Top of the Cross Pty. Limited v. Federal Commissioner of Taxation.

Judges:
Woodward J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 19 December 1980.

Woodward J.

This litigation involves five appeals against assessments made by the Commissioner pursuant to the provisions of the Income Tax Assessment Act 1936. There are two appellants, Travel Holdings (Australia) Pty. Limited (Travel Holdings) in respect of the years ended 30 June 1975 and 1976 (No. 681 of 1979) and Top of the Cross Pty. Limited (Top of the Cross) in respect of the years ended 30 June 1975, 1976 and 1977 (No. 680 of 1979).

By consent the appeals were heard together but the evidence was tendered in the matter No. 681 of 1979 and it is agreed that the decision in respect of that appeal for the year ended 30 June 1975 shall operate as a decision in respect of all matters.

The appellants Top of the Cross and Travel Holdings (hereinafter referred to as the partners) have been at all relevant times carrying on the business of motel trading as partners under the business name of T.H. Motels. The partnership was constituted by a deed dated 3 August 1966.

On 26 October 1967 there was published in (inter alia) The Age newspaper, a notification in the following terms:

``MELBOURNE TULLAMARINE AIRPORT

Tenders are invited for the following facilities at the new International Airport -

....................................

Airport Motel: Design, erection and operation Schedule C67/135A closes January 23rd, 1968.

Copies of these schedules are available from -

Director of Business and Property,

Department of Civil Aviation,

Aviation House,

188 Queen St.,

MELBOURNE. VIC.''

The formal invitation contained information in 18 numbered paragraphs, and had, as schedules to it, a draft form of lease intended for completion between the Commonwealth of Australia and the successful tenderer, and a draft document, described as an authority, under the Airports (Business Concessions) Act, 1959-1966 dealing with the sale of liquor on the premises once they were completed and intended to be granted to the successful tenderer. It also included a form of tender for completion.

The invitation is not clearly expressed but from its terms it can be inferred that while inviting public tenders for the erection, establishment and operation of a motel at the airport it was intended that the successful tenderer should obtain a lease (a building lease) for a period of twenty-five years in the terms of the draft attached subject to such amendments as were necessary or mutually agreed upon. Any reservation as to the terms of the draft lease were to be stated in the tender. The sale and service of intoxicating liquor in the motel would be authorised in accordance with stated conditions and the rental would be a yearly amount of eighteen thousand dollars payable by monthly instalments in advance.

The invitation (by cl. 7) stated that:

``A consideration for the granting of an authority to trade is to be tendered in accordance with the conditions set out in para. 13 of the tender form attached.''

No tender form was attached to the document exhibited to me which contained no. 13 or any relevant paragraph, nor was cl. 13 of the invitation relevant.

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The invitation stated that unless otherwise agreed between the Commonwealth and the tenant the lease of the premises would commence on the date on which the passenger terminal building commenced to operate at Tullamarine Airport for scheduled international passenger air services, and the rent payable under the lease would accrue from that date, which was expected to be about December 1968.

The invitation further stated that the tenant would be issued with an authority given by the Minister for Civil Aviation under the provisions of the Airports (Business Concessions) Act, 1959-1966 to carry on the business referred to in the tender schedule. A number of other matters to be dealt with in the authority were stipulated. The invitation stated that all activities would be conducted in accordance with the Airports (Business Concessions) Act referred to, the lease and the authority. It was stated that ``any breaches of the authority or agreement may be dealt with under the terms of the agreement''. The reference to the agreement was a reference either to the lease or to the agreement constituted by the whole arrangement.

Clause 15 of the invitation, under the heading ``Conditions of Tender'', was in the following terms:

``Tenders shall be submitted on the form attached and supported by any other documents the Tenderer may desire to lodge. Tenderers must specify in the tender form the consideration which the Tenderer is prepared to pay to the Department for the issue of an authority to trade under the Airports (Business Concessions) Act. This consideration shall comprise a specified percentage of the gross revenue of the business from the sale and supply of intoxicating liquor and a separate specified percentage of the gross revenue derived from the sale and supply of other goods and services. Tenderers may increase the amount of the rent specified in the Tender if they so desire. The consideration payable will be reviewed every five years. The formula for reviewing the consideration payable will be mutually agreed with the successful Tenderer prior to entering into a formal lease agreement.

Tenderers shall state on the tender form the amount of capital expenditure proposed to be spent in the establishment of the business and the estimated gross revenue for the first five years of operation of the business.

No Tender will be considered unless at the time of tendering the Tenderer deposits with the Commonwealth a cheque for the sum of One thousand dollars ($1,000) payable to the Commonwealth of Australia by way of security for performance of the contract.

The security lodged by the Tenderer may be retained by the Commonwealth until the Commonwealth determines to reject his tender or if a contract is made between the Commonwealth and the Tenderer, until the contract is made. No interest shall be payable by the Commonwealth on the securities lodged by any Tenderer irrespective of the period for which such securities are retained.''

The use of the words in the clause ``the amount of the capital expenditure proposed to be spent in the establishment of the business'' is not without significance. The draft lease contains a demise of the premises to the tenant ``to use the demised premises for the purpose of a motel''. The lease ultimately executed contained a demise of the premises ``for the purpose of establishing a motel etc.''. The only significant capital expenditure involved in the making of the tender was for the erection, fitting and furnishing of the motel building and provision was made in the tender form for the inclusion of an amount as estimated expenditure for investment in the premises, etcetera, ``to establish a business to the standards described in the Tender Schedule''.

The reference to the deposit of one thousand dollars ``by way of security for performance of the contract'' is also important. That deposit could be retained by the Commonwealth (inter alia) until the contract was made (not ``performed'' as stated above). It is hardly likely that a deposit would be required in relation to an offer to lease simpliciter. On the other hand it is not unusual for public authorities to require a deposit with a building tender to be returned on execution of the contract so as to

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ensure that, if the tender is accepted, a contract will be made. It is probable that the use of the word was not intended to refer to the lease. It may also indicate that the parties did not intend that a contract was made merely by acceptance of the tender. It certainly indicated that it was the intention of the Commonwealth to bind the successful tenderer and until bound by contract the deposit was not returnable.

The successful tenderer would undoubtedly become the tenant. It was provided that ``the tenant will be chosen on the basis of the consideration offered, the capital investment proposed and the general experience of the tenderer in the type of business under tender'' (cl. 16).

It was stated finally that ``The tender is made subject to and incorporating the terms of the draft agreement. The successful tenderer shall within twenty-eight days after receipt of notice from the Director-General requiring him to do so execute an agreement in the form of the draft agreement attached hereto (with such amendments as made be agreed between the tenant and the Commonwealth).'' No draft agreement, as such, was attached to the invitation but I take this to refer to the draft lease.

The tender form attached to the invitation contained the following:

``I/We, the undersigned, tender in respect of the business described in Tender Schedule No. and in accordance with the conditions of tender of that Tender Schedule the following amounts:

(a) a clear monthly rent of fifteen hundred dollars; and

(b) under the Airports (Business Concessions) Act 1959-1966 as a consideration for the issue of an authority to trade... an amount equivalent to... per centum of the gross revenue of the business from the sale or supply of intoxicating liquor purchased or otherwise obtained from the licensed premises, and... per centum of the gross revenue derived from the sale or supply of other goods and services during the month.

I/We propose to invest in the premises, furniture, fittings and equipment an estimated capital of approximately $... to establish a business to the standards described in the Tender Schedule.''

Certain information was, by the invitation, required to be supplied from the tenderer. Reference was made in the invitation to Tender Schedule C67/135. The time for the closing of tenders was 2 p.m. on 23 January 1968 at the office of The Secretary, Central Business Board, Melbourne.

From an examination of the invitation to tender, the form of tender, the draft lease and the draft authority it is clear that what was intended was that the specified facilities were to be erected and furnished at the airport at the cost of the tenderer in return for which the tenderer would receive a lease of the premises provided by it for a period of twenty-five years at a stipulated rental and a concession or franchise called an authority to trade in those premises both in relation to the conduct of a motel and the sale of services, liquor and other stipulated commodities, for a payment assessed as a percentage to be based upon the gross revenue derived from such trading.

The draft lease appeared to be a formal document and could well, subject to completion of the blanks in it, constitute a sufficient formal deed of lease so as to support a conclusion that the parties neither contemplated nor required the execution of any further document to complete that part of the transaction. Apart from formal provisions and clauses necessary but irrelevant for the purposes of this matter, the lease contained in it the following relevant clauses.

Clause I provided the operative demise for a period of twenty-five years, to use the demised premises for the purpose of a motel at a rental of fifteen hundred dollars per month. The premises were described:

``All those the premises situate at the airport being the premises more particularly delineated and shaded red on the plan at schedule `A' annexed hereto (hereinafter called the motel) together with the improvements thereon (if any) (which premises and improvements together with all additional fixtures and other improvements from time to time erected constructed or made upon the said land by the tenant with the approval of

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the Director-General of Civil Aviation are hereinafter collectively referred to as `the demised premises').''

Clause 2 contained the tenants' covenants set out in subclauses.

(1) The tenant agreed to pay for each month
- (i) as rental for the demised premises the sum of fifteen hundred dollars; and
- (ii) in consideration of the grant of an authority to conduct a motel on the demised premises a sum equal to per centum of the gross revenue of the business derived from the sale and supply of intoxicating liquor and a sum equal to per centum of the gross revenue of the business derived from all other sources.
...
(4) To submit for approval the plans of any improvement, etcetera, intended by the tenant to be erected upon the demised premises together with a statement of the purposes for which it was intended to use the said improvement, such plans to be prepared by a qualified consultant.
(5) Not to commence the erection of any such improvement without prior consent in writing and except under the supervision of a qualified consultant.
(6) Upon being required so to do, to remove from the premises any improvement, etcetera, made in contravention of the previous subclause and to restore to the satisfaction of the lessor the demised premises as they were prior to the unauthorised improvement.
(7) To provide to the satisfaction of the lessor furniture, etcetera, necessary for the efficient conduct of the business.

Clause 3 contained a covenant from the Commonwealth for quiet enjoyment.

Clause 4 contained a number of mutual covenants the relevant ones of which are set out hereunder:

(3) Subject to para. (4) of this clause the tenant is to have no right to remove any fixtures or improvements which the tenant has with the approval of the lessor before or during the continuance of the lease erected or constructed upon the demised premises.
(4) The Commonwealth may at any time within six months before the expiration or sooner determination of the lease require the tenant to remove improvements which the tenant has during the continuance of the lease erected upon the premises.
(5) If the tenant fails to comply with a notice given pursuant to subcl. (4) it shall be lawful for the Commonwealth to do the act required by the notice and the expense of so doing may be recovered from the tenant.
(6) If the tenant fails to remove from the premises any improvements made in contravention of para. 4 and 5 of cl. 2 the landlord may without determining the lease enter upon the premises demolish the improvements and the cost of so doing may be recovered from the tenant.
(7) Any equipment of the tenant not removed from the demised premises before any incoming tenant enters into possession upon the expiration of the lease shall become the absolute property of the Commonwealth.

The draft authority, also attached to the invitation, was headed, after referring to the Airports (Business Concessions) Act ``Authority to sell intoxicating liquor and other goods and to conduct an airport motel within the Melbourne Airport''. This document stated that the Minister of State for Civil Aviation granted to an unnamed person authority personally or by servants or agents on the terms and subject to the conditions set out to establish and operate a motel, to sell and supply intoxicating liquor on the premises in the dining room on stipulated occasions, to sell and supply intoxicating liquor in the club bar for consumption only by guests at the motel and their friends and by guests of the motel in their rooms at all times, and to sell and supply meals, foods, drinks, confectionery, cigarettes and tobacco daily at any time.

Clause 3 provided that the consideration for the authority shall be the payment by the tenant (the successful tenderer) in respect of each month an amount equal to an undated percentage of the gross revenue of the business derived from the sale and supply of

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intoxicating liquor and an amount equal to an unstated percentage of the gross revenue of the business derived from the sale and supply of other goods and services.

The tenant was required to keep books of account and to make monthly returns and statements of liquor purchases. The document contained a number of prohibitions and a number of provisions relevant to the authority.

Clause 21 provided:

``The tenant shall submit to the Director-General for approval the plans and specifications of the facilities to be provided for the sale and supply of intoxicating liquor and shall not commence the erection or installation of any facilities for that purpose without having first obtained the approval in writing of the Director-General in accordance with this sub-clause.''

The tenant was required not to make any alteration to the facilities referred to in the subclause without first obtaining the consent in writing of the Director-General.

To ensure that the authority lasted for the term of the lease it stated that it should continue in force for a term of twenty-five years. To the document there was attached a schedule containing certain provisions concerning hygiene in relation to airport food and drink services.

On 26 February 1968 the partners wrote to the secretary of the Central Business Board a letter forwarding their tender in respect of the airport motel business described in Tender Schedule No. C67/135A together with a number of schedules containing information required by the invitation to tender.

In addition to enclosing the tender and a cheque for one thousand dollars payable to the Commonwealth of Australia ``by way of security for performance of the contract'' it enclosed the following schedules:

B: Qualifications of the tenderer T.H. Motels, a partnership comprising Top of the Cross Pty. Limited and Travel Holdings (Australia) Pty. Limited, together with brief details of the financial position and business experience of their respective parent companies Travelodge Australia Limited and Trust Houses Limited of the United Kingdom.
C: Reservations as to the terms of the draft lease.
D: Details of goods and services proposed for sale and supply in the proposed business.
E: Sketch plans and pictorial presentations of the proposed development.
F1 & F2: Presentation showing two alternative schedules of details of textures textiles and colour schemes for motel suites.
G: Presentation showing details of textures textiles and colour schemes for reception area.
H: Presentation showing proposed types of light fittings.

Schedule B was in answer to para. 16 of the invitation to tender. Schedule C in answer to para. 4, Sch. D in answer to para. 14 and Sch. B, F1 & F2, G and H in answer to para. 8.

The letter stated that the tenderer noted the conditions applicable to the tender in relation to standards set out in para. 8 and undertook to comply with them.

Specific attention was directed by the letter to engineering services, review of rentals and developmental proposals. In relation to the latter it was stated that the sketch plans presented in Sch. E included a projection of stage 2 of the development comprising a further one hundred suites. It was stated that because of the tenderer's inability to forecast the demand over the next five years for airport prestige motel accommodation the attached tender was based only on stage 1 of the building comprising 100 suites and ancillary services and this was reflected both in the estimated capital outlay and annual gross turnover.

The letter then concluded with the following paragraphs:

``In giving consideration to the rental formula submitted with this application, we have had considerable difficulty in relating a development of this nature on land leased for only twenty-five (25) years and in respect to which, under our Federal Revenue Laws, no amortisation of

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building improvements is allowed in calculating the amount of Federal Income Tax payable on profits projected to arise from this development. The formula tendered has taken this disadvantage into account.

We ask if we may have the opportunity to consider with you an amended rental formula which we would be prepared to offer if we were able to negotiate a lease of longer duration than twenty-five (25) years to reduce the effect of amortisation charges on buildings which are not deductible for Federal Income Tax purposes.

In general consideration of this Tender, we have retained the services of Morris Sallmann Pty. Limited, Property Consultants, Valuers and Estate Agents of 460 Bourke Street, Melbourne, whose services we have used in the past. They have advised certain views in this direction which will be of assistance in any discussions which we may be able to have with your Department.

We believe that a formula should also be agreed between the lessor and the lessee whereby, for the duration of the lease or such other period as may be mutually agreed, the lessee has an exclusive arrangement whereby no further bedrooms or meeting rooms will be provided in the airport area and this is an aspect which we would appreciate an opportunity of discussing.''

The document attached to the letter as Schedule C containing ``reservations as to the terms of the draft lease'' referred to a number of matters suggested as variations to the lease. On the document annexed to the affidavit of Brian Lee Manfred sworn on 1 April 1980, he being a director of Top of the Cross, there are a number of hand written notations suggesting that some of the reservations were agreed to, no doubt in subsequent oral discussions.

The tender offered a monthly rental of fifteen hundred dollars and as a consideration for the issue of the authority an amount equivalent to six per centum of the gross revenue of the business from the sale and supply of intoxicating liquor and three per centum of the gross revenue derived from the sale or supply of other goods and services. It further stated that the tenderers proposed to invest in the premises furniture fittings and equipment an estimated capital of approximately one million four hundred and ninety-six thousand dollars to establish a business to the standards described in the Tender Schedule. An estimate was included of the annual gross turnover expected to be achieved from the business during the first five years of operation.

On 5 June 1968 the tenderers wrote a further letter to the secretary of the Central Business Board referring to the request contained in the letter of 26 February for consideration of an extension of the lease period of twenty-five years. The letter stated that should the Department contemplate a lease of thirty years instead of the twenty-five years as proposed and also, should the Department agree that rental adjustments should not be paid in the first ten years, the following alternative rental formula was offered:

``(a) a clear monthly rent of fifteen hundred dollars; and

(b) as a consideration for the issue of an authority to trade under the Airports (Business Concessions) Act, 1959-1966 an amount equivalent to nine per centum of the gross revenue of the business from the sale or supply of intoxicating liquor purchased or otherwise obtained from the licensed premises and four per centum of the gross revenue derived from the sale or supply of other goods and services during the month.''

The letter then continued:

``We have had the opportunity of discussing with you minor amendments to the proposed lease document. For record purposes we enclose herewith a summary of the amendments which we believe have been mutually agreed upon in the event that we should be the successful tenderers in this matter.''

On 28 June 1968 the Director-General of Civil Aviation wrote to the partners offering congratulations upon the acceptance of the tender for the Melbourne Airport Motel and enclosing the formal letter of acceptance. The letter continued:

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``I will now await your submission of detailed plans and specifications for the construction of the building. Should any data be required please do not hesitate to contact me at this office... so that the contract documents can be prepared with the least delay I would be grateful if you could forward the wording of your official sealing clause.''

The formal letter was as follows:

``I am pleased to advise you that your tender dated 26 February, as amended by your letter of 5 June 1968 has been accepted for the establishment and operation of a motel at Melbourne Airport. Work is currently in hand to prepare the contract documents along the lines discussed at our meeting, which amendments were also set out in your letter of 5 June referred to above.''

Most of the relevant correspondence that passed between the parties until the lease was executed on 29 August 1969 has been produced to me. I am satisfied that the unavailability of any of the correspondence is not due to the design of either of the parties. Reasons have been advanced in evidence as to why portions of the original correspondence are not available and I accept these. A relevant file from the Department of Civil Aviation came to be available only after the evidence had been given and addresses had been partly completed. I am satisfied that a number of discussions were had between officers of the Department of Civil Aviation and representatives of the partners. Correspondence passed also but in the ultimate all relevant documents were completed, work commenced upon the airport and the partners, in accordance with the arrangements, went into occupation pursuant to the terms of the lease and the authority.

On 1 July 1968 the partners wrote to the Department a letter concerning the Tullamarine Airport Motel Tender No. C67/135A. The relevant portions of that letter were:

``We refer to the telephone advice conveyed to you by our Mr. A.L. Manfred that our Company Tender for the Lease of land for the exclusive development of accommodation at Tullamarine Airport had been accepted by your Department. We... look forward to putting in train immediately the necessary steps to commence construction of the proposed TraveLodge.

Mr. G. Haines,... will contact you in the course of the next few days to commence the discussions which will be necessary in this regard.

Additionally we have discussed certain minor variations to the proposed Lease document which we would appreciate being resolved and Mr. Haines will also discuss these matters in finality with you so that our respective lawyers might be placed in touch with one another.''

On 19 August 1968 a letter was written by the Director-General of Civil Aviation (Director-General) following which discussions were held in the Department's offices in Melbourne on Thursday 29 August.

In a letter of 19 August the Director-General referred to the letter of 1 July ``about the lease of its premises at Melbourne Airport''. The letter forwarded a further draft lease covering the motel site for consideration and further discussion ``if you think this is necessary''. Reference was made to some of the points mentioned in the partners' letter of 5 June 1968. The letter concluded with the statement:

``I would appreciate your early acceptance of the draft lease to enable formal documents to be prepared. We would also appreciate your advice of when you expect your company's building plans to be submitted for our consideration.''

On 13 September the partners wrote to the Director-General setting out ``the various matters still to be finally agreed upon'' with appropriate comments thereon.

To this letter the Director-General replied on 25 October indicating a steady advance towards the situation where there would be nothing left further for discussion between the parties.

In a letter of 6 November 1968 written by the partners to the Director-General there was an indication that all matters had been agreed between the parties except that further discussion was sought upon two

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remaining matters, reviews of rental and whether or not there should be an agreement to lease. Discussions were had in Melbourne on 7 November and on 15 November the partners wrote to the Director-General expressing further views on the two matters then outstanding previously mentioned. In dealing with the review of rental the letter contained the following paragraph:

``1. Review of Rental

We note your remarks on the suggested formula for rental reviews based on passenger transit at the terminal. Our opinion is that the participating nature of the rent protects the Department adequately for its fair share of the rental and from the possibility of inflationary trends reducing the value of the dollar in future years. We would like to think that the participating part, i.e. the proportion of the rent which is related directly to turnover, is not subject to review but remains a constant factor during the term of the lease. The base rental of $18,000 per annum is the one aspect which probably could be reviewed regularly to allow for trends in the economy and we would suggest that this part of the rental could be related to passenger usage at the terminal for purposes of review.''

The reference in that paragraph to the participating nature of the rent and the subsequent reference to the base rental of eighteen thousand dollars per annum suggests that in fact the whole of the rental was the fifteen hundred dollars per month and the percentage on turnover expressed to be a consideration for the franchise. This is borne out also by the use of the words above quoted ``this part of the rental could be related to passenger usage''.

On 9 December 1968 the Director-General wrote to the partners stating that the data presented in the letter of 15 November had been closely examined. He stated that he was prepared to accept as a review basis the clause set out out in part 1 of his letter on the Melbourne Airport proposition. Realising that the agreement to lease could be used by the partners as an instrument to obtain bridging finance for the new project he sought information as to how this finance was to be obtained. After referring to the difficulties that could arise in the event of default under a mortgage he stated his preparedness to amend cl. 2 para. 12 of the lease in a fashion which in his view would be sufficient to cover any foreseeable problem. To this letter the partners replied on 16 December accepting the situation in relation to the review of rental and assuming that the Department was now agreeable to the execution of an agreement to lease. As requested in the letter under reply information was supplied as to the method of financing the erection of the building.

On 16 December 1968 the partners wrote thanking the Director-General for his letter of 9 December and noting that he was prepared to amend cl. 2 para. 12 of the tender documents to read as then described. It stated that the amendment appeared to be satisfactory but that it was desired to offer it to the partners' solicitors. On 23 December the partners wrote two letters to the Director-General one in reply to his letter of 9 December to which I have referred and one written further to their letter of 16 December suggesting an addition in terms stated to the amendment proposed by the Director-General in his letter of 16 December.

On 3 July 1969 a further letter was written by the partners referring to a meeting held on 2 July listing certain amendments, expressed to be of little significance which could be made simply by altering the existing document rather than to re-engross a fresh one. Two other matters were referred to which had been the subject of previous discussion.

On 5 August the partners wrote in reference to the ``Tullamarine Airport Motel Lease'' as follows:

``In terms of the lease agreement entered into in respect of the Tullamarine Airport site, we are now seeking your consent to proposed first and second mortgages to be secured over the Tullamarine leasehold including the improvements to be erected thereon.''

Terms of the mortgages were then set out. The letter then concluded:

``The remainder of the funds required to complete the project will be found by the partners of T.H. Motels, Travelodge Australia Limited and Travel Holdings (Australia) Pty. Limited.

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We trust we may have an early approval in principle to the above loan arrangements so that we can instruct intending lenders that we accept the terms of their offers.''

On 15 August 1969 a letter was written by the Director-General referring to the partners' letters of 3 July and 5 August.

The letter further stated that the Department was agreeable to amendments being made to the lease as thereafter stated in it. The lease subsequently executed by the parties was unaltered in its context except to the extent stated in that letter. This was because the letter suggested that the amendments be made in manuscript in the copies of the lease which had been forwarded and that they be initialled by a director and secretary of each of the tenant companies. It further suggested that the authority attached to the lease should be amended by the deletion of condition 13 and in fact this was done. The letter concluded by stating that approval was given in principle to the proposed mortgages of the lease as set out in the letter dated 5 August 1969 subject to the lease being executed and stamped and the form of the proposed mortgages being submitted to the Department for approval.

On 27 August the partners fowarded to the Director-General the original and duplicate copy of the lease duly executed under seal by each of them.

On 28 August the building contract between the partners and the builder was signed and the partners forwarded a copy of it to the Director-General seeking an indication that the form of contract met with the approval of the Department for the construction of ``the Tullamarine TraveLodge''.

That contract described the land as being land leased by the owner situated at Tullamarine Airport. The contract price was stated as $1,987,700 and 30 June 1970 as the date specified for substantial completion. The builder (Austin-Anderson (Australia) Pty. Limited) agreed to construct a Motor Hotel as shown on certain identified drawings and specifications.

The lease was completed on 29 August 1969. The authority granted under the Airports (Business Concessions) Act, 1959-1966 is dated 29 August 1969 but states that on 14 June 1968 in pursuance of the powers conferred upon him the Minister of State for Civil Aviation granted to the partners authority to establish and operate a motel and to sell and supply intoxicating liquor on the premises subject to the conditions therein set out. It stated that it should enter into force upon 10 June 1970, or the commencement of business whichever was the later and would continue for a term of thirty years.

There was a difference between the form of both the lease and the authority attached to the invitation to tender and the documents ultimately completed.

As to the lease the following were the differences:

(a) The term was originally for twenty-five years but was altered to thirty.
(b) The demised premises were originally intended to be used for the purpose of a motel but subsequently that became a use not only for the purposes of operating a motel but for the purpose of establishing and operating it, the sale and supply of intoxicating liquor in a dining room and club bar and the sale and supply of meals foods drinks confectionery cigarettes tobacco newspapers magazines and stationery most of which was permitted by the authorities.
(c) The lease in its original form contained no provision for review of the rent. In the one signed a new cl. 4(12) was inserted to make provision for such review following the correspondence between the parties just shortly before agreement was reached.

The differences in the authority were as follows:

(a) In the original form cl. 3 provided that the consideration for the authority should be a payment calculated upon the gross revenue of the business both from the sale of liquor and from the sale of other goods and services. In the authority ultimately granted it was stated that the consideration for it should be the undertaking by the tenant to pay the Commonwealth the rent and other moneys due under the lease. In neither document was the consideration

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expressed to be the erection at the cost of the tenant of the buildings, in which the business was to be conducted, which would revert to the Commonwealth upon the completion of the tenancy.
(b) Clause 12 was deleted for understandable reasons and cl. 14 as the result of negotiation between the parties.

Any other differences between the form originally included in the invitation and the documents executed was either minor or not relevant to the present litigation.

Construction of the project actually commenced on 14 August 1969 and substantial completion was effected on 9 October 1970. The partners commenced to derive income from trading on 19 October 1970. The Director-General approved the building for ``occupancy operations'' on 10 December 1970.

On 11 September 1969 the partners wrote to the Director-General referring to the security deposit of $1,000 lodged with the tender which was to be retained by the Commonwealth until such time as the contract was made. A refund of the deposit was sought. On 12 September the Director-General replied stating that there was no objection to the return of the $1,000 and arrangements had been made accordingly. On 7 October the Director-General wrote formally accepting the form of contract made between the partners and the builder and expressing regret for delay in so doing. On 21 October the partners advised the Director-General of the progress made in relation to the borrowing arrangements.

The motel premises were first opened for use on 19 October 1969 and from that date the partners in accordance with the documents executed with the Department of Civil Aviation have carried on a motel business in the said premises. The total amount of expenditure incurred by the said appellant taxpayers in the construction or otherwise in relation to the motel undertaking was one million nine hundred and thirty thousand four hundred and ninety-six dollars details of which have been supplied to the Commissioner. No part of the said expenditure has been reimbursed to the taxpayers or to either of them. It is claimed by the partners that all revenue derived from the operation of the said motel undertaking has been collected and retained by or on behalf of the said partnership. The undertaking has since completion been used by a wide cross-section of the public who may be divided into the following categories:

(i) incoming and outgoing overseas airline passengers;
(ii) domestic airline passengers;
(iii) honeymoon couples (both as to wedding receptions and accommodation);
(iv) persons attending conferences held at the hotel;
(v) businessmen, public servants, graziers and other business and professional persons (both for entertainment and accommodation);
(vi) air crew and other airline personnel both in transit and undertaking training courses; and
(vii) casual visitors, tourists and persons farewelling, welcoming and entertaining airline passengers.

In 1975 it came to the attention of the taxpayers that the net income of the partnership as disclosed by the income tax returns lodged by the partnership for each of the income years ended 30 June 1971, 1972, 1973 and 1974 had been overstated. Accordingly the taxable income of each of the taxpayers in each of those years of income had been overstated. It was claimed by the taxpayers that the overstatement of the net income of the partnership in the relevant years had arisen by reason of its omission to claim a deduction to which it was entitled in terms of sec. 62A(1) of the Income Tax Assessment Act 1936, as amended. On 22 May 1975 a letter in support of this application was forwarded to the Deputy Commissioner of Taxation.

The Airports (Business Concessions) Act, 1959-1966 enables the Minister to grant leases and licences in respect of land within an airport on such terms and conditions and subject to payment of such rental or other consideration as he thinks fit (sec. 6). Except in accordance with an authority granted under sec. 8 the terms and conditions of that authority a person shall not, within an airport, sell for delivery within that airport, or supply any goods or services, carry on or

ATC 4628

solicit for any business or erect display or distribute or communicate any advertisement or public notice (sec. 7).

The Minister may by writing under his hand grant to a person an authority to do any act or thing referred to in sec. 7. Such authority may be included in or granted in relation to, a lease in respect of particular land within an airport; and shall subject to sec. 9, be granted for such period on such terms and conditions and for such consideration as the Minister thinks fit (sec. 8). The Minister may, having regard to the special needs of the travelling public, specify certain matters in the terms and conditions of any authority under the Act. The Act provides, in particular, requirements, prohibitions and restrictions that may be imposed in relation to the sale or supply of intoxicating liquor. An authority granted under the Act may impose terms and conditions to prevent the sale or supply of goods or services to persons resorting to the airport solely or principally for the purpose or purchasing or obtaining goods or services at times outside the days and hours of trading or business that would be applicable under the law of the State or Territory in which the airport is situated (sec. 9).

The Minister is authorised to impose a number of other stated conditions. Such a lease or authority shall not be granted for a period exceeding in the case of a building lease or an authority included in or granted in relation to such a lease ninety-nine years or in any other case twenty-one years or except after tenders have been publicly invited or after public auction (sec. 11).

Section 62A of the Income Tax Assessment Act 1936 provides as follows:

``62A(1) Where a franchise granted on or before 7 April 1978 requires that the undertaking which is the subject of the franchise shall become the property of the authority granting the franchise after the expiration of the period of the franchise without reimbursement of any of the expenditure thereon, a proportionate part of the expenditure which the owner of the franchise is required by the franchise to incur, and which he has in fact incurred, shall be an allowable deduction to him so long as he continues to be the owner of the franchise.

(2) The proportionate part of the expenditure referred to in the last preceding sub-section shall be calculated by distributing the amount of that expenditure proportionately over the period of the franchise unexpired at the date when the construction of the undertaking is completed, or, where there is no period of years fixed as the duration of the franchise, over such period as the Commissioner determines:

Provided that, where any income is derived in respect of the undertaking before its construction is completed, the proportionate part of the expenditure which may be an allowable deduction shall be as determined by the Commissioner.

(3) The aggregate of the deductions allowed by this section to any person shall not exceed the expenditure which that person is required by the franchise to incur and which he has in fact incurred, and where in any case the aggregate of the deductions equals the amount of that expenditure no further deduction shall be allowed in pursuance of this section.

(4) For the purpose of this section, `franchise' means a grant by the Commonwealth or a State, or by a public authority constituted by or under an Act or State Act, whereby in consideration of the construction and maintenance of an undertaking of public utility a person is, during some limited period, authorized to collect and retain the revenue earned by that undertaking.''

The definition of franchise contained in the section does not relieve the difficulties attendant upon the interpretation of the section. In this matter for the taxpayers to succeed in their claim they must establish that the authority granted by the Minister pursuant to the Airports (Business Concessions) Act was a grant by the Commonwealth whereby in consideration of the construction and maintenance of an undertaking of public utility the partnership was during the period of thirty years authorised to collect and retain the revenue earned by the undertaking.

ATC 4629

The matters that arise for consideration in interpreting subsec. (4) are:

(a) is the authority in this case a grant whereby the taxpayers are authorised during the period of thirty years to collect and retain the revenue earned by the undertaking;
(b) is that grant in consideration of the construction and maintenance of the undertaking; and
(c) is the undertaking one of public utility.

From there one goes to subsec. 1 only if after consideration of the matters raised in subsec. 4 the conclusion is reached that the authority constitutes a franchise. Having arrived at that position one is then confronted with the problem of determining whether the franchise requires that the undertaking which is the subject of it shall become the property of the authority granting it after the expiration of the period of the franchise without reimbursement of any of the expenditure thereon. However a deduction is allowable under the section only in relation to a proportionate part of the expenditure which the owner of the franchise is required by it to incur and which he has in fact incurred. The requirement imposed by the franchise upon the owner of the franchise to incur the expenditure is reiterated in subsec. 3 which provides that the aggregate of the deductions allowed by the section shall not exceed the expenditure which the person is required by the franchise to incur and which he has in fact incurred.

Frequently the word ``undertaking'' is used in circumstances where it could be interchanged with either the word business or enterprise and with varying shades of meaning. Sometimes it is used alone, sometimes by way of distinction from the assets of the owner and sometimes as a synonym for business. Sometimes it is used to embrace the property which is used in connection with the undertaking as well as the debts and liabilities which have arisen in relation thereto. For example in relation to the provision of electrical power or the supply of a public service it can refer either to the business of the supply or service or to its assets or to both. Its meaning to a large extent will depend upon the circumstances and context in which it is used.

In
Gardner v. London Chatham & Dover Railway Co. (1867) L.R. 2 Ch. 201, the litigation involved the power of a railway company to pledge its ``undertaking'', which was a going concern created by an Act of Parliament, so that the mortgagee could transfer the conduct of the undertaking in the enforcement of its security. Lord Cairns in his judgment referred frequently to the ``business or undertaking'' in relation to the railway and said:

``A railway is made and maintained by means of its capital, by means of its borrowed money, of its land, of its proceeds of sale of surplus land, of its permanent way, of its rolling stock. All of these may be said, in a sense, to be connected with, to be part of, to make up the undertaking.''

(pp. 214-215)

Referring to the use of the word in relevant securities his Lordship said (at p. 216):

``As regards the effect of the word `undertaking', in these securities, we gain but little information from the definition given in the Acts of Parliament. In the two public Acts, the Companies Clauses Act and the Lands Clauses Act, the `undertaking' is defined to be the `undertaking or works by the special Act authorized to be executed'; and in the private Acts the object appears to be, not so much to describe what is included in the word `undertaking', as to divide by metes and bounds, or otherwise, the various undertakings of the company from each other. The object and intention of Parliament, however, in the case of each of these various undertakings, was clearly to create a railway which was to be made and maintained, by which tolls and profits were to be earned, which was to be worked and managed by a company, according to certain rules of management, and under a certain responsibility. The whole of this, when in operation, is the word contemplated by the Legislature, and it is to this that, in my opinion, the name of `undertaking' is given. Moneys are provided for, and various ingredients go to make up the undertaking; but the term `undertaking' is the proper style, not for the ingredients, but for the completed work, and it is from the completed work that any return of moneys or earnings can

ATC 4630
arise. It is in this sense, in my opinion, that the `undertaking' is made the subject of a mortgage. Whatever may be the liability to which any of the property or effects connected with it may be subjected through the legal operation and consequences of a judgment recovered against it, the undertaking, so far as these contracts or mortgage are concerned, is, in my opinion, made over as a thing complete or to be completed; as a going concern, with internal and Parliamentary powers of management not be interfered with; as a fruit-bearing tree, the produce of which is the fund dedicated by the contract to secure and pay the debt.''

Edinburgh Street Tramways Co. v. Edinburgh Corp. (1894) A.C. 456, was concerned with a method of valuation of a tramway upon the sale of it to a local authority. It was held that the word ``tramway'' could not be read as synonymous with ``undertaking'' but was used in the Act as meaning the structure laid down on the highway, and nothing more. The litigation depended upon the interpretation of a section which authorised local authorities, in certain circumstances, to require certain persons ``to sell, and thereupon such promoters shall sell to them their undertaking''. Lord Watson (at p. 474) said:

``The word `undertaking' is not defined in the Act; but it appears to me that it must signify all the real and removable property belonging to the promoters necessary for conducting tramway traffic, together with all rights and interests in or connected with such property which belong to the promoters, and are capable of being transmitted from them to the purchaser.''

In
Re Electricity Commission (Balmain Electric Light Company Purchase) Act, 1950 (1957) S.R. (N.S.W.) 100, Sugerman J. was concerned with assessing the valuation of an undertaking for public utility as a going concern. His Honour at p. 128 said:

```Undertaking' is a word of variable meaning: it is used many times and with varying shades of meaning in the headings and text of the Act... Basically the idea it would convey is that of a business or enterprise...

The word `undertaking', like the word `business' (cf. In re: Thagg (1938) Ch. 828) will commonly embrace, when used dispositively, the property or some property which is used in connection with the undertaking, and it may be too, the debts and liabilities, or some debts and liabilities, which have arisen in relation thereto. What it will thus embrace will depend in large part upon the context and surrounding circumstances.

Analogous reasoning may be applied to the word `undertaking' when it is used... as descriptive of a subject matter of valuation. The value of an undertaking is dependent upon its earning power; `undertaking', it has been said `is the proper style, not for the ingredients, but for the completed work, and it is from the completed work that any return of money or earnings can arise' and the expression `the fruit bearing tree' has been applied to the undertaking (see Gardner's case supra). The earning power of an undertaking is commonly dependent upon the provision of necessary plant and other physical assets... ordinarily if an undertaking is acquired it will be assumed that the plant etc. used in its conduct is embraced in the acquisition, and the question of valuation will be resolved accordingly.

It is in this sense that, for the purposes of its valuation in connection with its acquisition, an undertaking may be said to include or embrace certain physical assets. In the case of the subject undertaking its value would thus be dependent upon, inter alia, the provision of the buildings plant and equipment which are essential to its profit earning capacity and upon the capacity of the undertaking to provide out of those profits for the maintenance and replacement of those assets when required as essential to the continued maintenance of its profits.''

Baytrust Holdings Ltd. v. I.R. Commrs. (1971) 1 W.L.R. 1444, was more directly concerned with the meaning of the word ``undertaking''. The question for determination was whether or not a proposed scheme was a scheme for the reconstruction of a particular company so that the trade

ATC 4631

investments which that company transferred to another formed part of the undertaking of the transferor. If the answer to that question was in the negative a claim for exemption from stamp duty on the transfers failed. Plowman J. at p. 1353 said:

``The word `undertaking', in my judgment, denotes the business or enterprise undertaken by a company, and while Thos Firth's holdings of British Acheson and High Speed shares were no doubt acquired in the course of Thos Firth's business, they were not, in my judgment, part of the business. A greengrocer's business is no doubt to sell fruit, but the pound of apples that you buy can hardly be described as part of the greengrocer's business. If this is right, it is a fortiori that the scheme undertaken by Thos Firth was not a scheme for its reconstruction since it did not involve a transfer of any part of Thos Firth's undertaking...''

The most recent authority of assistance in the problem before me is the decision of Murphy J. of the Supreme Court of Victoria in
Seatainer Terminals Ltd. v. F.C. of T. 79 ATC 4623 where his Honour made a careful examination of a number of problems similar to those confronting me. In that matter the taxpayer's business was the conducting of a container terminal and depot for the loading unloading and storing of containers of goods at a dock in Melbourne. Following negotiations with the Melbourne Harbor Trust Commissioners who were anxious to update their port facilities to attract overseas shipping, etc., the company took a twenty-one year lease from the Trust of some of the dock area. The lease agreement recited that it was granted to the intent that the said land and all buildings and improvements from time to time erected thereon would be used exclusively for the purposes of the company's cargo handling business. It was provided that if the area was not used intensively the rights of the lessee could be terminated. Under a further agreement the company paid for and received preferential berthing rights at the Trust's adjacent wharf and docking area. The leased land was that on which the buildings, improvements and erections (the cost of which was the subject of the claim) had been constructed. The lease agreement did not expressly authorise the company to collect and retain the revenue earned by the undertaking but the company submitted that the right to do so was a natural incident of the lease itself. Similarly the lease did not state what, if anything, was to be constructed by the lessee on the land. The Commissioner contended, inter alia, that there was no undertaking of public utility within the meaning of sec. 62A but simply a commercial undertaking.

It was contended for the taxpayer that the undertaking referred to in sec. 62A(4) was made up solely of the several permanent buildings constructed on the land and it was these buildings erections and improvements only which on termination of the term were to be yielded up to the Trust. Murphy J. at p. 4634 referred to some of the authorities I have mentioned and said:

``It does appear to me that sec. 62A is worded in such a way as to suggest that the word `undertaking' appearing therein is appropriate to apply to works or buildings which, pursuant to the grant of franchise, have to be constructed, rather than to a business undertaking or the `undertaking of the company', such as is contemplated by those words where they appear in cl. 16 of the Third Schedule to the Companies Act 1961 (Vic.), or in a mortgage debenture containing a floating charge given by a company...''

His Honour pointed out that the fact that the section pre-supposes that one can pinpoint the date when the construction of the undertaking is completed (subsec. 2) appears to require that the undertaking refers to some physical structure rather than to the business enterprise with all its assets in an operating condition. He was aware however that if this meaning of the word ``undertaking'' applied throughout the section it could be that the whole section is limited in its application to undertakings in the nature of structures such as bridges linking public roads, locks, tramways, railways, dykes, roadways, piers, and the like. It would follow that buildings and structures adjacent to a wharf or an airport may or may not be an ``undertaking of public utility'', dependent upon a number of factors none of which would appear to be the use to which they may be or are put. They are not, however, of their very nature and of necessity, undertakings of public utility.

ATC 4632

It is interesting to note that in that case it was submitted on behalf of the Commissioner that the ``undertaking of public utility'' which was to be considered must be the whole of the business operation of the appellant as a going concern, including the license to use the wharf, the berths, the special cranes on the wharf, the trolleys, the servicing facilities, the storage buildings, the depots, the bond shed at Dudley Street and all other aspects of the loading and unloading facilities.

The submission made on behalf of the taxpayer appears not to have found favour with his Honour, it was not however the reason for his Honour finding in favour of the Commissioner. He said (at p. 4636):

``Standing alone the buildings and erections and improvements, on the leased area, which Mr. Horton [for the taxpayer] submits are to be considered as `the undertaking' for the purposes of sec. 62A(1), cannot be regarded as `the subject of the franchise'.''

The precise meaning of the expression ``undertaking'' cannot be determined without further reference to the context in which it is used. It must be construed as it appears in the expression ``construction and maintenance of an undertaking of public utility''. Literally the word ``utility'' means usefulness but it is commonly used to refer to a corporation that performs a public service and so is a public utility. Hence railroads, airlines, bus lines, gas and electricity corporations are known as ``public utilities'' Webster defines a ``public utility'' as a business organisation performing some public service and, hence, subject to special governmental regulation such as fixing of rates and requirements of incidental facilities. The Shorter Oxford Dictionary defines ``public utilities'' as the services or supplies commonly available in large towns such as omnibuses, electricity, water etc. The expression ``of public utility'' could mean of usefulness for or in the service of the public and so an undertaking for the general utility of the public.

In the Seatainer case it was contended by the Commissioner that there was not in the circumstances there to be found an undertaking of public utility within the meaning of sec. 62A(4) but simply an ordinary commercial undertaking conducted at the terminal and depots. To me that seems irrelevant. Whether a railway or an electricity undertaking is owned privately or by the Government or a government instrumentality it is difficult to view it other than as a public utility or of the nature of such.

In that case Murphy J. said (at pp. 4629-4630):

``It seems obvious that a container terminal and depot could easily be an undertaking of public utility within the meaning of the statute... some financial advantage had to be hoped for if any private company was to enter upon the undertaking... It was also said in
Attorney-General v. Company of Proprietors of Margate Pier and Harbours (1900) 1 Ch. 749 (at pp. 753-4), by Kekewich J.:

`Piers and harbours, are no doubt, works of great importance to the public, and the maintenance of them is for the public utility... and the benefits which are given to companies of that kind... are all given on the footing that the companies are doing a public benefit, and yet they are commercial enterprises.'

...

The advantage to the public, flowing from the whole concept of this container terminal is to my mind clear.

I find that the construction in the Port of Melbourne and the maintenance of a container terminal could readily constitute `an undertaking of public utility' within the meaning of sec. 62A(4) of the said Act.''

In
Renmark Hotel Inc. v. F.C. of T. (1949) 79 C.L.R. 10, at p. 18, Rich J. said:

``No-one would describe as a public authority an electric lighting company which had obtained statutory powers but possessed a share capital issued to shareholders and which carried on for profit, but we might call it a public utility.''

See also per Taylor J. in
F.C. of T. v. Silverton Tramway Co. Ltd. (1953) 88 C.L.R. 559, at p. 571.

ATC 4633

I find no assistance, in this matter on this aspect of the case, in the principles expressed in some of what are referred to as the charity cases. With respect I agree with Murphy J. that the public benefit element necessary to establish that a trust is ``charitable'', involves altogether different considerations from those which are involved in determining whether an undertaking is an ``undertaking of public utility'' within the meaning of sec. 62A(4).

An airport terminal at Tullamarine in the City of Melbourne is of itself an undertaking of considerable significance and public utility. It is for the State of Victoria the centre of international, interstate and domestic airline operations into and from which is flown daily a large number of passengers and a large quantity of freight. Passengers and freight originating not only in other parts of Australia but all over the world. It is a depot also for other flying facilities, for the maintenance of all types of aircraft whether powered by conventional piston motors or by jets. It is the centre of much of the training carried on by airline operators both of crew and employees engaged in maintenance and repair. Facilities to accommodate customers either departing, arriving or in transit and their guests and to accommodate not only travelling but intending travellers and persons attending conventions and conferences must be provided and the existence of them is imperative. It is my opinion that the involvement of the terminal facilities at such an airport could do nothing but facilitate and advance trade in the State.

What was done in the completion of the motel and other facilities could only have been done with the authority of the Commonwealth Government, through the Department of Civil Aviation, the power to do which was vested in it. The Department therefore, had it itself engaged upon the construction done by the partners, would have obviously embarked upon what must be regarded as an undertaking of public utility. The fact that the partners were interested in profiting from the undertaking is not relevant in determining whether the undertaking was, within the meaning of the section, an undertaking of public utility.

I am of the view that the construction and operation of the facilities done by the partners could, in the words of Murphy J. ``well be considered as an undertaking of public utility within the meaning of sec. 62A(4) of the Income Tax Assessment Act, 1936''.

I return to the construction of the word ``undertaking''. If a requirement does exist it is that the partners incur expenditure in the construction and maintenance of the undertaking. If the undertaking is one of public utility it is to be constructed and maintained. It involves the erection of a structure (to accommodate the public) of a motel a club bar and dining room and the establishment of a business involving the supply of services (in the motel) and of goods (including liquor and meals). While a bridge or road is of itself an undertaking of public utility, a building capable of being used as a motel or hotel, is not, until it is established as such, although it may have reached a stage warranting the issue of a certificate of practical completion. Therefore a building capable of being put to use as a motel or as a bar does not become an undertaking of public utility until it is furnished, services have been supplied, staff engaged and necessary plant and equipment installed to receive, accommodate, and service guests in a fashion in which guests are normally received accommodated and serviced in premises of comparable standards.

As the undertaking does not become one of public utility until it is in a condition properly to receive and accommodate guests and as that is a necessary part of its completion and as it was intended in the circumstances of this case that the structures had to be not only completed but available for use in the manner envisaged, construction must in my view mean something more than merely the erection of the structure. Section 62A(4) must be taken to mean that in consideration of the completion of the undertaking and its maintenance as such an undertaking in such a completed state the grant is to operate. Otherwise one is faced with the necessity of giving to the word the limited meaning confining its application to undertakings in the nature of structures such as bridges linking public roads, locks, tramways, railways, dykes, roadways, piers and the like. I am not prepared to place so limited a construction upon the section.

ATC 4634

I find some support in this regard by reference to sec. 62A(1). The interpretation of the word ``undertaking'' in that subsection is not assisted, insofar as the subject of the franchise is realty. If one is limited by the word to a structure erected upon land, since such realty must be the property of the authority granting the franchise the disposal of which is within the power of the grantor, it remains the grantor's property despite the grant of the franchise. It is difficult therefore for the document of franchise to require meaningfully the property the subject of the franchise to become the property of the grantor upon the expiration of the period of the franchise when it already belongs to the grantor. Probably what was intended was that the franchisee must relinquish any rights in the property which is the subject of the franchise upon the expiration of the period without receiving any contribution as reimbursement of the expenditure made thereon. If the undertaking extends beyond the realty to include personalty and the business the section has a meaning.

The Queensland legislature in the Tolls on Privately Constructed Road Traffic Facilities Act of 1931 authorised the construction and maintenance of certain road traffic facilities by private persons and the levying and collecting thereon of tolls from traffic using such facilities.

Section 2 of the Act defines franchise period as ``the period for which the owner is authorised to levy and collect tolls on the road traffic facilities and on the expiration of which the motor traffic facilities shall become the absolute property of the Crown''.

Section 6 enabled the Governor in Council when granting a franchise to make additional terms with respect to a number of matters including:

``The date after which the owner of the road traffic facilities may at any time be required by the Commissioner of Main Roads, acting on behalf of and with the approval of the Governor in Council, to cease to exercise his rights in connection with the road traffic facilities concerned, and thereupon the owner's rights shall cease and determine and the road traffic facilities shall become the absolute property of the Crown: provided that if such power is exercised by the Governor in Council, the owner shall be entitled to receive compensation in accordance with the provisions of s. 19 of this Act.''

The Act provided that at the expiration of the period granted to the owner (of the property the subject of the franchise) all the owner's rights cease and determine and the motor traffic facility and other nominated property of the owner shall become absolutely the property of His Majesty and the owner shall not be entitled to any compensation whatsoever.

Counsel for the partners relied upon the provisions of this Act to support a submission made in relation to the meaning of the expression ``shall become the property of the authority'' in sec. 62A(1), but I find it of little assistance. The Act deals with a situation where the owner referred to is the owner of the road or such land and the franchisee so that in the absence of express provision as to the ownership of the land at the expiration of the franchise period the road traffic facilities might well remain the property of the owner of the road.

It was submitted to me that the problem posed was met by interpreting sec. 62A(1) so that it should read ``requires that the portion of the undertaking which does not already belong to the authority and which is the subject of the franchise'', and/or that there be added before the words ``property of the authority'' the word ``absolute'' as appears in sec. 26 of the Queensland Act. I am not prepared to accept such a submission and in my view if the word ``undertaking'' is to be construed in subsec. 4 as extending beyond the structure and including the business, goodwill, going concern, furniture, stock-in-trade and other personalty upon the premises of the undertaking sec. 62A(1) is capable of operating as a meaningful provision. This reinforces my interpretation of the word ``undertaking'' in the section as extending beyond the mere structure in which the undertaking was to be carried on.

The ordinary meaning of the word ``franchise'' is not relevant in view of the opening words of sec. 62A(4) which defined franchise for the purpose of the section. Franchise ordinarily includes a privilege or right granted by a Government and

ATC 4635

frequently attaches to property. In commercial transactions it is used to refer to a right granted for consideration by the owner of some property to another person to execute certain rights, which may be exclusive, on or in relation to such property.

The subject franchise is constituted by a grant to the taxpayers by the appropriate Minister on 14 June 1968 pursuant to the powers conferred upon him by the Airports (Business Concessions) Act, of authority to establish and operate a motel and to conduct certain trading operations within the Melbourne Airport, situate at Tullamarine, in the State of Victoria. The essence of franchise (as Murphy J. has said) was the monopoly enjoyed by the owner and the justification for the grant of that monopoly, if worthwhile, was that the existence of the subject matter of the franchise ennured for the benefit of the public (see
Attorney-General v. Horner (No. 2) (1913) 2 Ch. 140 at p. 198). Many franchises are not without their profitable aspects.

``Section 62A(4) of the said Act does not, in my opinion, require that the `grant' itself must literally use the precise words of the subsection in order to enable a person to bring his case within it. What the grant must do is have the effect specified in the subsection. The language of the subsection is language employed to cover any number of a multitude of cases, and it is sufficient, in my view, to constitute a `franchise' within the meaning of sec. 62A(4) if:

(a) There is a grant to the grantee of some special right which the grantor enjoys and

(b) the grant is made by the Commonwealth, the State, or a public authority constituted by or under a Commonwealth Act or State Act, and

(c) in pursuance of the grant the grantee is required to construct and maintain an undertaking of public utility

(d) from which the revenue to be collected is to be retained by the grantee during the term of the grant.''

(Per Murphy J. the Seatainer case at p. 4627.)

In the Seatainer case the learned Judge decided that there was not a grant of a franchise within the meaning of sec. 62A(4). With respect I see no reason to disagree with his Honour's finding on the facts of that case which facts were dissimilar from those in the matter before me.

In that case the Commissioner contended that the leases granted by the Trust were ``ordinary leases'' containing covenants as to user and granting possession in the ordinary way; that the consideration moving to the appellant was not the authority ``to collect and retain'' revenue but rather the right to occupy and use the land and use it commercially for its business. This did not constitute a franchise in the ordinary sense nor in the statutory sense as defined in the section. In this case the Commissioner contends that because of the requirement imposed upon the partners to pay to the Commonwealth a percentage of the gross return of the undertaking the partners are not authorised ``to collect and retain the revenue earned by the undertaking''. Murphy J. at p. 4630 said:

``One can readily envisage that a person may be authorized by a franchise to collect tolls payable by members of the public using, say, a bridge the subject of the franchise or that a person might not be authorized to collect fees payable by members of the public who purchase goods at a market, the subject of the franchise in question... But... it is more difficult to see that in the circumstances here, the rights flowing from the lease granted in this case, namely the right to conduct a business undertaking, amount to an authorization within the meaning of sec. 62A(4) `to collect and retain the revenue earned by that undertaking'.''

In my view it is anticipated in the facts of this case that all revenue was to be payable to and received by the partners in the conduct of the undertaking whether it be for the purchase of goods or the supply of services. Gross profit in relation to an undertaking can only be assessed by having regard to the total receipts and the cost of the purchases by the nature of the undertaking and the business. It was intended that the partners should conduct the business, as a result of the grant of authority, and should receive the total proceeds of the conduct of the business and no discharge from the liability to make payment for the purchase of goods or the

ATC 4636

supply of services can be given by any person or authority other than the partners. Their liability is to make payment of a sum equivalent to a stipulated percentage of the relevant gross profits. This, in no way, prevents the partners from collecting and retaining for their own benefit the revenue earned by the undertaking. No other person is ordinarily entitled to collect and retain any portion of such revenue. The situation could alter upon the appointment (if appropriate) of a Receiver but then, not by virtue of the obligation to pay a percentage of the gross profits - perhaps by a failure to meet that obligation.

I do not accept the submission here made on behalf of the Commissioner that the partners are not by virtue of the agreement authorised to collect and retain the revenue earned by the undertaking. It does not beg the question to point out that because the partners are so authorised it must be in consideration of some act performed by them, which they are obliged to perform and the relevant consideration is in my view the construction and maintenance of the undertaking. I will come to this shortly. Moreover it lends weight to the conclusion that the collection and retention of revenue earned by the undertaking comes not from the construction and maintenance of the structures but from the carrying on within those structures of the businesses, for the conduct of which, authority was granted.

A further problem arising under sec. 62A is whether the owner of the franchise (the partnership) is required by the franchise to incur expenditure upon the undertaking which is the subject of the franchise (subsec. (1), (3)). Was there at any time before the construction commenced a contract made between the Director of Civil Aviation and the partners which constituted the franchise and by which the partners were required to incur the relevant expenditure? The section does not require that a particular document identifiable as the franchise, itself require the expenditure to be incurred. The Airports (Business Concessions) Act contains no reference to a franchise as such. Apart from its short title the Act is described as one ``to provide for the grant of leases, licenses and trading rights in connection with Commonwealth Airports''. The Minister for Civil Aviation may grant an authority to sell or supply goods or services on particular land within an airport which may be included in or granted in relation to a lease in respect of that land for such period on such terms and conditions and for such consideration as he thinks fit. A lease or authority shall not be granted for a period, in the case of a building lease or an authority granted in relation to such a lease, for a period exceeding ninety-nine years and except after tenders have been publicly invited or after public auction.

The Act clearly contemplates the granting of a lease and the issue of an authority and that such lease, if it is a building lease, may exceed twenty-one years but not ninety-nine years. A lease other than a building lease cannot exceed twenty-one years. It is easy therefore in the present circumstances to understand why the authority the lease and the tender were viewed as one transaction.

It was contended on behalf of the Commissioner that at no time was there any binding obligation upon the partners by which they were required by virtue of the franchise to incur expenditure in relation to the erection of the proposed premises at the Tullamarine Airport.

One must in the first instance examine the arrangement. There is no doubt that an authority and a lease was intended to be granted by the Minister and the Department to the partners and that both of these were intended to be binding and enforceable documents creating legal rights and liabilities between the parties. The term of each and the terms and conditions indicate that the documents are interdependent.

In the lease the recitals contain a reference to the Airports (Business Concessions) Act, 1959-1966 and refer to tenders having been publicly invited for the authority to conduct on certain premises at the Airport the business of a motel and that the tenant's tender has been accepted. The demise is of:

``All those the premises situate at the Airport being the premises more particularly delineated and shaded red on the plan... annexed hereto... (hereinafter called `the motel') together with the improvements thereon (if any) (which plans and improvements together with all additional fixtures and other improvements from time to time erected,

ATC 4637
constructed or made upon the land by the tenant with the approval of the Director-General are hereinafter collectively referred to as `the demised premises') to hold the same `from 1 June, 1970 or from the first scheduled international air movement from the airport whichever is the sooner' for the term of thirty years thence ensuing subject to the terms and conditions of this lease to use the demised premises, for the purpose of establishing and operating a motel, the sale and supply of intoxicating liquor in a dining room and club bar and the sale and supply of meals foods drinks, confectionery, cigarettes, tobacco, newspapers, magazines and stationery.''

(cl. 1.)

The lease contains convenants by the tenant to pay rent and a stipulated percentage of the gross revenue of the business the latter "in consideration of the grant of an authority to trade under the Airports (Business Concessions) Act, 1959-1966 (cl. 2(1)). There is also a covenant by the tenant "to use the demised premises for the purposes specified in cl. 1 of this lease and for no other purpose without the consent in writing of the Director-General (cl. 2(1)).

Clauses 2(26), (27) contain covenants by the tenant to make and keep business records and accounts and to furnish statements of revenue obviously for the purpose only of determining the gross revenue, a percentage of which is to be paid in addition to the rent of the premises. Gross revenue is defined by cl. 4(13).

Clause 3 contains a covenant by the lessor for quiet enjoyment ``the tenant paying the rent and observing and performing the covenants on the part of the tenant to be observed and performed''.

Clause 4 contains the following amongst other mutual covenants:

(1) In the event of damage or destruction to the ``premises hereby demised'' certain consequences may follow.
(2) Breach of covenants in the lease or conditions in authority may result in a right of re-entry to the lessor and determination of the lease.
...
(8) In the event of the tenant continuing in occupation after the expiration of the term without any demand for possession from the lessor the tenant shall be deemed to hold the demised premises under a monthly tenancy and authority.
(9) The lessor disclaims any guarantee of trade or gross revenue.

The authority grants authority to the partners:

(a) to establish and operate a motel;
(b) to sell and supply liquor in the dining room, club bar guests' rooms and meals foods and other commodities.

Clause 2(1) defines tenant as meaning ``the tenant of the premises pursuant to the lease to which this authority is attached''. Clause 2(3) provides ``the consideration for the authority shall be the undertaking by the tenant to pay to the Commonwealth the rent and other moneys due under the lease''.

Clauses 2(4), (5), (6) and (7) impose obligations upon the tenant relevant to the payment by the tenant of a percentage of the gross revenue. Clause 2(25) provides that the authority shall enter into force upon 1 June 1970 or the commencement of business whichever is the later and shall continue in force for the term of thirty years.

Looking at the invitation to tender, the tender itself the correspondence which passed between the parties until the end of August 1969 and the three documents executed at the end of August, namely the lease the authority and the building contract, I am satisfied that there was then in existence a legally binding agreement which imposed upon the partners an obligation to incur the expenditure which was incurred in the construction of the motel and the necessary premises in which to conduct the businesses encompassed by the authority. Whether or not the agreement could have been specifically enforced by the Commonwealth against the partners is not relevant. As a general rule such a contract will not be so enforced because damages are generally an adequate remedy. I am satisfied that had the partners repudiated the agreement the Commonwealth would have been entitled to bring proceedings against them for damages for breach of their obligation - this is subject to one qualification, that qualification is that the lease was a valid building lease.

ATC 4638

A building lease is a lease granted in consideration, wholly or partly, of the erection or the substantial improvement, addition or alteration of buildings. It must contain a covenant by the lessee to build otherwise it is invalid as such a lease:
Re Hallett to Martin (1883) 24 Ch. D. 624. Section 11 of the Airports (Business Concessions) Act seems to have been drafted with the above decision in mind. If, in the present case, there is no building lease, the purported lease is invalid because the term exceeds twenty-one years and that can only occur in the case of a building lease. Is there in the lease a binding covenant to build? The only relevant covenant is that contained in cl. 2(11) namely to use the demised premises for the purposes specified in cl. 1 and that is to use the demised premises for the purpose of establishing and operating a motel, the sale and supply of intoxicating liquor in a dining room and club bar and the sale of other stated goods.

The authority is to establish and operate a motel, to sell and supply intoxicating liquor on the premises in the dining room and to sell and supply intoxicating liquor in the club bar but nowhere are these premises defined otherwise than insofar as they come within ``the premises'' said to mean the land delineated and coloured red on the plan annexed hereto at Schedule A (cl. 2). This is probably the plan that is referred to in cl. 2 of the lease where the subject of the demise is described as ``being the premises more particularly delineated and shaded red on the plan at Schedule A annexed hereto''. This is a reasonable assumption in view of the definition of tenant contained in the authority where it is stated to mean ``that tenant of the premises pursuant to the lease of which this authority is attached''. It is difficult to understand how documents, intended to set out the result of the negotiations of the parties which extended over more than a year, could have been completed in such an unsatisfactory form. Clearly both parties had in mind the provisions of sec. 11 of the Airports (Business Concessions) Act. It was intended that the partners would build the premises ultimately constructed by them, that a lease in excess of twenty-one years was to be granted to them together with an authority in the terms in which one was granted, and that when final agreement was reached there was imposed upon the partners an obligation to complete the building in order to establish a motel for operation.

That the partners erected the building and thus established and then operated a motel and conducted a business, in my view, indicated, without any doubt whatever, that what was done was done intentionally pursuant to the agreement. To reach this conclusion may need an interpretation to be placed upon the words ``to establish a motel'' as meaning to build the motel. The building agreement was executed on 28 August and the lease and authority were executed on the 29th of the same month. The building to be erected therefore was capable of being identified and it requires little effort to conclude that when the lease and the authority were signed the obligation that was imposed upon the tenants by the covenant to use the demised premises for the purposes of establishing a motel was to erect the motel in accordance with the agreement already signed by them the day before and approved by the lessor. I am satisfied, therefore, that the subject lease is a valid building lease within the provisions of sec. 11 of the said Act and there was imposed upon the partners a legal obligation to erect the building and so incur the relevant expenditure.

It is perhaps of passing interest to note that were I to find in favour of the Commissioner on this aspect of the case possible consequences, subject to some extent to rectification where appropriate, would include not only the invalidity of the lease but the diminution of security which on the evidence appears to have been given by the partners to mortgagees who have advanced to them money for the completion of the project. This however is an unnecessary consideration of mine.

The problem is not yet disposed of. Two matters of difficulty still exist. Firstly whether the franchise referred to in sec. 62A(4) means only the authority and the consequences that follow from such a finding, and secondly, whether the consideration referred to in that subsection means the consideration expressed or apparent from the arrangement made between the parties.

ATC 4639

In its ordinary meaning the word franchise would extend to and cover the authority granted. It would seem that the only reason for the lease and the authority being separate documents is that while the Minister may delegate most of his powers under the Act to others there is excluded from that power of delegation his power to grant an authority to sell or supply alcoholic liquor (sec. 15). Were it not for this there was no need for the Minister to be a party to the transaction. I find it difficult to view the authority as a separate transaction and in my view only because of the statutory provision clearly interdependent and made one to be read with the other. As the grant of the authority is an integral part of the arrangement and incapable of being severed from it, I interpret the word ``franchise'' in the section to refer to the grant of the authority in association with the lease and the covenants contained in it.

In my view it is not necessary that sec. 62A(4) is to be construed as requiring the franchise to be comprised only by one document and that the authorisation to collect and retain the revenue must be explicitly stated in that document or at all. That the collection and retention of the revenue earned by the undertaking were incidences of possession of the land upon which the concession is operated and were not capable of being made the subject of specific authorisation by the grantor once it parted with possession of the land is not necessarily a decisive or relevant factor. The grant of a concession or authority in circumstances where the grantee is to be authorised to collect and retain the revenue but the whole transaction may be expressed in a lease, in a lease and some other document or documents and in a fashion which makes it clear that it was the intention of the parties that the grantee should collect and retain the revenue earned by the undertaking.

Whether or not the grantee is authorised to collect and retain the revenue earned by the undertaking is dependent upon the facts of the particular case.

Section 62A(4) provides that ``a franchise means a grant... whereby in consideration of the construction and maintenance of an undertaking a person is... authorised to collect and retain revenue''. It is of no consequence whether the grant is expressed to be in consideration of the construction of the undertaking or whether the undertaking is constructed in consideration of the grant. The lease in cl. 2(1) contains a covenant by the tenant to pay ``in consideration of the grant of an authority to trade under the Airports (Business Concessions) Act, 1959-1966 a sum equal to nine percentum of the gross revenue''. The authority by cl. 2(3) provides that ``the consideration for this authority shall be the undertaking by the tenant to pay the Commonwealth the rent and other moneys due under the lease''. It may be said in reviewing the situation that the lease was granted in return for the construction of the building (that is in return for the covenant to use the premises for the establishment of a motel and selling facilities). In my view it matters not how the consideration is stated. Whether the grant is in consideration of the construction of the building or the construction of the building is in consideration of the grant is not material.

In applying therefore the provisions of subsec. (4) of sec. 62A I am satisfied that, if the circumstances warrant a conclusion that a grant has been made by the Commonwealth in return for the construction and maintenance of a building in which an undertaking of public utility is permitted to be conducted so that a relevant person is for a limited period authorised to collect and retain the revenue earned by the undertaking, a franchise has been granted. Applying that construction to the facts of this case I am satisfied that a franchise within the meaning of the section was granted by the Commonwealth to the partners.

I am further satisfied that the partners, being the owner of the franchise, were required by the arrangement which resulted in the grant of the franchise to incur and did incur the expenditure involved in the erection of the premises necessary to conduct the undertaking of the motel and ancillary services.

As the franchise relates to the contract or enforceable arrangement made between the parties it did in my view require that the undertaking which comprised not only the building structure but the business of the motel conducted within it which was the

ATC 4640

subject of the franchise should become the property of the Commonwealth after the expiration of the period of the franchise (to wit thirty years) without reimbursement to the partners of any of the expenditure thereon the partners have qualified within the meaning of sec. 62A for the relevant deduction.

Counsel for the Commissioner has contended that at no time prior to the completion of the building was there any obligation upon the taxpayers to erect or complete the building which was ultimately built and became the subject matter of the lease. He expressed his submission in different ways. There was he said no obligation upon the taxpayers to build. There were only two formal documents, the lease and the authority, and in neither of them was any obligation to be found. If, after the execution of the lease and the handing over of the authority the partners had refused to complete the building, no action lay against them for breach of contract. It was necessary to support his submission that the only contractual obligations that came into existence are to be found in those two documents. If there was an obligation to build, what was to be built, for what price and according to what specifications. He conceded that the lease was drafted upon the basis that the partners probably would build but no obligation appears to have arisen from those documents. While it was very much in the interest of the taxpayers to build the motel there was no obligation upon them to do so.

Mr. Simos relied upon a number of decisions to support his contention: B.
Seppelt and Sons Limited v. Commissioner of Main Roads (unreported) Court of Appeal, 22 October 1975;
Coogee Esplanade Surf Motel Pty. Limited v. Commonwealth of Australia (unreported) Court of Appeal, 10 March 1976;
Masters v. Cameron (1954) 91 C.L.R. 353.

The principles relevant to a dispute between a potential vendor and a potential purchaser as to whether at a given time an enforceable contract exists between them and, if so, the terms thereof are not necessarily relevant to the determination of this matter. On this point the Commissioner can succeed only if there was, at no time, an obligation imposed upon the partners requiring them to incur the expense involved in the construction of the motel. Moreover the requirement must be imposed by the franchise. The reference in sec. 62A(3) to ``that person'', is, whether intended or not, to the same person who, in sec. 62A(1), is described as ``the owner of the franchise'' and both subsections apply to him only if he is ``required by the franchise to incur'' the relevant expenditure.

When the building agreement was signed on 28 August 1969 there was, by it, imposed upon the partners an obligation to incur the expenditure specified in it in the erection of the motel, which expenditure was so incurred, and was the subject of a claim by the partners for a deduction pursuant to sec. 62A. Was the incurring of that expenditure required by the franchise? In my view it was. On 29 August the Commonwealth of Australia executed the lease and the appropriate Minister the authority. The intention of the parties, to be gathered from the documents and correspondence between them, was that the partners would erect a motel and establish a business upon the land of the Commonwealth which motel business would thereby become its property. That motel would be established and after being appropriately furnished and fitted would be available for occupation by the taxpayers for the purposes of conducting a motel business and the business of supplying and selling nominated services and goods. To this end two steps were necessary. A lease from the Commonwealth to the partners and additionally an authority by the appropriate Minister to trade pursuant to the Airports (Business Concessions) Act. Because of the period of the lease it was valid only if it were a building lease. The premises to be erected and the terms of any building contract had to and did meet with the approval of the Director-General of Civil Aviation. Consequently a building contract was completed between the partners and the building contractors on 28 August and on the following day after the building contract had been approved by the Director-General the lease and the authority were duly executed. A copy of such contract was forwarded by the partners to the Director-General on 28 August and the subsequent signature of the lease and authority is a clear indication of the approval of the terms of the building

ATC 4641

contract. On 11 September 1969 a letter was written by the partners to the Director-General seeking the return of a deposit of one thousand dollars lodged by the partners with their tender and arrangements were made to return such deposit. If direct proof of the consent of the Director-General to the building contract was required it was provided by a letter from him to the partners dated 7 October giving a formal agreement to the building contract and an apology for not having forwarded his acceptance earlier.

In my view when the lease and the authority were signed there existed the following basic obligations. (A) The lessor was required on its part to observe the provisions of the lease. The Minister, for his part, was to observe the terms of the authority pursuant to the relevant Act. (B) The partners were to complete the motel in accordance with the terms of the building contract and to observe the covenants of the lease (inter alia) both as to the payment of rent and the percentage of gross revenue. One was in return for the other. The obligations covenanted on each side were in consideration of the advantages to the respective covenantor moving from the other side.

Reverting to the authorities last referred to above, and, with which, I am, with respect, in complete agreement, the only relevance in them to the present dispute arises from observations made in the course of the judgments of the members of the Court of Appeal. That the identity of the parties involved (in this case the Commonwealth of Australia and a large corporation) the matter of the transaction, the amount of money involved and the time spent in discussing the various terms would normally lead to a conclusion that the parties would not be likely to enter into a binding contract to achieve the purposes intended otherwise than by some formally drawn document. A sale of real estate is completed usually by the execution of a formal conveyance or transfer but the creation of an obligation to move to completion and to deal with ancillary matters in a specific way is generally covered by a preliminary contract - indeed, that it was the intention of the parties to do this in such a way is a reasonable presumption. If there were any doubt as to what was the intention of the parties in the instant case it is reasonable to assume that it is not likely that the lease and authority would be granted on 29 August unless the Commonwealth of Australia and one of its Ministers was each by its legal adviser, the Commonwealth Crown Solicitor, satisfied that there was imposed upon the partners an obligation to establish the expense which was incurred. However it is unnecessary to establish the existence of such an intention when the documents themselves which were available to me made it clear that the obligations which were exchanged between the parties were those which I have stated above.

It has been put to me that there is support for the proposition that no obligation is imposed upon the partners to erect any building because of the existence in the lease of a number of terms restricting the erection of any building or any additions to buildings already upon the premises by the partners without the consent of the Director-General. Illustrations are that the tenant covenants to submit to the Director-General for approval the plans and specifications of any fixture or improvement or any alteration or addition to a fixture or improvement intended to be effected by the tenant (cl. 2(4)), not to commence the erection or construction upon the demised premises of any fixture or improvement or to make any alteration or addition to such without the previous consent in writing of the Director-General (ibid. (5)). So it is claimed these and other similar provisions are inconsistent with the existence of an obligation on the part of the tenant to erect buildings and implies only that the tenant may erect buildings and fixtures etc. after having submitted plans to the Director-General and obtained his consent. If that is the way the lease is to be interpreted it makes the submission before the execution of the lease of the building contract and the plans and specifications to the Director-General for his approval meaningless. I interpret the provisions of the lease relied upon as referring to the erection of buildings or fixtures or fittings and any alterations to refer to such work being done upon the premises after the establishment of the motel. My view as to the existence of an obligation upon the partners to build a motel is therefore not affected by such admission. The lease must be construed as referring to

ATC 4642

additions or alterations made to the premises after they have been completed in accordance with the building contract.

Similarly any obligation to remove fixtures or fittings from the premises if directed so to do by the Director-General can only apply to such fixtures and fittings made after the establishment of the motel. Otherwise the lease must be construed as imposing upon the tenant an obligation to use the demised premises for the purpose of establishing and operating and the sale and supply of intoxicating liquor and meals, foods and other goods but not to erect the motel otherwise than in accordance with plans and specifications approved by the Director-General submitted to him at some time in the future despite the fact that there is at no time imposed upon the tenant an obligation, so it is alleged, to build anything on the land.

The conclusions that I reach are as follows:

(1) An authority was granted by the Commonwealth of Australia to the partners whereby,
(2) in consideration of the construction and maintenance of an undertaking, that is the motel, the motel business and the trade of selling and supplying goods and services,
(3) which was an undertaking of public utility,
(4) the partners were, for a period of thirty years, authorised to collect and retain the revenue earned by the undertaking,
(5) the arrangement of which the franchise was part required the undertaking to become the property of the Commonwealth of Australia after the expiration of thirty years.
(6) No portion of the expenditure upon the undertaking was to be reimbursed to the partners.
(7) The money expended by the partners upon the construction and maintenance of the undertaking was

(a) an expenditure which the partners were by the franchise required to incur, and

(b) did in fact incur.

(8) There was a franchise granted to the partners by the Commonwealth of Australia within the meaning of sec. 62A(4).
(9) The partners continue to be the owners of the franchise.
(10) The deduction granted is an allowable deduction from income pursuant to sec. 62A of the Income Tax Assessment Act.

I uphold the appeals and each of the objections of each of the taxpayers against the assessments the subject matters of these appeals. I order the respondent to pay the appellants' costs in each of the matters.

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