(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.
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.
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
- 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
- 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.
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 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. 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.
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:
(02) 6253 7129
(02) 6253 7084
(02) 6253 7077
(02) 6253 7075
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
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