Aqua Jet Car Wash P/L v Buraan P/L

LOWER COURT Local Court JURISDICTION : LOWER COURT 200/2004 FILE NUMBER(S) : LOWER COURT Acting Magistrate J L Swanson JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

13241/2004 - AQUA JET CAR WASH PTY LIMITED (ACN 056 387 056) v BURAAN PTY LIMITED (ACN 002 012 348)

JUDGMENT (Appeal decision of Local Court Magistrate - s 3AH(1) Land Tax Act 1956 (NSW)) 1 MASTER: By summons filed 6 October 2004 the plaintiff seeks firstly, an order setting aside the verdict and judgment for $9,417.82 entered for the defendant against the plaintiff in proceedings No 200 of 2004 at Gosford Local Court on 10 September 2004 by Acting Magistrate J L Swanson; and secondly, an order that a verdict and judgment be entered for the plaintiff. The plaintiff relied on the affidavit of David John Beattie sworn 1 October 2004. The plaintiff (defendant in the court below) is Aqua Jet Car Wash Pty Limited (Aqua Jet). The defendant (plaintiff in the court below) is Buraan Pty Limited (Buraan). 2 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 69(2) of the Local Courts (Civil Claims) Act 1970 (NSW) permits a party who is dissatisfied with a judgment as being erroneous in point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor (1995) Aust Torts Reports 81-354; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156 and two more recent cases, namely Carr v Neill [1999] NSWSC 1263 and R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082. It cannot be said that the Tribunal member acted on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588. Section 69(4) of the Act provides that the court may determine an appeal by either (a) setting the judgment or order aside or (b) by varying the terms of the judgment or order or (c) by setting the judgment or order aside and remitting the matter for determination in accordance with the court's directions or (d) by dismissing the appeal.

Grounds of appeal 3 Aqua Car appeals the whole of the decision of Acting Magistrate J L Swanson. The grounds of appeal are firstly, that the Magistrate erred in finding that the Aqua Jet was indebted to Buraan in the sum of $9,417.82; and secondly, the Magistrate erred in finding that the expression "on a single holding basis" in clause 3.01(b) of the lease, the subject of the proceedings, applied to limited Aqua Jet's obligation to pay the land tax levied on Buraan when Buraan was assessed under s 3AH(1) of the Land Tax Act 1956 (NSW) but were otiose and had no effect when Buraan was assessed under s 3AH(2) of the Land Tax Act. 4 Buraan is the owner of a property known as 6 Lindsay Street, North Gosford (the property). On 23 July 2002 Buraan purchased the property from Palmdale Memorial Park and Crematorium Pty Ltd. Aqua Jet is and remains a lessee of the property. It was a condition of that sale that Palmdale lease the property back to Aqua Jet. Pursuant to s 117 of the Conveyancing Act 1919 (NSW) the assignee in title of a lease takes the obligations and benefits of the lease from the assignor. The issue is whether Buraan as lessor can recover land tax at the higher rate as an outgoing under the terms of the lease.

Relevant provisions of the lease 5 Article 3 of the lease is entitled "Outgoings". Article 3.01 defines "outgoings" to be all outgoings, costs and expenses of the lessor now or hereafter properly and reasonably assessed, charged or chargeable, paid or payable upon or in respect of the demised premises. Article 3.06 (and Item 6 of the reference schedule to the lease) provides that the lessee's proportion of those outgoings is 100%. Articles 3.02 and 3.04 deal with the assessment and payment of the outgoings. However article 3.01(b) deals specifically with the payment of land tax. 6 Article 3.01(b) reads: "(b) All taxes including any land tax at the rate payable by the Lessor on a single holding basis but excluding income tax payable by the Lessor on its income."

Land tax 7 Buraan, as owner of the demised premises is liable to pay land tax on the demised premises as assessed in accordance with the Land Tax Management Act 1956 (NSW) and the Land Tax Act. The Land Tax Act prescribes two rates of land tax. In general terms, the first or basic rate is set out in s 3AH(1) of the Act, which is read with schedule 9. That rate provides a tax-free threshold and thereafter, the rate is $100.00 plus 1.7c for each $1.00 of the taxable value of the whole of the land owned by the taxpayer at 12.00 midnight on 31 December in any year. 8 The tax-free threshold is determined from time to time pursuant to s 62TB of the Land Tax Management Act. The tax threshold for 2003 was $261,000.00 and the tax threshold for 2004 is $317,000.00. 9 The second or higher rate is set out in s 3AH(2) of the Land Tax Act and applies to taxpayers who under the provisions of the Land Tax Management Act are defined to be either non-concessional companies or hold land under a special trust (see ss 3, 3A and 25A). When Palmdale was the lessor there was a tax-free threshold component in the assessment of land tax, which meant that Aqua Jet paid a lesser amount for land tax. However, Buraan holds the demised premises under a special trust and is therefore assessed at the second or higher rate. The second or higher rate is the rate of 1.7 cents for each $1.00 of the taxable value of the land subject to the special trust. There is no tax-free threshold component included in the assessment of land tax payable by Buraan. The amount of land tax that Buraan is liable to pay for the years 2003 and 2004 is $14,076.00 (of which $4,143.00 had been paid). 10 Where a lessor owns more than one property, land tax is determined in accordance with the approach adopted Tooth & Co Ltd v Newcastle Developments Limited (1966) 116 CLR 167. At 171 Barwick CJ, McTiernan, Taylor, Menzies and Windeyer JJ stated: "In truth, the tax imposed or charged was a total sum ascertained by the application of the appropriates rates of tax per pound to the unimproved value of all the respondent's land ("the lessor") 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 bear to that total liability the same ratio as does the value of the demised land to the total value of the respondent's land." 11 Thus the Tooth approach involves an allocation of a proposition of the tax-free threshold amount between the properties owned by the lessee. 12 Aqua Jet submitted by inserting the words "on a single holding basis" in Article 3.01(b) of the lease the parties agreed to distinguish the approach taken in Tooths. Aqua Jet also submitted that its obligation to pay land tax as an outgoing is to be determined by the basic rate and inclusive of the tax-free threshold. Aqua Jet has assessed this lesser amount and paid to Buraan the land tax so assessed. Buraan submitted that as it is obliged to pay at the higher rate of land tax Aqua Jet must pay this higher amount under Article 3 of the lease. 13 The Magistrate referred to a passage in Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 where Gibbs J stated at 109: "It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust…" 14 The Magistrate in his reasons stated: "I would think it might be said that the original parties to the lease did not turn their mind to the possibility that any new assignee of the lease would not be entitled to the tax threshold provided by Schedule 9. I do not consider that the words "on a single holding basis" can raise any ambiguity; rather the words have become, in the circumstances, otiose and may be put aside. The defendant says that the plaintiff's approach is in breach of the terms of the lease, that is, in breach of the meaning and effect of the words "on a single holding basis". Further, the defendant says that the plaintiff's approach is unfair. I agree that it seems unfair to the defendant, but that is not the crux of the matter. The question whether the plaintiff's approach is inconsistent with the terms of the lease is the real issue. I return to Article 3.01(b) of the Schedule 2 of the lease. The tenant is responsible to pay "all taxes including any land tax payable….". Bearing in mind that the basis upon which the landlord is liable for land tax makes it irrelevant whether he owns one property or more, I am not of the view that I cannot give any significance to the terms "on a single holding basis". I refer back to what Gibbs J and I am of the view that, as unfair as the result would appear to be to the defendant, that there is no other interpretation that can be given to the terms of the lease, and the defendant's liability to pay the land tax imposed upon the plaintiff under the law is consistent with the provisions of the lease as referred to above. 15 The Magistrate entered judgment for the plaintiff in the sum sought of $9,417.82. 16 The whole of the lease is to be considered and the words of every clause must be construed as to render them harmonious with one another. 17 The lessor is liable for land tax and other outgoings. The definition of outgoings is contained in Article 3.01. The outgoings shall be and mean (except hereinafter limited) the total costs of all outgoings. The lease passes the costs of the outgoings onto the lessee. Article 3.01(b) provides that all taxes including any land tax at the rate payable by the lessor on a single holding basis is payable by the lessor. Item 6 of the reference schedule and Article 3.06 to the lease provides that Aqua Jet's portion of those outgoings is 100%. The phrase "single holding basis" refers to all taxes not just land tax. That phrase cannot be construed as meaning a basis upon where the lessee received the benefit of the tax-free threshold amount. While the lessee was responsible for all outgoings, Article 3.01 was intended to apply so that the lessee would not be disadvantaged in the calculation of taxes by the virtue of the lessor owning more than one property and having to pay an unfair portion of land tax. This interpretation is consistent with Article 3 generally. Although I have taken a slightly different approach, the result is the same. There is no error of law. The appeal is dismissed. The decision of Magistrate L Swanson dated 10 September 2004 is affirmed. The summons filed 6 October 2004 is dismissed. 18 Costs are discretionary. Costs normally follow the event. Aqua Jet is to pay Buraan's costs as agreed or assessed.

(2) The decision of Magistrate L Swanson dated 10 September 2004 is affirmed.

(4) Aqua Jet is to pay Buraan's costs as agreed or assessed. **********

Last Modified: 11/18/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.