Solomon Motors Ltd v Honiara Town Council [1995] SBCA 2; CA-CAC 011 of 1994 (5 September 1995)

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THE COURT: This appeal from a judgment of Palmer J in the High Court of Solomon Islands raises several points of substance:

(1)	Do the fees charged by Honiara Town Council (the respondent) for business licenses under the Honiara (Licensing of Businesses) (Amendment) Bye-Laws 1990 (the Bye-Law) constitute “taxation” which, by s106 of the Constitution, may only be made by or under an Act of Parliament?
(2)	Alternatively, is the respondent in breach of the Interpretation and General Provisions (Amendment) Act 1987 (the Act) on the grounds that the said fees are not within the range properly chargeable in respect of the services provided by the respondent so that the said fees are excessive or unreasonable and thus unenforceable?

At first instance, and by notice filed without objection in the appeal to support the orders of Palmer J on grounds additional to those given by his Lordship, the respondent argued that the provisions of the Act (s61(3)) did not apply to a Bye-Law. This possibiity forced the respondent to re-frame an additional, or alternative, submission about the suggested unreasonableness of the amount of the license fees. This was to the following effect:

(a)	outside the scope and purpose of the legislative power to make such a Bye-Law, which is limited, relevantly, to the licensing of “trades, businesses and other occupations”. See Local Government Act, ss45(1), 50 (1), 50(3) and Schedule 1, cl 10 (b); or
(b)	so unreasonable as to be such that no local government authority, properly exercising the power of delegated legislation conferred upon it by Parliament, would have made the charges levied by the respondent, including on the appellant. Cf. Secretary of State for Education and Science v Tavestock Metropolitan Borough Council [1976] UKHL 6; [1977] AC 1014 (HL)

The appeal thus raises questions of constitutional and administrative law. The questions raised are serious and important. The appellant has the standing to raise them. In light of the conclusion which the Court has reached as to the disposition of the appeal, it is undesirable that it should now deal with the points at length. In the Court’s view, the record is not in an appropriate state of completeness to tender the issues in a way susceptible to resolution at this time. Further facts must be found. In due course we shall make orders so providing.

Both parties to the appeal agreed in the statement of basic facts contained in the judgment under appeal. The appellant, Solomon Motors Limited, runs a number of businesses in Honiara, relevantly 2 petrol and diesel filling stations, sales and repairs of motor vehicles and outboard motors, including facilities for the sale of tyres, batteries and spare parts and soft drinks at the customer service area of the service stations. The appellant is also the licensee of the Budget Rent a Car organization. It has a fleet of approximately 50 hire cars which it lets out for hire. The respondent has charged the appellant a combination of business license fees in respect of the multiple activities carried out in its filling stations, namely:

The respondent has also notified the appellant that it proposes to enforce a fee of $500.00 per vehicle used in the car hire business. To the date of the appeal, such fee had not been enforced. However, the appellant had been informed that the respondent pressed this claim. Clearly, it is desirable in the proceedings to determine any issue raised by the fees on the motor vehicles for hire, if this is, or will be, a real point of dispute between the parties. To the time of the appeal, the appellant had paid the fees for the two filling stations amounting to $5,200. However, pending the outcome of these proceedings it has withheld payment of the remaining fees, asserting that they are invalid under the Constitution, the Act or the general law.

In the High Court, Palmer J determined the constitutional objection against the appellant. His Lordship referred to authorities from other common law jurisdictions to throw light on the constitutional provision which reads:

Palmer J accepted that, on this issue, the search was to discern the meaning of the word “taxation.” He relied upon Attorney-General for Quebec v Williams (1944) 4 DLR 488 (Court Sessions) and Conard v State of Delaware 16 Atl Rep (2nd) 121 to derive the propositions that the essence of a law imposing (or altering) taxation (as distinct from a license fee) is:

(1)	that it is properly catalogued as a law to secure funds to a public authority by way of contribution to the revenue for what are properly seen as the public services of the State; or
(2)	that it is imposed solely or mainly to ensure revenue and not for the costs properly chargeable for the purposes of conducting a proper system of business licensing.

In order to differentiate a particular charge as a license fee or as taxation, Palmer J considered that it was appropriate to apply the test stated by Hallows CJ in State of Wisconsin v Jackman, cited in his Lordship’s reasons:

“a tax is one whose primary purpose is to obtain revenue while a license fee is one made primarily for regulation and whatever fee is provided is to cover the cost and the expenses of supervision or regulation.”

Neither party contested this approach. Each accepted that this was the essence of the distinction envisaged by s 106 of the Constitution. For the moment, this Court will assume that this is correct.

Having isolated the issue in this way, Palmer J noted the appellant’s argument that the charges of the respondent, levied as business license fees, did not correspond to the costs of the supervision and regulation of the licenses actually performed by the respondent. Before this Court, the appellant argued that the following features of the charges made by the respondent indicated that what the respondent called a “license fee” was in fact simply a collection of revenue for the undifferentiated purposes of the respondent as a local government authority:

(1)	The extremely wide range of businesses subject to licensing, many of which had no apparent reason for licensing or regulation at all and some of which (eg pharmacies) were already subject to specific regulation appropriate to the nature of the business and any need to protect the public in relation thereto;
(2)	The very high charges made, particularly upon the licensing of those businesses from which high fees could easily be extracted. The highest business license fee specified in the current schedule is $12,000 for licensing a brewery;
(3)	The imposition of multiple license fees upon what was essentially a single business of a service station, with the range of facilities commonly or universally now associated with that form of business;
(4)	The imposition of a fee upon the number of cars available for rental which involved an assignment of the tax not to the nature of the business, as such, but to a particular item of property used in the conduct of the business; and
(5)	The lack of any evidence from the respondent as to the cost of the supervision of the licensing system for business licenses once the license was granted.

For the respondent, it was argued, both in the High Court and in this Court, that the respondent had the undoubted power to charge a license fee. The Court would not involve itself in reviewing the amount of that fee unless it was so unreasonable as to take the fee charged out of the grant of power. The fees charged were sufficiently connected to the subject matter of the power, namely the licensing of particular businesses. It was not for the Court to second guess the determination of the respondent, as the donee of the statutory power, concerning the need for particular licenses and fees. Instead, the Court would take a broad and ample view of the powers granted to the respondent as an organ of local government. See Kruse v Johnson [1898] UKLawRpKQB 101; [1898] 2 QB 91 (DC), 94f. The respondent also contested that the Act, s61(3), applied to a Bye-Law. This was because s61(3), in turn, refers back to s61(1) which is confined, in its operation, to regulations (not Bye-Laws). But the respondent conceded, properly in the Court’s view, that the license fees charged were still examinable by the Court to ascertain whether they were within the grant of power and “reasonable” in the relevant sense.

It can be seen that, both for the arguments addressed to constitutional validity and those concerning the reasonableness of the fees changed by the respondent for the licensing of businesses, an important, even crucial, question may be the establishment of the relationship (if any) between the fees actually charged by the respondent to license particular businesses and the activities performed by the respondent in relation to such licensing. If all that the respondent were to do was to provide a piece of paper, called a “license”, to any business applicant, conducting no investigations, inspections or enquires and providing no services at all, clearly the “license” fees would be revealed as nothing more than the raising of revenue for the respondent. This would then raise the three objections tendered by the appellant in the appeal. If, however, there were services provided, which bore some arguable relationship between the fees charged and the services provided, the Court would not involve itself in the precise ratio between charges and services. It would be enough for the Court to note that an arguable relationship was established. This would meet the contention that the purported license fees were actually illicit taxation, beyond power or otherwise not reasonable in the relevant sense.

Unfortunately, the record does not afford the Court the evidence with which to resolve this question vital to the points raised by the appeal. It is true, as Palmer J noted, that the Town Clerk of the respondent (Mr Joseph Hasiau) swore an affidavit which suggested that various activities are taken into account and investigated at the time of the initial decision to license a business:

(a)	whether, and if so when, licensing of any businessess was rejected;
(b)	the actual work entailed on the part of Council officers in inspecting and evaluating applications;
(c)	the criteria applied in licensing or refusing licenses for businesses; and
(d)	the numbers of Council officers involved in the task and approximate costs.

Most importantly, the Town Clerk’s affidavit is completely silent about the activities of the Council after the initial licensing. There is no evidence at all about any ongoing monitoring of businesses which would be normal in a system which was truly one of licensing of businesses (as distinct from revenue raising).

With respect to Palmer J’s reasons, which are otherwise a model of clarity and will be of great assistance to this Court if it returns to the substantive issues in the appeal, the essential findings are missing which would permit his Lordship - or on appeal this Court - the basis upon which to make the differentiation between a taxation measure and a business license or between a fee which was arguably within power and one which was beyond power and unreasonable in the relevant sense. In fairness to his Lordship, this default is in large part the result of the failure of each party to the proceedings to produce the evidence which would have allowed the High Court to apply the criteria which the law affords. For a time the Court considered dismissing the appeal on the basis that the appellant, as the party challenging the license fees, had failed to produce the evidence necessary to allow the Court to perform its function. However, on reflection we are not inclined to take that course. In the affidavit of the director of the appellant (Mr Sam Iro), read in the proceedings in the High Court, the witness asserted:

“I submit that these fees amounted to a tax and a source of revenue and that the level of fees should be related to the service provided by the [Council]. [The Council] simply issues a license and therefore the fees should cover the administrative costs of preparing and issuing of the said licenses. (emphasis added)

Leaving aside the legal submission, inappropriate to an affidavit, in this passage the witness is obviously asserting before the Court that, so far as he is aware, the respondent “simply” takes the fee and does nothing except issue the license. The respondent is the best person to rebut that assertion. Whilst the statement might have been more detailed (eg referring to the absence of licensing inspections etc) it is sufficiently clear to cast the forensic onus upon the respondent to establish , at least in broad terms, what is done by it in business licensing so that the character, lawfulness and reasonableness of its fees might be judged in these proceedings of judicial review. Although the respondent gave some (rather limited) information about its activities in the initial consideration of business licensing, it gave absolutely none about annual renewals and about the activities thereafter warranting such apparently high licensing fees.

Three errors in the reasons of Palmer J authorize this Court to intervene and to send the matter back for re-consideration:

(1)	His Lordship appears, at p7 of his reasons to treat as evidence the statements of the respondent’s advocate about the activities of the respondent “when the license has to be renewed each year.” He says that “there is annual reassessment made by the Council”. But there is no evidence and his Lordship consequently could not find precisely what, if anything, this “annual reassessment” involves;
(2)	His Lordship appears to have taken as a governing consideration the rate of increase in license fees in the past four years. Whilst this is not an irrelevant consideration it is obvious that if, at the outset, the fees were unreasonably disproportional to any activities of the Council, the fact that they have kept pace with inflation would not alter their character or answer to the questions whether they were within power or otherwise unreasonable; and
(3)	At the close of his reasons, his Lordship says that “the answer to the first [constitutional]question in para 1(a) must be no. Having so ruled, it is my view that paragraph 1(b) falls unnecessary to be answered.” Strictly speaking this is not correct. Disposal of the constitutional challenge adversely to the appellant still leaves its alternative arguments, under the Act and by the common law, that the license fees, as levied, are invalid as beyond power or as legally unreasonable. It is necessary to answer that second question if the constitutional question is answered “no”. It is only unnecessary to answer it if the constitutional question is answered favourably to the appellant. The license charges would then be invalid, whether their amount were reasonable or unreasonable.

Because of the importance of the questions raised in the proceedings, the Court considers that the appropriate course is to send the matter back to the High Court for reconsideration of the appellant’s challenges. Proper findings can then be made which will allow the High Court, and if necessary, on a further appeal, this Court to address its attention to the fundamental issue raised, in different ways, by each of the three challenges brought by the appellant: What precisely does the Council do for the licensing of businesses for which it levies substantial license fees? If the answer to that question is (as the appellant asserts) very little at the first licensing and nothing thereafter, the fees will begin to take on the colour of simple revenue raising. That will pose quite starkly the constitutional and other legal challenges. If the answer is that the Council does the activities apt for a business licensing body (inspections, monitoring, sanctioning unacceptable activity etc), the Court will not become involved in the exact relationship between the Council’s activities and its charges. But for a proper answer to the legal questions presented, this Court, like Palmer J at first instance, needs further evidence than either of the parties has so far seen fit to afford the Court.

When the matter is returned to the High Court, we see no reason why it should not be returned to Palmer J, unless his Lordship feels embarrassed to re-hear the proceedings. What is involved is substantially a question of applying the legal test to the facts as found. There is no reason why the re-trial would need to be heard by a different judge.

It is possible that the re-determination of the issues, with the benefit of these reasons, will resolve the contest between the parties in the High Court. If it does not, it should be possible for this Court to hear any fresh appeal in the next sittings in January 1996. The Court will not be regarded as part heard and may be differently constituted if a second appeal is brought.

It would be desirable that the appellant should clarify precisely the issues which it asks the High Court to determine. This Court has set out, at the beginning of these reasons, the issues as it understood them. However (as Palmer J noted at the end of his reasons) the appellant at various stages also raised objections about the application of multiple fees to the single essential “business”. If this is a real issue of challenge to the fees levied by the respondent, it would be desirable that it be included in an amended summons.

Finally, it should be pointed out that s106 of the Constitution enshrines a very important principle which is defensive not only of the rights of the people of Solomon Islands but also of the dignity and rights of their elected Parliament. As matters of general constitutional law are raised by the proceedings, should the matter be returned to this Court, consideration should be given by the parties to giving notice to the Attorney-General, as the first law officer, so that, if he chose to do so, he could seek leave to intervene in the proceedings to assist the Court in the interpretation of the Constitution. Litigation involving the meaning of the Constitution is not purely inter partes. In appropriate cases, the Court would permit the Attorney-General to intervene in person or by counsel to assist the Court in the task of constitutional elaboration in a principled way. For example, it should be mentioned (as it was not by the parties) that s106 of the Constitution contemplates taxation being imposed not only by an Act of Parliament but also under such an Act. A question would arise whether, in the context of s106, and for the achievement of its high constitutional purposes, the levying of a fee by resolution of a local government authority pursuant to a power ultimately traced to a statutory source is sufficiently “under an Act of Parliament” as s106 permits. The Court expresses no concluded view on this point. But it illustrates the possible utility of assistance from the law officers in constitutional law questions.

(a)	vehicle sales	$2000.00
(b)	petrol filling station	$1600.00 per station
(c)	garage and workshop	$1000.00
(d)	spare parts retail	$1000.00
(e)	outboard motor sales	$1000.00
(f)	retail shop	$ 800.00

(i)	the boundaries of the Council’s power;
(ii)	the activities of the business;
(iii)	the cost to the Council of administering and enforcing the Bye-Laws; and
(iv)	The public interest in having the activities licensed and regulated.

Court of Appeal of Solomon Islands

Solomon Motors Ltd v Honiara Town Council [1995] SBCA 2; CA-CAC 011 of 1994 (5 September 1995)