Solomon Motors Ltd v Honiara Town Council [1994] SBHC 65; HCSI-CC 192 of 1994 (16 November 1994)

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PALMER J: A number of questions have been posed before this Court for its determination through an originating summons filed on the 8th of July, 1994. The questions asked are two-fold:

(a) Do the fees charged by the Defendant to the Plaintiff for business licences under the Honiara (Licensing of Business) (Amendment) Bye-laws 1990 constitute a tax which must be made under an Act of Parliament;

(b) Is the Defendant in breach of section 4 of the Interpretation and General Provisions (Amendment) 1987 Act on the grounds that the said fees are not within a range properly chargeable in respect of the services provided by the Defendant and that the said fees are excessive or unreasonable.

A number of declarations are sought depending on how the court rules on the two questions posed.

The facts giving rise to the issues of law are not in dispute. These have been clearly outlined in the affidavit of Sam Iro filed on the 6th of July, 1994. The Plaintiff runs a number of businesses in Honiara, as follows: two petrol and diesel filling stations, sales and repairs of motor vehicles and outboard motors, including sales of tyres, batteries and spare parts, and soft drinks at the customer service area of the service station. The Plaintiff also runs the Budget Rent a Car which has a fleet of approximately 50 hire cars. The Plaintiff has been charged business licence fees for its activities at the service station as follows:

(a)	Vehicle sale	$2,000.00
(b)	Petrol filling station	$1,600.00 per station
(c)	Garage and workshop	$1,000.00
(d)	Spare parts retail	$1,000.00
(e)	Outboard motor sales	$1,000.00
(f)	Retail shop	$800.00

The fees for a car rental business are $500.00 per vehicle. The Plaintiff however, has not been charged those fees somehow.

The Plaintiff has paid the fees for the two fuel stations and vehicle sales amounting to $5,200. It has refrained from paying the remainder of the fees pending this application.

The first question posed requires consideration of a further question: what differentiates the imposition of a tax from a business licence fee? One of the cases referred to by learned Counsel for the Defendant actually contains a full synopsis of the definitions of the words ‘tax’ and ‘license’. This is the Canadian case of Attorney General for Quebec v. Williams (1944) 4 D.L.R. 488. At page 491, Guerin J. refers to the definition used in ‘Words and Phrases’, which in a way has some bearing to the circumstances of this case: “Licenses are of two characters, one for revenue and the second conferring authority to engage in vocations which need special surveillance. A license fee is a tax when imposed mainly for the purposes of revenue.”

The learned judge then went on to say: “In the light of these texts, I must come to the conclusion that tax is a general word which includes any contribution imposed by a competent authority to assure the services of the State. License would be a permission to do any act whatsoever. Although demanded with a view to regulation, it could nevertheless incidentally comprise an amount of money capable of assuring the services of the State. From this it may be realized that if a license seems to be imposed solely to assure revenue for the State, such permit is no longer a license but a tax, whatever may be the word used in the text of the Act.”

The test applied by the learned judge is simply whether the license has been imposed solely for the purposes of assuring revenue for the state.

There is no dispute that one of the functions of the Defendant is to licence trades, businesses and other occupation, (Section 45(1) and function 10(b) of the First Schedule). Under section 40(1) of the Local Government Act, it provides that the Council may......charge fees for any licence or permit issued by such Council under the provisions of this Act or of any regulations or bye-laws made thereunder.’

Section 50(3) states that, “By-laws may make provision for the payment of such fees or charges as shall to the Council seem fit.” The Honiara (Licensing of Business) (Amendment) By-law 1990, in turn sets out in the Schedule the relevant applicable fees.

There is no denial that the Defendant has the power to do what it did. What is challenged is what the Plaintiff regards as exorbitant fees being charged, to the extent that they can no longer be regarded as fees proper, but taxes.

In an American case, Conard v. State of Delaware, 16 Atlantic Reporter, Second Series, 121, the facts briefly were that John Conard, a resident of Delaware, was charged with having engaged in the business of carrying fishing parties for hire in a boat, for the purpose of fishing in the waters of the Delaware river, without first obtaining an annual license for his boat from the Board of Game and Fish Commissioners of the State of Delaware, contrary to section 2884 of the Revised Code of 1935, 40 Delaware laws, Chap.202. That section provides in brief that the activities which John Conard wished to perform shall be unlawful without first obtaining an annual license for each boat. One of the questions considered by the Court was ‘whether the pertinent statute is an exercise of the police power of the State, or whether its main purpose is the raising of revenue.’ In delivering the opinion of the court, Rodney J. stated at page 124 and 125:

“It is frequently difficult to determine whether the imposition of a charge or fee by the government is an exercising of the police power or of the taxing power. If the imposition has for its primary object the discouragement of dangerous employments, the protection of the safety of the public, or of citizens, or the regulation of relative rights, privileges or duties as between individuals, then the legislation may fairly be regarded as an exercise of the police power for the public welfare. A fair test may be that when a fee is exacted and something is required or permitted in addition to the payment of the sum, either to be done by the licensee, or by some regulation or restriction imposed upon him, then the fee is a license fee or license tax under the police power. When the payment of the fee allows the carrying on of the business without the performance of any other condition, and the license is subject to no restriction or regulation, and no option exists to refuse the issuance of the license, then the payment of the license fee is a tax for revenue. In the cited act there is nothing to be done but the payment of the fee. No examination of the boat or operator is provided for, and no option or power appears vested in the issuing authority to refuse the license upon tender of the prescribed fee. It would seem to us that the act is an act to raise revenue, and not passed under the general police power of the State.”

There is a fine dividing line between a license fee and a fax. That dividing line in my view must depend on the circumstances of each case.

Again one of the important considerations raised was as to what the primary objective was in the imposition of the fee. The learned judge then sort to suggest a ‘fair test’ that could be applied to differentiate between a license fee, as opposed to a tax, for revenue purposes.

Also in the case of Pennsylvania liquor Control Board v. Publicker Commercial Alcohol Co., 32 Atlantic Reporter, Second Series 914 at page 917, one of the questions raised before the Court for its consideration was whether a certain Act which required license fees to be paid by a distillery on account of alcohol manufactured in that State from government - owned molasses, and sold to the government of the United States, was an unlawful attempt to tax the federal government. In his judgment, Drew J. stated:

“The ‘license fee’ is charged for the special privilege or authority of manufacturing alcohol, and is a regulatory fee not a tax. A license fee is a charge which is imposed by the sovereign, in the exercise of its police power, upon a person within its jurisdiction for the privilege of performing certain acts and which has for its purpose the defraying of the expense of the regulation of such acts for the benefit of the general public, it is not the equivalent of or in lieu of an excise or a property tax, which are levied by virtue of the government’s taxing power solely for the purpose of raising revenue.”

There are two important matters raised in the judgment of Drew J. which are important to bear in mind as providing some sort of guidelines on the distinction between a license fee and a tax. These are:

(i) A license fee is a charge imposed for the privilege of performing certain acts; and

(ii) It has as its purpose the defraying of the costs of the regulation of such acts for the benefit of the general public.

The case of State of Wisconsin v. Jackman, Wisconsin Reports, Second Series 480 at page 485 per judgment of Hallows C.J., also brings out the same distinctions mentioned in the previous case and other cases:

“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 expense of supervision or regulation.”

Having regard to the above statements of opinion of the American Courts, what is the status of the business license fees charged by the Defendant?

Bearing in mind that the legality of the power to impose license fees is not challenged, the real question would seem to be, whether the fees charged are so excessive as to be unreasonable, and thereby amount to a tax been charged for revenue purposes?

Ms Jackson submitted to the court that the formal process of obtaining a licence is quite involved and the costs incurred by the Council in processing such applications expensive, thus warranting the high license fees charged.

This ties in to some extent with the question of excessiveness or unreasonableness raised in the second question for determination. If the fees charged are excessive and unreasonable, then they amount to a tax and are in breach of section 106 to the Constitution, and alternatively, that they are in breach of section 61 of the Interpretation and General Provisions (Amendment) Act 1987, in that the said fees are also excessive or unreasonable.

One of the cases referred to by the learned Counsel for the Defendant in support of her submission; is the case of Kruse -v- Johnson (1898)2Q8 91, which addressed the question of reasonableness of bye-laws. On that issue Lord Russell C.J. had the following to say:

“They ought to be supported if possible. They ought to be, as has been said, ‘benevolently’ interpreted, and credit ought to be given to those who have to administer them that they will be reasonably administered. This involves the introduction of no new canon of construction. But, further, looking to the character of the body legislating under the delegated authority of Parliament, to the subject-matter of such legislation and to the nature and extent of the authority given to deal with matters which concern them, and in the manner which to them shall seem met, I think courts of justice ought be slow to condemn as invalid any by-law, so made under such conditions, on the business license is normally dealt with. The various Departments of the Council which are normally involved in the processing of such an application include, the Physical Planning Division, the Environmental Health Division, the Treasury Division, the Honiara Town and Country Planning Board and the Town Clerk’s Office. Ms Jackson points out that the functions and duties of the Council do not stop when the license has to be renewed each year. There is continual assessment made by the Council.

With specific reference to the Plaintiff’s case, some of the functions performed by the Council include, inspections relating to matters under the Environmental Health Act, nuisances and safety at work in association with the Labour Division covering air pollution in a working environment, working conditions, ventilation, and also size of work place compared with the number of employees. Ms Jackson also pointed out that the Business licensing officers and the constabulary are continuously working to enforce the Bye-laws, by issuing reminder letters, visiting businesses to inspect licenses and ultimately issuing court proceedings. When all these activities and the associated costs are taken into account, she submits that the fees charged are within a range that cannot be said to be excessive and thereby unreasonable.

Ms Jackson referred to the case of Regina -v- Waltham Forest London Borough Council [1987] 3 All E.R. 671 as an example in which although there was such a steep increase in the rates fixed by the Borough Council, by as much as 62%, it was not regarded so absurd that no reasonable council could have reached it.

I have done a quick calculation on the rate of increases since 1990, to the current rates, in respect of the business licences which the Plaintiff was required to pay. These amount to the following percentage increases:

(ii) Petrol Stations - from $1 AOO to $1,600 / station: 14% increase per station

When one considers the rates of increases over a period of four (4) years, it becomes quite obvious, that the rates of increase cannot be said to be exorbitant and therefore unreasonable.

One of the matters clearly recognised by his Lordship, Sir John Donaldson MR in the above case, is that it is the rating authority, in that case, the Waltham Forest London Borough Council, which clearly had the right and the duty to determine the amount of the rates to be charged. Once that right and duty had been validly exercised, then it is clear that the Courts are very hesitant to over-rule any such decision.

This is most logical and reasonable because the members of the Honiara Town Council who make those bye-laws have been chosen by the town-dwellers, in the words of Lord Russell C.J., as the persons best fitted to represent them in the Council, and that they may be trusted to understand their own requirements better than judges. They are in a far better position to appreciate all the pros and cons of the appropriate fees to be imposed, and what is reasonable or not.

Ms Jackson also correctly submitted that the Council does owe a fiduciary duty to its rate payers to ensure that the fees charged are not solely based on philanthropic considerations but are required to be guided by business principles, (see Prescott v. Birmingham Corporation, [1954] 3 All E.R. 698).

In the circumstances of this case, all that has been alleged is that the fees were unreasonable. There is no evidence, or insufficient evidence adduced to show in what way those rates are unreasonable. They are all flat rates imposed for the issue of the licence and for renewals each year thereafter. The fees imposed as far back as 1990 and the percentage increases to the fees currently charged, cannot with respect to the submissions of Mr Radclyffe be regarded as excessive.

On the question therefore as to whether the fees charged amount to a tax, the answer in my view must be, no. Applying the test raised in Attorney General for Quebec v. Williams (supra), that is, whether the license imposed was solely for the purposes of assuring the revenue of the Council, the answer in my view must be, no. The fees imposed, partly seek to defray the costs of the regulation of such acts. They are also imposed for the privilege of performing certain acts, in this particular case, the privilege of running a designated business. (see Pennsylvania Liquor Control Board v. Publicker Commercial Alcohol Co., 32 Atlantic Reporter, Second Series 914 at page 917.) Also see the test in Conard v. State of Delaware, 16 Atlantic Reporter, Second Series 121, at pages 124 and 125, where the test applied is whether on payment of the fee, something further is required or permitted in addition to the payment of the sum, either to be done by the licensee, or by some regulation or restriction imposed upon him. In this particular case, it is quite obvious that there are conditions to be complied with, and that the license issued is subject to some regulation or restriction. If those conditions are not met, then the Council has the power to refuse to renew the license.

The council does raise revenue by way of the fees but it cannot be correctly said that those fees have been imposed solely for that purpose.

The answer to the first question therefore in paragraph 1(a) must be no. Having so ruled, it is my view that paragraph 1(b) falls unnecessary to be answered.

One of the contentions of the Plaintiff is that the Council is seeking to charge as separate businesses the normal activities of a service station. The question, what are the normal activities of a service station is a matter for the Council to decide. If it considers the various activities engaged in by the Plaintiff to be separate categories of businesses which must require the issue of a license, then that question in my view falls within the ambits of the discretionary power of the Council to decide upon, and not the courts. Unless it can be shown that such decision is manifestly unjust, capricious, inequitable or partial in its operation, the question of whether the Council had the power to impose a licence for the categories of businesses operated by any person in my view is without dispute.

High Court of Solomon Islands

Solomon Motors Ltd v Honiara Town Council [1994] SBHC 65; HCSI-CC 192 of 1994 (16 November 1994)