Tooth & Co Ltd v Newcastle Developments Ltd

[1966] HCA 57

HIGH COURT OF AUSTRALIA

Barwick C.J., McTiernan, Taylor, Menzies and Windeyer JJ.

TOOTH &CO. LTD. v. NEWCASTLE DEVELOPMENTS LTD.

(1966) 116 CLR 167

19 September 1966

Landlord and Tenant

Landlord and Tenant—Covenant to pay taxes imposed or charged on demised premises or upon owner in respect thereof—Liability of lessee for land tax—Amount of liability—Lessor owning other lands—Time of accrual of liability—"Assessment"—Lease expiring before end of tax year—Land Tax Act, 1956 (N.S.W.)—Land Tax Management Act, 1956-1963 (N.S.W.).

Decision

September 19.
THE COURT delivered the following written judgment:-
This appeal is concerned with questions relating to the liability of the appellant, as the lessee of certain land and hotel premises at Newcastle, to pay land tax under a covenant in its lease "To pay bear perform and discharge all rates taxes duties burdens assessments and outgoings of every description now charged or imposed or hereinafter to be charged or imposed upon or in respect of the demised premises or upon the lessor . . . in respect thereof". It is common ground that the word "hereinafter" appearing in the covenant is an obvious verbal error and that it should be construed as if that word read "hereafter". So construed the clause seems simple enough but the nature and incidence of the tax imposed in New South Wales since the clause was framed give rise to considerable difficulty. (at p168)

2. The lease in question was executed by the parties on 4th May 1955 and on 31st October 1956 there came into operation the Land Tax Act and the Land Tax Management Act of that year. By the first of these Acts it was provided that in respect of the taxable value of all the land owned by any person at midnight on the thirty-first day of October in any year there should be charged, levied, collected and paid under the provisions of the latter Act, land tax for the period of twelve months commencing on the first day of November in that year and at the respective rates set out in the Schedule to the Act. Reference to the Schedule shows that the rates of tax for each one pound of the taxable value of a taxpayer's land increase with the taxable value of the land. It is, therefore, distinguishable from rates levied pursuant to the Local Government Act where they are charged and levied upon individual parcels of an owner's land. (at p169)

3. The claim of the respondent is made in respect of land tax for the years commencing on 1st November 1960 and 1st November 1961. On each of these dates the appellant was tenant under the lease which came to an end on 31st December 1961 and the amount claimed in respect of each year was 2,166 pounds 13s. 4d. But the total amount of the appellant's land tax in respect of each of those years was 5,100 pounds 8s. 10d. for it owned other land the unimproved value of which was said to be 116,607 pounds. The amount claimed by the respondent in respect of each year, however, represented the amount by which its liability for land tax was increased by reason of the inclusion of the demised land in its return. The unimproved value of that land was 65,000 pounds and the total value of all the respondent's land was 181,607 pounds and the amount claimed represented the difference between the sum of 5,100 pounds 8s. 10d. and the amount of tax for which the respondent would have been liable if the total value of all its land had been only 116,607 pounds, that is to say, 2,933 pounds 4s. 8d. It should be mentioned that although at the time when the action was brought, namely 3rd March 1965, land tax had been assessed for the year ended 31st October 1960 no assessment in respect of the following year had then issued. (at p169)

4. By s. 7 of the Land Tax Management Act land tax at such rates as may be fixed by any Act shall be levied and paid upon the unimproved value of all lands situated in New South Wales which are owned by taxpayers. Land tax is charged on land as owned at midnight on the thirty-first day of October immediately preceding the year for which the land tax is levied (s. 8) and the tax is payable by the owner of the land upon the taxable value of all the land owned by him and not exempt from taxation under the Act (s. 9). Provision is made by s. 12 requiring appropriate returns to be furnished by the owners of land and by s. 14 it is provided that the Commissioner shall from the returns and from any other information in his possession or from any one or both of those sources cause an assessment to be made of the taxable value of the land owned by any taxpayer and of the land tax payable thereon. Section 39 provides that land tax for each year shall be due and payable thirty days after service of the notice of assessment and s. 42 stipulates that any land tax shall be deemed, when it becomes due or is payable, to be a debt to Her Majesty. Finally s. 47 provides that land tax shall until payment be a first charge upon the land taxed in priority over all other encumbrances whatever. It, therefore, appears that land tax falls within the description appearing in the covenant - "all rates taxes duties burdens assessments and outgoings of every description" - and, certainly, that in the case of a lessor who owns only the land that is leased, the tax is one which, to adapt the words of the covenant, is both charged and imposed upon or in respect of the demised premises and upon the lessor in respect thereof. Moreover, it is so charged and imposed on the land as owned at midnight on 31st October immediately preceding the year for which it is levied and neither the charge nor the imposition waits upon the issue of an assessment pursuant to s. 39. "Assessment" in the context of the Act means no more than the ascertainment of the extent of a previously existing liability and the statutory provision (s. 39) that land tax for each year shall be due and payable thirty days after service of the notice of assessment does not mean that the liability is postponed until this has been done (cf. Church of England Property Trust, Diocese of Sydney v. Metropolitan Mutual Permanent Building and Investment Association Ltd. (1932) 47 CLR 369 ). These observations are sufficient to dispose of the objection that the notice of assessment had not, at the commencement of the action, been given in respect of the tax for the second year. They also dispose of the contention that, although the term of the appellant's lease was current on 31st October 1961, as that term ended 31st December 1961, the appellant was only liable to pay in respect of the land tax year 1961-1962 a ratable proportion of the tax charged or imposed upon or in respect of the demised premises or upon the lessor in respect thereof. But plainly this is not so. The tax upon the lessor is rated to the amount of land in his ownership at 31st October, and is levied as for the ensuing twelve months at the appropriate rates. Changes in his ownership during that year do not affect the tax charged or imposed, and the lessee's obligation is to pay the tax so levied or imposed. (at p170)

5. But there remains the contention that where, as here, a lessor is the owner of land in addition to the demised land land tax cannot be said to be charged or imposed upon or in respect of the demised premises or upon the owner in respect thereof; it is, it is said, one composite tax levied upon the owner in respect of all the land owned by him. So much may, of course, be conceded but the proposition does not deny that the tax constitutes a charge upon the lessor's land including the demised land though it is a difficult matter to say that the whole liability constitutes a tax charged or imposed upon the demised premises or upon the owner in respect thereof. It seems to us plain that the concluding words of the covenant were intended to restrict the lessee's liability thereunder. Clearly enough, it was not intended that the lessee should be under an obligation to pay an amount equivalent to the total land tax liability of his lessor but that the clause was intended to create a liability to pay something in such circumstances is, we think, beyond doubt. And, in our view, his liability extended to pay only such part as could be said fairly to be imposed or charged in respect of the demised premises. (at p171)

6. In the course of argument several suggestions were made as to how this part should be ascertained. As already appears, the respondent sued for the amount by which in each year its liability had been increased by the inclusion in its return of the subject land. But the problem cannot be solved in this fashion for such an amount cannot be said to be the tax imposed or charged in respect of the demised land. Indeed, it is possible that the adoption of such a formula would in some circumstances where a lessor was the owner of lands leased to different persons be entitled, pursuant to such a covenant, to recover from his several lessees sums aggregating more than his total liability for land tax. The next suggestion is that the respondent should be held to be entitled to recover only an amount equal to the land tax that would have been attracted if the demised land had been the only land of which he was the owner. This view must, again, be rejected for it is impossible to say that an amount calculated by the adoption of this formula was the equivalent of the tax imposed or charged in respect of the demised land. In truth, the tax imposed or charged was a total sum ascertained by the application of the appropriate rates of tax per pound to the unimproved value of all the respondent's land and that part of the total sum which was imposed in respect of the demised land is readily calculable. It represents such part of the respondent's total liability as bears to that total liability the same ratio as does the value of the demised land to the total value of the respondent's land. This is the basis upon which the learned judge of first instance proceeded and, accordingly, the appeal should be dismissed. (at p171)

Orders

Appeal dismissed with costs.