Pacific Coal Co Pty Ltd v Perpetual Trustee Co

Pacific Coal Co Pty Ltd v Perpetual Trustee Co - [1954] HCA 37 - HCA 1954 case summary — Zoe

[10]

The plaintiff demurred to the first two pleas and to the third, fourth and fifth pleas, but the Supreme Court overruled the demurrer to the first and second pleas. The respective statutes on which these two pleas were based contained specific provisions for a reduction by twenty-two and one-half per cent of "rent reserved by or under any lease"; that is, any lease to which the statutory provisions applied: see s. 6 (1) of the Reduction of Rents Act 1931 NSW and s. 15 (1) of the Landlord and Tenant (Amendment) Act 1932-1947 NSW. The two pleas were held by the Supreme Court (Street C.J., Owen and Herron JJ.) to be good because the royalty reserved by the lease was, as their Honours decided, as much a rent as was the fixed yearly sum of £819, which was expressly described as a rent. The two New South Wales statutes therefore successively applied to reduce the total amount of rent and royalty for the periods covered by these two pleas. The plaintiff has not appealed from the judgment entered by the Supreme Court for the defendant upon the demurrer to the two pleas. To the defendant's appeal, in other words, there is no cross-appeal. The defendant's appeal is confined to the three pleas which deal with later periods and with these pleas alone are we now directly concerned. They are the third, fourth and fifth. The third relates only to the short period of six months from 1st January to 30th June 1948 and covers a sum of £649 14s. 11d. It is based upon the National Security (Prices) Regulations and a Prices Regulation Order made in purported pursuance thereof. The fourth plea is also based upon those regulations and that order. It relates to the remainder of the period of their operation after 30th June 1948, namely the period from 1st July to 20th September 1948 and covers a sum of £1,093 10s. 5d. It was upon 20th September 1948 that prices for the sale of goods and rates for the supply of services ceased in New South Wales to be controlled by the Commonwealth National Security (Prices) Regulations and that the operation of the Prices Regulation Act 1948 of New South Wales commenced. (See declaration of the Minister for Trade and Customs made under reg. 3B of the regulations on 17th September 1948 in the Commonwealth Government Gazette of that date, and proclamation of the Governor of New South Wales in the New South Wales Gazette of 20th August 1948.)

[15]

All three pleas ultimately depend upon the operation of a Prices Regulation Order actually made by the Commonwealth Prices Commissioner as far back as 17th March 1943. It is identified as Prices Regulation Order No. 985 and is to be found in the Commonwealth Gazette of 18th March 1943. The material part is as follows: "I (the Commissioner) fix and declare the maximum rates per ton of coal mined at which mining rights may be supplied in respect of coal mined from the classes of mining properties mentioned hereunder to be (c) Properties not subject to Crown lease which were privately leased on 31st August 1939 - the amount per ton of coal mined payable on 31st August 1939." The allegations in the pleas show that the coal mine the subject of the lease sued upon is of the class specified in par. (c), viz. a property not subject to Crown lease which was privately leased on 31st August 1939, that is to say it was in lease on that day. The defendant's case is simply that the Order possessed the force of law during the time covered by the three pleas, first by virtue of the National Security (Prices) Regulations and then by virtue of the Prices Regulation Act 1948 NSW, and that the expression in the Order "the amount per ton of coal mined payable on 31st August" applies to this case so as to establish as a maximum the rates of royalty which would result as on 31st August 1939 from making the reduction of twenty-two and one-half per cent required by the Landlord and Tenant (Amendment) Act 1932-1947 NSW from the royalty ascertained in accordance with the provisions of the lease. The answers given to this case of the defendant by the majority of the Supreme Court come down in the end to two propositions. The first is that the Order never did apply to a rent expressed as a royalty which this is: such a thing was outside the scope both of the Prices Regulations and the Order. The second is that even were it otherwise the Order relates to "rates at which mining rights may be supplied" and if mining rights could be said to be "supplied" at all in this case the "supply" was by virtue of the lease made long before, namely in 1919, and therefore outside the operation of the Order, which could only be prospective. Certain amendments of the regulations made after the date of the Order could not, so their Honours held, affect the result both because the amendments were prospective only in their operation and also because the old declaration by the Minister would not, in their Honours' opinion, suffice and a new declaration became necessary to bring "mining rights" within the definition of "declared services" if by the amendments they were brought within the scope of the regulations and no such declaration was made.

[18]

In considering the efficacy of the Order and its operation under the foregoing regulations it is desirable to begin by disregarding the particular circumstances of this case and inquiring into the abstract validity of the material part of the Order as an exercise of the power given by reg. 23. Now it seems to be clear enough that par. (b) of the definition of the word "service", operating as it does upon and therefore through the expression "declared service", extends the application of reg. 23 (2) beyond its natural meaning and must, so to speak, be read into it. Regulation 23 (2) (a) thus should be understood as if expressed to authorize a fixing and declaring of the maximum rate at which any declared service including any rights or privileges for which remuneration is payable in the form of royalty etc. may be supplied or carried on. The incongruity of the word "supply" with rights or privileges for which a royalty is payable is obvious. But another word inappropriately chosen is "remuneration" to describe a royalty. These words evidently were intended to receive a flexible meaning in accordance with the context and the subject matter. It seems almost undeniable that they cover royalties payable in connection with the exercise of rights or privileges granted after the making of an order fixing or declaring the maximum royalty payable therefor. Do they cover royalties payable in connection with the exercise of rights or privileges granted before the making of an order fixing or declaring the maximum royalty, and before the making of the regulations? There is much to support the view that they do. The regulations were dealing with "goods and services", a collocation familiar in economics, and they were assigning to the latter category the providing of rights and privileges to be exercised for the production of goods at a royalty etc. The word "supply" in relation to the category if it were not artificially extended would be equivalent to "perform" and, if it is to be moulded to fit the extension of the category, the analogous meaning is to maintain the enjoyment of the right rather than to grant it once for all. The subject is "price fixing" as a war measure and it is obvious that what must be controlled are the rates that affect the cost of production and go into the price of the goods. It is the royalty charged de die in diem that matters, not the grant of the right and the initial fixing of a royalty. It is to be noticed that royalties on the value of goods produced were included. That doubtless was because a rise in value would mean a rise in the royalty. And that would be so irrespective of the term for which the right or privilege was granted. But, as will appear, the question whether the "supply" of "rights and privileges" is complete within the meaning of the regulation upon the making of the original grant or, on the contrary, the regulation means to extend to the continued support of the right or the maintenance of the enjoyment of the right, is one that must be decided in the light of amendments of the regulation subsequently made. Until these are examined it is better to suspend consideration of the question. Its importance arises not only from the facts of the present case, but also from the provisions of the Order. For the Order is hardly capable of a construction which confines its intended operation to royalties reserved by leases (or licences) granted after the making of the Order. At the same time the intended operation of the Order includes future leases. It is convenient to pass to the amendments which affect the question. By reg. 1 (1) of S.R. 1945 No. 113, which came into force on 23rd July 1945, the following provision was added to reg. 3 (the definition clause) as sub-reg. (2) - "A person who receives (otherwise than as agent) any valuable consideration from any other person in respect of the enjoyment by that other person of a service shall, for all purposes of these regulations, be deemed to supply that service to that other person for the amount or value, or at the rate, as the case may be, of that valuable consideration." Regulation 1 (2) provided at the same time that any declaration by the Minister of any services in force at the commencement of the regulation (viz. S.R. 1945 No. 113) should have effect as if the regulation had been in operation at the time of the publication in the Gazette of the notice of the declaration.

[20]

In the following year a further amendment of reg. 3 was made that is material to the question whether the "supply" of the "mining rights" could and should be considered as taking place after the date of the Order and as continuing as they were exercised or as made once for all when the lease was granted. But that amendment included no express provision that the declaration of the Minister should have effect as if the new provision had been in force at the time the declaration was made. The amendment was made by S.R. 1946 No. 71 and came into operation on 11th April 1946. Two new sub-regulations were added to reg. 3, viz. sub-regs. (3) and (4). At this point it is only the provisions of sub-reg. (3) that need consideration. Sub-regulation (3) provided that where any agreement (including any lease) had been entered into, whether before or after the commencement of the sub-regulation, under which a person has become entitled to rights or privileges specified in certain paragraphs of the definition of "service" of which par. (b) is the relevant one, the person from whom the rights or privileges have been acquired shall, for all purposes of the Prices Regulations, be deemed to be supplying those rights or privileges at all times during which the rights or privileges continue, at the rate of the remuneration charged therefor from time to time. If this regulation applies its evident result is to place a person who, like the plaintiff, granted rights or privileges, before the making of an order treating them as services, in the situation of one supplying services from day to day as the rights and privileges were exercised. The fact that the Minister made no new declaration under reg. 22 (2) can be no obstacle to the application of the additional sub-regulation, sub-reg. (3) of reg. 3. The existing declaration covered all services, with certain exceptions not relevant; the sub-regulation did not add a new "service" of a kind not contemplated by this general, indeed almost universal, declaration; it simply provided that certain persons should be deemed to be performing those services. If they did not already fall within the class affected it brought them within but it did not add a new category of "services" to which the Minister's declaration did not extend.

[21]

Sub-regulations (2) and (3) of reg. 3 are therefore sufficient to meet the objection, if it be a valid objection, that the Order could not operate upon rights for which remuneration was payable in the form of royalty, if the rights were created before the Order was made, because within the meaning of reg. 23 (2) (a) the rights were "supplied" once for all at the date they were granted; the sub-regulations are sufficient to do so subject to one possibility. That possibility is that the Order was totally void from its inception. The fact has already been noticed that the Order exhibits clearly an intention to govern the rates of royalty for the "supply" of mining rights granted in the past, although it also shows an intention to govern rates in respect of mining rights granted subsequently. On the assumption that when the Order was made the grant constituted the "supplying", the former intention would exceed the power conferred on the commissioner by the combined operation of reg. 23 (2) (a) and par. (b) of the definition of service in reg. 3. Would this result in the total invalidity of the Order? The answer must be that it would not because the intended application of the Order is distributable and the presumption is that it is severable. The presumption arises from the operation upon the Order of the Acts Interpretation Act 1901-1950 pursuant to s. 5 (5) of the National Security Act 1939-1946 which provided that the Acts Interpretation Act shall apply to the interpretation of any orders (among other instruments) made in pursuance of regulations made under the National Security Act in like manner as it applies to the interpretation of regulations and for the purpose of s. 46 of the former Act those orders shall be deemed to be Acts. The word "Acts", where last occurring, no doubt was a mistake for "regulations". When the sub-section was transcribed as s. 14 (3) of the Defence (Transitional Provisions) Act 1946-1952 the word "Acts" was replaced in that provision by the word "regulations". But as was pointed out in Fraser Henleins Pty Ltd v Cody; Crowther v Cody [1] where the matter is discussed, the earlier words of s. 5 (5) are enough to submit orders themselves to the operation of the whole Acts Interpretation Act including the directions contained in par. (b) of s. 46 and it is plain that this was the intention. That Orders made under National Security Regulations were subject to s. 46 (b), however the result may be reached, is established by the decision of the Court in Fraser Henleins Pty Ltd v Cody [2] . Given a valid operation at least upon the "supply" of mining rights granted after the date of the Order, there is no reason why sub-regs. (2) and (3) of reg. 3 should not bring within its scope mining rights exercised pursuant to grants made before the date of the Order. It may be suggested that in fixing as maximum rates the amount per ton of coal mined payable on 31st August 1939 in the case of properties privately leased on that date par. (c) of the Order does not sufficiently prescribe a rate as an exercise of the power given by reg. 23 (2). But notwithstanding some departures from the language of par. (g) of reg. 23 (2a) the Order seems to be justified in this respect by that paragraph.

[29]

In considering this question it is to be borne in mind that here and in England it has long been a practice in coal mining leases to reserve both a fixed minimum rent and royalties varying with the quantity of the coal worked. The fixed or dead rent ensures a minimum return to the lessor and encourages the lessee to work the mine: cf. Halsbury's Laws of England, 2nd ed., vol. 22, pp. 602, 603, where the nature of the practice is mentioned and amplified in the following passage: "A royalty, in the sense in which the word is used in connection with mining leases, is a payment to the lessor proportionate to the amount of the demised mineral worked within a certain period. Usually the royalties are made to merge in the fixed rent by means of a provision that the lessee may, without any additional payment, work, in each period for which a payment of fixed rent is made, so much of the minerals as would, at the royalties reserved, produce a sum equal to the fixed rent." The lease declared upon is of this description. The words "goods produced" in par. (b) of the definition of "service" are of the widest possible application. It would indeed be surprising if they did not include fuel and basic natural products. "Royalty" stands unqualified in its generality. It is a word of various known applications. The common applications of the word are described by Latham C.J. in McCauley v Federal Commissioner of Taxation [1] : "The word "royalty" is most commonly used in connection with agreements for the use of patents or copyrights and in relation to minerals. In the case of patents a royalty is usually a fixed sum paid in respect of each article manufactured under a licence to manufacture a patented article. Similarly the publisher of a work may agree to pay the author royalties in respect of each copy of the work sold In the case of mineral leases, a rent is reserved by the lease and frequently royalties are also made payable, being sums calculated in relation to "the quantity of minerals gotten" (Attorney-General of Ontario v Mercer [2] ) - in such a case the royalties represent "that part of the reddendum which is variable." Use of the term "royalty" is not, however, limited to patents, copyrights and minerals. The term has been used to describe payments for removing furnace slag from land (Shingler v P. Williams & Sons [3] ), and to payments for flax cut (Akers v Commissioner of Taxes (N.Z.) [4] ), the person paying the royalties becoming the owner of the slag or of the flax" [5] . In his dissenting judgment Rich J. defined the word thus: "In its primary sense, royalty denotes one of the beneficial rights of the Crown, such as the right to bona vacantia, escheats, treasure trove, and so forth. In its secondary sense it denotes a consideration paid for permission to exercise a beneficial privilege, usually made payable as and when the privilege is exercised, and measured by the quantum of the benefit from time to time received from the exercise, for example, by the quantity of minerals won by the exercise of mining rights, or the number of articles manufactured under a licence to use a patent or a secret process" [6] . This being the meaning and these being the characteristic applications of the word it is not easy to suppose that royalties on the production of coal and other minerals were outside the intendment of the paragraph. Once that is granted the next step seems almost inevitable, namely that it covers such royalties whether their character is rent or not. For in the first place the character of rent usually attaches to such royalties. In the second place whether it does so or not is irrelevant to the purpose of the regulations, namely to control charges which would affect the price or cost of commodities and to check some of the factors or incidents of monetary inflation.

[39]

It will be seen that the validity of the Order as one to which the Commonwealth regulations gave force may appear to amount to a condition of the application of s. 2 (1). A provision in the Landlord and Tenant (Amendment) Act 1948 NSW, s. 4 (1), closely resembling s. 2 (1) of the Prices Regulation Act 1948 NSW, has received a construction in this Court. The question in Brown v Green [1] was whether s. 4 (1) on its true construction made the constitutional validity of the Commonwealth National Security (Landlord and Tenant) Regulations an essential condition of the operation of the provision to take over the determinations made under the Commonwealth regulations. For reasons set out in the report [2] it was decided that s. 4 (1) did not mean to make it an essential condition. The construction placed upon the sub-section appears from the following passage: "When s. 4 (1) speaks of the determinations made before the commencement of the Act under the Commonwealth Regulations it assumes that the Commonwealth Regulations have the operation described and does not imply that it shall be a condition of the operation of s. 4 (1) that the operation of the Regulations shall be constitutionally valid. The words which follow "and having force or effect in this State immediately before such commencement" are necessary in order to ensure that a determination which was made but had since been rescinded or varied or the operation of which had expired shall not be included in the description. They are words which are attached to the word "determinations" and refer to the force or effect of the determinations on the footing or assumption that the Commonwealth Regulations are operative. They do not import the necessity that the Commonwealth Regulations themselves possess a valid constitutional force or effect. If a determination was made in point of fact but exceeded the power which the Commonwealth Regulations purport to confer or because of some other disconformity with the Commonwealth Regulations fell outside the authority they purport to confer it could not be considered to have force or effect under the Regulations" [1] .

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Judgment (46 paragraphs)

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