Y Sato & Company Ltd v Honiara Appointed Council [1999] SBCA 7; CA-CAC 15 & 16 of 1998 (21 January 1999)

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NATURE OF JURISDICTION:	Appeal from a judgment of The High Court of Solomon Islands (Lungole Awich J)
COURT FILE No.	Civil Appeal Cases Nos. 15 and 16 of 1998 (an appeal from Civil Cases Nos. 48 and 55 of 1997)
DATE OF HEARING:	20th October 1998
DATE OF DELIVERY JUDGMENT:	21st January 1999
THE COURT:	MASON P, McPHERSON and WILLIAMS JJA
PARTIES:	(Civil Appeal No. 15 of 1998)
	Y. SATO & COMPANY LIMITED Appellant

	V

	HONIARA APPOINTED COUNCIL Respondent

	(Civil Appeal No. 16 of 1998)
	SOLOMON MOTORS LIMITED Appellant

	V

	HONIARA APPOINTED COUNCIL Respondent
ADVOCATES (in each case)
Appellant	A. Radclyffe
Respondent:	R. Johnson
KEY WORDS:	Constitution, ss. 106, 144 - whether Local Government Act (CAP 14) is a law of the National Parliament - effect of Solomon Islands Independence Order, s. 5 - whether Local Government Act, s. 50 authorises imposition of taxation - whether licence fees imposed bye-laws are taxes and are imposed “under” the Act.
EX TEMPORE/RESERVED:	Reserved
ALLOWED/DISMISSED:	Appeal dismissed
PAGES:	1-19

THE COURT: In these two appeals, the appellants seek a declaration that certain business licence fees imposed by the respondent Council constitute taxation and are invalid and, in the alternative, that the -fees are excessive or unreasonable within the meaning of the Interpretation and General Provisions (Amendment) Act 1987 and at common law and are therefore invalid or unenforceable.

Each appellant commenced proceedings by way of originating summons seeking declarations in identical terms. The declarations sought which are relevant to the appeal were in the following terms:

“1. That the fees charged by the First Defendant for business licences for the Plaintiff under the Honiara (Licensing of Businesses) (Amendment) Bye-Laws 1997 (the 1997 Bye-Laws) constitute taxation which by Section 106 of the Constitution may only be made by or under an Act of Parliament.

2. Alternatively that the First Defendant is in breach of the Interpretation and General Provisions (Amendment) Act 1987 on the grounds that the fees are now within a range properly chargeable in respect of the services, if any, provided by the First Defendant so that the said fees are excessive or unreasonable and thus unenforceable.

3. Alternatively that the fees purportedly imposed by the 1997 Bye Laws or any of them are beyond power as:-

(a) outside the scope and purpose of the legislative power to make such a Bye-Law, which is limited to the licensing of ‘trades, businesses and other occupations’.

(b) so unreasonable as to be such that no local government authority properly exercising the power of delegated legislation conferred on it by Parliament, would have made the charges levied by the First Defendant on the Plaintiff.”

Both appellants carry on business in Honiara Town, the area over which the respondent exercises statutory authority as a local authority with a responsibility to provide certain services. For the year 1997, the respondent demanded from each appellant certain business licence fees in relation to the business which it carried on.

The business licence fees demanded by the respondent from the first appellant for the years 1996 and 1997 were as follows:

Business		1996 fees	1997 fees	% increase
(a)	Wholesale Store	$2000	$4000	100
(b)	Retail Store	800	2000	150
(c)	Video Cassette hire	800	800	-
(d)	Outboard Motor sales	1000	1000	-
(e)	Outboard Motor repairs	1000	-	-
(f)	Supermarket	1500	4000	approx 167
(g)	Arts & Craft store	500	500	-
Total		$7600	$12,300

The business licence fees demanded by the respondent from the second appellant for the year 1997 were as follows:

(a)	Vehicle sales	$3,000.00
(b)	Petrol filling station	$2,000.00 per station
(c)	Garage and Workshop	$1,000.00
(d)	Spare Parts Retail	$1,500.00
(e)	Outboard Motor Sales	$1,000.00
(f)	Hire Cars	$1,000.00
(g)	Tyre Repairs	$ 500.00

We have set out the amounts of the fees charged for the year 1996 because the increase in the fees charged in the year 1997 over those charged in the year 1996 is a matter on which the appellants rely in support of their case.

All the licence fees demanded from the appellants in the year 1997 were prescribed by the Honiara (Licensing of Business) (Amendment) Bye-Laws 1997. They purport to have been made under the authority of s. 50 of the Local Government Act CAP 14 which is the first section appearing under the heading “Part VI Bye-Laws” in that Act. Section 50, so far as it is material, is in these terms:

“50. (1) A Council may from time to time make and having made, amend, vary or cancel bye-laws, having the force of law in the area of authority of the Council, for the carrying into effect and for the purposes of any function conferred upon it by virtue of this or any other Ordinance ...

(3) Bye-laws may make provision for the payment of such fees or charges as shall to the Council seem fit:

(5) Any bye-law made under the provisions of this Ordinance may require acts or things to be performed or done to the satisfaction of a specified person and may empower a specified person to issue orders to any other person requiring acts or things to be performed or done, imposing conditions and prescribing periods and dates upon, within or before which such acts or things shall be performed or done or such conditions shall be fulfilled.

(6) Any bye-law made under the provisions of this Ordinance may confer upon a Council and any of its officers and employees specified in such bye-law such powers of inspection and inquiry and such power to execute any work as may be reasonably necessary for the proper carrying out or enforcement of such bye-law.”

The 1997 Honiara (Licensing of Businesses) (Amendment) Bye-Laws were expressed to come into operation on 1 January 1997. By para. 2 of those Bye- Laws a new Schedule of fees was substituted for the old Schedule. Included in the fees specified in the new Schedule were the following:

Artifacts & Handicraft Sales	Per Shop	500
General Retail Store	Per Shop	2000
General Supermarket Retail	Per Shop	4000
General Wholes (sic) Store	Per Shop	4000
Out Board Motor Sales	Per Shop	1000
Spare Parts Shops	Per Shop	1500

Evidence was given in the form of affidavits by Mr. Sato and Mr. Iro (of Solomon Motors) as to the lack of services provided by the respondent. For the Council there was an affidavit by Mr. Hasiau who was cross-examined. It is convenient to refer to the findings made by the learned judge (Lungole Awich J) in relation to this evidence when we come to his decision.

The appellants’ case was based primarily on s. 106 of the Constitution of the Solomon Islands. The section provides:

“106. No taxation shall be imposed or altered except by or under an Act of Parliament.”

The appellants’ alternative challenge to the business licence fees arises out of s. 61 (3) of the Interpretation and General Provisions Act 1978. Section 61(1) provides that a power under an Act to make regulations providing for fees or charges may be exercised by making provision for fees or charges. Section 61 (3) provides:

“61. (3)Where any fees or charges referred to in subsection 1 is in respect of any services provided by any public body, such fees or charges shall as far as practicable be within a range properly chargeable in respect of the services provided and shall not be excessive or unreasonable.”

Lungole-Awich J found that there was no evidence that the 1997 fees were not published in the Government Gazette on 30 December 1996 and dismissed a ground of challenge which has not been argued in this appeal. The learned judge then proceeded to consider the appellants’ case on three distinct bases:

(1) that the fees were a tax and therefore invalid by reason of s. 106 of the Constitution; and

(a) within the meaning of s. 61 (3) of the Interpretation and General Provisions Act; and

The judge first reviewed the evidence. He noted that Mr. Sato, over a period of 20 years, had not known an officer of the Council come to the first appellant’s business premises to carry out inspections or obtain information in connection with business licences. Mr. Iro gave similar evidence in relation to the premises of the second appellant. His Lordship, after examining the evidence of Mr. Hasiau, who deposed to the collection of refuse as a service provided to the appellants, concluded that:

“the Council provides very little services or carries out very little duties in connection with the business licences it requires in the businesses of the two plaintiffs”.

His Lordship then rejected the argument that the reasonableness of the fees was to be equated to the proportionality of the fees charged and the services actually provided or being specifically provided to the appellants’ businesses. Instead reasonableness or excessiveness was to be considered in the light of a licence fee as a charge towards meeting the costs of the services provided for the business licensed and of carrying out the duties of the authority in monitoring, regulating and enforcing the requirements of the laws relating to the business. Another factor was that the licence fee was also a charge for the privilege or authority for carrying on the business. It was enough, his Lordship thought, if the licence fee charged bore some reasonable proportion to the costs to be defrayed or the value of the privilege.

The learned judge concluded that, although the increases in fees from 1996 to 1997 were very steep, it had not been shown that there was no discernible relationship between the fees charged to the costs of the services and the respondent’s duties or the value of the privilege.

1. The licence fees imposed upon the respondent’s businesses are not excessive and unreasonable and are therefore not taxes.

2. The fees charged are not excessive and unreasonable so as not to be in breach of s. 61 (3) of the Interpretation and General Provisions Act.

3. The fees are not so unreasonable so as to be outside the scope and purpose of s. 50 of the Local Government Act; they are not ultra vires.

The respondent has filed a notice of motion seeking leave to adduce further evidence in the form of affidavits by Mr. Fallows, Mr. Saliama and Mr. Harisimae. This evidence is designed to convey a more comprehensive picture of the services provided by the respondent, to respond to the criticism made of the respondent by the primary judge and to explain why more detailed material was not presented to the Court at the hearing.

Rule 22(1) of the Court of Appeal Rules arms this Court with “full discretionary power to receive further evidence upon questions of fact”. However, Rule 22 qualifies the exercise of that discretionary power by requiring that further evidence shall not be admitted except on special grounds.

In ordinary circumstances fresh evidence is not received unless it appears that the evidence could not have been procured with reasonable diligence for use at the hearing, the evidence is likely to be influential and the evidence is credible: Ladd v Marshall [1954] EWCA Civ 1; (1954) 1 WLR 1489; see also Skone v Skone (1971) 1 WLR 812. The reasons advanced for the failure to advance at the trial the evidence in the three affidavits is that the respondent’s volunteer legal adviser left the respondent’s employ at a critical time and was not replaced and that there were two changes in the office of town clerk between the departure of the legal adviser and the date of the hearing. The latest town clerk had only assumed office at the date of the hearing. Moreover, the Council was unable to find its files on the matter and was, according to counsel, when an adjournment was granted before the hearing, “in some sort of chaos about dealing with cases”,

Despite this, we consider that the relevant evidence could have been obtained with reasonable diligence at the hearing. The evidence was clearly credible evidence. On the other hand, it was unclear when we came to consider the matter well before the conclusion of argument in the appeal whether the evidence would be influential. The outcome of that question then depended upon the substantive issues to be argued in the appeal.

Nonetheless we decided to receive the evidence for three reasons. First, this is not a case in which the party calling the fresh evidence is seeking to deprive the other party of a judgment already obtained at first instance. Secondly, this is a case in the nature of a test case in which the validity of a law imposing taxation affecting other business interests is at stake. It is highly desirable that the question be determined once and for all. Thirdly, some account must be taken of the administrative problems facing the respondent in the light of a shortage of financial and other resources.

The first question to be determined is whether the licence fees are imposed “by or under an Act of Parliament” within the meaning of s. 106 of the Constitution. If the answer to this question is in the affirmative, then the imposition of the fees does not violate s. 106, unless s. 50 of the Local Government Act does not authorise the imposition or alteration of taxation.

The Local Government Act is not an Act which was enacted by the National Parliament. “Parliament” is defined by s. 144(1) of the Constitution to mean the National Parliament set up by the Constitution. The Local Government Act was a pre-Independence Act.

The Local Government legislation was amended by the National Parliament in 1982. At least from that time, the provisions of the Act, as it was then amended, constituted an Act of the National Parliament. In any event, s. 5(1) of the Solomon Islands Independence Order, which by s. 4 brought the Constitution into operation and by s. 3 revoked the earlier British Ordinances providing for the government of the Solomon Islands, expressly provided:

“5. (1) The revocation of the existing Orders shall be without prejudice to the continued operation of any existing laws made, or having effect as if they had been made, under any of those Orders; and the existing laws shall have effect on and after the appointed day as if they had been made in pursuance of the Constitution and shall be construed with such modifications, adaptations, qualifications and exceptions as may be necessary to bring them into conformity with the Solomon Islands Act 1978© and this Order.”

(2) Where any matter that falls to be prescribed or otherwise provided for under the Constitution by Parliament or by any other authority or person is prescribed or provided for by or under an existing law (including any amendment to any such law made under this section) or is otherwise prescribed or provided for immediately before the appointed day by or under the existing Orders that prescription or provision shall, as from that day, have effect (with such modifications, adaptations, qualifications and exceptions as may be necessary to bring it into conformity with the Solomon Islands Act 1978 and this Order) as if it had been made under the Constitution by Parliament or, as the case may require, by the other authority or person.”

In our view, the effect of s. 5 was to continue in operation the Local Government legislation existing immediately before the Constitution came into effect as if that legislation had been made in pursuance of the Constitution by the National Parliament. Accordingly, the pre-existing Local Government legislation was, when the Constitution came into force, deemed not only to continue but also to do so as an “Act of Parliament” within the meaning of s. 106 of the Constitution.

This conclusion does not dispose of the case. There are two subsidiary questions and another major question, namely whether the business licence fees are taxes. The first subsidiary question is whether the fees imposed by the 1997 Bye-Laws were imposed “under” an Act of Parliament within the meaning of s. 106. It is clear that this question must be answered in the affirmative.

In LNC Industries v BMW (Australia) Ltd [1983] HCA 31; (1983) 57 ALJR 701, the issue was whether a claim by the appellant under an agreement by the respondent to transfer to it the benefit of quota entitlements to import motor vehicles under licences granted under the Customs (Import Licensing) Regulations was a matter “arising under any laws made by the Parliament” within the meaning of s. 76(ii) of the Australian Constitution. The Regulations were made under the Customs Act 1901 (Cth) which, by s. 50(1) gave the Governor-General power by regulation to prohibit the importation of goods into Australia unless a licence to import them has been granted. The High Court of Australia held unanimously that the claim was a matter which arose under a law made by the Parliament. It was enough that such a law was the source of the claim made.

To the same effect was the statement made by Dixon J in Federal Capital Commission v Laristan Building and Investment Co Pty Ltd [1929] HCA 36; (1929) 42 CLR 582. His Honour said (at 586):

“ ... it is at least clear that a claim to a right conferred by or under ordinances made by the Governor-General in Council under s. 12 of the Seat of Government (Administration) Act is a matter arising under an enactment of Parliament”.

(d) Does s. 50 of the Local Government Act authorise the imposition of taxation?

That then leads to the major question - do s. 50(1) and (2) of that Act authorise the imposition of taxation? In our view, authority to impose a tax should be expressly conferred. We would not read a power to make provision for the payment of fees or charges, even such fees or charges as shall to the Council shall seem fit, as including authority to impose taxes, and we can see no basis on which such a power can be implied.

The question whether licence fees constitute taxation is a vexed and frequently arising question in this jurisdiction. In Solomon Motors Ltd v Honiara Town Council (Civil Appeal No. 11 of 1994) Kirby P said that in relation to constitutional validity and the reasonableness of the fees charged 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 licence 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 ‘licence’, to any business applicant, conducting no investigations, no inspections or enquiries and providing no services at all, clearly the ‘licence’ fees would be revealed as nothing more than the raising of revenue for the respondent ... 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”. (at p. 7)

In that case the Court of Appeal returned the matter for further evidence about the services, if any, provided by the respondent. Kirby P said in this respect:

“... 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”. (at p. 8)

The observations in the first of the passages quoted above should be understood in the context of the distinction between a licence fee which is not a tax and a tax, the distinction being one which is notoriously difficult to make. Generally speaking, a tax is a charge which is made solely for the purpose of raising general revenue whereas a licence fee is a charge made primarily for the authority or privilege of carrying on a particular activity and for the purpose of defraying the costs of regulating that activity and of providing services which will benefit those carrying on that activity. The relationship between the amounts charged on the one hand and, on the other hand, the value of the privilege or authority, the costs of regulation and provision of services and benefits does not call for mathematical accuracy or something approaching that degree of accuracy. Indeed, for our part, we consider that, in appropriate cases, to charge an amount which reflects the value of the authority or privilege would not be to impose a tax, even if the costs of regulation and services fall short of the amounts charged. Fees charged for a business licence to exploit a scarce resource, such as the abalone fishery in Harper v Minister for Sea Fisheries [1989] HCA 47; (1989) 168 CLR 314, are an example. The Court was unanimous in holding that they were not a tax.

Mason CJ, Deane and Gaudron JJ considered that the fee was to be seen “as the price enacted by the public .... for the appropriation of a limited public natural resource to the commercial exploitation of those who, by their own choice, acquire or retain commercial licences” (at p. 325). Other members of the Court discerned “a relationship between the amount paid and the value of the privilege conferred by the licence, namely the right to acquire abalone for commercial purposes in specified quantities: (at p. 336 per Dawson, Toohey and McHugh JJ).

In the present case the licence fees appear to have been imposed as an incident of a regulatory scheme, though that scheme is lacking in definition and detail, to say the least of it. The 1997 bye-laws were made by way of amendment to the Honiara (Licensing of Businesses) (Amendment) By-laws 1990. As the primary judge pointed out in his reasons for judgment, the 1990 bye-laws were the principal bye-laws and were wrongly entitled “(Amendment)”.

By-law 3 of those bye-laws (which are still in operation save that the Schedule of fees has been amended) provides that it is an offence to carry on a designated business within the limits of Honiara Town, save under and in accordance with the terms and conditions of a valid licence. Provision is made for the issue of licences on application and upon payment of the appropriate fee, the licences being issued on an annual basis (bye-law 4). The expression “designated business” is defined by bye-law 2 to mean “a business ... of any category (other than a category to be licensed under any Act) which is for the time being [designated] for the purposes of these bye-laws by the Council by resolution”.

The effect of the 1990 bye-laws is that the grant of a licence, including the grant of the licences to the two appellants, is an authority to carry on a business, the carrying on of which would be unlawful in the sense that it would amount to a criminal offence in the absence of a licence.

The licence fees are charged for the privilege or authority of doing something which would be otherwise unlawful. To say that does not mean that the licence fees cannot amount to a tax. But to show that the licence fees are taxes, it must appear that in amount they exceed the value of the privilege or authority and that the amount is unreasonable in the sense that it is materially disproportionate to the expense of regulation so as to justify the conclusion that the fees are levied solely for the purpose of raising general revenue. See Pennsylvania Liquor Control Board v Publicker Commercial Alcohol Co. 32 Atlantic Reporter 2d 914 at 927.

In this respect, it is for the appellants to show that the amounts charged (or one or more of them) are unreasonable. An important element in showing unreasonableness is that the amounts charged are disproportionate to the services rendered. The appellants who are seeking declarations of invalidity bear the onus of establishing unreasonableness and, for that matter, disproportionality.

The evidence before the Court is meagre. The one service which is clearly provided by the respondent to the appellant is collection of refuse, though it is provided to residents of Honiara as well. His Lordship also took into account the work done and services provided by physical planner, business licensing officers, environmental health officers and others

“whose duties include initial and continual inspections to determine or monitor economic viability, water, sanitation, nuisance, disposal of refuse and waste material [as well as] other duties”.

In our view, the primary judge was entitled to take account of these responsibilities undertaken by the respondent as relating to the business licence fees which it imposed. It would not be realistic to expect in Honiara the precise and sophisticated allocation of municipal responsibilities and activities that is characteristic of large and affluent local governing authorities.

It seems that these activities were not conducted as efficiently as one might expect them to be conducted but we do not see how inefficiency in discharging its responsibilities bears on the reasonableness of the licence fees which the respondent imposes. The relevant relationship is between the amount of the fees and the respondent’s responsibilities in regulating business activities and in providing services in relation to those activities.

Neither the evidence given at first instance nor the findings of the learned judge enable us to form a clear picture of that relationship. Nor was any attempt made to explore that relationship as it applied to the particular forms of business activity which, under the bye-laws, attracted differential fees. There is no evidence to indicate that the amounts of the licence fees were quantified by reference to the turnover or revenue of the relevant business activities (which one might expect if the fees were a tax) rather than by reference to the expected need for or use of council services. Neither from the evidence nor the findings is there a sufficient foundation for us to conclude that the fees charged are disproportionate to the relevant responsibilities undertaken by the respondent.

Nor do the amounts charged appear to be inherently unreasonable, despite the sharp increases which have taken place. A continuation of such increases, unless linked with evidence of the provision of services as part of a regulatory scheme, might well produce a very different result.

We do not consider that the further evidence by the respondent in the form of the three affidavits adds in any material respect to the evidence which was before the primary judge.

Accordingly, we reject the argument that the amount of the business licence fees is unreasonable and thus constitutes taxation.

The conclusion that the licence fees do not amount to taxation also disposes of this question. It was not suggested in argument that the references in s. 61(3) to “range properly chargeable” and “excessive or unreasonable” raise considerations or criteria different from those already discussed. Whether s. 61 applies to bye-laws as well as regulations is a question which we need not consider.

Likewise, for the same reasons, we reject the argument that the 1997 bye-law (or any of the relevant parts of it) are void for unreasonableness. This argument was based on Kruse v Johnson [1898] UKLawRpKQB 101; (1898) 2 QB 91. It was pointed out by the specially constituted Divisional Court in that case that the court should be slow to hold that a bye-law made by a local authority is void for unreasonableness. Lord Russell of Killowen CJ (with the Concurrence of Chitty LJ, Wright, Darling and Channell JJ) said (at p. 99):

“... courts of justice ought to be slow to condemn as invalid any by-law ... on the ground of supposed unreasonableness”.

In Australia, unreasonableness is not in itself a separate and independent ground on which the validity of a bye-law can be challenged successfully. Unreasonableness or unfairness may call for close scrutiny and may reveal that the bye-law could not reasonably have been adopted as a means of attaining the ends of the power (Williams v Melbourne Corporation [1933] HCA 56; (1933) 49 CLR 142 at 149- 150,154-155,158,159). In such a case, as Dixon J observed in Williams at 155:

“the by-law will be invalid, not because it is inexpedient or misguided, but because it is not a real exercise of the power”.

1. Respondent’s notice of motion for leave to adduce further evidence granted.

Cassettes Video hire services		800
Garage & Workshop	Per Garage	1000
Tyre repairs		500

Vehicle Rentals	1000
Vehicle Sales	3000

(a)	Tyre repair services	$ 500.00
(b)	Car rental	$ 500.00
(c)	Car dealers	$2,000.00
(d)	Spare parts	$1,000.00

Court of Appeal of Solomon Islands

Y Sato & Company Ltd v Honiara Appointed Council [1999] SBCA 7; CA-CAC 15 & 16 of 1998 (21 January 1999)