway in its decision) and also the power to repeal, replace or amend them; s 39F(10A). An advantage of this scheme is that, while giving the respondent ultimate control over the criteria for registration it provides for certainty and transparency for applicants for registration. The scheme does, however, attach considerable importance to the correct identification of the criteria established by the respondent. 36 As indicated above, the Tribunal declined to assess the application for registration with reference to the considerations set out in paragraph 17 of the Gazetted instrument. It concluded that the criteria formulated pursuant to s 39F(2) of the IRD Act were to be found only in paragraph 14 of the Gazetted instrument and that those criteria were not qualified by the considerations in paragraph 17. The applicant submits that the Tribunal erred in law in so holding. 37 In coming to this conclusion, the Tribunal focused on the heading and the opening words of paragraph 14 (see [14] above). Taken in isolation those words might appear to justify the Tribunal's approach. However it is necessary to construe the whole of the instrument and in doing so to bear in mind that delegated legislation may not always be drafted with the same precision as Acts of Parliament. The general principles of statutory legislation apply to delegated legislation; King Gee Clothing Company Proprietary Limited v The Commonwealth (1945) 71 CLR 184 at 195; Collector of Customs v Agfa-Gevaert Limited (1996) 186 CLR 389 at 398. However, as Pearce and Argument comment in Delegated Legislation in Australia 2nd ed. 1999 at p. 342, there is "one approach to the interpretation of subordinate legislation which is different from that used for Acts of Parliament." The learned authors quote the comments of Lord Reid in Gill v Donald Humberstone & Co. Ltd. [1963] 3 All ER 180 ("Humberstone"). Lord Reid, in the course of considering regulations made under the Factories Act 1937 (UK) concerning the use of scaffolding etc, commented that such regulations were addressed to practical people and were directed to preventing accidents. His Lordship observed, at 183, that such regulations: "ought to be construed in the light of practical considerations, rather than by a meticulous comparison of the language of their various provisions, such as might be appropriate in construing sections of an Act of Parliament. … difficulties cannot always be foreseen, and it may happen that in a particular case the requirements of a regulation are unreasonable or impracticable; but, if the language is capable of more than one interpretation, we ought to disregard the more natural meaning if it leads to an unreasonable result, and adopt that interpretation which leads to a reasonably practicable result." 38 Construing the whole of the Gazetted instrument is not without difficulty. It has not been drafted with precision and there are difficulties in reconciling different parts of it. The Tribunal's observation that it is more like a pamphlet than instruments "commonly promulgated as disallowable instruments" is apt. Like the instrument of which Lord Reid spoke it is not directed to lawyers and has an advisory as well as a regulatory aspect. It is clearly directed to explaining (and commending) the Government's research and development incentives and to advising potential applicants of the criteria for registration. In doing so it does not use precise legal language and Lord Reid's recommendation to consider practical considerations and avoid meticulous language analysis is pertinent; see also Langton v Independent Commission Against Corruption (2000)49 NSWLR 614 at 167 - 168; Melbourne Pathology Pty Ltd v Minister for Human Services and Health (1996) 40 ALD 565 at 580 - 581. 39 Paragraph 14 is not the only paragraph of the Gazetted instrument to refer to criteria. The reference in paragraph 1 to "these criteria" is not stated to be limited to the criteria set out in paragraph 14 but would seem to refer to all parts of the Gazetted instrument that set a standard or test by which an application might be judged or assessed; see the definitions of "criterion" in The New Shorter Oxford English Dictionary 1993 and The Macquarie Dictionary 2nd revised ed. 1987. The heading and opening words of paragraph 14 specifically identify the criteria in that paragraph as having been formulated pursuant to s 39F(2) of the IRD Act. They invite the conclusion, although they do not explicitly state, that they are the only criteria. This interpretation is supported by the opening words of paragraph 17, "In addition to the criteria …". However the interpretation needs to be assessed in the light of the whole document and in particular paragraph 17 expressly states that competence, independence and pricing policy are considerations that the respondent will take into account in assessing applications for registration. 40 If the Tribunal is correct that only the criteria in paragraph 14 are "criteria" within the meaning of s 39F(2) of the IRD Act then, in view of my conclusion that an applicant who meets the criteria formulated under s 39F is entitled to be registered, no weight could be attached to any assessment of an applicant's competence, independence and pricing policy in accordance with paragraph 17. I accept that, linguistically this is a possible conclusion, but in my opinion it is an unreasonable result and does not accord with the dictum of Lord Reid in Humberstone. Neither the Tribunal's view nor the conclusion that all parts of the Gazetted instrument that set a standard or test by which an application might be judged or assessed are criteria within the meaning of s 39F(2) satisfactorily resolves the difficulties caused by the drafting of the Gazetted instrument. The latter conclusion, however, is not precluded by the words of the instrument and is more attuned to the practical considerations referred to by Lord Reid. I find that the Tribunal erred in not taking into account the considerations referred to in paragraph 17.

compliance with registration criteria 41 Both the applicant and the respondent (in its amended notice of contention) submit that the Tribunal fell into error of law in applying the criteria in paragraph 14 of the Gazetted instrument. Because this matter is to be remitted to the Tribunal for a reconsideration which will encompass a period of time not previously taken into account and criteria not previously considered, it is not necessary for me to deal with all the alleged errors made by the Tribunal. I should note that I do not necessarily accept that all of the alleged errors are errors of law. There are, however, questions of legal error arising from the Tribunal's application of the criteria that may be relevant for the Tribunal's future consideration. Where this is the case, it is appropriate that I should deal with those questions that have been fully argued before me. In doing so I shall not repeat the conclusions I have already expressed. This should not be read as detracting in any way from those conclusions.

The employment criterion 42 The respondent submitted that the employment criterion should be interpreted in light of s 39F(4) of the IRD Act. As that section provides for an applicant to be registered in respect of a class or classes of research activity the respondent says that it is implicit in the employment criterion that the tertiary qualifications referred to in paragraph 14 of the Gazetted instrument must be related to the class or classes of research activity in respect of which an applicant seeks registration. The applicant applied for registration in respect of nine classes of activities but, according to the Tribunal, the applicant was really engaged in only four fields, "chemicals organic, pharmaceuticals products and technology, chemicals analysis and cosmetic products." In applying the employment criterion the Tribunal took into account three people who at the relevant date were employed in forestry, agriculture and related activities. The respondent submitted that the Tribunal should have disregarded these people and its failure to do so resulted from an error of law in the interpretation of the criterion. 43 The interpretation for which the respondent contends is an attempt to read words into the employment criterion that do not appear there. It is not suggested that, without these additional words, the expression is ambiguous. The respondent submits however, that without the additional words the requirement would lead to absurd consequences as for example "the counting of a wood technologist in research and development of nuclear technology or vice versa." The applicant submits that the interpretation for which the respondent contends may also lead to absurdity in that it would require an applicant for registration to have the specified number of staff for each area of research for which registration is sought.

44 As Lord Reid pointed out in Humberstone (see [37] above) it may be justified to adopt a less natural meaning of words in delegated legislation to avoid an unreasonable result "if the language is capable of more than one interpretation". In CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 the majority of the High Court in a joint judgment stated: "inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent."

In these cases the House of Lords and the High Court of Australia accepted that adopting a particular meaning in order to avoid an unreasonable result is only permissible where the words being considered are ambiguous: see also Minister for Immigration and Multicultural Affairs v Lim (2001) 112 FCR 589 at 593. In such a case the unreasonableness of the consequences of one interpretation assists in determining which of the possible constructions is to be preferred; see also Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 320. I might also add that the likelihood of the absurd or unreasonable consequence actually occurring should also be a consideration. 45 The employment criterion requires that an applicant for registration should have at least one full-time researcher who has "tertiary qualifications to university degree level in science or technology" and a specified number of full-time staff (or equivalent) with either the same tertiary qualifications or experience of a specified kind. This statement is neither ambiguous nor qualified in any way in relation to the research activities in respect of which registration is sought. I see no basis for construing it subject to the qualification for which the respondent contends. I find no error of law in the Tribunal's interpretation of this requirement. 46 The respondent also submitted that the Tribunal erred in determining that the applicant had met the requirement for "a minimum of one full-time research person and another four full-time, or full-time equivalent, research staff" in that it took into account persons who were not engaged full-time in research. The Tribunal's comment on this issue was: "There were four scientists employed by the applicant on the relevant date. Their managing director, also a qualified scientist, was active in the affairs of the applicant, even if not technically employed. A highly qualified director had been engaged by an agreement dated 15 July 1996. He did not take up his duties until October 1996 but between the date of his contract and the date of assuming full-time duties, he was engaged in procuring equipment for the applicant." 47 The words in the employment criterion are not ambiguous and are used in their ordinary normal sense and were applied by the Tribunal in this way. Whether or not the applicant's staff met this criterion is a finding of fact that the Tribunal was entitled to make and with which this Court is not entitled to interfere merely because it may disagree with the Tribunal's finding. In this instance the finding made by the Tribunal was reasonably open to it and involved no error of law; Pozzolanic at 288; Collector of Customs v Agfa-Gevaert Limited (supra) at 395 - 396.

The facilities criterion 48 The Tribunal found that the applicant met the facilities criterion,even though at the relevant date it did not have any of the highly specialised equipment that it subsequently acquired. The Tribunal found that most of the research work was contracted out and the equipment, housed in a temporary laboratory on the campus of a provincial university, was sufficient for the staff to analyse and process the results from the contracted-out work. The respondent contends that this involved an error of law in the interpretation of the expression, "sufficient for the research staff to undertake their work" occurring in the facilities criterion. The respondent submitted that the Tribunal should, as a matter of construction, have approached the matter by asking whether, at the relevant date, the applicant had facilities "sufficient to support the work capacity" of the required minimum research staff. The reasons set out in [47] for rejecting the submission in [46] equally apply here. I find that there is no error of law in the Tribunal's construction of the expression.

The multiple client criterion 49 The Tribunal found that the applicant did not meet the pricing structure or the multiple client criteria. It attributed this to the way in which the applicant was financed. The Tribunal found that the applicant's financial resources came from a number of investment schemes that were launched pursuant to prospectuses. Individuals or companies (known as "participants") were invited to participate in the business of research and development of various tea tree oil based products. The participants were able to raise funds by way of loans from a loan company. The participants entered into an agreement ("management agreement") with a management company pursuant to which the management company was given authority to conduct the research business on behalf of the participants. The applicant, the management company and the loan company all had directors in common. The research business was carried out pursuant to agreements ("research agreements") to which the applicant, the management company, each participant and a trustee were all parties. 50 There were many participants. They were not related to each other or to the applicant. For this reason the applicant submitted that it satisfied the multiple client criterion. The Tribunal did not accept this submission. It found that, at the relevant date, the applicant was "undertaking work only upon instructions from the management company" which it controlled through a common directorship. The Tribunal held that despite individual participants being parties to the research agreements and despite the fact that the management company was acting on behalf of the participants, the multiple client criterion was not satisfied. The Tribunal also found that the applicant and the management company were related within the meaning of ch 1 Pt 1.2 Div 6 of the Corporations Law. 51 It must be remembered that the multiple client criterion is directed to whether the research agency holds itself out to undertake work on behalf of unrelated companies. As I understand it (and the Tribunal did not give detailed reasons for its conclusion on this point) the Tribunal took the view that such "holding out" as there was by the applicant was through the prospectuses by which individuals and companies were invited to invest in the applicant's research and development undertaking. The prospectuses set out the terms on which investment could be made . It was the Tribunal's understanding as to the effect of the agreements contemplated in the prospectuses that lead it to the conclusion that the applicant did not meet the multiple client criterion. 52 The applicant submitted that in concluding that the multiple client criterion was not satisfied the Tribunal did not take account of the legal nature of the relationship between the management company and the participants, namely that the management company was the agent of the participants. The applicant alleged that the Tribunal erred in law in holding that the applicant only undertook work on behalf of the management company which was the only client and, moreover, was a related entity. It submitted that it was incorrect to regard the management company as the (only) client of the applicant when, because of the agency between it and the participants, the participants were the applicant's clients. 53 It seems to me that there is a simpler route to the conclusion advocated by the applicant. The applicant's obligation to carry out research and development activities derives from the research agreements. The participants were party to those agreements. At the hearing I was referred to Company Budplan No 1 Research Agreement ("Research Agreement") which was included in the Company Budplan No 1 Prospectus which was a prospectus for small and medium size companies. Under that agreement the applicant has obligations to the other parties including to the participants (referred to in the Research Agreement as the "Company Participants"). The terms of the Research Agreement include the following: "2.1 The Company Participant hereby engages the [applicant] to conduct the Research and Development in the manner set out in this Agreement and the [applicant] agrees to so act. … … 3.1 In consideration of conducting the Research and Development the [applicant] will be paid research fees by the Company Participant as set out in Clause 3.2 of this Agreement. … … 4.1 In consideration of the research fees the [the applicant] shall for a period of twelve (12) months from the Payment Date conduct the Research and Development and shall engage or cause to be engaged such personnel and facilities as are in its discretion necessary for the completion of the Research and Development. … … 5.5 The Company Participant hereby irrevocably authorises the [applicant] to utilise the fees paid for Research and Development in such way as the [applicant] shall determine … except that such fees shall at all times be and remain fees paid by the Company Participant to the [applicant] for the purposes set out in this Agreement and the [applicant] shall be liable to satisfy its obligations to perform the Research and Development and such obligations shall be paramount. … … 7.1 The Research Results will be the property of the Company Participant subject to sub-clauses 7.3 and 7.4 hereof and vested in the Trustee." 54 These provisions establish that the participants were not mere nominal parties to the research agreement. They acquired rights and obligations. Even though other parts of the research agreement provide for considerable involvement by the management company there is a significant legal relationship directly between the participants and the applicant. Should for instance, the applicant fail to carry out the "Research and Development" in accordance with the Research Agreement there is little doubt that the participants, as the parties engaging the applicant and paying the research fees would have rights of legal redress. In those circumstances it is not correct to interpret the agreements as entitling the applicant to act only on the instructions of the management company acting solely in its own interests. It follows that the management company was not the sole client of the applicant and the prospectuses containing an invitation to invest on the terms, inter alia, of such a research agreement must be regarded as involving the applicant holding itself out as prepared to undertake work on behalf of unrelated companies.

The pricing structure criterion 55 In considering the pricing structure criterion the Tribunal stated that the "fees and charges" structure referred to in that criterion did not simply refer to fees and charges that an applicant might invoice to third parties. Rather the criterion was concerned with "the way in which the financial relationship between the researcher and the client was structured." In relation to the phrase "normal commercial terms" as used in the pricing structure criterion, the applicant's fees and charges structure were, according to the Tribunal, "certainly not on normal commercial terms." The Tribunal outlined the conditions of a typical loan agreement for an amount of $50,000 made available to participants in the various schemes:

"The participant was required to pay an application fee of $750.

It was required to repay $12,500 of the principal sum advanced by 12 monthly instalments of $1,042. It was also required to pay interest for the first year of the loan amounting to $7,500. These were the only cash requirements which a participant had to meet.

The participant was not required to make any further repayments of the principal sum lent to it, or to pay any interest, other than from profits resulting from the exploitation of the research and development.

The management company retained its control, its individual identity and its domination of the arrangements through a provision that the entire loan and all outstanding interest were liable to be paid to the loan company if the participants, through a meeting (the mechanics of which were set out in the agreement) voted to replace the manager.

Of the $50,000 paid by the loan company to the manager at the direction of the participant, $5,000 was to go to the manager as a management fee and the balance to the applicant as a pre-payment of the consideration for it performing the research and development work. However, the applicant deposited this money back with the loan company on a non-recourse deposit. Thus, in the financial year ended 30 June 1996, the applicant received $76,335,784 in pre-paid research fees for work to be done for the investment schemes. The vast bulk of this was placed back on deposit with the loan company. The applicant's balance sheet at 30 June 1996 showed that it had on deposit a total sum of $70,804,752. Except for the real cash components which participants were required to find, the remainder of the movements of money between all parties could well have been effected through journal entries.

The non-recourse terms meant that repayment of the deposits to the applicant was subject to the loan company recovering loans from the participants. The monies deposited by the applicant with the loan company were to be repaid only if the loan company was repaid by the participants. Consequently, there was a real and significant possibility that the money on deposit with the loan company would not become available to the applicant to be spent on research and development." 56 The phrase "normal commercial terms" is not defined in the Gazetted instrument, but some guidance as to its meaning can be found in s 39C of the IRD Act which is as follows: "The exploitation of a particular result of any activity shall be taken for the purposes of this Part to be an exploitation otherwise than on normal commercial terms if, in the opinion of the Board, any contract or transaction relating to that exploitation would not have been entered into, or contained terms that would not have been contained or would have been different, if the contract or transaction had been entered into by persons dealing with each other at arm's length and from positions of comparable bargaining power." 57 Applying the "arm's length" test in s 39C the Tribunal was of the view that the relationship between the applicant and the management company (which commissioned the research) could not to be said to be at arm's length. The Tribunal also referred to the largely unchallenged evidence of an investigating accountant engaged by the respondent. The accountant pointed out that there was "a lack of independence and a conflict of interest between the parties promoting, managing and conducting the scheme." The Tribunal found that the tax benefit obtained by a participant was the dominant reason for entering the plans. It stated that, although the tax benefits obtained by participants were in a sense irrelevant to the pricing structure of the applicant, it was necessary "to consider them to understand why the applicant would enter into such arrangements and how it is that such arrangements cannot be regarded as being on normal commercial terms." The Tribunal stated: "The fact that significant funds were placed by the applicanton deposit with a commercially related entity was not disclosed in the relevant prospectuses. The fact that the funds were placed on deposit at low rates of interest and in circumstances that made it highly questionable whether the deposits would ever be recovered because of the performance of the business, are not normal commercial terms. The locking up of research and development funds on deposit dependent upon the future successful commercial exploitation of the research and development is not a normal commercial decision. It is explicable only with reference to the intentions of the participants to obtain taxation advantages." 58 The Tribunal rejected a submission from the applicant that the arrangements were normal commercial arrangements because the participants and the management company had been at arm's length. It referred to the fact that not all the financial transactions that were in fact carried out had been contemplated in the prospectuses. The Tribunal also found that "what might be normal for an investor seeking a taxation advantage is not necessarily normal commercial terms looked at from the point of view of the researcher, when those terms have been designed not with commercial requirements of the researcher in mind but with the taxation benefits of the participants." 59 Finally, the Tribunal concluded that "the relationship between the applicant and the management company, being the fees and charges structure between the client and the researcher, were based on terms that were remote from normal commercial terms." As such the applicant "fail[ed] to meet the criterion on that ground alone." 60 The applicant submitted that the Tribunal's conclusion that the fees and charges structure of the applicant was not on "normal commercial terms" involves an error of law reviewable in this Court. In particular it is submitted, the Tribunal's conclusion was based, at least in part, on its disregard of the agency existing between the management company and the participants. In its written submissions the applicant further commented, that it "cannot be denied that all of the research funds" that went to the applicant came from the participants who had contracted with the applicant to do research. 61 The respondent submits that the expression "normal commercial terms" does not give rise to a question of law. The respondent submits that the expression is to be given its ordinary meaning and that this is a question of fact. The distinction between questions of law and questions of fact was recently considered by a Full Court in Industry Research and Development Board v Bridgestone Australia Ltd (2001) 109 FCR 564 ("Bridgestone"). The Court there was considering the expression in the context of s 39M of the IRD Act. In this context s 39C (see [56] above) is also relevant. 62 In Bridgestone the Court held that the construction of the expression "dealing with each other … from positions of comparable bargaining power" in s 39C gave rise to a question of law. It is clear from the analysis of Lindgren J (with whom Branson and Mansfield JJ agreed) that the fact that the expression was ambiguous was crucial to that conclusion. His Honour observed, at [52], that a choice had to be made between competing meanings "in the light of the purpose or object underlying the legislation"; Acts Interpretation Act 1901 (Cth) s 15AA. He later added, at [54], that the choice "is not a matter of discretion; the statute truly bears only one of the two suggested meanings; the choice made will be correct or incorrect in law." 63 His Honour also referred to the five general propositions identified by the Court in Pozzolanic at 287. The fifth of these propositions as quoted by his Honour is: "The question whether facts fully found fall within the provision of a statutory enactment properly construed is generally a question of law".

His Honour then noted, at [53], that: "The Full Court [in Pozzolanic] added a qualification to fifth proposition to the effect that when a statute uses words according to their ordinary meaning and the question is whether the facts as found fall within those words, if it is reasonably open to hold that they do, the question whether they do or not is one of fact". 64 It has not been contended that the words "normal commercial terms" in the pricing structure criterion of paragraph 14 of the Gazetted instrument are used other than in their ordinary meaning. I find that the Tribunal's conclusion that the facts as found by it do not fall within those words was reasonably open to it. As such, applying the fifth proposition in Pozzolanic as qualified by the Full Court, the question is one of fact and no legal error has been demonstrated. DECISION 65 The decision of the Tribunal must be set aside and the matter remitted to it for hearing and determination in accordance with these reasons. The respondent shall be liable for the applicant's costs. I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.

Counsel for the Applicant: Mr G K Downes QC with Mr M Richmond

Counsel for the Respondent: Mr A Robertson SC with Dr A Gelbart

Solicitor for the Respondent: Australian Government Solicitor

Date of Hearing: 17, 20 December 2001