Practitioners dealing with mining leases and price control legislation should note that royalties reserved as rent are not excluded from prices regulation merely because they have the character of rent, and that the word 'volume' in regulatory definitions may be read as 'quantity' where the context requires.
Later decisions that cite Pacific Coal Co Pty Ltd v Perpetual Trustee Co (Ltd)
Decisions cited by Pacific Coal Co Pty Ltd v Perpetual Trustee Co (Ltd)
PACIFIC COAL CO. PTY. LTD. v. PERPETUAL TRUSTEE CO. (LTD.) [1954] HCA 37; (1954) 91 CLR 486
Landlord and Tenant
High Court of Australia
Dixon C.J.(1), Webb(1) and Fullagar(1) JJ.
CATCHWORDS
Landlord and Tenant - Rent-control - Coal-mine - Lease - Rent and royalty - Rate - Amount payable - Calculation - Prices Regulation Order - Applicability - Pleadings - Demurrers - National Security Act 1939-1946, s. 5 (5) - National Security (Prices) Regulations - Prices Regulation Order No. 985 - Reduction of Rents Act 1931 (N.S.W.) - Landlord and Tenant (Amendment) Act 1932-1947 (N.S.W.), s. 15 (1) - Prices Regulation Act 1948 (N.S.W.), s. 2 (1).
HEARING
Sydney, 1954, April 12, 13; August 20. 20:8:1954DECISION
August 20.2. It appears from the pleadings that the defendant is a lessee and the plaintiff a lessor of a coal mine. The action is brought by the plaintiff to recover the balance of rent and royalty said to be due by the defendant under the lease. The lease which is registered under the Real Property Act contains a demise of the coal mine for a term extending from 1st September 1919 to 1st September 1962. It is a demise of the mine's beds, veins and seams of coal, shale and minerals of a similar character in and under the land described with full liberty to the lessee, stated shortly, to win remove and dispose of such coal, shale and minerals. The lease also conferred upon the lessee certain incidental rights to effectuate the purpose. The demise is expressed to be at a fixed yearly rent of 819 pounds payable quarterly and at a royalty. The amount of the royalty is to be arrived at by calculation. It is to be calculated at different amounts for round or best coal and for small coal. For the former a graduated scale is prescribed beginning at 5d. a ton of coal and rising by 1d. a ton in correspondence with a graduated scale of specified increases in the f.o.b. price of the coal at the port of Newcastle. For small coal a fixed royalty is provided of 3d. per ton. To the reservation of the fixed rent of 819 pounds there is a proviso, in effect, that the lessee should be at liberty to win coal to a quantity the prescribed royalty upon which would equal the fixed rent of 819 pounds and that the prescribed royalty should be calculated on the coal won over and above that quantity. It is described as a royalty per ton of all coal wrought and brought to bank from the mines demised over and above such quantity as may be worked in respect of such rent as aforesaid. (at p495)
3. The action is brought to recover the unpaid balance of the amounts of rent and royalty calculated according to these provisions which the plaintiff claims the defendant was bound to pay. (at p495)
4. The declaration, which so far as appears contains only one count, relates to two periods of time. The first period consists of the nine quarters beginning from 31st December 1931 and ending on 31st March 1934. The declaration alleges that rent and royalty payable in respect of that period remains due and unpaid amounting to 880 pounds 12s. 7d. The second period mentioned in the declaration begins five years later. It is the ten years and nine months extending from 31st March 1939 to 31st December 1950. It is alleged that rent and royalty payable in respect of that period, amounting to 27,488 pounds 14s. 7d., remains due and unpaid. (at p495)
5. From the pleas, as it is convenient to call the amended pleas, it appears that the defendant deducted from the rent and royalty calculated according to the above-mentioned provisions of the lease twenty-two and one-half per cent thereof. The deductions were made in purported pursuance of certain provisions in various statutory instruments upon which the defendant relied in answer to the claim in the declaration. The pleas filed by the defendant in reliance upon the statutory instruments were five in number. At different periods different statutory instruments were in force and this accounts for the number of pleas. Each plea covers only a parcel of the moneys claimed but when the sums respectively mentioned in the five pleas are added together they will be found to amount to the sum sued for, viz. 28,369 pounds 7s. 2d. (at p495)
6. The first of the pleas demurred to is based upon the Reduction of Rents Act 1931 (N.S.W.) and relates only to the period of one year from 31st December 1931 to 31st December 1932. The amount the plea covers is 333 pounds 17s. 7d., forming part of the 880 pounds 12s. 7d. claimed by the declaration in respect of the nine quarters extending from 31st December 1931 to 31st March 1934; that is to say, the first period to which the claim relates. The second plea deals with the remainder of that period and also with eight years and nine months of the second period, namely from 31st March 1939 to 31st December 1947. The plea sets up a statutory right to deduct twenty-two and one-half per cent of the rent and royalty payable according to the terms of the lease during these intervals of time. The claim of the defendant to make the deduction is based upon the Landlord and Tenant (Amendment) Act 1932-1947 of New South Wales. This second plea covers a total amount in respect of the two periods to which it relates of 9,513 pounds 10s. 2d. (at p496)
7. The plaintiff demurred to the first two pleas and to the third, fourth and fifth pleas, but the Supreme Court overruled the demurrer to the first and second pleas. The respective statutes on which these two pleas were based contained specific provisions for a reduction by twenty-two and one-half per cent of "rent reserved by or under any lease"; that is, any lease to which the statutory provisions applied: see s. 6(1) of the Reduction of Rents Act 1931 (N.S.W.) and s. 15(1) of the Landlord and Tenant (Amendment) Act 1932-1947 (N.S.W.). The two pleas were held by the Supreme Court (Street C.J., Owen and Herron JJ.) to be good because the royalty reserved by the lease was, as their Honours decided, as much a rent as was the fixed yearly sum of 819 pounds, which was expressly described as a rent. The two New South Wales statutes therefore successively applied to reduce the total amount of rent and royalty for the periods covered by these two pleas. The plaintiff has not appealed from the judgment entered by the Supreme Court for the defendant upon the demurrer to the two pleas. To the defendant's appeal, in other words, there is no cross-appeal. The defendant's appeal is confined to the three pleas which deal with later periods and with these pleas alone are we now directly concerned. They are the third, fourth and fifth. The third relates only to the short period of six months from 1st January to 30th June 1948 and covers a sum of 649 pounds 14s. 11d. It is based upon the National Security (Prices) Regulations and a Prices Regulation Order made in purported pursuance thereof. The fourth plea is also based upon those regulations and that order. It relates to the remainder of the period of their operation after 30th June 1948, namely the period from 1st July to 20th September 1948 and covers a sum of 1,093 pounds 10s. 5d. It was upon 20th September 1948 that prices for the sale of goods and rates for the supply of services ceased in New South Wales to be controlled by the Commonwealth National Security (Prices) Regulations and that the operation of the Prices Regulation Act 1948 of New South Wales commenced. (See declaration of the Minister for Trade and Customs made under reg. 3B of the regulations on 17th September 1948 in the Commonwealth Government Gazette of that date, and proclamation of the Governor of New South Wales in the New South Wales Gazette of 20th August 1948.) (at p497)
8. The fourth plea differs from the third in the manner in which it alleges that, under the Prices Regulation Order in its application to the royalty prescribed by the lease, the maximum rate was to be ascertained. Presumably the difference in the pleas reflects a real difference in the methods actually employed during the two periods of arriving at the amount of the reduced royalty to be paid by the lessee, the defendant. (at p497)
9. The fifth plea relates to the period from 20th September 1948 to 31st December 1950 and covers a sum of 16,778 pounds 14s. 1d. It depends upon the New South Wales Prices Regulation Act 1948 and upon the same Commonwealth Prices Regulation Order so far as that Act continued it and gave it force after 20th September 1948. The fifth plea alleges the method adopted for arriving at the amount of the reduced royalty to be paid by the defendant in the same form as does the fourth plea and in this respect does not follow the third plea. (at p497)
10. In the Supreme Court Street C.J. and Owen J. adopted the view that the statutory provisions upon which the defendant relied for the third, fourth and fifth pleas were inapplicable and on that ground held all three pleas bad. Herron J. was of the contrary view that the provisions did apply and dissented, but his Honour was of opinion that the method of arriving at the maximum rate of royalty set up by the third plea was erroneous and for that reason that particular plea was bad. (at p497)
11. The defendant appellant appears to concede by his notice of appeal that both methods cannot be right and in the first instance asks this Court to hold the fourth and fifth pleas good as did Herron J. and alternatively asks the Court to hold the third plea good. Probably there is another defect in the third plea besides what Herron J. considered the statement of an erroneous formula for that prescribed for calculating the maximum royalty payable and perhaps it should be here noticed. The defect occurs in the statement of the amount per ton which the defendant actually did pay. It is described as "the amount per ton payable by the defendant on 31st August 1939 as determined by the lease in manner aforesaid". This can scarcely be what is intended. Perhaps some words have fallen out after the word "lease". The corresponding allegations in the other pleas suggest the possibility. The defect, however, if it be one, would doubtless have been remedied by amendment, had the plea otherwise been considered good. (at p498)
12. All three pleas ultimately depend upon the operation of a Prices Regulation Order actually made by the Commonwealth Prices Commissioner as far back as 17th March 1943. It is identified as Prices Regulation Order No. 985 and is to be found in the Commonwealth Gazette of 18th March 1943. The material part is as follows: "I (the Commissioner) fix and declare the maximum rates per ton of coal mined at which mining rights may be supplied in respect of coal mined from the classes of mining properties mentioned hereunder to be . . . (c) Properties not subject to Crown lease which were privately leased on 31st August 1939 - the amount per ton of coal mined payable on 31st August 1939." The allegations in the pleas show that the coal mine the subject of the lease sued upon is of the class specified in par. (c), viz. a property not subject to Crown lease which was privately leased on 31st August 1939, that is to say it was in lease on that day. The defendant's case is simply that the Order possessed the force of law during the time covered by the three pleas, first by virtue of the National Security (Prices) Regulations and then by virtue of the Prices Regulation Act 1948 (N.S.W.), and that the expression in the Order "the amount per ton of coal mined payable on 31st August" applies to this case so as to establish as a maximum the rates of royalty which would result as on 31st August 1939 from making the reduction of twenty-two and one-half per cent required by the Landlord and Tenant (Amendment) Act 1932-1947 (N.S.W.) from the royalty ascertained in accordance with the provisions of the lease. The answers given to this case of the defendant by the majority of the Supreme Court come down in the end to two propositions. The first is that the Order never did apply to a rent expressed as a royalty which this is: such a thing was outside the scope both of the Prices Regulations and the Order. The second is that even were it otherwise the Order relates to "rates . . . at which mining rights may be supplied" and if mining rights could be said to be "supplied" at all in this case the "supply" was by virtue of the lease made long before, namely in 1919, and therefore outside the operation of the Order, which could only be prospective. Certain amendments of the regulations made after the date of the Order could not, so their Honours held, affect the result both because the amendments were prospective only in their operation and also because the old declaration by the Minister would not, in their Honours' opinion, suffice and a new declaration became necessary to bring "mining rights" within the definition of "declared services" if by the amendments they were brought within the scope of the regulations and no such declaration was made. (at p499)
13. It is evident that the legal foundation upon which the three pleas of the defendant have been constructed needs close examination. The jargon of the Order in speaking of supplying mining rights is of course to be explained by the commissioner's reliance upon that part of the Prices Regulations which authorized him to fix and declare the maximum rate at which any declared service may be supplied or carried on: reg. 23(2). But by definitions and the introduction of conclusive presumptions into the regulations so many unnatural meanings have been given to words that the incongruous verbiage of the Order can afford little ground for presuming the Order to be outside the operation of the regulation whence the more essential of its terms come. (at p499)
14. It is necessary to begin with the Prices Regulations in the form in which they stood at the date the Order was made, viz. 17th March 1943. Regulation 23(2)(a) enabled the commissioner with respect to any declared service to fix and declare the maximum rate at which any declared service may be supplied. The word "service" and the words "declared service" were defined by reg. 3. "Service" was defined to mean among other things - "(b) any rights or privileges for which remuneration is payable in the form of royalty, stumpage, tribute or other levy based on volume or value of goods produced". The expression "declared service" was defined to mean any service declared by the Minister by notice in the Gazette to be a declared service for the purpose of the regulations. Regulation 22(2) provided that the Minister might by notice in the Gazette declare any service to be a declared service. In fact on 30th November 1942 the Minister had declared all services carried on in Australia, with certain exceptions not here material, to be declared services. (The regulations had not been altered between 30th November 1942 and the making of the order on 17th March 1943.) Sub-regulation (2A) of reg. 23 made particular provisions amplifying the commissioner's power to fix and declare rates for services, "but without limiting the generality of the last preceding sub-regulation" scil. sub-reg. (2). Among other things the commissioner was authorized by par. (g) of sub-reg. (2A) to fix and declare maximum rates relative to such standards as he thought proper or relative to the rates charged by individual suppliers on any date specified by the commissioner. Regulation 3 defined the word "rate" to include every valuable consideration, whether direct or indirect. (at p499)
15. In considering the efficacy of the Order and its operation under the foregoing regulations it is desirable to begin by disregarding the particular circumstances of this case and inquiring into the abstract validity of the material part of the Order as an exercise of the power given by reg. 23. Now it seems to be clear enough that par. (b) of the definition of the word "service", operating as it does upon and therefore through the expression "declared service", extends the application of reg. 23(2) beyond its natural meaning and must, so to speak, be read into it. Regulation 23(2)(a) thus should be understood as if expressed to authorize a fixing and declaring of the maximum rate at which any declared service including any rights or privileges for which remuneration is payable in the form of royalty etc. may be supplied or carried on. The incongruity of the word "supply" with rights or privileges for which a royalty is payable is obvious. But another word inappropriately chosen is "remuneration" to describe a royalty. These words evidently were intended to receive a flexible meaning in accordance with the context and the subject matter. It seems almost undeniable that they cover royalties payable in connection with the exercise of rights or privileges granted after the making of an order fixing or declaring the maximum royalty payable therefor. Do they cover royalties payable in connection with the exercise of rights or privileges granted before the making of an order fixing or declaring the maximum royalty, and before the making of the regulations? There is much to support the view that they do. The regulations were dealing with "goods and services", a collocation familiar in economics, and they were assigning to the latter category the providing of rights and privileges to be exercised for the production of goods at a royalty etc. The word "supply" in relation to the category if it were not artificially extended would be equivalent to "perform" and, if it is to be moulded to fit the extension of the category, the analogous meaning is to maintain the enjoyment of the right rather than to grant it once for all. The subject is "price fixing" as a war measure and it is obvious that what must be controlled are the rates that affect the cost of production and go into the price of the goods. It is the royalty charged de die in diem that matters, not the grant of the right and the initial fixing of a royalty. It is to be noticed that royalties on the value of goods produced were included. That doubtless was because a rise in value would mean a rise in the royalty. And that would be so irrespective of the term for which the right or privilege was granted. But, as will appear, the question whether the "supply" of "rights and privileges" is complete within the meaning of the regulation upon the making of the original grant or, on the contrary, the regulation means to extend to the continued support of the right or the maintenance of the enjoyment of the right, is one that must be decided in the light of amendments of the regulation subsequently made. Until these are examined it is better to suspend consideration of the question. Its importance arises not only from the facts of the present case, but also from the provisions of the Order. For the Order is hardly capable of a construction which confines its intended operation to royalties reserved by leases (or licences) granted after the making of the Order. At the same time the intended operation of the Order includes future leases. It is convenient to pass to the amendments which affect the question. By reg. 1(1) of S.R. 1945 No. 113, which came into force on 23rd July 1945, the following provision was added to reg. 3 (the definition clause) as sub-reg. (2) - "A person who receives (otherwise than as agent) any valuable consideration from any other person in respect of the enjoyment by that other person of a service shall, for all purposes of these regulations, be deemed to supply that service to that other person for the amount or value, or at the rate, as the case may be, of that valuable consideration." Regulation 1(2) provided at the same time that any declaration by the Minister of any services in force at the commencement of the regulation (viz. S.R. 1945 No. 113) should have effect as if the regulation had been in operation at the time of the publication in the Gazette of the notice of the declaration. (at p501)
16. In face of this last sub-regulation the point can have no validity that, without a new declaration including them within the conception of "declared service", "rights or privileges" of the description provided for by par. (b) of the definition of "service" could not by sub-reg. (2) be brought within the application of the Order, if such rights or privileges had been created by an instrument made before the Order or made before the promulgation of S.R. 1945 No. 113. (at p501)
17. In the following year a further amendment of reg. 3 was made that is material to the question whether the "supply" of the "mining rights" could and should be considered as taking place after the date of the Order and as continuing as they were exercised or as made once for all when the lease was granted. But that amendment included no express provision that the declaration of the Minister should have effect as if the new provision had been in force at the time the declaration was made. The amendment was made by S.R. 1946 No. 71 and came into operation on 11th April 1946. Two new sub-regulations were added to reg. 3, viz. sub-regs. (3) and (4). At this point it is only the provisions of sub-reg. (3) that need consideration. Sub-regulation (3) provided that where any agreement (including any lease) had been entered into, whether before or after the commencement of the sub-regulation, under which a person has become entitled to rights or privileges specified in certain paragraphs of the definition of "service" of which par. (b) is the relevant one, the person from whom the rights or privileges have been acquired shall, for all purposes of the Prices Regulations, be deemed to be supplying those rights or privileges at all times during which the rights or privileges continue, at the rate of the remuneration charged therefore from time to time. If this regulation applies its evident result is to place a person who, like the plaintiff, granted rights or privileges, before the making of an order treating them as services, in the situation of one supplying services from day to day as the rights and privileges were exercised. The fact that the Minister made no new declaration under reg. 22(2) can be no obstacle to the application of the additional sub-regulation, sub-reg. (3) of reg. 3. The existing declaration covered all services, with certain exceptions not relevant; the sub-regulation did not add a new "service" of a kind not contemplated by this general, indeed almost universal, declaration; it simply provided that certain persons should be deemed to be performing those services. If they did not already fall within the class affected it brought them within but it did not add a new category of "services" to which the Minister's declaration did not extend. (at p502)
18. Sub-regulations (2) and (3) of reg. 3 are therefore sufficient to meet the objection, if it be a valid objection, that the Order could not operate upon rights for which remuneration was payable in the form of royalty, if the rights were created before the Order was made, because within the meaning of reg. 23(2)(a) the rights were "supplied" once for all at the date they were granted; the sub-regulations are sufficient to do so subject to one possibility. That possibility is that the Order was totally void from its inception. The fact has already been noticed that the Order exhibits clearly an intention to govern the rates of royalty for the "supply" of mining rights granted in the past, although it also shows an intention to govern rates in respect of mining rights granted subsequently. On the assumption that when the Order was made the grant constituted the "supplying", the former intention would exceed the power conferred on the commissioner by the combined operation of reg. 23(2)(a) and par. (b) of the definition of "service" in reg. 3. Would this result in the total invalidity of the Order? The answer must be that it would not because the intended application of the Order is distributable and the presumption is that it is severable. The presumption arises from the operation upon the Order of the Acts Interpretation Act 1901-1950 pursuant to s. 5(5) of the National Security Act 1939-1946 which provided that the Acts Interpretation Act shall apply to the interpretation of any orders (among other instruments) made in pursuance of regulations made under the National Security Act in like manner as it applies to the interpretation of regulations and for the purpose of s. 46 of the former Act those orders shall be deemed to be Acts. The word "Acts", where last occurring, no doubt was a mistake for "regulations". When the sub-section was transcribed as s. 14(3) of the Defence (Transitional Provisions) Act 1946-1952 the word "Acts" was replaced in that provision by the word "regulations". But as was pointed out in Fraser Henleins Pty. Ltd. v. Cody; Crowther v. Cody [1945] HCA 49; (1945) 70 CLR 100, at pp 126, 127 where the matter is discussed, the earlier words of s. 5(5) are enough to submit orders themselves to the operation of the whole Acts Interpretation Act including the directions contained in par. (b) of s. 46 and it is plain that this was the intention. That Orders made under National Security Regulations were subject to s. 46(b), however the result may be reached, is established by the decision of the Court in Fraser Henleins Pty. Ltd. v. Cody (1945) 70 CLR, at pp 117, 123, 127, 131, 137 . Given a valid operation at least upon the "supply" of mining rights granted after the date of the Order, there is no reason why sub-regs.(2) and (3) of reg. 3 should not bring within its scope mining rights exercised pursuant to grants made before the date of the Order. It may be suggested that in fixing as maximum rates the amount per ton of coal mined payable on 31st August 1939 in the case of properties privately leased on that date par. (c) of the Order does not sufficiently prescribe a rate as an exercise of the power given by reg. 23(2). But notwithstanding some departures from the language of par. (g) of reg. 23 (2A) the Order seems to be justified in this respect by that paragraph. (at p503)
19. There is one other point concerning the sufficiency of par. (b) of the definition of "service" to support the Order. It is a point appearing on the surface of the Order, but, somewhat strangely, it does not seem to have been canvassed until it was mentioned in this Court. The Order fixes a rate per ton of coal mined. A ton is a measure of weight not a measure of volume or of value. Yet par. (b) relates to rights or privileges for which remuneration is payable in the form of royalty, stumpage, tribute or other levy based on volume or value of goods produced. (at p503)
20. The prima facie meaning of volume in relation to quantity is size, bulk, dimension. If the ordinary meaning of the word is placed upon it where it occurs in par. (b) the Order cannot be said to fix a rate for rights or privileges for which remuneration is payable in the form of royalty based on volume of goods produced within the meaning of the paragraph. The order of the words in par. (b) is such that it is logically possible to construe the words "based on volume or value of goods produced" as qualifying only the word "levy" and as not applying to the word "royalty". If that construction were adopted, the difficulty would disappear. But unfortunately it does not seem to represent the real meaning of the clause. It is not probable that it was concerned with royalties nor with stumpage nor with tribute except as it affected the production of goods. A playwright's royalty on dramatic performances is an example that would probably be thought to be outside the real meaning of the paragraph. "Stumpage" is said, by the real meaning of the paragraph. "Stumpage" is said, by the Oxford Dictionary, which ascribes an American origin to the word, to mean the price of standing timber or the standing timber itself considered with reference to its quantity or marketable value. "Tribute" is a mining term and when used to describe the "remuneration" for a "right or privilege" must refer to a percentage or portion of the minerals won by a miner or person working a mine or of the proceeds of such minerals paid to the mine-owner for the right to work the mine or part of it. The context points to the view that the concluding words are attached to all four words "royalty stumpage tribute and levy" and not to the final word "levy" alone. (at p504)
21. There are few words, however, that are incapable of some extension beyond their primary meaning and incorrect as is the use of "volume" to signify quantity whatever be the terms in which it is measured, the subject matter and the context may make it right so to understand it. (at p504)
22. Here the subject is the control of the amount of the compensatory payments charged in respect of rights and privileges the exercise of which contributes to the production of goods. It is part of the machinery of control to keep down in time of war the price of commodities and to check inflation. The context includes a reference to tributing in mining and neither the precious metals nor minerals are ordinarily measured by bulk or size. The alternative standard to volume is value and the alternatives suggest an attempt to cover remuneration calculated by the amount of goods produced or the value of goods produced. There are instances of volume used to mean quantity in a very general sense to be found in the Oxford Dictionary. On the whole it seems right to read the word in par. (b) as meaning "quantity". (at p505)
23. From these questions it is necessary now to pass to one which may be regarded more correctly as relating to the application of the Order than to its validity. It is whether the Order can and does apply to royalties which in point of law form part of the rent reserved upon a lease. The question depends on the construction of the Prices Regulations, not of the Order, but it is more correct to treat it as relating to the application of the Order because the Order is not confined in its intended operation to royalties reserved as rent. It extends to royalties payable under a lease but not reserved as rent and, one would suppose, to royalties payable under a licence to work a coal mine. If the regulations do not enable the commissioner to fix and declare rates at which there may be "supplied" rights or privileges arising under a lease, the remuneration being payable in the form of a royalty reserved as rent, then the consequence would be that the Order must be construed as having no application to such a royalty or to such rights: Fraser Henleins Pty. Ltd. v. Cody (1945) 70 CLR, at p 127 . (at p505)
24. In the Supreme Court the decision of the majority of the judges was based on the view that such rights and such a royalty were outside the scope of the regulations and were not covered by par. (b) of the definition of "service" in reg. 3. (at p505)
25. In considering this question it is to be borne in mind that here and in England it has long been a practice in coal mining leases to reserve both a fixed minimum rent and royalties varying with the quantity of the coal worked. The fixed or dead rent ensures a minimum return to the lessor and encourages the lessee to work the mine: cf. Halsbury's Laws of England, 2nd ed., vol. 22, pp. 602, 603, where the nature of the practice is mentioned and amplified in the following passage: "A royalty, in the sense in which the word is used in connection with mining leases, is a payment to the lessor proportionate to the amount of the demised mineral worked within a certain period. Usually the royalties are made to merge in the fixed rent by means of a provision that the lessee may, without any additional payment, work, in each period for which a payment of fixed rent is made, so much of the minerals as would, at the royalties reserved, produce a sum equal to the fixed rent." The lease declared upon is of this description. The words "goods produced" in par. (b) of the definition of "service" are of the widest possible application. It would indeed be surprising if they did not include fuel and basic natural products. "Royalty" stands unqualified in its generality. It is a word of various known applications. The common applications of the word are described by Latham C.J. in McCauley v. Federal Commissioner of Taxation (1): "The word 'royalty' is most commonly used in connection with agreements for the use of patents or copyrights and in relation to minerals. In the case of patents a royalty is usually a fixed sum paid in respect of each article manufactured under a licence to manufacture a patented article. Similarly the publisher of a work may agree to pay the author royalties in respect of each copy of the work sold . . . In the case of mineral leases, a rent is reserved by the lease and frequently royalties are also made payable, being sums calculated in relation to 'the quantity of minerals gotten' (Attorney-General of Ontario v. Mercer (2)) - in such a case the royalties represent 'that part of the reddendum which is variable.'. . . Use of the term 'royalty' is not, however, limited to patents, copyrights and minerals. The term has been used to describe payments for removing furnace slag from land (Shingler v. P. Williams & Sons (3)), and to payments for flax cut (Akers v. Commissioner of Taxes (N.Z.)(4)), the person paying the royalties becoming the owner of the slag or of the flax" (5). In his dissenting judgment Rich J. defined the word thus: "In its primary sense, royalty denotes one of the beneficial rights of the Crown, such as the right to bona vacantia, escheats, treasure trove, and so forth. In its secondary sense . . . it denotes a consideration paid for permission to exercise a beneficial privilege, usually made payable as and when the privilege is exercised, and measured by the quantum of the benefit from time to time received from the exercise, for example, by the quantity of minerals won by the exercise of mining rights, or the number of articles manufactured under a licence to use a patent or a secret process" (6). This being the meaning and these being the characteristic applications of the word it is not easy to suppose that royalties on the production of coal and other minerals were outside the intendment of the paragraph. Once that is granted the next step seems almost inevitable, namely that it covers such royalties whether their character is rent or not. For in the first place the character of rent usually attaches to such royalties. In the second place whether it does so or not is irrelevant to the purpose of the regulations, namely to control charges which would affect the price or cost of commodities and to check some of the factors or incidents of monetary inflation. (at p506)
26. The suggestion that, inasmuch as the control of rent was a purpose of the National Security (Landlord and Tenant) Regulations, the language of the Prices Regulations ought not to be understood as covering royalties having the character of rent does not sufficiently take into account the different purposes of the two sets of regulations. The Landlord and Tenant Regulations concerned the right to occupy premises and the compensation payable by the tenant therefor. Royalty on the production of coal and minerals may have the character of rent but its relevancy to war control is not to the occupation of premises or the compensation payable therefor but to the production of goods and the costs which go into the price of the goods. That was the concern of the Prices Regulations. There is accordingly no sound ground for placing upon par. (b) of the definition of "service" or upon reg. 23(2) a restrictive interpretation which would exclude royalties on the production of coal or minerals forming part of the rent reserved on a mining lease. (at p507)
27. It is necessary, however, to turn to a difficulty that has been felt in the application of par. (c) of the Order to the fluctuating royalty of the present case as at 31st August 1939 and the reduction effected by the Landlord and Tenant (Amendment) Act 1932-1947. It is asked what, on the provisions of the lease as stated in the declaration modified by this statute, was the amount per ton of coal mined payable on 31st August 1939. It seems certain enough that the Order is referring to the rates actually payable on that day in respect of coal mined from the particular property on the assumption that there was such coal in respect of which rates would be payable. By "actually" is meant that, on the assumption required, you look at what would really be legally payable and so take into account statutory reductions of rates contracted for. As the contract in the present case, the lease, describes the royalty as a royalty per ton of all coal wrought and brought to grass, the fulfilment of that condition is assumed as on 31st August 1939 and the prices f.o.b. Newcastle as at that day are taken as the basis of computation. (at p507)
28. The royalty is charged on the amount of coal over and above the quantity the royalty on which will satisfy the fixed rent but subject to the reduction of twenty-two and one-half per cent prescribed by the Landlord and Tenant (Amendment) Act 1932-1947. It is immaterial whether you reduce the fixed rent by the twenty-two and one-half per cent and then calculate what amount of coal at the rates ascertained from the prices f.o.b. Newcastle reduced by twenty-two and one-half per cent would satisfy the reduced rent or you make the calculation of the tonnage which is sufficient at the unreduced prices to satisfy the unreduced rent. The result is the same and in any case it is not a matter that affects the rate. But the fixed rent is not a royalty and is not a rate per ton of coal mined within the Order and it therefore seems to be unaffected by the Order. (at p508)
29. The method of calculation put forward by the third plea cannot be supported because it takes the reduction of twenty-two and one-half per cent in force on 31st August 1939 as applicable to the formula and treats the Order as doing no more than, so to speak, continuing the reduction as part of the formula and as leaving the formula otherwise to apply to the prices f.o.b. Newcastle as they existed from time to time when the coal actually charged for was wrought and brought to bank. The third plea cannot therefore be supported. (at p508)
30. As to the fourth plea, it is only necessary to add that sub-reg. (4) of reg. 3, a sub-regulation added by S.R. 1946 No. 71, varies the contract by the substitution of the lower rate fixed under the regulations, that is by the Order. (at p508)
31. For the foregoing reasons the fourth plea is good and sufficient. It should perhaps be stated before passing from the pleas framed under the regulations that it was under s. 6 and s. 8 of the Defence (Transitional Provisions) Act 1946-1947 the Regulations and Order were continued in force. (at p508)
32. The sufficiency of the fifth plea depends upon the provisions of the New South Wales Prices Regulation Act 1948 but so closely do those provisions follow the Commonwealth National Security (Prices) Regulations that the views that have already been expressed almost decide the question. Section 19(2) of the Act corresponds with reg. 22(2) and empowers the minister to declare any service to be a declared service. The same definition of "declared service" is to be found in s. 3 of the Act as in reg. 3. The definition of "service" in that section contains the same par. (b) as in the definition in reg. 3. Sub-regulations (2), (3) and (4) of reg. 3 appear in the Act as sub-ss. (2), (3) and (4) of s. 3. The power to fix and declare the maximum rate at which any declared service may be supplied or carried on conferred by reg. 23(2)(a) is reproduced in s. 20(5)(a) of the Act and s. 20(6)(g) reproduces the amplification of it that formed reg. 23(2A)(g) enabling the commissioner to fix maximum rates relative to such standards as he thinks proper or relative to the rates charged by individual suppliers on any date specified. (at p508)
33. The operation of these provisions of the Act upon the present case is by means of the same order, Prices Regulation Order No. 985, and not through a new order made in pursuance of the Act. Section 2(1) provides for the continuance, among other things, of all declarations and orders made or published under the Commonwealth National Security (Prices) Regulations as in force immediately before the commencement of the Act under the Defence (Transitional Provisions) Act 1946-1947. Section 2(1) enacts that orders and declarations of that description which are in force in the State of New South Wales immediately before the commencement of the Act (viz. 20th September 1948) should, for the purposes of the Act, and except so far as they are inconsistent with the Act, be deemed to have been made or published under the Act and, subject to the Act, until repealed, amended or revoked under the Act, should be deemed to have force and effect accordingly as if made or published under the Act. (at p509)
34. It will be seen that the validity of the Order as one to which the Commonwealth regulations gave force may appear to amount to a condition of the application of s. 2(1). A provision in the Landlord and Tenant (Amendment) Act 1948 (N.S.W.), s. 4(1), closely resembling s. 2(1) of the Prices Regulation Act 1948 (N.S.W.), has received a construction in this Court. The question in Brown v. Green [1951] HCA 76; (1951) 84 CLR 285 was whether s 4(1) on its true construction made the constitutional validity of the Commonwealth National Security (Landlord and Tenant) Regulations an essential condition of the operation of the provision to take over the determinations made under the Commonwealth regulations. For reasons set out in the report (1951) 84 CLR, at pp 289-291 it was decided that s 4(1) did not mean to make it an essential condition. The construction placed upon the sub-section appears from the following passage: "When s. 4(1) speaks of the determinations made before the commencement of the Act under the Commonwealth Regulations it assumes that the Commonwealth Regulations have the operation described and does not imply that it shall be a condition of the operation of s. 4 [1951] HCA 76; (1951) 84 CLR 285 that the operation of the Regulations shall be constitutionally valid. The words which follow 'and having force or effect in this State immediately before such commencement' are necessary in order to ensure that a determination which was made but had since been rescinded or varied or the operation of which had expired shall not be included in the description. They are words which are attached to the word 'determinations' and refer to the force or effect of the determinations on the footing or assumption that the Commonwealth Regulations are operative. They do not import the necessity that the Commonwealth Regulations themselves possess a valid constitutional force or effect. If a determination was made in point of fact but exceeded the power which the Commonwealth Regulations purport to confer or because of some other disconformity with the Commonwealth Regulations fell outside the authority they purport to confer it could not be considered to have force or effect under the Regulations" (1951) 84 CLR, at pp 291, 292 . (at p510)
35. The same construction seems to be applicable to s. 2 (1951) 84 CLR, at pp 291, 292 of the Prices Regulations Act 1948. It means that if Prices Regulation Order No. 985 exceeded the power or were outside the authority which the Prices Regulations purported to confer, the Order would not be taken up and continued in force by s. 2 (1951) 84 CLR, at pp 291, 292 of the Prices Regulation Act 1948. (at p510)
36. The continued constitutional validity of the regulations was not impugned in this Court but, material as it might be for the purpose of the fourth plea, it is not, under the decision of Brown v. Green [1951] HCA 76; (1951) 84 CLR 285 important for the fifth plea. It follows that the same questions concerning the validity of the Order as were considered in discussing the sufficiency of the third and fourth plea arise alike under the fifth plea. It is necessary, however, to do no more than note that the conclusion already stated with respect to these questions and the reasons therefor are as material to the fifth plea as to the fourth. The same observation is, of course, true of questions concerning the application of the Order, as an instrument receiving its continued force from the Act, to the facts of this case as they appear from the pleadings. (at p510)
37. It is perhaps desirable to note too that the declaration of the Commonwealth Minister dated 30th November 1942 was, by the Minister of the State of New South Wales administering the Prices Regulations Act 1948, made the subject of what may be called an express declaration confirmatory of its operation so far as it related to services consisting in rights or privileges for which remuneration is payable in the form of royalty, stumpage, tribute or other levy based on volume or value of goods produced: Declaration No. 2 (N.S.W.), 20th September 1948. Possibly this affords an independent reason for saying that as to the fifth plea there can be no question of the sufficiency of the declaration of services as declared services to cover such rights and privileges. (at p510)
38. The fifth plea should be held to be good and sufficient. (at p510)
39. Another observation may perhaps be added. It may seem at first sight a strange result that, for the purposes of the first and second pleas, the moneys payable are rent, whereas, for the purposes of the later pleas, they are a price for services. There is, however, no appeal from the decision of the Supreme Court on the first and second pleas, and in any case it is all a matter of artificial statutory definition. (at p511)
40. The result of the foregoing is that the appeal should be allowed, the order of the Supreme Court should be varied by discharging so much thereof as relates to the fourth and fifth pleas and to costs and in lieu thereof ordering that judgment be entered for the defendant on the demurrers to the fourth and fifth pleas and that the plaintiff pay to the defendant the costs of the demurrers to the first, second, fourth and fifth pleas and that the judgment for the plaintiff on the third and sixth pleas be without costs. The respondent should pay the costs of the appeal. (at p511)
ORDER
Appeal allowed. Order of the Supreme Court varied by discharging so much thereof as relates to the fourth and fifth pleas and to costs. In lieu thereof order that judgment be entered for the defendant on the demurrers to the fourth and fifth pleas and that the plaintiff pay to the defendant the costs of the demurrers to the first, second, fourth and fifth pleas and that the judgment for the plaintiff on the third and sixth pleas be without costs. Order that the respondent pay the costs of the appeal.