Legal Briefing No. 53

Number 53

(14 December 1999)

Fees for Service and their Recovery

Airservices Australia v Canadian Airlines
International Ltd

Commonwealth authorities charged with providing services
on a commercial basis may have more flexibility in setting
their fees following the decision of the High Court in Airservices
Australia v Canadian Airlines International Ltd.[1]

The decision also confirms that Commonwealth authorities
may, at least in some circumstances, be given statutory
liens operating against the property of third parties to
enable them to recover unpaid fees, without infringing
the constitutional requirement that acquisitions of property
must be on just terms.

Issues

Validity of Charges

The case raised the issue of the validity of charges payable
under the Civil Aviation Act 1988 ('the Act') for
the use by aircraft operators of air route and airport
services and facilities, including air traffic, rescue
and firefighting services. At the relevant time the Act
provided for the Civil Aviation Authority ('the Authority')
(now Airservices Australia) to make determinations fixing
the charges and, in s.67, provided:

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.

On appeal to the High Court from the Full Federal Court
the questions in relation to the charges were whether they
were 'fees for services' which therefore did not amount
to 'taxation' and, if it were a separate requirement, whether
the charges were reasonably related to the expenses of
the Authority. The respondents argued that the amounts
of the charges did not comply with s.67 because they were
not sufficiently related to the costs to the Authority
in providing particular services to particular users. In
particular, they argued that there was an insufficient
relationship because the pricing structure:

  • was based on the costs of maintaining the Authority's
    Australia-wide network of services and did not vary according
    to the airport used (even though the costs to the Authority
    varied on that basis)
  • included an element of differentiation between users
    on the basis of price sensitivity and economic capacity
    to pay; and
  • included a component to cover a 7.5% rate of return
    on assets.

The appeal also raised a question as to the validity of
provisions of the Act which allowed for the vesting in
the Authority of a statutory lien over an aircraft in circumstances
where a charge in respect of that aircraft remained unpaid
(ss.68-83). Once a statutory lien was imposed, the Authority
could, within specified periods, cancel the registration
of the aircraft, seize the aircraft, or sell the aircraft.
The lien was discharged on the payment of the charges.

In this case the liens provisions operated to allow recovery
of charges and penalties incurred by Compass Airlines Pty
Ltd ('Compass') (which had gone into liquidation) from
the respondent owners of the aircraft leased by Compass
(who paid the charges under protest to discharge the liens).
The respondents argued, however, that the liens provisions
were invalid because they operated to acquire their property
on other than just terms contrary to s.51(xxxi) of the
Constitution. They also argued that the Commonwealth Parliament's
legislative power did not extend to enacting the liens
provisions to the extent that they operate against 'innocent'
third parties such as the respondents.

Both at first instance and on appeal, the Federal Court
held that the charges were invalid and did not determine
the question as to the validity of the liens provisions.
Airservices Australia appealed to the High Court from the
judgment of the Full Federal Court. The Attorney-General
of the Commonwealth intervened in the appeal to support
the validity of the charges and the liens provisions.

The High Court's Decision

The High Court, by majority, allowed the appeal. Gleeson
CJ and Kirby J (in a joint judgment) and Gaudron, McHugh,
Gummow and Hayne JJ (in separate judgments) held that the
charges were valid. They held that the amounts of the charges
were reasonably related to the expenses of the Authority
and were fees for services which did not amount to taxation
(which they treated as separate requirements under s.67
of the Act). Callinan J (in a further separate judgment)
did not decide these issues.

Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ also upheld
the validity of the liens provisions. Gaudron and Callinan
JJ found the liens provisions to be invalid.

Aeronautical Charges Taxation

Significance of the Taxation/fees for Services Distinction

In constitutional contexts, 'taxation' has been held not
to include a fee for services and the 6 members of the
High Court who considered the issue of the validity of
the charges held or assumed that 'taxation' in s.67 also
did not include a fee for services. In the present case
the issue of whether the charges were fees for services
was relevant to whether the charges were authorised by
s.67. The question will also arise in similar contexts
where legislation authorises the imposition of 'fees' or 'fees
not amounting to taxation'.

The taxation/fees for services distinction will also be
significant in other contexts, for example, for the purposes
of determining whether legislation infringes certain formal
provisions of the Constitution, such as s.55 which contains
requirements for the form in which tax laws must be enacted,
including the requirement that laws imposing taxation shall
deal only with the imposition of taxation.

Approaches Taken in the Judgments

The 6 judges who found that the determination of charges
under s.67 of the Act was valid found that the fees were
fees for services rather than taxes despite:

  • being based on the costs of maintaining a network
    of services as a whole, not all of which were used by
    particular users
  • being imposed on the basis of a pricing structure
    which discriminated between users and which therefore
    did not reflect a discernible relationship between the
    amount charged to a user and the value of the service
    to a user on a particular occasion or the cost of providing
    it, and
  • including a profit component.

There were some significant differences in emphasis among
the various judgments.

Gleeson CJ and Kirby J described the issue whether a charge
was a fee for services as essentially one of characterisation,
which was not based upon any one particular factor. The
factors which were considered significant in the present
case were:

  • the charges were not imposed to raise revenue
  • the charges were undoubtedly charges for the provision
    of services and facilities
  • the charges were imposed to recover the cost of providing
    services and facilities across the entire range of users
  • the charges for categories of services were reasonably
    related to the expenses incurred in relation to the matters
    to which the charges related
  • the services and facilities were, of their nature,
    part of an activity (air services) which must be highly
    integrated to be effective
  • there was a rational basis for the discrimination
    between users.

Gaudron J (with whom Hayne J agreed on this point) took
a similar characterisation approach, but placed particular
emphasis on the fact that the services had a commercial
value and were to be provided on a commercial basis. Her
Honour also regarded as significant the fact that the charges
were levied at a rate calculated to defray the cost of
those services as a whole, together with a profit to cover
future infrastructure requirements and to satisfy the Commonwealth's
commercial expectations with respect to its capital investment.
In her Honour's view, in such a context, charges which
applied differently to different users and reflected neither
the cost nor the value of the particular services could
be characterised as fees for services if:

  • they are levied only against persons who use the services
  • they are levied against all such users, and
  • there is a commercial justification for discriminating
    between different users.

These conditions were satisfied in the present case.

McHugh J also took a flexible approach but placed particular
emphasis on the requirement that a fee for service must
not have a revenue-making purpose. In his Honour's view:

  • where services are provided by a public authority
    with a natural monopoly and the statutory context and
    surrounding circumstances fail to indicate a revenue-making
    purpose, the lack of a discernible relationship between
    the value (or cost) of a particular service does not
    indicate that the charge is a tax
  • the absence of a revenue-making purpose can be inferred
    from various factors, and in the present case, from the
    following:
    • the services were provided by a statutory authority
      which had as one of its statutory functions the
      provision of those services or services of that
      general type
    • the position of the statutory authority in providing
      the services approximated that of a natural monopolist
    • the statutory authority was expressly or impliedly
      directed under statute to recover the costs of
      providing those services from the users of those
      services
    • the statutory authority had a large degree of
      financial independence from the executive government
      and was intended to operate on a commercial basis
    • the pricing structure which gave rise to the
      lack of a discernible relationship between the
      value of those services was a reasonably and appropriately
      adapted means of achieving a legitimate public
      purpose (other than revenue-raising) which was
      related to the functions, powers or duties of the
      statutory authority.
  • where the total charges recovered for providing the
    services exceeds the total cost of providing the services,
    a rebuttable presumption arises that the pricing structure
    is employed for a revenue-making purpose. However, the
    profit component in the present case did not have a revenue-making
    purpose but rather was designed to allow the Authority
    to provide the services in question while minimising
    the opportunity cost to the Commonwealth.

Gummow J emphasised the fact that the present case related
to common services which were provided to a user group
and which had an interconnected cost structure and also
the changes to governmental arrangements which required
the provision of services on a user-pays basis.

  • In such a context, there was no requirement that a
    discernible relationship exist between the amount charged
    to a user and the provision of particular services to
    the user.
  • However, the pricing structure had to be a 'reasonably
    and appropriately adapted means of achieving a legitimate
    public purpose'.
  • The means may not be reasonably and appropriately
    adapted if:
    • the total revenue raised by each charge exceeds
      the total costs necessarily, or reasonably, incurred
      or to be incurred in providing the services in
      a financial period (making allowance for a reasonable
      rate of return on capital), or
    • the functions of the authority to which the
      legitimate public purpose relates are not substantially
      for the benefit of the user group subject to the
      charges.

General Conclusions

The judgments confirm that fees for services must be in
respect of services (although the services may be compulsory
or practically compulsory) and that their relationship
with costs is an important, but not the exclusive factor,
in their characterisation as fees for services, especially
where the provider of the services has a statutory monopoly
on the provision of the services. The relationship to costs
can, however, be manifested at the user group level, at
least where the services are highly integrated.

A profit component, at least insofar as it does not have
a revenue-raising purpose and merely allows for a reasonable
rate of return on capital or future infrastructure requirements,
does not prevent the charges from being characterised as
fees for services.

The judgments all allow a degree of flexibility in fixing
charges for particular users or classes of users. The constraints
on this pricing flexibility are variously expressed - 'a
rational basis for discrimination' (Gleeson CJ and Kirby
J); 'a commercial justification for discriminating between
different users' (Gaudron and Hayne JJ); 'reasonably and
appropriately adapted means of achieving a legitimate public
purpose' (McHugh and Gummow JJ).

Statutory Liens and Acquisitions of Property

Section 51(xxxi) of the Constitution provides that the
Commonwealth Parliament has power to make laws for the
acquisition of property on 'just terms' (i.e. on payment
of compensation). If a law involves an acquisition of property
to which s.51(xxxi) applies, it will be invalid unless
it makes provision for 'just terms'.

The Court's Conclusions

All judges accepted that the imposition of a statutory
lien involves an acquisition of property, even before the
Authority actually takes steps to seize or sell the aircraft.
The majority judges held, however, that the liens provisions
did not involve an acquisition of property to which s.51(xxxi)
of the Constitution applied, i.e. it was not necessary
to provide just terms.

The majority judges held that the liens provisions were
not s.51(xxxi) laws but rather laws within the interstate
and overseas trade and commerce power in s.51(i) of the
Constitution and possibly also the external affairs power
in s.51(xxix) of the Constitution. The charges and penalties
in respect of which the liens were imposed related to services
provided by the Authority to aircraft engaged in interstate
and overseas trade and commerce. Australia was also obliged
by treaty to provide these services. The statutory liens
were imposed over an aircraft as a means of recovering
unpaid charges and penalties incurred by the use of that
aircraft.

As was the case with the taxation/fees for services issue,
there were some differences in how the majority judges
reached the conclusion that the liens provisions were valid.

Approaches Taken in the Judgments

Gleeson CJ and Kirby J relied on dicta of Brennan
CJ in Mutual Pools Staff Pty Ltd v The Commonwealth[2]
to the effect that s.51(xxxi) does not extend to laws which
prescribe means appropriate and adapted to the achievement
of an objective falling with another head of legislative
power where the acquisition of property without just terms
is a necessary or characteristic feature of the means prescribed.
In the present case, the liens provisions were 'appropriate
and adapted' to the provision, on a commercial basis, of
services and facilities such as those provided by the Authority,
having regard to, for example:

  • the reasonableness of a system which provides that
    those who operate aircraft must pay charges which, in
    totality will defray the cost of providing the services
  • the desirability of providing adequate security for
    the liabilities incurred
  • the possibility that operators will have few assets
    in the jurisdiction apart from aircraft
  • the mobility of aircraft
  • the fact that the aircraft owners must be taken to
    have been aware of the fact that substantial aeronautical
    charges would be incurred in respect of the aircraft
    and of the statutory liens provisions
  • the availability to aircraft owners of insurance to
    protect them from the consequences of the liens being
    invoked.

McHugh J regarded the notion of fair compensation as irrelevant
or incongruous in relation to the liens provisions (in
that the provisions would be ineffective if just terms
had to be paid to the owners) and this, in his Honour's
view, took the liens provisions outside the scope of s.51(xxxi).
They were, however, otherwise valid because they were 'appropriate
and adapted to achieving some object or purpose within'
the trade and commerce power (s.51(i)) or the external
affairs power (s.51(xxix)), i.e. to ensure the recovery
of charges and penalties validly imposed under one or both
of those powers. The aircraft owners could not be regarded
as having no rational connection with the achievement of
the purpose within power. They received a benefit from
the provision of the services on account of which the charges
were levied and could have made themselves aware of the
commercial risks of leasing the aircraft by due diligence
inquiries. McHugh J also had regard to practice in other
countries (compare Gummow J).

Gummow J (with whom Hayne J agreed) relied principally
on dicta which removed from the scope of section
51(xxxi) laws concerned with the adjustment of the competing
rights, claims or obligations of persons in a particular
relationship or area of activity within some other constitutional
power[3]. The
liens provisions balanced the competing interests of aircraft
owners, aircraft operators and the Authority in relation
to a regulatory scheme for civil aviation safety enacted
under the trade and commerce power (s.51(i)).

Gaudron and Callinan JJ (dissenting) considered that to
recover unpaid charges and penalties from persons who had
not incurred these amounts was to require payment from 'innocent
third parties'. On this basis, they concluded that the
liens provisions were laws with respect to the acquisition
of property and, in the absence of just terms, invalid.

General Conclusions

The majority judgments suggest that Parliament can provide
for reasonable recovery mechanisms, including statutory
liens affecting the property of third parties, to ensure
the collection of valid fees for services, without infringing
s.51(xxxi). It would, however, be unsafe to proceed on
the basis that the property of third parties can be affected
unless the third parties have received some benefit from
the services in respect of which the fees have been imposed
or they have exposed their property to the risk of being
affected by the recovery mechanisms with the opportunity
of knowing of that risk and protecting themselves against
it.

Application of Findings in Monarch Airlines to
Other Situations

The judgments, both in relation to the validity of the
fees and the validity of the liens, emphasise the special
context in which the fees were imposed, namely, imposition
by a public authority which has been charged to deliver
services on a commercial basis but which is in the position
of a natural monopolist and in relation to a highly integrated
network of services. The liens were also imposed in a context
where aircraft operators commonly have few assets in the
jurisdiction and against the background that aircraft are
highly mobile and capable of leaving the jurisdiction.

The various findings in the case must be considered in
their context, and it cannot be assumed that they will
automatically apply to all other situations. For example,
careful consideration will need to be given to whether
the findings about the inclusion of a profit component
in a fee and differential pricing are applicable to situations
where the government is delivering services directly. Careful
consideration also needs to be given to the extent to which
the findings apply outside the context of services that
are delivered as part of a highly integrated network with
high infrastructure costs.

For further information please contact George Witynski,
Special Counsel, Office of General Counsel or any of
the following lawyers:

George Witynski

(02) 6253 7129

george.witynski@ags.gov.au

Guy Aitken

(02) 6253 7084

guy.aitken@ags.gov.au

Anna Lukeman

(02) 6253 7077

anna.lukeman@ags.gov.au

Fiona Brotherton

(02) 6253 7075

fiona.brotherton@ags.gov.au

Notes

1 The decision
in Airservices v Canadian Airlines International Ltd was
handed down by the High Court on 2 December 1999. Decisions
were handed down at the same time in Airservices Australia
v Monarch Airlines Ltd and Airservices Australia
v Polaris Holding Company, which raised the same issues
and were heard concurrently.

2 (1994) 179
CLR 155 at 179-180

3 Australian
Tape Manufacturers Association Ltd v The Commonwealth (1993)
176 CLR 480 at 510; Nintendo Co Ltd v Centronics Systems
Pty Ltd (1994) 181 CLR 134 at 161

ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)

The material in this briefing is provided
for general information only and should not be relied
upon for the purpose of a particular matter. Please contact
AGS before any action or decision is taken on the basis
of any of the material in this briefing.

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