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Federal Court of Australia |
AVIATION - validity of Part VI Division 2 of Civil Aviation Act 1988 (Cth) - whether charges reasonably related to costs of providing services - whether charges ultra vires.
CONSTITUTIONAL LAW - taxation - charges imposed on carriers - whether fee for service - whether "discernible relationship" between charges and value of what acquired - charges fixed by reference to "price sensitivity" and "economic capacity to pay" - whether incompatible with fee for service.
Civil Aviation Act 1988 (Cth) Part VI Div. 2, ss 3, 9, 11 12, 13, 17, 43, 44, 45, 46, 47, 56, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75
Air Services Act 1995 (Cth)
Civil Aviation Legislation Amendment Act 1995 (Cth) s 11
Civil Aviation Amendment Act 1995 (Cth)
Meteorology Act 1955 (Cth)
Attorney-General for New South Wales v Hunter [1983] 1 NSWLR 366
Simpson v Inland Revenue Commissioners [1914] 2 KB 842
R v Holy Trinity and St Mary's [1853] WR 351
Chandris v Union of India [1956] 1 WLR 147
Matthews v The Chicory Marketing Board (Victoria) [1938] HCA 38; (1938) 60 CLR 263
MacCormick v The Commissioner of Taxation of the Commonwealth of Australia [1984] HCA 20; (1984) 158 CLR 622
Air Caledonie International v The Commonwealth (1988) 165 CLR 462
Australian Tape Manufacturers Association v The Commonwealth of Australia (1993) 177 CLR 480
Northern Suburbs General Cemetery Reserve Trust v The Commonwealth of Australia [1993] HCA 12; (1993) 176 CLR 555
MONARCH AIRLINES LIMITED & ORS v
AIRSERVICES AUSTRALIA
ACT G37, G38 and G39 of 1993
CORAM: BRANSON J
PLACE: SYDNEY (heard in Canberra)
DATE: 14 FEBRUARY 1997
INDEX
INTRODUCTION 1
- proceedings
THE PARTIES 2
STATUTORY BACKGROUND 3
FACTUAL BACKGROUND 14
SERVICES AND FACILITIES IN RESPECT OF
WHICH CHARGES DETERMINED 22
THE DETERMINATION 24
THE PLEADINGS 31
- Terminal Navigation Charge 31
Rescue and Fire Fighting Charge 33
En route Charge 34
Meteorological Charge 35
Charges Generally 37
THE EVIDENCE 38
- General 38
Economic Theory 39
Allocation of Costs between Charges 43
Use of MTOW as a basis for charging 44
Cost of Rescue and Fire Fighting service 45
Costs of Air Traffic Services 48
Costs of Meteorological Services 50
Return on Capital 52
Calculation of Rates of Charges 53
SECTION 67 OF THE CIVIL AVIATION ACT 58
TERMINAL NAVIGATION CHARGES 72
RESCUE AND FIRE FIGHTING CHARGES 79
EN ROUTE CHARGES 80
METEOROLOGICAL CHARGES 84
CHARGES GENERALLY 89
DID THE CHARGES AMOUNT TO TAXATION? 91
SECTION 55 OF THE CONSTITUTION 98
CONCLUSIONS 98
GLOSSARY OF TERMS 100
IN THE FEDERAL COURT OF AUSTRALIA )
AUSTRALIAN CAPITAL TERRITORY ) Nos ACT G37, G38 and
DISTRICT REGISTRY ) G39 OF 1993
GENERAL DIVISION )
BETWEEN: MONARCH AIRLINES LIMITED
POLARIS HOLDING COMPANY and
CANADIAN AIRLINES INTERNATIONAL LIMITED
Applicants
AND: AIRSERVICES AUSTRALIA
Respondent
CORAM: BRANSON J
PLACE: SYDNEY
DATE: 14 FEBRUARY 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
1. The applicants file and serve within five days of this date
1.1 minutes of order in terms consistent with these reasons; and
1.2 written submissions with respect to any consequential matters.
2. The respondent has liberty to speak to the minutes of order.
3. The respondent file and serve within ten days of this date such written submissions, if any, as they may be advised, with respect to
3.1 the minutes of order filed and served by the applicants; and
3.2 any consequential matters.
4. Further consideration of these matters is adjourned to a date to be fixed.
Note: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
AUSTRALIAN CAPITAL TERRITORY ) Nos ACT G37, G38 and
DISTRICT REGISTRY ) G39 OF 1993
GENERAL DIVISION )
BETWEEN: MONARCH AIRLINES LIMITED
POLARIS HOLDING COMPANY and
CANADIAN AIRLINES INTERNATIONAL LIMITED
Applicants
AND: AIRSERVICES AUSTRALIA
Respondent
CORAM: BRANSON J
PLACE: SYDNEY
DATE: 14 FEBRUARY 1997
REASONS FOR JUDGMENT
INTRODUCTION
These three matters ("the proceedings") were heard together. They involve common issues of fact and law. In each case, the applicant seeks a declaration that Division 2 of Part VI of the Civil Aviation Act 1988 (Cth) as in force in December 1991 ("the Act") is invalid and the payment to the applicant of a sum of money equivalent to certain purported charges collected from it in reliance on Division 2 of Part VI of the Act.
The proceedings were commenced in the original jurisdiction of the High Court of Australia. By orders in each case dated 28 April 1993 the High Court ordered that "the further proceedings in this action be remitted to the Federal Court of Australia, Australian Capital Territory District Registry" and that "the action proceed in the Federal Court as if the steps taken in this Court had been taken in that Court".
THE PARTIES
The applicants
Monarch Airlines Limited ("Monarch Airlines") is a foreign corporation incorporated under the laws of England and entitled to sue. It was at all material times the lessee of two aircraft which were sub-leased to Compass Airlines Pty Ltd ("Compass Airlines").
Polaris Holding Company ("Polaris") is a foreign corporation incorporated under the laws of Delaware, United States of America and entitled to sue. It was at all material times the owner of two aircraft which were leased to Compass Airlines.
Canadian Airlines International Limited ("Canadian Airlines") is a foreign corporation amalgamated under the laws of Canada and entitled to sue. It was at all material times the owner of an aircraft which was leased to Compass Airlines.
The respondent
These proceedings were in each case commenced naming the Civil Aviation Authority ("the CAA") as respondent. The CAA was established by the Act as a body corporate with perpetual succession which could sue and be sued.
The Air Services Act 1995 (Cth) established Airservices Australia as a body corporate which may sue and be sued in its corporate name. Section 11 of the Civil Aviation Legislation Amendment Act 1995 (Cth) provides that if, immediately before that Act commenced operation [i.e. 6 July 1995], the CAA was a party to proceedings that were pending in any court, then, upon the Act coming into operation, except for proceedings relating to CAA's regulatory functions, Airservices Australia was substituted for CAA in the proceedings with the same rights and obligations in the proceedings as CAA had. It has not been suggested that these proceedings are proceedings that "relate to CAA's regulatory functions" within the meaning of s11 of the Civil Aviation Amendment Act 1995 (Cth). At the commencement of the hearing of these proceedings leave was given to amend the name of the respondent to Airservices Australia.
STATUTORY BACKGROUND
Section 9 of the Act specifies the functions of the CAA in the following terms:
"9. (1) The functions of the Authority are:
(a) as provided by this Act and the regulations, to conduct safety regulation of:
(i) civil air operations in Australian territory; and
(ii) Australian aircraft operating outside Australian territory;
(b) to provide air route and airway facilities;
(c) to provide air traffic control services, and flight services, for, in either case, surface traffic of aircraft and vehicles on the manoeuvring area of aerodromes;
(d) to provide a rescue and fire fighting service;
(e) to provide a search and rescue service;
(f) to provide an aeronautical information service;
(g) to provide consultancy and management services relating to any of the matters referred to in this subsection;
(h) to provide services to the Bureau of Air Safety Investigation in relation to the investigation of aircraft accidents and incidents;
(j) any functions conferred on the Authority under the Air Navigation Act 1920;
(k) any other prescribed functions, being functions relating to any of the matters referred to in this subsection; and
(m) any functions incidental to any of the foregoing functions."
Section 13 of the Act gives the CAA very wide powers for or in connection with the performance of its functions.
Section 11 of the Act places an obligation on the CAA to -
"... perform its functions in a manner consistent with the obligations of Australia under the Chicago Convention and any other agreement between Australia and any other country or countries relating to the safety of air navigation".
The relationship of the Minister with the CAA is governed by s12 of the Act. It provides as follows:
"12. (1) The Minister may give the Authority written directions as to the performance of its functions or the exercise of its powers.
(2) Directions as to the performance of the regulatory functions shall be only of a general nature.
(3) Particulars of any directions given in a financial year shall be included in the annual report of the Authority for that year.
(4) The Authority must comply with a direction give under subsection (1)."
Part VI of the Act is concerned with the operation of the CAA. Section 43 of the Act requires the Board of the CAA to develop a corporate plan and to review and revise it at least annually. The corporate plan is to include a statement of the objectives of the Authority over the next three years and it must outline the strategies and policies that the CAA intends to adopt in order to achieve its objectives.
Sections 44 - 47 of the Act are concerned with, amongst other things, the financial performance of the CAA. They provide as follows:
"44. (1) As soon as practicable after developing or revising the corporate plan, the Board shall give a copy to the Minister.
(2) When the Board gives the Minister a copy of the plan, it shall also give the Minister a copy of a financial plan that includes, in relation to each financial year in the period covered by the corporate plan:
(a) performance indicators in such terms as the Board thinks appropriate;
(b) in relation to services and facilities (other than search and rescue and aeronautical information services) provided by the Authority - a forecast of receipts and expenditure and a rate of return and dividend; and
(c) estimates of receipts and expenditure in relation to:
(i) search and rescue and aeronautical information services provided by the Authority;
(ii) developing, and ensuring compliance with, standards; and
(iii) implementing standards, being matters relating to certifi- cates, licences, approvals, permits, registrations and exemptions.
45. When preparing the financial plan, the Board shall consider:
(a) the need for high standards of aviation safety;
(b) the objectives and policies of the Commonwealth Government known to the Board;
(c) any directions given by the Minister under section 12;
(d) any payments by the Commonwealth to the Authority to fund its regulatory functions and search and rescue services;
(e) the need to maintain a reasonable level of reserves, having regard to estimated future infrastructure requirements;
(f) the need to maintain the extent of the Commonwealth's equity in the Authority;
(g) the need to earn a reasonable rate of return on the Authority's assets (other than assets wholly or principally used in the performance of regulatory functions or the provision of search and rescue services);
(h) the expectation of the Commonwealth that the Authority will pay a reasonable dividend; and
(j) any other commercial considerations the Board thinks appropriate.
46. (1) Subject to this section, the Board shall:
(a) prepare estimates, in such form as the Minister directs, for each financial year and, if the Minister so directs, for any other period; and
(b) submit those estimates to the Minister not later than:
(i) in the case of estimates for a financial year - 60 days before the beginning of the year; or
(ii) in any other case - such date as the Minister directs.
(2) In subsection (1):
'estimates' means estimates of receipts and expenditure referred to in paragraph 44(2)(c).
47. (1) The Minister may direct the Board to vary the financial plan in respect of financial targets, and performance indicators, relating to the provision of services and facilities.
(2) When doing so, the Minister shall consider:
(a) the matters referred to in section 45 (other than paragraph (b));
(b) the objectives and policies of the Commonwealth Government; and
(c) any other commercial considerations the Minister thinks appropriate.
(3) A direction shall be in writing and shall set out its reasons."
Section 56 of the Act provides for payment by the CAA of a dividend to the Commonwealth. Section 56 of the Act is in the following terms:
"56. (1) The Board shall, within 4 months after the end of each financial year, by notice in writing given to the Minister, recommend that the Authority:
(a) pay to the Commonwealth, in relation to the Authority's operations in the financial year, a dividend of an amount specified in the notice; or
(b) not pay a dividend to the Commonwealth for the financial year.
(2) In making a recommendation, the Board shall have regard to:
(a) the matters specified in section 45; and
(b) the extent of the Commonwealth's equity in the Authority.
(3) Subject to subsection (6), the Minister shall, within 30 days after receipt of the recommendation, give notice in writing to the Board:
(a) where the recommendation is that a dividend be paid;
(i) approving the recommendation; or
(ii) directing the Authority to pay a dividend of a different specified amount; or
(b) where the recommendation is that a dividend not be paid:
(i) approving the recommendation; or
(ii) directing the Authority to pay a dividend of a specified amount.
(4) The Minister shall have regard to:
(a) the matters specified in section 45 (other than paragraph (b));
(b) the objectives and policies of the Commonwealth Government;
(c) the extent of the Commonwealth's equity in the Authority; and
(d) any other commercial considerations the Minister thinks appropriate.
(5) Where a dividend for a financial year is approved or directed under subsection (3), the Authority shall pay it to the Commonwealth within 8 months after the end of that year.
(6) A payment under this section may be made:
(a) out of the profits of the Authority for the financial year to which the payment relates;
(b) out of the profits of the Authority for any preceding financial year or years; or
(c) partly out of the profits of the Authority for the financial year referred to in paragraph (a) and partly out of the profits of the Authority for any preceding financial year or years."
Crucial to these proceedings are the terms of Division 2 of Part VI of the Act. It is necessary to set out the significant provisions in Division 2 of Part VI.
"66. (1) In this section:
'charge' means:
(a) a charge for a service or facility provided by the Authority; or
(b) a fee or other charge in respect of a matter specified in the regulations, being a matter in relation to which expenses are incurred by the Authority under this Act or the regulations, including, but without being limited to, a fee or other charge in respect of, or for an application for:
(i) the grant, issue, renewal or variation of a certificate, licence, approval, permission, permit, registration or exemption under this Act or the regulations; or
(ii) the grant or variation of an authorisation, or the cancellation, suspension, variation or imposition of a condition, relating to anything referred to in subparagraph (i).
(2) Subject to this section, the Board may make determinations:
(a) fixing charges and specifying the persons by whom, and the times when, the charges are payable; and
(b) fixing the penalty for the purposes of subsection (8).
...
67. The amount or rate of a charge shall be reasonably related to the expenses incurred or to be incurred by the Authority in relation to the matters to which the charge relates and shall not be such as to amount to taxation.
68. There shall be a Register of Statutory Liens, which shall be maintained, and shall be open to public inspection, as prescribed.
69. (1) Subject to section 76, where:
(a) at the end of the payment period after a charge became payable in respect of an aircraft, the charge is not paid; and
(b) at the end of that period, a statutory lien is not in effect in respect of the aircraft; and
(c) the charge or penalty in respect of the charge remains unpaid;
then, if an appropriate officer so directs at any time, the Registrar shall make an entry in the Register in the manner prescribed and, upon the making of the entry, there is vested in the Authority in respect of the aircraft a statutory lien covering the following:
(d) the charge or penalty;
(e) any penalty that becomes payable in respect of the charge after the entry is made;
(f) any further outstanding amounts in respect of the aircraft.
...
70. (1) Where a statutory lien has been registered in respect of an aircraft and until the lien ceases to have effect, the following provisions of this Division apply, in spite of any encumbrance in respect of the aircraft and any sale or disposition of, or dealing in, the aircraft or an interest in the aircraft, and whether or not the Authority has possession of the aircraft at any time.
(2) For the purposes of priorities amongst creditors and the purposes of the distribution of the proceeds of a sale made under section 73, the statutory lien has effect as a security interest in respect of the aircraft ranking in priority:
(a) after any security interest (other than a floating charge) in respect of the aircraft created before the time of registration of the statutory lien, to the extent that that security interest covers a debt incurred before that time; and
(b) before any security interest not falling within, or to the extent that it does not fall within, paragraph (a).
71. (1) In the case of an Australian aircraft, if an outstanding amount covered by the statutory lien is unpaid at the end of 6 months after the day on which it became an outstanding amount or the day on which the lien was registered, whichever is the later, an authorised officer may, having regard to all the circumstances, including the steps, if any, taken by any person to pay the whole or part of the outstanding amounts covered by the statutory lien, cancel the certificate of registration of the aircraft in the register of Australian aircraft maintained under the regulations.
(2) If the certificate is cancelled, the aircraft shall not be re-registered until the statutory lien ceases to have effect.
72. If an outstanding amount covered by the statutory lien is unpaid at the end of 9 months after the day on which it became an outstanding amount or the day on which the lien was registered, whichever is the later, an authorised officer, or a person authorised in writing by such an officer to do so, may at any time, subject to section 79, seize the aircraft, and:
(a) shall take reasonable steps to give notice of the seizure to:
(i) such persons as, in the opinion of an authorised officer, have a security interest in the aircraft;
(ii) each person who is any of the following, namely, an owner, operator, lessee, hirer, charterer or pilot in command, of the aircraft; and
(iii) such other persons as are prescribed; and
(b) may keep possession of the aircraft until all outstanding amounts covered by the statutory lien are paid.
73. (1) If an outstanding amount covered by the statutory lien is unpaid at the end of 9 months after the day on which it became an outstanding amount or the day on which the lien was registered, whichever is the later, the Authority may at any time, whether or not the aircraft has been seized under section 72:
(a) sell the aircraft as prescribed, whether by public auction or private contract;
(b) make and execute all instruments and documents necessary for effecting the sale; and
(c) give full and effective title to the aircraft free of all encumbrances, leases and contracts of hire.
(2) Before selling the aircraft, the Authority shall take reasonable steps to give reasonable notice of the sale to the persons referred to in paragraph 72(a).
74. (1) For the purposes of sections 71, 72 and 73, any payment received or recovered by the Authority in discharge of outstanding amounts covered by the statutory lien shall be taken to be applied successively in the discharge of those amounts in the order in which those amounts became payable.
(2) The proceeds of a sale under section 73 shall be dealt with as prescribed.
(3) If:
(a) an amount is applied under subsection (1) in the discharge of an amount of charge or penalty, or both, payable under the Air Navigation (Charges) Act 1952; and
(b) the amount of the charge, or, in the case of a penalty, the amount of the charge to which the penalty relates, was wholly or partly attributable to a service or facility that does not come within the functions of the Authority;
the Authority shall pay to the Commonwealth an amount calculated under the formula:
received amount x Commonwealth element
total charge
where:
Commonwealth element is the amount of the total charge that relates to services and facilities that do not come within the functions of the Authority;
received amount is the amount applied as described in paragraph (a); and
total charge is the amount, or the aggregate of the amounts, as the case requires, referred to in paragraph (b).
75. (1) If:
(a) there is no outstanding amount covered by the statutory lien;
(b) the aircraft is sold under section 73; or
(c) an appropriate officer directs in writing that the statutory lien ceases to have effect;
the statutory lien ceases to have effect, and the Registrar shall make an entry in the Register as prescribed.
..."
FACTUAL BACKGROUND
Compass Airlines commenced operations as an Australian domestic airline on 1 December 1990 initially with two aircraft. Ultimately it operated with five aircraft. All aircraft operated by it were leased. It had facilities at Cairns, Brisbane, Sydney, Melbourne, Adelaide and Perth, and flew on routes between these cities.
On 25 June 1990 two aircraft lease agreements were executed between Polaris as lessor and Compass Airlines as lessee. The agreements are in virtually identical terms. Each of them relates to an Airbus Industrie A300-600R aircraft. The aircraft were subsequently registered in Australia as VH-YMA and VH-YMB. The lease relating to the aircraft subsequently registered as VH-YMA commenced in April 1991 and the lease relating to the aircraft subsequently registered as VH- YMB commenced in August 1991. After the date on which each lease commenced, the aircraft the subject of the lease was used by Compass Airlines in carrying on its business in Australia. Each of the lease agreements includes the following provisions:
"Section 8. Covenants of Lessee
Lessee covenants and agrees that:
...
(c) Payment of Taxes. Until the Expiration Date Lessee will pay or cause to be paid all taxes, assessments and governmental charges or levies imposed upon it, or upon its income or profits, or upon any property belonging to it, prior to the date on which penalties attach thereto and prior to the date on which any lawful claim, if not paid, would become a Lien upon any of the material property of Lessee.
...
Section 14. Liens
LESSES [sic] SHALL NOT DIRECTLY OR INDIRECTLY CREATE, INCUR, ASSUME OR SUFFER TO EXIST ANY LIEN ON OR WITH RESPECT TO THE AIRCRAFT OR ANY ENGINE, TITLE THERETO OR ANY INTEREST THEREIN, AT ANY TIME AFTER THE EFFECTIVE DATE EXCEPT (a) THE RESPECTIVE RIGHTS OF LESSOR AND LESSEE AS HEREIN PROVIDED; (b) LESSOR'S LIEN WITH RESPECT TO THE AIRCRAFT OR ANY ENGINE; (c) LIENS FOR TAXES EITHER NOT YET DUE OR BEING CONTESTED IN ACCORDANCE WITH SECTION 10 HEREOF AND SO LONG AS ADEQUATE RESERVES ARE MAINTAINED WITH RESPECT TO SUCH LIENS; AND (d) INCHOATE MATERIALMEN'S, MECHANICS', WORKMEN'S, REPAIRMEN'S, EMPLOYEES' OR OTHER LIKE LIENS ARISING IN THE ORDINARY COURSE OF BUSINESS, WHICH EITHER ARE NOT DELINQUENT OR ARE BEING CONTESTED IN GOOD FAITH BY LESSEE, SO LONG AS THE AIRCRAFT OR SUCH ENGINE IS NOT IN DANGER OF BEING LOST, SOLD, CONFISCATED, FORFEITED OR SEIZED AS A RESULT OF SUCH LIEN. LESSEE SHALL PROMPTLY, AT ITS OWN EXPENSE, TAKE SUCH ACTION AS MAY BE NECESSARY TO DULY DISCHARGE ANY LIEN (EXCEPT FOR THE LIENS REFERRED TO IN CLAUSES (a) AND (b) OF THIS SECTION 14 IF THE SAME SHALL ARISE AT ANY TIME WITH RESPECT TO THE AIRCRAFT OR ANY ENGINE.
Section 17. Events of Default
Any one or more of the following occurrences or events shall constitute an Event of Default:
...
(r) Lessee shall fail to timely comply with its obligations pursuant to Section 14 hereof and such failure shall continue for a period of five (5) Business Days after notice thereof is given by Lessor to Lessee.
..."
On 29 June 1990 two aircraft sub-lease agreements were executed between Monarch Airlines as lessor and Compass Airlines as lessee. Again the two documents are in virtually identical terms. Each of them relates to an Airbus A300B4-605R aircraft. The aircraft were subsequently registered in Australia as VH-YMJ and VH-YMK. The lease relating to the aircraft subsequently registered as VH-YMK commenced on 14 November 1990 and the lease relating to the aircraft subsequently registered as VH-YMJ commenced on 28 November 1990. It was apparently with these two aircraft that Compass Airlines commenced to carry on its business in Australia.
Each of the sub-lease agreements includes the following provisions:
"13. Covenants of Lessee
13.1 The Lessee hereby covenants with the Lessor that from the Delivery Date and throughout the duration of the Lease Period it will:-
(a) duly pay and discharge all Taxes, assessments and governmental charges upon it or against it or against its properties (the non-payment of which could result in the occurrence of an Event of Default) prior to the date on which penalties are attached thereto, unless and to the extent only that the same be contested in good faith and by appropriate proceedings by the Lessee. In particular the Lessee shall immediately pay when due all airport charges, navigational and overflying charges in respect of the Aircraft accordingly as the same may be incurred.
...
16. Liens/Outgoings
16.1 The Lessee will not ... create, incur or suffer to exist any Encumbrance over the Aircraft or any part thereof ... and will pay and discharge or cause to be paid or discharged, when due and payable all debts, damages, claims and liabilities whatsoever which may have given or may give rise to any Encumbrance ... of the Aircraft or any Part thereof. ...
...
16.4 The Lessee shall pay and discharge all licences, duties, fees, Taxes, stamp duty, levies, registration charges, certification charges, landing fees, airport charges, navigational and overflying charges, insurance premiums and other costs, expenses and outgoings of whatsoever nature payable by any of the parties hereto in respect of or in connection with this Agreement or the aircraft or the ... use, possession, operation ... of the Aircraft ... and shall, if required by the Lessor produce evidence of the payment thereof ...
16.5 If any of the items referred to in clause 16.4 above, shall not be paid by the Lessee when due, the Lessor shall be at liberty (but not obliged) to pay the same. The Lessee shall on demand forthwith pay to the Lessor any sum so expended together with interest thereon at the Default Rate from the date such sum was so expended to the date of reimbursement by the Lessee (after as well as before judgment).
...
18. Default by Lessee
18.1 Each of the following events shall constitute an 'Event of Default':
...
(m) if the Aircraft ... ceases for any reason to be in the unencumbered possession of the Lessee, (save as expressly permitted by the Agreement, and the Lessee shall fail to recover such possession of the Aircraft within a period of 30 days; or
...
(r) if the Lessee shall ... create or suffer to exist and Encumbrance over the Aircraft or part thereof other than Permitted Liens ...; or
...
(t) if Compass Holdings Limited or any subsidiary goes into liquidation or a receiver or administrative receiver is appointed in respect of any of the same."
On 5 June 1991 an aircraft lease agreement was executed between Canadian Airlines International Ltd as lessor and Compass Airlines as lessee relating to an Airbus A-310-304 aircraft which was subsequently registered in Australia as VH-YMI. The lease agreement provided for Compass Airlines to take delivery of the aircraft "on or about 17 June 1991". It was thereafter used by Compass Airlines in carrying on its business in Australia.
The lease agreement contains the following provisions:
"ARTICLE 9
OPERATION OF AIRCRAFT
9.1 Costs of operation
Lessee shall pay all costs incurred in operation of the Aircraft during the Lease Term, ... including ... landing and navigation fees, airport charges, ... and any and all other expenses of any kind or nature, directly or indirectly, in connection with or related to the use, movement and operation of the Aircraft ...
...
9.7 Flight charges
(a) Lessee shall pay promptly when due all en route navigation charges, navigation service charges and all other charges payable by Lessee for the use of or for services provided at any airport, in respect of the Aircraft ... and shall indemnify and hold Lessor harmless in respect of the same ...
...
ARTICLE 25
DEFAULT OF LESSEE
25.1 Lessee Notice to Lessor
Lessee will promptly notify Lessor if Lessee becomes aware of the occurrence of any Default.
25.2 Events of Default
The occurrence of any of the following will constitute an Event of Default and material breach of this Lease by Lessee:
...
(h) Lessee abandons the Aircraft or Engines or they are no longer in the possession and unencumbered control (other than Permitted Liens) of Lessee or an approved sublessee;
..."
Between 1 December 1990 and 20 December 1991 (inclusive) Compass Airlines flew aircraft on domestic routes within Australia. CAA purported to impose charges on Compass Airlines with respect to its use of the leased aircraft ("the aircraft") during this period. Compass Airlines did not pay all such charges.
From time to time the CAA rendered invoices to Compass Airlines in respect of charges purportedly payable to it by Compass Airlines. Details of the invoices are as follows:
Aircraft VH-YMA
Invoice No. Due Date Amount
130722 1.9.91 688,808.85
132190 1.10.91 692,814.85
133725 1.11.91 679,875.71
135142 1.12.91 611,492.08
136605 1.1.92 518,045.69
TOTAL $ 3,191,037.18
Aircraft VH-YMB
Invoice No. Due Date Amount
130724 1.9.91 48,862.54
132192 1.10.91 646,498.23
133727 1.11.91 707,354.10
135144 1.12.91 575,157,98
136607 1.1.92 560,471.56
TOTAL 2,538,344.41
Aircraft VH-YMJ
Invoice No. Due Date Amount
130723 1.9.91 748,374.01
132191 1.10.91 659,901.21
133726 1.11.91 684,392.05
135143 1.12.91 629,934.52
136606 1.1.92 448,131.37
TOTAL $ 3,170,733.16
Aircraft VH-YMK
Invoice No. Due Date Amount
130720 1.9.91 736,929.48
132188 1.10.91 642,521.48
133723 1.11.91 661,865.97
135140 1.12.91 652,759.82
136603 1.1.92 439,639.55
TOTAL $ 3,133,716.30
Aircraft VH-YMI
Invoice No. Due Date Amount
130723 1.9.91 702,911.87
132191 1.10.91 439,366.86
133726 1.11.91 749,964.77
135143 1.12.91 749,746.55
136606 1.1.92 520,948.34
TOTAL $ 3,162,938.39
In respect of the aircraft, Compass Airlines made payments to the CAA which were allocated by the CAA as follows:
Aircraft Amount
VH-YMA 731,076.60
VH-YMJ 1,036,431.58
VH-YMK 1,529,557.86
VH-YMI 408,586.65
On 18 December 1991 there was purportedly vested in the CAA in respect of each of the aircraft a statutory lien under s69 of the Act covering charges and penalties purportedly payable in respect of the aircraft.
On 20 December 1990 joint provisional liquidators of Compass Airlines and Compass Holdings Limited were appointed by this Court on the application of those companies. At 9 pm on that day the five leased aircraft operated by Compass Airlines were "grounded".
The appointment of the provisional liquidators to Compass Airlines was an event of default under the terms of each of the agreements pursuant to which Compass Airlines leased the aircraft. In each case such an event of default authorized the lessor to terminate the agreement and remove the aircraft from Australia. However, s78A of the Act prohibited the removal of an aircraft from Australia whilst a lien in respect of the aircraft was in force unless the CAA gave prior approval to such removal. No such approval was given in respect of any of the aircraft.
In January 1992 each of the applicants entered into a deed with the CAA by which, subject to the terms of the deed, the applicant agreed to pay under protest the charges purportedly levied by the CAA in respect of each aircraft owned by it and the CAA agreed to discharge the lien in respect of the aircraft. Pursuant to the terms of such deeds, each of the applicants paid under protest the charges purportedly levied by the CAA in respect of aircraft owned by it. The amounts so paid were as follows:
Polaris: $ 5,239,058.07
Monarch Airlines: $ 5,002,187.86
Canadian Airlines: $ 2,888,740.97
Upon receipt of the above payments, the CAA discharged the liens.
The terms of the deeds entitle the applicants respectively to recover the moneys paid by them to the CAA, together with interest, if a Court decides that, as against the applicants, the lien did not validly secure payment of the charges or for any reason the lien or the charges, or both, in whole or in part, are illegal, void or unenforceable.
SERVICES AND FACILITIES IN RESPECT OF WHICH CHARGES DETERMINED
The services and facilities for which the CAA determined the charges said to have been payable by Compass Airlines for 1991-92 were as follows:
(a) air traffic services.
(b) rescue and fire fighting services; and
(c) meteorological services.
Two separate charges were fixed by the CAA in respect of air traffic services ("ATS"). The first was in respect of terminal navigation services and the second in respect of en route services. Included in the facilities and services to which the terminal navigation charge related were the provision, maintenance and operation of air traffic control services (including radar) within 55 kilometres of an aerodrome with an operating control tower and navigational aids used in take-off, approach and landing of aircraft. The services and facilities in relation to which the CAA levied the en route charge primarily involved the provision, maintenance and operation of air traffic control information and support and flight navigational aids outside 55 kilometres from an aerodrome with an operational control tower.
The rescue and fire fighting charge related to the provision by the CAA of rescue and fire fighting facilities and services, including the provision and maintenance of rescue and fire fighting equipment and other emergency services available at airports.
The Bureau of Meteorology was required under the Meteorology Act 1955 (Cth) to provide meteorological services to civil aviation in Australia. The CAA was charged a lump sum fee each year by the Bureau for the meteorological services provided to the civil aviation industry. The CAA fixed charges for meteorological services which were intended to recover the lump sum fee payable by it to the Bureau of Meteorology. The meteorological facilities and services in relation to which the CAA levied the meteorological charge comprised the provision of weather and meteorological information to aircraft, both prior to flight and en route.
THE DETERMINATION
The following determination was published in the Commonwealth of Australian Periodic Gazette of 28 June 1991:
"CIVIL AVIATION AUTHORITY
DETERMINATION
Pursuant to subsection 66(2) of the Civil Aviation Act 1988 the Board HEREBY DETERMINES that the charges shall be fixed and the person by whom and the times when the charges are payable for the period commencing on 1 July 1991 shall be as specified in the schedule numbered 1 to 37 attached hereto.
For and on behalf of the Board of the Civil Aviation Authority.
(signed) [Seal of CAA]
(Dick Smith)
Chairman
26 June 1991"
The schedules numbered 1 to 37 attached to the above determination will hereafter be referred to as "the determination".
The determination deals first with certain matters of interpretation and fixes the date of effect of the determination as 1 July 1991. An "avtur aircraft" is defined for the purpose of the determination as "an aircraft powered by an engine or engines using aviation turbine kerosene". A "non-avtur aircraft" is defined as an "aircraft other than an avtur aircraft". It is not in dispute that the distinction between avtur and non-avtur aircraft roughly equates to the distinction between regular passenger transport aircraft ("RPT aircraft") and general aviation aircraft ("GA aircraft"). The qualification reflects the fact that some smaller RPT aircraft are non-avtur aircraft. The number of GA aircraft in regular use in Australia greatly exceeds the number of RPT aircraft in regular use in Australia. "Weight" is defined for the purpose of the determination to mean "the maximum take-off weight" ("MTOW").
The determination then fixes charges for facilities and services, specifies the parties by whom such charges are payable, provides for recovery of charges, fixes penalties for non-payment of charges and provides for the remission and refund of penalties and charges.
Charges for facilities and services are fixed by the determination under the following sub-headings:
Landing Charges - Avtur Aircraft
Landing Charges - Non-avtur Aircraft
En-Route Charges
Meteorological Charges
Under the two sub-headings dealing with landing charges, charges are fixed for terminal navigation facilities and services and for the fire fighting and rescue service.
Landing Charges
Clause 1 of the determination provides for a charge "[i]n respect of each landing of an avtur aircraft at an aerodrome referred to in Column 2 of Item 1 in Table 1 below". The charge is "a charge for services and facilities at the aerodromes referred to in Column 2". The charge is to be "calculated at the rate per 1,000 kilogrammes weight specified in Column 3" of item 1. Column 2 of item 1 in table 1 refers to -
"Terminal navigation facilities and services, being such facilities and services relating to an aerodrome specified in Schedule 1."
Schedule 1 of the determination specified 32 Australian aerodromes including the principal aerodrome in the capital city of each State of Australia ("the capital city aerodromes").
Clause 2 of the determination is also concerned with terminal navigation facilities and services relating to an aerodrome specified in Schedule 1 of the determination. It provides as follows:
"2. In respect of each landing of an avtur aircraft at a place, being a place other than an aerodrome at which an Aerodrome Control Service is available at the time of the landing, within a control zone associated with an aerodromes referred to in Column 2 of Item 2 in Table 1 below, a charge for services and facilities at the aerodromes referred to in Column 2 calculated at a rate per 1,000 kilogrammes weight specified in Column 3 of that Item, is applicable".
In table 1 the rate of 1,000 kilogrammes weight specified in column 3 of item 2 is 50% of the rate specified in column 3 of item 1. Clause 2 of the determination is, I understand, intended to have application in respect of, for example, helicopter landings within the control zone of an aerodrome but outside the perimeter of the aerodrome itself (e.g. at an emergency hospital or a television station).
Clause 3 of the determination fixes a charge for avtur aircraft in respect of the fire fighting and rescue service. It provides for a charge "[i]n respect of each landing of an avtur aircraft at an aerodrome referred to in Column 2 of Item 3 in Table 1 below". The charge is "a charge for services and
facilities at the aerodromes referred to in Column 2". The charge is to be calculated at the rate per 1,000 kilogrammes weight specified in column 3 of item 3 of table 1. The aerodromes referred to in column 2 of item 3 of table 1 are those specified in Schedule 2 of the determination. Schedule 2 of the determination specifies 21 aerodromes including the capital city aerodromes.
So far as non-avtur aircraft are concerned, the determination fixes a landing charge for terminal navigation facilities and services at the same rate per 1,000 kilogrammes weight as is fixed for avtur aircraft, but such charge is only payable by non-avtur aircraft in respect of landings at the capital city aerodromes. That is, avtur aircraft are required by the determination to pay a charge for terminal navigation facilities and services in respect of landings at 32 aerodromes, but non-avtur aircraft are required to pay a charge for such facilities and services in respect of landings at only six of those aerodromes.
So far as the fire fighting and rescue service is concerned, the determination fixes a landing charge for non-avtur aircraft at the same rate per 1,000 kilogramme weight as is fixed for avtur aircraft but again such charge is only payable by non-avtur aircraft in respect of landings at the capital city aerodromes. That is, avtur aircraft are required by the determination to pay a charge for the fire fighting and rescue service in respect of landings at 21 aerodromes, but non-avtur aircraft are required to pay a charge for such service in respect of landings at only six of those aerodromes.
Clause 10 of the determination provides that landing charges are not payable unless, at the time of the landing of the aircraft, the facilities or services to which the charge relates are available for use by the aircraft.
En Route Charges
Clause 11 of the determination fixes en route charges as follows:
"11. In respect of the use by an aircraft of air route and airways facilities and services operated or provided in Australian territory, a charge is payable on each landing-
(a) in the case of a flight by an avtur aircraft weighing 20,000 kilogrammes or less between two aerodromes in Australian territory, in accordance with the following formula:
C = R1 x D/100 x W
(b) in the case of a flight by an avtur aircraft weighing more than 20,000 kilogrammes between two aerodromes in Australian territory, in accordance with the following formula:
C = R2 x D/100 x [radical]W
(c) in the case of a flight by an aircraft weighing 20,000 kilogrammes or less between a place outside Australian territory and a place in Australian territory, in accordance with the following formula:
C = R3 x D/100 x W
(d) in the case of a flight by an aircraft weighing more than 20,000 kilogrammes between a place outside Australian territory and a place in Australian territory, in accordance with the following formula:
C = R4 x D/100 x [radical]W
where -
C is the amount in dollars of the charge payable
R1 is a rate of $3.60
R2 is a rate of $16.15
R3 is a rate of $2.85
R4 is a rate of $12.75
D is the distance travelled by the aircraft expressed as the great circle distance in kilometres -
(i) between two aerodromes in Australian territory; or
(ii) between the first point of entry to an Australian Flight Information Region and the first aerodrome of destination in Australian territory;
(iii) between the point of entry to an Australian Flight Information Region and the next point of departure from an Australian Flight Information Region.
W is the weight of the aircraft expressed in tonnes.
[radical]W is the square root of the weight of the aircraft expressed in tonnes."
Meteorological Charges
Clause 12 of the determination fixes meteorological charges as follows:
"12. In respect of the use by an aircraft of meteorological facilities and services operated or provided in Australian territory, a charge is payable on each landing-
(a) in the case of a flight by an avtur aircraft weighing 20,000 kilogrammes or less between two aerodromes in Australian territory, in accordance with the following formula:
M = S1 x D/100 x W
(b) in the case of a flight by an avtur aircraft weighing more than 20,000 kilogrammes between two aerodromes in Australian territory, in accordance with the following formula:
M = S2 x D/100 x [radical]W
(c) in the case of a flight by an aircraft weighing 20,000 kilogrammes or less between a place outside Australian territory and a place in Australian territory, in accordance with the following formula:
M = S3 x D/100 x W
(d) in the case of a flight by an aircraft weighing more than 20,000 kilogrammes between a place outside Australian territory and a place in Australian territory, in accordance with the following formula:
M = S4 x D/100 x [radical]W
where -
M is the amount in dollars of the charge payable
S1 is a rate of $0.17
S2 is a rate of $0.75
S3 is a rate of $0.12
S4 is a rate of $0.55
D is the distance travelled by the aircraft
expressed as the great circle distance in
kilometres -
(i) between two aerodromes in Australian territory; or
(ii) between the first point of entry to an Australian Flight Information Region and the first aerodrome of destination in Australian territory;
(iii) between the point of entry to an Australian Flight Information Region and the next point of departure from an Australian Flight Information Region.
W is the weight of the aircraft expressed in
tonnes.
[radical]W is the square root of the weight of the
aircraft expressed in tonnes."
THE PLEADINGS
Terminal Navigation Charge
As to the terminal navigation charges for which invoices were rendered to Compass Airlines, the applicants have pleaded that the expenses incurred or to be incurred by the CAA in providing the terminal navigation services were not, or alternatively, were not reasonably, related to the MTOW of the aircraft in respect of which the services were provided. The applicants have further pleaded that -
(a) the difference between the terminal navigation charge and the charge applicable where an aerodrome control service was not available at the time of landing was determined arbitrarily and without reference to the expenses incurred or to be incurred by the CAA in providing an aerodrome control service;
(b) the terminal navigation charge only applied to avtur aircraft and no equivalent charge applied to non-avtur aircraft other than when landing at Adelaide, Hobart, Perth, Brisbane, Melbourne or Sydney airports although the terminal navigation services were used regularly by non-avtur aircraft at aerodromes other than Adelaide, Hobart, Perth, Brisbane, Melbourne or Sydney without charge;
(c) the terminal navigation charge (or equivalent charge) when applied to a non-avtur aircraft was not reduced when an aerodrome control service was not available at the time of landing. There existed no reasonable basis for not reducing the rate of such charge applicable to non-avtur aircraft when an aerodrome control service was not available whilst reducing the rate of charge by half for avtur aircraft in those circumstances.
(d) the expenses incurred or to be incurred by the CAA in providing terminal navigation services differed substantially between aerodromes but the amount or rate of the terminal navigation charge did not differ between aerodromes at which such charge was levied.
The applicants have further pleaded that by reason of the matters referred to above, the terminal navigation charge did not reasonably relate to the expenses incurred or to be incurred by the CAA in relation to the matters to which the charge related and was such as to amount to taxation, and was fixed otherwise than in accordance with s67 of the Act.
Rescue and Fire Fighting Charge
As to the rescue and fire fighting charges for which invoices were rendered to Compass Airlines, the applicants have pleaded that the expenses incurred or to be incurred by the CAA in providing the rescue and fire fighting services were not reasonably related to the MTOW of the aircraft in respect of which those services were provided. The applicants have further pleaded that -
(a) the expenses incurred or to be incurred by the respondent in providing the rescue and fire fighting services differed substantially between aerodromes but the amount or rate of the rescue and fire fighting charge did not differ between aerodromes in respect of which the charge was levied;
(b) rescue and fire fighting services were equally available to both avtur and non-avtur aircraft at each of the 21 aerodromes in respect of which avtur aircraft were required to pay a rescue and fire fighting charge, but non-avtur aircraft paid an equivalent charge at only 6 of the 21 aerodromes: as a consequence the charge paid by avtur aircraft subsidized the provision of rescue and fire fighting services to non-avtur aircraft.
The applicants have further pleaded that by reason of the matters referred to above, the rescue and fire fighting charge did not reasonably relate to the expenses incurred or to be incurred by the CAA in relation to the matters to which the charge related and was such as to amount to taxation, and was fixed otherwise than in accordance with s67 of the Act.
En Route Charge
The amount of the en route charge for which invoices were rendered to Compass Airlines was determined by reference to the MTOW of the relevant aircraft, the distance flown by the aircraft and the rate of charge fixed by the determination. The applicants have pleaded that the expenses incurred or to be incurred by the CAA in providing the en route services were not, or alternatively, were not reasonably, related to the MTOW of the aircraft in respect of which the charge was levied. The applicants have further pleaded that -
(a) the expenses (on a per kilometre basis) incurred or to be incurred by the CAA in providing the en route services differed substantially between air routes and airways but the amount or rate of the en route charge (on a per kilometre basis) did not differ between airways and air routes;
(b) aircraft on international flights were charged a lower rate per kilometre travelled in Australian territory than aircraft or flights between two aerodromes in Australia, and they only paid the charge in respect of flights coming into Australia and were not charged in respect of flights leaving Australia which nonetheless used the en route services (the matters of fact so pleaded are admitted by the respondent);
(c) the expenses on a per kilometre basis incurred or to be incurred by CAA in providing en route services did not differ significantly depending upon whether the aircraft in respect of which the services were provided were travelling between two aerodromes in Australia or between an aerodrome outside Australia and an aerodrome in Australia.
The applicants have further pleaded that by reason of the matters referred to above, the en route charge did not reasonably relate to the expenses incurred or to be incurred by the CAA in relation to the matters to which the charge related and was such as to amount to taxation, and was fixed otherwise than in accordance with s67 of the Act.
Meteorological Charge
As to the meteorological charge for which invoices were rendered to Compass Airlines, the applicants have pleaded that the expenses to be incurred by the respondent in providing the meteorological services were not, or alternatively, were not reasonably related to the MTOW of the aircraft in respect of which the charge was levied. The applicants have pleaded that -
(a) the meteorological services were used more frequently and more extensively by aircraft with a lower MTOW than by aircraft with a higher MTOW;
(b) aircraft on international flights were charged a lower rate per kilometre travelled in Australian territory than aircraft on flights between two aerodromes in Australia, and were not charged in respect of flights leaving Australia which nonetheless used the meteorological services (the matters of fact so pleaded are admitted by the respondent);
(c) the expenses on a per kilometre basis incurred or to be incurred by the CAA in providing the meteorological services did not differ significantly depending upon whether the aircraft in respect of which the services were provided was travelling between two aerodromes in Australia or between an aerodrome outside Australia and an aerodrome in Australia.
The applicants have further pleaded that by reason of the matters referred to above the meteorological charge did not reasonably relate to the expenses incurred by the CAA in relation to the matters to which that charge related and was such as to amount to taxation, and was "taxed" otherwise than in accordance with s67 of the Act. I have acted on the assumption that the word "taxed" in the relevant paragraphs of the statements of claim ought to read "fixed".
Charges Generally
As to the total amount of each of the charges, the applicants have pleaded, that such amount did not reasonably relate to the expenses incurred or to be incurred in relation to the matters to which such charge related, and was such as to amount to taxation and accordingly each of the charges was fixed otherwise than in accordance with s67 of the Act. In particular the applicants have pleaded that -
(a) in determining the charges, it was not reasonable for the CAA to include a rate of return of 7.5% in real terms (i.e. after inflation) on the level of assets or funds employed by the CAA as at the commencement of the financial year 1991-92 or any rate of return; and
(b) it was not reasonable for the CAA to allocate all indirect and support costs to particular operational functions to determine the costs of providing particular services.
The applicants have further pleaded that the CAA purported to collect the charges from the applicants who were not persons who received the services, and that in such circumstances the charges were such as to amount to taxation. In addition the applicants have pleaded that the charges were ultra vires the Act and void by reason of s67 of the Act and therefore illegal, void or unenforceable and the liens did not validly secure the charges.
Alternatively, the applicants have pleaded that ss68-83 of the Act deal with matters other than the imposition of taxation and, by reason of s55 of the Constitution, are of no effect so that the liens did not validly secure the payment of the charges. In the further alternative, the applicants have pleaded that the operation of Division 2 of Part VI of the Act was to effect an acquisition by the CAA otherwise than on just terms of property of the applicants in the aircraft, contrary to s51 (xxxi) of the Constitution so that the liens were invalid and did not validly secure the payment of the charges.
THE EVIDENCE
General
A document entitled "Aviation Fact Book" published by the CAA in April 1991 was placed in evidence by consent. It reveals that for the financial year ending 30 June 1991 more than 80% of CAA's income came from aircraft operations. It further reveals that of total CAA revenue in that financial year, domestic jet aircraft were the source of 47% of that revenue, international operators were the source of 31% of that revenue and non-jet aircraft were the source of only 4% of that revenue.
The same publication reveals that for each of the years for which statistics are given (i.e. 1985-1989 inclusive) the number of hours flown by GA aircraft far exceeded the number of hours flown as part of domestic airline activity, and the number of GA aircraft movements (i.e. take-offs and landings), far exceeded the number of movements attributable to domestic airline activity and international airline activity combined.
Nothing was put forward by any party to suggest that such figures were not indicative of the position in the financial year 1991-92.
Nonetheless, although matters of detail are in dispute, it is not seriously contested by the applicants that the air traffic facilities and services provided by the CAA in 1991-92 were utilized principally by aircraft in controlled air space. With very few exceptions (i.e. aircraft flying to Uluru) all large RPT aircraft such as those flown by Compass Airlines were required by Air Navigation Regulations to fly in controlled air space whilst in Australian territory. The CAA had a priority system for the allocation of air space in controlled air space which favoured RPT aircraft over GA aircraft. There were therefore generally considerably more RPT aircraft in controlled air space than GA aircraft.
Economic Theory
Vincent William John Fitzgerald ("Dr Fitzgerald") is an economist with considerable public and private sector experience. He prepared a report for, and gave oral evidence on behalf of, the respondent.
In his report Dr Fitzgerald gave consideration to, amongst other things, general economic principles applying to the issue of how an entity such as the CAA should set its charges. He started from the premise that the resources that the CAA used had an opportunity cost to the community. He considered that two principles followed from that premise, namely that the CAA's charges should have recovered its total costs from its users as a group (the "user pays" principle) and that if consistent with the user pays principle, prices for each service should have been set which were equal to marginal cost (the increment to total cost entailed in producing one extra unit of service). In support of the principle of charging the marginal cost of the provision of a service, Dr Fitzgerald pointed out that it was the measure of cost most relevant to the choice by users of the level of usage, and that pricing on this basis should produce the most economically efficient outcome in terms of the level and pattern of usage of the CAA's services.
Dr Fitzgerald noted, however, that there were difficulties with the above principles in the CAA's case in that its fixed costs were very large and would not have been fully recovered by pricing on a marginal cost basis. He identified as the relevant issue for his consideration in the preparation of his report, the issue of how CAA should have priced so as to achieve an outcome as close as possible, in terms of the level and pattern of usage of the CAA's services, to the economically most efficient outcome while fully recovering the CAA's costs from its users as a group. Dr Fitzgerald concluded that to maximize the overall benefits to the community, charges to different users for the CAA's various services could not have been based on cost alone, but should have taken account of user demand characteristics. Specifically, he concluded, prices to different users should have been set in inverse relation to the sensitivity of their usage to price, a scheme known as Ramsey pricing.
Dr Fitzgerald pointed out that a Ramsey pricing scheme is a scheme for recovery of fixed costs from users according to economic capacity to pay. He asserted that Ramsey pricing is widely regarded as a best practice approach to the pricing of natural monopolies across the public sector and for regulated private monopolies. He expressed the opinions that there is no cross-subsidy involved in such an approach to pricing so long as each category of user pays at least marginal cost for each unit of service, and that there is no inherent issue of equity or inequity in such an approach.
Dr Fitzgerald considered the approach adopted by the CAA for the determination of its airways service charges in 1991-92 in the light of the above economic principles. He concluded that -
"[i]n economic and public policy terms, the approach adopted by the Civil Aviation Authority for the determination of its airway services charges for 1991-92 was in all significant aspects a reasonable one".
I do not understand there to have been any serious challenge to the validity of the economic theory espoused by Dr Fitzgerald or to his conclusion concerning CAA pricing policies in 1991-92 so far as they were based upon such economic theory. I accept the validity of both of these aspects of his evidence.
The real issue as to Dr Fitzgerald's evidence is its relevance in these proceedings. He identified his task in writing his report as being -
"to give the opinion of someone whose expertise is as an economist on what meaning might be ascribed to the word 'reasonable' in relating the charges reasonably to the cost of the CAA".
As I understand him, Dr Fitzgerald intended by these words to refer to the requirements of s67 of the Act. The actual requirements of s67 of the Act are that the "amount or rate of a charge shall be reasonably related to the expenses incurred or to be incurred by the Authority in relation to the matters to which the charge relates and shall not be such as to amount to taxation".
A determination of the true import of the requirements of s67 of the Act necessitates the giving of consideration to the intention of Parliament as disclosed by the language of s67 of the Act viewed in the context of the Act as a whole. The issue of the proper construction of s67 of the Act is considered further below. I simply note here that the requirements of s67 of the Act are not easily equated with the (hypothetical) requirement that the CAA determine charges which are reasonable having regard to prevailing economic theory.
Allocation of Costs between Charges
The CAA distinguished within its airway services overall, between rescue and fire fighting services, on the one hand, and air traffic services on the other. The services and facilities to which the terminal navigation charges, en route charges and meteorological charges relate all fall within the category of ATS.
The evidence of Dr Fitzgerald as to the actual allocation of costs between charges in 1991-92 was not challenged. I accept it. He gave evidence that there were in 1991-92 substantial joint costs in respect of ATS, accounting for 53 per cent of ATS total costs before return on assets and 56 per cent of ATS costs after including budgeted return on assets. He further gave evidence that in 1991-92 all system overheads were attributed to the en route services for the purpose of determining charges. This had the result that approximately 80 per cent of ATS total costs were attributed to en route services. Dr Fitzgerald expressed the opinion, as an economist, that in economic terms the decision to allocate all systems overheads to en route services was made on correct principles (i.e. with the intention of minimising the impact on users and with the result that the charges for each service at least recovered the direct cost of providing that service).
Use of MTOW as a basis for charging
Dr Fitzgerald also gave evidence which was not seriously challenged, and which I accept, as to the reasonableness in an economic sense of the CAA setting charges as a function of the MTOW of aircraft. He drew attention to the fact that for freight aircraft it is obvious that pay load and economic capacity to pay are directly related to MTOW. For passenger aircraft he noted that capacity to pay is related to the number of seats on a particular aircraft. He identified that for the 45 aircraft types using Australian airways there is a high correlation between number of seats and either MTOW or its square root, with the correlation to the square root of MTOW being the higher. He further identified that for smaller aircraft (i.e. up to 20 tonnes) the linear relationship to MTOW gives a higher correlation than the square root of MTOW.
Dr Fitzgerald gave evidence that the use of MTOW as the basis for charging aircraft for airport services, and the square root of MTOW as the basis for charging for en route services, produced the result that total CAA airways charges on a per passenger basis for 1991-92 were relatively flat across the fleet using Australian airways. He further gave evidence that it can be shown that "the sensitivity of usage of airways services to their price varies directly with the fraction which these charges are of the cost to a passenger of a flight".
He went on -
"[f]or large aircraft with many passengers, which typically fly relatively long distances, the charges will be a small fraction of the flight costs. Therefore, for these aircraft, the sensitivity of passenger demand to the charges will be small, and economic efficiency - specifically, Ramsey pricing principles - dictate [sic] that they be charged relatively more per aircraft than smaller aircraft. Other things affecting the unit cost of passenger travel being equal, it will be optimal to vary charges per aircraft so as to achieve as the Authority did - a relatively constant charge per passenger".
Cost of Rescue and Fire Fighting Service
The CAA was obliged in 1991-92 to perform its functions in a manner consistent with the obligations of Australia under the Convention on International Civil Aviation done at Chicago on 7 December 1944 ("the Chicago Convention), the protocols amending the Chicago Convention and the annexes to the Chicago Convention relating to international standards and recommended practices being annexes adopted in accordance with that convention (ss3 and 11 of the Act). It was also obliged in 1991-92 to perform its functions in a manner consistent with the obligations of Australia under any other agreement between Australia and any other country or countries relating to the safety of air navigation (s11 of the Act).
Annex 14 to the Chicago Convention ("Annex 14"), which I presume has been adopted in accordance with that convention, recommends the allocation of categories from 1-9 to aerodromes, based principally upon the over-all length of the longest aeroplanes normally using the aerodrome. It further recommends that during anticipated periods of reduced activity, the aerodrome category may be reduced to that of the highest category of aeroplane planned to use the aerodrome during that time. Annex 14 contains recommendations as to the minimum useable amounts of extinguishing agents to be available at the different categories of aerodromes and as to a minimum discharge rate of foam solution per minute for each category. It is not in dispute that the higher the category of an airport for the purposes of Annex 14, the more expensive will be the rescue and fire fighting services required to be provided there. An aerodrome at which aircraft such as Boeing 747s normally land is a category 9 aerodrome for the purposes of Annex 14. If the largest aircraft to normally land at an aerodrome is the smaller Boeing 737, the aerodrome will be a category 6 aerodrome.
Bruce Robert Gemmell ("Mr Gemmell") also gave evidence on behalf of the respondent. Mr Gemmell was for a number of years up to and including 1991 employed within the CAA in senior positions. He had an involvement in the determination of charges by the CAA.
Mr Gemmell gave evidence that once a particular level of rescue and fire fighting services was available in 1991-92 at an aerodrome, it was available for all aircraft that landed while that category of services was operational. He agreed that in Melbourne and Sydney the level of services appropriate to a category 9 aerodrome was available all of the time because of the frequency with which Boeing 747s landed at such airports.
Mr Gemmell agreed that the CAA had calculated the direct costs of providing rescue and fire fighting services at particular locations and that it was possible that the cost per tonne landed at one airport could be 20 times the equivalent cost at another airport. A table included in Dr Fitzgerald's report concerned with Australia's six busiest airports reveals that in 1991-92 the cost per tonne landed of providing rescue and fire fighting services at Sydney was $0.74 while at Cairns it was $4.14. It was not suggested that the position was likely to have been significantly different in 1991-92.
Mr Gemmell also agreed that avtur aircraft were charged in respect of rescue and fire fighting services at 21 Australian airports although non-avtur aircraft were charged in respect of such services only at the six busiest Australian airports. As to the 15 airports at which non-avtur aircraft were not charged for rescue and fire fighting services, he further agreed that provided that rescue and fire fighting services were available at the time that non-avtur aircraft landed at such airports, the rescue and fire fighting services were available to them. Mr Gemmell explained the charging régime for rescue and fire fighting services on the basis that if only non-avtur aircraft landed at an airport, rescue and fire fighting services would not be provided at that airport. He classified the non-avtur aircraft as marginal operators at the airports in respect of which they were not charged for rescue and fire fighting services on the basis that the services would have been there whether non-avtur aircraft landed at the airport or not. I note that, in the absence of other considerations, an application of that logic to the six airports at which non-avtur aircraft were charged for rescue and fire fighting services would suggest that they ought not to have been so charged.
Costs of Air Traffic Services
Mr Gemmell gave evidence, which I accept, that more sophisticated air navigation facilities and services and terminal facilities and services are set in place in respect of airports at which larger aircraft land. He gave as an example Bankstown airport which is one of the busiest in Australia. He pointed out that Bankstown airport did not require, and I assume does not have, a major radar system as such a system is only required by the airports which are used by larger aircraft as well as smaller aircraft. He stated:
"If only small aircraft were using the larger airports, then there would be no need for the high level of services to that airport. The larger aircraft tend to be the ones carrying more passengers and part of the reasoning for providing better terminal and air navigation services at these airports is the number of lives at risk in flights in and out of those airports."
However, Mr Gemmell agreed that where GA aircraft do use major airports, they need to make use of terminal navigation services in the same way as RPT aircraft.
As between the different types of RPT aircraft, Mr Gemmell gave evidence that the CAA made decisions as to the airports at which particular air traffic services would be available having regard to the size of aircraft which would land there. For example, airports at which Boeing 727s land might not have air traffic control services but it would be "exceptionally rare" for a Boeing 747 to land at an airport without an air traffic control tower. He indicated that it is a requirement for all international airports to have air traffic control towers.
It is, I think, accepted that air traffic services are available to be used, and are used, by all aircraft, whatever their size, that are able to access that service. However, the majority of such services are provided to aircraft in controlled air space. The priority given by the CAA to RPT aircraft over GA aircraft for air space in controlled air space had the result that there were generally considerably more RPT aircraft in controlled air space than GA aircraft.
The applicants placed weight on certain evidence given by Christopher Glanville Barnes ("Mr Barnes"), a witness called by the respondents. Mr Barnes is a qualified accountant who between August 1986 and March 1993 was employed by the Department of Transport and Communications, and upon its establishment, the CAA. His duties included corporate financial planning for the CAA, development of prices for major services and pricing policy matters in general. Mr Barnes gave evidence that the air pilots strike of late 1989 cost the CAA considerable revenues, yet its costs were largely unchanged as the cost of maintaining the air traffic control services remained largely unchanged despite the short term variation in the type of aircraft using the services. The variation was that fewer larger RPT aircraft were being flown. Mr Barnes stated, and I accept, that if there had been permanent change in the nature of the air traffic using the system, the CAA would have had to give consideration to increasing charges or restricting the service to one more appropriate to smaller aircraft. Mr Barnes agreed, however, that in a short term situation, the costs of the CAA in providing services to the airline industry were not dependent on the weight of the aircraft flying.
Costs of Meteorological Services
As is mentioned above, the Bureau of Meteorology is responsible under the Meteorology Act 1955 (Cth) for the provision of meteorology services to civil aviation in Australia. In 1991-92 the incremental cost to the Bureau of Meteorology of providing services to civil aviation over and above the level of services provided to the public in the public interest and funded through Government appropriation was recovered from the CAA. The amount so recovered was $18.878m.
The services made available to civil aviation by the Bureau of Meteorology were -
(a) observations in the form of aerodrome weather reports;
(b) forecasts of weather conditions en route;
(c) forecasts of weather conditions at aerodromes;
(d) meteorological watch and warnings of meteorological phenomena hazardous to aircraft operations en route and to aircraft operations, aerodrome facilities and aerodrome services at aerodromes.
All of the above services are required by annex 3 of the Chicago Convention.
John Ralph Dear ("Mr Dear"), the Superintendent, Aviation, Defence, Marine and Special Weather Services of the Australian Bureau of Meteorology, gave evidence that the bulk of the infrastructure of the Bureau of Meteorology which relates to the provision of services to the aviation industry is designed to provide the high level of service required by the larger RPT aircraft, and that most of the services required by GA aircraft and other smaller aircraft are covered by low level area forecasts or by forecasts prepared by the Bureau of Meteorology as part of its general services provided to the general public.
Mr Dear also gave evidence of enhanced services at the major international and domestic airports in Australia which are mainly used by RPT operations. Mr Dear said, and I accept, that these enhanced services would not be provided but for the RPT operations.
Mr Dear also gave evidence of the provision of certain meteorological services for use by aircraft that fly above 20,000 feet. The overwhelming majority of aircraft which fly above 20,000 feet are larger RPT aircraft.
Under cross-examination Mr Dear agreed that the services that are required by RPT aircraft are the same whether they are large or small RPT aircraft. He also agreed that if a service was available at an aerodrome, it was available to all aircraft which used the aerodrome whether RPT or GA aircraft, and that the Bureau of Meteorology did not endeavour separately to cost the services provided to the different types of aircraft that used such services.
Mr Gemmell gave evidence that the CAA itself would have been unable in 1991 to work out the cost of providing meteorological information to particular users.
Return on Capital
Mr Gemmell gave affidavit evidence, which was not challenged, in the following terms:
"34. The CAA's charges were set so as to produce a forecast 7.5% (real) rate of return on the capital employed by the CAA. In effect, the 7.5% is treated as a cost. The economic rationale for this is that it represents the opportunity cost of the investment in assets of the CAA. Unless there was a return on capital employed by the CAA, it would be irrational for the CAA's shareholder to have invested capital in it. The investment would simply represent a subsidy to the aviation industry. To put it another way, without equity capital the CAA would be compelled to borrow all its capital requirements, and pass on the commercial borrowing costs (as opposed to the 7.5% rate of return) as part of its charges.
35. In practical terms, a rate of return of 7.5% is not a major component of the CAA's charges. The CAA has a large turnover compared to its assets so that the 7.5% rate of return on the capital employed does not make a substantial difference to the Authority's cost structure."
I accept the matters of fact set out in the above extract from Mr Gemmell's affidavit. As to the expressions of opinion, I accept that they represent opinions held by the senior management of the CAA in 1991-92.
It is not in dispute that the actual rate of return on assets achieved by the CAA in 1991-92 was a 5.8% return on assets.
Calculation of Rates of Charges
Mr Barnes gave evidence, which I accept, as to the process undertaken to work out the charges fixed by the determination.
Mr Barnes' evidence was that the first step was for an estimate to be made of the total outgoings of the CAA for the 1991-92 year. The second was to calculate the total value of the CAA's assets and to calculate 7.5% of such value. Interest to be paid was deducted from the estimated outgoings and 7.5% of the value of the CAA's assets added to the estimated outgoings. The figure which resulted from this procedure was treated as the cost of the CAA. The cost of the CAA was then broken down into the cost of each service so that the aggregate of the revenue from each service covered the cost of the CAA.
As to the breaking down of the total costs of the CAA into the costs of the services and facilities for which charges were to be determined, Mr Barnes agreed that the information systems available to the CAA in 1991-92 did not allow this task to be undertaken with 100% accuracy. The problem was with respect to property related costs and asset related costs. As to that Mr Barnes stated as follows:
"... the significance of that problem needs to be put into perspective by considering the cost structure of the organisation. Of the $700-$800 million annual cost of the CAA back at that time, a little over 60 per cent of that was salary costs and related costs. The asset and property related costs were probably of the order of $100-$130 million out of that $800 million. So while it was a reasonable amount of money, it was relevant primarily to those areas which used assets. I should explain that the safety regulatory area of the organisation used very little assets, and in 1991 we were able to identify, with reasonable confidence, the cost of the safety function of the organisation, because they were a relatively minor user of the organisation's assets. The difficulty we faced was with the operational side of the organisation, which was Rescue and Firefighting Service, Channel Navigation and En Route Air Traffic Control, and we needed more information about an appropriate basis by which to split costs between those. We had some information, in that the standard categorisation of the assets of the organisation did line up, to some extent, with the organisational groups and the services that the organisation provided. ... What we were still uncertain about was some common property costs and various other things."
Mr Barnes gave evidence that the attribution of indirect and support costs to all operational services was based on a 1988 cost allocation study. He stated that the relationship of indirect and support costs to direct costs was assumed to continue to be in the same proportion as established by the study, taking into account organisational and other charges since the study was conducted and an adjustment arising from another 1988 study of the cost relativities of the CAA's operational services. Mr Barnes gave evidence that between 1988 and 1991 he had been monitoring the work done on a cost allocation model and also the general budget position of the various operating arms of the CAA. He said that he was aware that there had not been any major changes in the nature of the services provided or in the way in which they were provided. As to minor changes, he stated that they were taken account of as marginal changes.
In mid 1989 Mr Barnes initiated the creation of a computer spreadsheet model to allocate CAA corporate overheads and support costs across the services provided by the CAA, with the aim of updating the fully distributed cost of providing each of those services. The lack of availability of reliable information meant, however, that in 1991-1992 the model was only used as a broad indication of the continued accuracy of the cost relativities established by the 1988 study. Mr Barnes' evidence was that results from the model in early 1991 suggested that the charges in force were at about the correct level for the rescue and fire fighting service and for the aggregate combined total of en route and terminal navigation services.
With respect to specific charges, Mr Barnes acknowledged that the rescue and fire fighting division had income additional to the income generated by charges. It had attributed to it a small amount of the funds raised by the avgas excise and it earned some miscellaneous revenues which were attributed back to it. The attribution of funds raised by the avgas excise was based upon records collected in 1987 of actual landings by non-avtur aircraft at airports where there were rescue and fire fighting services. Mr Barnes did not seek to suggest that the funds raised by the avgas excise which were attributed to the rescue and fire fighting service represented the cost of providing rescue and fire fighting services to non-avtur aircraft. His evidence was that it was probably impossible to determine the cost of providing rescue and fire fighting services to avgas aircraft. In any event, in his view, the service was provided for the bigger aircraft.
Mr Barnes gave similar evidence concerning the attribution of portion of the funds raised by the avgas excise to terminal navigation services. He stated that he did not believe that it was reasonably possible to say that any proportion of the cost of terminal navigation related to non-avtur aircraft individually. He agreed that such aircraft could be treated as marginal users of the system with no particular costs attributable to them. Alternatively, he stated that it could be said that the services were not provided for them but for the larger aircraft.
As to international en route, domestic en route and terminal navigation services, Mr Barnes agreed that there was no budget giving estimates of costs separately for the provision of such services. He gave evidence that -
"[t]hose rates of charge were originally based on cost estimates done in 1988 and we assumed that the relativities of one charge to another remained much the same in the two or three years following that with some minor adjustments for different growth rates of those services because the growth of international traffic is generally higher than the growth rate for domestic traffic and we took account of those differing rates in the various sectors of the industry."
Mr Barnes asserted that he was confident that in 1991-92 the aggregate of the en route charges and the terminal navigation charges recovered the right amount of money but that it was not until 1992 that he had sufficient information to be confident about the split between en route services and terminal navigation services. He agreed that virtually all system support costs of air traffic services were recovered by the en route charges. This evidence is in accord with that given by Dr Fitzgerald.
As to the international en route charge, Mr Barnes acknowledged that it was only payable on the inward leg of a flight. He stated that that was a matter of administrative convenience as it reduced paper work for the industry. The costs being charged for, he said, were the costs of both the inward and the outward legs. As to the amount of the international en route charge, Mr Barnes gave his understanding as being that it was -
"intended to recover the additional costs which could reasonably be related to international flights, which was the full costs of air traffic control dealing with offshore airspace sectors and a reasonable share of communications costs that were used primarily by aircraft on international routes".
Mr Barnes agreed that the possible implementation of location specific charging was always an issue on the CAA's agenda. He stated, however, that the CAA did not, at the relevant time, have the accounting systems necessary to enable it to implement such a scheme.
SECTION 67 OF THE CIVIL AVIATION ACT
Section 66(2) of the Act authorizes the Board to make determinations fixing charges and specifying the persons by whom, and the times when, the charges are payable. For the purposes of s66(2) a "charge" means "a charge for a service or facility" provided by the CAA (s66(1)).
The determination in issue in these proceedings is the determination of the Board of 26 June 1991 referred to above.
The applicant's challenge to the validity of the determination is founded on the terms of s67 of the Act. It is convenient to set out the terms of s67 again:
"67. The amount or rate of a charge shall be reasonably related to the expenses incurred or to be incurred by the Authority in relation to the matters to which the charge relates and shall not be such as to amount to taxation."
Reference to the official record of the Parliamentary debates concerning the above provision confirm that its intended purpose was to limit the amount or rate of charges to be determined by the CAA. The first requirement of s67 of the Act was introduced by an amendment to the Bill made in the Senate. Its purpose was said to be to provide "a protection against surreptitious revenue raising".
It was contended on behalf of the applicants that on the proper construction of the determination -
"a separate charge is imposed for each of the four types of service, and a separate charge is imposed in relation to each landing, at an aerodrome which is listed in the Schedule".
I do not read the determination in this way. In my view clause 1 of the determination imposes a charge within the meaning of the Act, being a charge for services and facilities at the aerodromes referred to in column 2 of item 1 in table 1 of the determination, payable in respect of each landing of an avtur aircraft at an aerodrome referred to in column 2 of item 1 in table 1 of the determination. Similarly, in my view, each of clauses 2,3,6 and 7 of the determination fixes a separate charge. Clause 11 of the determination, in my view, fixes a separate charge by each of its subparagraphs (a) to (d). Clause 12 of the determination similarly, in my view, fixes a separate charge by each of subparagraphs (a) to (d).
Crucial to a determination of the intended operation of s67 of the Act is the meaning of the words "reasonably related to the expenses incurred or to be incurred by the Authority". These words are to be construed having regard to the context in which they appear.
Section 67 appears in Part VI of the Act which is concerned with matters of finance. Of importance to the financial operations of the CAA under the Act are the corporate plan which the Board of the CAA is required to develop, and thereafter review and revise, and its financial plan. Section 44(2) of the Act, which is set out above, specifies the matters to be included in the financial plan.
By requiring the CAA's financial plan to forecast, in relation to its services and facilities other than search and rescue and aeronautical information services, not only receipts and expenditures, but also a rate of return and a dividend, s44(2)(b), in my view, discloses an intention that in relation to such services and facilities the CAA should generate a return (presumably on assets utilized in the provision of such services and facilities) so as to enable it to pay a dividend therefrom to the Commonwealth. By contrast, s44(2)(c) requires the CAA's financial plan, in relation to search and rescue and aeronautical information services, only to estimate receipts and expenditure. The inference which, in my view, flows from s44(2) read as a whole is that the CAA was intended to generate a return on its assets from the carrying out of those of its functions which involved the provision of services and facilities other than the function of providing a search and rescue service and an aeronautical information service.
Section 9 of the Act, which is set out above, lists the functions of the CAA. In doing so, it makes plain that the function of the CAA to provide a rescue and fire fighting service is a separate function from its function to provide a search and rescue service. Section 17 of the Act gives meaning to the function of the CAA specified by s9(1)(f) of the Act, namely to provide an aeronautical information service. Section 17 requires the CAA to "provide a service to be known as the Aeronautical Information Service, which shall comprise the collection and dissemination of aeronautical information and instructions relating to the safety, regularity and efficiency of air navigation" being information and instruction with respect to certain specified matters.
It has not been suggested that any of the services and facilities for which the determination fixed charges formed any part of the Aeronautical Information Service. I note that the CAA's annual report 1990-91 reports a restructuring of the CAA so as to remove the Aeronautical Information Service from the Air Traffic Services Division. This would seem to confirm that the Aeronautical Information Centre had no operational involvement in the provision by the CAA of air traffic services.
The inference to be drawn from s44(2) of the Act, namely that, with only limited exceptions, the CAA was intended to generate a rate of return in relation to its services and facilities is strengthened by other provisions of the Act. Section 45 of the Act requires the CAA in preparing financial plans to consider, amongst other things -
"(g) the need to earn a reasonable rate of return on the Authority's assets (other than assets wholly or principally used in the performance of regulatory functions or the provision of search and rescue services); and
(h) the expectation of the Commonwealth that the Authority will pay a reasonable dividend."
Section 47 of the Act authorizes the Minister to direct the CAA to vary a financial plan in respect of financial targets. When giving such a direction the Minister is required to consider various matters including the matters referred to in s45 of the Act other than in par(b) thereof.
The respondent sought to place reliance on s11 of the Act, which requires the CAA to perform its functions in a manner consistent with Australia's obligations under the Chicago Convention and any other international convention to which Australia is a party relating to the safety of air navigation, for the purpose of construing s67 of the Act. The functions of the CAA for the purpose of s11 of the Act are, in my view, the functions specified by s9(1) of the Act. In determining charges, the CAA is, in my view, exercising a power given to it by s66 of the Act: it is not performing a function within the meaning of s11 of the Act.
To be set against the inference to be drawn from s44(2) of the Act and related provisions is the use of the term "expenses" in s67 of the Act. The Macquarie Dictionary (2nd Ed.) gives the primary definition of "expense" as "cost or charge". It does not expressly refer to the plural expression "expenses". The Shorter Oxford English Dictionary under the heading "Expense" includes the entry "in pl. esp.: 'Money out of pocket', or its reimbursement".
In Attorney-General for New South Wales v Hunter [1983] 1 NSWLR 366 at 378-380 Lusher J gave consideration to the meaning of the term "expenses" in the context of a provision of the Companies Act 1961 which authorized the Minister to order that "the whole or any part of the expenses of and incidental to" an investigation into a company be paid by that company. His Honour noted that -
"'Expenses' has been said to be not a term of art but a vague and general term (Simpson v Inland Revenue Commissioners [1914] 2 KB 842, per Scrutton J at 845). The word has been said to 'clearly mean only expenses out of pocket incurred' (R v Holy Trinity and St Mary's [1853] WR 351 per Lord Campbell CJ at 352)."
His Honour concluded the "expenses" in the context which he was required to consider did not include overheads.
The Court of Appeal in Chandris v Union of India [1956] 1 WLR 147 was required to interpret a charter party which provided that -
"[i]f the option of ordering the vessel to discharge at two ports is not exercised ... before loading has commenced, any expense incurred by the shipowners at the first port of discharge in shifting, discharging and/or reloading any cargo ... shall be paid by the charterers ..."
The Court of Appeal was unanimous in concluding that the above provision in the charter party did not allow recovery as an expense loss of profits resulting from time lost. Morris LJ stated at 159 that "[t]he word 'expense' conveys the idea of something spent or laid out or paid or disbursed or of some liability incurred". Denning LJ (at 154) expressed a similar view, although emphasizing that the particular wording of the charter party there under consideration was of importance in that case. Hodson LJ (at 155) also placed considerable weight on the qualifying words following the words "any expense" in the charter party. He found that such qualifying words had the effect of limiting the expenses intended to be recoverable under the charter party.
I accept that in its ordinary and natural meaning "expenses" does not usually include overheads or profits required for the generating of a rate of return on assets. However, s67 of the Act must be construed having regard to the context in which it is found. Such context discloses, in my view, a clear Parliamentary intention that the CAA do determine charges pursuant to s66(2) of the Act calculated to bring in revenue sufficient to cover the CAA's overheads and generate a rate of return on its assets. Whether the intention of Parliament is given effect to by a broad understanding of what is to be encompassed by "expenses" or by a broad understanding of "reasonably related" is probably immaterial. The better approach, in my view, may well be an interpretation of s67 of the Act which accepts that the amount or rate of a charge does not fail to be "reasonably related" to the expenses incurred or to be incurred by the Authority by reason only of its having been calculated on a basis intended to achieve recovery by the CAA of relevant overhead costs and a reasonable rate of return on relevant assets.
It is plain that s67 of the Act requires that consideration be given separately to each charge determined by the CAA pursuant to s66(2) of the Act. It will not be sufficient that the amount or rate of the totality of the charges determined by the CAA should be reasonably related to the expenses incurred or to be incurred by the CAA: the amount or rate of each charge must be reasonably related to the expenses incurred or to be incurred by the CAA in relation to the matters to which that charge related.
Each of the charges with which these proceedings are concerned prescribes a rate of charge rather than an amount of charge.
The words "the matters to which the charge relates", appearing in s67 of the Act, are, in my view, properly to be regarded as words of limitation. I accept the submission made on behalf of the applicants that by identifying the services and facilities for which each charge was determined, the CAA necessarily fixed "the parameters within which it must be able to ... justify its charges". That is, the requirement of s67 of the Act is that the amount or rate of the charge must be reasonably related to the expenses incurred or to be incurred in relation to those particular services or facilities, rather than reasonably related to expenses incurred or to be incurred by the CAA generally.
Before it is possible to give consideration to the issue of whether the amount or rate of any charge determined by the CAA satisfied the requirement of s67 of the Act that it "be reasonably related to the expenses incurred or to be incurred by the [CAA] in relation to the matters to which the charge relates" it is necessary to identify the matters to which such charge related.
Section 66(1) of the Act indicates that a charge determined by the CAA is to be "a charge for a service or facility provided by" the CAA. Clauses 1, 2, 3, 6 and 7 of the determination follow a common pattern. For present purposes, it is convenient to refer to clause 1, but on the basis that reasoning applicable to clause 1 is also applicable to clauses 2, 3, 6 and 7.
Clause 1 of the determination is expressed to create a charge "for services and facilities at the aerodromes referred to in Column 2 of Item 1" of table 1. Column 2 of item 1 of table 1 reads as follows:
"Terminal navigation facilities and services, being such facilities and services relating to an aerodrome specified in Schedule 1."
So far as clause 1 of the determination is expressed to create a charge "for services and facilities at the aerodromes referred to in Column 2 of Item 1" it must, it seems to me, to be understood as meaning "for the services and facilities referred to in Column 2 of Item 1 at the aerodromes referred to in Column 2 of Item 1".
To the extent that there may be an inconsistency between the reference in the opening lines of clause 1 to "services and facilities at the aerodromes referred to in Column 2" and the reference in column 2 of item 1 of table 1 to "facilities and services relating to an aerodrome specified in Schedule 1", it seems to me that the language of the opening lines of the clause must prevail. That is, in my view, the charge created by clause 1 is a charge for a network of facilities and services, not a charge for facilities and services relating to a particular aerodrome.
In my view, the matters to which the charge created by clause 1 of the determination relates, within the meaning of s67 of the Act, are the matters for which the charge is made: i.e. the terminal navigation facilities and services at the aerodromes referred to in column 2 of item 1 of table 1. It is the landing of an avtur aircraft at an aerodrome referred to in column 2 of item 1 of table 1 which triggered such charge.
Clauses 11 and 12 of the determination follow a common pattern. It is convenient to refer to clause 11 but on the basis that the reasoning applicable to clause 11 is also applicable to clause 12.
Clause 11 fixes four separate en route charges. In each case the charge is payable on the landing of an aircraft. In each case the charge is "[i]n respect of the use by [such] aircraft of the air route and airways facilities and services operated or provided in Australian territory". In my view, clause 11 is intended to fix charges in respect of the use by an aircraft of the network of air route and airway facilities and services operated or provided in Australian territory. Clause 11 is not intended, in my view, to fix a charge in respect of the use by an aircraft, the landing of which triggers the charge, of only the specific air route and airway facilities and services used by it on the flight resulting in such landing. The charge was, in my view, a charge for the use by the aircraft of any part of the total Australian network of air route and airway facilities and services.
I conclude that so far as the charges created by clause 11 of the determination are concerned, "the matters to which the charge[s] relate" within the meaning of s67 of the Act are the air route and airways facilities and services operated or provided in Australian territory.
It follows from the above considerations, in my view, that any disparity between the actual benefit derived by the particular party required by the determination to pay a charge and the amount of the charge is, in the case of charges fixed by clauses 1, 2, 3, 6, 7, 11 and 12 of the determination, principally an issue for consideration under the second requirement of s67 of the Act. The second requirement of s67 of the Act is that the charge "not be such as to amount to taxation". In other words, it seems to me that the first requirement of s67 of the Act is concerned principally with the amount sought to be raised by each charge while the second requirement is intended to address the relationship between the level of benefit received by the party required by the determination to pay the charge and the amount of the charge required to be paid by that party.
To so understand the first requirement of s67 of the Act seems to me to fit with the expressed intention that it should provide a protection against "surreptitious revenue raising". Issues of fairness between payees of a charge have no necessary connection with the amount of the revenue raised by that charge.
The requirement of s67 of the Act that the amount or rate of a charge "shall not be such as to amount to taxation" is to be understood against the authorities dealing with the nature of a tax.
Latham CJ's description of a tax in Matthews v The Chicory Marketing Board (Victoria) [1938] HCA 38; (1938) 60 CLR 263 at 276 is frequently cited. The Chief Justice there said:
"The levy is, in my opinion, plainly a tax. It is a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered."
A more recent analysis of the nature of a tax appears in the judgment of Gibbs CJ, Wilson, Deane and Dawson JJ in MacCormick v The Commissioner of Taxation of the Commonwealth of Australia [1984] HCA 20; (1984) 158 CLR 622 at 639 where their Honours state:
"The exactions in question answer the usual description of a tax. They are compulsory. They are to raise money for governmental purposes. They do not constitute payment for services rendered ... They are not penalties since the liability to pay the exactions does not arise from any failure to discharge antecedent obligations on the part of the persons upon whom the exactions fall ... They are not arbitrary. Liability is imposed by reference to criteria which are sufficiently general in their application and which mark out the objects and subject-matter of the tax ..."
In Northern Suburbs General Cemetery Reserve Trust v The Commonwealth of Australia [1993] HCA 12; (1993) 176 CLR 555, a case concerning the constitutional validity of the training guarantee charge, the High Court analysed the distinction between a tax and a fee for service. The joint judgment of Mason CJ, Deane, Toohey and Gaudron JJ makes clear at 568 that legislation will not impose a fee for service if it does not "by its terms establish any sufficient relationship between the liability to pay the charge and the provision [of the relevant service] by the ultimate expenditure of the money collected to regard the liability to pay the charge as a fee for services or as something akin to a fee for services". In the same case Dawson J at 587-588 analyses the nature of a fee for service in the following passage:
"The training guarantee charge is clearly a compulsory levy by a public authority ... imposed for public purposes and enforceable by law. Those are the ordinary characteristics of a tax, although there are statutory impositions possessing these characteristics which are not taxes. A penalty is one and a fee for services is another ...
In Air Caledonie International v The Commonwealth [(1988) 165 CLR 462], this Court referred to s.53 of the Constitution which says that a proposed law shall not be taken to impose taxation by reason only of its containing provisions for, amongst other things, the payment of fees for services. It observed:
'In one sense, all taxes exacted by a national government and paid into national revenue can be described as "fees for services". They are the fees which the resident or visitor is required to pay as the quid pro quo for the totality of benefits and services which he receives from governmental services. It is, however, clear that the phrase "fees for services" in s.53 of the Constitution cannot be read in that general impersonal sense. Read in context, the reference to "fees for services" in s.53 should, like the reference to "payment for services rendered" in the ... judgment of Latham C.J. in Matthews v Chicory Marketing Board, be read as referring to a fee or charge exacted for particular identified services provided or rendered individually to, or at the request or direction of, the particular person required to make the payment.'
... A particular employer may derive no more benefit from payments made under training guarantee agreements than is derived by employers or the community in general from having a better trained workforce upon which to draw. The training guarantee charge is not a charge 'exacted for particular identified services provided or rendered individually to, at the request or direction of' the employer required to make the payment. It cannot, therefore, be said to be a fee for services or akin to a fee for services in any sense which would prevent it from being a tax."
TERMINAL NAVIGATION CHARGES
Terminal navigation charges are fixed by clauses 1 and 2 of the determination. In each case the clause fixes a rate of charge to be calculated by reference to the MTOW of the aircraft the landing of which gives rise to the levying of the charge.
The first of the applicants' grounds of complaint against the terminal navigation charges is that the expense incurred or to be incurred by the CAA in providing the terminal navigation services were not, or alternatively, were not reasonably, related to the MTOW of the aircraft in respect of which the services were provided. It was contended on behalf of the applicants that as the MTOW of the landing aircraft was a crucial determinant of the amount of each charge it -
"follows inexorably that the amount or rate of the charges levied by the CAA could not be reasonably related to the expenses incurred or to be incurred in the provision of the services to which the charges relates [sic] unless the expenses were reasonably related to the MTOW of an aircraft using those services".
I have concluded above that the matters to which the terminal navigation charges related, within the meaning of s67 of the Act, were not facilities and services provided to the particular aircraft the landing of which gave rise to the charges, but the facilities and services that the charges were expressed to be "for": i.e. the services and facilities at the aerodromes referred to in column 2 of item 1 of the determination.
In respect to the terminal navigation charges, the first requirement of s67 of the Act, on the view which I have taken, may be expressed as follows: is there a reasonable relationship between a rate of charge calculated by reference to the MTOW of an aircraft landing at an aerodrome specified in Schedule 1 of the determination and the expenses incurred or to be incurred by the CAA in relation to the provision of terminal navigation facilities and services at all such aerodromes?
Nothing in s67 of the Act, in my view, compels a conclusion that the CAA was not entitled to determine a rate of charge in relation to the provision of facilities and services at a number of aerodromes, subject, of course, to the requirements that such rate be reasonably related to the expenses incurred or to be incurred by the CAA in relation to the provision of such facilities and services and not be such as to amount to taxation. That is, in my view, s67 of the Act does not compel location specific charging unless such charging is the only way to meet the explicit requirements of the section.
Dr Fitzgerald gave evidence that for the 45 aircraft types used in Australian airways there is a high rate of correlation between number of seats and either MTOW or its square root, with the correlation to the square root of MTOW being higher for aircraft heavier than 20,000 kgs. All aircraft flown by Compass Airline were heavier than 20,000 kgs. Indeed, as I understand the evidence, either all, or virtually all, avtur aircraft are heavier than 20,000 kgs. In my view, a charge may be "reasonably related" to certain expenses without necessarily bearing the closest possible relationship to such expenses.
The issue for present purposes, in my view, is whether a rate of charge which has the effect that, in respect of each potential passenger in an aircraft, an amount is payable which is reasonably related to the expenses incurred or to be incurred by the CAA in relation to the matters to which the charge relates, is a rate of charge reasonably related to such expenses. Having regard to the priority given by the Act to air safety, I consider that it is.
It was contended on behalf of the applicants that the "objective of maintaining a constant rate of charge per passenger inevitably means that charges will not reasonably relate to costs". Costs, it was contended, are incurred by reference to aircraft and not passenger numbers, and as the number of passengers in an aircraft increases, the cost per passenger decreases correspondingly. The answer to this contention, in my view, is that the terminal navigation charges were not expressed by the determination to be charges in relation to the use of terminal navigation facilities and services by a particular aircraft. They were expressed to be charges in relation to the provision of terminal navigation facilities and services at 32 different aerodromes. In this regard it is, in my view, significant that the applicants did not dispute that s66(2AA) of the Act would have allowed the CAA to determine that its charges were payable by airline passengers individually.
The second of the applicants' complaints against the terminal navigation charges is, as I understand it, that the difference between the rates specified by clause 1 and clause 2 of the determination respectively was determined arbitrarily and without reference to the expenses incurred or to be incurred by the CAA in providing an aerodrome control service. It seems likely that this plea was formulated at a time when the true import of clause 2 of the determination was not clear to the applicants. It was not pressed in submissions. I will not consider it further.
The third of the applicants' complaints with respect to the terminal navigation charges was that they applied to avtur aircraft and no equivalent charge applied to non-avtur aircraft other than when landing at the capital city aerodromes.
As to the payments in respect of landings at the capital city aerodromes of non-avtur aircraft of charges for terminal navigation services and facilities at such aerodromes, it was contended on behalf of the applicants that the levying of such charges indicates that there must have been expenses incurred by the CAA in respect of the provision of such services to non-avtur aircraft.
On behalf of the respondent it was contended that the cost of providing terminal navigation services to non-avtur aircraft at aerodromes other than the capital city aerodromes was recovered by CAA by way of the avgas excise.
The evidence of Mr Barnes was that a proportion of the funds raised by the avgas excise was attributed to terminal navigation services. His evidence, supported by documentary evidence, was that from 1987 the avgas excise was increased specifically to provide a credit against the cost of providing terminal navigation services and rescue and fire fighting services to avgas aircraft, plus airport services at those airports where there were no specific charges for the use of these services and facilities. Mr Barnes explained that in 1987 for a period of three months actual landings of all aircraft, avtur and non- avtur, at airports where there were rescue and fire fighting services and/or terminal control towers were recorded. The proportions of the revenue received by the CAA from the avgas excise attributed to terminal navigation services and rescue and fire fighting services were determined thereafter on the basis of the 1987 study, although the proportion was at one stage varied to take account of the fact, as I understand his evidence, that the rescue and fire fighting service to non-avtur aircraft at the capital city airports was not be funded from avgas excise revenue. There is no evidence, however, that the proportion of avgas excise revenue attributed to terminal navigation facilities and services in any way reflected the actual costs of the CAA of the provision of such facilities and services to avgas aircraft. As is mentioned above, Mr Barnes' opinion, which I accept as accurate, is that it was not reasonably possible to say that any proportion of the cost of terminal navigation related to non-avtur aircraft separately from avtur aircraft.
Mr Barnes' evidence was that the funds arising from the avgas excise which were attributed to terminal navigation facilities and services were deducted from the CAA's estimated costs of providing such facilities and services before the terminal navigation charges were determined. Having regard to the apparent purpose of the first requirement of s67 of the Act, I am not satisfied that the failure of the CAA to determine a terminal navigation charge to apply to non-avtur aircraft landing at aerodromes other than the capital city aerodromes has the result that the rate of charge established by either clause 1 or clause 2 of the determination is not reasonably related to the expenses incurred or to be incurred by the CAA in relation to the matters to which such charges relate.
The fourth ground of attack on the terminal navigation charges was based upon the failure of the determination to provide for a reduced rate of terminal navigation charge for non-avtur aircraft when an aerodrome control service was not available at the time of the landing in respect of which the charge was levied. Non-avtur aircraft only pay for terminal navigation charges under the determination in respect of landings at the capital city aerodromes. There was no evidence that aircraft, avtur or non-avtur, ever land at such aerodromes without an aerodrome control service being operational. This ground of attack was not pressed on behalf of the applicants.
The fifth ground of attack on the terminal navigation charges was that the expenses incurred or to be incurred by the CAA in providing terminal navigation services differed substantially between aerodromes but the rate of the charge did not differ between aerodromes at which such charge was levied. I accept such expenses did differ in the way asserted. I have concluded above that s67 of the Act does not require location specific charging. As is mentioned above, I regard "the matters to which the charge [fixed by each of clauses 1 and 2 of the determination] relates" as the provision of terminal navigation facilities and services at the aerodromes specified in Schedule 1 of the determination. I do not consider that the fact that the expenses of the CAA in providing terminal navigation services and facilities at the individual aerodromes specified in Schedule 1 varied between aerodromes has the legal consequence that the charges fixed by clauses 1 and 2 of the determination were not reasonably related to such matters.
The second requirement of s67 of the Act, namely that a charge "should not be such as to amount to taxation" is considered below.
RESCUE AND FIRE FIGHTING CHARGES
The applicants' first ground of attack on the rescue and fire fighting charge fixed by clause 3 of the determination was that it was not reasonably related to the MTOW of the aircraft in respect of which the services were provided. My reasoning with respect to the parallel ground of attack on the terminal navigation charges is equally applicable to this charge. The ground cannot be upheld.
The applicants' second ground of attack relates to the differences in costs involved in providing rescue and fire fighting services at different aerodromes. Again, for the reasons given in respect of the parallel attack on the terminal navigation charges, this ground cannot be upheld.
The applicants' third ground of attack relates to the fact that non- avtur aircraft were only required to pay a rescue and fire fighting charge at the capital city aerodromes. This ground also must fail for the same reasons as are given above in respect of the parallel challenges to the terminal navigation charges.
The second requirement of s67 of the Act, namely that a charge "should not be such as to amount to taxation" is considered below.
EN ROUTE CHARGES
The applicants' first ground of attack on the en route charge was that the charge was determined by reference to, amongst other things, the MTOW of an aircraft, and that since the expenses incurred or to be incurred by the CAA in providing en route services were not, or alternatively were not reasonably, related to the MTOW of the aircraft in respect of which the charge was levied, the charge did not reasonably relate to such expenses.
It is not suggested on behalf of the respondent that the cost of providing en route facilities and services to an aircraft is dependent on the MTOW of the particular aircraft. It is, however, suggested, and I accept, that the majority of air traffic services are provided to aircraft in controlled airspace which are predominantly RPT aircraft, and that the more expensive en route facilities and services are provided for larger aircraft and not for GA aircraft.
The en route charge is fixed by clause 11 of the determination. I have given above my reasons for concluding that the matters to which the charge fixed by clause 11 of the determination relates are the use by a particular aircraft of the facilities and services referred to in the clause, namely, the use by the aircraft of air route and airways facilities and services operated or provided in Australian territory.
In respect of the en route charge, the first requirement of s67 of the Act, on the view which I have taken, may be expressed as follows: is there a reasonable relationship between a rate of charge calculated by reference to the MTOW of an aircraft and the expenses incurred or to be incurred by the CAA in relation to the use by that aircraft of air route and airways facilities and services operated or provided in Australian territory? There is no challenge by the applicants (other than in respect of the 7.5% planned rate of return on assets and the allocation of system overheads) to the appropriateness of the total revenue generated by the en route charges. I have referred above to the evidence of Dr Fitzgerald that for 45 aircraft types used in Australian airways there is a high correlation between number of seats and either MTOW or its square root, with the correlation to the square root of MTOW being higher for aircraft heavier than 20,000 kgs.
As in the case of the terminal navigation charges, I conclude that a rate of charges which has the effect that, in respect of each potential passenger in an aircraft, an amount is payable which is reasonably related to the expenses incurred or to be incurred by the CAA in relation to the matters to which the charge relates, is a rate of charge reasonably related to such expenses. The reference in clause 11 of the determination to "the use by an aircraft of air route and airways facilities and services" does not, in my view, affect this conclusion. The use referred to is a use of a portion of the total range of such facilities and services operated or provided in Australian territory.
The applicants' second ground of attack on the en route charges was based upon differences between the expenses incurred by the CAA in providing en route services in respect of different air routes and airways. The charges fixed by the determination do not differentiate between different domestic air routes and airways. Again, in my view, this is an issue to be considered under the second limb of s67 of the Act, not under the first limb.
The applicants also mounted an attack on the en route charges by reference to the different rate of charge fixed for flights between two aerodromes in Australia as compared with the rate fixed between a place outside Australian territory and a place in Australian territory. An explanation for this differential was given by Dr Fitzgerald as follows:
"there are two distinct main groups of international routes for aircraft flying into (or out of) Australia, and hence using the Authority's en route services. One group comprises routes from South- East and East Asia, flying over the Northern or North-Western coasts of Australia and toward Sydney, Melbourne, Brisbane or Adelaide. The other group comprises routes across the Pacific to Australia. In the latter case, very few en route services ... are provided, while in the former case relatively more such services are available, since the international flights pass over Australian domestic ground-based aids, most densely distributed in the South-East. ...
For administrative simplicity, the Authority averaged the costs of en route service for these two groups of international routes and set one charge on a single formula (collected on landing) for all en route services to aircraft flying on international routes."
Under cross examination Dr Fitzgerald appeared to qualify the above explanation by suggesting that the history of prior charging, which reflected an excise once charged on aviation turbine kerosene, had at least an equal impact on the rate of the international en route charge.
Mr Barnes gave evidence that in the early part of the 1988 year an exercise had been undertaken to identify the marginal cost of services provided specifically for international flights and that that exercise provided the basis for the amount sought to be recovered by the international en route charges. Mr Barnes said that such charges were "intended to recover the additional costs which could be reasonably be related to international flights, which was the full costs of air traffic control dealing with offshore airspace sectors and a reasonable share of communications costs that were used primarily by aircraft on international routes".
To the extent that there is a conflict between the evidence of Dr Fitzgerald on this topic and that of Mr Barnes I prefer the evidence of Mr Barnes who has first hand knowledge of the operations of the CAA and was directly involved in the fixing of CAA charges. Having regard to Mr Barnes' evidence on this topic, and the evidence of Dr Fitzgerald to the extent that it is not in apparent conflict with that of Mr Barnes, I am satisfied that the rates of charge fixed by the determination in respect of international en route charges were not such as to invalidate the rates of charge fixed for domestic en route charges. That is, I am satisfied that the rates fixed for international en route charges did not have the consequence that the rates fixed for domestic en route charges did not reasonably relate to the expenses incurred or to be incurred by the CAA in relation to the matters to which the domestic en route charges related.
The second requirement of s67 of the Act, namely that a charge "should not be such as to amount to taxation" is considered below.
METEOROLOGICAL CHARGES
The Applicants' first ground of attack on the meteorological charges was that the charges were determined by reference to, amongst other things, the MTOW of an aircraft, and that since the expenses to be incurred by the CAA in providing meteorological services were not, or alternatively were not reasonably, related to the MTOW of the aircraft in respect of which the charge was levied, the charge did not reasonably relate to such expenses.
Mr Barnes gave evidence that by 1991 the CAA's costs in relation to meteorological services consisted of a single item invoice issued each six months by the Bureau of Meteorology.
A debit advice note from the Bureau of Meteorology to the Secretary of the CAA dated 10 January 1991 is in evidence. It confirms Mr Barnes' evidence. It shows a debit of $9,299,500.00 being for "Meteorological Services - expenditure incurred by the Bureau of Meteorology on behalf of Civil Aviation Authority for the half year period of 1/7/90 - 31/12/90".
Mr Barnes further gave evidence that part of the CAA's costs with respect to meteorological charges was defrayed by an allocation of part of the avgas excise towards the meeting of the cost of invoices from the Bureau of Meteorology.
Mr Barnes explained the basis upon which the CAA sought to justify determining meteorological charges by reference to the MTOW of an aircraft as follows:
"The use of MTOW and the square root of MTOW as determinants of the charge reflected, first, international practice as sanctioned by the ICAO; and secondly, the fact that the meteorological services provided included services which were used virtually exclusively by a large regular passenger transport aircraft (for example high altitude weather information and forecasts)."
Meteorological charges are fixed by clause 12 of the determination. The introductory words of clause 12 follow the same pattern as that adopted in the case of clause 11 of the determination. That is, in my view, the matters to which the charges fixed by clause 12 relate are the meteorological facilities and services operated or provided in Australian territory. For the reasons given above in respect of the terminal navigation and en route charges, I conclude that the rates of charge fixed by clause 12 of the determination do not offend s67 of the Act by reason only of the fact that they incorporated the MTOW of aircraft as a multiplier.
The applicants further attacked the meteorological charges on the basis that meteorological services were used more frequently and more extensively by aircraft with a lower MTOW than by aircraft with a higher MTOW. To the extent that the number of GA aircraft flights in Australia greatly exceeds the number of RPT aircraft flights I accept that this is so. The evidence does not, however, demonstrate to my satisfaction that individual GA aircraft use meteorological services more frequently and more extensively than individual RPT aircraft.
I accept the evidence of Mr Dear that the bulk of the infrastructure of the Bureau of Meteorology which relates specifically to the provision of services to the aviation industry is designed to provide the high level of service required by the large RPT aircraft. The cost which the Bureau of Meteorology recovers from the CAA is, on the evidence, the incremental cost of providing services over and above the level of service provided to the public in the public interest and funded through Federal Government appropriation. As mentioned above, Mr Dear gave evidence that most meteorological services required by GA and other small aircraft are covered by low level area forecasts or by forecasts prepared by the Bureau of Meteorology as part of its general services provided for the general public.
In my view, the determination does not offend the first requirement of s67 of the Act by reason only of its being designed to recover the bulk of the cost to the CAA of the provision of meteorological services from larger RPT aircraft notwithstanding the heavy use by GA aircraft (by reason of their large numbers) of meteorological services.
The applicants grounded a further attack on the meteorological charges upon the differential established by clause 12 of the determination between meteorological charges for domestic flights and domestic legs of international flights and international flights.
Mr Barnes gave evidence, which I accept, that aircraft on international routes were only charged in relation to flights terminating in Australia for administrative simplicity, but that such charge covered both the inward and the outward flights. The adoption of this administrative procedure does not, of itself, in my view, offend any aspect of s67 of the Act.
Only limited evidence was called as to the manner in which the meteorological charges for international flights were fixed. Mr Barnes gave evidence that they were fixed at a figure which reflected the proportion of the old en route charges in respect of international aircraft which related to meteorological services. His evidence was that the determination was the first which included a separate charge for meteorological services. Nothing in the evidence indicates how the proportion of the old en route charge which related to meteorological services was determined. The contention made on behalf of the applicants is, in effect, that there is no justification for the lower rates of meteorological charges in respect of international flights, and that the rates of charges fixed in respect of domestic flights were therefore not reasonably related to the expenses incurred or to incurred by the CAA in relation to the matter to which the charges relate, as such charges resulted in domestic operators subsidising international operators on international flights.
Mr Gemmell's concession that in 1991 the CAA would have been unable to work out the cost of providing meteorological information to particular users, by which I understand him to include particular categories of users, and the failure of any witness to articulate a rationale for the differential between the meteorological charges paid in respect of international flights and domestic flights suggests against such charges bearing a reasonable relationship to the expenses incurred by the CAA in relation to the matters to which the charges relate. The applicants' attack on the meteorological charges assessed against Compass Airline, in my view, succeeds on this ground.
The second requirement of s67 of the Act, namely that a charge "should not be such as to amount to taxation" is considered below.
CHARGES GENERALLY
As to each of the charges, the applicants contended that it was not reasonable for the CAA to include a rate of return on the level of assets or funds employed by the CAA as at the commencement of the financial year 1991-92. It was not contended that if it were legitimate for the CAA to fix charges so as to achieve a rate of return on its assets, the chosen rate of 7.5% was inappropriate. I have considered the applicant's argument with respect to a return of the CAA's assets above when considering the proper construction of s67 of the Act. For the reasons there given I reject the contention.
The applicants further contended that it was not reasonable for the CAA to allocate all indirect and support costs to particular operational functions to determine the costs of providing particular services.
It is only in respect of ATS costs that the evidence supports the allegation that the CAA allocated indirect and support costs to particular operational functions without regard to the extent to which the relevant support functions supported particular operational functions. Dr Fitzgerald gave evidence in support of the decision of the CAA to make a distinction between terminal navigation services and facilities and en route services and facilities in determining charges. He said of such decision:
"However it does entail the allocation of substantial joint costs, particularly system overheads, which in 1991 - 92 accounted for 53 per cent of ATS total (fully absorbed) costs, before return on assets and 56 per cent of ATS costs after including the budgeted return on assets.
The allocation was done for 1991-92 by attributing all systems overheads to ER, on the judgment that this would minimise the impact on usage patterns, i.e. on Ramsey principles, resulting in approximately 80 per cent of ATS total costs being attributed to ER."
Dr Fitzgerald pointed out that where there are joint costs in providing two services, such costs may have to be incurred in full even if only one of those services is actually provided. No evidence was called to suggest that such was not the case here. For this reason, and having regard to the fact that in respect of each aircraft landing a terminal navigation charge and an en route is payable, I am not satisfied that the allocation of the indirect and support costs of the ATS to the en route charges had the result that such charges were not reasonably related to the expenses incurred or to be incurred by the CAA in relation to the matters to which the charges related.
DID THE CHARGES AMOUNT TO TAXATION?
It was contended on behalf of the applicants that each of the charges failed reasonably to relate to the expenses incurred or to be incurred by the CAA in relation to the matters to which that charge related and was for that reason such as to amount to taxation. It was further contended that the CAA purported to collect the charges from the applicants, who were not persons who had received the benefit of the relevant facilities and services to which the charges related, and for that reason also the charges were such as to amount to taxation.
I am satisfied that each of the charges fixed by the determination is to be characterised as a "tax" unless it can properly be seen as a payment for services rendered. Each of them involved a compulsory exaction of money under statutory power. Although it is not strictly material, the CAA was, in my view, in the relevant sense, a public authority which collected the charges for the public purpose of fulfilling its statutory functions in the public interest. The charges do not fall within any of the categories of fees or charges (other than a payment for services rendered) which stand outside the concept of a tax (Air Caledonie International v The Commonwealth of Australia (1988) 165 CLR 462 at 467; Australian Tape Manufacturers Association v The Commonwealth of Australia (1993) 177 CLR 480 at 501 and 507).
As the High Court pointed out on the Air Caledonie Case at 467:
"... a compulsory and enforceable exaction of money by a public authority for public purposes will not necessarily be precluded from being seen as a tax merely because it is described a 'fee for services.' If the person required to pay the exaction is given no choice about whether or not he acquires the services and the amount of the exaction has no discernible relationship with the value of what is acquired, the circumstances may be such that the exaction is, at least to the extent that it exceeds that value, properly to be seen as a tax."
It was not here suggested that Compass Airlines had any real choice about whether or not to utilize the services and facilities for which the charges were determined.
In Northern Suburbs General Cemetery Reserve Trust v The Commonwealth of Australia [1993] HCA 12; (1993) 176 CLR 555 the High Court gave consideration to the charge imposed on employers by the Training Guarantee Act 1990 (Cth), Dawson J at 588 said:
"the employees of an individual employer upon whom the charge is levied might or might not benefit from a training program financed by a State or Territory. If a training program may be characterised as a service it is not a particular service rendered to a particular employer by reference to the charge levied upon him. A particular employer may derive no more benefit from payments made under training guarantee agreements than is derived by employers or the community in general from having a better trained workforce upon which to draw. The training guarantee charge is not a charge 'exacted for particular identified services provided or rendered individually to, at the request or direction of' the employer required to make the payment. It cannot, therefore, be said to be a fee for services or akin to a fee for services in any sense which would prevent it from being a tax."
I turn first to consider the terminal navigation charges. The evidence establishes that the expenses incurred or to be incurred by the CAA in 1991-92 in providing terminal navigation services differed substantially between aerodromes. Compass Airlines did not land aircraft at all of the aerodromes specified in Schedule 1 of the determination. The requirement that it pay terminal navigation charges had the effect of requiring it to contribute to the CAA's expenses in respect of terminal navigation facilities and services at all such aerodromes.
Compass Airlines is likely to have derived some benefit from the provision of terminal navigation facilities and services at most if not all of the aerodromes specified in Schedule 1. The smooth operation of all Australian aerodromes, including those at which Compass Airlines did not land, may be presumed to encourage air travel in Australia and to facilitate passenger arrivals at aerodromes at which Compass Airlines did land. However, in the circumstance that Compass Airlines aircraft used such facilities and services at only some such aerodromes, was the relationship between the value which it acquired and the amount of the charges which it was required to pay such as to prevent the charges being characterised as taxes?
I conclude, having regard to the evidence given by the witnesses called on behalf of the respondent, and in particular the evidence of Dr Fitzgerald, that the method of calculation of the terminal navigation charges was determined on a basis which gave significant weight to issues of "price sensitivity" and "economic capacity to pay".
In particular I conclude that significant weight was given to the lesser "price sensitivity" and greater "economic capacity to pay" of operators of large aircraft when compared with the operators of smaller aircraft. The authorities seem to me to make it plain that whilst such matters may be relevant for consideration by taxation authorities, they do not provide an appropriate basis for the determination of a fee for services - at least where the party required to pay has no choice about whether to acquire the services.
That is, in my view, the fact that the level of the terminal navigation charges was determined by reference to the costs of maintaining facilities and services at 32 aerodromes whilst Compass Airlines aircraft landed at only six of those aerodromes, means that a "discernible relationship", as that expression was used by the High Court in the Air Caledonie case, between the amount of the charges and the value of the relevant facilities and services to Compass Airlines is not, in my view, able to be identified.
No party suggested that if I should conclude that there was no discernible relationship between the value to Compass Airlines of terminal navigation facilities and services provided to it and the terminal navigation charges which it was required to pay, I ought to attempt to put a value on the terminal navigation facilities and services which it did receive (see the Air Caledonie International Case at 467). In any event, evidence was not presented upon which I could attempt such a task.
I conclude that the terminal navigation charges were "such as to amount to taxation" and thus determined in contravention of the second requirement of s67 of the Act.
The rescue and fire fighting charges required Compass Airlines to contribute to the CAA's expenses in respect of rescue and fire fighting services at each of the aerodromes specified in Schedule 2 of the determination, i.e. at 21 aerodromes although Compass Airlines aircraft landed at only six such aerodromes. The costs of providing rescue and fire fighting services at aerodromes differed significantly between aerodromes. Again I conclude that significant weight was given in the process of fixing the method of calculating such charges to "price sensitivity" and "economic capacity to pay". For the reasons given above in respect of the terminal navigation charges, I conclude that the rescue and fire fighting charges were "such as to amount to taxation" and thus determined in contravention of the second requirement of s67 of the Act.
As to the en route charges, they are expressed by the determination to be charges "[i]n respect of the use by an aircraft of air route and airways facilities and services operated or provided in Australian territory." I accept the evidence called on behalf of the respondent that the more expensive en route facilities and services are put in place for the bigger aircraft and not for small GA aircraft, although they are available for use by small GA aircraft. I further accept that such evidence is sufficient to justify a differential in the rates of charges fixed for larger aircraft and for small aircraft respectively. The failure to fix a domestic en route charge for non-avtur aircraft in large part achieves this differential. Non-avtur aircraft on domestic flights make a contribution to the expenses of the CAA in respect of en route facilities and services via the avgas excise.
It was conceded on behalf of the respondent that the expenses incurred by the CAA in providing en route facilities and services differed substantially across air routes and airways. Yet Compass Airways was required to pay en route charges determined by reference to the expenses incurred by the CAA in providing such facilities and services in respect of air routes and airways which its aircraft did not utilise. As in the case of the terminal navigation charges, I conclude that the en route charges were determined having regard to issues of "price sensitivity" and "economic capacity to pay".
For the reasons given above, I conclude that the en route charges were "such as to amount to taxation" and thus determined in contravention of the second requirement of s67 of the Act.
I have concluded above that the meteorological charges were determined in contravention of the first requirement of s67 of the Act. I accept the evidence of Mr Gemmell that in 1991-92 the CAA would have been unable to work out the cost of providing meteorological information to particular users. It follows from this, as I understand him, that it was also impossible for the CAA to work out the cost of providing meteorological information to the various categories of users or to different aircraft types. Yet the meteorological charges fixed by the CAA differed depending upon the category into which the user fell (e.g. domestic and international) and required such charges to be calculated by reference to the MTOW of the relevant aircraft. I conclude that the amount for the meteorological charges required to be paid by Compass Airlines had no "discernible relationship" to the value which it gained from the provision of such services to its aircraft.
I conclude that the meteorological charges were "such as to amount to taxation" and thus determined in contravention of the second requirement of s67 of the Act.
It is unnecessary for me to consider the alternative argument of the applicants that the CAA purported to collect the charges from the applicants who were not persons who had received the benefit of the relevant facilities and services, and for that reason the charges amounted to taxation (see the Air Caledonie International Case at 472).
SECTION 55 OF THE CONSTITUTION
The requirement of s67 of the Act that charges under the Act "not be such as to amount to taxation" has the consequence, in my view, that there is no scope for the operation of s55 of the Constitution so far as the charges are concerned.
CONCLUSIONS
In view of my conclusion that each of the charges was determined in contravention of s67 of the Act, it necessarily follows that the determination itself, so far as it fixed such charges, was ultra vires. There were, therefore, no relevant charges "payable in respect of an aircraft" within the meaning of s69 of the Act so far as Compass Airlines was concerned. As a consequence, in my view, the statutory liens under s69 of the Act purportedly vested in the CAA in respect of the aircraft were of no force or effect.
In the circumstances it is not necessary for me to consider the alternative arguments of the applicant that, in the circumstances of these cases, the operation of Division 2 of Part VI of the Act was to effect an acquisition by the CAA otherwise than on just terms of property of the applicants in the aircraft.
I will hear counsel as to the appropriate orders to be made in the light of these reasons for decision.
I certify that this and the preceding ninety eight (98) pages are a true copy of the reasons for judgment of the Honourable Justice Branson.
Associate:
Date:
Counsel for the applicants: Mr J.C. Campbell QC
with Dr A.S. Bell
Solicitors for the applicants: Allen Allen & Hemsley
Counsel for the respondent: Mr D.J.S. Jackson QC
with Mr J.C. Sheahan
and Mr K.A. Barlow
Solicitors for the respondent: Mallesons Stephen Jaques
Hearing dates: 17-21, 24-26 June 1996
GLOSSARY OF TERMS
1. ATS Air Traffic Services
2. avgas aviation gasoline
3. avtur aircraft an aircraft powered by an engine or engines using aviation turbine kerosene
4. CAA Civil Aviation Authority
5. Chicago Convention Convention on International Civil Aviation (Chicago, 7 Dec 1944), the protocols amending and the annexes to it relating to international standards and recommended practices being annexes adopted in accordance with that convention
6. GA aircraft general aviation aircraft
7. MTOW maximum take-off weight
8. non-avtur aircraft aircraft other than an avtur aircraft
9. RPT aircraft regular passenger transport aircraft
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