Governments might want to offer a range of incentives when
contracting with private parties, but what are the relevant
limitations? Can a Government promise tax relief in a contract
– and is such a promise enforceable? The High Court has
usefully clarified some of these issues in Port of Portland Pty
Ltd v Victoria  HCA 44 (8 December 2010).
The privatisation, the contract for sale, and the State's
When Victoria privatised the Port of Portland in 1996, it agreed
with the purchaser that it would amend the Valuation of Land
Act 1960 (Vic) so that the unimproved site value of the Port
would be calculated by excluding the value of various buildings,
wharves and associated works relating to the Port.
If it failed to do so and the purchaser was assessed at a higher
rate of land tax than it would have been under the proposed
amendment, the State would refund the difference, or allow it to
The State amended the land tax laws, but the purchaser argued
that the amendments did not fulfil the State's promise. The
purchaser accepted that any promise to amend the statute law was
unenforceable, as neither a Minister or the Executive can bind the
Parliament to any course of action. But it claimed it had a
contractual right to receive a refund of the difference in the
The Victorian Court of Appeal held that the second promise was
unenforceable, as the Executive cannot lift a burden imposed by
Parliament through an Act without Parliamentary approval. The High
Court, on appeal by the purchaser, reversed the decision of the
Victorian Court of Appeal on this point.
Why the High Court said the promise to refund tax was
The High Court said that the second promise was enforceable in
this promise did not constitute a dispensation from the
operation of land tax laws – instead, it was a promise to
adjust the price for sale of public assets; and
even if it were a dispensation, that dispensation had statutory
backing. The privatisation legislation, the Port of Portland
Authority Act 1958 (Vic), authorised the Treasurer to direct
the Authority to sell its assets on terms and conditions, which
included the making of adjustments, the assumption by the State of
the obligation to refund tax, and to direct part of the sales
proceeds into the Consolidated Fund.
So that meant that the matter fell to be determined on the
merits: had the State held up its part of the bargain? The High
Court said that the amendments had not had the effect intended by
the parties when they made the contract. As a result, the Victorian
Supreme Court must now determine how much tax must now be refunded
to the purchaser under the terms of the contract.
What does this mean for government contracting?
This decision emphasises that governments will be held to be
bound by their contractual promises subject to the understanding
the Executive has no power to grant a dispensation from statute
law without the consent of Parliament, so that any contractual term
promising this outcome will not be enforceable;
there is a distinction between a promise to dispense with a
statutory imposition and a promise to adjust the sale price under a
contract of sale if certain preconditions are met; and
even if a contractual promise amounts to a dispensation from a
statutory burden, it can still be enforceable if there is statutory
backing for that promise.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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