Clarke v Commissioner of Taxatioin

[2009] HCATrans 43

[2009] HCATrans 043

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A35 of 2008

B e t w e e n -

RALPH DESMOND CLARKE

Appellant

and

COMMISSIONER OF TAXATION

First Respondent

ATTORNEY‑GENERAL FOR SOUTH AUSTRALIA

Second Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 12 MARCH 2009, AT 10.04 AM

(Continued from 11/3/09)

Copyright in the High Court of Australia

FRENCH CJ:   Yes, Mr Solicitor.

MR GAGELER:   Your Honours, we have taken the liberty overnight of putting a number of matters of detail in writing.  We have called it a supplementary submission.  I do not propose to speak to that.  I may incorporate by reference a couple of paragraphs of it.  We did attempt to find the final version of the case stated in Austin.  I am afraid we were not able to turn that up overnight.

HAYNE J:   We did, Mr Solicitor.

GUMMOW J:   We did.  It is against you.

MR GAGELER:   Yes, we thought you may have, your Honours.  We have given some references to what we believe to be the correct paragraphs of the case stated.  We have done that in paragraph 12 of the supplementary submissions.  If that turns out to be wrong we will provide your Honours with an addendum. 

Your Honours, the point that I had reached yesterday really was to say that you cannot understand the Melbourne Corporation Case unless you start with the Engineers’ Case.  An exercise of Commonwealth legislative power always prevails over an exercise of State legislative power unless and to the extent that it would, in so prevailing, operate in a practical way to impair substantially or significantly the capacity of a State to function as a government – that is as a polity within the integrated Australian legal system.

HAYNE J:   In understanding Melbourne Corporation it is also necessary, is it not, to read first Essendon Corporation.

MR GAGELER:   Yes, it is.

HAYNE J:   Published six weeks before the argument in Melbourne Corporation.  A point to make about Melbourne Corporation is that the judgment of Mr Justice Dixon is delivered in the terms it is despite the argument of Mr Barwick being advanced as an argument about characterisation.  An understanding of that and an understanding of the relationship between Melbourne Corporation, Engineers’ and the developments in the United States is at least assisted by Essendon Corporation at 74 CLR 1 and following.

MR GAGELER:    Yes, I agree entirely, and, your Honours, no verbal formula is going to get it quite right.  That is one of the things that Justice Dixon was saying.  It is one of the things that Chief Justice Stone was saying in the United States in New York v United States, but the way I have attempted to put it yesterday and again this morning is closest to the way it was put by six members of the Court, with the concurrence of the seventh in the pre‑Austin case, the Native Title Act Case 216 CLR 595– I took your Honours to the passage yesterday at paragraph 31 – and it is entirely consistent with the way in which the Melbourne Corporation doctrine was summarised post‑Austin in one pithy sentence in Bayside City Council 216 CLR 595 at 31. Again, I think I referred the Court yesterday to the relevant passage.

Your Honours, I need to deal fairly briefly with Queensland Electricity, with AEU and then the pre‑Austin tax cases.  There are two points to make about Queensland Electricity.  One of them I made yesterday, that is, there is a statement of Justice Dawson.  I do not suggest that Justice Dawson did not intimate similar sentiments in other cases but he said it clearly at page 262 of Queensland Electricity.  He suggested that the doctrine is – or can be read as suggesting, I should say, that the doctrine is in some general sense about safeguarding the scope of choices, in some general sense, available to States, in our submission, for the reasons I have given.  That does not accord with the prevailing orthodox and correct understanding of the doctrine. 

The other thing about Queensland Electricity – and this is really a point that was singled out for criticism by the joint judgment in Austin – is that there is a suggestion in a number of the judgments, some stronger than others, that discrimination per se and in any degree is sufficient to invoke the Melbourne Corporation doctrine.  You see that in a number of the judgments but most clearly in the Chief Justice’s judgment at the bottom of page 208, point 9 and in the judgment of Justice Wilson, page 230, point 2 ‑ ‑ ‑

GUMMOW J:   And at 217 in Justice Mason.

MR GAGELER:   Probably, your Honour, and it was 217 in Justice Mason’s judgment.  That particular paragraph was singled out for comment in Austin at paragraphs 144 to 145 in Austin.  Your Honour, there are other aspects of Justice Mason’s judgment that suggested he may have been taking a much more substantive view.  One gets a flavour of that 219 about point 5, and 220 about point 3, but it is unrewarding to attempt to comb through the detail of those judgments.  The point is that in both of those respects Queensland Electricity is out of step, in our submission, with the stream of authority and certainly out of step with Austin itself.

Your Honours, the AEU Case 184 CLR 188 has been referred to by other counsel and particular reliance has been placed on the passages at the bottom of page 232 and the top of page 233. Those passages need to be read with what precedes and the discussion, relevantly, that precedes begins at page 228. There the argument is recorded at the bottom of the page:

The prosecutor submitted that the statements in the Tasmanian Dam Case, when they refer to impairment of a State’s capacity “to function as a government”, extend to any impairment of capacity to exercise government functions. 

The general response to that is at the bottom of the next page in the last three lines:

To press the limitation as far as the prosecutor seeks to take it would travel beyond the language of s 106 and would confer protection on the exercise of powers by the States to an extent which is inconsistent with the subordination of those powers to the powers of the Commonwealth through the operation of s 109 of the Constitution.

It is, in short, a classic Engineers’ response to an overreaching argument sought to be based on the Melbourne Corporation Case.  That is the general response and one then gets, after that general response, to the specific statements at pages 232 to 233 on which particular reliance has been placed.  The point about those statements is that they are couched in terms of what is critical to the capacity of a State to function as a government and one of the things identified as critical to the capacity ‑ ‑ ‑

GUMMOW J:   One of the problems in all of these cases is that we are never told what functioning as a government involves.  There is some assumptions taking place, or whether what is involved, a function as a government changes over time.

MR GAGELER:   Your Honour, what is really made clear by a string of cases that no side has referred, in detail any way, is that no assistance is gained in these matters from any notion of traditional functions of government.  That is a point made by Justice Windeyer most clearly in the Professional Engineers’ Case.  Everyone seems to accept that.  So, we are not talking about what governments have done traditionally.

GUMMOW J:   What are they talking about?

MR GAGELER:   They must be talking about the ability of the judiciary to be constituted and to do its function, the ability of the Parliament to be constituted and to do its function.  Once you get to the Executive, of course, the position becomes just slightly more vague and it is really in respect of the executive functions of government that one faces some difficulties.  It is not quite a difficulty that we face in the present case, but it was the executive functions of government, of course, that was being impaired basically in the Melbourne Corporation Case itself, that is, putting it in constitutional terms, the ability of the Government to have the control of the funds that came into and went out of its consolidated revenue.  By the legislation in the Melbourne Corporation Case that was placed entirely under the control of the Federal Treasurer.  He was the person who nominated the bank account. 

One of the things said to be critical to the capacity of the State to function as a government is the ability, effectively, to set the size of its public service.  That is what is said at the bottom of page 232.  The other thing that is said to be critical to the capacity of a State to function as a government, identified at the top of page 233, is the ability to set the terms and conditions on which persons at higher levels of government are to be engaged.  Your Honours, what is said cryptically but perfectly adequately in the context at page 233 was said in the context of considering a particular exercise by the Commonwealth Parliament of the conciliation and arbitration power to confer jurisdiction on a Commonwealth arbitral body to fix terms and conditions of employment.

One has to read what is said at the top of page 233 in that context and it is entirely uncontroversial that for a Commonwealth arbitral body to be fixing the terms and conditions of engagement of Ministers of a State would be a substantial interference with the capacity of a State to function as a government.  The problem is when you take that statement in that context, disembody it and turn it into an abstract constitutional proposition, you have gone wrong.  In fact, you have gone back to those bad old days before 1920.  You do not treat it as marking out some freestanding area of State immunity and it was not uttered in that context.

In the context of the earlier discussion at pages 228 to 229, in the context of the introductory statement about what is critical to the capacity of a State to function as a government, what one really needs to relate this statement to is the extent to which the capacity of a State to determine the terms and conditions of persons at higher levels of office is being impacted by a Commonwealth law and that must ultimately be related to the capacity of the State to function as a government within the general integrated Australian legal system.

FRENCH CJ:   The concept of persons at high levels of office or high office holders encompasses potentially a wide range.  Here we are talking about Members of Parliament, which is an institution constitutionally established within the Constitution of South Australia – and this goes back really to what I think I put to you yesterday about the distinction, if any, between constitutional functions and essential functions – do we really have to go as wide as a consideration of capacity to function as a government when we are dealing with an impact on a constitutional organ, that is to say, one expressly recognised in the State Constitution?

MR GAGELER:   Your Honour, there are two parts of an answer there.  There may be, independently of the Melbourne Corporation doctrine, which was of course an implication, an argument that could in some cases be based upon section 106 of the Constitution. I think in answer to Justice Gummow’s question to me yesterday about a Commonwealth law which affected freedom of speech in a State Parliament – my concern in answering that, on reflection, was not a Melbourne Corporation issue; it was a concern that section 106 itself may be directly involved in such a case.

FRENCH CJ:   But maybe there is a 106 argument.  I think I also put that to you yesterday.  I am really suggesting this may lie at the core of the Melbourne Corporation doctrine but the Melbourne Corporation doctrine may run wider.

Your Honours, it can be refined more in a case of this nature.  It is about the functioning of Parliament.  One need not be at that more general level functioning of government, just as Austin’s Case was about the functioning of the court system in New South Wales.  So to that extent there is an appropriate refinement, your Honours, but beyond that the question is still the same.  It is about the capacity of that organ of government to be constituted and to function.  Many courts and parliaments function within an integrated legal system.  Save by the Solicitor‑General for South Australia, it could not be suggested, your Honours, that it would be open to a State as an incident of determining the conditions of office of its high office holders to enact legislation saying their salaries are tax free.

There is no doubt that such legislation could be characterised as setting the emoluments or terms and conditions of office, but the simple point is that the general Commonwealth income tax law would prevail under section 109 over that inconsistent State legislation and it could not be said that in so prevailing the general Commonwealth income tax law was one that affected the capacity of the State to establish and maintain its institutional organs. Similarly, your Honours, in our submission, section 109 would be brought into play by an attempt as a condition of holding State office to introduce a racial qualification.

Sections 9 and 10 of the Racial Discrimination Act would prohibit that and there would be a section 109 inconsistency and it is impossible, in our submission, to characterise that operation of a Commonwealth law as in some way interfering with the capacity of the State to function as a government. I will come to the superannuation guarantee in a moment but that is ‑ ‑ ‑

HAYNE J:   Before you do, would the Commonwealth Parliament have power to enact a law imposing a tax of 50 per cent upon electorate allowances paid to State parliamentarians?

MR GAGELER:   Yes, your Honour.  The answer is yes.  There are many emoluments that are paid under specific headings to persons in various walks of life.  If that emolument fell within the general definition of income, for example ‑ ‑ ‑

HAYNE J:   No, Mr Solicitor, that is shifting the example and the example is designed to deal with something that is not caught by income tax, hence my reference to electorate allowance.

MR GAGELER:   And it is not a fringe benefit within the general principles.

HAYNE J:   No.

MR GAGELER:   Your Honour, once one confines the question in that way, I change my answer to your Honour’s question, because then there is a singling out for what will probably be a substantial impediment.

HAYNE J:   The reason Parliament would not have power is Melbourne Corporation.

MR GAGELER:   Yes.  I am not going to quibble with the way in which your Honour put it, but I do not really like the terminology of “not have power”; rather the implied prohibition would be infringed in such a case.  Your Honours, can I come very briefly to the tax cases, then Austin.  The pre‑Austin tax cases really begin with the Engineers’ Case 28 CLR 129. I have always wanted to go to the Engineers’ Case in this Court.

HAYNE J:   Are you going to have Essendon Corporation open at the same time, are you, Mr Solicitor?

MR GAGELER:   That is another day, your Honour.

HAYNE J:   About what Engineers’ does not decide?

FRENCH CJ:   You see, some of your opening submissions bear a striking resemblance to those of counsel for the Commonwealth in Engineers’.

MR GAGELER: I did not realise that. 28 CLR 129: I will not read the purple passages but I just wanted to take your Honours to pages 156 through to 157 where there is a little summary of and overruling of the pre‑Engineers’ tax cases which had been based on Collector v Day.  Deakin v Webb of course concerned Alfred Deakin’s salary, which was said not to be able to be subjected to State income taxation.  Now, those days have entirely gone and they were swept away by the Engineers’ Case.

Two years after the Engineers’ Case – and I do not know how somebody found this, your Honours – but there is a case that dealt with Commonwealth taxation.  It is called Davoren v The Commonwealth Commissioner of Taxation.  It never made its way into the Commonwealth Law Reports.  It is only reported in the Argus Law Reports.  What your Honours will see is that the case concerned three State public servants.  There were cases stated.  Each of them had the same questions.  They were asking whether the State public servants – it does not really appear from the record how high up in the hierarchy they were, but the questions were:  were they subject to Commonwealth income tax under the 1915 Commonwealth Act.  The answer is yes.

FRENCH CJ:   Ex tempore, was it?

MR GAGELER:   Yes.

FRENCH CJ:   It appears that from the record.

MR GAGELER:   Ex tempore after – if your Honours look at the – not only ex tempore but without reasons, or apparently without reasons.  If you look at the bottom of the page, what Mr Maughan, KC, said – here he was appearing, it appears, for the appellants, for the taxpayers, putative taxpayers.  He stated that he was unable to distinguish the three cases from the principle laid down in the Engineers’ Case.  Why he turned up, I do not know, but there it is.  The next case – there are four in number – is the Pay‑roll Tax Case 122 CLR 353.

It is here, you see, as I mentioned, Chief Justice Barwick adopting a different approach to the nature of the Melbourne Corporation doctrine reflecting, as your Honour Justice Hayne has pointed out, his own argument as counsel in that case.  I have done it and I do not invite your Honours to read every judgment in the case.  Your Honours might note what is said by Justice Menzies at page 392 in the very long paragraph that begins at that page and your Honours might also usefully note what is said by Justice Gibbs at pages 424 to 425, particularly what is said at the top of page 425 and that is this:

Although in some cases it may be possible to show that the nature of a tax on a particular activity, such as the employment of servants, renders the continuance of that activity –

that is governmental activity –

practically impossible, it has not been shown that the tax in the present case prevents the States from employing civil servants or operates as a substantial impediment to their employment.

That particular passage was quoted in the joint judgment in Austin and, in effect, applied in the joint judgment in Austin.  It is quoted at paragraph 141 and it was distinguished on the facts at paragraph 172.  The other case upon which particular reliance has been placed against us is the Second Fringe Benefits Tax Case 163 CLR 329 and the reliance on this case is a reliance on the dissenting judgment not the majority judgment which, of course, is inherently problematic.

If one goes to the dissenting judgment at page 362 there is the statement at the bottom of the page beginning, “The essential organs of government” and going over to the next page, which was quoted and, indeed, applied by the joint judgment in Austin.  It is very interesting to compare the totality of that paragraph at pages 362 to 363 with the extent to which it was quoted and endorsed in Austin in the joint judgment at 166.  The second full sentence on page 363 is as follows:

The emoluments which a State provides to the officers of the essential organs of government ensure or facilitate the performance by those organs of their respective functions –

That was quoted and, indeed, relied upon in Austin and a full stop was inserted and that was the end of the reliance in Austin.  What the joint judgment in Austin did not do was take the next incremental step that his Honour was taking in this passage to say:

and a tax on a State in respect of the value of those emoluments is not merely –

that is necessarily just follows automatically –

a tax on an activity in which the State engages in exercise of its powers; it is a tax on what is done to secure the continued existence –

et cetera.  That followed through to what his Honour said at page 364 at the end of the first full paragraph:

But a test of practical impossibility is far too onerous to be applied to determine the validity of a tax which falls on the emoluments provided in respect of the “employment” of the officers of the essential organs of the government of a State.

Nobody is suggesting that the true test is a test of practical impossibility, but the point is here that his Honour was taking the position endorsed, and we entirely accept that the emoluments which a State provides to the officers of the essential organs of government ensure or facilitate the performance by those organs of their respective functions.  We do not quibble with that at all.  Where his Honour went wrong was to say it follows from that that a tax on those emoluments is necessarily an interference with the essential organs of the government of a State.

That was not the way in which Austin approached the matter and, indeed, that way of looking at it is entirely inconsistent with the test stated in Austin at paragraph 168.  It is also, perhaps sufficiently for my purposes, however, entirely inconsistent with the holding of the majority in this case.  Your Honours have noted, I think been taken to, the way in which the majority dealt with the arguments at pages 355 to 366.  The argument that they rejected as leading nowhere in Melbourne Corporation terms was a practical argument to some extent.  You see it at the bottom of page 355. 

The result, so it is said – that is, so it is said in the argument – is to reduce the range of choices available to the State and thereby to reduce its capacity to make its own decisions in the exercise of its governmental functions on a matter of high importance to the State, namely, the terms of remuneration payable to its highest functionaries.  That in itself led nowhere.

GUMMOW J:   That sentence beginning “The short answer” is perhaps too short.

MR GAGELER:   I am sorry, your Honour, I just have not picked up where ‑ ‑ ‑

GUMMOW J:   The sentence on 356 in the Second Fringe Benefits Case:

The short answer is that the States are subject to the Commonwealth Parliament’s exercise of the taxation power; they have no immunity from Commonwealth taxation:  the Pay-roll Tax Case.

That is true, but it is not the whole story.

MR GAGELER:   No, it is not the whole story.

GUMMOW J:   The answer is too short, it is said against you.

MR GAGELER:   It may have been too shortly expressed but it is the answer, your Honour, and I have teased out, I hope, the reasons.  So far as the application to reopen this case is concerned, it should be refused.  The case has stood for a very long time.  It is consistent with the stream of authorities before and after.  If an application for leave to reopen on a matter of this magnitude is to be pressed, it really should be pressed on notice and with sufficient time for material to be adduced which, in a case like this, would go to the extent of reliance not simply by the Commonwealth in its taxing arrangements but the extent of reliance on the principle illustrated by this case in Commonwealth/State financial relations.  We are not in a position to deal with that overnight.  The application should be refused as a matter of substance but also as a matter of procedure, if the Court pleases. 

So far as Austin is concerned, can I then go fairly swiftly, I hope, through the joint judgment, first to identify the principle which is, in our respectful submission, the principle that I have been seeking to articulate by reference to previous cases, and then to say something of its particular application.  Statements regarding the principle can usefully be picked up first at paragraph 115 where it is said:

Because the limitation on power is derived from the federal structure, it is difficult, if not impossible, to articular it except in negative terms which are cast at a high level of abstraction – that the Commonwealth’s legislative powers do not extend to making a law which denies one of the fundamental premises of the Constitution, namely, that there will continue to be State governments separately organised.

Then at paragraph 124:

There is, in our view, but one limitation, though the apparent expression of it varies with the form of the legislation under consideration.  The question presented by the doctrine in any given case requires assessment of the impact of particular laws by such criteria as “special burden” and “curtailment” of “capacity” of the States “to function as governments”.

Then paragraph 139:

It follows from the reasoning in these judgments in Melbourne Corporation that invalidity does not necessarily attend any federal law which requires a State in the performance of its functions to bear a burden or to suffer a disability to which others are not subject.

Paragraph 165, focusing on the issue in the particular case, second sentence of 165:

That issue may be narrowed by asking whether that result comes about by a sufficiently significant impairment of the exercise by the State of its freedom to select the manner and method for discharge of its constitutional functions –

Then 168:

There then is posed the “practical question” identified by Starke J in Melbourne Corporation.  This, in the end, is whether, looking to the substance and operation of the federal laws, there has been, in a significant manner, a curtailment or interference with the exercise of State constitutional power.

Then what follows from that point to the end of the judgment is directed to that practical question.  The conclusion in substance being that there was, in that case, a significant impairment of the capacity of the State of New South Wales – acting legislatively because that is how judge’s emoluments are set, by legislation – to recruit and retain judicial officers.  I will come back to paragraph 169 in a moment because that is, in effect, a summary of what was drawn from the actuarial evidence and the other evidence in the case stated. 

The point of the discussion that continues from paragraphs 170 through to 173 of the amendment to the Judge’s Pension Act should not be misunderstood.  The point of that discussion was not that the need for the State to enact amending legislation itself constituted impairment; that is not the point of the discussion.  The point of the discussion is that the timing, magnitude and reason for the amendment was illustrative of the underlying impairment, illustrative of the depth of the mischief that was caused by the application of the Surcharge Act to the judges in question.  Indeed, that was the way Chief Justice Gleeson very usefully put it in paragraph 28, page 219, about point 8 of the page, when he said:

The practical manifestation of that interference –

that is, the underlying interference ‑

is in its capacity to affect recruitment and retention of judges to perform an essential constitutional function of the State.  Evidence of that capacity is to be found in the legislative response –

He meant, no doubt, evidence of the impact on that capacity is to be found in the legislative response.  That is the significance of the legislative response.  The need to make a legislative response is not in itself the problem.  What was the problem?  Your Honours may have looked more closely than I have been able to overnight at the detail of the case stated, so I do not want to get very much into the detail ‑ ‑ ‑

GUMMOW J:   One of the reasons why the case stated perhaps took the form it did was that there are issues of construction too, quite complex issues of construction before one got to validity.

MR GAGELER:   Very complex, yes.  What I wanted to say is, going back to paragraph 169 of the joint judgment, what is there said in the joint judgment needs to be read with the previous statements of fact or factual conclusion that are recorded at paragraphs 90 to 91 in the joint judgment, that is, paragraph 169 needs to be read as harking back to what is said at paragraphs 90 to 91.  It needs to be read with the similar short summaries of the effect of the material in the case stated that one sees in Chief Justice Gleeson’s judgment at paragraph 8 and in Justice McHugh’s judgment at paragraphs 231 to 232.

To summarise it, and without getting too much into the numbers, it really came down to two pretty fundamental problems.  Both of them concerned the particular way in which the surcharge impacted upon the pre‑existing State legislative structure for the emoluments of its judges.  One aspect of that legislative structure was to give judges a full pension after 10 years in service.  The surcharge was then based on notional contributions that resulted in the full funding of that pension for life after 10 years in service.  That meant that the annual notional contributions were a very high percentage of salary – somewhere around 61 per cent, I think, in Justice Austin’s case – and it meant that the entirety of the surcharge was accumulated in the surcharge account after 10 years or at the point of 10 years in service.

So the judge would get to the point of 10 years of service, the judge would be entitled at that stage to retire under the State legislation with a full pension and the judge at that stage would have accumulated the entirety of the surcharge, except for the interest.  The interest would continue compounding after the 10 years in service.  So the judge not only had an inherent built‑in disincentive to continue in office simply because of the structure of the State emoluments – that is, to give the right to the full pension after 10 years – but the disincentive to stay in office after 10 years was accentuated, significantly, it was found, by the accrual of compound interest after that 10‑year period.  There was in effect, in substance – I am overstating it – an interest penalty on staying in office.  That was a significant factor.

The other point – and this is illustrated by the numbers, most usefully, in Justice McHugh’s and Chief Justice Gleeson’s judgments – upon retirement, whether it be 10 years or later, the judge would be hit for the full amount of the surcharge but face only the annual pension entitlements, or be entitled to only the pension entitlement, and in some cases though the worst‑case scenario would be that the surcharge would gobble up the pension entitlements for up to four years to come – so it was found, inferred, a significant disincentive to taking judicial office in those circumstances.  The attraction of the judge’s pension was dramatically reduced for the class of persons, the kind of persons, who would otherwise be attracted to judicial office.

That, in essence, your Honours, is the practical problem that was identified – those two practical problems identified in Austin.  They led to the conclusion of a substantial or significant impairment of the ability of the State of New South Wales to recruit and retain its judges.  That is really what the case decided.  In a sense, the elephant in the room, your Honours, lies in the discussion at paragraphs 57 to 58 of the joint judgment. 

This is a discussion of the superannuation guarantee legislation which has been with us since 1992.  That is, of course, legislation which requires an employer to pay on behalf of an employee a stipulated percentage of salary into a complying superannuation fund.  It started at 3 per cent and later became 9 per cent, but it is binding on all employers throughout the country and it is and has been since 1992 binding on States, that is, it directs States, along with every other employer in the country, to include as part of a remuneration package in the broad sense the superannuation guarantee.  It has not been suggested in the years of its operation, it was not suggested in Austin,in our respectful submission, could not be suggested that ‑ ‑ ‑

HAYNE J:   It was not an issue, as is apparent from the end of paragraph 58.

MR GAGELER:   Exactly, your Honour.  The interesting thing here is that it – I am really moving now to the SBS and SSS schemes.  Those were schemes that were set up by the State of South Australia so as to be able to give effect to its obligation as a general employer under the superannuation guarantee legislation.  You see that in the specific terms in which those schemes are set up.  Perhaps I could move to the SSS and SBS schemes. 

If your Honours have the tab 5.2 of the appellant’s written submissions and go to section 14.  To just take the general position set out in subsection (1), what you see is that this is a residual scheme, as was the SBS scheme before it, set up so as to ensure that the Crown would be able to pay the superannuation guarantee charge in respect of persons it employed.  If you trace through the definitions in section 26, what you find is that the scheme, in its ordinary operation, in its general operation, was set up to facilitate the payment of the superannuation guarantee amount.

That is, if you look at the definition of “charge percentage” as set out earlier in section 3 it relates back – there are many complications, of course – but it relates back to the superannuation guarantee required by the Commonwealth Act, the Commonwealth Act being defined as a Superannuation Guarantee (Administration) Act.  This is a general scheme set up by the State to enable it to make its first 3 per cent then 9 per cent contributions for all of its employees, other than those covered by specific schemes, to make a payment into a complying superannuation fund.  That is what this scheme is about, as was the SBS scheme, but I do not want to go to the detail of that.  You see the same sort of definition in section 4(1) of the SBS scheme.

Now, what the Court was shown, quite correctly, by Mr Heywood‑Smith on the first day of argument at pages 17 to 18 of the transcript was that the particular category of employees within which Mr Clarke fell attracted a specific rate of contribution which appears, for some reason that is not disclosed by any of the material, to have stayed at 3 per cent which was the original superannuation guarantee amount.  It simply does not emerge why it stayed at 3 per cent.  It appears to have stayed at 3 per cent and that perhaps does not – why it stayed at 3 per cent probably does not matter.  Once paid into this general scheme, however, it is apparent from the face of the legislation that the 3 per cent was dealt with in exactly the same way as any other contributions – superannuation guarantee contributions – by an employer, by the State as employer, for one of its employees was dealt with.

Just again looking at the SSS scheme, what happened was that it was put into an account under section 27, at least an account was kept.  It was called an “employer contribution account”.  The employer contributions were paid in under section 27(2), interest was added under section 27(3) and it was debited for administration fees under section 27(7).  You see the same basic scheme in the SBS Act, sections 7 and 8.

The only relevant benefits under this scheme were then lump sum benefits.  They were payable, relevantly, under section 31 on retirement or section 32 on resignation.  What was payable then is the defined thing, “the employer component”, which is defined in section 30 in relation to a member as being “the amount standing to the credit of the member’s employer contribution account”.  That is the employer contributions, plus interest, less administration fees that one gets from section 27.

Now, that is just a classic accumulation scheme of the kind that can be set up, and set up all around Australia by industry superannuation providers and as with any other accumulation scheme it is, by the protected funds legislation, taxed by reference to surchargeable contributions - which is simply the employer contributions - and taxed at the same rate of 15 per cent as any other privately established, or publicly established for that matter, accumulation scheme. That is to say, if you look at section 9(2) of the Protected Funds Assessment Act and compare it with section 8(2) of the general Superannuation Contribution Assessment Act, you see it works in exactly the same way. If you compare sections 4 and 5 of the Protected Funds Imposition Act with sections 4 and 5 of the general Imposition Act, you see they work in the same way at the same rate.

The only difference, your Honours, between the position of any accumulation fund and the position of a constitutionally protected accumulation fund is a question of who pays and when, that is upon whom there is a liability to pay for, and when does it fall. For the general Act, the liability fell on the superannuation provider, that is section 10(2), and it was payable by the superannuation provider annually. That is section 15(3). In the ordinary course – there is no evidence of this, but perhaps this falls within one of those self‑evident assertions from the Bar table that can be made – in the ordinary course one would expect the superannuation provider to debit the amount to the account of the member of the superannuation fund.

That will not be necessarily in every case precisely the position, but that would confidently be expected to be the general course, indeed the very design of the SIS Regulations, which any complying superannuation fund must comply with – I think that is the definition; that is why they are complying superannuation funds - to which we have referred in paragraph 6 of our supplementary submissions, those regulations are designed to facilitate the debiting of members’ accounts to reflect the superannuation surcharge payable by a superannuation provider.

So that is the general position; payable annually by the superannuation provider and, one would ordinarily expect, debited to the account of the member at that time.  What happens at the end?  You just have a smaller lump sum at the end, smaller to reflect the amount of the superannuation surcharge which has been paid annually.  For the constitutionally protected schemes, the liability to pay, as your Honours have seen, falls on the employee.  That is section 11 of the Protected Funds ‑ ‑ ‑

GUMMOW J:   What is the genesis of this phrase “constitutionally protected”?

MR GAGELER:   I do not know if your Honour has the SSS Act close to hand but it is behind tab 5.2 of the appellant’s submissions.

HEYDON J:   I am finding it very hard to hear you, Mr Solicitor.  Could you speak up a little?

MR GAGELER: Yes, of course, your Honour. If you turn to section 4(2) you see what could legitimately be regarded by the Commonwealth as a flag that section 114 of the Constitution may be involved. So “constitutionally protected” refers to section 114 of the Constitution. That is the origin of the terminology.

HAYNE J:   Just before you come to treat the difference in treatment by the constitutionally protected funds schemes, can I just go back to an anterior point.  Is it relevant to understand how it is that the superannuation guarantee charge liability is engaged for the purposes, for example, of section 14(1) of the SSS Act?  Section 14(1) is hinged about liability to pay a superannuation guarantee charge, is that right?

MR GAGELER:   Indeed, yes.

HAYNE J:   Does that then throw you back into the Superannuation Guarantee (Administration) Act 1992 (Cth)?

MR GAGELER:   It does.

HAYNE J:   Which appears at tab 2 of the Commonwealth legislative materials, is that right?

MR GAGELER:    Not in its totality, but there are extracts there, yes.

HAYNE J:   No.  But is what engages 14(1) in this case the provision of section 12(5) of that Act?

MR GAGELER:   Yes, that is correct.

HAYNE J:   Thus it is the Commonwealth Act which gives a meaning to “employee” in that fashion which engages the Guarantee Act which in turn engages the SSS Act, is that right?

MR GAGELER:   That is absolutely correct, yes, just as in respect of the fringe benefits payable to Members of Parliament are encompassed, yes.

HAYNE J:   But the stream into which all this ultimately goes is into the CPF schemes, the constitutionally protected fund schemes.  Is that right?

MR GAGELER:   It is a matter for a State to decide, obviously, how it chooses to comply.  The way in which it sets up a complying superannuation fund is a matter of legislative choice, as indeed it is a matter of choice for any employer to an extent, yes.

HAYNE J:   In this case it heads off into a constitutionally protected fund.

MR GAGELER:   That is correct, yes.

HAYNE J: Where there is a section 114 question.

MR GAGELER:   That is right.  That is the source of the difference.  It is entirely the source of the difference.

HAYNE J:   And the foundation for the differential treatment.

MR GAGELER: And the foundation for the differential treatment. It was the obligation and the choice of the State to put it in a section 114 fund, yes. I have described the general way in which accumulation schemes are dealt with under the general Act. If you then come to the constitutionally protected schemes, as I said, the only difference is who pays and when. The who pays is the member, the liability to pay falls on the employee in the terminology of the Protected Funds Act, that is section 11, and the liability to pay arose not annually, but at the point that the lump sum became payable. That is section 15(6). So that is the difference. The question for constitutional purposes is ‑ ‑ ‑

HAYNE J:   The amount to be paid is constituted differently because it is accruing interest.

MR GAGELER:   It is accruing interest at the 10‑year bond rate. 

HAYNE J:   Yes. 

MR GAGELER:   It will be different, but whether it is more or less – I mean, it has not been accumulating interest in the fund.  You see, that is the difference.  If your Honour is looking at the amount ‑ ‑ ‑

HAYNE J:   No, no – I am simply concerned to understand that, compared with the general stream, if I may call it such, there is an annual payment in which there is not a component of interest.  Is that right?

MR GAGELER:   Indeed, yes.  But what happens is the fund then gets reduced.

HAYNE J:   Yes, and we can go off into economic equivalence if you want.  But the sum to be paid under the CPF schemes is constituted differently in that it is principal plus compounded interest at bond – long‑term bond.

MR GAGELER:   Indeed, entirely. Your Honour is absolutely right.

HAYNE J:   And it falls on the member, not on the fund.

MR GAGELER:   Yes.

HAYNE J:   Are those the chief differences?

MR GAGELER:   They are the differences – and the time.

HAYNE J:   Yes.

MR GAGELER:   Three differences.  The second one is, is the amount of the interest practically significant?  In our submission, you have to take into amount that in the ordinary accumulation fund ‑ ‑ ‑

HAYNE J:   You might give a different answer last year from the answer you have to give this year, Mr Solicitor. 

MR GAGELER:   It depends.  It depends on market rates of interest.  All one could have said before serious recent global circumstances, I suppose, was that generally the market returns would be expected to exceed the 10‑year bond rate for the simple economic reason that the 10‑year bond rate is a low risk rate. 

The real question, the substantial question for Melbourne Corporation or Austin purposes then becomes, well, does this liability to pay the surcharge with the 10‑year bond rate interest that arises at the time of payment of the lump sum upon retirement somehow constitute a disincentive to stand for Parliament or to remain in Parliament.

In our submission, there is not even a theoretical argument that can be made to that effect, not even a theoretical argument.  Whenever the liability to pay the surcharge arises, that is, upon the payment of the lump sum, the amount is going to be there to pay it.  By definition, it is only ever going to be 15 per cent, plus a bit of interest on the lump sum.  That is it.  In our submission, it works substantially in no different way from the general position and cannot be described as creating in any way a disincentive to remain in office.  That deals with the SSS and the SBS schemes.

Turning then to the PSS scheme, your Honours recall that it is created by the PSS Act which your Honours have as tab 2 of our bundle of South Australian ‑ ‑ ‑

HEYDON J:   Mr Solicitor, I am sorry to interrupt now that you are moving on, but paragraph 7 of the submissions for New South Wales - the written ones - how do you reconcile them with your last submission about disincentives being merely theoretical and not really likely to deter people from standing for Parliament or continuing in Parliament?  Take (v):

The deferred tax may approximate the whole of the pension for the first year –

Compare and contrast the Austin position where it might have been two years or it might have been four years for some people, but it is not a merely trivial thing.

MR GAGELER:   No.  Can I answer that in two parts, your Honour?  Paragraph 7 is dealing with the PSS scheme, not the SSS and SBS scheme, so I am about to come to the PSS scheme.  That is part of my answer.  The other part of the answer, in particular, in response to (v) is that one of the – it is correct, as far as it goes but the agreed fact, the useful agreed actuarial bit of evidence in the present case is that the commutation which has always been available under section 21 of the State Act would always be sufficient to allow for the payment of the superannuation charge when it fell due and that was ‑ ‑ ‑

HEYDON J:   With a much lower pension.

MR GAGELER:   Pardon, your Honour?

HEYDON J:   After commutation there would be a correspondingly lower pension.

MR GAGELER:   Of course.  As with anyone who pays 15 per cent or in respect of whom a 15 per cent surcharge is paid, the consequence is going to be a lower pension going forward.  Your Honour, I am about to deal with the PSS Act.  Coming to the PSS Act, the entitlement to a pension arises, as your Honours recall, under section 16 – I think it is actually tab 1, your Honours, I have misled you – and your Honour Justice Gummow may note section 13(2) of this Act has that same constitutional protection element built into it, that is why this becomes a constitutionally protected fund, but section 16 creates the entitlement and it is section 17 which then defines the amount of the pension.

Within the meaning of definitions that one finds in both the general Superannuation Contributions Assessment Act and the Protected Funds Assessment Act, this particular scheme, that is the PSS, is both a “defined benefits superannuation scheme” and an “unfunded defined benefits superannuation scheme”.  It has been declared by the regulations to be an “unfunded defined benefits superannuation scheme” and those regulations your Honours have as tab 6 of the Victorian bundle. 

What you see in the schedule there is a whole list of unfunded defined benefits superannuation schemes.  It was an agreed fact noted in Austin that they are all public sector schemes.  That was noted in Austin at paragraph 60, but what your Honours will see is that there are actually quite a lot of unfunded defined benefits superannuation schemes.  When you compare that list of unfunded defined benefits superannuation schemes with the list of constitutionally protected schemes which your Honours have seen in the regulations behind tab 1.3 of the appellant’s written submissions, what you will see is not a precise correlation but an overlap.

So some unfunded defined benefits superannuation schemes are going to be set up as a matter of legislative choice within the consolidated revenue of the State and that is how they become constitutionally protected superannuation funds, or that is why they become constitutionally protected funds, within the scope of this legislation.  The point I am leading to here is that there is a range of unfunded defined benefits superannuation schemes.  One of the schemes within that range is the Commonwealth Parliamentary Contributory Superannuation Scheme, aspects of which your Honours were taken to yesterday, but there are others.  That is the starting point.

The next point, your Honours, is if you were to compare – I do not ask your Honours to do anything other than note at the moment – section 9(4) and following of the Protected Funds (Assessment) Act with section 8(3) of the general Superannuation Contribution Assessment Act and the following provisions and if you compare sections 4 and 5 of the Protected Funds (Imposition) Act with sections 4 and 5 of the general Imposition Act, then what you find is wherever you have a defined benefits scheme, whether it is constitutionally protected or not, whether it is unfunded or not, then the notional superannuation surcharge contributions are going to be calculated according to the same methodology as to assumptions – as to whether they are married or not married or the probability of being married, et cetera – and the tax rate will be exactly the same, 15 per cent.

So whenever you have a defined benefits scheme, there are going to have to be some actuarial assumptions to calculate the notional rate.  There is a standard methodology for dealing with those actuarial assumptions and the tax rate will be the same.  The only difference with an unfunded defined benefits scheme that is not constitutionally protected when compared with an unfunded defined benefits scheme that is constitutionally protected is who is liable to pay.  To take your Honour Justice Hayne’s point, who is liable to pay with the 10 per cent long‑term bond rate of interest added?

The timing of payment in respect of an unfunded defined benefits scheme is exactly the same whether it is constitutionally protected or not constitutionally protected. What your Honours will see is that if you go to the general Assessment Act, which is behind tab 3 of our submissions, you see that by virtue of the normal operation of section 10(2) the superannuation provider would be liable to pay, that under section 15(1) there is an annual assessment and under section 15(3) the surcharge is payable within a month of the annual assessment, but that is unless section 16 applies.

Section 15(3) is the general position for accumulation funds, but section 16 deals with the particular position of an unfunded defined benefits scheme.  In a case of an unfunded defined benefits scheme it is section 16(6) that determines the timing of the liability to pay and the substantial point is that the timing of the liability to pay is exactly the same under this general scheme as one finds under the particular protected funds provisions that your Honours have already looked at.

HAYNE J:   Is it possible under the SIS Act to have a complying fund, that is, an unfunded defined benefits scheme, that is not a public scheme?  Can you have a private unfunded defined benefits scheme that is complying under the SIS Act?

MR GAGELER:   I will have to take that one on notice, your Honour.  I will let you know.  I just do not have it.

HAYNE J:   I think it depends upon the operation of section 45 of the SIS Act.  I suspect, but do not know – I would be glad of your submission – that the answer is you cannot and that the only unfunded defined benefits schemes that are complying schemes are government schemes.

MR GAGELER:   That is the fact, your Honour, that was the agreed fact in Austin noted in paragraph 60.  Whether that is a result of economic circumstances or of regulatory restrictions is what I cannot tell you.

HAYNE J:   The penalties if you are not a complying fund under the SIS Act are – the economic consequences, shall I say, of not being a complying fund are large, are they not?

MR GAGELER:   Absolutely, but if your Honour’s question is going to “Could you have outside the public sector an unfunded defined benefits scheme”, the reality is that you do not.  Your Honour, I will have to take that on notice.  I do not ‑ ‑ ‑

HAYNE J:   Yes, of course.

MR GAGELER:   I will take it on notice and provide your Honour with a note.  So that is the difference; it a difference of who pays.  That is the difference, and of the accumulation of interest.  The practical question addressed in Austin still remains obviously, and the practical question in respect of the PSS Act really comes down to asking does the liability to pay the 15 per cent surcharge plus interest that falls on a Member of Parliament at the time his or her pension becomes payable under section 16 of the PSS Act at the rate set out in section 17 of the PSS Act create some substantial disincentive to take or to stand for office or to continue in office?  Does that substantial disincentive then amount to a significant impairment of the ability of the State of South Australia to attract and retain appropriate people as parliamentarians?  That is basically the question.

Your Honours, it is the case - and I accept this tendency, your Honour Justice Heydon – it must be the case that the cap on benefits, that is the 75 per cent cap on benefits that cuts in after 20 years of service by section 17 of the PSS Act, of itself creates a natural commercial disincentive or economic disincentive to continue as a parliamentarian after 20 years, just as the entitlement to a pension after 10 years in Austin, naturally, by virtue of that very structure, creates a disincentive to continue in office after 10 years.  The reason is, obviously, that the value of the pension - just by virtue of the life expectancy decreasing – is decreasing whenever you are staying in office.

That is built into this system after 20 years for a parliamentarian just as it was built into the system after 10 years for a judge.  So there is that disincentive to remain in office after a different period of time and the accumulation of interest under the surcharge will compound that disincentive commercially or economically in exactly the same way as it compounded the disincentive in Austin.

I must accept that.  That is just the way it works.  The question is, is it a real problem?  There is just nothing to show that that increased disincentive after 20 years in Parliament amounts in any way to a real problem.  For the period up to 20 years, of course, we do not even know if there is a disincentive.  There is a formula.  We know how you calculate it.  No doubt a person with appropriate actuarial ability could have told us whether there is a disincentive before you get to 20 years but we have nothing in the record about that.

HEYDON J:   What was there in Austin that in a specific way supported the disincentive?  I appreciate in 10 years and 20 years there is a difference favourable to you, no doubt, but what was there in Austin about the impact on early retirement of a specific kind, as distinct from general inferences one would draw from one’s knowledge of human nature?

MR GAGELER:   There were some fairly precise numbers and the bottom line is in those paragraphs, paragraph 8 of the Chief Justice’s judgment, 263 to 264 of Justice McHugh’s judgment which basically showed that if a judge in a typical case stayed on for an extra 10 years, from 10 years to 20 years in office, then the superannuation surcharge, by virtue of the interest, would have increased I think by about a quarter of a million dollars, your Honour, from memory.

HEYDON J:   One question would be, how many judges affected by the surcharge had decided to retire at the earliest possible moment during the regime when it applied to the States?  There was no evidence about it?

MR GAGELER:   There was no evidence about it.

HEYDON J:   Nor is there here?

MR GAGELER:   No.

HEYDON J:   So it is simply a question of an appeal to one’s understanding of the world and the natural selfishness of the human heart?

MR GAGELER:   I do not like to think in those terms, your Honour, but that may be so.  Can I put it more kindly.  It is really a matter of the judicial understanding of the nature of the office and the sort of persons who are attracted to the office.  That was not insignificant.

HEYDON J:   That is an unpalatable method of distinguishing Austin’s Case.  Judges know a lot more judges than they know politicians or members of legislative assemblies, but I do not know that one can take that into account.

MR GAGELER:   An inference was drawn in Austin as to the substantial effect of this and another aspect of the operation of the superannuation surcharge to which I will come.  An inference was drawn, and we do not quibble with it, that that was having a substantial detrimental effect on the ability of the State of New South Wales to attract and retain judges.

What was that based on?  It was based on a number of factors, of which one can be fairly confident.  One is that judges are typically appointed from the higher ranks of the legal profession and typically upon taking judicial appointment, giving up a lucrative stream of compensation.  Compensation is relevant. 

Secondly, they are typically appointed later in life when pension entitlements are significant.  Thirdly, within the constitutional structure – there is a basic difference between the position of politicians and the position of judges, constitutionally, in that judges within our system are appointed to a maximum retirement age and it is an aspect of the constitutional structure that they have continuity in office, that they be encouraged to continue in office for a term, whereas a parliamentarian does not hold office with that sort of security of tenure.  Indeed, the whole idea of the parliamentarian is that the parliamentarian holds office at the will of the electorate from time to time.

They are differences that are going to, in the ordinary scheme of things, one would expect, be likely to cause greater difficulty in retaining a judge in office than retaining a politician in office as a result of the surcharge.  That is greater difficulty for the State in retaining a judge in office after 10 years than is caused for the State in retaining a politician in office after 20 years.  That is about as good as I can do in answer to your Honour’s question.

Is there a real problem with a politician in that respect?  Well, in our respectful submission, any problem is entirely theoretical or speculative, and that is after 20 years.  In the period up to 20 years we simply do not know.  Nobody has done the math to tell us about the economic incentives or disincentives in the period up to 20 years.  That is one aspect of the operation of the surcharge.  The other aspect of the operation of the surcharge which was significant in Austin was being hit for the lump sum at the commencement of retirement and only having the relevantly limited income stream from the pension into the future to pay for it.

That is just a problem that does not arise and never did arise under this legislation, under the PSS Act, and it never arose because there was always a provision for commutation, section 21, and because agreed fact 28 at page 8 of the appeal book was that the amount of the commutation would always be enough to cover the payment of a surcharge.  So it could always result in the surcharge being paid and then, obviously, a smaller pension continuing into the future.

That is exactly the way in which, as the Commonwealth legislation to which your Honours were taken yesterday shows, Commonwealth politicians paid the surcharge in respect of their parliamentary pensions, that is, the surcharge was levied at exactly the same time and at exactly the same rate by virtue of the calculations made on the standard methodology.  It was

paid by the superannuation provider and resulted in a lower pension into the future.  There is simply no difference of any substance. 

It is true – there was a point made about timing – that you could get the position under the South Australian Act that the notice to require payment under section 15 of the Commonwealth Act came in after the period for which commutation was available under section 21, so you would not know the precise amount by virtue of that notice, but what you would know by virtue of annual notices is pretty close to what it would be.  It is simply the annual assessments plus the 10‑year long‑term bond rate.  You could always tell. 

Is it a real problem that you may not have had the notice before the period for which commutation was permitted came to an end?  There is simply nothing in the materials to suggest, in our respectful submission, that it was a real or significant problem.  True it is that the legislation was amended so as to remove any potential timing difficulty and so as to allow for a more favourable rate of commutation.  That is section 23AA, as it now is.  It was formerly section 21AA.  Your Honours have been taken to that.  It shows certainly the State responding to the surcharge. 

It does not in itself constitute impairment of constitutional functioning in the Melbourne Corporation sense and in itself it does not show, in our respectful submission, that there was previously a substantial impairment.  To say that people in the fund are better off as a result of the amendment does not show in itself that they were so badly off before the amendment that there was an impairment of the capacity of the State of South Australia to attract and retain parliamentarians.  Your Honours, those are our submissions.

FRENCH CJ:   Thank you, Mr Solicitor.  Yes, Mr Heywood‑Smith.

MR HEYWOOD-SMITH:   If the Court pleases, I think I can reply briefly.  The appellant obviously refers the Court to its written reply to the Commonwealth’s submissions.  There was handed up to the Court this morning the supplementary submission by my learned friend.  We were only provided with it immediately prior to the Court sitting, but we have had the opportunity of briefly considering it.  There is one matter that we would perhaps invite attention to and that is paragraph 5.

There is a suggestion that the submission put by the appellant that section 35AA addressed a need for access to the lump sums payable pursuant to the SSS Act in that it might not be payable to somebody who retires prior to the age of 55 and there is a suggestion in paragraph 5 that that is not a problem because section 15(6) of the Protected Funds Assessment Act would not make the sum payable until the age of 55 in any event.

We question that for this reason.  Appeal book 163 is the letter from the Commissioner to Mr Clarke disallowing the objection and on page 163 one sees that the calculation of the surchargeable amount is a cumulative exercise – in other words, it adds the benefit being received under the SSS Act to previous benefits under the SBS Act and to the benefits under the Parliamentary Superannuation Scheme, and as soon as there is an entitlement, in our submission, under any one, which there was in respect of the Parliamentary Superannuation Act, then it would appear that the Commissioner regarded liability as then being in existence.  So we question whether that submission is the appropriate one.

My learned friend has drawn attention to statement of agreed facts paragraph 28 and to the fact that it was agreed that for any member of the State Parliament at any time, both to that point in time and as projected into the future, it would be the case that that member would have sufficient moneys capable of being commuted to discharge any possible liability under the Protected Funds Assessment Act.

That paragraph 28, however, must be informed by Ms Antcliff’s report.  I do not intend to take the Court through the report now, but I would simply invite the Court to note that Ms Antcliff’s exercise proceeded solely in respect of a living member, that is, a member alive at retirement and alive at the time of receipt of a section 15(7) notice.  Ms Antcliff was not asked and did not do calculations associated with the other scenarios, that we are aware of, of death by a member both in office and after office and having regard to the reduced entitlements that necessarily flow from that.  So we simply draw the Court’s attention to that possible restriction.

Our learned friend addresses the issue of the differential treatment of the Protected Funds Assessment Act from the general surcharge legislation – and also the question of a possible differential treatment to be accorded to Justice Austin in the Austin Case and to Mr Clarke in this case – and suggests that the Court in Austin had before it material with the court Clarke did not have and our learned friend yesterday prior to the adjournment referred to the Court to these paragraphs from the judgment in Austin, paragraphs 88 to 89, 91, 169 and 231 to 232. 

Those paragraphs certainly do refer to the actuarial materials before the Court in Austin.  They are the three majority judgments referring to it separately, but when the Court goes to it, you will see that the references are not to great detail and we would invite the Court to consider, in fact, the substantial information that is contained in Ms Antcliff’s expert report, particularly in attachment 9, page 73 of the appeal book, which we say, to a substantial degree, informs the Court of the operation and effect of the surcharge legislation on a Member of State Parliament.  I simply refer the Court to that, I do not intend to take the Court through it in depth. 

The submission that we urge upon the Court is that when the Court in Austin considers the differences flowing to the recipient of superannuation entitlements as a judge of a New South Wales court, it does so in its descriptions – the Chief Justice in paragraphs 11 and 14, the joint judgment in paragraphs 169 and 170 and Justice McHugh at paragraph 229 – in very general terms going principally to the fact that it is the member and not the superannuation provider and to the timing of the discharge of the liability to establish the differential treatment that, in our submission, engaged the Melbourne Corporation principle in respect of this high office holder group.  It is not, in our submission, necessary for this Court to be doing the sorts of comparisons that are being invited.

GUMMOW J:   Mr Heywood-Smith, could you look at the transcript, if you have got it handy, for the first day, paragraph ‑ ‑ ‑

MR HEYWOOD-SMITH:   I am sorry, your Honour, I do not actually have that.

GUMMOW J:   Line 945.  I asked you a question about the New South Wales submissions.  It is page 22.  There is a reference there to paragraph 7 of New South Wales and you said you were in agreement with that.  Justice Heydon raised paragraph 7 this morning with the Solicitor‑General of the Commonwealth and one of his responses was, well, paragraph 7 only deals with the PSS.  If you look at the text of paragraph 7 you will see that is right.  The reason why it did that, I think, appears from paragraph 2 of the New South Wales submissions, namely, 93 per cent of the contributions were under the PSS.  Do you see that?

MR HEYWOOD-SMITH:   Yes, I see that.

GUMMOW J:   There are the other two schemes there.  What one would be grateful for is some consideration in a note to come in as to the application or non application of the reasoning in paragraph 7 as to the PSS as to the other two schemes.  You see what I am getting at?

MR HEYWOOD-SMITH:   Yes.  We would be obliged to your Honour to be asked to do that.

GUMMOW J:   If that can be taken on board.

MR HEYWOOD-SMITH:   Yes.  Thank you.  Our learned friend drew attention to the fact that the scheme addressed in the Austin Case was an

unfunded defined benefits scheme, totally surplus to how our learned friend sought to use that, but we do remind the Court, in case there is any confusion about it, that whilst it is clear that the Parliamentary Superannuation Scheme at the commencement of the Protected Funds Assessment Act was an unfunded scheme, it is also clear, having regard to the amendment in 1999, apparent in tag 3.4 of the appellant’s materials, that it ceased to be an unfunded scheme.  I think those are the only matters that I would refer the Court to.

FRENCH CJ:   Thank you, Mr Heywood-Smith.

MR HINTON:   If the Court pleases, I have nothing by way of reply.

FRENCH CJ:   Thank you, Mr Solicitor.

MS TATE:   May it please the Court.  In the light of the Commonwealth’s supplementary submissions we seek leave to prepare a note in response within seven days to paragraphs 14 to 20 of those supplementary submissions.

GUMMOW J:   What is so offensive about 14 to 20, Solicitor?

MS TATE:   Your Honour, they relate to the legislation which applies to federal parliamentarians with respect to superannuation and they make mention of the submissions of Victoria, your Honour, principally, in those paragraphs and there is also an annexure which is referred to in paragraph 18 and we would seek leave to respond to that annexure in addition, your Honour.

GUMMOW J:   In Austin itself there was a reference to – at paragraph 72 – the treatment by the Commonwealth of federal judges.

MS TATE:   Yes, your Honour.

GUMMOW J:   What you are saying is it is not the same when you are looking on the one hand at State parliamentarians and federal parliamentarians and you want to dispute to some degree what is being said by the Commonwealth.

MS TATE:   We may not be in dispute to any great extent, your Honour, but we would like the opportunity, having just received these submissions as we walked into Court, to respond to those paragraphs.

FRENCH CJ:   Yes, you will have that leave, Solicitor.

MS TATE:   Thank you, your Honour.

FRENCH CJ:   In relation to the note requested from Mr Heywood‑Smith and any response to that – your note should be within 14 days, Mr Heywood‑Smith.

MR HEYWOOD‑SMITH:   Certainly.

FRENCH CJ:   I am sorry, Mr Solicitor.  Yes?

MR GAGELER:   No, I thought you were going to address me.

FRENCH CJ:   I was just going to make one other point that I think you are going to give some advice in relation to the position of private unfunded defined benefit funds?

MR GAGELER:   Correct.

FRENCH CJ:   Yes.

MR GAGELER:   And presumably respond to Mr Heywood‑Smith?

FRENCH CJ:   Indeed, yes.  All right, so if we have, Mr Heywood‑Smith, your note within 14 days and any response to that, Mr Gageler, seven days thereafter?

MR GAGELER:   Yes, your Honour.

FRENCH CJ:   The Court will adjourn now to 9.30 am tomorrow in Sydney.

AT 11.57 AM THE MATTER WAS ADJOURNED