In the Matter of Brickworks Markets Pty Ltd Carter, Bruce James
[1997] FCA 301
•21 APRIL 1997
CATCHWORDS
CORPORATIONS LAW - directions sought by administrator under s 447D as to how to deal with lease - order sought by administrator under s 444C for leave to assign lease - lease granted by local government rating authority - whether clause obliging lessor to pay or discharge rates valid - construction of lease - orders not made.
LEASES - lease granted by local government rating authority - clause obliging lessor to pay or discharge rates - lease valid when entered into as subject land not then rateable under Local Government Act 1934 (SA) - amendments to Act making leased land rateable - whether clause referred to then enforceable - whether local government rating authority could contract to itself pay or discharge rates assessed - clause valid but not operative whilst local government rating authority was lessor.
Corporations Law ss 442C and 447D
Local Government Act 1934 (SA) ss 168, 168(2), 182, 183,
185(3), 185(3)(b), 187, 188, Part IX and Part X
York Corporation v Henry Leetham & Sons Ltd (1924) 1 Ch. 557
R W Miller & Co Pty Ltd v Shortland County Council (1988)
63 ALJR 124
Baker v Hedgecock (1888) 39 Ch.Div. 520
Kenyon v Darwen Cotton Manufacturing Company Ltd (1936)
2 KB 193
Archbolds (Freightage) Ltd v S. Spanglett Ltd [1961] 1 QB 374
Edler v Auerbach (1950) 1 KB 359
No SG 3132 of 1996
IN THE MATTER OF BRICKWORKS MARKETS PTY LTD
(SUBJECT TO DEED OF COMPANY ARRANGEMENT) ACN 050 166 213
BETWEEN:
BRUCE JAMES CARTER Applicant
Mansfield J
Adelaide
21 April 1997
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY ) No SG 3132 of 1996
)
GENERAL DIVISION )
IN THE MATTER OF
BRICKWORKS MARKETS PTY LTD
(SUBJECT TO DEED OF
COMPANY ARRANGEMENT)
ACN 050 166 213
BETWEEN:
BRUCE JAMES CARTER
Applicant
MINUTES OF ORDER
CORAM: Mansfield J
PLACE: Adelaide
DATE: 21 April 1997
THE COURT ORDERS THAT:
The declaratory relief sought be refused.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY ) No SG 3132 of 1996
)
GENERAL DIVISION )
IN THE MATTER OF
BRICKWORKS MARKETS PTY LTD
(SUBJECT TO DEED OF
COMPANY ARRANGEMENT)
ACN 050 166 213
BETWEEN:
BRUCE JAMES CARTER
Applicant
REASONS FOR JUDGMENT
CORAM: Mansfield J
PLACE: Adelaide
DATE: 21 April 1997
The Nature of the proceedings
The applicant was on 7 August 1996 appointed administrator of Brickworks Markets Pty Ltd (subject to Deed of Company Arrangement) ("the company"). On 4 November 1996 a meeting of the creditors of the company convened by the applicant in his capacity as administrator, and pursuant to s439A(1) of the Corporations Law ("the Law"), resolved pursuant to s439C of the Law that the company execute a Deed of Company Arrangement in terms put to the meeting. Accordingly, on 25 November
1996, a Deed of Company Arrangement was entered into by the company and by the applicant ("the Deed").
The purpose of the Deed was to enable the company to continue to trade under the control of the applicant until the whole of its business undertaking and assets could be sold, and the net proceeds of that sale applied in accordance with the Deed. Pursuant to his powers under the Deed, on 28 December 1996, the applicant entered into a contract for the sale of the company's leasehold interest in certain land for the sum of $1.21 million ("the sale contract"). It is a condition of the sale contract that the company obtain from the Corporation of the Town of Thebarton ("the Council") a consent to an assignment of the lease the subject of the sale contract, and an acknowledgment from the Council that rates are not payable by the lessee or rates in respect of the leased land are otherwise paid or to be discharged by the Council.
The Council has not consented to the assignment of the lease the subject of the sale contract to the proposed purchaser.
This application was instituted before the sale contract. At that time it was in the nature of an application made pursuant to s447D of the Law, by virtue of which the applicant sought directions as to the steps which the applicant should take in dealing with a certain lease between the Council and the company dated 22 February 1982 ("the lease"). It is the lease which is the subject of the sale contract. The affidavit then in support of that application specifically questioned what the applicant should do having regard to clause 2(2) of the lease which provides:
"That the Lessor will pay or discharge all Council or Municipal rates or taxes assessed in respect of the said land".
The circumstance giving rise to the problem, from the applicant's point of view, was that the Council has taken the view that it will not pay, and cannot legally pay, rates or taxes assessed in respect of the land the subject of the lease, and the amount outstanding is now in the order of $500,000. Obviously the capacity of the applicant to sell and transfer the lease, and so generally to sell the business of the company conducted on the premises the subject of the lease pursuant to his powers under the Deed, depends on whether clause 2(2) of the lease has effect so as to insulate the company, and any successor in title to the company, under the lease from liability or potential liability to pay rates and taxes assessed by the Council in respect of the land the subject of the lease.
The existence of the sale contract brought the problem to a head. As a result of that, the applicant pursued not simply the application for directions, but also sought an order from the Court under s442C(2)(c) of the Law for leave to sell and assign the lease which otherwise, by reason of the Council's ownership, and without its written consent, he was not entitled to do: s442C(1) and (2)(b) of the Law. The Court may give such leave if the disposal is not otherwise with the written consent of the owner, but it is directed under s442C(3) to give such leave only if satisfied that arrangements have been made to protect adequately the interests of the owner.
As it became apparent that the real question was as to the effect of clause 2(2) of the lease upon the company and the Council, the Council was duly served with those proceedings. It appeared in the action generally.
Counsel for the applicant indicated at an early point that the issue as to the status of the lease generally, including the enforceability of clause 2(2), had been raised separately in proceedings in the Supreme Court of South Australia in Action 134 of 1994, in which the company was plaintiff and the Council was defendant. By order made by consent of the parties to that action, the Supreme Court of South Australia on 27 February 1997 transferred those proceedings to this Court pursuant to s5(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987. Those proceedings are now also before me.
The background
Before turning to identify the issues before the Court, it is helpful to note certain uncontentious background matters. The summary below is taken essentially from the recital of facts in the decision of Perry J given in the Supreme Court action now cross-vested to this Court, the detail of which appears below.
At all material times the Council has been the owner of certain land situated at South Road, Torrensville, and from about 1987 the company has conducted from that land a business known as the Brickworks Market. That land is part of a larger area of land which at one time formed part of or adjoined a pughole popularly known as the "Hallett's Brickworks" which land was acquired by the Council between about 1967 and 1979.
On 17 November 1980, a Mr Brian Rule then a director of Bohle Industries Pty Ltd forwarded to the Council a proposal for the development of that land. Bohle Industries Pty Ltd subsequently changed its name to Rule Industries Pty Ltd. That proposal included the suggestion that the Council would grant a 99 year lease of that land, a condition of which would be that the lessor would discharge the lessee from any rates applying to the land proposed to be leased for the duration of the term of the lease. On 21 August 1981 the Council and Rule Industries Pty Ltd executed an Indenture evidencing an agreement between them relating to the proposed development, including a number of pre-conditions to which it is now unnecessary to refer.
On 22 February 1982, pursuant to that Indenture the lease was executed by the Council as lessor and Rule Industries Pty Ltd as lessee. It was duly registered. Both the applicant and the Council indicated in submissions that the fact of registration had no especial significance in resolution of the matter upon which the Court is now asked to adjudicate. It was then contemplated that there would be developed on that land a market style shopping complex together with amusement and entertainment facilities, to be occupied by individual stall holders under license from the lessee. In fact, that proposal generally speaking came to fruition from about 1982.
The company was incorporated on 29 January 1980 under the name Briwyl Pty Ltd and changed its name to Leisure Time Properties Pty Ltd on 7 August 1987. The lease was transferred to the company, by two separate instruments dated 22 September 1987 and 20 November 1987, and subsequently the company changed its name to Brickworks Markets Pty Ltd on 15 February 1989.
The lease is over portion of the land comprised in Certificates of Title Register Book Volume 4145 Folio 996, Volume 4034 Folio 263, and Volume 2489 Folio 15 ("the land"). It is for a term of 99 years from and including 22 February 1982. The rental is $100000 per annum payable in advance in equal calendar monthly instalments of $8333 on the first day of each month during the term. It also includes the following lessee's covenant:
That the Lessee shall and will from time to time and at all times during the said term as the same shall respectively became due and payable, bear, pay, discharge and satisfy, or cause to be paid, discharged and satisfied all, and all manner of rates, taxes, (excluding Municipal or Corporation rates), charges, assessments, duties, impositions, and outgoings of every kind (which at any time during the said term shall, or may be, rated, taxed, charged assessed or imposed, be or become payable, upon, or in respect of the land hereby demised".
The lessor's covenants include:
That the Lessor will pay or discharge all Council or Municipal rates or taxes assessed in respect of the said land".
It also contains the usual covenant to permit assignment or transfer of the land subject to the lessor being satisfied as to the standing of the proposed transferee and such matters.
The mutual covenants included a rent review clause. At the option of the Council, by notice to be given on or before six months before the 33rd or the 66th year of the term, a rent review to the "current annual market rental value" of the land could be required. Effectively, the annual rental of $100000 per year was fixed for 33 years, and then be subject to review and then be fixed further for another 33 years, and only then again be subject to review, fixed to the end of the term. It contained typical clauses for resolution of the current annual market rental value in the event of disagreement between the Council or the lessor, and the lessee, on the two occasions for review. The valuers
appointed to determine the correct annual market rental value of the land were directed to take into account the provisions of the lease, the length of the review period, and other matters. It is unnecessary to otherwise refer to the terms of the lease.
Clause 2(2) of the lease was given effect to up to 1990 in the sense that neither Rule nor, later, the company was, before that year, called upon to pay any rates assessed in respect to the land.
By letter of 30 April 1990, addressed to the company from the Council, the Council stated:
"The Council has received legal advice that it is not empowered to grant a rate holiday in respect of land at the Brickworks Markets site. It has been advised that it is only empowered to act in accordance with the Local Government Act and that it has an obligation to collect rates in respect to all rateable property within its area unless it exercises a discretion given to it by statute which enables it to do otherwise.
The Council is therefore obliged to collect current (sic) all previous years rates on land at the site for which the Council ought to have and has not yet received its income."
As at 4 November 1993 rates had been assessed by the Council with respect to the leased land in the total sum of $483,252.41 and further rates have been assessed for the period since then.
The issue
This Court, by the various procedural vehicles described, is now seized of the matters identified. The applicant on behalf of the company seeks final orders to the effect that, pursuant to clause 2(2) of the lease, and in the events which have happened, the Council somehow must bear the burden of any rates and taxes assessed in respect of the land the subject of the lease.
The relevant events include the enactment of the Local Government Act Amendment Act 1988 (SA), which substantially restructured the Local Government Act 1934 (SA) ("the principal Act") including in particular inserting a new "Part X - Rates and Charges on Land", in lieu of the statutory regime for rates and charges which existed at the time of the lease. The relevant events also include the Council having assessed rates with respect to the land since 1 January 1989 when that amendment to the principal Act came into force, and claiming those rates from the company. Under that legislation, the company is principally liable for those rates as assessed.
What is sought therefore is expressed to be a declaration that pursuant to clause 2(2) of the lease, the Council has the obligation to pay or discharge the rates and taxes for which the company is principally liable.
It is accepted by the applicant that the Council has from time to time, pursuant to the principal Act, properly declared a general rate applicable to land within the Council's local government area generally, including over land of which it is the owner, and that the company as occupier of land of which the Council is owner is principally liable to pay the rates and taxes assessed in respect of the land. It is not sought to contend that the terms of the lease can change that. Nevertheless the order is sought, somehow, to operate in personam based on the terms of the lease. For its part, the Council seeks that that declaration should be refused, and that for the sake of clarity the Court should declare that the Council is not obliged as a matter of law to pay or otherwise discharge all or any council or municipal rates or taxes assessed on the land the subject of the lease under clause 2(2) of the lease.
If the Court makes the declaration sought by the applicant, the applicant's intent is that as a consequence in some way the Council will not, at least in a practical sense, be able to recover the rates assessed since 1989 and continuing, and the lease will be able to be assigned (subject to either the Council's consent or with the leave of the Court then to be pursued under s442C(2)(c) of the Law) in circumstances where the proposed assignee will know whether the lease does or does not somehow insulate it from the obligation at law under s183 of the principal Act, being in the circumstances an obligation imposed on the occupier as the principal ratepayer because the Council is the owner of the land, to pay the rates assessed by the Council from time to time. If, on the other hand, the declaration sought by the Council is made, it is accepted that as a consequence the proposed assignee of the lease would then not be bound by the sale contract and the applicant will have lost the opportunity of assigning the lease, at least upon the terms which presently are on offer. The sale contract with the proposed assignee has made it plain that it will not be obliged to take an assignment of the lease unless its position is so protected.
The Supreme Court Action
The Supreme Court action (which I shall now call "the principal proceedings") were instituted on 31 January 1994, by the company against the Council.
The company then sought a declaration that the Council as lessor was obliged pursuant to the terms of the lease to discharge the rates and taxes assessed from time to time in respect of the land and in some form sought specific performance of clause 2(2) of the lease whereby the Council would either pay or discharge the rates as they otherwise become payable by the company. In the principal proceedings, the Council denied that obligation and asserted that clause 2(2) of the lease was void and unenforceable for a variety of reasons, including that it was ultra vires at the time of the lease and so void, that it was too vague to be enforceable, that in any event rates assessed by the Council were recoverable against the individual stall holders rather than against the land, that in respect of some years the company was statute barred from disputing its liability to pay the assessed rates, and that the lease was void in any event as being a disposition of an interest in land which in part was 'parklands' under Part XXII of the principal Act for longer than 21 years, in the circumstances contrary to s457 of the principal Act, and in any event if the land was not, or not all, parklands nevertheless it was a disposition of an interest in land for longer than 50 years, in the circumstances contrary to s382 of the principal Act as it was in 1981. It counterclaimed for appropriate declaratory relief. The company's reply to that defence included pleas that the Council was estopped from making and maintaining a number of those defences.
A number of issues were refined for determination by the Supreme Court (Perry J) and ultimately on 13 June 1996 Perry J gave Reasons for Judgment and a decision in respect of those matters. It is accepted by the parties before the Court that the conclusions of law of Perry J and the facts agreed upon, and upon which Perry J made his decision, also provide the foundation upon which the Court is now asked to consider and determine the present application. In other words, the Court is asked to assume that as between the applicant, the company and the Council the findings of fact which Perry J made or recorded, largely upon the agreement of the parties to the principal proceedings, for the purposes of his decision and the conclusions of law, or of mixed fact and law, which
Perry J reached, as recorded in his reasons for decision, should provide the basis for the further consideration of the matter now in dispute. The Court was also told by counsel for the applicant that the company no longer sought to maintain the issues of estoppel raised in its reply, and by counsel for the Council that the several defences raised by it and still outstanding in the light of Perry J's decision were also no longer pursued.
In practical terms, it was commonly acknowledged that the one remaining issue between the parties was as to the enforceability of clause 2(2) of the lease in some way against the Council. The answer to that question would resolve and determine how the future administration of the company would be conducted by the applicant, at least in relation to the business conducted at the Brickworks Market on the land, and more importantly how successful the applicant would be in causing realisation of that asset of the company on favourable terms. It is contemplated by the parties that, subject to that issue being determined, the only remaining issue in the present proceedings before the Court would then be as to whether the Court should grant leave under s442C(2)(c) of the Law in the event that, as between the applicant and the Council, a written consent to the assignment of the lease is not forthcoming.
It was in those circumstances that I was prepared on the materials available to hear and determine the issue which the parties now seek to have determined. It will not be
appropriate in the circumstances, depending upon the resolution of that question, for the applicant to seek to revive other matters which the company previously had asserted either by way of the basis of its claim or defence to the counterclaim or in its reply in the principal proceedings, nor for the Council to revive any of the matters which it raised in its defence to the claim or in its counterclaim in the principal proceedings, except to the extent that and in the event that such matters are or become relevant to any consideration of whether, over its opposition, leave should be given by the Court under s442C(2)(c) of the Law to the assignment of the lease and in particular such matters as are relevant to its interests to which the Court must then have regard if such leave is sought under s442C(3) of the Law.
In an immediate sense, the appointment of the applicant as administrator of the company has brought the focus of the company through the applicant, and of the Council, specifically to the effect of clause 2(2) of the lease and has indicated that other issues previously proposed to be ventilated are no longer necessary to be aired in proceedings.
It is therefore necessary to consider the background and nature of the issues which Perry J has resolved.
There were a number of questions upon which Perry J was asked to adjudicate. The questions asked, and the answers, are as follows:
"Point 1.1
(a) Whether any or all of the land subject to the lease exhibited in schedule 3 of the Agreed Facts filed herein ("the said lease") was parklands subject to s457 of the Local Government Act at the date of the said lease.
(b) If yes to (a) whether s382d empowered the Defendant to lease parklands for the purpose of an approved scheme for a period of 99 years, and without a resolution of the ratepayers of Thebarton pursuant to s457(4) of the said Act being passed.
Answer
The Court is unable to answer this question on the material presently before it.
If 1.1(a) is answered "yes", the answer to this question is likewise "yes".
Point 1.2
If yes to 1.1(b):
(a) Whether the said lease on its true construction permitted the lessee to use the land only in accordance with the Scheme of development approved pursuant to s382d of the Local Government Act.
(b) If no to (a) hereof, whether s382d empowered the council to enter into the said lease.
If 1.1(b) if answered "yes", the answer to this question is likewise "yes".
Unnecessary to answer.
Point 1.3
If the Council was not empowered to enter into the said Lease, whether the said lease is void, voidable and/or unenforceable, not taking into account the question of estoppel.
Unnecessary to answer.
Point 1.4
(a) Whether Council was empowered to agree to a clause in terms of 2(2) of the said lease.
(b) Whether Council was empowered to enter into a lease which incorporated Clause 2(2) of the said lease.
Yes, but the clause could only be of operation if the council ceased to be the owner of the land.
Yes, in the circumstances applicable at the date the lease was entered into.
Point 1.5
If no to 1.4(a) or 1.4(b) whether the said clause and/or lease is accordingly void, voidable and/or unenforceable not taking into account the question of estoppel.
Unnecessary to answer."
It is unnecessary to retraverse much of the ground discussed by Perry J in his judgment, but as I am asked by both parties to proceed on the basis of the findings of fact and law which he has made, it is desirable to note certain features of the steps he has taken and, in certain instances, to understand the reasons for the conclusions which he reached. His answers to the questions raised dealt with a number of the issues which the pleadings ventilated in the principal proceedings.
Perry J was unable to decide on the material presented to him whether all of the land subject to the lease was parklands, subject to the operation of s457 of the principal Act as at the date of the lease, but in any event he found that on the assumption that at the time of the lease the leased land was, or was partly, parklands nevertheless the Council was empowered in the circumstances to lease parklands under s382d of the principal Act for the term of 99 years in the way in which it had done so. He also concluded that the lease was valid on its terms, as on its true construction it permitted the lessee to use the land only in accordance with the scheme of development then approved pursuant to s382d of the principal Act. Although there was some material before him which suggested that in a number of respects the development which found expression in the plan of development approved under s382d of the principal Act appeared not to have been carried out, and that there appeared to have been a number of structures constructed on the land which did not strictly accord with that approved development plan, those matters did not go directly to whether the lease, on its true construction, permitted the plaintiff to use the land in question only in accordance with the scheme of development approved pursuant to s382d of the principal Act. The consequence of any departure from that approved scheme by subsequent development, albeit apparently approved from time to time under other planning legislation, was not therefore explored.
Thus, to that point, the matters upon which he was asked to adjudicate led to the conclusion that the lease was validly granted for a term of 99 years.
He then had to consider (Question 1.4) whether the Council was empowered to agree to a clause in terms of clause 2(2) of the lease and to enter into a lease which incorporated that clause.
It is necessary to refer to his process of reasoning in some detail, because he answered both those questions affirmatively. Perry J's reasons for doing so and the basis upon which he so concluded provide the foundation from which I am to consider the declaratory relief sought. His analysis was on the basis of the principal Act as it stood in 1982, and did not take account of any subsequent amendments, in particular the revised system of assessment, rating and recovery of rates implemented by the Local Government Amendment Act 1988 (SA) which came into operation on 1 January 1989. That legislative amendment could not of itself be directly relevant to the validity of the lease as and when it was entered into. However, as will appear, the grounds upon which Perry J found the lease to be valid incorporating that clause are significant in determining whether the question, which he left open simply because he was not asked to adjudicate on it, should be answered in a particular way.
For the purposes of the hearing before Perry J, the Council contended that it had no power at the time the lease was entered into, or for that matter now, to pay or discharge the payment of rates otherwise due on rateable property within the Council area, so that the land leased to the company, or any predecessor in title, rendered it liable to pay rates assessed with respect to the land, and the Council could not enter into a binding contract to "pay or discharge" any rates so assessed. That is still its submission. Perry J did not gainsay that, and in fact concluded that it was self evident that the Council could not "pay" rates due to itself.
The avenue by which Perry J concluded that, despite the inability of the Council to pay to itself rates due in respect of the land, the clause was valid was because he found that, at the relevant time, land owned by the Council was not rateable property within the meaning of the principal Act, or if otherwise rateable property, whilst owned by the Council, it could not be assessed for the payment of rates, even when occupied by a tenant or lessee.
At the time of the lease, an assessment of rates could be based upon annual or capital value (capital value being twenty times annual value as fixed under the Valuation of Land Act 1971 (SA)) of rateable property, or could be based upon land value. Whatever the method of assessment, the Council could declare a "general" or "differential" rate for a given financial year and separate provisions applied to the recovery of rates, depending upon whether the assessment was based upon annual or capital value on the one hand or land value on the other. Subject to certain notice and other procedural requirements, in the case of assessments based upon annual or capital value,
"the occupier for the time being of the property rated and also the owner for the time being of the property rated shall be liable for the payment of the rates":
s253-255 of the principal Act as it then stood,
but in the case of an assessment based upon land value, the owner was obliged to pay to the Council the rates so declared: s255 of the principal Act as it then stood. It was up to the Council to determine whether it chose to base its assessments upon annual or capital value on the one hand or land value on the other. The assessments which at the time of his hearing had issued had been based upon capital value. Rates assessed were recoverable "from any person liable to pay them upon proceedings in the name of the council ...": s258(1), and there were other provisions allowing for diversion of any rent payable by the occupier of any property with respect to which rates are in arrears to the Council until the arrears are satisfied: s264, as part of the machinery for collection of arrears of rates in such a case from the occupier. That could not apply if the assessment of the rates was made on land value; in that event, only the owner is liable to pay rates. There were provisions for the Council to determine to postpone the payment of rates in certain circumstances: s267a, and in cases of hardship to remit payment of rates: s267b. The ultimate sanction for the payment of rates with respect to rateable property was through s260, which created a charge upon the rateable property of all rates declared pursuant to the Act, irrespective of any action or decision of the Council concerned, and not subject to any qualification in the case of Council owned land. That statutory charge could then be enforced by sale in certain circumstances under s268 of the Act. If a Council exercised the power of sale, but no bid was made for the land, the Council with the consent of the Minister had the power to transfer the fee simple in the land to itself: s281b. Section 282 then provided that, upon any sale of land by the Council,
"the land and all owners and occupiers thereof and all previous owners and occupiers thereof (were discharged) from any liability to the council for rates or other monies due to the council for any purpose which at the time of the sale or transfer or conveyance were a charge upon the said land or which were otherwise recoverable by the council in respect of the said land ...".
Perry J concluded that the scheme of the principal Act as at 1982 with respect to assessment and rating of rateable property, and including the method provided for in the principal Act for recovery of rates, made it clear that land owned by the Council could not, at the time the lease was entered into, be rateable property within the meaning of the Act, or if otherwise within the definition of "rateable property", it could not be liable to assessment and recovery of rates. He was influenced in particular by the ultimate sanction for the non-payment of rates being a charge upon the land which may be exercised by sale of the land by the Council, which might itself under s281b purchase the land for
itself. He was also strongly influenced by the provision that rates may be recovered from any person liable to pay them upon proceedings in the name of the Council: s258. He observed:
"Clearly, a council cannot pay rates to itself, sue itself for rates or sensibly discharge rates by sale of its own land."
Although an assessment based upon annual or capital value imposed a liability for rates jointly upon both occupier and owner, whereas an assessment based upon land value imposed a liability on the owner alone, he considered it would be a capricious result to suggest that the basis of valuation could make the occupier (to the exclusion of the Council) liable if the assessment were on an annual or capital basis but not if the assessment were on land value. Perry J was aware of commercial implications, as he concluded:
"No doubt a commercially negotiated rental struck between parties dealing at arm's length will reflect the fact that the leased property is not subject to payment of rates by the lessee, and will be somewhat higher than would otherwise be the case. Presumably the rent struck in this case reflects that consideration."
What then of clause 2(2)? At the time the lease was entered into, that clause had no work to do because the land was not subject to rating. In any event, the Council could not "pay" rates imposed by itself to itself. In the course of submissions to Perry J, it was nevertheless put that it could "discharge" rates or taxes in the sense that it would not look for payment of them, and in any event that the clause had the potential to come into operation to burden the Council rather than the lessee with liability for such rates or taxes in the event that the land became a part of another local government area by reason of any restructuring, or in the event that the Council was to sell the land.
Perry J dealt also with those submissions. He concluded that if the occupier of Council owned land was otherwise liable to pay rates, it would not be open to the Council selectively to relieve any such occupier from the obligation to pay rates otherwise assessed on the property except pursuant to the specific statutory provisions relating to postponement or remission of rates (then ss267a and 267b of the principal Act). He found it to be "inherent" in any scheme of rating that all rateable property is liable to be made the subject of the assessment of rates and must be so assessed unless a specific exception in the principal Act is of application. He did not think it was possible for a Council to enter into a contract with an individual ratepayer which would alter the incidence of the liability to pay rates in a manner not expressly provided for in the principal Act.
The work that clause 2(2) of the lease then had to do was limited to operate in the event of the Council selling the land. In that event, the land would become rateable and the new owner would become liable to pay rates. As between the new owner and the lessee (the company), the incidence of the liability to pay those rates would be adjusted by virtue of the provisions of the lease but not by operation of the principal Act itself.
Perry J then observed:
"The question arises whether, having regard to any subsequent amendments to the Act and notwithstanding my conclusion as to the validity of paragraph 2(2) of the lease and of the lease as a whole, some at least of the rate notices in question might nonetheless impose an enforceable obligation on the plaintiff to pay certain of the assessments in issue."
That was said to remain an open question, as his premise for answering points 1.4(a) and (b) was that at the time the lease was entered into the company could not be liable for the payment of rates because the land was not then rateable.
That question is, in effect, the one upon which I am now asked to adjudicate, in particular in the light of the changes to the principal Act effected by the Local Government Act Amendment Act 1988 (SA).
The submissions
It can be seen from the above that, as the claim is now pursued and in the light of the foundation for my present deliberations which it is acknowledged that the decision of Perry J provides, the following matters are accepted:
The lease when entered into, including clause 2(2), was valid and enforceable.
Clause 2(2) of the lease, in particular, was valid and enforceable because
.at the time of the lease, the land was not rateable land under the principal Act, so
.its practical operation would arise only if the Council were no longer the owner of the land, or perhaps was no longer the relevant rating authority.
The Council could not, by contract or lease, except by the proper exercise of some specific statutory power, relieve an occupier (or any ratepayer) from the obligation to pay rates assessed in respect of land, and the Council could not by contract alter the incidence of the liability to pay rates unless expressly authorised by legislation.
If the land was rateable and subject to an assessment of rates, either on land value or on annual or capital value, clause 2(2) would not have operated to make the Council liable to "pay or discharge" those rates in lieu of the company if otherwise the company was liable to pay them.
The amendments effected by the Local Government Act Amendment Act 1988, to which I shall refer in a little detail shortly, did introduce quite substantial and significant changes to the principal Act. It is accepted by the applicant that, subsequent to 1 January 1989 when those amendments came into force:
.the land, and land of which the Council is owner, became rateable land
.the Council is empowered to rate the land, and has lawfully done so
.the company as lessee of the land, which is in the name of the Council as owner, is the principal ratepayer liable to pay the rates and taxes so assessed, and
.the terms of the lease, including clause 2(2), cannot alter that liability on the part of the company.
But it is submitted by the applicant nevertheless that the Council has the enforceable obligation "to pay or discharge" the rates and taxes for which the company is primarily liable by virtue of the lease. It is submitted that it could do so by remitting the rates and taxes pursuant to the provisions of s185(3) of the principal Act, or it could send a cheque to the lessee to enable it to pay the rates and taxes, or it could satisfy the obligation by journal entry crediting the lessee with the amount of the rates and taxes and debiting one of the Council's rental property accounts, or it could transfer the amount of the rates and taxes from its general bank account to its rates bank account if it has separate bank accounts. In some way, it is submitted, the company as lessee could obtain adjustment for the amount of the rates and taxes as against the Council. The applicant says that, at the time the lease was entered into, the commercial rental then fixed would in the circumstances have reflected the fact that no rates and taxes would be declared by the Council as payable and thus the rental would or might have been adjusted upwards accordingly. Thus, it is said, it would now be unfair for the Council to be able to impose rates, in addition to the rental, as the rental would have reflected an allowance for the fact that rates were not to be payable by the lessee or at all, and in a sense lead to double dipping. If in fact, at the time the lease was negotiated, the lessee then was prepared to pay to the Council a greater rental than a purely commercial rate of rental for the land because it would not, and at the time, could not be called on to pay any Council rates and taxes assessed in respect of the land, then there would be some merit in that observation. No evidence, or any agreement, as to that fact was placed before the Court. What has changed is that the Council now has the power to assess rates with respect to the land, and so those rates - subject to the submission - will constitute an additional liability on the lessee. Again, subject to the submission, that liability will not be able to be passed on to the lessor unless and until the Council is no longer the owner of the land. In that event, the new owner could be bound as between itself and the lessee to carry the burden of any rates payable in respect of the land.
As the applicant accepts that the land is rateable and has been assessed for rates, and that the company is under the legislation principally liable to pay those rates, the applicant's claim for the company is to seek to get declaratory relief based upon the lease, still to run for some 84 years, as an enforceable contractual right to have the Council somehow "pay or discharge" any liability incurred by the company in respect of rates and taxes lawfully declared by the Council.
The Council's submissions, put shortly, are that clause 2(2) must be construed to operate only to the extent that Perry J concluded, and that for the reasons he expressed it cannot operate on its terms against the Council. It is also put that, as Perry J found, the Council cannot by contract agree to vary the incidence of lawfully declared rates except as authorised by legislation, and that no legislative power exists to do so in the way that the applicant contends that clause 2(2) of the lease achieves; any such agreement would be beyond its power and void and unenforceable: York Corporation v Henry Leetham & Sons Ltd (1924) 1 Ch. 557; R W Miller & Co Pty Ltd v Shortland County Council (1988) 63 ALJR 124. Thus, it is submitted, the lease and in particular clause 2(2) is valid only because it has the practical and limited operation envisaged as between a non-Council owner and the lessee in the event that the Council transferred its ownership, and does not create any enforceable rights against the Council of the type asserted by the applicant.
Counsel for both parties indicated that there was, so far as their researches revealed, no authority of particular relevance in deciding the present issue. As the matter is quite urgent, as the attitude of the proposed purchaser as the potential assignee of the lease depends upon its resolution, I have largely confined my consideration to the matters to which I was referred by counsel.
The present rating scheme
The rating procedure provides explicitly that, other than specified land, all land within an area is rateable: s168(1) of the principal Act. The land specified as not rateable under s168(2) includes land occupied by the Council, but not land owned by the Council.
The Council is empowered to impose rates and charges of four kinds on land within its area: general rates, separate rates, service rates and service charges: s167 of the principal Act. The basis of rating must be the value of the land subject to the rate: s169, although a general rate may consist of two components, one being the value of the land and the other being a fixed charge only in certain limited circumstances. The value of the land is its capital value, although in limited circumstances the Council may declare rates on the basis of the annual value or site value: s170. Section 174 empowers the Council, after considering and adopting its budget for a particular financial year, to declare either a general rate on rateable land within its area for that financial year or a differential general rates on rateable land within its area for that financial year. There are restrictions (s176) on the circumstances in which differential rates may be declared, and there is nothing before me to suggest that the Council declared differential rates.
Section 182 provides that rates imposed on land are a charge on the land. Section 183 then provides that, subject to subs(2), the owner of the land is the principal ratepayer in respect of the land. Subsection (2) provides:
"If -
(a)the name of an occupier is entered in the assessment book as the principal ratepayer in respect of land; or
(b)the land is held from the council under a lease or license,
the occupier of the land (rather than the owner) will be regarded as the principal ratepayer."
It is s183(2)(b) which, in the circumstances, makes the company the principal ratepayer.
Although the sections are substantially recast, the general nature and effect of the recovery provisions is largely as applied under the principal Act at 1982, and I share the views
of Perry J as to their significance. Rates are recoverable as a debt from the principal ratepayer and from any other person who is an owner or occupier of the land: subs(3). Payment of rates by a person who is not the principal ratepayer may, subject to any agreement to the contrary, be recovered as a debt from the principal ratepayer: subs(5). Section 185 provides for remission and postponement of payment of rates. Subsection 185(1) enables the Council, in the case of hardship, to remit or postpone payment of rates. Subsection 185(3) then provides:
"A council may grant other or additional remissions of rates -
(a)...; or
(b)on any other basis determined by the council"
and subs(5) provides that a Council may revoke a determination under subs(3) at any time, although such revocation will not affect any entitlement or remission in relation to rates declared before the revocation takes effect. Section 187 empowers the Council to sell rated land where rates in respect of it are in arrears for three years or more. Section 188 empowers the Council, if it is unable to sell such land and is unlikely to be able to sell such land within a reasonable time, to seek an order from the Minister of Lands that such land either be forfeited to the Crown or be transferred to the Crown or to the Council.
As can readily be seen, the same points that led Perry J to his conclusions still apply. The Council cannot "pay" rates to itself, and the enforcement procedures generally indicate that they are not designed to apply against the Council, because those provisions do not really contemplate that the Council itself will be or become liable for the rates. Section 185(3) could not operate, despite the agreement which might be asserted under clause 2(2) of the lease, because the Council in the first instance could not pay itself the rates. Furthermore, the structure of ss168 and 183, in particular s183(2)(b), evidence a legislative intent that if the Council is the occupier of the land no rates will be able to be declared in respect of it and if it is the owner, but not the occupier, the land will be rateable but the occupier and not the Council will be liable to pay the rates.
The acknowledgments by counsel for the applicant that the land is now rateable, that the Council has properly declared rates with respect to it, and that the company is the principal ratepayer and is in the first instance liable to pay the rates so assessed, are clearly appropriate.
I add that the transitional provisions of the Local Government Act Amendment Act 1988 do not assist in resolution of this matter. Section 53 dealing with transitional matters does provide that the amendments made to the principal Act do not affect any scheme submitted to the Minister before its commencement of this Act, but that is not applicable in the present circumstances. Nor is it submitted that s53(3) of that amending Act applies. It provides:
"A remission or postponement of rates granted by a council before the commencement of this Act will continue as a remission or postponement of rates under the principal Act as amended by this Act."
It was not contended that clause 2(2) falls within that savings provision.
As part of the 1988 amendments, "Part IX - Financial Management" was introduced into the Act. It requires the identification by the Council of the sources of Council revenue (including rates), of its expenditure revenue, and as to the investment of its funds. Division 5 of Part IX deals with budgets and financial reporting. Each Council is obliged, under s159, to prepare a budget relating to that Council's revenues and expenses for each financial year, and to adopt that budget each year. It must also prepare, for each financial year, detailed financial statements described in s161.
Those processes, in particular the budgeting requirements, clearly tie in with the rating processes. By the time of adoption of the budget for a particular year, the anticipated rate revenue from rateable land, will have been identified. That rating process must of course be in accordance with the Act, and so made in the case of a general rate with respect to all rateable land. The transparency which Part IX of the Act obviously aims to achieve as at least one of its objectives is only consistent with the proper and general application of the rating processes.
I do not think it would be proper for the Council in those circumstances to declare a rate not intending to recover it in respect of particular rateable land, nor to include in its budget as anticipated rate revenue an amount which it did not intend to collect.
The claimed contractual right
The parties acknowledge, based upon Perry J's decision, that clause 2(2) of the lease is valid, and sufficiently clear to be enforced at least in circumstances where the Council was no longer the owner of the land. As I am asked to accept Perry J's conclusions as to its status, for reasons which appear above, I think he also decided it was valid only because it did not operate as against the Council because the land then was not rateable. If, upon its proper construction, it had been found to operate as against the Council, I think it is clear enough that Perry J would have found such an agreement to have been beyond the power of the Council and thus to that extent to have been void and unenforceable.
That observation is really sufficient to decide this matter, but in fact I have revisited that question in the light of the submissions and have come to the same conclusions, and further concluded that the amendments to the principal Act effected by the Local Government Act Amendment Act 1988 (SA) do not extend the valid operation of clause 2(2) of the lease. Thus, I conclude that:
at the time of the lease, the Council was not empowered to enter into a contract the effect of which would be for the Council either to treat land the subject of a lease as non-rateable or to itself agree to pay or discharge for 99 years rates assessed with respect to such land (whether in respect of Council-owned or non Council-owned land), and
the amendments to the principal Act effected by the Local Government Act Amendment Act 1988 (SA) do not so empower the Council, so that there is no basis upon which it can be concluded that from 1988 the scope of operation of clause 2(2) of the lease could lawfully operate as contended for the applicant, even assuming that by statutory amendment such an expanded operation might otherwise lawfully become available and be enforceable.
I do not need to decide that last assumption, as no argument was addressed on that topic, and I can resolve the matter without considering it.
Clause 2(2) of the lease requires the lessor to "pay or discharge" all council rates assessed in respect of the land. Clause 1(2) of the lease expressly excludes from recurrent rates and taxes and the like which the lessee otherwise covenants to pay rates payable to the Council. It is significant that the clause, therefore, expresses the primary obligation by contract to pay or discharge any Council rates to be upon the lessor, at that time the Council. The analysis of the rating provisions in the principal Act at 1982 makes it plain that it is not consistent with that legislation that rates declared by the Council should be paid by it; thus Perry J concluded in part for that reason that at that time the land in the name of the Council was non-rateable. Had he found the land to be rateable, it would nevertheless have been inconsistent with the structure and purpose of the principal Act for the Council to have agreed in those terms. That position is even clearer following the 1988 amendments: the rates, by law, are payable by the company as the principal ratepayer. The Council could not, consistently with the Act, agree to pay, or pay, those rates as its primary responsibility. Once the company has paid those rates, as it is accepted that it must, clause 2(2) really does not have further scope to operate adversely to the Council so long as it is the lessor. If the company does not pay those rates, the available recovery procedures could be adopted by the Council. The clause is not in its terms an agreement not to exercise such statutory recovery powers as are available to it. Nor is it, on its terms, an agreement to indemnify or reimburse the company for the rates it has paid; it does not say that. If it did, it would not have been open to the construction which Perry J gave to it to preserve its validity.
Nor, in my view, does the word "discharge" alter the conclusion. In its context, it is not really capable of meaning releasing or relieving the company of the obligation to pay rates, because the expression then would be that the Council would discharge or release the lessee's obligation to pay the rates rather than discharge or release the rates themselves. To 'discharge' the rates must encompass doing so lawfully, and no source of any Council power to do so has been identified as relevant. It now has the obligation to budget, including as to rate revenue, and may assess and determine rates in respect of all rateable land. In my view, it could not simply determine not to assess certain land on a selective basis. The categories of land which are not rateable are set out in s168(2) of the principal Act, and do not include the land. Once the assessment is made, the obligation to pay those rates is prescribed by s183. The Council could not, in my view, select a basis inconsistent with the principal Act for the source of the obligation to pay the rates.
Nor, in my view, can it contract to assume that obligation. The structure and terms of Part X of the principal Act 'Rates and Charges on Land', make it plain (as discussed above) that it is not to be the Council which pays rates. Indeed, the 1988 amendments also reinforce that conclusion by expressing the principal ratepayer of council owned land to be the lessee, if the land is leased, and by making land occupied by the Council as non-rateable: s168(2)(l).
Even if, contrary to my view, it were to be available to construe clause 2(2) of the lease as an agreement somehow to remit the rates, as suggested may be done under s185(3) "on any other basis determined by the council", so that the company could claim an agreement that, once rates became assessed in respect of the land, the Council had agreed to remit them for the balance of the term of the lease, that would be beyond power: York Corporation (supra, per Russell J at 569); R W Miller & Co Pty Ltd (supra, per Brennan J at 128). In that latter case, one issue was the authority of the Shortland County Council to contract with an industrial consumer of electricity for the supply of electricity upon certain terms. Brennan J (as he then was) observed (at 128):
"But the capacity of a Council to bind itself by contract to supply electricity to consumers is limited. It cannot exempt itself by contract from an obligation to perform a duty cast upon it by Pt XVII of the Act or by Ordinance 54; nor can it fetter the future exercise of its statutory powers when their free exercise is required in order to ensure that the Council may properly perform its functions under the Act and Ordinance: Cudgen Rutile (No 2) Ltd v Chalk [1975] AC 520. It follows that a Council cannot bind itself to supply electricity to a consumer at a rate different from the rate applicable to other consumers in similar circumstances (s 419(2)) nor to set tariffs which would incur a loss: s 419(1)."
The Council would thereby have both effectively subverted the primary rating processes of the principal Act and have deprived itself of the power to effectively recover the benefit of any rates in respect of the land for that period. In my view, s185(3)(b) envisages a remission of rates possibly granted from time to time, but considered only in respect of a particular year's assessment of rates. The purpose of the power in s185 is to enable the Council to remit the payment of rates in certain circumstances, but not to authorise a new and different regime for the payment of rates in substitution for the statutory regime which governs rating generally. Perry J reached similar views.
It follows from the above that my view is that the Council is not empowered at large to adjust its books, to write cheques, to transfer funds from one account to another, or to create journal entries, without a statutory mandate for it to do so. The provisions of Part IX of the principal Act, including the extensive financial reporting obligations, carry with them clearly the intent that it should act only in accordance with the principal Act itself, and in an accountable and open way.
Conclusion
Clause 2(2) of the lease is a valid clause, but it is of limited potential operation. That potential operation is as described by Perry J in his reasons for judgment. The 1988 amendments to the principal Act clearly empower the Council to declare rates with respect to the land, and oblige the company as the principal ratepayer to pay them. For reasons appearing above, I do not think that the additional operation of clause 2(2) of the lease for which the applicant contends in fact is available. At the time of the lease, as Perry J found, there was not then on the proper construction of the lease a covenant on the part of the Council to pay rates and
taxes in any sense, because at that time they were simply not contemplated: cf. Baker v Hedgecock (1888) 39 Ch.Div. 520; Kenyon v Darwen Cotton Manufacturing Company Ltd [1936] 2 KB 193. The additional meaning now contended for would, if correct, not be authorised by the principal Act. If a contract is susceptible of two reasonable meanings, or two modes of performance, one of which is legal and the other is not, generally the Court will put upon the contract the construction which will support it and give it operation: Archbolds (Freightage) Ltd v S. Spanglett Ltd [1961] 1 QB 374 at 391-392; Edler v Auerbach (1950) 1 KB 359 at 368. I think the proper construction of clause 2(2) of the lease remains as Perry J found it to be in 1982.
It was not submitted to me that, by reason of the coming into force of the Local Government Act Amendment Act 1988 (SA), with the new obligation consequent upon it of the company being liable to pay rates and taxes as determined by the Council from time to time, the lease was frustrated. Such an increased burden will not necessarily amount to frustration: e.g. Scanlans New Neon Ltd v Tooheys Ltd (1942-1943) 67 CLR 169 at 222-233 per Williams J and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, and there is in addition a possibly significant issue as to whether a registered lease can be frustrated by a supervening event: see Firth v Halloran (1926) 38 CLR 261; National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675; Shevill v The Builders Licensing Board (1981-1982) 149 CLR 620. It is unnecessary to consider those matters.
Accordingly, I decline to make the declaration sought by the applicant. I do not think it is necessary to give any other declaratory relief. The entitlement of the Council to declare rates with respect to the land, and the obligation of the company to pay them, is not disputed by the applicant. Given the scope of operation of clause 2(2) of the lease on its proper construction, the position of the parties at law is clear. I do not presume to make any observation about whether the Council might, in a particular year, or indeed from year to year, be asked to consider the remission of rates under s185(3) with respect to the land. I have concluded that it is not entitled by contract under the lease to require the Council to treat the lease as, per se, requiring that it do so and more particularly that it exercise its power in a particular way, or to have the Council taken as having exercised its power from 1 January 1989 in a particular way on one occasion and for the balance of the term of the lease. Nor can it assert that, at 1982, the Council did so, not simply on the grounds of the principal Act referred to but also because there was then no comparable apparently general power akin to that now available under s185(3)(b); the remission power was only able to be exercised in cases of hardship: ss267a and 267b of the principal Act, prior to the 1988 amendments. Any such application would have to be considered on its merits and in the light of the material then properly before the Council, and could operate only in respect of one year's rates.
I therefore decline to grant the declaratory relief sought.
I certify that this and the preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice Mansfield.
Associate:
Dated:
Counsel for the Applicant : Mr J M Wilkinson
with him
Mr A L Dal Cin
Solicitors for the Applicant : Cowell Clarke
Counsel for the Corporation : Mr B R Hayes QC
of the Town of Thebarton with him
Mr M J Roder
Solicitors for the Corporation : Norman Waterhouse
of the Town of Thebarton
Hearing Date : 14 March 1997
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