Plaintiff v Defendant

1 In this proceeding, the plaintiff, Port of Portland Pty Ltd,[1] claims a sum of some $750,000 from the State of Victoria ("the State"), as a debt or for damages, pursuant to or arising out of an agreement made 15 February 1996 ("the Agreement").

2 The Agreement was made between the Port of Portland Authority (the statutory corporation that operated the port of Portland ("the Port") under the Port of Portland Authority Act 1958 (Vic)) and two companies that purchased the assets (including all the real property) and business of the Port of Portland Authority under the Agreement for the sum of $30M. It is common ground that the plaintiff was nominated by those companies to be the purchaser of the said assets and business under the Agreement and stands in their shoes for all purposes thereunder. A further party to the Agreement was the Honourable Alan Robert Stockdale, Treasurer of Victoria, "for and on behalf of the Crown in right of the State of Victoria". Again, it is common ground that the State was thereby and is a party to the Agreement.

3 Under the Agreement, the plaintiff acquired substantial parcels of unalienated Crown land both within, and in the vicinity of, the Port, as shown on plans annexed to the Agreement. The land principally comprised the main port area, known as Barton Place,[2] the Canal Industrial Estate,[3] the Shell land[4] and the Cape Grant Quarry,[5] totalling some 115 hectares (of which about 43% was occupied by the Port Authority, and subsequently the plaintiff, and the balance comprised the tenanted properties). The plaintiff's claim is concerned with its land tax liabilities in relation to the land so purchased and is based upon cl.11.4 of the Agreement which provides as follows:

"(a) The State has agreed with the Purchaser that it will effect an amendment to statutes governing the assessment and imposition of land tax to ensure that the unimproved site value used as the basis for assessment of land tax liability for the Real Property excludes the value of buildings, breakwaters, berths, wharfs, aprons, canals or associated works relating to a port.

(b) In the event that, before or after Completion the relevant statutory amendments do not become law and, as a result of that the Purchaser is assessed to land tax on the Real Property at a rate higher than would have been the case if the relevant statutory amendments were law, the State will refund or allow to the Purchaser the difference between the two amounts. "

4 Where appropriate for ease of reference, what the Agreement describes as "buildings, breakwaters, berths, wharfs, aprons, canals or associated works relating to a port", I will refer to as "port improvements".

5 Although certain legislative amendments (to which I will refer) were made, the plaintiff contends that the relevant legislation was not amended in such a way as to satisfy cl.11.4 and "to ensure that the unimproved site value used as the basis for assessment of land tax liability" excluded " the value of buildings, breakwaters, berths, wharfs, aprons, canals or associated works relating to a port". As a result, the plaintiff contends that it has been assessed to land tax at a rate higher than would have been the case if appropriate statutory amendments had been enacted and that the State is liable, pursuant to 11.4(b) of the Agreement to "refund or allow" to it "the difference between the two amounts" (alternatively, that the State is liable for damages for breach of contract).

6 I now outline the factual position and the principal legislative provisions in force at the time of the making of the Agreement in February 1996.

7 The governing land tax legislation was the Land Tax Act 1958 (Vic)[6] ("the Land Tax Act"). It was common ground that the land owned by the Port of Portland Authority was not and had not been subject to land tax except for those parcels that were the subject of a leasehold interest ("the tenanted properties"). It is unnecessary to refer to the provisions relevant to this aspect. Land subject to land tax under the Land Tax Act was taxed on its "unimproved value"[7].

8 At the relevant times, "unimproved value" was dealt with by s. 3(2)(a) of the Land Tax Act, which provided:

"For the purposes of assessing the tax to be charged, levied or collected under this Act in any year -

(a) the unimproved value of any land shall be an amount equal to the site value (as defined in the Valuation of Land Act 1960) of the land as at the relevant date adjusted in accordance with sub-sections (3) and (4)[8]..."

9 It is thus necessary to turn to the provisions of the Valuation of Land Act 1960 (Vic) ("the VLA"). The VLA defined "site value" in substance to mean the market value of land "assuming that the improvements (if any) had not been made"[9].

10 Section 2(1) of the VLA defined "improvements" as follows:

"improvements", for the purpose of ascertaining the site value of land, means all work actually done or material used on and for the benefit of the land, but in so far only as the effect of the work done or material used increases the value of the land and the benefit is unexhausted at the time of the valuation, but does not include -

(a) work done or material used for the benefit of the land by the Crown or by any statutory public body; or

(i) the removal or destruction of vegetation or the removal of timber, rocks, stone or earth; or

(ii) the draining or filling of the land or any retaining walls or other works appurtenant to the draining or filling; or

(iii) the arresting or elimination of erosion or the changing or improving of any waterway on or through the land -

unless those improvements can be shown by the owner or occupier of the land to have been made by that person or at that person's expense within the fifteen years before the valuation."

11 In addition, s.2(2) of the VLA provided that, in estimating the value of improvements on any land for the purpose of ascertaining the site value of the land, the value of the improvements was the sum by which the improvements were estimated to increase the market value[10] of the land.

12 The legislative provisions governing the valuation of land, and thus affecting the calculation of land tax, were contained both in the VLA and in the Local Government Act 1989 (Vic) ("the LGA"). Part 8 of the LGA deals with rates and charges on rateable land and s.157(1) of the LGA provides that a Council may use the site value, net annual value[11] or capital improved value[12] system of valuation.

13 Section 13DA of the VLA enables a Council to appoint valuers and s.13DC of the VLA provides that, in every valuation for the purposes of the LGA, each separate occupancy on rateable land must be computed at its net annual value, its capital value and, if required by a rating authority, its site value. The land purchased by the plaintiff was situated in the municipal district of the Shire of Glenelg[13] ("the Shire"), the Council of which had adopted the capital improved value system for rating purposes, and which had been required by the Commissioner of Land Tax (a rating authority under s.2(1)(f) of the VLA) to compute rateable land in its municipality at its site value.

14 Section 13DC of the VLA required a Council to make what is usually called a "general valuation" of land for rating purposes. Prior to legislative amendments in 1998, municipal councils in non-metropolitan areas were required to carry out general valuations every six years. It is unnecessary to refer to the detail of the provisions. There had been a general valuation of rateable land carried out in the Shire as at 30 June 1993. That general valuation included site values for the tenanted properties of the Port of Portland Authority but it had not established site values for land occupied by the Authority itself because that land had not been rateable prior to its purchase by the plaintiff.

15 It was in that legislative context that the State agreed with the plaintiff, under cl.11.4 of the Agreement, that it would effect an amendment to the statutes governing the imposition of land tax to ensure that the unimproved site value used as the basis for assessment of land tax liability would exclude the value of port improvements.

16 On 13 May 1996 the Shire wrote to the plaintiff noting that the Council's Contract Valuer Mr Tony McDonald ("Mr McDonald") had been working with Mr Ian Stanford of the plaintiff to ascertain the municipal valuation of the plaintiff's land and buildings for rating purposes. The letter said that, as the sale of the Port was the first of its type in Australia, relevant comparable sale information was not available for this type of property. The letter requested additional information, including an apportionment of the sale price, for the valuer. This led to continuing correspondence between the plaintiff and the Shire over a lengthy period of time to the contents of which only occasional reference is necessary.

17 The Victorian Parliament enacted the State Taxation (Omnibus Amendment) Act 1996 which was assented to on 25 June 1996. Section 27 of that Act provided as follows:

(1) In section 2(1) of the Valuation of Land Act 1960, the definition of "improvements", for "but does not include" substitute "but, except as provided in sub-section (2AA), does not include".

(2) After section 2(2) of the Valuation of Land Act 1960 insert -

"(2AA) Works relating to a port, being buildings, breakwaters, berths, wharfs, aprons, canals or associated works are improvements within the meaning of this Act.".

18 The above amendment to the VLA came into operation on the date of assent, namely 25 June 1996[14]. Thus, firstly, the definition of "improvements" in s. 2(1) of the VLA read as follows from that date:

" "improvements", for the purpose of ascertaining the site value of land, means all work actually done or material used on and for the benefit of the land, but in so far only as the effect of the work done or material used increases the value of the land and the benefit is unexhausted at the time of the valuation, but, except as provided in sub-section (2AA), does not include _ - _

(a) work done or material used for the benefit of the land by the Crown or by any statutory public body; or

(i) the removal or destruction of vegetation or the removal of timber, rocks, stone or earth; or

(ii) the draining or filling of the land or any retaining walls or other works appurtenant to the draining or filling; or

(iii) the arresting or elimination of erosion or the changing or improving of any waterway on or through the land -

unless those improvements can be shown by the owner or occupier of the land to have been made by that person or at that person's expense within the fifteen years before the valuation."

19 Secondly, subsection (2AA) was added so as to include as "improvements" within the meaning of the VLA "works relating to a port, being buildings, breakwaters, berths, wharfs, aprons, canals or associated works...". It can be seen that these words are reflective of the language of cl.11.4(a) of the Agreement. It was common ground, I think, that the amendment was intended to comply with cl.11.4 of the Agreement but where the parties differed was as to whether it was successful in so doing.

20 On 25 July 1996 the Shire faxed to the plaintiff a "Valuation Rating Schedule" comprising a table listing the plaintiff's properties, most of which were noted as being occupied by other corporations or persons. However property number "805010" (i.e. Barton Place) was noted as being occupied by the plaintiff and as being previously unrated - the suggested capital improved value ("CIV") was $18,608,000 and the suggested site value was $2,050,500. The plaintiff replied by fax the following day indicating that it did not propose to challenge the CIV of sites occupied by tenants although it did not necessarily accept them. The letter asked for a breakdown of the CIV of Barton Place and went on to contend that wharves, slipways, jetties and breakwaters were not capable of being rated and also that the plaintiff would object to a proposal by the Shire to extend the municipal boundary beyond the high water mark. There was subsequent debate in correspondence between the plaintiff and the Shire relating both to the value of Barton Place and also to the proposed municipal boundary extension.

21 Apparently the plaintiff became aware of the abovementioned amendments to the VLA in September 1996 and sought advice from its solicitors in Portland. Those solicitors advised the plaintiff that the amendments made it quite clear that such improvements as the port infrastructure were not to be taken into account in assessing the site value upon which land tax was calculated but that those improvements would form part of the CIV which would have an impact in relation to municipal rates.

22 On 19 November 1996, J. A. Stanford & Associates, Consultant Valuers, provided to the plaintiff a valuation of its land and improvements not leased to other occupiers. The valuation assessed the site value of the land (including the Cape Grant Quarry) in the sum of $3,080,265 and the CIV of the same land as $13,153,790 and these valuations were conveyed to the Shire.

23 By Order in Council published in the Government Gazette on 23 January 1997 the municipal boundary of the Shire was extended to include land from the high water mark to 200 metres seaward. The effect of this extension was to include about 90% of the main Port area within the Shire boundary with consequences for rating purposes and potentially for the purposes of land tax.

24 The VLA provided that a valuer may carry out a supplementary valuation and the provisions to that effect, so far as relevant, were as follows:

(1) Despite anything in this or any other Act, [an appointed valuer] may carry out a supplementary valuation for the purposes of the Local Government Act 1989.

(2) A supplementary valuation may be made in any of the following circumstances:

(a) if any land which should be included in the valuation then in force is not included;

(e) if any land has become rateable since the return of the existing valuation;

(3) Any supplementary valuation when returned must be treated as part of the valuation in force and has the effect of cancelling anything contained in the existing valuation which is not consistent with the supplementary valuation.

(6) The valuer in making a supplementary valuation must -

(a) have regard to the general levels of value upon which the valuation in force within the municipal district or ward was based; and

(b) assess the value that the land to which the supplementary valuation applies would have had if at the time at which the last valuation of the municipal district or ward was made it had been in the condition in which it is at the time of the making of the supplementary valuation, having regard to every circumstance which affects the value of the land at the time of the making of the supplementary valuation, if it is a circumstance requiring the making of a supplementary valuation of the land under sub-section (2).

(1) A valuer must return valuations in the prescribed form.

(2) Before any valuation and return is made the person appointed to make it must make a statutory declaration that the valuation and return will be impartial and true to the best of that person's judgment and will be made by that person or under that person's immediate personal supervision.

(3) An entry must be made in the minutes of the meetings of the council of the making of the declaration and of its date."

25 On or about 7 March 1997, Mr McDonald made a Supplementary Valuation of a portion of the plaintiff's land. Mr McDonald's valuation was recorded by him on a valuation card relating to property number 805010, Barton Place, and dated (retrospectively) 30 June 1993. For ease of reference, I will call this valuation a supplementary valuation but I note that the plaintiff contended that it was not a valid supplementary valuation. The land valued by Mr McDonald comprised the Port land[15] but excluding those parts of the Port land occupied by tenants. The portion of land thus valued was said by Mr McDonald to comprise about 49.1429 hectares and included the area covered by the extension of the municipal boundary in January 1997. Mr McDonald generally described the land in his valuation report dated 7 March 1997 as a regional Port consisting of 5 shipping berths, disused tanker berth, various slipways and small vessels wharves, large open storage areas, large open reclaimed and unused areas and two rock constructed breakwaters. He described buildings associated with the Port operations including an administration building, workshops, offices, various sheds and stores, facilities and other structures. Mr McDonald noted that, due to the nature of the property and its specialised construction and usage, there were generally no comparable properties for a valuation to be made on a direct sales analysis basis. He further noted that as the Port of Portland represented one of the first regional ports in Australia to be privatised and sold, there was generally limited information or guidance available to indicate the general methodology to be used to assess the fair market value of the Port. He then referred to two "methods" of assessing the fair market value of the property. The first method involved consideration of the asset register maintained by the Port of Portland Authority showing the book value of its assets, excluding any land component. Mr McDonald then excluded the assets relating to land outside the Port or occupied by tenants and included a land component and arrived at a market value of approximately $18,849,650. The second method started with the purchase price of $30M paid by the plaintiff as indicating the market price of the "entire Port" and then excluded the individual tenancies and other extraneous items (such as stock and trade debtors). By this method, he arrived at a market value of $18,284,800.

26 Mr McDonald adopted his lower figure of $18,284,800 as the capital improved value for the purposes of his Supplementary Valuation and the sum of $914,240 as the net annual value. Mr McDonald then adopted as the site value the sum of $2,050,500, but without any explanation in his report as to how he arrived at this figure. In his witness statement in this proceeding, Mr McDonald explained that this site value was arrived at by him by deducting the value of "improvements" in the sum of approximately $16M.

27 On or about 3 April 1997 the plaintiff received a number of Valuation and Rate Notices from the Shire and at about the same time received a letter from the Shire setting out Mr McDonald's valuations. In that letter the Shire's Executive Manager - Corporate and Community Services (Mr Hornby) commented that the Council's site value was $295,970 less than the site value provided by Stanford & Associates "which may benefit the Port in respect to land tax assessments". On 30 April 1997 the plaintiff lodged with the Shire an objection under the VLA to the amounts of the net annual value and capital improved value contained in the Supplementary Valuation relating to Barton Place and as notified to the plaintiff by the relevant Valuation and Rate Notice on the ground that the values assigned were too high. The plaintiff did not object to the amount assigned to the site value.

Events subsequent to the plaintiff's objection to the Council valuation

28 On 19 August 1997, the plaintiff's objection to the Shire's valuation was disallowed.

29 On or about 22 August 1997 the plaintiff received a 1997 land tax assessment notice in the sum of $2,406.38. Accompanying the notice was a summary of assessment details showing a total unimproved value of $595,546 and listing the land owned by the plaintiff as at 31 December 1996. I think that it was common ground that the list of lands owned by the plaintiff attached to this assessment notice was, for whatever reason, incomplete. It would seem that as a result the land tax payable was a relatively small amount and the plaintiff was not therefore at this stage, it would seem, unduly concerned about the quantum of the total unimproved value of its land for land tax purposes. Nevertheless the plaintiff wrote to the State Revenue Office ("SRO") by letter dated 4 September 1997 stating that it wished "to formally lodge....objection to your assessment"[16] on the grounds that some of the land appeared to be incorrectly described and that some of the "items taxed may be exempt from land tax liability." The plaintiff, in its letter, referred to the amendment to the VLA dealing with port improvements.

30 In September 1997 the plaintiff required its objection to the Shire valuations to be treated as an appeal to the Supreme Court.

31 On or about 17 February 1998 the plaintiff received an amended 1997 land tax assessment notice increasing the land tax payable to $24,569.58 as a result of the inclusion of some properties omitted from the previous assessment. There were further communications and correspondence between the Shire and the plaintiff about the identity of various parcels of land owned by the plaintiff and, in a letter dated 31 March 1998 to the Shire, the plaintiff again formally objected to the assessment and also reiterated its point that several areas of land may be "exempt" from land tax liability and the plaintiff referred to a so-called "exempt area of breakwaters, wharves, aprons, etc".

32 By letter dated 14 April 1998 from the SRO to the plaintiff, the SRO pointed out the limitations on objections to amended assessments[17] and also to the fact that objections to the unimproved value of land had to be lodged with the municipal council within the time limits set out in the VLA (referring to s.24A of the Land Tax Act 1958). The letter went on:

"In your letters, you state that section 2 (2AA) of the Valuation of Land Act 1960 (inserted by section 27 of the State Taxation (Omnibus Amendment) Act 1996) provides an exemption from land tax for the improvements referred to in that section. I do not agree with this interpretation. Section 2(2AA) of the Valuation of Land Act merely directs a valuer to disregard those improvements when determining the site value of land. For this reason, the issue you have raised in relation to the breakwaters, wharves, wharf aprons and additional sea areas is a valuation issue, rather than an issue relating to an exemption from land tax.

Since this is an issue regarding a valuation under the Valuation of Land Act which the Commissioner of State Revenue is expressly prohibited from considering under section 24A of the Land Tax Act, I do not propose to consider it any further.

I note that the Port of Portland has lodged an objection to the capital improved valuations made by the Shire of Glenelg. However, the outcome of this dispute will not affect the valuations used for land tax purposes. This is because land tax is assessed on the unimproved value of land, which is based on site valuations..."

33 The next day the plaintiff sought legal advice from its solicitors in Portland noting that the plaintiff had not objected to its site valuation "at this time" and that the Land Tax Office interpretation inferred that the plaintiff should consider this option "at a later stage".

34 On 24 April 1998 the SRO issued a 1998 land tax assessment notice to the plaintiff in the sum of $15,638.83. The accompanying summary of assessment details showed a total unimproved value of $1,371,230.

35 The plaintiff's appeal in this Court against the Shire valuations was finally resolved by an agreement dated 23 March 1999. Under the agreement the parties agreed that the plaintiff's Council rates would be calculated according to an agreed formula set out in the agreement. As a result, the issues between the Shire and the plaintiff were settled without any determination of the CIV of the plaintiff's land. In any event, as the Shire had pointed out, such a determination would not have had any impact on the question of the unimproved value for land tax purposes.

36 In the second half of 1999, a number of communications and letters passed between the SRO and the plaintiff concerning the identification of the plaintiff's properties, in the course of which the plaintiff continued to contend that certain areas or improvements were "exempt from land tax".

37 By letter dated 23 September 1999 the plaintiff's solicitors in Portland gave them certain advice as to the effect of s.2(2AA) of the VLA and also noted that "any objection to the site value assessment should have been addressed to the Municipality at the time of the rate notices being issued rather than to the [SRO]."

38 By letter dated 24 February 2000 from the plaintiff to the SRO, the plaintiff stated:

"Our Manager and Managing Director have now completed their review of the matter of our outstanding Land Tax Assessments, and have concluded that as no objection to the Glenelg Shire Council's valuation of site value was lodged in the appropriate timeframe and manner, that their valuation must stand for the 1998 and 1999 Land Tax Assessments.

Accordingly, if you would issue those assessments to us now, we will settle them promptly."

39 In early April 2000 the plaintiff received from the SRO drafts of 1997, 1998 and 1999 land tax assessment notices[18] in the sums of $155,516.73, $130,222.73 and $150,262.90 respectively. The summary sheets accompanying the draft assessments showed a total unimproved value of $4,558,470, $4,421,490 and $4,607,658 respectively and the statements of lands owned at 31 December included Barton Place with an unimproved value of $2,009,490, $1,947,975 and $2,029,995 respectively.[19] The plaintiff also received a draft 2000 land tax assessment.

40 In May 2000 the plaintiff requested the Shire to provide rate notice details in relation to some of its leased properties and the Shire provided a bundle of copy rate notices.

41 By letter dated 8 June 2000 from the plaintiff to the SRO, the plaintiff advised that it was still reviewing the information contained in the various draft assessments received from the SRO. Among other things, the plaintiff referred to the delay in issuing land tax assessments and its shock at "the size of the draft assessments"

42 On or about 10 July 2000 the plaintiff received an amended 1998 land tax assessment notice in the sum of $126,427.16 and a 1999 land tax assessment notice in the sum of $151,421.20, these assessments not differing significantly from the drafts forwarded to the plaintiff in March 2000.

43 Having received the abovementioned land tax assessments, the plaintiff forwarded a letter dated 22 August 2000 to the SRO. In that letter the plaintiff strongly objected to these assessments and asked the SRO to use its "discretionary power" to vary them. The letter enclosed land tax objection forms. These objections were disallowed by the SRO in a letter dated 13 September 2000. The letter stated that the Commissioner did not have any discretionary powers as to how the assessments were varied.

44 As a result of amendments to the VLA, the next general valuation (after 1993) was not required until the year 2000. Late in the year 2000, Mr McDonald returned a valuation of the plaintiff's lands as at 1 January 2000. The relevant site values assigned by him in this valuation may be summarised as follows:

45 The above summary lists those properties that the plaintiff contends contain improvements relating to a port but excludes those properties in respect of which it is common ground either that they were not part of the Port or that there were no relevant port improvements thereon, so that there is no relevant dispute about their site value.

46 In or about October and November 2000, the plaintiff lodged objections to the above site values. After meetings[20] between representatives of the plaintiff and Mr McDonald, Mr McDonald reduced his site values as follows:

47 As a result of these amended values, the total site value of the plaintiff's lands (including the properties not listed above) was reduced from $5,557,600 to $1,001,500. Mr McDonald's reduced site values were subsequently confirmed by the Valuer-General.

48 On or about 9 March 2001 the plaintiff received a 2001 land tax assessment notice in the sum of $194,126.25.

49 The plaintiff made the following payments in respect of land tax:

(i) $2,406.38 in September 1997 in relation to the first 1997 assessment;

(ii) $15,638.83 in June 1998 in relation to the first 1998 assessment;

(iii) $579,080.33 in October 2000 in relation to the second amended 1999 assessment, the amended 1998 assessment, the 1999 assessment and the 2000 assessment;

(iv) $194,126.25 in June 2001 in relation to the 2001 assessment.

50 In November 2001 the plaintiff initiated correspondence with the Treasurer of the State of Victoria in relation to the land tax paid by it in relation to the period from the date of the Agreement (15 February 1996) to the time when the amended site values came into force as a result of the 2000 general valuation. After taking some time to investigate the matter, the Treasurer and the State maintained that the State's obligations under the Agreement had been fulfilled. Being dissatisfied with this response, the plaintiff then instituted this proceeding.

51 The parties raised several issues in relation to cl.11.4 of the Agreement.

52 The plaintiff contended that, by cl.11.4(a) of the Agreement, the State had agreed to procure (or at least to use its best endeavours to procure) amendments of all relevant legislation so as to ensure a particular result, namely, that the so-called "unimproved site value" of the plaintiff's lands used to assess the plaintiff's land tax liability was in fact a value that excluded the value of port improvements. The plaintiff conceded that such a promise as that contained in cl.11.4(a) would not and could not be specifically enforceable. Whether a breach might sound in damages is a separate question. However the plaintiff primarily submitted that cl.11.4(a) in effect constituted a guarantee by the State and that, if the guaranteed result was not achieved by reason of a failure to procure appropriate legislative amendments, cl.11.4(b) provided a remedy by virtue of the State's promise to refund or allow to the plaintiff the amount of any additional land tax that it was liable to pay.

53 On the other hand, the State contended that cl.11.4 was "ultra vires", void or unenforceable. Alternatively, the State submitted that all that it was required to do by cl.11.4(a) was to procure legislative amendments that altered the definition of site value so as to exclude the value of port improvements and that the legislative amendments that in fact were made satisfied that obligation.

54 Although cl.11.4(a) is not specifically enforceable, it is clear that the parties intended that there would be enforceable consequences if the specified legislative amendments were not obtained. Thus cl.11.4(b) provides that if "the relevant statutory amendments do not become law" the State will refund or allow to the plaintiff a certain sum of money, namely, the amount of extra land tax paid as a result of the failure to obtain such amendments. I doubt that c.11.4(a) was intended to contain an independent obligation but the precise status of cl.11.4(a) is of little significance because the real promise, contained in cl.11.4(b), is a promise to pay a certain amount if specified legislation is not passed. Clause 11.4(a) thus defines the required legislation and cl.11.4(b) contains the promise as to payment of a calculable sum, if the legislation is not passed.

55 I do not accept the plaintiff's submission that cl.11.4 guaranteed that the "unimproved site value" of the plaintiff's lands that would be computed by a valuer and used by the SRO to assess the plaintiff's land tax liability would be a value that excluded the value of port improvements. As I read it, the legislative amendments required by cl.11.4 were to be such that the unimproved site value that ought under the legislation be used as a basis for the assessment of the plaintiff's land tax liability, as from the date of the Agreement, would be a value that excluded the value of port improvements. In other words, "used" in cl.11.4(a) means "required by the legislation to be used." It would remain possible (as the plaintiff in fact contends did happen) for a valuer to disregard or misinterpret the legislative amendments. If that happened, that would not flow from any failure to pass the required legislative amendments but simply from a failure of the valuer to comply with the legislation. The plaintiff's remedy in that event would be through the appeal processes provided by the VLA.

56 Before determining the question whether the legislative amendments satisfied the requirements of cl.11.4 of the Agreement, there is a prior issue to be determined, namely, whether, as the State submits, cl.11.4 is void or unenforceable.

57 Mr Judd QC who appeared with Mrs Kenny of counsel for the State referred to a number of authorities relating to the executive government by contract seeking to fetter its future exercise of powers or discretions. Mr Judd submitted that the plaintiff was seeking to achieve an outcome which involved the ascendancy of contract over statute. Mr Judd said that the case involved a lawfully imposed and collected land tax and that the plaintiff was seeking to rely upon a contractual obligation to allege that the tax was assessed and collected as a result of a breach of contract and ought to be repaid or compensation given. Mr Judd submitted that a contract could not displace the State's obligation both to collect and retain the tax. It offended the integrity of the revenue system and the supremacy of Parliament to grant a contractual remedy which would in substance enable the plaintiff to recoup the value of the tax. In answer, Mr Pearce SC who appeared with Mr Pitt of counsel for the plaintiff submitted that although a promise to pass legislation was not specifically enforceable it did not follow that such a promise might not create legal obligations. However Mr Pearce submitted that, in any event, the executive government could contract to pay a sum certain in stipulated circumstances (as in cl.11.4(b) of the Agreement) and that such a contract was enforceable.

58 In The Eastern Extension, Australasia and China Telegraph Company Limited v Federal Commissioner of Taxation,[21] the appellant was empowered to lay a submarine telegraph cable under an agreement with the South Australian government in 1871 and that agreement provided that, in relevant circumstances, the appellant's land, property and profits should be exempt from all provincial, local and other taxes, rates, charges and assessments in South Australia, whether then existing or chargeable, or thereafter to be charged, imposed, or created. A further agreement in 1900 between the appellant and the colonies of South Australia, Western Australia and Tasmania made a similar provision but additionally provided that each of the governments would, in relation to such promised exemption, repay to the appellant such sums as would be sufficient to recoup it any income tax and any rates or taxes parliamentary or otherwise which the appellant should be required to pay. The appellant was subsequently assessed for federal land tax in relation to certain land in Adelaide.

59 The High Court majority held that the exempting clause did not purport to exempt the appellant from taxation imposed by a superior authority such as the Commonwealth Parliament. Other members of the High Court gave other reasons for rejecting the appellant's claim. However, the majority judgment also decided that the relevant clause in the 1900 agreement, on the assumption that the Commonwealth had assumed the obligations of the now States,[22] did not exempt the appellant's land from federal taxation but constituted an agreement to repay such sums as would be sufficient to recoup the appellant any taxes which it should be required to pay. Knox CJ, Gavan Duffy and Starke JJ (with whom Powers J agreed) said on this point:[23]

"But, when the agreement is critically examined, we do not find any exemption from land taxation, but an agreement to repay such sums as will be sufficient to recoup the Company any taxes which it shall be required to pay. The agreement is based upon the existence of a power to tax, and in no wise exempts or attempts to exempt the Company from taxation imposed in pursuance of such a power."

60 The above quoted statement would seem to support the proposition that the State might lawfully contract to repay the amounts of taxes otherwise legally payable and paid but it is clear that this point was not taken or considered in that case.

61 In Magrath v Commonwealth,[24] the plaintiff had been since 1929 the holder of Commonwealth bonds issued in New York in 1927. The bonds provided for repayment of principal and interest to the bearer in New York "without deduction for any taxes now or at any time thereafter imposed by the Commonwealth of Australia or by any taxing authority thereof or therein" and the interest coupons attached to the bonds provided that interest was similarly payable "without deduction for any Australian taxes present or future".

62 The High Court held (Rich, McTiernan and Williams JJ; Latham CJ and Starke J dissenting), on a case stated, that by the bonds the Commonwealth promised the plaintiff that the interest would not form part of his assessable income for the purposes of federal income tax even if he would otherwise have been liable to pay such tax as a taxpayer resident in Australia. The question whether the plaintiff was entitled to recover by way of indemnity or as damages the amounts of tax which he became liable to pay was referred back to the trial judge for further argument.

"The case was argued before us on the assumption that all that is involved is a question of construction, and that the plaintiff is entitled to succeed if that question is resolved in his favour. But the fact that the bonds contain, as in my opinion they do, an absolute warranty by the Executive Government that payments made under them shall be free from all forms of Federal taxation does not necessarily conclude the matter. The Executive Government has no more dispensing power in relation to Commonwealth legislation than had James II. in relation to English legislation. It cannot, without legislative authority, exempt a bondholder, or anybody else, from obligations imposed by existing legislation, much less can it tie the hands of future Parliaments. Any attempt to do so is necessarily void, and can create no legal rights. If, therefore, an Act is passed imposing a tax on bond interest notwithstanding the warranty, a legal obligation to pay is created, and from this obligation no promise of the Executive, past, present or future, can absolve the bondholder, although it may not be possible to enforce it if the bondholder is not within the reach of the Commonwealth. The Commonwealth, by its legislature, can, without any breach of the law, repudiate promises given by its Executive Government. It follows that an action brought in Australia against the Commonwealth to recover tax lawfully imposed but operating in derogation of an executive warranty must fail, because the warranty could not lawfully be given. To allow such an action would be enabling the Executive to fetter the legislative power of Parliament. Further, unless Parliament authorized or granted an exemption in order to give effect to such a warranty, it would be the legal duty of the Executive for the time being to enforce payment, whether it be the Executive which gave the warranty or some subsequent Executive."

64 The above dictum of Rich J supports the principle that the executive government cannot absolve a taxpayer of its obligations under tax legislation and, it may be thought, if this cannot be done directly then it cannot be done indirectly by promising some form of recoupment.

65 In Perpetual Executors and Trustees Association of Australia Limited v Federal Commissioner of Taxation (Thomson's Case),[26] the estate of Christina Thomson, deceased, contained certain bonds issued and purchased by the deceased in 1938 in the U.S.A. which were governed by a contractual condition that the principal and interest of the bonds, when due, would be paid "without deduction for any taxes now or at any time thereafter imposed by the Commonwealth of Australia or by any taxing authority thereof or therein". The deceased was assessed and paid income tax on the interest paid to her for the years 1939-1943. She died in 1944. In 1945 the executors received a refund of this income tax from the Commonwealth. The question arose, for the purposes of estate duty, whether the value of the amount repaid formed part of the estate of the deceased.

66 The High Court held (Latham CJ, Dixon and McTiernan JJ; Starke and Williams JJ dissenting) that the payment was ex gratia and should not be included in the value of the deceased's estate for estate duty purposes - because the interest was taxable under the income tax legislation.

"The Commissioner relies upon the answer to the first question in Magrath v. The Commonwealth_..._, which shows that the promise in the bond to pay interest without deduction for any taxes meant that the Parliament of the Commonwealth would not impose any tax in respect of bond interest. This was a warranty which would be broken if the Commonwealth Parliament did impose such a tax. A breach of contract can be committed only by a party to the contract. The Parliament of the Commonwealth does not make contracts - it makes laws. It would not be the Parliament which would have broken the contract in the bonds if a tax were imposed upon the bond interest. The position would be that the warranty given by the Executive Government would be broken. There would be such a breach only if a tax were lawfully imposed.

If, on the other hand, the Income Tax Assessment Act 1936 did impose a tax upon the bond interest, and the contract to pay interest without deduction of taxes was valid, the position is that the 1936 Act destroyed an exemption which previously existed. (If the contract was not valid it is obvious that there could be no claim for unliquidated damages.) Parliament may, by a law with respect to a matter which is within its powers, make lawful that which would otherwise be unlawful and, in particular, may so legislate as to deprive an act of the character of a breach of contract. Thus, if the 1936 Act had the effect of rendering the bond interest subject to tax, it was the duty of the Commissioner of Taxation to assess and collect the tax. In so acting he was acting in obedience to law. It was not possible for any Commonwealth authority to give effect to the promise that tax should not be imposed. In Reilly v. The King ... , Lord Atkin said that it was an elementary proposition "that if further performance of a contract becomes impossible by legislation having that effect the contract is discharged." In such a case the contract is not broken. The legislation makes lawful that which would otherwise have been a breach of contract, and therefore discharges the term of the contract performance of which has become unlawful. In that case the appellant claimed that a contract authorized by statute had been made, the effect of which was that he was entitled to remain in a particular office for a certain period. But Lord Atkin said ... : "So far as the rights and obligations rested on contract, further performance of the contract had been made by statute impossible, and the contract was discharged. It is perhaps unnecessary to add that discharged means put an end to and does not mean broken. In the result, therefore, the appellant has failed to show a breach of contract on which to found damages." The position is, in my opinion, exactly the same in the present case if it be assumed that the contract was originally a valid contract, but that the Parliament by legislation made it impossible for the Executive Government to carry out its promise.

But the Commissioner further argues in his second contention as above-stated that the contract of the Commonwealth was to pay to the deceased the amount of any tax lawfully levied in respect of the bond interest. The answer to this contention is to be found in the answer given to the first question in Magrath's Case ... The contract was not a contract to recoup tax paid. The distinction between an exemption from tax and a promise to recoup tax paid is emphasized in Eastern Extension, Australasia & China Telegraph Co. Ltd. v. Federal Commissioner of Taxation..."

68 Dixon J (with whom McTiernan J agreed) said, referring to the relevant provision in the bonds:[28]

"I am not prepared to hold that this provision warrants a term or condition promising immunity from a present or future Act of Parliament applicable according to the true intention of the legislature. But even if it did, a subsequent Act of Parliament inconsistent with the immunity promised would operate as a paramount law destroying the obligation of the promise. Neither the passing of such an Act nor the doing of anything under it which it authorized, as for instance the levying of a tax, could amount to an actionable breach of contract.

I do not think that s. 3 authorized a term guaranteeing that the change would not be made by Parliament. But, assuming interest upon the dollar bonds to be included in the expression "income from all sources", the change in the law could not amount to a breach of contract for which the Commonwealth would be liable in damages or otherwise. A statute destroys all contracts which stand in the way of its operation.

The imposition of a tax necessarily involves an intention that when levied it shall not become repayable. Any liability ex contractu to repay it in substance, whether as damages, indemnity or recoupment, must be dissolved by force of the statute."

69 Mr Judd placed reliance on Perpetual Executors, particularly upon the above quoted statements by Dixon J. On the other hand Mr Pearce submitted that the case should be distinguished because it depended upon the passing of legislation subsequently to the contract in question. It is true that the case did turn on the fact that subsequent income tax legislation made the bond interest liable to tax. The above statement by Latham CJ, at least, seems to show that he held the view that a promise to recoup tax paid would have been effective and therefore different to the purported contractual exemption from tax (suggesting that he considered the latter to be invalid although his judgment otherwise seems to proceed upon the assumption that it was valid). On the other hand, the above quoted statement from the judgment of Dixon J, although turning upon the passage of subsequent legislation, suggests the existence of a wider principle. That principle is that the imposition of a tax by Parliament means that Parliament intends that such tax shall not be repayable after payment and, when Dixon J said that any contractual liability to repay such tax, "whether as damages, indemnity or recoupment, must be dissolved by force of the statute," I think that the principle so stated must equally apply to tax legislation existing before the making of a contract as well as any tax legislation passed thereafter.

70 In Placer Development Limited v The Commonwealth,[29] the Commonwealth entered an agreement with a company containing the following clause: "if customs duty is paid upon the importation into Australia [of certain products] and is not remitted, the Commonwealth will pay to the [company] a subsidy upon the exportation of these products from the Territory for entry into Australia of an amount or at a rate determined by the Commonwealth from time to time, but the amount of subsidy paid shall not exceed the amount of customs duty paid and not remitted...." It was in substance held by Kitto, Taylor and Owen JJ that the contract was void for uncertainty because the promise was meaningless and carried no implication of a standard of reasonableness.

71 The dissenters in Placer (Menzies and Windeyer JJ) said that the promise was not illusory.

72 Mr Pearce relied on Placer as being the most directly relevant authority supporting the plaintiff's position because it was not suggested in that case, he said, that the contractual obligation, had it been certain, was void. But the case does not support the plaintiff's position because the contract had been approved by statute and therefore no question of invalidity arose. As Windeyer J said:[30]

"If it were not for the statutory backing of the Agreement, I would gravely doubt whether the Commonwealth would have been justified in reimbursing the company in this way. I do not think that the Government could, without statutory authority, validly promise a person that he would be released from taxes or duties levied by Parliament. Whether the dispensation was to be by not collecting the tax or by returning to the taxpayer the amount collected the promise would, I think, be equally improper in a constitutional sense." (emphasis added)

73 Windeyer J also referred to a case in which it was held by the English Court of Appeal that the London County Council had no power to dispense with the provisions of the Sunday Observance Act - The King v The London County Council [31] -in which Scrutton LJ said (after referring to James II dispensing with the necessity of certain persons obeying an act of Parliament):

"...Parliament, in passing the Bill of Rights, .. provided that "the pretended power of suspending laws, or the execution of laws, by regal authority without the consent of Parliament, is illegal; ..". I take it that the London County Council is no better position than James II and that laws cannot be dispensed with by the authority of the London County Council, when they cannot by royal authority."

74 In my opinion the principle, as stated both by Dixon J and by Windeyer J, is directly supportive of the position advanced by the State in the present case, and I adopt those statements.

75 The State cannot validly promise to release a person from taxes imposed by Parliament without parliamentary approval. A promise by the State to return to the taxpayer tax duly payable and collected, or an equivalent sum, is equally unenforceable. What the State undertook in the present case is that it would procure certain legislative amendments having the effect of reducing the plaintiff's land tax but that, if it failed to do so, the State would "refund or allow" a sum equivalent to the amount of land tax rendered payable as a result of the failure to obtain the specified amendments. For this purpose, it would not matter whether the failure to obtain the legislative amendments resulted from drafting errors (as perhaps occurred in the present case, if the plaintiff's view of the effect of the amendments in fact passed is correct) or whether the failure to obtain the said amendments resulted from the refusal or failure of Parliament as a whole (or perhaps the Legislative Council) to pass such amendments. What the State was purporting to promise (without Parliamentary approval) was in substance to dispense, to a specified extent, with the provisions of the land tax legislation insofar as that legislation was not amended as promised by the Agreement. That the executive government cannot do. If the amendments in fact passed failed to go as far as contracted for, then that must be taken to be the intention of Parliament and in my view the State is not entitled to indemnify a taxpayer against the resulting "loss"[32] by agreeing to "refund or allow" the "additional" amount of land tax.

76 For the foregoing reasons, I am of the view that cl.11.4 of the Agreement is unenforceable and the plaintiff's proceeding must fail. If that conclusion is incorrect, I next consider whether the amendments in fact passed satisfied the requirements of cl.11.4.

Did the legislative amendments, including sub-section (2AA), satisfy the requirements of cl.11.4(a) of the Agreement?

77 It is apparent that the State did procure legislative amendments that excluded port improvements from the definition of "site value". But to what extent did these amendments "ensure" that, as from the date of the Agreement, the site value used to assess the plaintiff's land tax liability would exclude the value of port improvements? In other words, did the legislative amendments put into place a mandate to the valuer that, if the valuer complied therewith, would result in the assessment of the plaintiff's land tax being based upon a site value that excluded port improvements as from the date of the Agreement?

78 It seems to me that the legislative amendments must be taken to have altered the law as at the date that they came into effect. Any valuation of land for the purposes of determining its "site value" carried out after that date had to have regard to the amended definition of "site value". However, this does not assist the State's case in relation to the tenanted properties, because they were not revalued until the year 2000 general valuation. To that extent the amendments did not meet the requirements of cl.11.4(a) because those tenanted properties upon which there were port improvements continued to be assessed for land tax on the basis of an unimproved value that included the value of port improvements.

79 However the question arises whether the position is different in relation to Barton Place. Should the amended definition of "site value" have been utilised by the valuer when making his supplementary valuation in 1997?

80 Section 13DF(6) of the VLA provides that a valuer must, in making a supplementary valuation, have regard to the general levels of value upon which the valuation in force within the municipal district was based[33]. Although this provision requires the valuer to have regard to the levels of value at the time of the previous general valuation, this does not necessitate the valuer disregarding any change to the definition of "site value" at the time that the supplementary valuation is being carried out.

81 Section 13DF(6) of the VLA also provides that a valuer must, in making a supplementary valuation, "assess the value that the land which the supplementary valuation applies would have had if at the time at which the last valuation .. was made it had been in the condition in which it is at the time of the making of the supplementary valuation".[34] Although this provision requires a valuer, to some extent, to look back to the value of the land at the time of the previous valuation, the word "value" itself would have to be interpreted in the light of the legislative definitions (including that of "site value") existing at the time that the supplementary valuation was made.

82 In my opinion the valuer was required to carry out his supplementary valuation having regard to any amended definitions or other changes to the VLA in force at the time that he was making the supplementary valuation. As above indicated, there was no express provision in s.13DF of the VLA indicating any contrary requirement or intention. Thus I consider that the supplementary valuation of Barton Place ought to have been made according to the amended definition of "site value", thus excluding the value of port improvements. It is convenient at this point to mention the consequences of that conclusion.

83 If the valuer did act correctly (by excluding the value of port improvements on Barton Place), then two possibilities would arise. One is that his valuation was still excessive and the other that it was not. To the extent that his valuation was still excessive, this would not have been the result of the legislative amendments but the result of his own error. Consequently, cl.11.4(b) of the Agreement would be inapplicable - in any event, the appeal process would have been available to challenge any such excessive valuation. On the other hand, if the valuer acted incorrectly (by including the value of port improvements), this would have been as a consequence of the valuer's error in law and not a result of the legislative amendments. Consequently, again, cl.11.4(b) of the Agreement would be inapplicable (and, again, the appeal process would have been available to challenge the valuation).

84 Accordingly, if (contrary to my view) cl.11.4(b) of the Agreement is enforceable, the promise contained in it would be applicable at best to any "additional" land tax paid by the plaintiff in relation to tenanted properties having port improvements thereon. Having regard to my conclusion that cl.11.4(b) is void or unenforceable, it is unnecessary to calculate the monetary consequences of this (if any).

85 I note here that Mr Pearce also contended that the 1997 supplementary valuation of Barton Place was invalid in that it failed to comply with the statutory requirements.[35] But, having regard to my conclusion that cl.11.4(b) is void or unenforceable, it is unnecessary to determine whether that contention was correct or, if it was, what the consequences might have been for the purposes of this proceeding.

86 If the plaintiff had established the liability of the State, to any extent, under cl.11.4(b) of the Agreement, questions of calculation of the "additional" land tax paid would have arisen. The determination of those questions may have substantially depended upon an assessment of the evidence of the valuers called as expert witnesses, who significantly differed in their assessments of the unimproved value of the lands of the plaintiff when port improvements were excluded. A consideration of the expert evidence would have given rise to matters of some complexity and difficulty and, in the circumstances, while recognising that it might be a desirable course in some cases to nevertheless embark on such an exercise, I do not think that it is appropriate in this case. I should however record that my view was that the evidence of Mr Kensley was to be preferred to that of the other experts in that it was more logical and had a superior empirical basis.

87 There will be judgment for the defendant on the plaintiff's claim. I will hear submissions as to costs.

[1] Formerly named Poltroon Pty Ltd - the name change occurred on or about 8 March 1996.

[6] Since repealed and replaced by the Land Tax Act 2005 (Vic).

[7] Section 6 of the Land Tax Act.

[8] Subsections (3) and (4) deal with the so-called "equalisation factor".

[9] Section 2(1) of the VLA.

[10] The precise language used was "value if offered for sale on such reasonable terms and conditions as a genuine seller might in ordinary circumstances be expected to require."

[11] Net annual value is defined by s. 2(1) of the VLA.

[12] Capital improved value is defined by s. 3(1) of the LGA.

[13] The Shire of Glenelg was created as a result of the amalgamation of a number of Councils in 1994 and comprised the municipal districts of the former City of Portland, Shire of Heywood, and the Shire of Glenelg at Casterton.

[14] See s. 2(1) of the State Taxation (Omnibus Amendment) Act 1996.

[15] All those pieces of land being Crown Allotments 6B, 6C, 6D, and 6E, section A, Township of Portland, comprising about 68 hectares.

[16] I note that the assessment notice contained "Instructions and Information" including a statement that "objection to a valuation must be lodged with the relevant municipality, not this Office..."

[17] See s.19 of the Land Tax Act 1958.

[18] In fact the draft 1997 and 1998 assessment notices represented amendments of the notices issued some years earlier.

[19] These values represented the site value of $2,050,500 multiplied by an equalisation factor of .98, .95 and .99 respectively.

[20] These meetings were held on 8 December 2000 and 24 January 2001.

[21] [1923] HCA 62; (1923) 33 CLR 426.

[22] Under s.85 of the Commonwealth Constitution.

[23] [1923] HCA 62; (1923) 33 CLR 426, 438.

[24] [1944] HCA 14; (1944) 69 CLR 156.

[25] [1944] HCA 14; (1944) 69 CLR 156, 169-170.

[26] [1948] HCA 24; (1948) 77 CLR 1.

[27] [1948] HCA 24; (1948) 77 CLR 1, 16-19.

[28] [1948] HCA 24; (1948) 77 CLR 1, 28.

[29] [1969] HCA 29; (1969) 121 CLR 353.

[30] [1969] HCA 29; (1969) 121 CLR 353, 366.

[31] [1931] 2 KB 215, 229; see too Vestey v IRC [1980] AC 1148, 1172 per Lord Wilberforce.

[32] The same or a similar principle would negate any claim for damages for breach of any independent obligation arising from cl.11.4(a) of the Agreement.

[34] See s13DF(6)(b) of the VLA. This sub-section also requires the valuer to have a regard to "every circumstance which affects the valuer of the land at the time of the making of the supplementary valuation" but only if that circumstance "is a circumstance requiring the making of a supplementary valuation of the land" under s.13DF(2).

[35] Basically of a formal or procedural nature - see s.13DH of the VLA.