Contracts and Restitution - limitations to binding the State

Port of Portland Pty Ltd v State of Victoria (2010 85 ALJR 182; [2010] HCA 44 confirms the limitations upon attempts to bind the State in fetter of Parliament’s plenary power to legislate on future matters.

However, it also shows that agreements can be crafted so as to allow a contracting party in certain circumstances to get the benefit of a promise made by the State that might be said to bind a future Parliament. While the State’s power to legislate cannot be curtailed, in some circumstances – and where the relevant contract has the necessary statutory backing (explained below) – a promise by the State to compensate a party for a contractual promise that it fails to meet may be enforceable.

Facts

Port of Portland concerned the liability of a landowner, the Port of Portland Pty Ltd (Appellant), to pay land tax of $750,000. The land the subject of the dispute was formerly owned by the Port of Portland Authority (Authority), a statutory corporation. Under an agreement between the Authority and the Appellant, the Appellant agreed to and did purchase the land for $30 million (agreement). The State of Victoria as also a party to the Agreement.

Prior to the Agreement, the Authority was exempt from any obligation to pay land tax as the owner of the land. The exemption from land tax would not apply to the Appellant when it became the land owner. As part of the Agreement the State agreed to legislate to ensure that the unimproved site value used as the basis for the assessment of land tax liability would exclude the value of port improvements (the purpose being to reduce the land tax to be payable by the Appellant.

This part of the bargain was contained in cl 11.4 of the Agreement. Clause 11.4 provided as follows:

1. the State has agreed with the Purchaser that it will effect and amendment to statutes governing the assessment and imposition of land tax to ensure that the unimproved site value used as the basis for assessment of land tax liability for the real property excluded the value of buildings, breakwaters, berths, wharfs, aprons, canals or associated works relating to a port.
2. in the event that, before or after completion the relevant statutory amendments do no become law and, as a result of that the Purchaser is assessed to land tax on the real property at a rate higher than would have been the case if the relevant statutory amendments were law, the State will refund or allow to the Purchaser the difference between the two amounts.

After the Agreement was entered into the State made certain legislative amendments in purported compliance with cl 11.4. However, the Appellant contended that the amendments did not achieve their purpose, and did not satisfy cl 11.4 of the Agreement in order “to ensure that the unimproved site values used as the basis for assessment of land tax liability“ excluded “the values of buildings, breakwaters, berths, wharfs, aprons, canals or associated works relating to a port”.

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