Commonwealth of Australia v Essendon Airport Pty Ltd

STEWARD J: 1 On 2 September 2019, I published reasons in this matter and directed that the parties provide draft orders concerning the form of final relief or, failing agreement, to provide submissions which addressed the form of orders the Court should make: Commonwealth of Australia v Essendon Airport Pty Ltd [2019] FCA 1411. Save in respect of two matters, the parties reached agreement about the relief the Court should grant. The Court is grateful to the parties for that. The two matters about which there is disagreement are as follows: (a) there is a dispute about the form of proposed declaration 1(vi) (set out below); and (b) whether I should make an award of costs in favour of the Commonwealth. In what follows, I adopt the terminology from my previous reasons for judgment.

Proposed Declaration 1(vi) 2 The dispute before me concerned the construction of cl 26.2(b) of a lease of land comprising Essendon Airport. That clause requires EAPL to make payments "in lieu of Land Tax" to the Commonwealth in respect of a portion of that land. To assist in the task of construction each party relied upon expert valuation evidence. I was not required to determine the value of the relevant land. Rather, I was required to resolve the issue of construction raised by cl 26.2(b). 3 The following form of declarations and orders, which reflect my reasons for judgment, were agreed as between the parties: THE COURT ORDERS/DECLARES THAT: 1. The proper construction of the lease between the Applicant and the Respondent dated 30 June 1998 (the Lease) is as follows: (i) the ex gratia payment in lieu of land tax in clause 26.2(b) of the Lease (EGLT) is to be assessed on the basis of the site value of the land identified in clauses 26.2(b)(i) and 26.2(b)(ii) only (EGLT Land), without taking into account the value of any other land within the "Airport Site" (as defined in clause 2.1 of the Lease) (Excluded Land); (ii) land used solely for aviation purposes, other than such land that is subleased, is not EGLT Land; (iii) as the aeronautical infrastructure is on land within the "Airport Site" (as defined in clause 2.1 of the Lease) that is not EGLT Land, the cost of constructing that aeronautical infrastructure is not a matter which can be taken into account in assessing or to reduce the site value of the EGLT Land for the purposes of clause 26.2(b) of the Lease; (iv) the valuation of the site value of the EGLT Land is to be undertaken on the assumption that the EGLT Land represents land on a single title owned by EAPL and otherwise in accordance with the 2005 Land Tax Act; (v) the valuation of site value of the EGLT Land is not to assume that a hypothetical purchaser of the EGLT Land must also be an operator of an airport; (vi) … (vii) other than car parking or car parks on land expressly excluded from being subject to EGLT under the clause [26.2(b)(ii)] of the Lease that is not sub-leased, all parts of the Airport Site that are car parks, including access roads and paths which make those car parks efficacious, are EGLT Land. 4 Proposed declaration 1(vi), with disputed words both excised and added by EAPL, is in these terms: (vi) EGLT is to be assessed on the site value of all the EGLT Land on an aggregated basis, applying only one tax free threshold and one set of marginal tax rates and also applying any exemptions from Land Tax under the 2005 Land Tax Act; 5 The Commonwealth submits that the words "on an aggregated basis" should be included in proposed declaration 1(vi) to reflect the reasons of the New South Wales Court of Appeal in Helicopters Pty Ltd v Bankstown Airport Ltd [2010] NSWCA 178. It will be recalled that the dispute in that case concerned the application of the tax free threshold arising under the Land Tax Management Act 1956 (NSW) in respect of a lease which included a version of cl 26.2(b). The sub-lessee in that case submitted that the threshold had to be re-applied for each sublet area of the land in question rather than once only to the entire part of the land sub-leased. That contention was rejected by the Court of Appeal. The Commonwealth submits that the following statement in the reasons of Handley AJA (with whom McColl and Basten JJA agreed) supports the notion that the parties here must "aggregate" the land specified within cl 26.2(b) (at [20]): … In my judgment the subclause provides for one assessable area within the airport site formed by aggregating the areas sub-leased to tenants with other areas on which trading or financial operations are undertaken by the lessee excluding certain areas as defined and other areas occupied by the Commonwealth or a Commonwealth authority. (Emphasis added.) 6 In contrast, EAPL submits that the words in dispute should be excised because I decided (at [79]) that the part of the land identified by the language of cl 26.2(b) to be exigible (called "EGLT Land" by the parties) was to be treated as "one assessable area" on the fictional basis that the EGLT Land was delimited by one certificate of title. 7 I agree with EAPL's submission. In my view, the orders should reflect my finding at [79] that the EGLT Land is to be treated on the fictional basis as one lot of land on one certificate of title. That conclusion is supported by the terms of proposed declaration 1(vi), set out above. The land to be valued is one thing, and not separate allotments. It will be a matter for a valuer to determine how to assess that value. That includes determining whether to apply an occupancy based method or some other method. The orders I make should not pre-empt the method to be used. 8 I do not think that what Handley AJA said in Helicopters Pty Ltd requires a contrary conclusion. His Honour's observations about aggregation reflect, I think, the factual circumstances of that case. 9 EAPL also seeks the addition of the following words in proposed declaration 1(vi): "and also applying any exemptions from Land Tax under the 2005 Land Tax Act". It submits: While not expressly dealt with in the decision, the Respondent considers that the application of any applicable exemptions under the 2005 Land Tax Act goes hand in hand with applying the rate scale under the 2005 Land Tax Act to calculate the liability once the site value is determined. 10 I do think that it is not appropriate to include the words suggested. That is because no part of the dispute before me concerned a contention that the EGLT Land was subject to any "applicable exemptions". Having said that, I repeat my observation at [75] and at [79] of my previous reasons that the parties to the Lease intended that cl 26.2(b) was to be applied on the fictional basis that EAPL was in fact liable to pay land tax in accordance with the 2005 Land Tax Act. 11 For these reasons, declaration 1(vi) will be in the following terms: EGLT is to be assessed on the site value of the EGLT Land applying only one tax free threshold and one set of marginal tax rates.

Costs 12 I rejected EAPL's case concerning how cl 26.2(b) should be read in determining the value of the EGLT Land. EAPL nonetheless submits that each party should bear their own costs. That is because, amongst other things, I did not agree with all of the contentions raised by the Commonwealth; because I accepted some aspects of EAPL's case; because the Commonwealth ultimately relied on only one of two expert reports filed; because the Commonwealth required the attendance of EAPL's expert witness but did not end up cross-examining him; and because the "result of the decision is not an alignment with the valuation position put by either party". 13 In amplification, EAPL made the following contentions in its written submissions: 1.7. Indeed, his Honour's conclusions aligns with a number of the submissions of the Respondent: (a) In paragraph [75], his Honour accepts that the correct regime that should apply is the 2005 Land Tax Act and concludes in paragraph [82] that any valuation must be in accordance with the 2005 Land Tax Act in accordance with the specified assumptions. (b) In paragraph [76], his Honour accepts the Respondent's submissions that the 2005 Land Tax Act requires a determination and valuation of land that comprises a certificate of title. (c) His Honour did not reject the Respondent's submission that in valuing the EGLT Land there should be a 20% discount for size. 1.8. His Honour did not wholly accept the Applicant's submissions: (a) In paragraph [16], his Honour rejects the Applicant's reliance on the Competition Principles Agreement entered into by the Commonwealth and the States in 1995. (b) In paragraph [34], his Honour rejects the Applicant's reliance on the Master Plan prepared in 2013. (c) In paragraph [78], his Honour expresses the view that he would not have accepted the Applicant's submissions that the EGLT Land did not form part of any larger property for the purposes of section 2(3) of the VLA. (d) In paragraph [82], his Honour declines to determine whether an occupancy based approach to valuing the land specified by the parties should be used, or some other method. Instead, His Honour states that the valuation should be in accordance with the 2005 Land Tax Act and with the specified assumptions. (e) His Honour declined to determine that the Applicant's valuation was accurate. 14 I respectfully do not think that the matters relied upon by EAPL justify the Court denying the Commonwealth its costs. The great substance of the dispute before me concerned whether the language of cl 26.2(b) justified a determination of the amounts to be paid in lieu of land tax in accordance with the value of the "entire Airport Site" as reduced by the burden of fulfilling the obligation to operate an airport including, critically, the cost of constructing necessary airport infrastructure. That was EAPL's case and I did not, with respect, accept it. An order of costs in favour of the Commonwealth should be made to reflect that essential outcome. 15 The matters relied upon by EAPL do not justify a departure from that result. It is true that I accepted some of the contentions made by EAPL, and that I did not accept everything submitted by the Commonwealth. In a complex case, that is not surprising. It is also true that the Commonwealth conducted its case in a way which perhaps caused the incurrence of unnecessary expense by EAPL. But its conduct was not unreasonable. Parties commonly make forensic decisions of the kind complained about here. That is part of the cut and thrust of litigation. A winning party need not succeed in everything in order to get a favourable award of costs. In my view, the Commonwealth did not conduct its case in such an unreasonable way that it should be denied its costs. 16 For these reasons I will make the following declarations and orders: THE COURT DECLARES THAT:

1. The proper construction of the lease between the Applicant and the Respondent dated 30 June 1998 (the "Lease") is as follows: (i) the ex gratia payment in lieu of land tax in clause 26.2(b) of the Lease ("EGLT") is to be assessed on the basis of the site value of the land identified in clauses 26.2(b)(i) and 26.2(b)(ii) only ("EGLT Land"), without taking into account the value of any other land within the "Airport Site" (as defined in clause 2.1 of the Lease) ("Excluded Land"); (ii) land used solely for aviation purposes, other than such land that is sub-leased, is not EGLT Land; (iii) as the aeronautical infrastructure is on land within the "Airport Site" (as defined in clause 2.1 of the Lease) that is not EGLT Land, the cost of constructing that aeronautical infrastructure is not a matter which can be taken into account in assessing or to reduce the site value of the EGLT Land for the purposes of clause 26.2(b) of the Lease; (iv) the valuation of the site value of the EGLT Land is to be undertaken on the assumption that the EGLT Land represents land on a single title owned by EAPL and otherwise in accordance with the Land Tax Act 2005 (Vic); (v) the valuation of site value of the EGLT Land is not to assume that a hypothetical purchaser of the EGLT Land must also be an operator of an airport; (vi) EGLT is to be assessed on the site value of the EGLT Land applying only one tax free threshold and one set of marginal tax rates; and (vii) other than car parking or car parks on land expressly excluded from being subject to EGLT under clause 26.2(b)(ii) of the Lease that is not sub-leased, all parts of the Airport Site that are car parks, including access roads and paths which make those car parks efficacious, are EGLT Land. THE COURT ORDERS THAT:
2. The Respondent pay the Applicant's costs of the proceeding. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Steward.