Hamilton v Demgold Pty Ltd
[1990] FCA 691
•6 Dec 1990
JUDGMENT No. ..!?.?.I I..=-
CATCHWORDS
ADMINISTRATIVE - Administrative Appeals Tribunal - Appeal on question of law - Re-determination of unimproved capital value of leasehold interest - Auction of right to take up lease - Auction restricted to persons and organizations contractually bound to grant sub-lease to the Commonwealth - Whether unimproved value to reflect the value of commitment by Commonwealth to take a sub-lease.
RATES AND RATING - Re-determination of unimproved capital value of leasehold interest - Auction of right to take up lease - Auction restricted to persons and organizations contractually bound to grant sub-lease to the Commonwealth - Whether unimproved value to reflect the value of commitment by Commonwealth to take a sub-lease.
1975 (Cth), s.44(1)
Rates and Land Tax Ordinance 1926 (A.C.T.), 8.5
W . HAMILTON v. DEMGOLD PTY LIMITED
No. ACT G 5 of 1990
Jenkinson, Neaves and Wilcox JJ.
6 December 1990
Canberra
REGISTRY
FeDERAL COURT OF
AUSTRALIA PRINCIPAL
IN THE FEDERAL COURT OF AUSTRALIA ) 1 NsTRALIAN CAPITAL TERRITORY
i No. ACT G 5 of 1990 DISTRICT REGISTU 1 )
RAL DIVISION )
ON APPEAL FROM THE GENERAL ADMINISTRATIVE
DIVISION OF THE ADMINISTRATIVE APPEALS TRIBUN-
BETWEEN: K.W. HAMILTON
Applicant
AND: DEMGOLD PTY LIMITED
Respondent
MINUTE OF ORDER
ix%!m Jenkinson, Neaves and Wilcox JJ.
DATE OF ORDER : 6 December 1990
WERE MADE : Canberra THE COURT ORDERS THAT:
1. The appeal be dismissed and the decision of the Administrative Appeals Tribunal affirmed.
2. The applicant pay the respondent's costs of the application.
m: Settlement and entry of orders is dealt with in Order
36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) PUSTRALIAN CAPITAL TERRITORY
) No. ACT G5 of 1990 DISTRICT REGISTRY 1 GENERAL DIVISION j
QN APPEAL FROM THE GENERAL ADMINISTRATIVE DIVISION OF THE fiDMINISTRATIVE APPEALS TRIBUNAL
BETWEEN: K.W. HAMILTON
Applicant
AND : DEMGOLD PTY LIMITED
Respondent
CORAM: Jenkinson, Neaves and Wilcox JJ. PLACE : Canberra DATE : 6 December 1990
REASONS FOR JUDGMENT
JENKINSON J.
Appeal from a decision of the Administrative Appeals
Tribunal.
The questions of law raised by the appeal, and the upon which the determination of those questions should be
circumstances which the parties have agreed to treat as those
made, are disclosed in the reasons of Neaves J. for his judgment, which I have had the advantage of reading. I respectfully adopt all that his Honour has written, except the last paragraph and the sentence which immediately precedes the last paragraph of those reasons.
In Gollan v . Randwick Munici~al Council [l9611 A.C.
82 the Privy Council was concerned to interpret the meaning of
the expression "the fee simple of the land" in a provision declaring the unimproved value of land for the purposes of a rating scheme to be the capital sum which that fee simple might be expected to realise on a hypothetical sale. Recognising that a fee simple estate may be granted by the Crown subject to conditions or restrictions, their Lordships yet concluded that the expression "does not refer to the actual title vested in the owner at the relevant date but to an absolute or pure title such as constitutes full ownership in the eyes of the law" : [l9611 A.C. at 101. The Privy Council found in the statutory provisions, as the High Court had found in the statutory provisions under consideration in
BP n ne n
(1955) 91 C.L.R. 610, several reasons for such a conclusion. But the Privy Council attributed, in support of its conclusion, "particular significance" to the circumstance that the rating legislation, "having provided for the charging of rates on 'all rateable land', contains a long and detailed
section .... which declares all land to be rateable except that contained in a number of special categories embracing a variety of public purposes. If the conditions or restrictions affecting any particular area of land bring it within one of those categories, then it is expressly exempt by virtue of the statute, but it seems directly contrary to the intent of the Act that, though not within one of the categories, land can yet be effectively withdrawn from rateability or, at least, find its rateable assessment substantially reduced by the operation of some grant or other transaction inter partes imposing restrictions on user. Section 6 of the Rates and
t a n d Tax Ordinance 1926 makes just such a declaration, and 8.13 imposes such a charge. There can be no doubt that a lease from the Commonwealth of a parcel of land in the Australian Capital Territory may, and commonly does, contain conditions restricting the use or enjoyment of the land. It is not to be thought - and neither party submitted - that the offeror contemplated by s . S ( 1) of the Ordinance should be assumed to have disregarded a condition of the lease restricting use of the land in deciding what capital sum to offer. The lease in respect of which s.S(l) postulates the offer of a capital sum may fairly be described as "hypothetical", by reason of the assumption which paragraph (b), for example, requires to be made about it. But it cannot
be "an absolute or pure title". It must in my opinion be the actual lease from the Commonwealth "under" which the parcel of land is "held", so that the restrictions on use which are ordained in it may have their influence on the estimation of
parcel. It is in my opinion consonant with the policy of that "capital sum" which is to be the unimproved value of the s.5(1) to found assessment of the unimproved value of each parcel of land held under a lease from the Commonwealth on the value of that particular lease, subject to the lettered assumptions which are appended, and to allow each provision of the lease whatever influence, on the determination of "the capital sum" to which the sub-section refers, that provision should have, except in so far as that would contradict one of
those assumptions. To take that course would not enable the rateable assessment of the land to be reduced or increased by a transaction inter partes, except a transaction forming part
of the creation of the proprietary interest to be valued - the lease - and expressing the will of the polity for the purposes of which the tax is imposed - the Commonwealth. If, after the
lease had been granted, a sub-lease to the Commonwealth, or to another, had been granted by the lessee, he having been under no prior contractual obligation to grant the sub-lease, I would regard the existence of that sub-lease as outside the contemplation of the offeror in his determination of the "capital sum" to be offered. Voluntary dispositions by the lessee, as for example a sub-lease or a mortgage or a covenant, are in my opinion to be disregarded because their influence on value, if in£ luence they were allowed, contradicts the legislative intention, which in my opinion the
p a t e s and Land Tax Ordinance 1926 discloses, to proportion the taxes imposed to the value which each parcel of rateable land would, while unimproved, owe to its situation and, in the case
of a parcel held under a lease from the Commonwealth, to the advantages and disadvantages deriving from the provisions - as qualified by the lettered paragraphs of s .5(1) - of that lease. A contract, between the lessee of a parcel of land held under a lease from the Commonwealth and the Commonwealth, for the grant by him to the Commonwealth of a sub-lease of that parcel, which contract was made, in the exercise of a
free choice and not in order to qualify himself to acquire the lease, before he acquired any right to the lease, neither confers an advantage, nor subjects to a disadvantage, which derives from a provision of the lease. Here, however each person whose bid at auction for the lease was accepted was a person who had made a contract for such a sub-lease. That apparently came about in consequence of the exercise of power conferred by s.13(3) of the city Area Leases Ordinance 1936, which provides:
"The Minister may, by order under his hand, direct that the right to bid at a specified auction for the rights to the grant of leases of specified parcels of land shall be restricted to persons included in a specified class of persons."
It would seem that the specified class was defined as those who had made such contracts. The city Area Leases Ordinance 1936 constitutes a substantial legislative scheme, in relation to the area to which it applies, by which the creation of
and regulated. Those circumstances in my opinion produce the leasehold interests in land by the Commonwealth is authorised result that for the purposes of a rating provision such as s.5(1) "the lease of the parcel of land" to which the sub- section refers is to be regarded as a lease of which a constituent element is the contract upon the existence of which before auction the right to the grant of the lease and the grant of the lease are conditioned by the Citv Area Leases
prdinance 1936 and the Minister's exercise of the power which the Ordinance confers. The rights conferred and the obligations imposed by the contract have been ineludibly attached to the rights conferred and the obligations imposed by the lease from the first moment at which a right to the grant of the lease exists, no matter in whom that right may vest. The contract is in one sense a voluntary transaction inter partes having a legal effect in the realm of contract independent of any other transaction with respect to the parcel of land. But in another sense the contract is by virtue of the operation of the Citv drea Leases Ordinance 1936 an integral part of the grant of the lease by the polity which both creates the interest in the parcel of land and, at least until the commencement of "self -governmentN, imposes the tax. In my opinion it is in the latter sense that the contract is to be understood when the application of s.5(1) of the Rates
and Land Tax Ordinance 1926 is in question. It might be objected that there is an incongruity in treating as if they were constituent elements of the lease personal obligations arising out of a contract. But the incongruity is substantially diminished by the following provision of that
contract -
"If prior to the granting of the Sub-lease the Sub-lessor assigns its interest in the Lease then the Sub-lessor at its expense will procure that such assignee enters into a Deed of Covenant with the Sub-lessee whereby such assignee agrees to perform the obligations of the Sub-lessor hereunder as if an original party to this Deed in consideration of which the Sub-lessee will covenant with such assignee to perform the obligations of the Sub-lessee hereunder. The release of the Sub-lessor on any such assignment shall be subject to the Sub-lessee's consent."
My conclusion is that, if the offer contemplated by s.5(1) had been an offer made on 15 May 1986, the "prescribed date", it would have been required of any person called upon to determine in accordance with s.5(1) what capital sum might be expected to have been offered on that date for the lease of the parcel of land here in question to have taken into account for the purpose of that determination that the lessee and the lessor under that lease were parties to an agreement in the terms of the agreement found by the Tribunal. And in my opinion paragraph S(l)(aa) operated to impose on the Administrative Appeals Tribunal, in respect of its determination in accordance with the sub-section of the capital sum that might have been expected to have been offered for the lease on 1 January 1985, the "relevant date", a requirement that the offeror be assumed to have made his offer on the footing that the lessee and the lessor under the lease were parties to such an agreement. Accordingly I would allow the appeal.
I certify that this and the 6 preceding pages are a true copy of the Reasons for Judgment of the Honourable Mr. Justice Jenkinson. Dated: 6 December 1990
THE FEDERAL COURT OF AUSTRALIA )
1
AUSTRALIAN CAPITAL TERRITORY 1
1 No. ACT G 5 of 1990 DISTRICT REGISTRX
i I DNERAL DIVISION i
ON APPEAL FROM THE GENERAL ADMINISTRATIVE
DIVISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL
BETWEEN: E.W. HAMILTON
Applicant
AND: DEMGOLD PTY LIMITED
Respondent
m: Jenkinson, Neaves and Wilcox JJ.
m: 6 December 1990
PEASONS FOR JUDGMENT
Neaves J. : This is an application by way of appeal pursuant to sub-s.44(1) of the Administrative A~oeals Tribunal Act 1975 (Cth) from a decision of the Administrative Appeals Tribunal ("the Tribunal") given on 20 December 1989. By that decision, the Tribunal varied the decision made by a delegate of the Minister of State for the Arts and Territories on 28 April 1989 under sub-s.29(2) (a) of the Rates and Land Tax Ordinance 1926 (A.C.T.), a decision which itself varied the amount at which the unimproved value as at 1 January 1985 of certain
land had been re-determined pursuant to sub-s.8(1) of that Ordinance. The Tribunal determined that the unimproved value of the land as at that date was $7.2m. The applicant has appealed from that decision, contending that the Tribunal should have determined such value at the sum of $8.5~1. The land in question, although its description has varied from time to time, is referred to by the Tribunal as Blocks 34 and 38, Section 8 and Block 7, Section 119, Division of Phillip in the Australian Capital Territory. The respondent, Demgold Pty Limited, is the lessee from the Commonwealth of Australia of that land.
The question at issue between the parties is whether, in ascertaining the unimproved value as at 1 January 1985 of the consolidated parcel of land comprising the blocks so described, account is to be taken of the terms of an agreement or arrangement made between the Commonwealth and a company known as Mirvac Pty Limited, the predecessor in title to the leasehold interest in the subject land now held by the
before the right to the grant of a lease over the land under respondent. That agreement or arrangement was made shortly the Citv Area Leases Ordinance 1936 (A.C.T. ) was obtained by Mirvac Pty Limited at an auction conducted on behalf of the Commonwealth pursuant to s.13 of that Ordinance. The parties agreed before the Tribunal that, if the terms of the agreement or arrangement were to be taken into account, the unimproved value of the subject land should be determined at $8.5m
Before proceeding further, reference should be made to the relevant provisions of the Rates and Land Tax Ordinance. It is appropriate to refer to those provisions in the form which they took prior to the coming into operation of the amendments effected by the Rates and Land Tax (Amendmentl Qrdinance 1988 (A.C.T.). It may be noted, however, that since the coming into operation on 11 May 1989 of certain of the
provisions of the Australian Ca~ital Territorv (Self - Government\ Act 1988 (Cth) and related legislation, the pates and Land Tax Ordinance 1926 (A.C.T.) is to be cited as the Pates and Land Tax Act 1926 (A.C.T.). That Act has, since that date or shortly thereafter, been administered by the Treasurer of the Australian Capital Territory and not by a Minister of State of the Commonwealth.
The sole purpose of the Rates and Land Tax Ordinance, as appeared from its long title, was to provide for the levying, imposition and payment of rates and land tax on land in the Australian Capital Territory.
By sub-S. l3(1), annual rates as declared under sub- s.13(2) were imposed in respect of all parcels of rateable land in the Territory. The Minister was required, by sub- s.14(1), to cause to be prepared assessments of the amounts of rates payable in respect of all parcels of rateable land in the Territory for each year and to cause to be given to the owner of each parcel of rateable land notice in writing of the assessment prepared in respect of that parcel and of the due date for the payment of the rates. At all material times, rates for a specified year were imposed at a percentage, specified by the Minister, of the unimproved value of the parcel of land (sub-s.13(2)).
By sub-s.22A(l), land tax as declared under sub- s.22A(2) was imposed in respect of all parcels of rateable land in the Territory other than parcels of land declared to be exempt by s.22B. The Minister was empowered, by sub- s.22A(2), to declare that land tax for a specified year in respect of each parcel of rateable land in the Territory, other than a parcel exempted under s.22BI was imposed at a specified percentage of the unimproved value of the parcel of land. Provision was made for the assessment of the amounts of land tax payable for each year (s.22C) and for the payment of the tax (s.22E).
With certain exceptions, all land in the Territory
including Crown land, was rateable in pursuance of the
Ordinance (sub-s.6(1)). The exceptions included land used for certain specified purposes and, in addition, Crown lands which were not leased and were unoccupied, other than land that, immediately before becoming unoccupied, was occupied by a lessee of the Commonwealth upon a weekly or fortnightly tenancy (sub-s.6(1)). A parcel of land the right to the grant of a lease of which had been obtained under the citv Area Leases Ordinance 1936 (A.C.T.) was to be deemed to have been
held under lease or leased on the date on which that right was
obtained (sub-s.6(2)).Section 7(1) provided that the Minister was, as soon as practicable after the commencement of the Rates Ordinance 1970 (A.C.T.), namely 17 December 1970, to determine the unimproved value, as at 1 January 1970, of all parcels of land in the Territory that were rateable on that commencement.
Where a parcel of land became rateable after 17 December 1970 and before the date on which a notice under 8.8 was published in the Commonwealth of Australia Gazette, the Minister was required, as soon as practicable after the date on which the parcel of land became rateable, to determine the unimproved
value of the parcel as at 1 January 1970 (s.7(2) ) . Section
8(1) provided:
"The Minister may, by notice in writing published in the Gazette, specify a date as the date as at which the unimproved value of all parcels of rateable land in the Territory is to be re-determined, and shall re-determine the unimproved value of each parcel of rateable land in the Territory accordingly."
value of a parcel of land where a clerical error had been made Section 10 provided for the re-determination of the unimproved or where there was a change in relevant circumstances. By s.9(1), where a parcel of land became rateable after the date on which a notice under 8.8 was published and before the first day of July next succeeding the date of publication of that notice or the date on which the next
succeeding notice under 8.8 was published, whichever first occurred, the Minister was required (par.(c)) to determine the unimproved value of that parcel in respect of the period commencing on the date on which the parcel became rateable and ending on the last day of June in the year in which the parcel became rateable as if the parcel had become rateable before the publication of the first-mentioned notice and (par.(d)) to determine the unimproved value of the parcel from the first day of July next succeeding the date on which the parcel became rateable as at the date specified in the first- mentioned notice under 6.8. Where a parcel of land became rateable on or after the first day of July next succeeding the date on which a notice under 6.8 was published and before the date on which the next succeeding notice under that section was published, the Minister was required to determine the unimproved value of that parcel of land as at the date specified in the first-mentioned notice (s.9(2)). A determination under s.9(1) (c) or 9(2) was to apply in respect of rates for the year that commenced on the first day of July
became rateable (sll(3)). A determination under s.g(l)(d) immediately preceding the date on which the parcel of land was to apply in respect of rates for the year that commenced on the first day of July next succeeding the date on which the parcel of land became rateable. Section ll(4) provided:
"A re-determination under section eight of this
Ordinance, made after the publication, after the commencement of the Rates Ordinance 1970, of a notice under that section, applies in respect of rates for the year commencing on the first day of July next succeeding the date on which the notice under that section in
respect of that re-determination is published in the
Gazette. "
A determination or re-determination that applied in respect of
rates for a year commencing on a first day of July was to continue to apply in respect of rates for all subsequent years until the year commencing on the first day of July next succeeding the date on which a notice under 8.8 was published or next published in the Gazette (s.ll(6)).
Provision was made for the recording and notification of particulars of the determination or re- determination of the unimproved value of each parcel of land (s.12), for an application to be made asking that the determination or the re-determination be varied (8.29) and for the review by the Administrative Appeals Tribunal of a decision varying or confirming a determination under 8.29 (s.30A).
Section 5 provided a statutory prescription of the
way in which the unimproved value of a parcel of land was to
be determined. It provided:
"5. (l) For the purposes of this Ordinance, the unimproved value of land held under a lease from the Commonwealth is the capital sum that might be expected to have been offered on the relevant date for the lease of the parcel of land, it being assumed -
(a)
that the only improvements on or to the parcel of land were the improvements (if any) by way of clearing, filling, grading, draining, levelling or excavating -
(i) where the Commonwealth had, before that parcel of land became rateable as a separate parcel, granted a development lease of land that included that parcel of land - made by the lessee under that lease or by the Commonwealth, or the cost of which was borne by the lessee or by the Commonwealth; or
(ii) in any other case - made by the Commonwealth or the cost of which was borne by the Commonwealth; and
(aa) that the circumstances that existed on the prescribed date also existed on the relevant date;
(b) that, on the relevant date, the lease had an unexpired term of ninety-nine years; (c) that the rent payable under the lease throughout the term of ninety-nine years commencing on the relevant date was a nominal rent; and (d) that, on the relevant date, the lease was not subject to section twenty-eight A or twenty- eight B of the Citv Area Leases Ordinance 1936- 1966.
(2) The unimproved value of a parcel of land held in fee simple is the capital sum that might be expected to have been offered for the fee simple of the parcel of land at a bona f@ sale on the relevant date on such reasonable terms and conditions as a seller would require, it being assumed that no improvements had been made on or to the land.
(3) For the purposes of this section - 'development lease', in relation to land, means a lease for the development of the land by or at the expense of the lessee by way of all or any of the improvements referred to in paragraph (l)(a), to the extent necessary to make that land suitable for subdivision into parcels of land to be leased;
'the prescribed date', in relation to a parcel of
land, means -
(a)
in the case of a determination of the unimproved value of a parcel of land -
(i)the date of commencement of the pates grdinance 1970; or
(ii)the date on which the parcel of land became rateable,
whichever is the later;
(b) in the case of a re-determination of the unimproved value of a parcel of land under section 8 - the date of publication of a notice under sub-section 8(1); or (c) in the case of a re-determination of the unimproved value of a parcel of land under section 10 - the date of a notice under sub-section lO(1); 'the relevant date', in relation to a parcel of land, means the date as at which a determination or re-determination of the unimproved value of the parcel of land is to be made under this Ordinance."
Sections 28A and 28B of the City Area Leases Ordinance prescribed restrictions on the transfer of certain leases of land from the Commonwealth to the detail of which it is unnecessary to refer.
A general practice was followed in the Territory that the unimproved value of all parcels of rateable land was
re-determined at three-yearly intervals. By a notice dated 2
May 1986 and published in the .Commonwealth of Australia Gazette on 15 May 1986, the then Minister of State for Territories, pursuant to sub-s.8(1) of the Ordinance, specified l January 1985 as the date as at which the unimproved value of all parcels of rateable land in the Territory was to be re-determined. It is common ground that the present was a case of re-determination of the unimproved
value of the parcel of land under 8.8 of the Rates and Land Tax Ordinance so that "the prescribed date" for the purposes of 8.5 of the Ordinance was the date of publication of the notice under sub-s.8(1), namely 15 May 1986, and that "the relevant date" for the purposes of that section was 1 January
The essential facts which give rise to the dispute between the parties may be shortly stated.
On 18 February 1985 the Commonwealth offered for sale by restricted auction "[tlhe right to the grant of a consolidated lease" of the subject land under the City Area Leases Ordinance. The lease was to be for a term of 99 years from 18 February 1985 and to contain a covenant that the successful bidder commence and complete within 9 and 30 months respectively from the date of the commencement of the lease, or within such further time as might be approved by the Commonwealth, in accordance with plans and specifications
approved by the Commonwealth a building, installations, facilities, car parking areas and landscaping at a cost of not less than an amount specified in respect of each of the three blocks in question. The premises so erected were to be used only for the purpose of offices and, ancillary thereto, one or more of the following purposes, namely for a bank, a bar, a cafe, a restaurant, a club, a co-operative society, a health centre, indoor recreation, personal services and professional office suites. Minima and maxima gross floor areas for the buildings were specified. Detailed conditions of development approval, including such matters as building height and form, were also specified in the documentation relating to the auction. It was stated that the unimproved value of the land for rating purposes as at 1 January 1982 was $2.0~1.
Bidding at the auction was restricted to those persons who, or organisations which, had previously negotiated with the Commonwealth the terms of a sub-lease for the whole of the proposed development over the three sites. It was a condition of the sale that the lessee would be required to sub-let the entire development to the Commonwealth for an initial term of 10 years with an unconditional option to extend the sub-lease for a further two terms of 5 years each. The documentation for the auction included a document headed "Basic Building Standards for Leased Office Accommodation" and a document headed "User Requirement Brief - Proposed
Accommodation, Phillip, A.C.T.". Intending bidders were to be required to furnish written evidence of an agreement with the
appropriate Department of the Commonwealth covering sub- leasing before being permitted to participate in the restricted auction. As has already been mentioned, the successful bidder at the auction was the company Mirvac Pty Limited. A few days prior to the auction there had been an exchange of letters between the company and the Commonwealth recording the result of negotiations concerning the terms and conditions of what was described as a "pre-commitment sublease with the Commonwealth". The letters referred to an agreement to sub- lease and a draft memorandum of sub-lease. The Tribunal, referring to the negotiations, said:
"In effect, what happened was that an agreement was reached that if Mirvac was successful in acquiring the lease at auction, the Commonwealth would enter into a sub-lease of the building which Mirvac would be required to erect on the land. The terms of the proposed sub- lease were agreed in considerable detail. The sub-lease was to be for a period of ten years, with two options for renewal each of five years. The size and finish of the building were specified in some detail. The sub-lease was to take effect from the date of practical completion of the building. Provision was made for payment of a substantial rental and for rent reviews every two years. Some idea of the size of the premises and the value of the sub-lease may be gleaned from the fact that, when it was formally executed, it provided for an annual rental of $2,838,723.50 per annum."
The lease granted to Mirvac Pty Limited under the City Area Leases Ordinance is not before the Court. It may, however, be assumed that it provided for the lease of the land to the company for a term of 99 years commencing on 18 February 1985 and contained covenants on the part of the
buildings and to the purpose for which the premises might be company relating to the commencement and completion of the used substantially to the same effect as the provisions contained in the auction documentation to which reference has already been made. The lease under which the land was held at the time the unimproved value of the land was re-determined is in evidence. It is a lease in favour of a company known as P.T. Limited which was granted on 6 November 1986 after, apparently, there had been a sale of the property by Mirvac Pty Limited. The relationship between P.T. Limited and the respondent is not explained in the material before the Court but nothing turns on that circumstance. The lease in favour of P.T. Limited makes no mention of the sub-lease to the Commonwealth the subject of the agreement or arrangement between Mirvac Pty Limited and the Commonwealth. It may be accepted, on the material before the Court, that the lease between the Commonwealth and Mirvac Pty Limited was also silent in that regard.
A sub-lease of the buildings in favour of the Commonwealth was not executed until 30 March 1987 by which time P.T. Limited had become the lessee of the land under the City Area Leases Ordinance. The sub-lease between that company and the Commonwealth records that the term for which the sub-lease was granted commenced on 13 October 1986, that date, it may be assumed, reflecting the date of practical completion of the buildings.
The task for the Tribunal was to determine as at 1 January 1985 "the unimproved value of the parcel of land" in accordance with the provisions of sub-s.5(1) of the Rates and Land Tax Ordinance, the text of which is set out above. That sub-section provided that, where a parcel of land was held under a lease from the Commonwealth, its unimproved value was to be the capital sum that might be expected to have been offered on the relevant date, in this case 1 January 1985, for the lease of the parcel of land upon the assumptions set out in the lettered paragraphs forming part of the sub-section.
One of the assumptions to be made was that prescribed in par.(aa), namely that the circumstances that existed on the prescribed date, in this case 15 May 1986, also existed on the relevant date, namely 1 January 1985. Counsel for the applicant relied on this provision as requiring the assumption to be made, in making the valuation for the purposes of the Ordinance, that the arrangement or agreement between Mirvac Pty Limited and the Commonwealth which has been characterised as a "pre-commitment sub-lease" was in existence on 1 January 1985 notwithstanding that it was not, in fact, in existence on that date and that its efficacy depended upon that company being the successful bidder at the restricted auction which was not held until 18 February 1985. It was argued that, as par. (aa) of that sub-section contained no words of limitation as to the circumstances which existed on the prescribed date which were to be assumed to have existed
construction, required the assumption to be made that all of on the relevant date, the paragraph, on its proper the circumstances that existed on the prescribed date, including the pre-commitment sub-lease, existed on the relevant date.
It was further argued by counsel for the applicant that, once it was accepted that the agreement or arrangement between Mirvac Pty Limited and the Commonwealth was a circumstance falling within par.(aa) of sub-s.5(1), the Ordinance required that that arrangement or agreement be taken into account in determining the unimproved value of the subject land at the relevant date.
Paragraph (aa) was inserted into sub-s.5(1) by the pates (Amendmentl Ordinance f~o.2i 1983 (A.C.T.). It must be conceded that the language of the paragraph is very general but, in my opinion, it cannot be supposed that the legislature, in adding that paragraph, intended that, thereafter, valuation8 were to be made on assumptions which were at variance with the specific assumptions referred to the other paragraphs of the sub-section, paragraphs which were in place prior to the insertion of par.(aa). For example, if a case were to be assumed in which improvements had been made on or to a parcel of land between the relevant date and the prescribed date, it is not to be supposed, in view of the express terms of par. (a), that, in determining the unimproved value of that parcel, the assumption required by that
paragraph was to be displaced and the improvements in existence on the prescribed date were to be taken into account. It may be accepted for the purposes of argument, and I do not understand counsel for the respondent to have submitted to the contrary, that par.(aa) required an assumption to be made, contrary to the fact, that the arrangement or agreement between Mirvac Pty Limited and the Commonwealth for the sub-lease to the Commonwealth of the projected premises was in place on 1 January 1985. It does not follow, however, from the requirement that that assumption be made that the terms of the arrangement or agreement were required to be taken into account in determining the unimproved value of the subject land at the relevant date. It would only be required to be so taken into account if it were a factor relevant to the determination of the unimproved value of the parcel. What factors were relevant to that determination depended not on the construction of par. (aa) of sub-s.5(1), as counsel for the applicant contended, but on the proper meaning and effect of the expression appearing in that sub-section, namely "the capital sum that might be expected to have been offered on the relevant date for the lease of the parcel of land".
Sub-section 5(1) proceeded on the hypothesis of a
sale, on the relevant date, of the lease of which the sub-
section spoke, no effect being given, for example, to any
provisions of ss.28A or 28B of the City Area Leases Ordinance impediment to such a sale arising from the operation of the (see sub-s.S(l)(d)). The sub-section proceeded on the further hypothesis that, at the relevant date, no improvements on or to the subject land had been made other than those referred to in par. (a) of the sub-section. It is also apparent from the terms of sub-s.5(1) that it was not to the entirety of the terms of the lease over the land which had, in fact, been granted by the Commonwealth to which regard was to be had in the valuation process. It was to a hypothetical lease that the sub-section directed attention, assumptions having to be made as to such matters as the unexpired term of the lease as at the relevant date and the amount of rent payable throughout that assumed unexpired term.
Clearly, as the Tribunal recognised, the potentiality which the land had for future development was an important factor bearing on its value. That potentiality was to be assessed having due regard to the purpose clause contained in the lease in fact granted and, it may be, the provisions of the City Area Leases Ordinance under which that purpose clause might be varied. Further, as the Tribunal found, the subject land had, at the relevant date, an obvious potentiality as the site of a future major commercial building which the Commonwealth would probably be anxious to occupy as a sub-tenant, that potentiality being reflected in the agreed figure of $7.2m. to which reference has already been made.
Equally clearly, there would be other factors extraneous to the actual lease itself to which regard would need to be had in the valuation process in so far as their existence would be likely to affect the unimproved value of the parcel. Such factors would include advantages and disadvantages in the enjoyment of the land having their source in legislative provisions of general application in the Territory.
But the question that now arises is whether sub- s.5(1) required that a benefit derived from, or a restriction imposed by, a transaction inter partes was to be taken into account in the valuation process. It may be accepted, as the Tribunal found, that to have assumed the existence as at the relevant date of what has been called the "pre-commitment sub- lease" would have been to assume that the holder of the lease had, in addition to the rights arising thereunder, valuable contractual rights as against the Commonwealth and that the effect of transferring those rights to the hypothetical purchaser of the lease of which sub-s.5(1) spoke would have been to attract a larger consideration than might have been expected from a sale of the lease without those additional contractual rights. But to accept that proposition does not, in my opinion, require that the issue between the parties be resolved in favour of the applicant. For it follows from the analysis of sub-s.5(1) that that sub-section did not require that a valuation be made of the totality of the rights in relation to the subject parcel of land which resided, or were
of the hypothetical lease to which the provision refers. So assumed to reside, in the owner at the relevant date but only construed, the sub-section required that consideration of contractual rights and liabilities arising inter partes be excluded from the valuation process, it being immaterial whether those rights and liabilities arose by reason of contractual arrangements made with the Commonwealth or with a third party.
In my opinion, the conclusion reached by the Tribunal accords with the language of the Ordinance construed in the light of the policy appearing from its terms. I would, therefore, dismiss the appeal, affirm the decision of the Tribunal and order that the applicant pay the respondent's costs of the application.
I certify that this and the
preceding 18 pages are a true copy of the Reasons for Judgment herein of the Honourable Mr Justice Neaves .
Dated: 6 December 1990
IN THE FEDERAL COURT OF AUSTRALIA ) 1 fiUSTRALIAN CAPITAL TERRITORY
1 No. ACT G5 of 1990 DISTRICT REGISTRY
i \ GENERAL DIVISION j
ON APPEAL FROM THE GENERAL ADMINISTRATIVE
DIVISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL
BETWEEN: K.W. HAMILTON
Applicant
AND: D E M G O L D P T Y
LIMITED
Respondent
CORN: Jenkinson, Neaves and Wilcox JJ
: 6 December 1990
PLACE: Canberra
REASONS FOR JUDGMENT
WILCOX J: I have had the advantage of reading in draft form
the reasons of Neaves J. His Honour there sets out the facts of the case and the relevant statutory provisions. I need not
repeat them.
I have not found this matter easy of resolution, but, in the end, I have reached a conclusion which accords with that of Neaves J. and the Administrative Appeals Tribunal. In my opinion the decision of the Tribunal should be affirmed and the appeal dismissed.
The Rates and Land Tax Act 1926 proceeds on the basis that the unimproved value of a parcel of leasehold land is to be determined as at "the relevant date". That time is defined by s.5(3) as "the date as at which a determination or re-determination of the unimproved value of the parcel of land is to be made under this Act". In the present case that date was 1 January 1985; because the Minister, pursuant to s.8, so decreed.
But for the amendments made in 1983, those involved in the valuation of the subject land would have been concerned only with the position as at that date. However, in 1983, the Act, then called the Rates Ordinance, was amended so as to adopt a concept described as "the prescribed date" and to insert para.(aa) into s.5(1). This paragraph requires the valuer to make an assumption "that the circumstances that existed on the prescribed date also existed on the relevant date". In the present case the "prescribed date" was 15 May 1986, some 16 months after the "relevant date". What is meant
by the requirement that the valuer assume the existence of the circumstances prevailing at that date? It seems clear that the legislature intended that the valuer take into account any change in the physical circumstances of the land; for example, the construction of a new road or community facility. But the word "circumstances" is not qualified by the adjective "physical" and it seems reasonable to accept that it extends to non-physical circumstances; for example, the introduction or termination of a bus service. Counsel joined in the
suggestion that "circumstances" would extend to a change in political circumstances, whether of a national nature or referable to the local area, or a change in the economy. But does it extend to changes in the money values of land? If so, how is this different from saying that the land is to be valued as at the "prescribed date"; the "relevant date" becoming irrelevant - except, perhaps, in determining what parcels are to be valued. If not, the valuer may be required to carry out an exercise which owes more to speculation than to assessment. I construct an example from the present facts. Assume that, during the year 1985, there had been a steady increase in relevant land prices; but without any particular incident that upset the market. Assume that, in March 1986, a political or economic event put the market into a sharp decline, to levels below those at 1 January 1985. If "circumstances" does not extend to general market trends but does include the event which precipitated the decline, the valuer would be asked to assess values as at 1 January 1985 upon the assumption of an event which did not occur until 15
months later. There would be no sales which directly reflected the assumptions which had to be made. Sales prior to March 1986 would not take account of the precipitating event; sales after March 1986 would not reflect the general level of values which applied on 1 January 1985.
The concept of a "prescribed date" was, apparently, introduced into the Act because of the difficulty of making all the required valuations at one time. I understand that difficulty, but it seems to me that the concept does not overcome the problem. Because he or she is bound to have regard to the circumstances that exist on the "prescribed date", the valuer cannot, in any event, complete any valuation until that time. No doubt preparatory work may be done before the "prescribed date", in the hope that there will not be any significant change in circumstances before that day. But that would equally apply to a valuation which was related only to the "relevant date". Regardless of the outcome of this case, the Australian Capital Territory legislature might profitably re-consider the scheme of s.5. It seems to me that there is much to be said for the adoption of a single date, as both the date at which the valuation is to be made and the date at which the relevant circumstances must be considered.
The use in para.(aa) of s.5(1) of the word "circumstances" highlights the issue involved in the appeal. But para.(aa) did not create that issue, which would exist without the paragraph; and, indeed, has been inherent in the
the opening words of sub-s.(l). section since its original enactment. The issue arises out of Before going to those words themselves, it is helpful to recall the role of s.5(1).
As it then stood, s.13
provided for annual rates to be imposed in respect of "all parcels of rateable land" in the Territory. Section 6 provides that all land in the Territory, including Crown land, is rateable except for certain listed lands; notably including
Crown lands which are unleased and unoccupied. Speaking generally, Crown land becomes rateable when it is first leased by the Crown. It therefore becomes necessary to determine a value for the leased parcel. Section 5(1) prescribes how this is to be done.
Although the exercise required by s.5(1) is the determination of "the unimproved value of a parcel of land held under a lease from the Commonwealth", the value which is to be written by the valuer "is the capital sum that might be expected to have been offered on the relevant date for the lease of the parcel of land" upon certain assumptions. In relation to those assumptions, the valuer is required to disregard the true facts in favour of the specified assumptions. Thus para.(a) requires an assumption about improvements, whatever the true condition of the property. Paragraph (aa) requires the valuer to assume that the "circumstances" existing on a later day also existed on the date at which the valuation is to be made. Paragraphs (b) and
assume that, at the "relevant date", the lessee held an (c) require that, whatever the true position, the valuer unexpired term of 99 years at a nominal rent; and para.(d)
that the lease was not subject to s.28A or 28B of the
Area Leases Act 1936. But, except in relation to those
assumptions, the valuer is required to take the lease as it
is, asking how much would be offered at a hypothetical sale ofthe right to take that lease. All factors which would have influenced that offer should be taken into account, be they
physical factors such as the location of the land, its access and services and its suitability for a particular use; legal restrictions on the type and scale OF development, whether they arise under the provisions of the lease or under general legislation; economic factors; political factors and announcements, whether applying generally or to the particular part of the Territory or the particular parcel of land. To illustrate the latter point - without suggesting that this might come to pass or, if so, with what result - let me assume that the responsible Minister announced that a particular parcel of land had been selected as the site of Canberra's only permissible casino. In making a valuation of that parcel under S .S ( l), the valuer would need to consider whether that announcement would have affected the price which would have been offered, at a Commonwealth auction of the right to lease that land as an unimproved parcel with an unexpired term of 99 years at a nominal rental, at the relevant date; and, if so, to fix the value accordingly. Information derived from sales of otherwise comparable parcels would have to be adjusted to
particular example, of a unique use without a sale of the
take account of the effect of the announcement. In the
parcel itself, the task might be very difficult; but only by having regard to the casino announcement could the valuer determine the likely offer "for the lease of the parcel of land".
The formula embodied in s.5(1) - "the capital sum
that might be expected to have been offered on the relevantdate for the lease of the parcel of land" - is an unusual one. The explanation of that wording, no doubt, is that, in s .5(1) of the Rates and Land Tax Act, the legislature was concerned only with leased Crown land. It wished to put all lessees on an equal footing, whether they were original lessees or not. So the valuer was required to assume a Crown auction at the relevant date. The Commonwealth was to be assumed to be a willing vendor of the right to take the lease. The question is, how much would have been offered at the sale for that entitlement?
I think that, when the question is stated in this way, the proper application of s.5(1) becomes apparent. The valuer is required to take into account all the advantages and disadvantages which would have flowed to a person who acquired the lease governing the subject site at the relevant day; having regard to the actual terms of the lease, except where they conflict with the specified assumptions. The valuer must assume a fresh lease, as at the relevant day. He or she is
may have subsequently enured to the leaseholder; for example, not concerned with any contractual rights or obligations which by the grant of a sub-lease or other interest in the land. But, whatever would have passed with the leasehold interest itself is to be taken into account.
In the present case, the valuer is required to
assume a sale of the relevant lease as at 1 January 1985, but
on the basis that the circumstances which applied on 15 May1986 then existed. By 15 May 1986 a firm agreement had been reached between Mirvac Pty Limited and the Commonwealth for the sub-lease of the building. The Commonwealth was willing to implement that agreement. This position was generally known. Bidders at the hypothetical auction must, therefore, be taken to have been aware that the Commonwealth was willing to enter into a sub-lease in the terms agreed with Mirvac. Such an awareness would have increased the value of bidders' offers because the terms were favourable. By taking the lease, the purchaser would secure the opportunity to negotiate a sub-lease on those terms.
However, it is important to note that the obligation of the Commonwealth to take a sub-lease was not embodied in the lease itself. A person who acquired the right to lease the parcel at the hypothetical auction would have purchased with a high expectation of sub-letting the buildings to the Commonwealth, on the terms which it had agreed with Mirvac.
But the purchaser would not have acquired a legal right to
obligation of the Commonwealth arose out of its separate force the Commonwealth to take the sub-lease. The legal agreement with Mirvac. Section 5(1) does not require an assumption that this separate agreement was also purchased at the hypothetical auction.
At this stage, it is necessary to recall the terms
of the agreement between the parties when the matter was
before the Tribunal. As recorded in the Tribunal's reasons,the agreement was "that if the pre-commitment sub-lease was to be excluded from consideration in arriving at its value, then its value as at 1 January 1985 should be determined at the sum of $7.2 million" whereas "if consideration of the pre- commitment sub-lease was not to be excluded" it should be determined at $8.5 million.
In the view I take of the issue, the wording of this agreement is not very apt. But I think that its intent is clear. At an earlier point in its reasons, the Tribunal had noted the advantages which Mirvac had gained by the agreement which it made with the Commonwealth before purchasing the right to lease. Those advantages were: "a guarantee that the Commonwealth would lease the whole of the building it intended to erect on the land"; that "rental would be paid as from the date of completion, i.e. there would be no delay in finding a tenant"; the "Commonwealth commitment" facilitated the raising of construction finance; and a provision for rent review. The first three, at least, of these advantages depended upon the
Commonwealth, as distinct from there merely being a position lessee having a legally enforceable right against the where the Commonwealth was known to be interested - even very
interested - in taking a sub-lease of the buildings.That, in selecting their two figures, the parties intended to distinguish between a situation where the valuer was to assume a legal commitment by the Commonwealth, and a situation where the valuer was not, is confirmed by a later passage in the Tribunal's reasons in which it contrasted the advantage which was constituted by the "pre-commitment sub- lease" with the potential enuring to the land from the knowledge of any purchaser "that he could erect a substantial commercial building on the land and would have confidently expected the Commonwealth to take a sub-lease of all the space in the building".
If it be correct to understand the agreement between the parties in this way, it follows from the agreement that the value ought to be determined at $7.2 million. Although the hypothetical purchaser acquiring a lease would have a high expectation of entering into a favourable sub-lease with the Commonwealth, there would be no guarantee. The hypothetical purchaser would lack the enforceable right required to support the figure of $8.5 million.
I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the
Honourable Mr Justice Wilcox.
associate
Dated: 6 December 1990
Counsel for the Applicant: T Simos, QC and P Walker
Solicitors for the Applicant: A C T G o v e r n m e n t
Solicitor
Counsel for the Respondent: P Shiels, QC and I Gillespie-Jones Solicitors for the Respondent: Gillespie-Jones & CO Date(s) of hearing: S November 1990
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