Airservices Australia v Canadian Airlines International Ltd C22/1998 [1999] HCATrans 81 (14 April 1999)

IN THE HIGH COURT OF AUSTRALIA

Registry No C22 of 1998

B e t w e e n -

AIRSERVICES AUSTRALIA

Appellant

and

CANADIAN AIRLINES INTERNATIONAL LTD

Respondent

Registry No C23 of 1998

B e t w e e n -

AIRSERVICES AUSTRALIA

Appellant

and

MONARCH AIRLINES LIMITED

Respondent

Registry No C24 of 1998

B e t w e e n -

AIRSERVICES AUSTRALIA

Appellant

and

POLARIS HOLDING COMPANY

Respondent

GLEESON CJ

GAUDRON J

McHUGH J

GUMMOW J

KIRBY J

HAYNE J

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 14 APRIL 1999, AT 10.25 AM

Copyright in the High Court of Australia

MR D.J.S. JACKSON, QC: May it please your Honour, in each of those matters I appear with my learned friend, MR J.C. SHEAHAN, SC, for the appellant. (instructed by Mallesons Stephen Jacques)

MR J.C. CAMPBELL, QC: May it please the Court, I appear with my learned friend, MR A.S. BELL, in each matter for the respondent. (instructed by the Allen Allen & Hemsley)

MR D.M.J. BENNETT, QC, Solicitor-General for the Commonwealth: May it please the Court, I appear with my learned friends, MR G. WITYNSKI and MR G.R. KENNETT, intervening on behalf of the Attorney-General for the Commonwealth. (instructed by the Australian Government Solicitor)

MR R.J. MEADOWS, QC, Solicitor-General for the State of Western Australia: May it please the Court, I appear with my learned friend, MR R.M. MITCHELL, intervening on behalf of the Attorney-General for the State of Western Australia. (instructed by the Crown Solicitor for Western Australia)

MR B.M. SELWAY, QC, Solicitor-General for the State of South Australia: May it please the Court, I appear with my learned friends, MS M. PANAGIOTIDIS and MS L.K. BYERS, intervning on behalf of the Attorney-General for the State of South Australia. (instructed by the Crown Solicitor for South Australia)

MR B.T. DUNPHY: May it please the Court, I appear with my learned friend MR G.R. COOPER, intervening on behalf of the Attorney-General for the State of Queensland. (instructed by the Crown Solicitor for Queensland)

GLEESON CJ: Yes, Mr Jackson.

MR JACKSON: Your Honours, the central question which is raised by the appeal is whether the charges which were fixed by the Civil Aviation Authority for the 1991-1992 year, with the facilities and services which were provided by the Authority, complied with the requirements of section 67 of the Civil Aviation Act 1988 .

In the proceedings below, both before the Full Court and before her Honour the trial judge, the appellant lost the case in substance because the charges were characterised as infringing the negative requirement that they not be such as to amount to taxation. That is, they were characterised as taxes and not as fees for services.

The characterisation of a fee for service, on the one hand, as opposed to taxation on the other, in the cases which have been decided in this Court to date, has involved, we would submit, two elements. First, that there be identifiable services provided to, or at the request of the person who has to pay for them, or for his benefit, or her benefit, which is the quid pro quo for the fee. Second, that there be a sufficient relationship between the amount of the fee and the value of the benefit or the cost of providing it.

It is only on the second of those elements that the applicant lost the case, both before the Full Court and before her Honour. In the language of some of the recent decisions of this Court, to which reference is made both in the written submissions and will be made before your Honours, this case squarely raises the issue of what is connoted by the requirement of a discernible relationship between the amount of the fee, on the one hand, and the value of the service in testing whether a charge is a fee for services or a tax, on the other hand.

We will submit that the relationship between the amount of the fee and the value of the benefit, which is the quid pro quo for the fee, is not required to be exact or equivalent, at least in a constitutional sense. We will submit that there is nothing in the concept of taxation, in that sense, as such, which requires that a charge be characterised as taxation because it is calculated so as to recover on an average basis the costs of providing services and facilities across a network of locations, and nor should a charge be characterised as taxation because it is calculated to recover more from particular users who have a high capacity to pay in circumstances where the costs of providing the services and facilities to those particular users are relatively higher, nor, we will submit is it taxation because a reasonable rate of return on the assets employed in providing the services and facilities is included in the amounts to be recovered by the charge.

Your Honours will have seen that the context in which these questions are thrown up for decision is that charges which were owing but unpaid by Compass Airlines to the Civil Aviation Authority or the CAA when Compass collapsed at the end of 1991 were secured by statutory liens imposed by the CAA upon Compass' aircraft, pursuant to the Act. Each of the respondents, as the owner of one or more of the aircraft, paid the amounts of the charges owing in respect of the relevant aircraft in order to obtain the release of the statutory liens.

The second aspect of the case which arises from that is that there is an attack which was made by the respondents upon the validity of the liens provisions contained in the Civil Aviation Act 1920 . They are attacked as being properly characterised as laws with respect to the acquisition of property on just terms within the meaning of section 51(xxxi) of the Constitution, but is not providing just terms in the case of an owner of an aircraft who is not the operator of it. There is also a contention that the liens provisions amount to taxation.

Could we begin by asking your Honours to look briefly at the core statutory provisions in the Civil Aviation Act? We have produced copies of the Act, or the legislation which comprised the Act as at 1991, if your Honours do not have copies available. The power of the CAA to fix a charge was conferred by section 66 of the Act and your Honours will see that section 66(1) defines what is a "charge", and relevantly by paragraph (a), a charge is defined to mean "a charge for a service or facility provided by the Authority". Paragraph (b) refers to charges in respect of matters which are specified in the regulations, but the charges in this case were not in this category.

Under section 66(2) the CAA was empowered to make determinations "fixing charges and specifying the persons by whom, and the times when, the charges are payable", and fixing penalties. Penalties in a commercial sense, in this context, are a bit like interest but we will come back to the provisions in a moment. In summary, where a charge is not paid within time by section 66(8), the person liable for the charge became liable to pay the CAA in addition to the charge, a penalty which was calculated at a rate which was not to exceed 1.5 per cent per month compounding. Parts of the amounts which were not paid by Compass, in this case, were to penalties.

Section 66(3), (4) and (5) provided a system under which the Minister could prevent the CAA from making a proposed determination fixing a charge, or charges, if the Minister disapproved of it. There was provision for notice, followed by a power to disapprove under subsection (6). The CAA's power to make a determination was conditioned on disapproval not having occurred within a limited time.

Your Honours will next see that section 67, which is the centre of the case, imposed a limit on the amount or rate of a charge. That amount or rate was to 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.

Following section 67 there were a number of provisions dealing with statutory liens, and we will come back to those. May we at present take your Honours back to Part II of the Act under which the CAA was established and which set out its functions and powers. Section 8 established the Authority under subsection (1) and section 9(1) set out its functions. Paragraph (a) was the conferral of the function to conduct safety regulation. There were charges fixed by the CAA in respect of that which we will not need to trouble your Honours about.

Paragraph (b) made the functions of the Authority include the provision of air route and airway facilities. That is a defined term under section 3. "Air route and airway facilities" were defined to mean:

facilities provided to permit safe navigation of aircraft within the airspace of air routes and airways -

and they included a number of things. They included aids along the air routes and airways, communications services, meteorological observations and, importantly in paragraph (e), air traffic control services and facilities.

KIRBY J: Do any of these definitions come from the Chicago Convention?

MR JACKSON: As such I think not, your Honour, but the language is very similar.

So if we could extrapolate a little bit from that language, under the Regulations an Air Traffic Control Service was established and if one postulates a flight from, say, Sydney to Brisbane, the charge which is one of the central charges with which your Honours are concerned in the case described as "terminal navigation charge" relates to the zone which is a 55 kilometre radius from the aerodrome at Sydney on take-off. So as you take off from Sydney, for 55 kilometres you are in the facilities and services of the terminal navigation zone - it is described elsewhere as a control zone, but I will not trouble your Honour about the secondary terminology.

Thereafter, as your aircraft proceeds towards Brisbane, it is in receipt of air traffic control services under the function that we have just looked at in the definition, but it is the subject of what is described as the "en route charge" where the rate of charge includes a factor for the distance that is being flown. When you are 55 kilometres from Brisbane you enter the terminal navigation zone of the aerodrome of Brisbane; and when the aircraft lands it incurs by landing a charge for the terminal navigation facilities and services that it has obtained and a charge for the en route facilities and services that it has obtained, largely by way of the air traffic control service.

Before we leave Part II of the Act, may we briefly refer your Honours to two other sections in Part II. The first is section 11 which required the CAA to:

perform its functions in a manner consistent with the obligations of Australia under the Chicago Convention -

and, as defined, that Convention included a number of documents, including annexes which were adopted in accordance with its procedures, and one of those annexes was Annexure 14 which provided for certain standards to be observed in connection with the provision of the rescue and fire fighting service which was the subject of the other charge with which your Honours are concerned with in this case. It was in compliance with Annexure 14 that, for example, the CAA would have the highest category of fire services - and they are graded from 1 through to 9 - available at Sydney Airport where the heaviest aircraft, namely 747s would take off and land.

Could we also mention section 13 which conferred powers on the CAA, including the power - - -

KIRBY J: Just before you leave 11, may I ask is there any other indication in the Chicago Convention which is relevant to the mode in which nation States and members of the Convention are expected to charge for their services?

MR JACKSON: Nothing which has the status of the convention as defined, your Honour. There are statements which are called recommendations that do not form part of the domestic law of Australia because they are not part of the convention as defined.

KIRBY J: Is there anything in all the mass of material we have been provided relating to the way other countries approach the charges for the services that are virtually universal in civil aviation?

MR JACKSON: A large amount of material, your Honour. It is not only contained in the appeal book records in many instances, but it is gathered together and summarised in Dr FitzGerald's report, which was tendered in the proceedings before her Honour, became exhibit 9. For example, your Honour, there were 40 countries which adopted the method of charging which we have described as weight based.

The reference which I was making, your Honours, was to section 13 and to the powers which were conferred, and the reference is only a brief one we hope. By section 13(2)(a), the CAA was empowered "to enter into contracts" as a matter of specific power, though that would probably be within the general power to do all things necessary or convenient to perform its functions under section 13(1). As we apprehend it, it is possible that the CAA might have obtained revenue for the services and facilities that it provided, by exercising two possible powers. One is a contracting power under section 13 and the other is the process which was provided for by section 66. However, in our submission, where what one is dealing with is a charge for a service or facility - and I have taken your Honours to the relevant functions that show that the charges in this case were for those services or facilities - the process provided for by section 66 must be complied with, and that is, includes the process of giving notification to the Minister under subsection (3), allowing the time to elapse and the power of the Minister to disapprove.

GUMMOW J: This power to enter into contracts under 13(2)(a) would be controlled in a way by Part 4 of the Trade Practices Act, would it not? This would be an essential facility in the American sense of the term.

MR JACKSON: Yes, it would, your Honour.

GUMMOW J: So it would not be at large.

MR JACKSON: No, and we would not have submitted so. The point which we are trying to make, briefly, is that section 66 covers the territory when one is talking about fixing a charge for what is a service or facility in the connections which we have already described, and that is of some significance when we get to the stricture which is said to have been imposed on power to fix a charge under section 66 by section 67, that is, that no profit element be included, or return on assets element be included in the charge.

Can we take your Honours directly to Part V of the Act which deals with the operation of the Authority. Under section 43, first of all, there was imposed on the CAA an obligation to develop a corporate plan which, under section 44(1) was required to be given, or a copy of it was required to be given to the Minister. Second, at the same time as a copy of the corporate plan was given to the Minister, the CAA was required to give him or her a copy of the financial plan, under 44(2). The financial plan is one which, by 44(2)(b), was required to include:

in relation to services and facilities other than search and rescue and aeronautical information services) -

which were separate functions under section 9 and the subsequent sections in Part II -

a forecast of receipts and expenditure and a rate of return and dividend;

Third, in preparing the financial plan the CAA was required to consider a number of things under section 45. In particular, it was required by section 45(e) to consider:

the need to maintain a reasonable level of reserves, having regard to estimated future infrastructure requirements;

By section 45(f) it was required to consider:

the need to maintain the extent of the Commonwealth's equity in the Authority -

an expression not defined, but to which many can be given by having regard to some subsequent sections to which we will come. Next, it was required by paragraph (g) to consider:

the need to earn a reasonable rate of return on the Authority's assets (other than assets wholly or principally used in the performance of regulatory functions or the provision of search and rescue services);

And lastly - - -

KIRBY J: Would you explain why that is excepted? What is the theory behind the exclusion of those? Is it that they must have to be provided by the nation? Is that the idea?

MR JACKSON: That is perhaps as we would suggest, your Honour. It is not explained by the legislation explicitly. There was a safety contract as well as this Act which was brought into effect between the Commonwealth and the CAA at the same time which provided for some of those functions.

McHUGH J: But it probably underlines a distinction between the commercial and the governmental functions.

MR JACKSON: Yes, your Honour.

KIRBY J: It is a little unrealistic, is it not? Keeping aircraft apart upstairs is just as important as search and rescue.

MR JACKSON: It is, in a safety sense, essential, but it is also the sort of service that can be provided either by government or by private enterprise if one looks at the way in which it is done around the world.

KIRBY J: Other services of civil aviation in the sense of air navigation in the United States is all provided by private enterprise?

MR JACKSON: I do not know the answer.

KIRBY J: Is that revealed?

MR JACKSON: There is some material as at different dates in the volumes of the evidence, and I cannot tell your Honour precisely what the picture is at the present time, but I can find out.

The last thing which we wanted to mention to your Honours is that the Authority or the CAA was required by paragraph (h) to consider:

the expectation of the Commonwealth that the Authority will pay a reasonable dividend -

Having regard to the reference to the Commonwealth's equity in subparagraph 45(f) may we take your Honours briefly to Part VI of the Act, dealing with finance in Division 1. Section 50 provided in a general way - section 49 deals specifically with land, but section 50 provided in a general way for the transfer of assets by the Commonwealth to the CAA. The provisions which appear to provide for the Commonwealth's equity in the Authority then are sections 51 and 54. By section 51:

Where any assets are transferred from the Commonwealth to the Authority.....The Minister and the Minister for Finance -

were required under subsection (2)(a) to:

determine the value of the assets -

if I could call that the first determination. If those Ministers made a second determination under subsection (2)(b) then at the time of the transfer the amount of that value was to be taken to be "a loan to the Authority" and by virtue of subsection (3) a loan on the terms and conditions:

determined by the Minister and the Minister for Finance -

under subsection (4).

However, if a second determination was not made under section 51(2)(b), the value of the assets transferred to the CAA by the Commonwealth became part of the capital of the CAA under section 54(1)(a). It is plain, we submit, from section 54 that the capital of the CAA became an amount of money calculated in accordance with that section. That amount did not bear interest payable to the Commonwealth by virtue of section 54(2) but the Commonwealth was entitled to have the capital repaid to it as the Minister determined in writing. We would submit that was to be the equity.

Section 56 dealt with the payment of dividends to the Commonwealth. It required that the CAA within four months of the end of each financial year give notice to the Minister recommending the payment of a dividend or not and, in making such a recommendation, the CAA was to have regard to both the matters specified in section 45, to which we took your Honours a moment ago, and "the extent of the Commonwealth's equity in the Authority." The payment of a dividend envisaged and provided for under section 56 was able to be made under subsection (6) of that section out of the profits of the CAA either for the relevant years or prior years.

The relevance of those provisions which we have hurried your Honours through, in our submission, is that they plainly show that the CAA intended to make profits and that it was intended to do so in carrying out the functions of providing services and facilities other than search and rescue and aeronautical information services. That is, it was intended to make a profit in relation to the provision of a rescue and firefighting service or the provision of air route and airway facilities including air traffic control services and facilities. These were the things that were the subject of the charges in this case: the rescue and firefighting service charge, or RFSS as it is sometimes called, the terminal navigation charge, or TN charge as it is called, and the en-route charge, or the ENR or EN charge as it is sometimes called.

McHUGH J: So, does this lead to a submission that, in the exercise of the power under section 66(2), notwithstanding the terms of section 67, your receipts may include an element of profit as well as reimbursement of expense?

MR JACKSON: Yes, your Honour, and that to read section 67 as preventing that, is to effectively undermine, not only individual parts of individual sections in Part V, but to undermine the whole of the commercial basis which Part V envisaged would underlie most of the functions of the Civil Aviation Authority.

KIRBY J: I took your written submissions to go beyond, in effect, "may", and you say that having regard to the scheme of the Act that it is envisaged that it will include this because there is no other way in which the dividend can be paid.

MR JACKSON: Yes, your Honour.

KIRBY J: Is there any other source of income other than the charges? I mean, do you run hairdressing shops at airports or things of that kind that can make a vast revenue for you?

MR JACKSON: I think, in fact, the answer is that the evidence does not deal specifically with other sources of revenue in any detail. There is a copy of the annual report that shows, by far, the bulk of our revenue, nearly all of it, frankly, comes from these services.

KIRBY J: You can refer us to that later.

McHUGH J: Could I just understand the general thrust of your submissions? Is it that this Authority is simply run as a commercial business? You are going to have expenditure; you have to estimate your receipts; estimate your customers; you will make charges which will give you receipts which will not only exceed your expenditure but will have a profit component, and you were looking at your business globally and you are not concerned with any real identity or relationship between what an individual customer gets and what a customer pays for it, but you look at it rather as a global - - -

MR JACKSON: We would submit so, as the primary submission, your Honour, yes.

GLEESON CJ: Subject always to the political accountability that is involved in the concept that these charges have to be approved by the Minister.

MR JACKSON: Yes. Quite, and also subject to the recognition that by section 67 there is a limit. To give effect to section 67, one has to ascertain what that limit is and we would submit that when one is looking at, for example, the rescue and fire fighting service, that if the charge were to collect more than the provision of that service across the network reasonably entailed, having regard to the requirement that there be a relationship - - -

McHUGH J: So in rough, broad terms, does it come down to something like this: that we need to look at it as if they are a pie manufacturer who is selling pies all over the nation and you say, "Well, we have all this expenditure, we have these assets, and we are going to charge $2 a pie and it may be that the quality of pies is better in Brisbane than they are in Perth, and there is better service in one than the other, but it is still going to be $2 a pie".

MR JACKSON: Yes, your Honour, and - - -

KIRBY J: But it is subject always to the overriding requirement that you are a public pie seller and that you may not make such a charge as amounts either under the Act or under the Constitution to taxation.

MR JACKSON: And in strict commercial terms, a monopolistic pie seller, so we have power by virtue of that position which would enable us in our public capacity, as it were, to be a revenue raiser.

GUMMOW J: What section actually confers your monopoly?

MR JACKSON: No section of the Act. We are - - -

GUMMOW J: Yes, I was wondering that.

MR JACKSON: No section of the Act as such, your Honour.

McHUGH J: What about the question of taxation? Do you seek to look at it as confining it to revenue raising on a global scale, or do you look at it in terms of the effect on individuals? Do you follow what I mean?

MR JACKSON: Yes, your Honour. The first hurdle we would say, your Honours, is whether it is and can be seen in a global sense to be a revenue raising measure and I think that is what your Honour perhaps described as the chief feature of the tax in one of the leading cases in that area. But in the case of a fee for service, we recognise that one can descend beyond the first level and down to a level where the connection between the value and the service is assessed. What we say in terms of the point of departure as one goes down from the highest level of generality to potential further levels of particularity is that the notion of taxation is essentially not concerned with equities amongst a defined user group to whom the services are provided, where there is no doubt that they are getting the services. What you are doing is looking at, among that user group, as to who should be able to bear the cost or pay the value of the services better than somebody else.

McHUGH J: So you are looking at it as the Treasurer may look at it at budget time in terms of what taxation has to be imposed to recoup expenditure, and you look at a way of looking for it.

MR JACKSON: That is certainly the first level, and we would submit we would plainly pass at that level.

HAYNE J: But do you attribute any significance to the value that the individual user obtains from actual use or potential use of the service?

MR JACKSON: In this case, we would submit that the notion of taxation does not require that that be done, but we have responded to the case, to be perhaps precise about it, on the basis that we would satisfy that test as well by reference to a number of broad points which can then be dealt with by reference to the detail of the evidence.

HAYNE J: But does it follow that your primary position is that, so long as all that is recovered is the totality of the costs incurred plus return on capital dividend and those elements, that the attribution or the division of that recovery between individual users is irrelevant?

MR JACKSON: That is one step higher up this grade that I have tried to picture for your Honours, than looking at value to the individual user. We would accept that there has to be a rational basis which is employed, so that one can, going to the highest level of this grade that I am describing, be satisfied that it is not just a revenue or taxing measure in the broadest sense.

HAYNE J: For the moment I do not understand that, Mr Jackson. It might evolve.....course of argument.

MR JACKSON: I have trouble separating the levels, your Honour. I appreciate that, and I am not sure that, in generality, one can make an assertion as broad as some of those that I am trying to respond to your Honour about with confidence.

HAYNE J: We will see whether at some point you do have to get to that level of generality.

MR JACKSON: Thank you. Your Honours, the fixation of charges, in order to be understood, requires some of these very basic understanding, we would submit, of what the particulars of the services were, and I have given your Honours a very simple example of the flight from Sydney to Melbourne. But, those services are very briefly set out in the appeal book in volume 1.

KIRBY J: Is there, on a single piece of paper, a dictionary of the acronyms?

MR JACKSON: Yes, there is. It has been provided by our learned friends. The respondents have one headed "Glossary of Terms".

KIRBY J: Yes, thank you.

MR JACKSON: The services appear at page180 of volume 1 of the appeal books, where they were annexed to Mr Richardson's statement which became evidence in the case. Your Honours will see that at page 180 of volume 1, the heading "TERMINAL NAVIGATION SERVICES AND FACILITIES" is followed by the heading, "SERVICES", and there are at page 180 through to page 182, a list of 10 items starting with what is described as "Airways Clearance Service", and ending on page 181 with "Flight Planning Service". At the top of page 182 is then a list of the facilities, which are those that relate to the terminal navigation service and facilities - page 182 and 183. That is then followed at 184 by a description of the services and facilities, broken up into two parts in the same fashion, for the en-route navigation services and facilities.

Your Honours will see, by simply comparing page 180 to page 184, that terminal navigation and en-route are the same to that extent, and there as a matter of generality - - -

GAUDRON J: The en-route services extend beyond the land mass of Australia?

MR JACKSON: Yes, your Honour. Australia is, or Australian airspace covers something which is described as, in evidence, approximately

one-ninth of the world's surface, much of that, of course, being into the Indian Ocean and to the south.

GUMMOW J: What is it that fixes that portion of the earth's surface? International agreement that brings that about?

MR JACKSON: It is done by regulation. I can find the statutory source, your Honour, but there is a brief picture of it in volume 5 page 806 which is a bit of a map of what corresponds broadly to that surface, though the evidence said it was not precisely accurate.

KIRBY J: One infers that there must be some international agreement so that there can be responsibility of passing aircraft from one nation's airspace to another.

MR JACKSON: Yes, that is correct. There are international agreements of that kind and what happens is that an aircraft passing from one en route area or airspace, will go into another international airspace - there is not a gap in the middle which one might describe as the high seas.

KIRBY J: Did I understand, in the materials, correctly, that en route means in motion, but not in the mode of landing or taking off?

MR JACKSON: It means, to be strict, your Honour, that one is more than 55 kilometres by radius from the aerodrome control tower, so that it is a linear distance that takes your air traffic services from the terminal navigation kind to the en route kind.

KIRBY J: So, even if you are not landing, if you move within that radius you are not en route, you are within a different category?

MR JACKSON: You are in the terminal navigation zone and your en route charge, which is a function of distance, does not include the 55 kilometre radius.

KIRBY J: Even though you are not going to land at the particular airport?

MR JACKSON: I think in that case it might. To tell your Honour the truth, I am not sure - I am told it does, if you do not land.

KIRBY J: It does include the only en route charge or it includes - - -

MR JACKSON: If you do not land, if you pass through an aerodrome's control zone or 55 kilometre zone, but do not land there, then you will still be charged for the distance you travel through that zone en route. So, for example, if one were to fly over Coffs Harbour from Sydney to Brisbane, then the fact that you have gone through the terminal navigation zone for Coffs Harbour does not affect your en route charge. But for the 55 kilometres from Sydney when you took off, and for the 55 kilometres into Brisbane when you land, you are in the terminal navigation zones of each aerodrome.

GUMMOW J: What I am anxious to find out, in relation to these submissions about services, it may be that these are not services in the service that one can have them or not have them, one can avail oneself or one does not avail oneself, but if one wants to conduct these flying operations one has to have them, as a matter of law, and if one does not avail oneself of it, one is grounded.

MR JACKSON: Yes.

GUMMOW J: Is that explained anywhere, the legal structure?

MR JACKSON: The legal structure is not explained in any of the judgments.

GUMMOW J: It seems to be fundamental if we are going to be characterising something as taxation or services.

MR JACKSON: To be precise, your Honour, yes, it is fundamental. The case was conducted on the common ground that as a matter of practicality the - - -

GUMMOW J: I am not worried about practicality; I am worried about legality.

MR JACKSON: I know, your Honour. That is why I said "to be precise". That legal position we think is described in an earlier decision involving the Civil Aviation Authority and we may be able to readily pick up the provisions in it.

GUMMOW J: Otherwise this is all just very entertaining. It is not compulsive to any conclusion of law in my mind.

MR JACKSON: We will provide the statutory basis for it, your Honour, but it is certainly common ground that in the case of a regular passenger transport operator that the services have to be conducted within controlled airspace and that that meant in accordance with the directions of those who were providing on behalf of the CAA.

Your Honours, having briefly referred to terminal navigation and en route facilities and having drawn your Honours' attention to the fact that they are very similar, though in the case of en route, for example, the facilities do not include the control tower at the aerodrome, they do not include the instrument landing system. So they are not precisely the same but in a broad way they correspond to a significant extent.

The third of the service lines for which the charges were imposed was the rescue and firefighting service. The description of the services and facilities for the rescue and firefighting service appears at page 187. Could we take your Honours from there to the charges that were fixed and the determination under which they were fixed which appears at page 150 of the same volume, volume 1. "Avtur aircraft" are defined on page 151 to be "an aircraft powered by an engine or engines using aviation turbine kerosene".

The determination distinguishes between avtur and non-avtur. In a practical world non-avtur is often treated as being avgas - that is aircraft that are powered by aviation gasoline. Aviation turbine or avtur aircraft in a broad sense generally include the larger aircraft which are operated by regular passenger transport operators and helicopters and so included the aircraft which were operated by Compass. The charges as fixed in respect of avtur aircraft commence on page 152 with clause 1 at line 30.

CALLINAN J: Mr Jackson, could I just ask you a question about that?

MR JACKSON: Yes, your Honour.

CALLINAN J: I see that Dr FitzGerald in his executive summary - it is Dr FitzGerald, is it not?

MR JACKSON: Yes, your Honour.

CALLINAN J: At page 768 says that - I think it is 768 - says that the charges are based in part, at least, upon "capacity to pay" and he explains that in some detail in his actual report. Then her Honour the primary judge, Justice Branson, makes a finding, I think, to that effect, that "capacity to pay" is one of the principal yardsticks. It does not immediately appear to me that the fixation of the charges by reference to weight, as appears at page 152 to which you are directing us, is in any way at all a fixation of chargers by reference to capacity to pay. It might coincidentally reflect capacity to pay, the weight of the aircraft on take-off or landing, but there does not seem to me to be any necessary connection between a charge based on weight and capacity to pay. Now, could you explain that to me, because, obviously, it is important, it is central to the judgments down below and it is obviously one of the clear indicia of a taxation system. A progressive taxation always involves capacity to pay.

MR JACKSON: Yes, your Honour. If one looks at any of the services of this kind in this case what we say or submit is that one can look at it from, to use the economic jargon - - -

CALLINAN J: Excuse me, just before you go on, I suppose my question is this, why does Dr FitzGerald say that the charges were in fact fixed by reference to capacity to pay?

MR JACKSON: He does not say why. Mr Gemmell, who gave evidence, who was part of the team at the Authority during the relevant years and who was also an economist, was conscious of the capacity to pay principal and - - -

CALLINAN J: But was that simply a coincidental consideration or was that the moving factor in fixing the charge?

MR JACKSON: It was a factor.

GLEESON CJ: The actual expression used was "economic capacity to pay".

MR JACKSON: Yes, your Honour.

GLEESON CJ: Which may be different, for example, from financial capacity to pay. Where do we find the most convenient explanation of the meaning of the expression "economic capacity to pay"?

MR JACKSON: In section 3 of Dr FitzGerald's report is where he sets out what he refers to as Ramsey pricing. I am not sure that Dr FitzGerald uses that precise expression again.

GLEESON CJ: But he uses the expression which he puts in inverted commas.

MR JACKSON: Yes.

GLEESON CJ: Where do we find a definition or explanation of the words in inverted commas?

MR JACKSON: I do not think you do.

GLEESON CJ: I find it difficult to accept that.

MR JACKSON: The best that you will find is in section 3.5 on page 778 of volume 5, line 10, approximately.

GLEESON CJ: I do not find that very helpful. This expression is repeatedly used in inverted commas as though it is a term of art. It is not a term, the meaning of which is immediately evident to me. Are you telling us that the term of art used as fundamental to this litigation has never been defined or explained?

MR JACKSON: In a strict sense, yes, your Honour. It has not been defined in that sense. What happens - - -

GLEESON CJ: Is it an expression whose meaning you can find out by going to a dictionary and, first of all, looking up the word "economic", and then looking up the word "capacity", and then looking up the word "pay"?

MR JACKSON: No, your Honour.

GLEESON CJ: Well then, what should we take it to mean?

MR JACKSON: We would suggest that the way in which your Honours would read the expression is to have regard to the way in which Dr FitzGerald, in section 3 of his report, develop what are from an economics perspective - - -

GLEESON CJ: Do you think you know what it means?

MR JACKSON: I think I can tell you some features of what it means, your Honour.

GLEESON CJ: What do you think it means?

MR JACKSON: It means that one is looking at the economic circumstances of the users who - - -

GLEESON CJ: Do you mean financial circumstances, whether they are rich or poor?

MR JACKSON: Not individually. You are looking at - - -

GLEESON CJ: What do you mean by economic circumstances?

MR JACKSON: And that is why I have tried to use the word "economic". We are looking at the characteristics of sectors of the user group.

McHUGH J: "Categories" is the term that is used.

MR JACKSON: Categories, yes. So if one is looking at the user group for the facilities and services provided by the CAA, an easily identifiable category would be the major airlines, and they are referred to, by that language, "major airlines" in a number of parts of the evidence.

McHUGH J: This definition in this Ramsey system, seems to be based on prices, or rates being determined, to different categories of users, it inverse relation to their sensitivity of their usage to the price. But is that meaningful in what is, in effect, a monopoly situation? I mean, this categories of users are like tobacco addicts, are they not? They really do not have any choice. They have to use these services.

MR JACKSON: In one sense yes, your Honour, but in another sense, no. To take a simple example: if you have, in the general aviation sector, landing charges which were imposed, as was contended at the trial, on a per movement basis equally, so everybody who uses - - -

McHUGH J: By - - -?

MR JACKSON: By the Civil Aviation Authority. So if every time an aircraft landed at Coolangatta, whether it be a light aircraft or a 737, the charge was the same because the actual use of the control tower was the same, that would economically force the general aviation user out of the user group, because he does not have the capacity to pay for it as a category.

CALLINAN J: Mr Jackson, I suspect that the term really blurs two concepts, one being general economic efficiency in the community or the economic efficiency of a public utility or public resource, on the one hand, and the capacity to pay for that resource by various categories of users, some of whom have a greater capacity than others. In other words, the adjective "economic" does not relate to the capacity to pay but relates to the economics in community terms. I really get that, I think, from paragraph 3.5 on page 778. I may be wrong, but I wonder whether that is so.

MR JACKSON: Certainly, in that paragraph and elsewhere before and after Dr FitzGerald refers to the concept of efficient use of the resources.

CALLINAN J: And always in the context of discussing Ramsey pricing, which seems to be pricing of public resources or public utilities.

MR JACKSON: Yes. In so far as the supply of the services and facilities in this case focuses on Ramsey pricing, and your Honour raised with me a moment ago, what has that to do with weight? Weight is, as we in effect submitted, a measure of value to user in a sense.

CALLINAN J: That is exactly how it appears to me. That does not appear to me to be something that is necessarily, by any means, based on capacity to pay. No doubt it reflects, to some extent, capacity to pay; though the bigger the weight, I suppose, the more the owner of the aircraft or the user of the aircraft can charge for that journey, or the greater gross return. So it is related to capacity in that respect, but that is coincidental.

MR JACKSON: Yes. That is looking at it from one aspect, your Honour, and in the economic jargon that is looking at it from the demand side. Looking at it from the other side, which is the way in which the CAA comes to provide its services and what it provides, which in the economic jargon is the supply side, weight is also relevant and it is relevant because, at the most general level, the larger aircraft are the aircraft for which the more expensive services and facilities are provided.

McHUGH J: The evidence was, was it not, that there was a high correlation between the number of seats on an aircraft and the square root of its maximum take-off weight and that, of course, was then related to the economic capacity of the users.

MR JACKSON: Yes; so looking at it from that side, that is the demand side, when one is looking for something that is rational about the Ramsey pricing of the services it does produce a result whereby across the fleet, per passenger, the rate of charge is relatively flat.

GLEESON CJ: Is there involved in this the idea that although the Authority has a monopoly over the services it provides to airline operators, there is some level of competition as between the airline operators themselves, and there is also the assumption that they will pass on to their passengers the burden of these charges?

MR JACKSON: Certainly the latter, yes; and the former, I think, goes with it.

GAUDRON J: I thought there was another level to it, namely that it was in the - well, it may be in the economic interests of the service provider to maintain, as it were, the existing relationships. Because, for example, if the general aviation people were forced out of the field there would be a need to upgrade facilities elsewhere; so that there was the economic interest of the service provider involved in it.

MR JACKSON: That is, with respect, your Honour, a valid argument, but the same circumstance, the forcing of the general aviation operators out of the field has an efficiency aspect which is that once he is out of the field you have to recover the costs, and the services and facilities of this business are mostly fixed costs. You have to recover across the smaller user base. So that it is not just maximising the revenue to be obtained by the business - although that is certainly a consideration - but also, in an efficiency sense, minimising across the whole user base to price your services so that the most efficient outcome is arrived at, and that is looking at it - - -

HAYNE J: What is the significance of any of those considerations to the legal question that is presented? They are, perhaps, powerful commercial, economic, other reasons, but how do they relate to the legal question?

MR JACKSON: If one returns to the notion of taxation, your Honour, and section 67 which is, in this context, requiring one to refer to the expenses, we would submit that there are two ways in which these things become relevant. So far as one is looking at the Ramsey pricing or demand side, and the relatively flat charge across the user fleet for passengers, that shows that the charges are connected in a rational way.

HAYNE J: Well, rational in the sense that you may state the reason and the reason is capable of being understood, but that, at least at first blush, tells us nothing of whether that is a sufficient legal connection.

McHUGH J: I would have thought on your case, it really had little, or it had nothing to do with it. On the way that the judges in the courts below have approached the matter, the issue of Ramsey pricing is, if not central, certainly very important, because they were looking at it in terms of the services to the individuals and, if I recollect correctly, is one of the reasons that Justice Branson thought that the Ramsey pricing system was unfair to the individuals who were obtaining - or some individuals who were obtaining the services, but does it affect your case in any way at all?

MR JACKSON: It is one limb, as I have just suggested it, by which we seek to support compliance with the section, but the other way in which - - -

HAYNE J: A necessary limb?

MR JACKSON: No, it is a separate and cumulative one. The other way in which we seek to sustain the validity of the charges is to look at it, as I described to your Honour Justice Callinan a moment ago, from the supply side, that is, the costs of the authority, that the services were provided in a way which was structured to provide them because of the fact of who was in the user fleet, in other words, the larger aircraft required the more expensive services, and that there is that connection to weight, because at the end of the day Ramsey pricing is only relevant one way or the other either as excluding the character of the charge as not amounting to taxation or not doing so by reference to the weight consideration in the charging formulae.

CALLINAN J: Mr Jackson, can I just ask you another question, it is slightly different, but the section requires a reasonable relationship to the expenses incurred. This is a problem that is frequently arising with corporatisation, is value in the assets, capital value of the assets being corporatised, and then that value is treated as the equity investment, as it were, in the corporation, and the dividend to be paid is regarded as a cost of capital, as an expense of capital and it is often compared with borrowings. The general view being that, depending upon the interest rate, that it is cheaper usually to borrow than it is to pay a dividend. Now, it is legitimate accounting practice, as I understand it, to treat a dividend, in some circumstances at least, as a cost of capital, cost of equity capital. Was any such exercise done here?

MR JACKSON: There was no accounting evidence which said that that was the basis on which the proper component was fixed. However, the evidence did say that in calculating the rate of the charge the rate of return on assets required under the sections to which I took your Honours a moment ago was treated as an expense but not provision for the dividend as opposed to the rate of return on assets.

CALLINAN J: You are familiar with the concept I am talking about?

MR JACKSON: Yes, your Honour.

CALLINAN J: It did not quite get to that level?

MR JACKSON: It was not how it was done at the time. They did it by reference to the rate of return on assets, bearing in mind we are talking about 1991.

CALLINAN J: It might have been a perfectly legitimate alternative way to do it. There was some evidence, I see, to suggest that the actual mark-up, as it were, was, I think, less than 7.5 per cent; it was five point something.

MR JACKSON: It was 5.8. It was not an immodest amount and it was not attacked in the case and the issues between the parties were not joined on the amount of the mark-up. It was the fact of any inclusion of a rate of return or profit that was attacked.

McHUGH J: Did your researches extend to the United States case law in this area? There is a huge amount on public utilities and rates of return and recoveries and what they can charge in the States.

MR JACKSON: Yes, your Honour.

McHUGH J: Do they have any relevance here?

MR JACKSON: There is a United States case that deals with Ramsey pricing for airways services under a statute which has had an express requirement that there be a direct relationship between expense and charge.

KIRBY J: Is that the one you quote in your submissions, the United States Supreme Court decision?

MR JACKSON: No, it is a Circuit Court of Appeals, your Honour. We can provide a reference to it. Could I take your Honours back to the determination which was at volume 1 at page 152. Clause 1, which your Honours may recall related to the avtur aircraft, was the clause that fixed the charge for terminal navigation services and it fixed it for avtur aircraft when they landed at any one of a class of specified aerodromes.

One goes to table 1 referred to in the second line of clause 1 to see what the specified aerodromes are in column 2. At page 153 table 1 has four columns. The left-hand column gives you the item number and item No 1 has alongside it in the next column to the right, which is column 2, the aerodromes specified in schedule 1. Schedule 1 then appears at page 165. There are 32 aerodromes including the capital city aerodromes but one can loosely think of them as being aerodromes where an aerodrome control or control tower service is provided.

Your Honours will see if we go back to the language of clause 1 at page 152, that it is in respect of the landing of an avtur aircraft at one of those aerodromes, that clause 1 makes applicable a charge for services and facilities at the aerodromes referred to in column 2, and that takes one back to the same reference against item 1.

The services and facilities at the aerodromes referred to in column 2 are the "terminal navigation facilities and services" relating to the same aerodrome which is that referred to in Schedule 1. The weight reference in the charge comes under column 3, that is that the charge is payable at the "Rate per 1000 kilogramms weight", as specified on page 153 under column 3, item 1, "$3.65" for terminal navigation services. The word "weight" is defined in the earlier part of the determination on page 152 to mean "the maximum take-off weight", which is why that expression is used in the case MTOW.

Still with avtur aircraft, the same scheme is provided for each landing by an avtur aircraft in clause 2, but it relates to a landing at a place which is not an aerodrome and, for example, one would have in mind a helicopter pad, but in circumstances where an aerodrome control service is available at the time of the landing within the control zone being the 55 kilometre radius. That is, the charge is still applicable for services and facilities at the aerodromes referred to in column 2 which are the Schedule 1 aerodromes for such a landing.

Clause 3 of the determination relates to the rescue and fire fighting service, and it returns to the language of clause 1 to the extent that it refers, again, to a landing at an aerodrome referred to in column 2 of item 3, but on this occasion in column 2 of the schedule, the services and facilities at the aerodromes are the services and facilities of:

fire fighting and rescue service, being such a service relating to an aerodrome specified in Schedule 2.

And Schedule 2, which appears under Schedule 1 at page 165 to which I took your Honours before, lists the aerodromes where a charge is payable for the fire fighting and rescue service, and not all aerodromes where terminal navigation facilities and services are provided have a fire fighting and rescue service.

GLEESON CJ: Now, what do you understand to be the point of collision between the opposing cases here? What exactly do your opponents and the courts below say is wrong with this way of doing it? What, as you understand it, do you they say is a permissible way of doing it?

MR JACKSON: They say, in respect of the use of weight, that the provision of the services and facilities is not related to weight., full stop. The courts below - - -

GLEESON CJ: Do you mean by that that the cost to your client of providing the services and facilities is not something that varies according to the maximum take-off weight, and therefore this is an impermissible way of doing it?

MR JACKSON: That is not what we think they mean, your Honour. They mean, we think, that when an aircraft lands at an aerodrome, and the firefighting and rescue service is made available to it, if it is on fire it uses the same service as does any other aircraft, regardless of its size, and therefore its service does not vary according to weight, and the expenses are not reasonably related.

CALLINAN J: That cannot be right in the case of passengers because if you have a 747 with 400 people on it and an aeroplane catches fire, surely you probably need more trucks, you probably need more staff.

GAUDRON J: And surely they are not paying for the facility used, they are paying for its availability in the event that it is needed.

MR JACKSON: Yes, your Honour, but they say once it is available it is used equally by everyone, and so the charge should be equal.

The same is said of the terminal navigation service, that the provision of the services and facilities, which is structured on our case to take account of the larger aircraft and their greater use, or their greater need for services and facilities, which is a larger part of the expense, does not matter.

KIRBY J: They seem to slip in an adjective "particular". They seem to slip in the adjectives that requires you to concentrate on a particular service rather than in the particular case, with the particular aircraft, and the particular landing or manoeuvre, instead of looking at this as the provision of an integrated network of services that cannot be dissected in such a manner.

MR JACKSON: Yes.

McHUGH J: It is quantum meruit case. You can only charge for what services you render.

KIRBY J: I am sure Mr Campbell will put his case probably a bit more passionate than you are doing at the moment.

GLEESON CJ: We are operating under an adversary system here which has many faults, but it its supposed advantage is that it enables us to determine precisely what is the point of collision; what the fight is about.

MR JACKSON: Yes.

GLEESON CJ: Could you just state in a summary form what you think the fight is about.

MR JACKSON: On that issue the fight was about the subjectmatter as I have just described it. In other words, the case which was presented by the respondents at trial was one which said the use of the services is equal and therefore the charge should be equal, once the services are provided. They called only two witnesses in their case, one being an - - -

GLEESON CJ: Presumably they were complaining that Compass were overcharged; is that right?

MR JACKSON: Yes.

GLEESON CJ: Overcharged in what respect?

MR JACKSON: Overcharged because Compass was paying too much because its charges were a function of the weight of the aircraft rather than being an equal amount per movement, with every other aircraft that used the facilities.

KIRBY J: So, did they want to be charged the same as, say, the light aircraft that go to Newcastle?

MR JACKSON: Yes.

GLEESON CJ: Because Compass was trying to get into the business of mass movement of passengers, they were being charged on a basis which discriminated against them, is that part of it?

MR JACKSON: They did not put their case that way but that would be consistent with the Ramsey pricing view of the case taken by their Honours below.

GLEESON CJ: Well, I do not want to run the risk of oversimplifying these things.

MR JACKSON: I am sorry, your Honour.

GLEESON CJ: Yes.

KIRBY J: Did they offer, ever, any of the respondents, to pay any fee or did they just say, "Well, it is illegal and therefore we do not have to pay anything because the only fee you have levied is a taxation or is not otherwise authorised by the Act"?

MR JACKSON: Yes, it is the latter.

KIRBY J: "So, we do not have to pay anything."

MR JACKSON: That is right.

HAYNE J: The relationship asserted against you, required by section 67, is a relationship between charge levied and service provided in the sense of benefit obtained by the operator, is that right?

MR JACKSON: No, not at the first level, your Honour. We would submit that the first level of the relationship is between the rate of the charge levied and the expenses and - - -

HAYNE J: I am speaking of the case against you.

MR JACKSON: I am sorry, I apologise.

HAYNE J: The case against you was that the relationship - - -

MR JACKSON: Yes, I am sorry, your Honour. Your Honour is quite right. I apologise. I did not hear the first part of the sentence.

HAYNE J: Yes.

McHUGH J: As I understand, your case is you want to have your cake and eat it, too. You say, "Well, the section does not require any relationship between service provider and benefit obtained but, if it does, we provided it - we did it any way".

MR JACKSON: Almost, yes, but in the first part we would qualify it slightly by saying that the relationship, provided it is rational, on the economic grounds that we have already discussed, is sufficient to create the reasonable relationship. In other words, it is not willy-nilly, we do not suggest it can be done arbitrarily or any sum can be imposed. Section 67 has to be given meaning.

KIRBY J: The trouble with rationality as a criterion is that it does allow an awful lot of factors to be heaped into this particular charging system which could get quite distant from a connection with or in the terms of the statute with - in the terms of 67 with being reasonably related to the expenses incurred.

MR JACKSON: Quite, your Honour. We would accept, looking at the weight factor, that if the only thing that we put forward was that there is a basis that can be seen, that that would not be nearly as strong a case as the one which we suggest that we have, namely that it is economically efficient, according to the expert and public policy pricing principles which we followed to do what we did; and at the same time it is connected to our costs because of the way in which our services are provided is itself structured by reference to who was using them and we incur costs of a greater degree to different kinds of user.

McHUGH J: In terms of you achieving your forecast, I suppose the Ramsey pricing system is relatively crucial?

MR JACKSON: It is, your Honour, to take into account - and it is crucial to take into account when you are setting a charge for a period that is going to operate into the future, how what you do will have an impact on the use. The expenses to be incurred to which section 67 refers are plainly expenses which you are budgeting for and if, for example, we were to take the suggestion which was made by the respondents and introduce simply a per movement based charge for the existing facility, say, at the beginning of 1991, we would have greatly affected the usage by different people. The general aviation operator, as your Honour Justice Gaudron took the example before, would be forced out of business. All sorts of patterns of usage would be affected. It is not simply a question of postulating the easiest or the simplest case, as in some instances our opponents do, and say, "Well, if you look at that you can see it is not equal".

GLEESON CJ: Is one of the ways in which you put your case on the first aspect of section 67 that provided there is a relationship between the charges and the expenses incurred, whether or not the particular relationship is reasonable is a matter for the judgment of the authority setting the charges, and the only scope for curial intervention is if a court can perceive that the relationship is not one based on reason?

MR JACKSON: Yes, that is putting it better than, I must say, I have been doing so in the last hour, with respect.

GAUDRON J: The relationship, though, has to be between the rate, not the particular charge?

MR JACKSON: Yes, rate envisages generality.

GAUDRON J: And the expenses incurred not in relation to the service, but to the matters to which the charge relates.

MR JACKSON: Yes, there are three levels of width, we would say, in section 67 structure. One, the word "rate" indicates generality, rather than a particular service to a particular person on a particular occasion, which is how our learned friends would try to restrict it. The second is, as your Honours mentioned, that the relationship which is reasonable, has to be between the rate and the expenses in relation to the matters and then the matters themselves are the matters in relation to the charge, the language of relation having been used twice, or relationships of that kind, having been used three times in the section. In other words, no narrow bounds, we would submit, are, apparently, to be taken out of the intention behind the section.

GLEESON CJ: Let me give you a particular example: suppose an authority, having the power to fix filing fees in a court system, decided to fix a fee of $3,500 for filing process in the commercial division of the court, and $1,000 for filing process in the common law division of the court, partly on the basis of an assumption that the users of the commercial division would have what might be described as an economic capacity to pay, would that involve taxation?

MR JACKSON: Not if, looking at the users in an aggregated way, the amount that was being charged was appropriate and not simply seen to be a revenue raising amount.

McHUGH J: Perhaps it depends upon the context of the word "taxation". In this statute, I think you have to say that taxation is not looking at taxation in terms of individuals, but taxation in terms of the users, the operators, as a class.

MR JACKSON: Quite, your Honour, and to take the example, which is the best one for us, of the rescue and firefighting service, the charge is to be fixed for the "service or facility", to use the language of section 66(1). The "rescue and firefighting service", singular, is what is the function under section 9(1). That is what section 67 is operating on as a matter of the statutory language for that service, looking at it as a whole.

GUMMOW J: The service is availability, is it not? May never be utilised one year to the next. There may be no fires.

MR JACKSON: Quite, your Honour. It is an important point.

GLEESON CJ: It would be a fairly unsophisticated approach to the provision of firefighting services to say that you only get the benefit of them when somebody throws a bucket of water at your aeroplane.

MR JACKSON: Quite, your Honour, and I do not accuse my learned friend of suggesting that it was a charge which was only properly payable if that happened. He is not that unsophisticated, that is for sure.

GLEESON CJ: But suppose that the nature of the firefighting services available at Lord Howe Island are substantially different from the nature of the firefighting services available at Mascot. How does this system take account of that difference?

MR JACKSON: It does not. It imposes in those aerodromes a charge which is equal in rate. That can be justified by reference to a number of different considerations. Looking at the expenses, which is what section 67 directs one to look to, the fact is though those costs are quite different, the costs of the CAA are not easily and entirely allocated one place to the other.

GLEESON CJ: But suppose an airline operator wanted to specialise in flying to Lord Howe Island from Sydney - provided no other air services than that - and then challenged these charges for firefighting services and said, "Look, the firefighting services at Lord Howe Island" - I will not characterise them too vividly - "are significantly less expensive for the Civil Aviation Authority to provide than the firefighting services at Sydney or Brisbane. If we were flying from Sydney to Brisbane these charges might be reasonable but we're flying exclusively from Sydney to Lord Howe Island. How do you justify charging us the same for firefighting services as you would charge if we were flying from Sydney to Brisbane?".

MR JACKSON: The first thing is that you have to take off from Sydney and the charge is only imposed when you land.

GLEESON CJ: That is why I compared heading to Lord Howe Island with heading for Brisbane.

MR JACKSON: Quite. The point is that the landing charge is not, on the face of it, imposed in respect simply of the landing at Lord Howe Island. It is at the second destination as well. If one wants to truly be location-specific, the firefighting service is provided in both places whereas the charge is only incurred on landing. One could say about that, "Well, the charge on landing is the charge for the landing and the subsequent taking off", and potentially that might deal with the point to some extent, but the example of the flight from A to B demonstrates that the services are provided to the user, at least in that simple example, as part of a network which involves at least two of the aerodromes.

KIRBY J: But take an extension of that simple example, the opening up, say, of an air service from Lord Howe Island to Coffs Harbour. Now, in fact, there are increasing numbers of such services. There is one operator that flies once a week from Sydney to Dunedin, I think. You could understand why they would say, or at least think, looking superficially at section 67, that the expenses incurred for them in the, shall we say, very modest facilities that are available at those two airports, render it rather unfair in the sense that imposing upon them for the expenses actually incurred by you, the Authority, for the facilities provided for them in Coffs Harbour and in Lord Howe. I mean, compared with the facilities provided at Sydney or Brisbane or the other major airports and that, in fact, they are cross-subsidising the major airports for their very small and modest operations. That is, I think, at the heart of the controversy which the Full Court and Justice Branson throw up to us.

MR JACKSON: Apart from suggesting that even the simple flight is part of the network, there are two other points which perhaps could be made in response to the characterisation that is suggested by the example given by your Honour. The first is that the expenses incurred by the Authority are not just for the rescue and fire fighting service, to take that simpler example, are not just those at that location. The Authority, in fact, operates its business at over 40 major locations in terms of aerodromes and at other places. It has a substantial amount of indirect costs that do no relate to any particular service line, let alone any particular location of a particular service line.

CALLINAN J: But they can always be calculated. There are all sorts of sophisticated ways of doing that.

MR JACKSON: They could be allocated, your Honour.

CALLINAN J: And then attributing them to a service - - -

MR JACKSON: they could be allocated, and there are a number of potentially different ways which one could do it that accountants could have a debate about, and perhaps we would be before your Honours as to a different reason why the charges are invalid. But the point that we seek to make is, it is not contrary to the notion of taxation, or it does not invoke the notion of taxation to say, you conduct your business on such a basis where you allocate joint indirect costs across a whole range of locations and aggregate your direct costs, and charge a per unit service flat fee.

KIRBY J: But the trouble for you is, you operate within - you see, you have not completely released yourself from the apron strings, and you operate as a statutory authority within two constraints, the constitutional constraint which, on one view is the exact one picked up in the second element of section 67, but also this rather peculiar obligation that the Federal Parliament has imposed on you to make your charges reasonably related to the expenses incurred by you in relation to the matters to which the charge relates. Now, you have to take a very broad view of the later part of that formula in order to pick up all the inter-related network that extends to Albany in Western Australia, for my little operator who is just popping over from Lord Howe to Coffs Harbour.

MR JACKSON: Yes, we do, and we say we do have to take a broad view of it, and we say that there is support for that in the statute by reference, for example, in this case your Honour has given, to the rescue and firefighting services, the provision of rescue and firefighting services around the country. That is what the charge is fixed in relation to.

KIRBY J: But it would not be all that hard, as Justice Callinan said, to work out a formula that was not, as it were, fixed only on weight, but also took into account what you actually provide. On one view of it - and this was certainly the impression that the judges below reached, all of them - that that was what Parliament was getting at: that you have had a blanket-approach determined essentially on weight, instead of having a more complex formula that took into account such matters, but tied it in to what you are actually providing in the particular aerodromes, for the particular air flights that were concerned. Is it not a question of whether that is what is what Parliament was getting at when 67, read in its context?

GLEESON CJ: That is what Mr Justice Beaumont meant when he said you did not even try.

MR JACKSON: Yes, we did price and we did charge. We purported to impose a charge which was networked. It was the same for every place at which, amongst the 32 aerodromes, the landing occurred. There was no - - -

GLEESON CJ: What he said was you did not even try to relate the rate of a charge to the expenses incurred in relation to the matters to which the charge relate. Now, he may have been right, or he may have been wrong, but that is the bone over which we are fighting, is it not?

MR JACKSON: Quite, your Honour; there is no dispute that we did not try to charge by reference to the cost of specific locations. We deliberately charged by reference to the costs of the network of services and averaging them out, and that is the way in which the charge reads.

McHUGH J: Section 67 seems to me to make it plain that you have to segregate the various forms of services: the navigation facilities, the rescue and firefighting services, and so on. If the section requires you to do that, why does it not require you to segregate the places where these services are provided?

MR JACKSON: It does not, in our respectful submission; and the Act does not anywhere refer to such a requirement. The requirement came in - - -

KIRBY J: Would it have been beyond you to have had a formula that had two elements - that is to say, the common element for the national network, and another formula that took into account the actual services that you provide in a particular case, being the expenses incurred by you in relation to the matter to which the charge actually relates? That would not have been beyond the capacity of the economist to work out a multiple formula. That is what they are paid to do.

MR JACKSON: Undoubtedly estimates could be made on different bases.

CALLINAN J: It is done all the time in business. Companies often divide various aspects of their business into business units to see how each unit is performing, and each unit bears a cost of the common expenses, such as, for example, head office expenses. It has now become, I think, a very simple accounting exercise done very, very frequently in practice.

MR JACKSON: Quite, your Honour, the expenses can be allocated. There was evidence in this case that the resources available to the Authority at the time made some of that a bit more difficult than it appears as we talk about it in generality now. Could I mention one other thing to your Honour that when one is talking about the charge and weight relationship, one is talking about the equity between the bigger and little users and the facilities that correspond to their use. When one is talking about the different locations, one is talking about what is happening at the location. The two can be interrelated, as the example your Honour has given me, but they are not necessarily, and they are not necessarily related in a way that means a little man flying between two small places is inequitably dealt with in substance. In other words - - -

KIRBY J: It sounds a bit inequitable to me.

MR JACKSON: The reason why I say that, your Honour, is that if you take Mascot, the rate of the charge expenses is very low, if one looks at it in terms of the weight that is landed.

CALLINAN J: Mr Jackson, to take the Chief Justice's example, the much reduced frequency of landings, say, at Norfolk Island might make the cost of the provision of admittedly an inferior service, but the relative cost of the provision to the Authority might make the costs significantly higher in relation to each landing simply because of the infrequency of landings.

MR JACKSON: Quite, your Honour, and to the user. So, if one is talking about the way in which networking - that is, averaging the charges over the different location - works, it does not simply work to the disadvantage of the little person.

CALLINAN J: But you have not done it that way, that is the problem.

MR JACKSON: No, and deliberately not so, and we are conscious again in terms of the services that are provided and where they are provided and at what level they are provided, of trying not to do things which will distort the usage pattern that would otherwise prevail.

KIRBY J: The real question which is posed, as it seems to me, by the decisions of the Federal Court is whether your Sir Humphreys, coming from the old regime where it was entirely natural and right that it should be thought of as a great national service provided across the nation for uniform procedures, then in a new regime which, at least on the face of things or at least arguably, required them to look for the charges on a commercial footing for the particular services that you provided just kept thinking in the old regime and not thinking in the new section 67 regime - leave aside the taxation question.

MR JACKSON: In terms of the statutory development, the only submission which I would make directly in response to that is that section 26(2)(a) of the Air Navigation Act had a provision limiting charging powers in the same way as does section 67.

CALLINAN J: But once you corporatise, you have got to do these things much more rigorously.

MR JACKSON: So the old world was not that different is perhaps the point.

CALLINAN J: No. It did not have to pay a dividend.

MR JACKSON: Quite, and we would submit that section 67 has to be read in that context, on the profit point, obviously.

HAYNE J: Does section 67 require allocation of costs to users?

MR JACKSON: Individually, no.

HAYNE J: Why not? Is that not the central nub of this case and, if it is, can we get to it?

MR JACKSON: Yes, your Honour. It does not, so far as it invokes in the negative requirement of not - such as to amount to taxation, because the case is dealing with fees for services, do not say that and do not mean that. That is the first reason. And, the second reason is because of the language of the section in the first part of it, if I can call it that, where it requires the relationship to be reasonable between the charge, or the rate in this case, and the expenses is expressed when one looks at what expenses are in question in a broad way by reference to two categories of relationship, matters - if you had intended to say that the charge shall be reasonable to each user it would have been easy to say so in much simpler language.

If you had intended by section 67 to alter the meaning or alter the requirement of the way in which the system of facilities and services were provided on a network basis, it would have been easy to say so given that that was the pre-existing system under the prior legislation which included section 26(2).

McHUGH J: But if you apply 67 to what you have actually done, that is to say you seek to determine whether there is a reasonable relationship between the expenses incurred by the Authority in relation to the matters to which the charge relates, these charges relate to landing at Sydney Airport. In that situation, why should you not seek to determine what are the expenses in relation to Sydney Airport?

MR JACKSON: These charges relate to Sydney Airport, your Honour, by looking at what the charge is imposed for. Clause1 imposes the charge on the landing, but there is no charge for the take off anywhere. As our learned friends point in their evidence, the invoices were structured in respect of the flight. In other words, the charge imposed on landing was for terminal navigation services which were provided not just on the landing but in most cases, when you are talking about this category of user, the place you took off.

GLEESON CJ: But the charge, as you rightly say, is provided on landing, not for landing. Landing is not a service provided. If you look, not at the determination but at section 66(1) and the definition of "charge", that tells you what section 67 is talking about, does it not?

MR JACKSON: Yes, your Honour.

GLEESON CJ: It is "a charge for a service or facility provided by the Authority", or it is provided to somebody.

MR JACKSON: Yes, it is provided to someone, it is also provided to the group of users as opposed to the individual, and as section 9(1) says, about the best example of location specific pricing, that is the rescue and fire fighting service, that is the one which one can see most easily separated in terms of cost, that the function is to provide a rescue and fire fighting service. Now, that is the language of the service.

GLEESON CJ: That seems to be at the heart of the issue. It is not unfair to your case, is it, to concentrate on rescue and fire fighting services?

MR JACKSON: No, it should not be.

GLEESON CJ: All right, well, let us do that. The standard of the rescue and fire fighting services provided at various localities throughout Australia would be greatly different and, as has been mentioned already, there would be some localities where there might be a very small number of movements per day. There might be one plane out a day or even a week. Your proposition is, is it, that you are entitled to fix a rate of a charge for fire fighting and rescue services that you provide to someone who flies a light aeroplane once a week to a remote country location, which is fixed by a process that takes the total cost to you of providing fire fighting and rescue services throughout the Commonwealth, and then apportions the cost amongst the users by reference to the price elasticity of demand? Is that right?

MR JACKSON: Yes, your Honour, that is part of the process.

GLEESON CJ: So that you load the cost upon those users who are least sensitive to changes in the cost and you go lightly on people who are most sensitive to changes in the cost and that is the way you work out how much you are going to charge a particular operator for flying an aircraft and taking potential advantage of the firefighting and rescue services at this remote country location.

MR JACKSON: Yes, that is true but it is not the entire picture. The other part of the picture is that what service is provided is as a matter of domestic law because we have adopted the international convention annex required to be at a certain standard. That standard relates to the size and weight of the aircraft. If we are talking about the light aircraft to the remote location, if that is all that lands, there will not be a fire service.

GAUDRON J: And there will not be a charge.

MR JACKSON: And there will not be a charge. There is no charge at an airport where someone does not receive potential services.

GLEESON CJ: There is no charge for landing at an airport where there is no hose.

MR JACKSON: Yes.

GLEESON CJ: That is very reasonable.

MR JACKSON: At the simplest level, your Honour, but it is also, at the same time as the proposition your Honour puts, correct to say that these people who have the greater capacity to pay are the larger aircraft who require the higher level of service and who therefore bring into play in the system in a way that affects the expenses of the CAA the greater level of cost. So we are recovering by reference to those considerations at the same time.

GLEESON CJ: Was the complaint made by or on behalf of Compass related to the fact that, because they wanted to engage in large volume traffic between major airports, they bore an undue weighting under this system?

MR JACKSON: It is twofold. At the general level it is because they only flew to six of the 32 they were by definition contributing to costs that did not relate to what they were doing. That is dealt with in Dr FitzGerald's reports in relation to the rescue and firefighting service. He said, "If you take the capital city airports" - which is what we are talking about, absent Canberra - "which Compass flew to, on the swings and roundabouts they flew to some that were more expensive and some that were not and it didn't average out all that badly". So that is how that first consideration they refer to is raised.

There is a second level at which they say they specifically were disadvantaged because they say if you take Mascot, to which they flew, because it was a very efficient airport, very many landings of very heavy aircraft, if you do the costs on a per landed tonne basis, the costs at Mascot are much lower for the same service as might be provided where there are many less 747s provide landing. Therefore they should share in the lower cost structure and pay less for the services they receive as part of the users who fly to Mascot.

GLEESON CJ: So they said that if you have a system under which you related the fire fighting and rescue services to people who actually use the facilities at Mascot, and you tried to relate the charges or the rates of charge to the costs of providing those services at Mascot, then they would be much better off than they were under this system.

MR JACKSON: Yes.

McHUGH J: But does it work that way? I thought I read somewhere, it was from a question that you put, that there are more movements at, say, Bankstown Airport than there are at Mascot.

MR JACKSON: Quite, your Honour, and then if one then charges on a per movement basis, which was one of the contentions made by our opponents, as opposed to a weight basis, the incidences of the charges would be different.

McHUGH J: Can I ask you something for my information. The Air Navigation Act in section 26(2) enables regulations to be made for charging fees for expense:

incurred by the Commonwealth under this Act or under the regulations, but not being fees or charges the amounts or rates of which exceed amounts or rates that are reasonably related to the expenses incurred by the Commonwealth.....or that otherwise amount to taxation. -

Do you know whether that was inserted into the Act at the same time as the 1988 Civil Aviation Act 1974 ?

MR JACKSON: No, it was before, and it was 1974.

McHUGH J:.

MR JACKSON: It relates in terms of - it refers to the subject matter of the regulations, and so far as charges were fixed under it, my recollection is that they were the safety regulatory form of charges because the airways charges, which are the subject of this case, were fixed under the Air Navigation Charges Act by a slightly different process. But that section did, in principle, relate to charges of the kind that were imposed by the CAA under section 66 in respect of the safety and regulation functions.

GAUDRON J: For the first part of section 67 is your argument essentially that all that was required to satisfy that was that the aggregate of the charges collected should not unreasonably exceed the aggregate of the expenses involved in whatever general service was provided, or made available, let me say, rather than provided?

MR JACKSON: Yes, but we are prepared, as it were, to constrain ourselves one further step than that which is that among the users there is a rational basis for any discrimination.

GAUDRON J: That is on the first leg of your argument?

MR JACKSON: Yes.

GAUDRON J: Yes.

CALLINAN J: The essence of it was that the charges related to the costs of the network, is that not right, the complete Australian network, some 40 or so airports?

MR JACKSON: Yes. There are more. They are the major ones, your Honour.

GUMMOW J: It seems to be that the restraint in 67 really is in the second limb; that is to say, the word "related" is used three times in this branch but the real bite on any restraint is in the second limb, that is the taxation, and then we get down to fees for services.

MR JACKSON: Yes.

GUMMOW J: Now, it is assumed, is it not, that you can have a charge for a service or facility of a particular description wherever provided by the Authority, so this determination operates throughout the country, does it not?

MR JACKSON: Yes, it does, except that it is at the aerodromes, in terms of clause 1.

GUMMOW J: Yes, I know, but at all aerodromes, not just Sydney. You do not have one determination for Sydney and one for Melbourne.

MR JACKSON: No, that is quite right, your Honour.

GUMMOW J: Once you concede you can operate in that broad way within the umbrella of section 67 first branch, you seem to be a fair way down the track you need to be down, but you then have to face up to the question of services and it seems to me is part of a taxation prohibition.

MR JACKSON: Could I, in picking up the comment of your Honour gratefully, advert to one other point that was made in the Full Court. Justice Beaumont construed the determination in the clauses that your Honours have been looking at on the basis that it fixed the matters to which the charges relate as being the services on the landing at Mascot, and - - -

McHUGH J: That was what I was putting to you earlier.

MR JACKSON: Yes, and we have tried, and we have done it in the written submissions, perhaps, in greater detail, to submit that as Justice Branson found, that is not the way in which the determination ought to be read for a number of reasons. His Honour thought that it should be read that way because, in the table which your Honours were looking at in volume 1 at page 153, the reference to "an aerodrome specified in Schedule 1", together with the language of clause 1, "In respect of each landing", meant that one was talking about the services on the landing. And he also referred back to the definition of "landing charge" which is at 151 as "a charge payable in respect of use by aircraft of facilities or a service relating to an aerodrome", singular being the governing thing.

We sought in our written submissions to develop a number of reasons why we would submit, with respect, that is wrong. The first is it is as plain as can be that what was fixed was a network rate, the same rate of charge everywhere. So if one is looking at any ambiguity between the use of the expression in clause 1 that the charge is "a charge for services and facilities at the aerodromes" plural, and the use of "an aerodrome" in the language of column 2, that would be a significant factor, in our submission.

McHUGH J: If your submission is right as to the construction of section 67, the view Justice Beaumont took about the determination would mean the determination was invalid, would it not, because you would not have any power to fix rates in respect of individual aerodromes, or maybe you would, I do not know?

MR JACKSON: To put it slightly differently, what we would submit is, this question of what the particular determination means is one that, if necessary, should be resolved by having regard to the considerations which we set out in the writing to show that the determination was intended to be in respect of the network charge, not in respect of the facilities and services provided on the single landing.

KIRBY J: But this is what Justice Beaumont seemed to stumble on, and it is a problem I have. As Justice Hayne said, you have really got to come down to the construction issue and what you are actually putting. The problem is that against the background of charging in this industry, the Parliament has said that there will be an amount of "a" charge. That seems to contemplate that there will be various charges, but for any charge, it is the indefinite article; "a" charge: you will levy your charge in relation to the matters to which "the" charge - referring back to the singular -relates, and that does not seem to contemplate a network approach because it seems to say, "You do not look at it as a network, you look at it for each individual charge". Then you have to look in relation to that individual charge to the matters to which that particular charge relates. This is what seems to have affected the reasoning in the courts below. It may not be the best way to do it, but it is the way Parliament has commanded that it be done.

MR JACKSON: The reference to "a charge" in section 67, we would submit, is a reference to one fixed under section 66, in this case, (1)(a).

GUMMOW J: No, 66(2).

MR JACKSON: I am sorry, 66(2).

GUMMOW J: The determination for making power under 66(2), does that involve the decision of an administrative character? Does the AD(JR) Act pick up those activities under 66(2)? Does it get judicial review?

MR JACKSON: I had not thought of that, your Honour.

GUMMOW J: On the face of it, one would have thought one could, unless there is something excluding it.

MR JACKSON: In principle, one does not see that it is a category that is excluded, but I have not checked through the legislation to see whether it is or not, your Honour.

GAUDRON J: But it may have consequences for how you approach section 67.

MR JACKSON: Exactly.

GAUDRON J: I would have thought in this context all one would be looking at in terms of the first leg is whether they were capable of being viewed as "reasonably related to the expenses", et cetera. One would not think that this legislation was going to require the courts to involve themselves in determining whether precise rates were or were not of a particular character; rather, whether they were capable of being regarded as reasonably related.

GUMMOW J: Yes, you do not just read an Act like this from beginning to end and then shut it, you read it in conjunction with the statutes like the ADJR Act. That is the way federal law works. I do not think that is an eccentric view. When you construe section 66, you construe it with one eye on statutes like the ADJR Act, or the AAT Act.

MR JACKSON: The submission which I was about to make in response to what your Honour Justice Kirby said is that the reference to "a charge" in section 67 is not to the occasion when the services are rendered. It is a reference to the charge which has been fixed, as Justice Gummow rightly points out, under section 66(2) and one which can be fixed as a rate. So, one does not get from "a charge", in our respectful submission, any great assistance in determining whether section 67 is concerning itself with the occasion of the individual provision of services - - -

KIRBY J: Is that so, because when you look to 66, it talks of fixing charges in relation to particular services and facilities?

MR JACKSON: Section 66(2)(a) refers to "fixing charges", it does not refer to services and facilities. Section 66(1)(a) refers relevantly to "a charge for a service or facility", and then one goes from that language back to section 9 where the services and facilities are described in generality.

KIRBY J: I may not have understood the way the statute works yet, but the charges in 66(2)(a) presumably mean charges of the kind that are defined in 66(1).

MR JACKSON: Yes.

KIRBY J: Well, they are to be charges for services or facilities provided.

GAUDRON J: It does not have to be, though, services "utilised by", they just have to be offered. There is nothing in 66(a) that says used by, utilised by, availed of.

McHUGH J: And add to that what seem to me important words in 67, it is in:

the expenses.....in relation to the matters to which the charge relates -

it is not the expenses incurred in supplying the services or the matters to which the charge relates, it is:

expenses incurred or to be incurred by the Authority in relation to the matters to which the charge relates - - -

MR JACKSON: In making reference to the construction of the determination which Justice Beaumont adopted, the point which I wanted to make ultimately is even if the charge was fixed in respect of the landing, as opposed to, as we submit, the access to the network, to use broad language, as Justice Branson found, still network pricing is not taken out of, or charging is not taken out of what is permissible by the language of section 67, leaving it for the present purposes to consider the negative part of the provision in terms of taxation. Could we proceed from there, your Honours to - - -

KIRBY J: Could I just extend Justice Gaudron's point about "reasonably related to" and the role of courts in this area? Given that the judges below did not consider that it was reasonably related to the expenses incurred, what do you have to demonstrate in order to get us to come to a contrary view?

MR JACKSON: That section 67 does not - this is Justice Beaumont's view - require what is a cost accounting exercise of a bona fide kind. It is dealing with a different subject matter, in accordance with discussions which we have just had with your Honours, that is not a provision of that strict kind, and that a charge which is fixed on a network basis is not therefore one which - because of the difference between costs at individual locations in contravention of section 67.

KIRBY J: I do not want to extend this unnecessarily but we have got, as Justice Hayne said earlier, to the nub of it, now, against a lot of background. The heading of 67 is "Limits on charges" and "charge" is defined in 66 and, at least arguably, if you are the person popping over from Lord Howe to Coffs Harbour then let it be the service and facility provided but it is going to be nothing like the service and facility provided in other airports and yet you are going to be charged for the whole network and then it is to be said to you, "Well, that is reasonably related to the expenses incurred in relation to the matters to which the charge related". It is asking a lot and it is really wiping out the limits on charges, is it not?

MR JACKSON: We would submit not, your Honour, and we would say not because the requirement of section 67 if read that way, ultimately amounts to a requirement to unbundle things that are provided together to an extent which is difficult to ascertain. Now, we can take simple examples. But if what the section requires is a cost accounting exercise, and the question is to what extent does it require a cost accounting exercise, is that something that is determined under the meaning of the words "reasonable relationship"? Is that what in enacting a limit on the charging power under section 66 the Parliament is likely to have had in mind? And we would have said, with respect, to that question, the answer is "no".

CALLINAN J: You have not attempted any cost accounting exercise at all.

KIRBY J: It is Justice Beamont's charge against you.

CALLINAN J: There is just one total cost to the whole of the network and it might well be that it is difficult but, in fact, it is done in practice every day - allocations. They may not be perfect allocations, but they are pragmatic ones that are acted upon in commerce.

MR JACKSON: If we take the simple example that your Honours and I have discussed of Norfolk Island, if one takes away the real picture of Norfolk Island and substitutes another aerodrome, maybe Cairns would be of this kind or Darwin, where not very many large aircraft land, but they do land and, therefore, higher levels of service are provided and there are not very many smaller operators, general aviation operators, how does one approach that exercise amongst the user group? It is not that it is just a question of dividing what are costs incurred in respect of the use that is not equal in so far as the Authority incurs expenses simply from location to location, it is amongst the users as well.

CALLINAN J: That is just another way of saying it is difficult. It would not excuse you from doing the exercise if you have to do it.

MR JACKSON: If you have to do it, then an estimation exercise can be done. With the exception of the en route charge in which there are, on any view of it, very many different routes, our contention is not then that it cannot be done.

CALLINAN J: All I am saying is that the answer to the case against you cannot be that the exercise that you would have to do might be a difficult one. There may be other answers but it seems to me that cannot be an answer to the case that is put against you.

MR JACKSON: No, and I was not expressing myself carefully. Your Honour is saying that the costs can be allocated and, with respect, that is something which, with common sense, one cannot debate. But in terms of coming up then with a way of charging that reflects the way those costs are incurred, it can be a very complicated exercise - not impossible but complicated.

CALLINAN J: Yes, it is one that can be done and, so long as there has been a genuine effort to do it, you probably establish a reasonable relationship. There may be other answers. I am just saying that is not an answer to the case against you.

MR JACKSON: You would have a closer relationship between the cost of the individual service on the individual occasion and the amount of the charge.

KIRBY J: And is that not the philosophy that the Parliament has enacted in section 67?

MR JACKSON: In our respectful submission, no.

KIRBY J: It says "Limits on charges". It obviously requires you to do something; it is not there for no reason at all. It did not really need to have the "no taxation" because that is in the Constitution.

MR JACKSON: We would submit not. It is not the charge to the individual user on the individual use of occasion that section 67 is directed towards, in our submission.

GLEESON CJ: When you operate a user pays system, is the difference between taxation and charging a fee for service related to the benefit that the individual gets from the service?

MR JACKSON: It is.

GLEESON CJ: May a system of user pays amount to taxation as distinct from fee for service if the fee that is charged is fixed on a global basis, unrelated to the particular benefit the particular user gets for the service?

MR JACKSON: Once one is looking at the benefit, one is not looking, we would submit, solely at the costs incurred at the location. In other words, the aircraft that flies - to take Compass - from Brisbane to Melbourne or Brisbane to Sydney, simply because the costs of the rescue and firefighting service are quite different at those two locations, does not acquire a different benefit by virtue of its use of the service or its access to the service because it has been provided.

GLEESON CJ: What do you say is the essential difference between taxation and a fee for service in a context such as the present?

MR JACKSON: We would submit that in taxation the first level of examination is at value and that network charging does not ordinarily, in something that is a real network - and we are not talking about something that is false in that sense - something which would contradict there being reasonable value. We accept, though, that in section 67 and perhaps in the context of monopoly suppliers which are governmental, that then one has to not simply look at value in the air; value has to be looked at having regard to expenses. But at that level it is not the expenses of the individual location; it is the expenses of what is in truth provided, which is the business of the Authority over the locations at which it operates.

GAUDRON J: But even if you descended to the more particular, in relation to tax, the second limb of section 67, would it not be the case that the maximum take-off weight would be a fair reflex of the value of the service to the operator in the sense that, for example, in terms of fire fighting, the larger planes are likely to be more expensive and have a higher replacement value than the smaller planes; in terms of people - if their seats are filled, if there is something to suggest that the maximum take-off weight could be related to the number of passengers, you are saving the lives of more passengers, saving the operator the cost of compensation to those passengers, and so on. The only question, really, is, can you make a connection between the maximum take-off weight and the number of passengers?

MR JACKSON: There is a high correlation between that across the fleet - - -

GAUDRON J: That is a statistical correlation, is it?

MR JACKSON: And that was specifically found by her Honour and there was evidence of Dr FitzGerald which dealt with the whole Australian fleet in that respect. The highest correlation is to the square root of weight, but there is a high correlation in any event to weight directly.

KIRBY J: Would you remind me what a square root is.

McHUGH J: The square root of 4 is 2.

MR JACKSON: The number that multiplied by itself will produce - 3 is the square root of 9, if that is an easier way to define it.

CALLINAN J: Mr Jackson, that is what I was trying to put to you before, what Justice Gaudron has just put to you, and I understood your response to be that that was not part, in fact, of the process of making the determination. It seems to me that there is an obvious correlation, with respect, or a possibility of an obvious correlation. But I have the impression you were rejecting that and saying, "Well, it was not done".

MR JACKSON: I am sorry, your Honour, I did not mean to reject it. I meant to say I could not say to your Honour truthfully that Ramsey pricing was just the construct of the economist ex post facto. The people of the time were aware of its principles, but they had regard to the actual users in the system in respect of weight in the way that I have just mentioned as well. In other words, they looked at it from both sides.

KIRBY J: And landing weight is not only related to passengers, it is also cargo which is a major aspect of air travel - - -

MR JACKSON: Yes, and that is specifically dealt with in Dr FitzGerald's report and the findings are made by Her Honour about it.

KIRBY J: There is a mention of Senator Sanders in your submission. Was there anything in the Minister's second reading speech about the policy of the Parliament in relation to section 67?

MR JACKSON: No.

KIRBY J: Nor in the explanatory memorandum?

GUMMOW J: One thing one could say about section 67, maybe, is that the second limb was there as a restraint for more abundant caution on the footing that there otherwise may have been a debate as to whether your client is a public authority imposing compulsory exaction. You do not need to get into that question in the sense that, even if the Constitution itself, of its own force, would not strike it down, the section itself places a limit upon the power which is conferred by section 66.

MR JACKSON: Yes.

GUMMOW J: So it becomes a statutory question drawing in, if you like, the Constitution in circumstances where the Constitution itself might not directly operate. It seems to me, that is where we should be.

GLEESON CJ: How long do you expect to require to complete your submissions, Mr Jackson?

MR JACKSON: Your Honours, I was from the point which we arrive now, are going to make some briefs submissions about two aspects of the weight, or MTOW, point and - - -

GUMMOW J: We can mull over - - -

MR JACKSON: I was trying to put a precise time. It is probably about a half an hour to an hour.

GUMMOW J: We can mull over the musings of the economists from here to eternity.

MR JACKSON: Quite, your Honour.

GAUDRON J: Really, we need to find out what is the legal principle that marks out a fee for service as distinct from tax, because it is not in issue that it is a compulsory exaction by a public authority, is it?

MR JACKSON: No.

GLEESON CJ: Yes.

MR JACKSON: Do your Honours wish me to deal any further with the question of profitability and taxation? I was going to make some submissions as to whether the inclusion of profit invoked the notion of tax.

GLEESON CJ: That sounds like a relevant issue.

MR JACKSON: As to that, we make the submission, your Honour, that none of the judges below has, in this case, so far, come to that conclusion, at least in terms, and, secondly, that none of the cases on taxation says that the inclusion of a return on assets has that effect. There was no contention, I think, as I may have mentioned to your Honours in the present case, that the amount of the return on assets in this case was relevant, it was about whether any return could be permitted and so, the hurdle that the respondents would have to clear on this issue is that any rate of return has the effect of making the charges taxation. Since the decision of this Court in Air Caledonie, each of the decisions of this Court has referred to taxation, as opposed to a fee for services, by reference to the language of the value of what is acquired in exchange for the fees and not to the expenses of what is acquired.

GLEESON CJ: You mean value to the acquirer?

MR JACKSON: Yes, your Honour.

GLEESON CJ: I understand how that helps you from the profit aspect of your argument, but it sounds a touch dangerous on other aspects of the argument.

MR JACKSON: The acquirer is not, in any of the taxation cases, treated as someone who has to be looked at one way or another because of differences in expenses or value, therefore, across a network. If you take Air Caledonie, it is a case, we would submit, where the vital finding was one in that there were no particular services, or services which were provided to the person who had to pay the charge, being a citizen, nothing was received. It was not one in which there was any reason to think that if that were not the problem and the costs of providing the clearance at Darwin were different to the costs of providing the clearance in Sydney that would have had an effect on the value.

Even in the cases which have been decided in this Court where reference has been made to expense as opposed to value of that which is acquired there is no hint of there being a problem with network charging. None of the cases considers it specifically. The closest would be Harper v Victoria which is where eggs were graded. The particular services were identified and the cost - - -

GUMMOW J: They had to be graded, did they not, to sell them.

MR JACKSON: They had to be graded. It was compulsory. It was an exaction in that sense, your Honour, yes. The cost which was payable was a cost, which was a proportionate amount, of the sale of all of the eggs. Now, the case does not descend into whether it may have cost more to grade eggs in one location than it would have done so in another but, in our respectful submission, looking at the case law to date, nothing gives a hint that the location specific nature of costs for a particular place is for the provision of similar services across a network of locations is something which would invoke the character of taxation.

GLEESON CJ: Is that a convenient time, Mr Jackson?

MR JACKSON: Yes, your Honour.

GLEESON CJ: We will adjourn until 2.15.

AT 12.48 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.18 PM:

GLEESON CJ: Yes, Mr Jackson.

MR JACKSON: Your Honours, in our submission, the fundamental reason why Mr Justice Beaumont in the Full Court held that network charging amounted to taxation and contravened section 67 was that a network charge was, in his Honour's view, not a fee for a particular service or facility to an individual operator.

Your Honours will be able to see that language used by his Honour at volume 15 page 3023 of the appeal books. His Honour, in the paragraph on page 3023 starting at line 15, having referred to no attempt being made to match the amount with the expenses of providing specific service as section 67 contemplated, went on, in the paragraph starting at about line 23 to say that:

None of this is to suggest that air safety is not important or that "Ramsey" pricing principles lack merit. Section 67 says nothing to that effect and is simply silent on these questions. Rather s 67 addresses an entirely different consideration, namely the relationship between the expense incurred, or to be incurred, in providing a particular service or facility to an individual operator -

That language of the "particular service or facility" can be traced back in his Honour's reasons to the judgment of this Court in Air Caledonie. His Honour set out the relevant passage at page 3011 of the appeal book, and emphasised part of the passage which is set out at the top of that page, in which - - -

McHUGH J: What page again?

MR JACKSON: Page 3011, your Honour, of the appeal book. His Honour extracted a passage from Air Caledonie of which emphasised the part which said that the payment for services rendered in Chief Justice Latham's oft-quoted extract from Matthews v Chicory Marketing Board was to be read:

as referring to a fee or charge exacted for particular identified services provided or rendered individually to, or at the request or direction of, the particular person required to make the payment.

GLEESON CJ: I notice that on page 3031, Justice Lingram quoted an observation of Chief Justice Dixon from which they seem to have taken this concept of a particular service.

MR JACKSON: We would go back even further your Honours, and that "particular services", appears to have been used in the judgments of this Court that we can find is in Parton v Milk Board (Victoria) [1949] HCA 67; (1949) 80 CLR 229. The case concerned a levy which was imposed on milk distributors and retailers who are described as producers by the provision under the Act. It was held to be a tax. We wanted to take your Honours to page 258 of Sir Owen Dixon's reasons. It was a case where the nature of the levy was one to carry the general purposes of the Act in question into effect. In the second complete paragraph of the page, in the third sentence, his Honour said:

In the first place I think that it is a tax. It is a compulsory exaction. It is an exaction for the purposes of expenditure out of a Treasury fund. The expenditure is by a government agency and the objects are governmental. It is not a charge for services. No doubt the administration of the Board is regarded as beneficial to what may loosely be described as the milk industry. But the Board performs no particular service for the dairyman or the owner of a milk depot for which his contribution may be considered as a fee or recompense.

His Honour went on, interestingly, to compare that case with the Melbourne Harbour Trust Commissioners v Colonial Sugar Refining Co Ltd and to say that :

There is nothing comparable with the facilities for which the wharfage rates were imposed in Melbourne Harbour Trust Commissioners v Colonial Sugar Refining Co Ltd.

KIRBY J: Does that suggestion that it is not a charge for services pick up the notion that was behind section 69, that is, that as you moved out of the public sector into a privatised mode that you, too, would be expected to apply the sort of accounting principles that were expected in a private sector body, charge for services, not just share in the great national enterprise of a government service, charging on that level.

MR JACKSON: Certainly, the structure of the Act required that we determine in respect of a service, within the meaning of the Act, for the provision of facilities and services. So, in a general sense, we would not disagree with your Honour, but what we wanted to submit particularly about the language that was adopted by this Court in Air Caledonie, as your Honours have seen, in a more precise way than the reference of Justice Dixon, as his Honour then was, in Parton's Case, is that in seeking to apply it in this case it has been taken out of context. The cases such as Parton and Air Caledonie are concerned with identifying whether any particular services have been provided to or for the benefit of the party. No case before this one is one in which that language has been applied to invalidate a charge because the quantum was calculated as an averaged amount as by way of a network charge or, for that matter, is an amount which included an amount weighted amongst different users, as MTOW or including profit.

KIRBY J: We have plunged straight into cases. It would help me to think about the case if you can tell me what your client's proposition is for the purpose of testing whether its taxation or not. Then we can look to what the Justices have said in order to see whether that proposition is borne out.

MR JACKSON: The proposition which we make in respect of this case is that the notion of taxation, or concept, as it is picked up in section 67, is the constitutional concept which is given effect to through the cases decided in this Court, and that in distinguishing between a fee for services on the one hand, or a tax on the other, the requirement, as it was expressed in Air Caledonie, "that the charge be exact for particular identified services provided or rendered individually to, or at the request or direction of, the particular person required to make the payment", is directed towards what it is that is said to be the service. It is not directed towards what is the value of the service or the quantum of the service which is that which is provided for, or in exchange for the service.

Could we take your Honours briefly back to Parton, in that connection, and Justice Dixon's reference to The Melbourne Harbour Trust Commissioners Case? We have not put that case on our list but it was a case in which there was a challenge to the validity of wharfage fees and the wharfage fees were imposed under a statutory provision which provided that "The Commissioners may demand, collect and receive in respect, and for the use of any of the property of the Commissioners, such tolls, rates and charges as the Commissioners may, from time to time, determine and appoint by regulations".

The judgment of the court, which was delivered by Mr Justice Mann, at page 143 of those sections - this is about point 7 on the page said:

The sections quoted, in our opinion, give ample power to charge for the use of any berth at any wharf, and it is in the discretion of the Commissioners to make such charges, either upon the basis of the space occupied, or upon the bass of the tonnage of the vessel, or upon both such bases.

Now, Sir Owen Dixon had been counsel in the Melbourne Harbour Trust Commissioner's Case and when he referred to it in Parton's Case he may not have had all of that detail in mind some years later. Nevertheless, the broad comparison which his Honour made at page 258 of Parton's Case gives us some comfort, we would suggest, in making the submission to your Honours that in referring to the particular service for the dairy man, his Honour did not mean to refer to anything which was discriminatory in such a way as a wharfage charge based on weight or, for that matter, an airways services charge based on weight or, for that matter, a network charge. In principle, there is no real difference.

HAYNE J: If there is a service and a charge is levied by government or government authority for provision of that service, is there any limit to the quantum of charge that can be imposed?

MR JACKSON: Yes, your Honour.

HAYNE J: What is the criterion of limitations?

MR JACKSON: According to case law, it is value, and then value will mean different things in different cases.

HAYNE J: And value to whom?

MR JACKSON: Value to the recipient of the service, but not looked - I am sorry your Honour - - -

HAYNE J: No, go on.

MR JACKSON: - - - but not looked at, we would say, as in the individual service on the individual occasion but looked at on a much broader basis.

HAYNE J: And is value in that context capable of being understood as synonymous with the cost to the provider where there is no relevant market for such services that might otherwise throw up a value?

MR JACKSON: We would accept, with respect, that there are cases where it must be so, and - - -

HAYNE J: Absent a market, how else do you strike a value in applying this criterion?

MR JACKSON: The answer is, logically, you cannot do it, other than by some form of expert assessment of value. Most expert assessments of value will - - -

HAYNE J: That is beguiling, but the expert must himself or herself be applying some criterion and that simply masks the problem rather than elucidates it.

MR JACKSON: I hope not, your Honour. I was really going to try and go on to a second example. The simple service example is one which readily fits into expense examination. There are many things which are provided though or for which value is ascertained where, instead of looking simply at costs, what one will do is a quite complicated exercise of trying to derive value by predicting how the thing which you are valuing is going to be utilised, what it is going to earn and then working backwards. That exercise itself will involve regard for expense but it can involve regard for other factors such as in the valuation that is commonly carried out by discounted cash flows of one business as opposed to another.

HAYNE J: If you say that the value that is relevant is the value to the user or to the person to whom the service is provided, does that not necessarily carry with it the proposition that you must identify the service either provided or perhaps made available to the individual user?

MR JACKSON: Yes, and to what extent one must identify the service is a question of degree in the circumstances, but as a general proposition, yes.

HAYNE J: But does that not then lead inevitably to the view that network pricing is not legitimate because no regard is then paid to the value to the particular user?

MR JACKSON: No, with respect, your Honour, because the simple examples which one gives in the Norfolk Island landing are not the gamut of the circumstances, nor in fact are a good summary of the circumstances in a case like this. The network in a case like this involves more than the fact of the landing at Norfolk Island.

HAYNE J: Leave aside the fact that there are overheads, fixed costs and the like which may bring with them very considerable difficulties of cost allocation. Focus for a moment only on the fact that if you land at one airport there may be three fire appliances on stand-by, but land at another airport and there may be five or seven, it is possible to identify the direct costs of the provision of fire services at a particular airport.

MR JACKSON: Yes, your Honour.

HAYNE J: And they will differ, airport to airport, according to the level of service provided.

MR JACKSON: Yes.

HAYNE J: That being so, what is the value to the user who lands at an airport with the smaller fire service - leave aside the fact that it is not used; it is there; it is not available for use. Let it be assumed that that is sufficient.

MR JACKSON: If I can keep to your Honour's example first. The value to the user at that airport depends on who lands. To give you an example: if you have a fairly low level of fire service, say at Norfolk Island, but only a couple of aircraft land, if you do it by reference to expense, assume that that service costs $100,000 for a certain number of people, but only a couple of aircraft a week land, and you share it amongst them, the cost will be very high, and the question of the value to them, if it is simply referred to expense, in fact, if measured in that way, are not a truthful answer, or a not realistic answer, because they will not land there. They will be forced out of the system.

HAYNE J: Let that be assumed, and you, instead of having four movements a week, you are down to two movements a week.

MR JACKSON: I will come back to that problem in a moment. The other side of that example, which is something I sought to answer Justice Kirby about earlier, is that in the case of Mascot Airport fire service, where there is a very high level of service, because very many planes of very great weight land, if you divide the cost there equally amongst the users there only, their charges will be a lot less than, say, Norfolk Island. It doesn't follow because you have a - - -

HAYNE J: I well understand that and my question, so what? On the question of value, is the value to them, not a smaller value in the sense that the cost of providing that service to them is the less, because they are ready to, or able to share it across the board.

MR JACKSON: Once one is talking about value, and keeping with this concept, what happens is that because the services are provided across the network, there are external effects which are described. One is that the closure of one of the airports will affect who can fly there. It will affect the users from other airports. It is not just at the one place. The second is, at any airport aeroplanes land and they operate through regional and subregional airlines as feeders for larger airlines. The network creates external benefits for the users of the particular aerodrome.

That means that when one gets to value, it cannot, we would submit, entirely, be looked at solely by dividing costs in that way and the consequences of a contrary view, where one is dealing with something that is really properly characterised as a network, would be quite extraordinary.

GLEESON CJ: Mr Jackson, I wonder how appropriate it is to use the concept of value in relation to these so-called services? There seem to me, looking at the types of service provided or made available, there are three, possibly more, categories. There are services in the conventional sense of arrangements that are made for the benefit and use of the operator. There are things that are, perhaps, less obviously described as services which are available but which might rarely be used, such as the fire fighting services; and then there are things that could only properly be called services in the very modern sense by which we refer to the services provided by police.

For example, there is something called an "airways clearance" service which provides the pilot with explicit instructions as to the manner in which the aircraft will be operated in controlled airspace, and there is reference on page 181 to what is called an "environmental" service which is the application of noise abatement procedures applicable in the terminal environment. What is the value of an environmental service to an airline operator?

MR JACKSON: To receive the service - it does not have a directly commercial value, obviously. Being in receipt of the service, he may obtain an indirect value by virtue of the fact that the community, in general, does not object to his aircraft, amongst other aircrafts, landing at the aerodrome.

GLEESON CJ: He is in receipt of a service in the same way as a person in the custody of a policeman is in receipt of a service from the policeman, he is told where he can go and what he can do.

MR JACKSON: Yes, that is a fair analogy, your Honour. We do use, in the context of this kind of language and it seems to be commonly done these days, services in a way that would not have been used to describe commercial services. Nevertheless, if one is talking about the core generality, and perhaps I am receding to generality, of the air traffic services being a separation service, are really no different from what would have been described as pilotage services, and they have been commonly described as that for hundreds of years. The services provided by an airport - - -

GLEESON CJ: And pilotage would be compulsory.

MR JACKSON: I am sorry, your Honour.

GLEESON CJ: There was such a thing as compulsory pilotage.

MR JACKSON: Yes.

GLEESON CJ: A lot of these services consist in a government authority telling people what they can do and where they can go, and what they cannot do and where they cannot go, and charging them for it.

MR JACKSON: Yes.

GLEESON CJ: So concepts of value for service might not be easily applied to that kind of system.

MR JACKSON: Quite, and that was, I hope, recognised in the concession which I sought to make before, that in a context where it is - - -

GLEESON CJ: I just thought it may be an argument in your favour.

MR JACKSON: Yes, and I hoped in making that concession to achieve that.

HAYNE J: The consequence of the debate may be that the injection of notions of value to the user is to inject something that is not of utility or necessity in this field of discourse.

GAUDRON J: Maybe if you.....something like: is there a service, is it used as a revenue-making enterprise as distinct from a fair assessment of the costs involved?

HAYNE J: Or perhaps inviting attention simply to the global picture. Is government raising more than it is costing? In this case is the Authority raising more than it is costing them? How they then apportion those charges, what rates they charge, may be matters that do not impinge upon whether it is tax or no tax.

GUMMOW J: That is where you start to get into dangerous territory.

MR JACKSON: I have to be riding the line between what section 67 might mean.

GUMMOW J: You are a Siamese twin; you are half commercial and you are half governmental. That is the trouble.

MR JACKSON: Quite.

GUMMOW J: A lot of these criteria relate to the one but they are pushed into the other, and that is the problem.

KIRBY J: What was the reason that Air Caledonie failed? That appears on its face to have been a fee for service of processing Australians and foreigners through the migration system.

MR JACKSON: On its facts one can have in a sense different views of Air Caledonie, with respect, your Honours. The decisive part of the reasoning appears at page 470, if your Honours have the report, (1988) 165 CLR 463, where their Honours, starting at about point 2 on the page, said:

At least in a case of the ordinary Australian citizen returning by air from overseas, the description of the purported impost as a "fee for immigration clearance of that passenger" did not suffice to make the impost a "fee for services" in any relevant sense. As has been said, such a citizen had, under the law, the right to re-enter the country, without need of any Executive fiat or "clearance", for so long as he retained his citizenship.

Their Honours had previously observed there was no statute that required that.

The subjection of such a citizen to administrative procedures at the point of entry may be necessary, in the public interest, to enable the entry of non-citizens to be prevented or controlled and to enable proper administrative records and procedures to be kept or followed in relation to the arrival and departure of citizens and non-citizens alike. A requirement that a returning citizen submit, in the public interest, to the inconvenience of such administrative procedures at the end of a journey cannot, however, properly be seen as the provision or rendering of "services" -

and that is the point at which we would stop to suggest to your Honours it was a finding that there were no particular services rendered.

McHUGH J: But were there not two other passages in the judgment which supports your need to distinguish this case? At 466, line 3 their Honours said:

the Parliament did not indicate the criteria by reference to which the Executive was to fix the amount of the fee.

So, it was all at large. And, then, at the bottom of 467 their Honours said:

If the person required to pay the exaction is given no choice about whether or not he acquires the services and the amount of the exaction has no discernible relationship with the value of what is acquired, the circumstances may be such that the exaction is, at least to the extent that it exceeds the value, properly to be seen as a tax.

MR JACKSON: Yes, but their Honours do not go on to say that is what the reason is here for finding that the fee was a tax. They go on to say that there were no services at page 470.

McHUGH J: Air Caledonie was a case where Australian citizens were required to pay a fee. The legislation which authorised the imposition of that fee did not fix the criteria by which the fee was to be fixed and the Australian citizens had no choice about coming into the country, they just did not pay the fee.

KIRBY J: Well, there is not much criteria, or not many, in 67 and you do not have any choice of having to pay it if you are going to fly a plane.

McHUGH J: Well, that is a choice.

MR JACKSON: In terms of the compulsory nature of the exaction, your Honour, one does not have to fly a plane but in the General Practitioner's Case - - -

KIRBY J: You can stay overseas. Some people prefer it.

MR JACKSON: Well, one does not have much of a business, and in the General Practitioner's Case it was held in this Court that the practical compulsion can amount to compulsion for the purpose of the characterisation of an exaction is compulsory, which is why we do not make that point in support of the appeal. The distinction, though, we do submit is that the language of particular services is about identifying the services, not about finding that the value provided must be divided up amongst what is otherwise a cogent user group. Your Honours, I was about to proceed from there to the submissions which the respondents make on the notice of cross-contention but I am conscious that at the time of special leave your Honour has left open as to how we might proceed on these issues.

GLEESON CJ: I would have thought you could deal with that when you come to reply.

MR JACKSON: I can, your Honour.

GLEESON CJ: Yes, Mr Solicitor.

MR BENNETT: Your Honours will see on page one of our submissions that we summarise our submissions into seven points. I do not propose to address your Honours on all of them. I simply adopt the whole of my submissions, but I do wish to make a number of short general points about the last four of those: (d), (e), (f) and (g). The first one I wish to make some submissions on is (f), which deals with what has been described as Ramsey pricing in the context of what is a tax in the constitutional sense.

It is somewhat anomalous that when one appreciates that the distinction between a tax and a fee for service is something depending on a range of criteria and no fixed black and line test, it is somewhat anomalous in that context that it seems to be assumed that Ramsey pricing or pricing by reference to price sensitivity, an economic capacity to pay, is seen more as a characteristic of a tax than of a fee for service. We would submit it is at least a characteristic equally of both. And may I just illustrate that by reference to a normal commercial fee for service, and let us take a far less sophisticated area than the present one to make the example. Let us take the homely example of a movie theatre proprietor. Most cinemas charge reduced prices for children and pensioners.

KIRBY J: And on Tuesdays.

MR BENNETT: Yes, well, I will come to Tuesdays, your Honour, that is a different factor. But they certainly charge less for children and pensioners. The reason for that is not the fact that cinema proprietors have a view of social equity which makes them kindly disposed towards children or pensioners. The reason is that there is a general perception that they have a lower capacity to pay and so long as the cinema has seating capacity, after those who are prepared to pay the normal price have been satisfied, it is in the economic interests or the proprietor - - -

CALLINAN J: But that is marginal costing and that was specifically rejected as part of Ramsey pricing in Dr FitzGerald's report.

MR BENNETT: No, no, I am not talking about marginal pricing.

CALLINAN J: But it is, it is another way of describing marginal costing. You have satisfied all of your capital and other costs so you can charge a much lower price to the people who come along later and those are the pensioners, as it were, and.....for the service.

MR BENNETT: No, your Honour, that is a different point which I will come to. I am not concerned with the question of covering cost at the moment. I am concerned with the problem of exacting the maximum sum from the consumers.

KIRBY J: The same is true of stand-by prices for airlines.

MR BENNETT: Yes, of course it is, your Honour, and it is also true that - and perhaps I do not need to use the words Ramsey pricing for this, it is probably better to describe it as pricing with regard to price sensitivity and economic capacity to pay - but your Honour Justice Kirby asked my learned friend this morning about monopolies and the application of this type of reasoning in situations involving monopolies. But the same applies. If the movie theatre proprietor is in an isolated country town and he has the only cinema there, and let us assume it is a large cinema with lots of excess seating capacity, to simplify the example, but there is nowhere else anyone can go to the cinema as a practical matter, he will still charge a lower price for pensioners and children because otherwise they will not come at all. He is a monopoly proprietor but he is not, I suppose, a monopoly proprietor who can require people to come.

KIRBY J: It is a way of tapping a particular market.

MR BENNETT: Yes. Now, it is the same in this context. If one prices oneself out of the market, people will go by train or they will drive or they will use video conferencing more. The fact that there is a monopoly in a particular industry does not mean that there is not a real choice as to whether or not one avails oneself of particular matters. The reason I make those submissions is simply this, that when one is looking at this continuum with elements one way and elements the other way as to taxation and fee for service, it would be quite wrong, in our respectful submission, to regard pricing by reference to capacity to pay as a feature of taxation as opposed to fee for service. It is a feature of both, for different reasons. The government may tax a pensioner a lower sum for social reasons; the theatre proprietor will charge them a lower sum for economic reasons; and in that sense the two coincide. But the charging less two people with a lower capacity to pay or visa versa is, in my respectful submission, at least equally a feature of fee for service and a feature of tax.

McHUGH J: Well, I am not sure the "picture show" analogy is a good one, because was it not central to the Ramsey pricing scheme that there was no cross-subsidy involved, and each category of user paid at least the marginal cost of each unit of the service provided?

MR BENNETT: Your Honour, that came in at a different level. When one was looking at cost and recover of cost, or "expenses", to use the words of s 67, one question which arose in that context was whether there was cross-subsidisation. What was said was, if every user covers the costs attributed to that user, but you then want to charge a lot more to make a profit and you charge a lot more to one customer and not another, it is incorrect to use the phrase "cross-subsidisation" to describe what is being done.

That does not really have any great application to the present problem where the marginal cost of providing the service, the true marginal cost, is probably zero in every case, because the extent to which Airservices is out of pocket if one more plane lands at a particular airport, is probably zero.

KIRBY J: I do not think that is good economics.

MR BENNETT: It is not a question of economics, your Honour, it is a question of applying the principle of how it - - -

KIRBY J: Because you cannot assume that it would exist if no one used it. It exists because there are users, and it therefore has to allocate its costs in an economic way.

MR BENNETT: Of course it does, your Honour; the overhead costs. But, what I am pointing out here is that this is an industry where in pure economic terms, probably 100 per cent of the costs are overhead costs, in one sense, and zero per cent are true marginal costs. Modern economic analysis would take, again, a continuum rather than a specific line, so that one has marginal costs in the sense that a group of 100 people cause a certain cost to be incurred, and so on down.

KIRBY J: But take my example of a person who is on the brink of setting up a completely novel air service - I will not say in Queensland and the Northern Territory because that was done once - but, say, in Coffs Harbour and Lord Howe Island or Norfolk Island, it is going to be much more economic for them, and much more likely that they will do it, if they get some differential price that takes account of the relatively modest services they get, than that if they have to share in the costs of the entire nation's network.

MR BENNETT: Well, it is almost the reverse in practice, your Honour, for the reasons my learned friend gave. Indeed, what is complained of here is that the person who lands at Sydney is subsidising the person who lands at Norfolk Island. The example given is if Norfolk Island involves two firemen and a truck sitting there all day, and two planes land there in the day, that is one fireman day per plane. If you have a hundred firemen on duty at Sydney, you have a lot more than a hundred landings.

KIRBY J: I doubt if in Coffs Harbour they stand around all day waiting, they would have other duties to do, would they not?

MR BENNETT: I think they do, your Honour.

KIRBY J: Well, I do not know - - -

MR BENNETT: But, anyhow, whether - I think, in fact, at the airports on that list there is a permanent fire service. But the point of the example is - and Justice Hayne put to my learned friend that it makes no difference who subsidises who, if there is subsidisation there is subsidisation, but the point your Honour makes is a point in the appellant's favour because in this case there is an element of lower fee per landing, in effect, being paid at some of the smaller airports because the cost of the larger airports, although greater services are provided, are shared by a greater number of people.

GLEESON CJ: If you had to decide, for some reason, whether the Sydney Harbour Bridge toll was a tax or a fee for the use of the facility, how would you do it?

MR BENNETT: That is another case where the marginal cost of the particular user is zero. The costs are all overhead costs because they are the costs, no doubt, of painting, maintaining and paying the interest on the initial building costs. One would, therefore, say, "How are we going to share these costs among users?", and in the real world one would then say, "Well, there are users who can afford to pay higher figures, such as buses or trucks, and there are users who, in general, have a lower paying threshold, cars, and users with a still lower one, perhaps bicycles". One would then charge differential rates as is done.

GLEESON CJ: Would you attempt to relate the total revenue, annually, for example, to the total costs of providing and maintaining the bridge, or would that be an irrelevant consideration?

MR BENNETT: No, that would be a - there are two steps. There is the step of working out the total amount one is going to raise, and there is the step of working out how it is to be apportioned among those who are going to pay for it. The steps to which your Honour refers would be relevant in answering the first question but not in answering the second question. Incidentally, the bridge gives another rather useful analogy in relation to the network aspects because although one only pays the toll going one way, one would not say that people going north are subsidising those coming south, or vice versa, because there is a substantial identity between those who travel free in one direction and those who travel for a fee in the other direction. No doubt, the economic viewpoint was taken that the small number of people who go one way and then go round through Gladesville to avoid the toll the other way, is sufficiently small not to affect the cost saving.

That is a very similar sort of process as the charge on landing and not on take off. It does not mean the charge is not for what is expended on take off, it means that it is convenient to charge it on landing because the substantial identity between those who land and those who take off, for fairly obvious reasons.

We stress that the passage which was just read by your Honour Justice McHugh from Air Caledonie, which is set out in full in our submissions at page 10, paragraph 30, in that passage, there was a reference to value of what is acquired and although a lot of the earlier cases put it in terms of cost or expense, that case put it in terms of value, and we would place - - -

GAUDRON J: That was not stated as an absolute rule, of course. It just says "the circumstances may be such".

MR BENNETT: Yes, your Honour. But there is not an absolute rule. No one has yet laid down a bright line test for distinguishing between a tax and a fee for service, and all parties seem to agree on that in their submissions. One looks at it and one looks at various factors, and adds them up, and feels it, and sees whether it feels more like a tax or feels more like a fee for service at the end of the day. But the point I have been making thus far is that the mere fact that it is done by reference to ability to pay does not prevent it - or at least is equally consistent with the commercial aspects of a fee for service, even in a monopoly situation, as much as a tax. The second matter I wanted to say a few words about - - -

KIRBY J: I wonder if that is quite right because normally business does its work otherwise than on assumptions of the morality and equity and so on, whereas government is bound into that. You do get exceptions like the case you have mentioned, but normally business will charge you X for its service or goods, and you have to pay that whether you are the prince or the pauper.

MR BENNETT: Yes, your Honour, where it is - - -

KIRBY J: It is the old story about the equal right of the prince and the pauper to sleep by the - - -

MR BENNETT: But, your Honour, the point I make is that where it is feasible for the business to charge differential fees, it does so on that basis. If Woolworths has a store at Killara and a store at Green Valley, it will charge more for goods in the store at Killara, quite independently of whether it pays a slightly higher rent or not. It will do that, not because it costs it more, but because the consumers there will be prepared to accept a higher price. Now, that is not because they are trying to help the consumers at Blacktown, it is because they are trying to make more money, and doing so by maximising their return. As does the theatre proprietor, as does the airline with selling seats. That is why airline seats are much cheaper if one books months in advance. It is more likely if you book months in advance that you are a tourist. It is more likely if you are a tourist that there is a lower economic capacity to pay than if you are a businessman who has to travel tomorrow.

KIRBY J: But they are not done normally according to your capacity to pay; it is just done on market terms and there is no differential in terms of your capacity.

MR BENNETT: Of course, your Honour. No one says, "I want to see your income tax return before I decide what I charge you or some net worth certificate", but where one can differentiate between services in a way which causes as a general matter those with a higher capacity to pay to pay more and those with a lower capacity to pay to pay less, a commercial organisation motivated by nothing but profit will endeavour to do that. The examples I have given - the clearest is the cinema proprietor with pensioners. That is the clearest of all.

KIRBY J: I wonder if Justice Callinan was not right though earlier when he said that the higher capacity to pay is a coincidence, that in fact the big planes cost more because (a) they are carrying more passengers; (b) they are carrying more cargo; and (c) if anything goes wrong, they take up more time and - - -

CALLINAN J: And you need more concrete in your tarmac probably to support the heavier weight.

MR BENNETT: Yes, all those things; of course one does. There is certainly an element of that and that is part of the case. It is also a common feature of business that where one can adjust or scale one's charges for services that cost one exactly the same, as in the case of the cinema proprietor, the seat costs the cinema proprietor exactly the same whether it is occupied by a pensioner or a millionaire.

GLEESON CJ: You seem to be equating economic capacity to pay with means or financial capacity to pay.

MR BENNETT: No, it is sensitivity.

GLEESON CJ: Compass provides a fairly good example of the difference, does it not?

MR BENNETT: No, your Honour, I am not looking about capacity in the Compass sense. I am talking about capacity as a perhaps shorthand expression for the price sensitivity arising from economic capacity to pay.

GLEESON CJ: What do you mean by economic capacity to pay?

MR BENNETT: That, your Honour, on average there is a lower price at which the pensioner will decide not to come to the cinema than the price at which the millionaire will decide because of the price.

GLEESON CJ: It is related to price elasticity of demand, is that right?

MR BENNETT: Yes, your Honour, that is what one means. Obviously one's means are a substantial factor in that, not the sole factor. One might have a wealthy miser and a spendthrift pauper, but none of these things are exact correlations. The point I make is that what has been done here by Airservices which is to say, "Well, here is a method of doing it which is substantially going to relate to price sensitivity", is exactly what is done every day by people in business faced with similar choices for purely economic reasons. For that reason one cannot characterise making that sort of decision in terms that make it more similar to attacks than a fee for service. That is the only point I am making.

Now moving to the second matter I wanted to say a few words about, and that is paragraph (d), the question of network, the point here, we would submit, is that the present case provides a very good example of one where there is no true marginal cost at all in the strictest sense of those words because, as I said earlier, the amount by which Airservices is out of pocket if an extra 747 chooses to land at Sydney one day, having been diverted from Auckland, is zero. It has not cost them one cent more. On the other hand, there a range - - -

KIRBY J: I just do not think this is correct economic analysis because you have to look in terms of long run costs. Justice Callinan mentioned the tarmac, the number of people, and the hours you have people, the number of people you train. I just think it is completely unrealistic to say there is no marginal economic costs. Of course, there is. You look at total cost, then you divide it, and then you have your marginal costs.

MR BENNETT: Your Honour, that is overhead cost. There is a very substantial overhead costs which is incurred whether that plane lands or not, and which is - - -

CALLINAN J: There are some fixed costs, and then there are other costs.

MR BENNETT: Well, "fixed" is another word for it. I do not want to get tied down in the precise correct economic terminology - - -

KIRBY J: It is some years since I did my economics degree, Mr Bennett, but I just do not think what you are saying is sound economics.

MR BENNETT: The point I am making is that there are some costs which might occur if a small number of additional planes land. There are more costs which might be incurred if a large number of additional planes land, and when one gets up to the managing director's salary, one might find that that is unaffected by however many planes land or may only have an effect when the number really increases by a huge amount.

Similarly, when one is managing a network such as this, it is only a question of degree how far one says there is a relationship between the particular aspect of the network used and that which is charged for. One could say, for example, "All Sydney costs must be apportioned in relation to every landing at Sydney or take-off from Sydney", or one might say, "All New South Wales costs" or one might say, "All costs which are particularly related to that type of aircraft which do not arise in relation to other types of aircraft".

HAYNE J: Or, Mr Solicitor, if you will forgive me saying so, you might make a legal proposition rather than an economic proposition and a legal proposition would be of much greater value. What is the legal contention that you are putting forward?

MR BENNETT: Your Honour, it is simply that to charge as a fee based on an overall network cost apportioned down to the users of any parts of that network is not inconsistent with a fee for service rather than a tax.

HAYNE J: And that is a negative proposition. What is the relevant criterion or what are the relevant criteria that determine fee for service. You list many of them. Let me take one. Must there be any relationship between costs incurred in the provision of a particular service and the fee that is levied against the person who uses that service?

MR BENNETT: No, your Honour. There are situations in which it is reasonable to charge a fee in commercial areas and, indeed, in areas where the law has to fix a reasonable fee where the cost of providing the service is zero, whether taken as a strict marginal cost or taken as a total fixed cost. A very good example of that is one of the cases we cite in a rather different area of law and that is LJP Investments v Howard Chia Investments (1989) 24 NSWLR 490. That was a case where a builder was building a substantial development and in order to build it needed to trespass on the next door premises to put up scaffolding and the next door neighbour sought an injunction, having demanded $30,000 as a fee to permit it. One argument which was made against the injunction was that the plaintiff had behaved in an extortionate and grossly unreasonable manner in demanding $30,000. The Court, in answer to that argument, Justice Hodgson at page 497, paragraph C said:

In a case such as the present, where one landowner is seeking to effect a commercial development of his land which is more profitable or less expensive if use can be made of the land of an adjoining owner, it is not unreasonable in my view for that adjoining owner to require payment which bears some relationship to the financial gain or saving which the developing landowner achieves by use of the adjoining land.

That is in a context where there was no detriment whatsoever, or at least a very trivial detriment, certainly not $30,000, to the person making the demand. So, one does not need to look at costing at all in order to determine a fair apportionment. One can look at the benefit of services provided and it may be - - -

GAUDRON J: Does one even have to go to the benefit of services provided, on your argument?

MR BENNETT: One does not have to, no. One could do it in a number of ways.

GAUDRON J: Why is that? What is the legal criterion involved? We have to write a judgment dealing with the law, not economics, at the end of the day.

MR BENNETT: Yes.

GAUDRON J: Yes, what is the legal criterion that marks it out? Is it tax?

MR BENNETT: The legal criterion is that one adds up a number of elements which have been listed. In our submissions are listed some of the major ones.

HAYNE J: Page 7 and 8, is it not?

MR BENNETT: Yes, page 7 and 8. I am indebted to your Honour. Paragraphs (a) to (i): what the service is, who is the provider, the alternatives, whether it is a condition of the receipt, whether the recipient has any choice, the size and the extent of that choice - - -

GAUDRON J: Why do you not simply ask, "Was there a service?"?

MR BENNETT: Yes, there was.

GAUDRON J: And was the levy of the charge an occasion for raising revenue, as distinct from defraying the overall costs of it?

MR BENNETT: We submit, not, your Honour.

GAUDRON J: On your argument, do we need to go beyond that?

MR BENNETT: No, your Honour, but I am supporting an appellant who has judgments against it.

GLEESON CJ: If you look at section 67, sequentially you only get to the question whether this is a tax once you have concluded that:

The amount or rate of a charge -

is -

reasonably related to the expenses incurred or to be incurred by the Authority in relation to the matters to which the charge relates -

If you answered that question, no, you would not be asking whether this was a tax.

MR BENNETT: No, you would not, your Honour. I have not got to that yet and I am indebted to your Honour; that supports the approach. The submission about the fourth of my four submissions, and I will come to it.

All these factors in paragraph 23 are factors which one looks at. Indeed, (i) is an important one, whether the service is merely a licence to do something prohibited by law without a licence. In other words, if one is normally permitted to do X, there is no reason for prohibiting one from doing X, but legislation says you cannot do X unless you pay something to the government. That looks more like a tax than a fee for service, Air Caledonie is a good example of that.

KIRBY J: Do you accept that some of these criteria would be answered in a way that would indicate an indicium of a tax, as, for example, whether the payment is a condition or, rather, whether you have any alternative; and there is no real alternative if you are flying aeroplanes, is there?

MR BENNETT: That is so, your Honour. In relation to that one, it is a question of the extent of the choice. The choice is not to fly aeroplanes or to pay the tax and that is something which is an intermediate - - -

KIRBY J: I suppose it is a choice whether to make an income or not to and if you do you pay a tax.

MR BENNETT: Well, your Honour, on the other hand, in the General Practitioners' Case, the fee of $10 for processing the application to be registered as a pathologist, which was a reasonable payment for the administrative costs, was not a tax, that was a fee for service.

KIRBY J: I am not criticising this lis, but what I am trying to get at is the essence of it because otherwise you are saying, "Well, these indicia, taken out of other cases, with different fact situations, become a guide and all you do is shake them around in your head and then you come out", as you said earlier, "do you feel it is a tax or do you not feel it is a tax?" Is it an impressionistic thing or is it simply a matter of what we would call in the law, characterising, but that it cannot get very far away from an impression and the impression is guided by the sorts of factors which, in past cases, courts have said constitute a tax or do not constitute a tax?

MR BENNETT: Yes. Some may not appear in past cases - I do not know any past case specifically puts (i) the way I have put it, but the - - -

HAYNE J: Let us test this question of impressionism, Mr Solicitor, and let us test it by reference to your paragraph 24, immediately below paragraph (i), what are the services that are mentioned in the second sentence?

MR BENNETT: The services are the en route services - - -

HAYNE J: No, are they the services to this user or are they the services to all users, what are "the services"?

MR BENNETT: The first time the word - I have broken the rule of statutory interpretation, that a word is always used with the same meaning in the same sentence - the first time it is used in that sentence, "services" is the services which are provided, and the second time it is used, it is the total cost of providing all services to those who use them.

HAYNE J: Is it not necessary at some point to come back to the inconvenience of looking at section 67 also in this context?

MR BENNETT: Yes, your Honour. That is why the first two, and the last of the seven matters I have listed, deal with section 67.

HAYNE J: In particular, to identify whether what hitherto has been called the second limb of 67, not such as to amount to taxation, is inviting an inquiry about different services from the inquiry dictated by the first part.

MR BENNETT: Your Honour, yes. Putting that a little differently, I suppose, does the word "matters" to which the charge relates, mean the whole cost of the overall service, or - - -

HAYNE J: Just so. And if it does, what does that say about the second half or vice versa?

MR BENNETT: Yes. Your Honour, the reference to taxation would be unnecessary unless, I suppose, one assumes that one could fail the first part and succeed on the second path.

HAYNE J: And what, therefore, do you say the proper construction of 67 is and its reference to taxation?

MR BENNETT: Your Honour, the context makes it clear, the reference to taxation must be taxation within the meaning of the Constitution, and that being so, in one sense, it cannot be affected by the first part of section 67 if one - - -

HAYNE J: That is the construction is driven by the second half of the provision rather than by the first half?

MR BENNETT: The construction in the second half is driven by the second half, yes.

McHUGH J: Why have you not sought to place any reliance on the second route of transport cases? Now, nothing was more settled about section 92 that no tax or pecuniary burden could be imposed upon interstate commerce as such. Yet, nevertheless, in cases like Armstrong v Victoria [No 2] and allied cases, this Court upheld, as consistent with the freedom guaranted by section 92, that charges based in Armstrong that it was the third of a penny per tonne per mile, were a fair and reasonable charge, having regard to the damage done to roads, and by implication were taxation. There is a whole discussion in those cases.

MR BENNETT: But those cases, your Honour, are much easier than this case, because those cases involved measuring the damage to the road - - -

McHUGH J: Yes, but you could not tell about any particular vehicle. That was one of the problems that the State had.

MR BENNETT: Yes. Certainly, your Honour, those cases support the network point because they demonstrate that - and I know Justice Kirby will take issue with my putting it this way - but although there is no cost to the highway authority of one truck going over it, when a million trucks go over it, there is a cost which one then divides by a million and attributes to each truck. It may be that, at some stage, there is a straw that breaks the camel's back and one truck which causes the need for repair. No one would suggest that that truck should bear the whole burden.

So there is an immeasurable but, nevertheless, real cost there which is apportioned over a wide area and, indeed, over a network because it was not a requirement in those cases that the exact amount that the Hume Highway cost to repair be charged to the trucks that drove on the Hume Highway. So trucks that went on the Hume Highway were, in one sense, paying for repair to the Pacific Highway. But there is nothing wrong with that because trucks that go on the Pacific Highway are paying for the repair of the Hume Highway.

We would submit there is an analogy in relation to the fourth point, the point about network. It is ultimately a question of degree, but we would submit it is a perfectly normal and reasonable basis for costing to cost in that way. The - - -

KIRBY J: There may be something I have not understood and it was raised with the appellant, but is section 67 addressed to the charge for a particular service or facility of which we know from that schedule that there are several, fire fighting, landing and so on?

MR BENNETT: Yes, your Honour.

KIRBY J: So that for each of those separate charges, there must be an amount or a rate fixed which bears some relationship to the matters to which that charge relates, and therefore it is a question of whether you can go beyond the matters that relate to the particular charge for fire service and take in a national approach or you have to take it for the charge to the particular user of that service.

MR BENNETT: Well, your Honour, in my submission - - -

KIRBY J: Why is the latter not the construction? Given the heading "Limits on charges", given the commercialisation of the appellant, given that that is the purpose, why is that not the way one would construe section 67?

MR BENNETT: Because, your Honour, if one did, there are about six levels at which one could identify those matters, maybe more than that. One could start by saying, "Here we have a 737 landing at Mascot on 18 June at 3.00 in the afternoon, what - - -

KIRBY J: I agree, it would be a complex formula. But it would be a formula that relates to the particular use, whereas here the appellant has just persisted with the national formula.

MR BENNETT: But, your Honour, once one looks at the costs of that use, one then is taken back to the cost of, for example, providing the runway as one of them. That cost involves all planes, whenever they land on that runway. One then goes to the cost of the person who sits on the end of the headphones and directs the plane when it is travelling outside controlled air space between Melbourne and Sydney, and that person's superannuation and office and surrounding expenses. That matter continues for a long time before and after that plane lands. One then has the take-off charges at Melbourne, which is covered by the landing fee, so one picks up all the Melbourne costs. Of course, the next plane may have come from Brisbane, so it picks up the Brisbane costs. At the end of the day, one is forced to say that the only way it can sensibly be done is to take all costs of the general type which basically are the costs of the network and then work out a way of apportioning it down to the users. That is done in the manner which has been demonstrated in this case, which bears some sort of approximation to what needs to be done.

McHUGH J: Take firefighting. An airline may never ever have occasion to use those services but those who stand there serve as well as those who are active.

MR BENNETT: Firefighting has two aspects, your Honour, not only the one your Honour refers to. Clearly firefighting relates to having them there in case there is a fire. It is the insurance cost perhaps rather than the actual cost of pouring the bucket of water on the plane.

KIRBY J: That is not a problem because they have to be standing there. That is the service.

MR BENNETT: Yes, but there is a further aspect to the fire service.

McHUGH J: But then how do you work out the service in relation to a particular individual? That was the point I was seeking to make.

MR BENNETT: If you say, "We take the firefighting costs at all the airports round Australia and we attribute it on a basis which is substantially fixed by reference to price sensitivity among all the people who consume those services by landing at airports and requiring the extra safety", that, in my respectful submission, is sufficient to take it out of both limbs of the section. It is fixed by reference to the expenses and it is not a tax and there is simply no reason one cannot do it that way. The profit margin I do not want to say a great deal about - that is the third of the four matters, paragraph (e) - except to make this fairly obvious point, that even if one is confining oneself, as one must under the first part of the section, to expenses, the cost of the use of capital items is an expense. As my learned friend has said, a dividend indeed is an expense of capital but, perhaps more importantly, the Act itself specifically contemplates those matters and therefore the section should be construed in the light of that.

Finally, in relation to the "reasonably related to", the only point I want to stress in relation to that - and this is paragraph (g) in our list on page 2, the first part of section 67 - we stress two things. The first is that the word "related" or "relation" or "relates" appears three times which very much increases its width. Your Honours had an example last week of a section in which it appeared twice but this is one which goes even further than that in suggesting a very wide relationship.

The second aspect is that the relationship is satisfied if the first of the two legs I referred to earlier is satisfied. In other words, the section is directed to excess profits. It is not directed to malapportionment. What the first part of the section is concerned with, as the second is, is that Airservices should not make an extortionate amount of money from the government out of the services it is providing. In that sense it must be reasonably related to expenses. But having satisfied that criterion, when it comes to the apportionment of that total, we would submit that it is either not within the words of the first part at all or, if within it, only within it in the most extreme situation.

GLEESON CJ: Do you mean that it would be within section 67 or not? It would not offend section 67 if they totalled up all the expenses throughout Australia and then divided them equally per aircraft operated?

MR BENNETT: They could do whatever they liked.

GLEESON CJ: They could charge the same for a 747 as for a two-seater.

MR BENNETT: Yes, your Honour, they could. Their primary submission is they could take that approach, if they wished, or any approach. The fall-back position which may be more attractive to your Honours is that there may come a point where the apportionment is so extreme and so irrational that those words offended the reference to "reasonably related to" and so on.

GLEESON CJ: If that is right then those words "reasonably related to" must apply to the individual situation.

MR BENNETT: No, your Honour.

GLEESON CJ: Well, the example that you said might offend section 67 would not offend it, would it, if the situation has to be treated globally, only?

MR BENNETT: I suppose the example where it is all charged against one user on one occasion might be a case of Wednesbury, or not so much Wednesbury as one of those rare cases where a regulation fails for unreasonableness which is so extreme that it fails to be within the enabling statute.

GLEESON CJ: But what would be unreasonable within the meaning of section 67 about just making a flat charge per aeroplane?

MR BENNETT: Nothing, your Honour, nothing, on either view, nor would it be unreasonable to do what is done now on the basis of tonnage or to do it on the basis of saying, "We want X dollars from Sydney, Y dollars from Brisbane, Z dollars from Norfolk Island and we will divide those sums among the planes that land at those airports or on the tonnage at those airports". There are a great many ways one could do it but none of those ways, we would submit, would offend against the initial words of section 67.

McHUGH J: Section 67 refers "to the expenses incurred or to be incurred". Could the rate be fixed by reference to the expenses of the Authority in the preceding year?

MR BENNETT: Yes, your Honour. Those words specifically enable, either the preceding or subsequent or - - -

McHUGH J: Well, that would seem to indicate it has got very little to do with the actual services - any particular service provided to a particular individual.

MR BENNETT: Yes, and indeed to be incurred, if one had an airline which had anticipated, unlike the one in this case, that it was going out of business on a particular date, clearly one would be entitled to levy the charges against it on the basis of expenses to be incurred even though it would not be around to get the benefit of that, and that is another example which we would call on in aid.

KIRBY J: Of course, the words "amount" or "rate" may mean a differential amount or differential rate.

MR BENNETT: Yes, "amount" assumes it is a flat fee; "rate" assumes a percentage rate of something, and one has all sorts of examples of what it is. The example given, I suppose, in one of the sets of submissions - I think, South Australia - is about tonnage charges on wharves which is something which was around at the time of the Constitution, is an example again of a fee for service, not a tax.

The final matter I wanted to mention to your Honours, not for the purpose of attributing any particular significance to it but because it just may have an effect on what one is looking at when one talks about fee for service, is that in section 53 of the Constitution, what is said not to amount to taxation, includes not only fees for services but fees for licences.

Now, that does not seem to have been argued in this case that
"licence" is being used in the sense of permission, in the very broad sense, so that what occurred here is a fee for licence, nor does that seem to have been argued in any of the cases. In Air Caledonie, for example, one might have said it was for a licence to re-enter Australia that one paid the fee. It is an aspect which may have some relevance to the question of what is taxation under the Constitution in the broad sense, although it may not have great application in this case. May it please the Court.

GLEESON CJ: Thank you, Mr Solicitor. Mr Solicitor for Western Australia.

MR MEADOWS: May it please the Court, we, of course, have nothing to say about the first limb of section 67. Our purpose in here was to address the Court in regard to the second limb of section 67. Might I say at the outset that one of the difficulties with this particular case is that the evidence and the arguments which have been addressed to the first limb of section 67, have rather blurred the picture. We would submit that it is important to distinguish between the question of whether a charge amounts to a tax for constitutional purposes and the question of whether the first of the two limbs of section 67 is satisfied? We make the point in paragraph 11 of our submissions that it may well be that the charge is not a tax by reason of the existence of a discernible relationship between the value of the service and the amount of the charge, but still fails to satisfy the requirements of the first limb of section 67.

KIRBY J: So, you do not agree with the theory that the first limb is merely endeavouring to explain what the second limb means?

MR MEADOWS: No, what we do concede is that if the requirements of the first limb are satisfied, that would be sufficient to prevent the charge being characterised as a tax. But, a charge may fail to be reasonably related to the expenses incurred, or to be incurred, in relation to the matter to which the charge relates, and still escape characterisation as a tax.

One issue to which the respondents have taken exception in regard to our submissions is what we have said in paragraph 9, where we have said that in the absence of any factual finding by the courts below, in this case, that the amount of the charges payable to the appellant bore no discernible relationship to the value to the appellant of the services that it acquired, there is no basis for concluding that the charges were taxes for constitutional purposes.

There was, we would say, no relevant factual finding by the courts below, and perhaps this is attributable to the fact that the courts below were essentially looking at the first limb of section 67. There was no relevant factual finding that the charges bore no discernible relationship to the value of services received by Compass, as there was never any assessment or any evidence as to that value.

In their response to our submissions, the respondents, in paragraph 4 of that response, cite a passage from the judgment of Justice Branson, where she said:

"the fact that the level of the terminal navigation charges was determined by reference to the costs of maintaining facilities and services at 32 aerodromes whilst Compass Airlines aircraft landed at only 6 of those aerodromes, means that a "discernible relationship", as that expression was used by the High Court in the Air Caledonie case, between the amount of the charges and the value of the relevant facilities and services to Compass Airlines is not, in my view, able to be identified"

The mere fact that the appellant determined the charges by reference to the cost to it of providing the services does not prevent a discernible relationship existing if the actual value is equal to or greater than the cost. In the absence of any assessment of the value to Compass of the services it received, it cannot be concluded that the charges bore the character of a tax. Justice Branson did not take that assessment of value, merely referring to the basis of the calculation of the charge in the passage to which I have just referred. Now, the passage quoted contains an acknowledgment by Justice Branson that there was no evidence as to the value of the services. Indeed, it was the absence of this evidence which led her to say that a discernible relationship could not be identified.

If it were the case, as Justice Branson found, that there was no evidence upon which the Court could attempt the task of putting a value on the relevant services, it would follow that there was no evidence on which the Court could base a conclusion that the charge was a tax.

The other point which the respondents raise in regard to this particular submission is that the point does not seem to have been taken below. But the fact that the appellant does not take the point cannot exonerate this Court - if I might put it that way - from considering the question as to the classification of a charge as a tax for constitutional purposes, and so that if the evidence is not there, then the Court is left in the position where it cannot make that finding.

Your Honour Justice McHugh raised the question of the road maintenance cases as providing an example - - -

GUMMOW J: Your refer to them in your footnote 16, you refer to Breen v Sneddon, the passage that picks up Armstrong.

MR MEADOWS: Yes, and I was going to refer your Honour in particular to the case of Allwrights Transport Ltd v Ashley [1962] HCA 1; 107 CLR 662 as a very apt example of the sort of situation to which Justice McHugh was referring. That was a case where the transport operators in question provided a transport service between Alice Springs in the Northern Territory and Mount Isa in Queensland, and did so along the Barkly Highway. Now, the evidence in that case suggested - and if I could take the Court to page 668 - that the road maintenance charges which were calculated using the kind of formula which Justice McHugh referred to, resulted in those operators paying 10 times more than was expended on that particular section of the Barkly Highway, and you can see at page 668 that the Court there said that that did not matter, and at three-quarters of the way down the page:

What matters is that a rate is adopted by the State law for the whole of Queensland and the rate so adopted has a reasonable relation to the upkeep of the roads of the State and is expended only upon the maintenance of highways, using the word "maintenance" in the wider sense.

And so they go on. Of course, as has to be acknowledged, these cases dealt with the freedom under section 92, nevertheless, by analogy - - -

McHUGH J: They were decided against the earlier background in which, I suppose it is still current doctrine, you just cannot tax interstate commerce. If this amounted to a tax, it would have infringed.

MR MEADOWS: Yes, quite so, your Honour. The analogy between this particular case and the Compass Cases was very stark.

KIRBY J: Except that you do not have the specific provisions of section 67. I realise - - -

MR MEADOWS: No, I am not addressing the first aspect of section 67. I was simply talking about whether or not there is a tax or a fee for services. As to the other aspects of our submissions, we would simply rely on our written submissions and agree with what my learned friend, the Solicitor for the Commonwealth, said that it is open to the charge which is made to be spread between the consumers of the services across the whole network cost. I suppose the most obvious example is the case where you have the cost of providing a particular service and an estimated number of users of the service and the cost is divided so that each particular individual who utilises the service pays the same rate. That is acceptable, just as is the method which was employed in this case in fixing the rates that were applicable. May it please the Court.

GLEESON CJ: Mr Solicitor for South Australia.

MR SELWAY: Your Honours, we too restrict our submission to the question of the meaning of taxation in a constitutional context. We rely upon our written submissions. Our concern is that, on the approach apparently taken by the Federal Court, it would be necessary for us to call economic evidence every time it was necessary to justify any of our statutory charges as not being a tax.

GUMMOW J: What would be the necessity for you to justify them?

MR SELWAY: The most important is our bete noire excise. If we take as the best example perhaps port charges based on goods loaded where they may be determined on the weight of goods or the value of goods or the goods as an item, we would have said that those charges historically have been treated as a charge for a service, namely, provision of the port facilities. On this analysis it would seem that we would have to at least justify that charge in relation to the particular costs incurred, and certainly that is something that has not been done to date. That is the concern we have with the analysis put bluntly.

GUMMOW J: Is there any manner and form provision in your State Constitution approximating to section 53 which actually uses the phrase "fees or services"?

MR SELWAY: No, your Honour, there is not. There are procedures and requirements for money Bills to be introduced in particular Houses and so forth but they are not protected by manner and form provisions.

GUMMOW J: And they do not include this word "services"?

MR SELWAY: I am certain not, your Honour, but I will have a look and inform the Court if I am wrong.

KIRBY J: Why should you not have to justify your charges as related to the services you provide as distinct from being a tax?

MR SELWAY: I am not concerned so much about justifying the charges. I am concerned about having to produce 15 volumes of material and a great deal of economic evidence where we say that the charge is by its nature a fee for service, that it has historically been accepted as a fee for service, and that is the end of the analysis. One does not need to go any further.

KIRBY J: So your assertion is enough?

MR SELWAY: Not assertion.

KIRBY J: Your theory.

MR SELWAY: Our characterisation, we say, is enough. We may be wrong.

GUMMOW J: You say it may be an extortionate fee for service, but so what?

MR SELWAY: We do not quite put it that way, your Honour. There is a point in the analysis where the fee could no longer be characterised as a fee for the service.

GUMMOW J: Why is that?

MR SELWAY: Simply because it has become so large that either no one is prepared to use it, in which case the argument may become moot, or, if there is someone who is still prepared to use it, it has become apparent that what we are trying to do is to raise revenue from that person.

KIRBY J: That cannot be suggested that that is a purpose of the States to raise revenue?

MR SELWAY: They can certainly suggest it, your Honour. We do. We do impose taxes for that purpose but we say that is the analysis and there are things like port charges where, if the port charge - - -

GUMMOW J: But the port charge goes into consolidated revenue.

MR SELWAY: It has in the past. It does not now, but it has in the past.

GUMMOW J: But you would say that would not matter.

MR SELWAY: It does not matter.

GLEESON CJ: Who fixes the port charge?

MR SELWAY: At the moment, in South Australia, it is the Ports Corporation.

GLEESON CJ: Has the Ports Corporation got a power to impose taxes?

MR SELWAY: No, your Honour, it has got a power to impose charges but it begs the question of whether the charge is a tax.

GLEESON CJ: Yes, but it makes the question of whether the charge is a tax perhaps relevant because somebody might want to say, "The Port Authority has got no power to levy taxes on citizens of South Australia".

MR SELWAY: Yes, and certainly, so far as the charge relates to goods, that would be true, it would be an excise.

McHUGH J: But the problem goes beyond wharfage fees and harbour fees, does it not? What about all the agricultural boards and - - -

KIRBY J: Or court fees, as the Chief Justice was mentioning earlier?

MR SELWAY: Yes.

KIRBY J: I mean, there must be a point and there must be a criterion by which that point is reached.

MR SELWAY: Your Honour, what we say is that there is a criteria but the criteria is not a definition. We say that what has happened here, which is fundamentally an error, is that people have applied what were descriptions of a particular tax in Air Caledonie as if that were a definition of what a fee for service was.

GLEESON CJ: Is a court fee imposed in respect of making an application for a grant of probate, which is measured by reference to the value of the estate, a fee for service or a tax?

MR SELWAY: We would have said probably a fee for service.

KIRBY J: It does not take more time for the clerk in probate to devote to the case.

MR SELWAY: Our submission is that an analysis of costs in the manner that has been undertaken in this case is not relevant to the characterisation of the question of whether it is a tax or not. What we say the issue is likely to be in respect of filing fees is a perception, and one could not put it any higher than that, of whether there was a right in the citizen to do the various acts without paying a fee. If you tried to impose a fee for various steps in the criminal proceedings in the court one might well come to the conclusion that fee had to be a tax simply because the public perception would be that a citizen has a right to do that.

GLEESON CJ: But user pays is intruding into the fixing of court filing fees, as we know.

MR SELWAY: Yes.

GLEESON CJ: What is the method by which we can discriminate between the imposition of a tax and the charging of a legitimate fee in relation to court process?

MR SELWAY: Could I, perhaps, approach that question by analysing how one looks at the fee in the first place, and then come back to the court filing fee? To draw on your Honour Justice McHugh's suggestion about looking at the road maintenance charges in relation to section 92, we say that those cases give at least a hint as to the sort of analysis one would make. They are not on our list, but the cases are from this Court, and I do not need to take your Honours to them.

In Hughes and Vale [No 2] [1955] HCA 28; (1955) 93 CLR 127, Chief Justice Dixon, with Justices McTiernan and Webb, at 176 to 179, refer to the power to charge for the use of wharves, air navigation and aerodromes, and they distinguish those charges from mere taxes. They then say, at page 178:

But highways have in Australia a very different history.....At the time when s 92 was enacted, with very few, if any, exceptions, the highways of Australia were available without charge for the use of all persons as of right. It has not always been so in England.

Indeed, the position in England was analysed by Justice Windeyer.

GLEESON CJ: The principal roads in Sydney were mainly constructed as toll roads.

MR SELWAY: Indeed, your Honour. That is the point that the Court makes. But, the end result they come to is that there is a perception, an expectation, that there will be a right to use roads. They distinguish that from - - -

McHUGH J: .....I think they said in that case, that the relationship between the modern highway and the highways of the last century was a matter of history rather than identity.

MR SELWAY: Yes.

McHUGH J: There is just no relationship in substance between the two.

MR SELWAY: They distinguish the right to use a road, which, as I say, they see as a perception, more than a legally historical right. The perception held by the public in court of what people were entitled to do, and compare that to aerodromes, bridges and wharves, where there was not such a perception.

GLEESON CJ: The first judge in New South Wales refused to pay a toll to use Parramatta Road, because he said it interfered with the independence of the judiciary.

MR SELWAY: I was trying very hard to avoid a Chapter III - but, what we would say is that the perceived right that was identified in Hughes and Vale was a right that was not a legal right, as such. It was a perception by the public. Even if the Parliaments had legislated to remove that right, it would not have made any difference to the analysis.

Justice Kitto, who dissented in the early cases on the road maintenance charges, in Breen v Sneddon (1961) 106 CLR 416 said:

Presumably a State may charge what it likes for the use, even by inter-State travellers or carriers, of wharves, or of landing grounds, or of railways.....But as Fullagar J said, persons travel as of right on a public highway -

In respect of a public highway you could not charge what you liked. You were limited to the cost of the repair and maintenance. Then, in the following cases they deal with how that was to be calculated, with the Court finally concluding that once the Court had characterised the relevant charge as a fee for service, we would say, that was the end of the debate. You did not call further evidence in respect of that analysis.

GUMMOW J: That line of territory was criticised from time to time, was it not?

MR SELWAY: Yes, your Honour, but what we would say is that if that analysis is - - -

GUMMOW J: It is the sort of case where you should have had evidence and there was some gap in the techniques involved in this, that evidence was not or, perhaps, could not be called.

McHUGH J: Breen v Sneddon, I think, was the case where - or the Commonwealth v Sneddon, was an attempt to lead evidence but this Court rejected the attempt to lead evidence.

MR SELWAY: Yes, and on the basis that this Court had characterised the charge. It was not a tax, it was a fee for service and it was consistent with section 92.

KIRBY J: That is very convenient, but it seems to defy the ordinary principle that you find the facts and apply the Constitution to the facts as found.

MR SELWAY: The matter is explained in a number of the judgments, your Honour, in particular, I think, Justice Menzies explained on the basis that once this Court had ruled on the constitutional validity of a statute or a statutory scheme, it was not then for a lower court to go behind that judgment by calling evidence and considering it, and that was the result, ultimately, in Breen - - -

McHUGH J: Justice Menzies was very persuasive. His argument in Armstrong v Victoria [No 2] is one of the great arguments ever heard in this Court if anybody had ever read it.

MR SELWAY: The position we put, your Honour, is that once it is perceived that the question of whether a fee is, or is not, a fee for service, is a matter of characterisation, then the approach that was taken in those cases becomes understandable and appropriate. It is not a question of whether this particular fees bears any particular relationship to the cost of the service.

KIRBY J: But you yourself have conceded that you will get to a point where the fee becomes outlandish, so there must be a point and, therefore, you just apply general principles. You have a principle of law, taxation, whatever it means, and then you have to measure the facts of the particular case against that criterion. That is that old-fashioned notion called the rule of law.

MR SELWAY: Yes. But, your Honour, there is nothing in Breen v Sneddon that would deny that proposition - - -

GLEESON CJ: The Canadian Supreme Court in the Estate of Eurig last year, seemed to take the view that the very fact that the fee charged in respect of a probate application was an ad valorem fee, denied the necessary relationship between the cost of providing the service and the fee. That seems to relate the cost of providing a service to the individual.

MR SELWAY: Yes. We have dealt with Re Eurig Estate at paragraph 6 of our written submissions, your Honour. We say that the Canadian courts apply different tests than has been applied in this country. The Canadian courts test, in broad terms, is that a compulsory fee is a tax with a qualified exception if you can prove that it bears a direct relationship to the cost of the service provided. We say that is not the test that has ever been applied in Australia.

KIRBY J: It is just like a presumption, really, is it not? It reaches the conclusion that it is a tax earlier than we do. We take it, we have no presumption, just because it is compulsory, levied by the State, that it is a tax.

MR SELWAY: Yes, in fact, if you look at some of the early cases which are set out in footnote 1 of our written submission, they go further. They do not actually have an exemption at all for the fee for service. If it is a compulsory charge, it is a tax. So, to that extent, Eurig has moved the law back a bit for Canada, perhaps, but it is still a long way, we would say, from where the law is here.

McHUGH J: It may be that the time has come when we will have to approach this whole issue of what is a tax very differently, because most of the statements that can be found in the cases were said in the context when the public authority that imposed the financial burden was under complete control of the government, the money raised often went straight into consolidated revenue, or if it went to the Authority itself, it was just a short cut instead of it going into Treasury and back to it. But now that these authorities are being commercialised so that they are really traders, it may be that those old statements have to be modified to some extent.

MR SELWAY: We have certainly suggested in our submission that that is true, that they may, in fact, have the effect of making more things fees for service than were hitherto.

KIRBY J: But only if they are truly fees for service.

MR SELWAY: True, your Honour. But what we would say is that when the body was under public control - if we take, for example, the sale of an electricity authority. The fee charged for the electricity provided by that electricity authority, from the consumers' point of view, may make no difference how it was imposed or whatever. But once the electricity authority has been divorced from the government and the body is trading commercially, it is very difficult then to say that it is not an ordinary fee for service.

McHUGH J: Exactly. But if you apply literally the statements in some of the older authorities, you might come to the view that there is a tax.

MR SELWAY: Exactly, your Honour. So we say the thing is a bit of a moving feast. What we have attempted to do in our submissions, at paragraph 13 on page 8 - - -

McHUGH J: And the Tape Case, of course, the tape manufacturers have increased the difficulty - - -

MR SELWAY: Yes, indeed, your Honour. In paragraph 13 we point to various fees which we say have historically been accepted as fees for service and we say with those you do not need the sort of analysis that has occurred in this case. In paragraph 14 we refer to fees which we say are more like taxes and, to be perfectly frank, there is almost no other way that you can describe them. It is likely that the difference has something to do with the public perception of whether you have a right to engage in the activity in the same manner that those road charges have been analysed.

With respect to those, we say that there is a need then to identify something about value. How precise one is about that really depends upon the circumstances. Then if we come back to the court fee, we would - - -

KIRBY J: It is hard to fit that analysis in with Air Caledonie because in most countries you do not have a right to just march in without going through immigration control.

MR SELWAY: We would say then that the critical distinguishing feature in Air Caledonie is the acceptance by the Court that there was a right to land, that the citizen had a right to come in. That was a critical factor that made this a fee which needed then to be very closely analysed.

GLEESON CJ: Is there something about taxation - and this may be the explanation of those transport cases - which involves an inconsistency between the idea of taxation on the one hand and the idea of charging the users of a facility or service provided by the government and nobody else amounts which, taken together, do nothing more than recoup the cost of providing the facility and the service plus perhaps a reasonable return on capital?

MR SELWAY: Your Honour, I think that is the distinction. The problem that it raises, though, is whether you actually have a service or not, whether it is really compulsory or not and at the end of the day they involve issues which seem to be answered by perception. If we take the Air Caledonie situation, the Court has said there is a right to come in but if we look at passports we also need a passport to get in. No one argues, or at least no one has yet argued, that you have a right to a passport such that that sort of analysis of the cost of the passport is a proper analysis to determine whether it is a fee for service or not.

GLEESON CJ: But in this case, subject to one or two excrescences like the environmental service, there is not much doubt that what is being provided here is a service.

MR SELWAY: No, your Honour. We would say that this case is more analogous to the port charges and those sort, you do not get into the sort of detailed analysis that is being done, it is unnecessary; that the fee, at least in respect of the tax, is clearly a fee for services.

GAUDRON J: Further, the only persons who are being charged are those who may avail themselves of the services and persons who do not or cannot avail themselves of the services are not being charged.

MR SELWAY: There is no public perception that you have a right to travel the airways free.

KIRBY J: But the only persons being charged in Air Caledonie were the people coming through the barrier.

MR SELWAY: And that is why we say that we see the distinguishing feature of Air Caledonie was the Court's analysis that there was a public right or at least a perception of a public right to land. We say if that was not there then the fee would have been valid.

GAUDRON J: What the Court held there was that there was no service provided. It was an administrative function and the costs of the administration were being defrayed, but there was no service and one of the reasons why you could tell there was no service and that it was an administrative function was simply because Australians could come back in any way.

MR SELWAY: Yes.

MR SELWAY: Yes.

McHUGH J: In addition, section 34 of the Act imposed no criteria for the charge, it did not refer to anything.

MR SELWAY: Yes. I understand that your Honour, but what we say is behind all of that is that issue of whether there was a right, and if then one comes to the court fees, we say that the analysis of that will depend upon whether there is a perception of a right to file your document in court. Now, if the perception is, no, you do not have a right, except upon payment of the fee, it may be you do not get into a close analysis of cost; but if the perception is that you do have a right to approach the court, then perhaps you do get into a close analysis of costs.

Your Honours, I do not think I can take the matter much further than that. We have set out in paragraph 15 what we say the sort of matters that may be relevant to that analysis might be, but we say that there is no bright and shining point of distinction and one is left to characterise the charge in any particular case.

HAYNE J: Just one thing, Mr Solicitor, on the excessive fees example that has been spoken of in the course of your argument, it may be that that is addressed at the global level; that if total fees received equal or are less than total costs incurred, the question of excessive fee does not intrude. It is only when you go past that, that there may then be a further and subsequent question.....beyond.

MR SELWAY: Our submission would be that whatever analysis one does, you do not do an analysis as detailed as is done in this case. But to take that example: let us assume that a proper fee for filing documents in court is $1,000 or $50, it does not make much difference. A particular plaintiff who discontinues the action the day after filing, you may have awful difficulty justifying, in respect of that particular plaintiff, that he got $50 worth of value. But, we would say, you never get into that sort of analysis. You can perfectly, properly do it over a broad group of consumers, if you like, who are using the service.

GUMMOW J: Yes, but there is involved a right there rather like the right to enter the country.

MR SELWAY: I understand, your Honour, and we would say that would be the issue that would be debated in that context.

GUMMOW J: As to whether that was being taxed.

MR SELWAY: Yes.

KIRBY J: But there is one view, as you have conceded, a right of access to the courts and you will get some economist who will come along and say, "Well the Supreme Court building is in a prime location, it is a very expensive piece of real estate, and you have to add all those pensions for the retired judges and you have to have the cleaning of the buildings and so on". It can step it up an awful lot, even to the point that it might shock you, Mr Solicitor, and you might be thinking that it, perhaps, looks a bit like a tax. There is only one way that courts can deal with it, legal criterion and facts found.

MR SELWAY: I understand that, your Honour. But what we say is that in this particular issue, whilst that is the approach, the ultimate answer is one of characterisation and not the application of definitions. If it please the Court.

GLEESON CJ: Yes, thank you, Mr Solicitor. Yes, Mr Dunphy.

MR DUNPHY: If the Court pleases, similar to the other interveners, our submissions are directed towards the issue of the meaning of taxation in the second limb of section 67. Your Honours, our first point that we would make is that there is, clearly and expressly, under the Constitution, a clear distinction between what is a tax and what is a fee for service. We would briefly refer, as we have done in our written submissions, to the wording of section 53 of the Constitution, and the commentary on that section in the Air Caledonie Case.

In our respectful submission, one of the necessary indicia when looking at this question of whether one is dealing with fee for service is to decide whether the fee is exacted and whether there are identified services which are provided or requested. The cost or value of the fee that is imposed may in practice in today's climate be similar. This case illustrates that with the development of user pays that it may well be with concepts of return on capital being recognised as a legitimate cost, that the correlation between value and costs could in practice be very close. During the argument this morning the issue has been raised in relation to the monopoly situation and it would be our respectful submission that it may well be in that circumstance that the issue of costs rather than value may provide an initial yardstick in that regard.

KIRBY J: But user pays is really, as Justice McHugh pointed out, really gone a long way, even since 1967. For example, my understanding is that if you land at Heathrow in London you pay an amount for being processed through immigration. They, of course, do not have a constitutional provision such as ours but at least there they thought, as I think is the case, that that is something entirely proper for user pays. It may be we have to rethink some of the criteria in the new context that now exists.

GLEESON CJ: The police services will charge people for sending police officers along, in certain circumstances, to places that are likely to give rise to trouble.

MR DUNPHY: Yes, your Honours, certainly at State level we are seeing user charging being applied even to Crown Law Officers and, essentially, it certainly is the position at government levels, Commonwealth and State, that user charging is basically being followed and, Justice Kirby, your comments are correct, in our respectful submission, in terms of - - -

KIRBY J: Does that not mean courts should be very vigilant that what has happened in terms of user pays is not turned into an effective way of raising revenue or call dividends for government but which is, in fact, a new way of levying tax on citizens?

MR DUNPHY: Yes, your Honour, that certainly is an issue to be considered and it is a question of identifying the appropriate limitation that the Court can adopt to deal with this development in terms of the pre-existing principles that have been outlined in the cases today.

GLEESON CJ: One possible limitation is that so long as the total charges imposed for providing a facility or service do not exceed the total cost of providing the facility or service, it is not a revenue-raising activity. That still leaves swinging the question of profits or dividends.

KIRBY J: But it also leaves, does it not, the question of costs such as where do you stop in working out the costs of a court in terms of its infrastructure and all the other things. If you start adding all them in you have an awful lot of costs.

GUMMOW J: It might be a tax one year and not a tax the next year depending upon these variables. That cannot be right.

MR DUNPHY: Your Honours, could I perhaps respond to those - - -

GAUDRON J: Does it perhaps come down to this? There are services provided for which fees are charged and they are charged to all the people who use it and not to the people who do not use it, and therefore you would have to look to something in other circumstances to suggest it really was a sham, that although it looked like it and operated in a non-discriminatory manner in the way I have indicated, you would then have to really go to the point of saying "sham" just to cover for revenue raising.

MR DUNPHY: Your Honour, we would adopt that approach and indeed as a - - -

KIRBY J: Did Air Caledonie fall because it was a sham? It fell for other reasons.

MR DUNPHY: Yes, your Honour, but perhaps if we look - the only other case post Air Caledonie that has really looked at the question of value being Harper, in our respectful submission, there is some assistance that can be obtained particularly from - - -

GLEESON CJ: Perhaps we could come to that tomorrow morning. Just before we adjourn, Mr Campbell, how long do you expect to take for your submissions on both the appeal and your notice of contention?

MR CAMPBELL: It would not be less than three hours, I do not think, your Honour. A lot of the material has been covered in debate and I would hope that I would be able to make faster work than if I were going first.

GLEESON CJ: You sound as though you expect to finish comfortably within time tomorrow.

MR CAMPBELL: I would hope so, your Honour.

GLEESON CJ: Allowing for reply, Mr Jackson. Do you have the same view, Mr Jackson? Very well.

MR CAMPBELL: Particularly, your Honour, I should say so far as the acquisition of property point is concerned, we would expect that our written submissions would not need to be elaborated very much at all.

GLEESON CJ: Very well, we will adjourn until 10.15 tomorrow morning.

AT 4.21 PM THE MATTER WAS ADJOURNED

UNTIL THURSDAY, 15 APRIL 1999