Clarke v Commissioner of Taxation

[2009] HCATrans 42

[2009] HCATrans 042

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 WEDNESDAY, 11 MARCH 2009, AT 10.19 AM

(Continued from 10/3/09)

Copyright in the High Court of Australia

FRENCH CJ:   Yes, Mr Heywood‑Smith.

MR HEYWOOD‑SMITH:   If the Court pleases.  There is a request that the parties seek to identify precisely the documentation that the Court should use.  Can I invite the Court to have regard to the two books provided by the Commonwealth.  The first of those books addresses Commonwealth legislative materials and the parties are agreed that each of those four pieces of legislation should be used save, however, in respect of item 1.  The tabs 1.2, 1.3 and 1.4 of the appellant’s submissions provide additional material insofar as the identification of Schedule 14 is concerned, in tabs 1.2, 1.3 and 1.4 the subsequent amendment of Schedule 14 to delete three of the Acts in the South Australian section, 501, the Electricity Corporations Act, 502, the Electricity Trust of South Australia Act, and 509, the Superannuation (Benefit Scheme) Act.

So far as the other book is concerned, that is the index of South Australia’s legislative materials, the parties agree that all of those five legislative instruments should be referred to or can be relied upon save and except additionally in respect of item 1.  In tabs 3.4 and 3.5 of the appellant’s submissions we have the amending legislation which in 1999 created the fund, the establishment of fund amending provision and in 3.5 the amendment which addressed the issue of commutation for superannuation surcharge.  So it is convenient for the Court to continue to have regard to those two items of amending legislation. 

Finally, what should be added to the Commonwealth’s book of South Australian materials is the appellant’s tab 4.1 which is the SBS legislation, the Superannuation (Benefits Scheme) Act legislation.  Then 5.1, which was the amending legislation which created the merger between the SBS and the SSS funds; 5.2, which is the Southern State Superannuation Act 1994, albeit that, as it appears in 5.2, the whole Act is not reproduced – we think that the Court will not see a need to have the whole Act but that can be provided if the Court wishes to have the whole Act – and 5.3 is the amending legislation which introduced section 35AA by which the South Australian Parliament sought to address the superannuation surcharge legislation, and the Court will be taken to that shortly. We think that those are the instruments that the Court can rely upon.

FRENCH CJ:   Mr Heywood‑Smith, can you give us an indication of roughly how much longer you expect to be?

MR HEYWOOD-SMITH:   I am very mindful of the fact that there are a number of people.  I am hoping to be less than half an hour, if the Court pleases.

FRENCH CJ:   We are obviously keen to avoid a situation where, so far as respondents and interveners are concerned, we get repetition so that presumably there will be some arrangement between the parties that the leading arguments will be put by one or two and supplementary propositions put by others.  It would be useful to have an indication of the existence of some such agreement by this afternoon and we would hope to finish the hearing of the appeal no later than about 3 o’clock tomorrow afternoon.  It is a matter for the parties to consider during the luncheon adjournment.

MR HEYWOOD-SMITH:   If the Court pleases.  At the adjournment I was addressing the Court on the application of Austin’s Case to the case at Bar and, in particular, addressing the issue of the impact of the Protected Funds Assessment Act upon the benefits, provision for which had been made by the South Australian Parliament for its Members of Parliament.  When we come to the decision of the Full Court, the Full Court will note that there is a suggestion that any impact of the Protected Funds Assessment Act, or Protected Funds Acts upon the entitlements to South Australian Members of Parliament was speculative and one of the points raised ‑ ‑ ‑

GUMMOW J:   That brings me back to the point I was trying to engage with you yesterday.  It is not a question of a clash between two sets of legislation; it is a question of interference with the constitutional power of the States to make provision with respect to their parliamentarians, is it not?  Of course this case has been looking closely at the particular State legislative structure because this comes as a tax case and your client was in a particular position, but in terms of principle, the question is, is there a curtailment or interference by the federal statute in a substantial manner with the exercise of constitutional power by the States? 

You do not necessarily answer that question simply by looking at the particular State legislative structure at any one instant.  That is a point made by Justice Starke in the Melbourne Corporation Case at page 75 of 74 CLR and by Sir Owen Dixon at pages 78 to 79 where he talks about the restriction of State action in the field chosen.

MR HEYWOOD‑SMITH:   With respect to your Honour, that is in fact the appellant’s primary submission to the Court, that there was in fact no warrant for the Federal Court to be having to assess or make a comparison between the impact or the effect of this legislation upon State parliamentarians and comparing it, for example, with the impact upon a New South Wales Supreme Court judge.  But to the extent that the Full Court did and sought to, we say, find some “practical disadvantage” our submission is (a) that there was no need for the court to do that, but if there was and having embarked upon the exercise, that court came to the wrong conclusions.

As briefly as I can I will indicate the basis why that was the case and in doing so particularly return to a question that your Honour Justice Heydon put to me yesterday concerning what the position was if a member were to die shortly after retirement.  It was suggested, however, by the Full Federal Court that there was no evidence in this case akin to the actuarial evidence in Austin as to the impact the legislation had on the judge in that case. The Commonwealth actuary in this matter prepared a report which was received and is addressed in statement of agreed fact 28, which appears at page 8 of the appeal book, and its conclusions were agreed.

The report itself appears at tag 2.1 of the appeal book. Ms Antcliff, the actuary concerned, was embarked upon an exercise of establishing that for any member at any time, either then or in the future, it would always be the case that by commuting their pension to their maximum entitlement pursuant to section 21 of the Parliamentary Superannuation Act there would be sufficient funds to discharge this surcharge liability.

Now, at page 77 of the appeal book, Ms Antcliff commences by calculating, towards the bottom of that page, the basic pension that Mr Clarke would have been entitled to.  If we turn over the page we see that, for example – and I think using 2000 is probably most convenient because the year subsequent to that there are some variations, but had he retired in the year 2000 after seven years in the Parliament he would have had a pension of $37,312.

Then if we go back to page 32 of the appeal book we see that in the first column the maximum liability as at 30 June 2000 was some $28,400.  We know that Mr Clarke could have obtained that $28,400 by commuting at $10 to one his pension so that he could commute $2,840 of pension to obtain that amount.  That is only, admittedly, some 8 per cent of his then pension entitlement, some would say a moderate percentage but it must be looked at in this context, that of course if Mr Clarke immediately after retirement perhaps wished to set himself up in business and had commuted his 60 per cent, leaving only 40 per cent of his pension, that reduction of $2,800 would assume a much higher percentage of the remaining pension.

Further than that, one has to look a little bit more closely because in Mr Clarke’s case, after seven years his pension entitlement is fixed but the amount of surcharge paid has only been after the preceding four years because the ‑ ‑ ‑

FRENCH CJ:   This all has to be really related to the impact on the constitutional functions of South Australia, does it not?  We are not so concerned with the minutiae of impact on individual.

MR HEYWOOD‑SMITH:   Quite so.

GUMMOW J:   Surely that must be right.

MR HEYWOOD‑SMITH:   That is right.

GUMMOW J:   What support do you seek to derive from the Australian Education Union Case 184 CLR 188, the passage at pages 232 to 233, beginning at about point 7:

At this point it is convenient –

and going over to about point 4 on page 233:

And, in any event, Ministers and judges are not employees –

Do you seek to adapt that or develop that in some way as to the position of parliamentarians?

MR HEYWOOD-SMITH:   Yes, we do, because what we say is that what the Court is there saying is that in respect of these high office holders, Ministers, judges ‑ ‑ ‑

GUMMOW J:   The Court there was not looking at the minutiae of what arrangements there were in place at a particular stage in Victoria with respect to these people.

MR HEYWOOD-SMITH:   No, but what the Court is at pains to say there is that in respect of these people the fixing of the terms and conditions of their engagement, including such matters as salary levels and whatever, are matters for the State and not for the Commonwealth.  Here I am simply seeking to indicate to the Court the extent to which the Commonwealth legislation did impact upon the arrangements that the State had put in place for the proper provision of Members of Parliament on their retirement and it is apparent, when one considers the surcharge and how it is to be met in various circumstances, that the impact was substantial and because it was substantial the sovereignty of the State in determining those matters of proper provision was substantially interfered with.

FRENCH CJ:   We can get the numbers out of your written submissions.  I think the more important issue would be if you were kind enough to address the issue of principle.

MR HEYWOOD-SMITH:   If the Court pleases.  Can I just, however, answer Justice Heydon’s question concerning the other scenarios.  If your Honour goes to the Commonwealth book but relating to State legislation, item 1, your Honour will see that the various possibilities are addressed from section 24 onwards.  In section 24 the legislation deals with the situation where the member has retired and is now a member pensioner and he or she then dies and then provision is made for his or her spouse.  One sees that there is a reduction to 75 per cent, which of course means that the amount of surcharge which is payable, which remains the same, becomes a higher percentage.

Section 25 covers the position where an old scheme member dies – that is, dies before retirement – and again addresses the entitlement of the spouse in that circumstance, again with 75 per cent of pension essentially, or the greater of I think two amounts, the other being 40 per cent of annual pension.  That position is addressed and, again, one can see that the impact of the surcharge is compounded.

Sections 28 and 29 essentially cover the situation of a member who dies either in or after retirement in circumstances where there is no spouse but there is an eligible child and section 31A addresses the situation where a member dies in office with no spouse or child and the Court can see that his or her estate is entitled to a commutation of two‑thirds of the notional pension.  There is no provision for the situation of a member with no spouse or child who dies after retirement, so that if such a member ‑ ‑ ‑

HEYDON J:   The debt exists, but there is no benefit?

MR HEYWOOD-SMITH:   The debt exists, no benefits.

HEYDON J:   All these horrible examples are designed to show that the pressure on individual people is such is that people would not be attracted to stand for the legislature and therefore the operations of South Australian Government are impaired.

MR HEYWOOD-SMITH:   Correct, if your Honour pleases.  South Australia contemplating this legislation then set about or attempted to ameliorate the situation and it did so by enacting, as appears in tag 3.5 of the appellant’s submissions, the ‑ ‑ ‑

FRENCH CJ:   This is 21AA you are taking us to.

MR HEYWOOD-SMITH: Section 21AA, but if the Court goes to 3.5 one sees that of course it is not just the Members of Parliament that it is addressing, it is addressing each of those Acts in section 14 that were South Australian Acts, but insofar as Members of Parliament are concerned, we have section 21AA and it is specifically there to address deferred superannuation contributions surcharge and it allows for a member within three months of the receipt of the section 15(7) notice to commute so much of his or her pension as will enable precisely that surcharge to be paid. Of course this may ‑ ‑ ‑

HAYNE J:   Be it so, the State has reacted in that way, it has passed the legislation, what follows from that fact for the argument about validity of that which was done by the Commonwealth Parliament?

MR HEYWOOD-SMITH:   Our submission is that, as in Austin, it was only used to indicate evidence of the fact of interference.  That is all.  But when we come to the Full Court’s decision you will see ‑ ‑ ‑

FRENCH CJ:   You indicate that is neither a necessary condition of invalidity and on that basis, putting it crudely, you attack the reasoning of the Full Court and you would not propound that it is sufficient to establish invalidity, it just is an indicator of the impact of the Commonwealth legislation upon governmental functions in South Australia.

MR HEYWOOD‑SMITH:   Exactly so, if the Court pleases.  My learned junior draws my attention to the joint judgments, reasons in Austin’s Case and to paragraph 172 that we say indicates the same matters your Honour has just put to me but, essentially, what this section 21AA did it enabled commutation to pay this particular tax. It enabled that commutation to occur, notwithstanding that the member may have already commuted to his or her maximum. It enabled commutation to occur outside the three months period that section 21 allowed for and in this particular case, for example, we know that the section 15(7) notice did not come for 18 months after retirement, and it enabled commutation by subsection (6) at a rate which was the realistic market rate and not at a rate of 10:1 which may be a punitive rate of commutation. I might also indicate section 23(3)(a) which enabled commutation as well for spouses under the ‑ ‑ ‑

FRENCH CJ:   You said 23(3)(a), do you mean 21AA(3)(a)?

MR HEYWOOD‑SMITH:   I am sorry, 21AA(3)(a) and (b).  I also, to the extent that it is of assistance, remind the Court that at the back of the appellant’s submissions are the second reading speeches in respect of the introduction of that legislation and also the second reading speech for section 35AA which related to the SSS scheme.  It is probably appropriate that I perhaps deal with that now.  Section 35AA appears in tag 5.3 of the appellant’s submissions and it is the introduction of a section into the SSS Act with, we say, this effect.

Section 35AA(1) essentially addressed the position of a member who has retired prior to age 55 and unable to access his or her lump sum entitlement pursuant to the SSS Act and section 35AA(2) addressed the situation of a member who has turned 55 or is about to turn 55 or is about to retire being 55 and enables provision to be made to address the surcharge liability and it enables, pursuant to subsection (5), commutation again at a realistic rate.

Section 35AAB addresses the situation of a member’s spouse in a similar position.  Our submission is that, when one considers the provisions of that amendment and the second reading speech – which also appears in the last section of the appellant’s submissions –the amendment was clearly for the purpose of facilitating access to lump sum benefits that might not otherwise be immediately accessible, and that were quite incorrectly construed by the Full Federal Court when it came to deal with the matter. 

So it is to the Full Federal Court that I now invite the Court’s attention. The decision of the Full Court appears, of course, in the appeal book at tag 4, but I can tell the Court that since the compilation of that book has been reported – and it is reported at (2008) 170 FCR 473, but I would ask the Court to allow me to use the version appearing in tab 4 of the appeal book. The Full Federal Court commences to address the issue of the third question, which is the question the subject of this Court’s consideration, from page 208 of the appeal book. For our purposes, we can commence by consideration from paragraph 107, where the Full Court addresses its attention to the practical question identified by Justice Starke. It then goes on to refer to paragraph 28 from the former Chief Justice’s decision in Austin that we have already gone to.

Paragraph 109 speaks of “four matters” which the joint judgment identified at paragraph 168.  It says “four” matters – there are five dot points, but I think that the last two dot points can perhaps be considered together; there might have been a mistake.  The first of those is said to be that:

if Austin J were to pay the surcharge during the tenure of his office, the interest of the State in providing an adequate level of remuneration would, to a significant degree, have been denied. 

The Court does not go on subsequently to address that issue.  We say it is of no significance in respect of the position here.  The second dot point, however, addresses the possibility of a disincentive to the judge to meet the public interest in retaining or continuing with his services after maximum possible time, and that topic is then addressed from paragraphs 113 to 116, in which in paragraph 116 it is suggested that:

no evidence was led –

in this matter –

as to any impact the surcharge may have on parliamentarians’ decisions about retirement –

The submission of the appellant here is that it is a rational consideration for this Court to simply look at the legislation and to perceive a disadvantage – and any disadvantage, to the extent that it is, may be, to a greater or lesser extent, a disincentive for any person contemplating a parliamentary career.  The third dot point that is identified ‑ ‑ ‑

HAYNE J:   In connection with that second dot point, what Justice Dixon said in Melbourne Corporation 74 CLR at page 84 at about point 9 of the page – namely, whether “the right to exercise such a choice”, that is the State’s choice of “machinery the system provides”:

Whether the right to exercise such a choice is of great or of small importance to the States is not a material matter for inquiry.

It is a question of power.  It is not a question of the consequences of enactment of legislation which is beyond power.  The question is, is the legislation beyond power, not what consequence it may have.

MR HEYWOOD‑SMITH:   If your Honour pleases, we accept – and that is the appellant’s case when the appellant suggests that the Full Federal Court inappropriately gave consideration to these matters.  The third dot point, which raised the question of providing remuneration at an appropriate level, is an issue which the Full Federal Court never came back to consider, in the context of this case; never came back to consider whether the State of South Australia had a legitimate interest in the provisions which it had made for its Members of Parliament and their dependants at or after their retirement from Parliament.

The fourth dot point addressed again this issue of the mode of – or the capacity to pay the surcharge at the time it became payable. I have effectively already addressed the Court on that issue when considering the impact of section 21AA. I think I can effectively conclude and summarise the appellant’s position in saying that it is the appellant’s position that the Full Court ought not to have engaged in this comparative exercise. There is no basis for distinguishing State Members of Parliament from State judges insofar as the application of the Melbourne Corporation principle is concerned.

The appellant in this case was not, by reason of section 21 of the Parliamentary Superannuation Act, in the same position as other high income earners.  They did not incur personal liability and neither did they, in commuting an entitlement in order to discharge a liability, have to do so on a biased commutation factor.  Our submission that I think was made

yesterday was that once the court starts getting into these sorts of comparative exercises one is creating a situation where validity of the Commonwealth legislation might be considered to rise and fall upon the provisions particular States have made in respect of particular office holders.  I think I have made that point.

In our submission, in summary, the appellant was a member of the South Australian Parliament.  The Protected Funds Act singled out State Acts which spoke to his remuneration by the State and the provision the State had made for his retirement.  Such singling out constituted an impermissible interference pursuant to the Melbourne Corporation doctrine because of these steps. The Constitution established a federal system of government. Each State depends upon its essential organs of government. Those organs depend upon their officials and those officials depend upon their emoluments.

Those last four matters I have taken from Justice Brennan in the Second Fringe Benefits Tax, as I have indicated, in the joint judgment in Austin at paragraph 166 to which their Honours made reference. It is for the States to determine the terms and conditions of those emoluments and the subject Acts purported to interfere or infringe upon the States’ addressing of those emoluments. If the Court pleases.

FRENCH CJ:   Thank you, Mr Heywood‑Smith.  It would seem that the appropriate order from this point will be to hear from the Solicitor for South Australia followed by the State interveners and thereafter by the Commissioner and then the Commonwealth intervening and then reply.  We will hear from South Australia.

MR HINTON:   If the Court pleases.  Can I commence by taking the Court to the written submissions for the Attorney‑General for South Australia and, in particular, to paragraph 27.  Paragraphs 27 through to 29 contain South Australia’s first complaint regarding the judgment.  I intend to rely upon our written submissions with respect to that argument.  I also adopt Western Australia’s argument at paragraph 49 of their written submissions and Victoria’s at paragraphs 43 to 51.

With respect to our second argument as to the validity of the decision of the Full Court, again, I do not intend to supplement what we have written at paragraphs 30 to 33 with any oral submissions.  I rely upon those that we have written.  I adopt the appellant’s submission at paragraphs 27 to 33 of their written outline, Western Australia’s at 24 and Victoria’s at paragraphs 52 and 53.  With respect to our third argument, over the page, paragraphs 34 through to 37, again, I do not intend to make any oral submissions.  I adopt, in addition to what we have written, what the appellant has said and what appears at paragraphs 37 to 42 of their written outline, what appears at Western Australia’s outline at paragraphs 5 to 11 and 36 to 48 and, indeed, in Victoria’s written submissions at paragraphs 57 to 59.

At paragraphs 38 through to 43 we identify the correct approach. 
Again I am content to rely upon our written submissions.  The same submissions were touched upon by the appellant and, indeed, appear in Western Australia and Victoria’s written outlines.  What I wish to develop is the alternate argument that appears at paragraphs 44 through to 54 of our submission.  That alternative argument was one that was put to the Full Federal Court but does not feature anywhere in the reasons.  That alternative argument can be summarised by the following five propositions.

Firstly, one manner in which the Melbourne Corporation doctrine may be expressed is the that legislative power of the Commonwealth cannot be used to destroy the States’, and one finds, particularly in the judgment of Justice Starke – I think it was at page 75, your Honour Justice Gummow pointed it out to us earlier this morning – the notion of destruction, proposition one.  Proposition two, a second manner in which the Melbourne Corporation doctrine may be expressed is to say that it protects the autonomy and the integrity of the States rendering beyond power any Commonwealth law that controls or restricts the States in the exercise of constitutional power. 

Both propositions derived from the federal structure two different ways of looking at it.  The second is Justice Dixon, as he then was, in the Melbourne Corporation doctrine and, as I will develop in my submissions this morning, it finds voice that second in the joint reasons in Re AEU and in the dissenting opinion of Justice Brennan in the Second Fringe Benefits Tax Case.  I will focus on control and restriction as opposed to destruction.

GUMMOW J:   Your footnote 64 is pretty important, is it not, to your argument, your treatment of the Pay‑roll Tax Case?

MR HINTON:   Yes, and if I can do my five propositions ‑ ‑ ‑

GUMMOW J:   You have to face up at some stage to the question of general taxing laws.

MR HINTON:   Yes, we must deal with the Pay‑roll Tax Case and I will do so.  The third proposition is that a Commonwealth law that interferes with what a State does to secure the continued existence and functioning of the government of a State is a law that attempts to control or restrict the States in the exercise of constitutional power and is therefore invalid.  The fourth proposition, the surcharge laws in this case are attacks upon the emoluments of the States’ high office holders and therein attempt to control or restrict the States in securing the continued existence and functioning of the States in the exercise of their constitutional power.  Accordingly, my fifth proposition, they are beyond power. 

If I could develop those five propositions.  Crucial to my submission this morning is the distinction between looking at the Melbourne Corporation doctrine from the point of view of control and restriction as opposed to destruction.  At pages 78 to 79 of his Honour Justice Dixon’s judgment in the Melbourne Corporation Cases I briefly touched upon.  He is concerned with the notion of controlling the State.  It is his third reservation that he is speaking about and he says:

a law which discriminates against States –

and we do not rely upon discrimination in this case –

or a law which places a particular disability or burden upon an operation or activity of a State –

is one that controls or restricts the State in the manner or with respect to which it has its own free independent constitutional power.  What we have is a State that is not a constituent entity of the country but a separate government within its own sphere of power that is independent and is autonomous and its integrity is guaranteed by the federal framework.  “Autonomy” and “integrity” are two words I will use perhaps more than once and they feature heavily again in Re AEU.

FRENCH CJ:   Does the concept of a particular disability or burden import   some notion of discrimination?  If not, how does it avoid that?

MR HINTON:   When one reads the authorities commencing with Melbourne Corporation, one can see the development of discrimination leading up to the Austin Case, but one can equally see the development of – or there can be a general law of general application that can equally incapacitate the States and yet not necessarily discriminate and hence the distinction is drawn.

FRENCH CJ:   I understand you are relying upon the central proposition by Justice Starke of impairment or interference with the constitutional functions, but I just was wondering about the words “particular disability”, whether that has some work to do other than in the context of a discrimination test?

MR HINTON:   If your Honour pleases, I draw a distinction between Justice Starke and Justice Dixon.  They are difficult to read together, primarily because one talks of destruction and then couches their approach to the Melbourne Corporation doctrine against the background of that guarantee, if you like, of what it preserves.  The other speaks of control and restriction, independence, autonomy and so Justice Starke’s judgment, the practical question in particular at page 75, is difficult to read into what Justice Dixon has in mind.

The point to be had from Justice Dixon’s judgment, in my submission, is that the offensive law discloses an object of controlling or restricting in the course which otherwise the State might adopt.  In my submission, independence is protected.  We are not merely, that is, the States, constituent entities but independent governments within a federation.

A Commonwealth law, in my submission, controls or restricts the capacity to act or one that prescribes the manner of acting by a State is offensive to that framework.  So there is the freedom to choose the manner in which the State will structure or organise itself as a government and it is free from control in the discharge of its constitutional powers; independent, autonomous.

That leads me to the Second Fringe Benefits Tax Case 163 CLR 329. If I could take the Court to that. The focus for the Attorney‑General of South Australia in this alternative submission is very much on the dissenting judgment of Justice Brennan. One may say, well, Justice Brennan was in dissent, you are already in trouble, but in my submission, when one then goes on to Re AEU, the joint reasons of six Justices, in those joint reasons the judgment of Justice Brennan is given ascendancy.

If I could take the Court to page 358 of Justice Brennan’s judgment, and I will in passing have to deal with the joint reasons and their reference to the payroll tax, in particular, at page 356.  At about point 5 of the commencement of his judgment his Honour Justice Brennan makes clear that he considers the fringe benefits tax not a valid tax, not generally, but only insofar as it applies to Members of Parliament, Ministers of the Crown and judges of the Supreme Court; about point 5, commencement of the judgment, through to about point 7. 

I then take the Court over to page 359, and again at about point 5, halfway through that first full paragraph, the sentence commencing “But” and concluding at the quote.  The fringe benefits tax, in his Honour’s opinion, sweeps into the net of taxation fringe benefits provided in respect of the employment relationship of the State officers that he has previously mentioned; Ministers of the Crown, Members of State Parliament.  So a tax is imposed on the States in respect of the emoluments they provide to their essential functionaries.

His Honour then moves, at the bottom of the page and over to the conclusion of the quote, the first quote on page 360, to a brief survey of other tests that have so far not yielded a reliable criterion on which to apply the Melbourne Corporation doctrine.  He is mindful of the similar development of the law in the United States.  He refers, in particular, to New York v United States, a case where the state of New York was seeking to argue that it was immune, insofar as it undertook trading in mineral water from one of its springs, from federal taxation.

The decision there was that the function that the State was undertaking was one not uniquely capable of being carried on by the State and so therefore was subject to federal tax.  There is then the reference to essential and inessential functions, in the Pay-roll Tax Case the judgment of Justice Gibbs as being an unsatisfactory criterion.  There is the reference to “undue interference” as also proving to be “insufficiently precise”.  That appears at the bottom of page 360.

If I could ask the Court then to turn to page 362, in the last paragraph commencing “The essential organs of government”, again his Honour Justice Brennan identifies them:

the Governor, the Parliament, the Ministry and the Supreme Court –

Pausing there, section 106 provides in the Constitution for the States – I think it is 107 for the continuation of their laws, I think it is 109 for position of the Governor, and of course, we have Chapter III which provides for the integrated judicial system in this State and specifically provides for the existence of Supreme Courts in the States. So the Constitution itself can be referred to in support of what his Honour Justice Brennan identifies at the bottom of page 362. His Honour tells us, over the top of page 363:

the body politic depends on the attendance to their duties of the officers of the essential organs . . . 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 –

and, importantly, for the purposes of the Attorney‑General for South Australia’s submission, the conclusion of that first paragraph on 363, it follows then that:

a tax on a State in respect of the value of those emoluments is not merely 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 and functioning of the government of the State.

GUMMOW J:   Who would the taxpayer be?

MR HINTON:   In this case the taxpayer extended beyond the employer/employee.  The fringe benefit also ‑ ‑ ‑

GUMMOW J:   Who would be the fringe benefit provider?

MR HINTON:   The fringe benefit provider could be the employer or it could be someone external, so the tax itself had a broad application.  If one were to adopt Justice Brennan’s reasoning, then the fringe benefits tax to the extent that it applies to a high office holder would be invalid, but only where the fringe benefit is provided by the employer; only where it is an incident of the relationship between the employer – the State – and the Member of Parliament.  So a fringe benefit provided by other than the employer would not be exempt from tax.

GUMMOW J:   The liability to pay was imposed on the State, was it not?

MR HINTON:   Yes, your Honour, the employer, the State, yes.  It may assist your Honour Justice Gummow to read the paragraph at page 356 in the joint reasons commencing “The flaw”.  That indicates the incidence of the tax and it was for that reason that a discrimination argument could not succeed.

GUMMOW J:   What do you say about the last paragraph on page 356?

MR HINTON:   Reliance is placed upon the payroll tax.  The incidence of the payroll tax was not upon the employee/employer relationship.  It was borne by the employer, no doubt about that, but it did not affect the emoluments of the high office holder.  To that extent it does not answer this question.  To that extent reliance upon it there does not answer the question that his Honour Justice Brennan turns his mind to.  It is the emoluments of those high office holders that are integral, if not the State, for all intents and purposes, that is the point of distinction for his Honour.  That is the point that I make in this case and it is on that basis that I distinguish the Pay-roll Tax Case.  So payroll tax, on the Attorney‑General for South Australia’s submission, remains valid.  Fringe benefits tax, when one gets to Re AEU, is invalid insofar as it applies to a high office holder and falls upon the employer/employee relationship insofar as it has an impact upon the emoluments of the high office holder.

HAYNE J:   How does that proposition sit, if at all, with Mr Justice Dixon’s idea in Melbourne Corporation at 84 about the State taking the established organisation of the Australian community as it finds it, accepting the general legal system as it is established?

MR HINTON:   That is the argument that is put against us.  We are dealing with a law of general application.  The response is in part the very next paragraph that your Honour Justice Hayne pointed out to us not so long ago.  We do not have a law of general application.  A law of general application is one that does not have an impact upon any relationship of equality.  Here, to the extent that it seeks to restrict or control the emoluments of the high office holders, it does have an impact.  That is the distinction that his Honour Justice Brennan draws and therefore we are not a general law within the meaning or within Justice Dixon’s meaning in the Melbourne Corporation Case.

There is a discussion of what Justice Dixon contemplates as a general law in Henderson’s Case 190 CLR 410 in the reasons of their Honours Justices Dawson, Toohey and Gaudron at page 443. I will not take the Court to it now, but there they use the language of:

When Dixon CJ spoke of general laws he meant laws of general application which bind the Crown and its subjects alike.  Such laws are laws which do not have an impact upon any relationship of equality.

In my submission, what Justice Brennan points out is that there is an impact upon the relationship and to that extent the position of attacks on the emoluments of a high office holder is distinguishable.  It is also important to observe that both in this case where his Honour Justice Dixon was talking about general laws and in the Bank Nationalisation Case he was concerned primarily, particularly in the Bank Nationalisation Case, with the position when the States availed themselves of services or facilities regulated or determined by federal law.  In those circumstances where you do so you must accept that it is part of the system enjoyed by the whole community.  That is to be found in the Bank Nationalisation Case.  I think it is between pages 335 and 338, but again, that is not this position because there is lacking the equality of treatment by virtue of the impact upon the State.

If your Honour Justice Gummow pleases, I also pray in aid in dealing with the Pay‑roll Tax Case the treatment of it by his Honour Justice Brennan at page 363 of the judgment in the Second Fringe Benefits Tax Case. We have at page 364 in the first full paragraph commencing “However” the line drawn, the distinction between servants of the State and the States’ high office holders. The latter are integral to the existence and functioning of the State. That distinction is warranted, in my submission, by virtue of the restraint that is placed upon the constitutional power of the States, the power of the integrity and the autonomy of the States that is guaranteed by the Constitution to organise themselves.

I am not, in my submission, to be taken as saying that it goes so far as to protect the operations of the State.  My submission is limited to the emoluments of high office holders, those identified by Justice Brennan as crucial to the State, those whose services, whose attendance is integral to the State.

I turn then to Re Australian Education Union 184 CLR and to the crucial paragraphs that your Honour Justice Gummow earlier took us all to at pages 232 and 233 but having said that can I commence on page 231 at the bottom of the page, the final paragraph commencing, “The prosecutor relied”.

From that point in the judgment to the commencement of the final paragraph on 232 we see the joint reasons concentrate on the notion of control.  The focus is Justice Dixon’s, in my submission, view of the Melbourne Corporation doctrine and its operation culminating in that quote:

To do so “brings into question the independence from federal control of the State in the discharge of its functions”.

The restraint then is couched in terms of preservation of the State Governments.  It is a question of autonomy and integrity, of independence.  If you are going to ask a practical question then in that context, the practical question is, what does a State require autonomy over?  Justice Brennan has answered it for us with respect to Members of Parliament, the Governor, the judges, the judiciary, the legislature, the Executive, as a minimum.

When one looks at the Melbourne Corporation doctrine in terms of autonomy or control or freedom from restriction, then in some circumstances a bright line, as we have said, can be drawn.  You are either autonomous or you are not.  It is not something that is conditional.  So the death of a thousand cuts or questions of fact and degree do not enter into it.  It is a question of power, as some of your Honours have already said.

Your Honour Justice Hayne, importantly, pointed us to that last paragraph on page 84 of the Melbourne Corporation doctrine case.  The same sentiment is to be found in the Queensland Electricity Case in the judgment of Justice Gibbs at page 208 and 209.  I will not take your Honours to it now.  What I was leading up to was that so far in Re Australian Education Union the joint reasons are viewing the doctrine in terms of control and freedom from restriction.  We then get those two crucial paragraphs; the first dealing with the position of the State with respect to public servants as a whole, that paragraph at the bottom of 232, followed by that first full paragraph on 233, where the joint reasons returned to the position of high office holders, parliamentarians. 

The freedom from restriction, the freedom from control, is greater when it comes to those positions, they tell us.  They are free to determine the terms and conditions.  The implied limitation protects the State.  The terms and conditions are the emoluments, the emoluments that a State puts in place to ensure that its high office holders attend to their duties to the functioning of the State as a body politic.  In my submission, in those two paragraphs what you see is the same distinction drawn by Justice Brennan in the Second Fringe Benefits Tax Case.  He distinguishes between the position of the fringe benefits tax on the public service as a whole from the fringe benefits tax and its application to high office holders.  His dissenting judgment, in my opinion, gains ascendency here. 

HEYDON J:   Both taxes are entirely general.  I mean, why is it that this qualification has been introduced for high office holders?  How do you defend this qualification?

MR HINTON:   Because it affects the setting of the emoluments.  We are free from restriction ‑ ‑ ‑

HEYDON J:   So does income tax.

MR HINTON:   Therein lies the rub, it does.  On our submission, income tax falls foul of the same line of reasoning.

HEYDON J:   Do you think the Income Tax Assessment Act is invalid in its application to high office holders?

MR HINTON:   Yes, your Honour.  That is the logical consequence ‑ ‑ ‑

HEYDON J:   That would be a surprising position, I think.

MR HINTON:   At first blush it is, particularly when the States have submitted to it for so long, but it falls upon that relationship between the employer and the employee.

GUMMOW J:   What do you say about what was said in the joint judgment in Austin?

MR HINTON:   I will come to that in a moment ‑ ‑ ‑

GUMMOW J:   Page 263, paragraph 161 gives reference to Justice Frankfurter in O’Malley about general taxes and then the peculiarity seen in paragraph 162 and ‑ ‑ ‑

MR HINTON:   I take your Honour’s point.  Can I deal first with paragraph 161 and firstly the authority relied upon of O’Malley v Woodrough is not a US case that deals with the same sort of implied immunity that has, for similar reasons, grown in that state.  It is a case that deals with the constitutional protection of a judge’s salary from diminution and the question in that case was whether or not income tax had the effect of offending that constitutional diminution.  It does not, in my submission; deal with the implied immunity, as it is called in the United States.  Had it dealt with that implied immunity, one would have though that it necessarily turned its mind to case such as Collector v Day, Helvering and the Graves Case so ‑ ‑ ‑

GUMMOW J:   Collector v Day went down the plughole of history in the United States a long while ago.

MR HINTON:   In my submission, in Graves ‑ ‑ ‑

GUMMOW J:   With regard to tax.

MR HINTON:   It went down the plughole with respect to the extent to which it purported to state a global position for all instrumentalities of a state.  It was, in the Graves Case, overruled, but the extent to which it was overruled was somewhat qualified.  “Insofar as” were the words, insofar as it provided this broad immunity it was overruled.  It of course concerned the position of a judge; it did not say anything about the position of that particular judge.  The distinction that we draw in the case between public servants as a whole and high office holders is one that has not been determined or decided in the United States.  It is one that remains open, in my submission, on the reasoning of Justice Brennan and the Re AEU Case.

FRENCH CJ:   In relation to your position with respect to income tax, I just refer to 53.2 of your written submissions where you say, “It must be borne in mind”:

the restriction upon the Commonwealth’s powers pursuant to s 51(ii) only pertain to those taxes that operate by direct reference to an incidence of the relationship between the states and their high office holders.

Are you putting income tax into that category?  I do not quite understand what your position is.

MR HINTON:   Yes, your Honour.  You cannot avoid it.

FRENCH CJ:   How does income tax operate by direct reference to an incidence of the relationship between the States and the high office holders?

MR HINTON:   It is a tax upon the emolument that the State determines to pay its high office holder.  It is a tax upon the arrangement the State puts in place to secure the attendance of its high office holder to those core constitutional duties, in the same way that the Fringe Benefits Tax Case attacked those emoluments.

FRENCH CJ:   So any general law impacting on the relationship between States and their high office holders is invalid?

MR HINTON:   Any law that impacts upon that relationship, yes.  We come back to that crucial paragraph at page 233 of Re AEU, terms and conditions.  A tax that would apply, an indirect tax, of course, is the goods and services tax.  The States, of course, can voluntarily submit to paying income tax but, of course, in determining the emoluments they account for it to the extent that it currently applies.

GUMMOW J:   You have to say that the Fringe Benefits Tax Case is wrong, do you not?

MR HINTON:   Yes, your Honour, and that is the submission.

GUMMOW J:   You need leave to reopen it.

MR HINTON:   In that case I apply for leave to reopen.

GUMMOW J:   It is a big step to take on the run.

FRENCH CJ:   Yes, indeed.

MR HINTON:   My submission has always been that page 233 of the Re AEU Case, in effect, gives ascendency to the dissenting judgment of Justice Brennan such that the fringe benefits tax, to the extent that it applies to the high office holder, is invalid with the qualification that I gave, namely, provided the fringe benefit is one borne of that relationship.

HAYNE J:   The submissions you have just made may give particular point to what Sir Owen Dixon said in Melbourne Corporation of his own reasons at page 83 where he described his opinion as being stated:

in an abstract and a general form and in this there is no little danger.  For the subject has no vocabulary of technical terms possessing a precise and settled connotation and the use of expressions of indefinite and variable meaning is unavoidable.

I suspect, Mr Solicitor, that you take terms having no precise and settled connotation, use those as the premise to lead to a conclusion that is at least a large conclusion.

MR HINTON:   The logic of my submission is derived from Justice Brennan’s dissenting opinion.  He lays it all out there, in my submission, it is emoluments, it is the attendance of those high office holders.

In this case, when one looks at the surcharge laws in particular they definitely fall upon that relationship and those emoluments.  It may well be that we have bitten off more than we can chew with respect to income tax and the fringe benefits tax, but when it comes to this case it applies directly.  The warning, perhaps, that Justice Dixon gives may be the reason why the joint reasons in Austin went on a second time in my submission to ask the practical question. They went, with respect, a step further and that is why at paragraph 162 we move from control and Justice Dixon in the Melbourne Corporation Case to Justice Starke’s judgment and the practical question when it comes to the notion of destruction.  That may well be the way in which Justice Dixon’s warning was heeded in Austin.  But my primary submission is the dissenting judgment of Justice Brennan, when one looks at Re AEU, leads to the conclusion that the surcharge laws in this case are invalid.

HAYNE J:   Notions of control or destruction do not sit well with the existence of a federal income tax since when – 1921 or something?  The States have survived a year or three since it was introduced, Mr Solicitor.

MR HINTON:   True, your Honour.  That is the retort that Justice Gibbs gives in the Pay‑roll Tax Case.  Thirty years on, you challenge payroll tax; you have survived.  Of course that is the language of destruction – Justice Starke.  Hence, where I started my submissions.  If you conceptualise what the Federation protects, what the federal structure protects, in terms not so much of destruction but of control and restriction of independence, of autonomy, then you are driven to the other conclusion, the conclusion that his Honour Justice Brennan comes to and, indeed, in my submission can be drawn from the joint reasons in Re AEU.

HEYDON J:   It is not just destruction.  He said “curtails or interferes with”.

MR HINTON:   Yes.  It is still, in my submission, different to the Dixon approach.  If the Court pleases, those are my submissions on the alternate submission.

FRENCH CJ:   Thank you, Mr Solicitor.  Is there an agreed order amongst the State interveners?

MR MEADOWS:   If it please the Court, my learned friend, Ms Pritchard will present the State’s submissions.

FRENCH CJ:   Thank you.  Yes, Ms Pritchard.

MS PRITCHARD:   Your Honours, the Court has before it an outline of written submissions which were filed on behalf of the Attorney for Western Australia on 3 March.  We rely on those written submissions and in our oral submissions today we seek to develop only two points arising from those submissions.  We note that the other matters in our submissions have been dealt with by the appellant and by the second respondent and by some of the other interveners.  They will be dealing with those things.

GUMMOW J:   I did not read your written submissions as seeking to reagitate the Fringe Benefits Case.

MS PRITCHARD:   No, your Honour.  In our submission, that issue does not need to be dealt with in the circumstances of this case and if it arises at all should be left for another day. 

The two issues upon which we wish to elaborate by way of oral submissions today, your Honours, are these.  First of all, that the Court below erred in adopting a strict approach to proof of constitutional facts which were relevant to the application of the implied limitation.  A strict approach, in our submission, is not appropriate in cases involving challenges to the validity of Commonwealth legislation which are based on the implied limitation. 

The second matter to which we wish to draw attention is that the Court below erred in conducting what amounted to a quantitative assessment of the extent to which the surcharge laws interfered with the capacity of the State to function as a government.  In our submission, the application of the implied limitation does not involve a search for whether there has been some particular degree of or extent of interference by the Commonwealth law in the State’s capacity to function.  I will explain the basis for those points in a moment.

In relation to constitutional facts, can I invite the Court’s attention to our written submissions just to see the issue in context.  At paragraphs 24 to 28 and at paragraphs 36 to 41 we note that the court below appears to have adopted a strict approach to proof of the constitutional facts upon which the appellant and the second respondent had relied as demonstrating an infringement of the implied limitation. 

In summary, the court below held that there was no evidence but merely speculation that the surcharge laws were likely to deter people from standing for Parliament and that the surcharge laws created an incentive for early retirement for Members of Parliament. The court held that the evidence demonstrated nothing more than that the States’ amendment of the Parliamentary Superannuation Act constituted finetuning of the existing scheme for retirement benefits for Members of Parliament. The passages that we criticise – and I will not take the Court to the judgement of the court below – are at paragraphs 116 to 117, 121 to 131, and 136 of the judgement of the court below.

In paragraphs 29 and 49 of our written outline we make the submission that a strict approach to proof of the constitutional facts relevant to the application of the implied limitation is not appropriate.  The starting point for that submission, in our respectful submission, is the observation by your Honours Justices Gummow and Hayne, together with Justice Gaudron in the joint judgment in Austin where your Honours referred to the fact that criteria in relation to the implied limitation depend on:

“constitutional facts” which are not readily established by objective methods in curial proceedings. 

That observation can be found at paragraph 124 of the joint judgment in Austin. We go on in our written submissions at paragraphs 29 and 49 to elaborate on why it is that proof of constitutional facts relevant to the implied limitation may not be amenable to proof by objective means. In doing so we draw on observations which were made by your Honour Justice Heydon in Thomas v Mowbray. 

In our submission, in the cases before this Court which have concerned the implied limitation it is possible to discern a more flexible approach being taken in relation to the proof of constitutional facts relevant to the implied limitation.  For the purposes of our oral submissions today can we refer to Melbourne Corporation and Austin to demonstrate that point. 

Can I invite the Court’s attention first of all to Melbourne Corporation (1947) 74 CLR 31. Your Honours will recall that the issue in that case was the validity of section 48 of the Banking Act which prohibited a bank from conducting banking for a State or an authority of a State except with the consent of the Commonwealth Treasurer.  It was accepted by members of the Court in that case that making provision for the custody, management and disposition of the public revenue were activities which were essential ‑ ‑ ‑

GUMMOW J:   Is section 48 an offence?

MS PRITCHARD:   No, it was not an offence, your Honour.  I think it was simply a prohibition.  I might just double check that, your Honour.

HAYNE J:   No, section 48 forbad the banks.

MS PRITCHARD:   It did.  That is why it was directed to the banks themselves.

GUMMOW J:   Yes, it forbad the banks but did not ‑ ‑ ‑

HAYNE J:   Section 5 then made the Treasurer a party to that offence, see page 84 of Melbourne Corporation.

MS PRITCHARD:   I am obliged to your Honour.  Thank you, your Honour.  It was accepted that making provision for the custody, management and disposition of the public revenue activities which were essential to the very existence of a State Government and equally essential was the fact that the government should have the power of borrowing money and of providing for the custody and maintenance and expenditure of loan moneys.  It was also accepted that it would be impossible, in practice, for a State Government to exist without making provision for the custody and expenditure of public moneys.

GUMMOW J:   There does not seem to be a lot of evidence about what they were in fact doing at that time in the States.

MS PRITCHARD:   No, your Honour, and particularly when one looks to the material which was before the Court and that is the point we seek to draw out of the Melbourne Corporation at this stage.  When one looks at the materials before the Court it is apparent that what was there was simply a statement of claim – very brief indeed.  The relevant aspects of it are set out at pages 31 to 34 of the Commonwealth Law Report.  That statement of claim was the subject of a demurrer by the defendant.

The only other material which appears to have been before the Court was the Banking Act itself, the Commonwealth Bank Act, the Audit Acts of the States which were relied upon to show that banking was required as a State function and the financial agreement scheduled to the Financial Agreement Validation Act 1929 which was relied upon relevant to section 105A of the Constitution in relation to State overdrafts.

Despite this scant factual matter the members of the Court relied upon the following considerations:  first of all, that section 48 assumed that States, like other customers, would have a freedom of choice in relation to which bank they wished to conduct their banking business with.  Observations to that extent can be seen by Justice Dixon at 84 and by Justice Williams at page 100.

GUMMOW J:   The case was urgent, as appears from the top of page 34.

MS PRITCHARD:   Yes, your Honour.

GUMMOW J:   Mr Chifley was threatened “to specify” et cetera and then things moved very rapidly.  These things are happening in May 1947, the case is heard in July and judgment in August.

MS PRITCHARD:   Yes, your Honour, but in our submission that is not the reason for why the Court was willing to take the particular approach it did.  In my submission, it is indicative of the difficulties with which proof of constitutional facts such as these would ordinarily be found to exist.

HAYNE J:   But the relevant constitutional facts in the eyes of Justice Dixon were those at the foot of 83 over to 84 and those were the only facts that bore upon it.  Now, the debate that you now invite is a debate about the findings about practical consequences or outcomes of the law whose validity is impugned.

MS PRITCHARD: Not so, your Honour. In two respects we say constitutional facts are relevant. First of all, they may be relevant to discerning what are the essential functions of a State Government which are necessary for it to continue to exist as a State Government. The starting point for that analysis will of course be the Constitution’s text and structure to see what the Constitution contemplated would be the role for the States. Of that analysis one would see section 106 of the Constitution, the continuation of the State’s Constitutions.

One might then go to look at the State’s Constitutions themselves to see how the various capacities of the State Government were to be carried out through organs of the State Government and so on and so forth.  Part of that process, your Honour, may involve constitutional facts to discern what factors are essential to the functioning of a State Government.  An example of that, your Honour, in Austin appears because in discerning whether the provision of remuneration for State judges was essential to the capacity of the State to carry out its functions, the Court relied on the fact that the State of New South Wales had made special provision for judges’ pensions.  It had done something very different from what it ordinarily provided by way of post‑employment benefits to its other employees and officers.

GUMMOW J:   The State Parliaments now have an express role in section 15 of the Constitution.

MS PRITCHARD:   There are various references to agencies, members, officers of the State in the Constitution ‑ ‑ ‑

GUMMOW J:   Casual vacancies in the Senate.

MS PRITCHARD:   Just to complete the dealing with Melbourne Corporation then by way of various examples of the sorts of facts in addition to those that Justice Hayne has just highlighted, there was also reliance on the fact on that section 48 effectively would require the States to become customers of the Commonwealth Bank because of the way it was intended to be applied, to the fact that this would lead to the complete concentration of all governmental accounts in the Commonwealth Bank, and some members of the Court went much further. 

They noted, for instance – and this is Justice Latham at page 44 around about halfway down the page – that Melbourne Corporation itself could not compel the Commonwealth Bank to accept its business.  The effect of the specification made by the Commonwealth Treasurer would therefore be that the council would be compelled to do its business with the bank on terms which are acceptable to the bank.  Alternatively, of course, the corporation will have to do without banking services at all, there being no Victorian State bank.  In addition, Justice Latham, at page 54, again around about halfway down the page, looked at the fact that the Commonwealth Bank was under no legal obligation to accept the business of any State, either on particular terms or at all and the result would be that the operations of the State in paying money in and drawing money out and so on would be subject to Commonwealth control and so on.  There are other examples that can be pointed to. 

In our submission, the members of the court were willing to rely not only upon the legal operation of the Banking Act which could be discerned from its terms, but on what we would describe as rational considerations.  In referring to that term I adopt what your Honour Justice Heydon said in Thomas v Mowbray by the use of that term, referring to matters not capable of being established by evidence, nor judicially noticed in the strict sense in relation to the operation of the Act.  Can I refer briefly to Austin v Commonwealth 215 CLR 185 as well, your Honours for further illustration.

GUMMOW J:   With respect to Austin, the Solicitor for South Australia took us to paragraph 161.  Do you say that the situation of the appellant in this case still, if I can put it that way, falls in paragraph 162?

MS PRITCHARD:   Is your Honour there asking me whether we say that this is the law of general application or a specific law directed to the State officers?

GUMMOW J:   No, 161 is saying a law of general application, no complaint.  Paragraph 162 is saying this is not a law of general application.  What I am asking you is, is it your submission that the situation of the appellant falls within 162?

MS PRITCHARD:   Yes, your Honour.  Yes, it is.

GUMMOW J:   How does that pan out in terms of the reasoning in 162 and his situation?

MS PRITCHARD:   In our submission, the case at Bar is entirely analogous to the analysis set out in Austin generally, but in particular in passages that your Honour is referring me to.

GUMMOW J:   Because one gets into the State legislation through regulation 177 of the definition of “constitutionally protected funds” and for South Australia there is also the electricity people and the police.  They do not seem to be high office holders.

MS PRITCHARD:   No, your Honour, and certainly insofar as I have made the submission I just have, we are not suggesting that this the case.  But in relation to the high office holders here dealt with in the Parliamentary Superannuation Act then we suggest they are all obviously high office holders for reasons already elaborated upon.

Can I flesh out a little bit more in relation to Austin and the illustration of the flexible approach to proof of constitutional facts.  As your Honours will recall, the case came before the Court by way of a case stated in questions reserved.  The terms of the case stated are not set out in a Commonwealth law report, but it is apparent that the case stated included certain calculations which compared the amount of the pension that the first plaintiff would receive at the earliest date he was eligible – that is, 62 years of age – and at his maximum age of judicial service at 72 years of age, and compared that with the surcharge debt that he would accrue at each time.

It appears that the Court had little else before it by way of what might be described as evidence in the usual sense of the term.  Nevertheless, the submissions of the plaintiffs are of interest – and they appear at page 191 relevantly – because they refer to again what we would describe as rational considerations in relation to the impact of surcharge laws.  Mr Nettle, at about the middle of the top of the page, about a third of the way down, referred to the fact that:

If the judge remains in office after reaching the age at which he or she can retire with a pension, his or her liability will increase each year while the value of his or her pension diminishes –

and so on.  Then he referred, about halfway down the page, to the fact that:

The legislation has the potential for severe dislocation of judicial resources and hence the imposition of special burdens upon the States –

I will not read the rest of that passage, but he does outline in some detail the rational considerations that he thought could be relied upon by the Court.  It is clear there was not any evidence about this matter before the Court.  Indeed, that was a submission of the Commonwealth Solicitor‑General, which is referred to at page 203 of the Commonwealth Law Reports at around point 8.  He urged the Court to observe that there was no evidence that the surcharge had altered the judicial resources available to the State or that the surcharge would result in judicial officers leaving early, and he urged the Court not to speculate about those matters.

In our submission, the Court did not speculate about the matters but it did rely upon rational considerations.  That appears, first of all, from the joint judgment of your Honours Justice Gummow and Hayne, together with Justice Gaudron, at paragraphs 159 to 160.  Your Honours there accepted that judicial remuneration had an important role in judicial recruitment by attracting qualified candidates for judicial appointment.  At page 265, in paragraph 169, it was accepted that the surcharge law had undermined the State’s interest “in providing an adequate level of remuneration” and that the operation of the surcharge laws would “supply a disincentive to the first plaintiff” for judicial service for the maximum period.

Justice McHugh also accepted that the surcharge laws would impact on the retention and recruitment of judges.  His observations appear at paragraphs 231 to 232 and at 232 he accepted that the surcharge laws would hamper recruitment because candidates would know of the significant debt that they would accrue.

In our submission, Austin cannot be categorised as a case where the impact of the surcharge laws on judicial retention and recruitment could be relied upon simply as a matter of judicial notice in the ordinary sense of that term, or alternatively, that the matters relied upon necessarily or indisputably followed from the financial information which was before the Court.

That is apparent from the discussions of the Chief Justice at paragraph 13 on page 210.  He noted that judicial pension schemes were not “designed to reward long service”, and concluded that it was “difficult to measure the practical significance” of the surcharge laws on the duration of judicial service.  He thought the impact would probably vary from case to case.

For these reasons, in our submission, a strict approach to proof of constitutional facts relevant to the implied limitation which appears to have been taken by the court below was not only inappropriate for the reasons outlined in our written submissions but was contrary, or inconsistent with at least, the more flexible approach which has been taken in this Court in cases involving the implied limitation.

In our written submissions at paragraphs 33 and 34 we refer to various rational considerations which we say the court below should have relied upon as establishing the constitutional facts sufficient to demonstrate the infringement of the implied limitation in this case.  I will not go through those again.

Your Honours, the second matter that we wanted to develop in oral submissions concerns what we say is an error by the court below in importing a quantitative assessment into determining whether there has been an interference in the State’s capacity to function.  In our submission, the application of the implied limitation requires the following steps.  Firstly, it needs to be asked:  does the Commonwealth law apply to or operate upon some power, function or ability which is performed by the State Government and which is essential to the capacity of the State to function as a government.

I digress to note that of course there have been certain powers, functions or abilities already identified in cases of this Court as being essential to the capacity of a State to function as a government.  Some examples of those include raising revenue through taxation; the safe custody of the revenue and the facilitation of use of the revenue through banking services; a State’s ability to attract qualified persons to appointment as judges and thereby to maintain its judiciary and maintain the rule of law; a State’s right to determine its work force by determining the number and identity of persons it wishes to employ and the term of appointment of such persons and the number it wishes to make redundant; and a State’s ability to determine those whom it employs at the high levels of government and beyond that the terms and conditions of the employment of those persons.

In cases outside those examples it will of course be a matter of identifying the sorts of powers, functions or abilities which may be essential to the State’s ability to carry out its functions as a government.

Your Honours Justices Gummow and Hayne, together with Justice Gaudron in Austin expressed this inquiry in the terminology of whether in a significant manner there has been a curtailment of the State’s capacity to function.  We read your Honours’ observation in that respect – the reference to “significant manner” – not to significant extent or degree but to manner – as directing attention to whether there has been an interference in some function, power or ability which is essential to the State’s capacity to carry out its functions or exercise its functions as a government.  It is unnecessary for present purposes to attempt any exhaustive statement of how one does that.  I have already referred to some of the aspects of the process but starting with the constitutional text and structure.

The second question, in our submission, which needs to be asked is does the function, power or ability upon which the Commonwealth law operates – is that function, power or ability one in respect of which the Constitution permits an interference by the Commonwealth. If the answer to that question is yes, then there will not be any room for the application of the implied limitation. This step appears to be a step your Honour Justice Gummow referred to in questions to Mr Heywood‑Smith this morning.

The final question is whether the Commonwealth law operates or has the potential to operate in such a way as to interfere with the exercise of the function which has been identified as being essential to the capacity of the State to carry on its role as a government.

Now, factors which may assist to work this out might be to look at, as I indicated to Justice Hayne a moment ago, what sort of importance the State has placed on a particular aspect of its functioning as a government – in that case, judicial pensions and the way they have been dealt with.  But other factors that might assist in this analysis would be:  is the law discriminatory, or does it impose a special burden?  Does it remove from the State the same freedom of choice that is available to other players in the same sphere of operation?

In our submission, if the Commonwealth law interferes with the exercise of a function or power or ability which has been identified as essential to the State’s capacity to function as a government, then it can be said that the Commonwealth law will necessarily interfere with the capacity of the State to carry out its functions as a government and it will be invalid.  There is no need to go further, in our submission, and look at whether that interference itself is significant or substantial or meets some quantitative test.  In our submission, that is what the court below did. 

FRENCH CJ:   But there is no lower cut-off?  Any degree of interference.

MS PRITCHARD:   No, your Honour – perhaps apart from a de minimis test, which I think Justice Gibbs referred to in Queensland Electricity Commission. But, in my submission, even his Honour’s reference to that simply is a reference in fact to finding whether there is in an interference; there has to be something which you can call an interference.

The court below, in our submission, fell into error for the following reasons.  The surcharge laws operated upon persons engaged in the performance of the functions of the legislative branch of the State Government by members of the State’s Parliament.  The ability of the State to attract persons to public service in the Parliament of the State, and thus to participate in the process of the making of laws and of scrutiny of the Executive Government by the Parliament is essential to the capacity of the State to function as a government. 

The surcharge laws interfered with the emoluments provided by the State to its members of Parliament and clearly operated, or at least had the potential to operate in such a way as to interfere with the State’s ability to attract persons to serve as Members of Parliament.  That conclusion, in our submission, follows from the observations of the majority of the Court in Re AEU and the dissenting judgment of Justice Brennan in the Second Fringe Benefits Tax Case and, by way of analogy, with the decision in Austin.  As a result, in our submission, the surcharge laws necessarily interfered with the capacity of the State Government to carry out its functions as a government.

The court below erred because it asked whether the interference by the surcharge laws in the State’s capacity to function was significant or substantial and because it asked whether the interference in the State’s determination of the remuneration of its Members of Parliament, particularly in relation to their retirement benefits, was significant.  That is apparent from paragraphs 107 and 134 of the reasoning of the court below.  It is also apparent from the court’s reference to the fact that the amendments made to the Parliamentary Superannuation Scheme constituted merely finetuning – that reference appearing at paragraph 131.

The quantitative assessment undertaken by the court was, in our submission, erroneous for three reasons.  First, it is antithetical to the federal principle upon which the implied limitation is founded.  Once a function or power or ability has been identified as essential to the capacity of a State to function as a government, then any interference in the performance of that function will necessarily undermine the State’s capacity to function.  In this respect we have referred in our submissions at paragraph 10 to the observations of Justice Wilson in Queensland Electricity Commission to the effect that a State’s capacity to function could be destroyed as effectively by a succession of minor infringements as by one gross violation of the principle – death by a thousand cuts, as the learned Solicitor‑General for South Australia referred to this morning.

Secondly, at paragraphs 8 to 11 of our submissions we provide examples of authorities which support the proposition that as a matter of principle quantitative considerations have no role to play in determining whether a Commonwealth law infringes the implied limitation.  Thirdly, in our submission, the decisions of this Court do not provide any support for the proposition that a significant degree of or extent of interference in the State’s capacity to function as a government is required. 

It is the case, that one sees occasionally, references in the judgments to a substantial impact of the law or to interference in a substantial manner.  However, in our submission, references of that nature, when read in their context, in fact reflect a concern by the members of the Court to make clear that the interference complained of needs, in fact, to apply to some function or power or ability which is essential to the capacity of the State to function as a government.  Those references are not, in our submission, directed to the point that one needs to identify a substantial degree of or extent of interference in a function or power or ability which is essential to the capacity to function as a government. 

Can I illustrate this submission by reference again to Austin, your Honours. At page 249 of the report at paragraph 124 in the joint judgment there is a reference to the authorities in relation to the discrimination limit the implied limitation and your Honours concluded that there was only one limitation. At that point, your Honours, the joint judgment does not set out the principle itself but, rather, it is simply noted that:

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”.

GUMMOW J:   What paragraph are you reading from?

MS PRITCHARD:   This is paragraph 124, your Honour, on page 249.  There was no suggestion in that paragraph when your Honours were referring to the principle that there had to be a particular degree of curtailment or interference in the State’s capacity to function as a government before the implied limitation would be infringed.  Your Honours did refer to the fact that the inquiry would turn on matters of evaluation and degree.  In our submission, given the context in which that observation is made, it must be read as referring not to the degree of the Commonwealth’s laws interference with the State’s capacity to function as a government, but instead to the question whether the Commonwealth law interferes with the capacity of the State to function as a government at all.

Matters of evaluation and degree will arise, of course, in determining whether the power or a function or ability which is interfered with by the Commonwealth law is one which is essential to the State’s capacity to function as a government and as to whether the Commonwealth law in fact interferes with the State’s exercise of that power or function or ability.  The joint judgment went out to refer to the implied limitation on page 258 at paragraph 143.  At the top of the page, about 10 lines down, your Honours observe that:

It is to attend insufficiently to what in this realm of discourse is the essential question in all cases.  This is whether the law restricts or burdens one or more of the State in the exercise of their constitutional powers.

Again, no reference to any quantitative measure of that interference being required.  The joint judgment then analysed the surcharge law consistently with the approach that I referred to earlier, the three step approach, at page 262 in paragraphs 159 and 160.  It was noted that the determination of the terms and conditions of appointment of the judiciary were essential to the State’s capacity to function as a government.  There were references to decisions of the United States Supreme Court and to the words of Chancellor Kent. 

The first reference to any significant impairment appears on page 264 at about halfway down the page in paragraph 165.  Your Honours Justices Hayne and Gummow with Justice Gaudron noted that the case stated could be rephrased:

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 . . . constitutional functions respecting the remuneration of the judges of the courts of the State.  That requires consideration of the significance for the government of the State of its legislative choice for the making of provision for judicial remuneration . . . that significance is to be taken as considerable.

As we read that paragraph, those in the joint judgment were simply referring to the need to show that by the manner of its operation the surcharge law in fact interfered with or impaired the State’s freedom to determine judicial remuneration.  In our submission, those observations cannot be construed as meaning that if an interference with the capacity of the State to function is found to exist then that interference must be assessed as being of a significant quantum or magnitude before invalidity of the Commonwealth law will follow.

KIEFEL J:   Could you please remind me what the findings of the Full Court you say were made about this?

MS PRITCHARD:   Yes.

KIEFEL J:   I can see perhaps a reference in paragraph 134 that that concerns the alleged statutory response to the surcharge legislation but it is not clear to me what other findings you are referring to.

MS PRITCHARD:   I am just trying to find the relevant paragraph in the written submissions, your Honour, which will contain the references there.

KIEFEL J:   Thank you.

MS PRITCHARD:   Your Honour, the conclusion of the court is found at paragraph 136 of the court below’s reasons for decision.  They are references to the surcharge:

the impact of the surcharge on South Australian parliamentarians is substantially less significant than was the case with the judge in Austin.

The reference to the introduction of section 21AA but the discussion of the ‑ ‑ ‑

KIEFEL J:   But is this in the context of the section 21AA?

MS PRITCHARD:   No, it is not.  Part of that was, your Honour, and certainly the conclusion I have just referred you to there partly referred to 21AA but it referred to the other aspects as well.  Their Honours’ discussion of the relevant principles started on page 497 in relation to Austin’s Case.

HEYDON J:   I am sorry, 497?

MS PRITCHARD:   I am sorry, 497.  This is of the Federal Court Report, your Honour at paragraph 102.  I am sorry, your Honour, I forgot that not everyone was looking at the Federal Court Report.  The members of the Court looked at the question of the requirement of “significant or substantial” at paragraph 107:

The interference, curtailment or impairment must be significant or substantial in practical terms -

It is clear that their Honours were drawing the observation by Justice Starke of the practical question but, in our submission, that needs to be understood, as we submit your Honours did in the joint judgment in Austin as directing attention to whether there in fact was an interference and a function essential to a State’s capacity to function as a government and not to some additional requirement of magnitude or quantum which had to be met before the law would be rendered invalid.

There were subsequently references in the judgment to whether there was in fact a significant impact in a - one of those references, for instance, appears at paragraph 116 of the court’s reasoning:

unlike the position in Austin, no evidence was led as to any impact the surcharge may have . . . or as to whether any such impact was “significant” -

so their Honours clearly have in mind that there is this quantitative assessment to be made.

HEYDON J:   There was not, strictly speaking, any evidence led in Austin, was there, as to the impact the surcharge may have on parliamentarians’ decisions about retirement?

MS PRITCHARD:   No, not in relation to parliamentarians, but evidence of that kind.

HEYDON J:   I mean about judges.

MS PRITCHARD:   Yes.  There was not any evidence, no.  That was the rational consideration that I was referring to before, your Honour.  As we understand it, that is what the appellant and the second respondent did here.  They sought to effectively draw on rational considerations.

HAYNE J:   My recollection of the case stated in Austin is that it was not a short document.

MS PRITCHARD:   No, you are right, your Honour.  There were a number of attachments to it, as I recollect as well, but, as I recollect, those attachments included things like the standards to be applied by actuaries in calculating the assessment and so on.  As I have said, from the report of the judgment itself it really does appear that the only evidence of a factual kind or the material of a factual kind, if you like, was the calculations, the comparisons, of the amounts of the pension versus the amount of the surcharge debt and nothing more.

If I can just complete the analysis of Austin in relation to this question of whether there is a quantitative analysis for assessments required, at paragraph 168 the joint judgment referred to the practical question identified by Justice Starke. As I just said a moment ago, in our submission, read in its context the reference to “in a significant manner” in your Honour’s discussion of that practical test is directed to the way in which the curtailment or the interference is brought about and not to the quantum and the magnitude of the interference with a State’s capacity.

FRENCH CJ:   You would not say that a quantitative assessment is irrelevant, you just say it is not necessary to characterisation for purposes of power?

MS PRITCHARD:   Yes, but one has to be careful.  As Chief Justice Gleeson pointed out, it is not the financial burden, for instance, of a particular law which will be relevant.  There is a danger that once one starts to talk in the language of the significance of the impact and so on, in our submission, that is what the Court did.  They were led down the path then of looking at some sort of quantitative assessment.

Similarly, in our submission, to the remarks I have just made about the joint judgment, there is nothing, in our submission, in the reasons for decision of the Chief Justice which suggests that there is a quantitative aspect to this assessment.  Justice McHugh also did not refer to any such requirement.

Can I note, finally, the analysis of the Court in Re Australian Education Union as an example not only of the process which we have suggested needs to be gone through to determine whether there is an infringement but also as an illustration of the fact that there is no consideration required or whether the interference in a State’s capacity to function is substantial or significant or meets some other benchmark.

If I can invite your Honours’ attention very briefly to two aspects of the reasons for decision in 184 CLR.  First of all, at page 228 at about point 8 of the page, your Honours, those in the joint judgment at this point rejected a submission by the prosecutor that the statements in Tasmanian Dam, when they referred to impairment of a State’s capacity to function as a government, extended to any impairment of capacity to exercise government functions.  The joint judgment indicated that:

The prosecutor’s submission is not in accordance with the natural meaning of the words used.  Nor does it accord with the substance of the views expressed in a number of judgments in which the implied limitation has been discussed.

Well, at first blush this could be where it is indicating that some degree of interference in the State’s capacity to function as a government is required.  In our submission, however, it is apparent from what those in the joint judgment later said that what they were disavowing was a submission that what is prohibited is an impairment of any function of State Government.  The search at the outset must be for what functions of a State Government or exercise by State Government are essential to its capacity to exist, continue to exist and to function as a government.

At passages on 232 to 233 to which your Honours have already been referred the joint judgment then turned to consider the implied limitation by reference to the approach that I suggested should be adopted earlier.  Firstly, they looked at what functions in the employment context, in this case, were critical to the State’s capacity to function as a government.  They accepted it was critical to a State’s capacity to function as a government, that it had the right to determine ‑ ‑ ‑

GUMMOW J:   Did you take us to the bottom of 229 of the AEU Case?

MS PRITCHARD:   I am sorry, your Honour?

GUMMOW J:   The last paragraph on 229 going over to 230.  They make the point that the Engineer’s Case is involved here.  In other words, you cannot press all this too far because otherwise you start providing Barger’s Case.

MS PRITCHARD:  Well, your Honour, we are not seeking, with respect, to press it too far. We simply draw attention to the fact of the process which is, as we said, to identify functions central to a State’s capacity to function as a government. There is no suggestion of some sort of reservation of powers to the State or some sort of immunity for the States, but simply to a process which the Constitution itself advocates for discerning what the relationship is to be between the Federal Government and the State Governments.

GUMMOW J:   No, but it may help to explain the response to the treatment of taxation laws of general application though.  Once you started eating away at that, maybe you would be back in Barger’s territory because you would be back in Collector v Day.

MS PRITCHARD:   In my submission, that would not be the outcome of the determination in the present case, your Honour.

HAYNE J:   But, conversely, although in this case it is said we are concerned with a central aspect of the Constitution of a State, namely, its Parliament and in Austin we were concerned with a central aspect of the government of a State, its Supreme Court, some of the items of legislation in the Income Tax Regulations are concerned with State employees of a different level in the organisation of the State.  It was not necessary in Austin to consider legislation of that kind.  It may not be necessary in this case.  But is pointing to the high office, to use that shorthand, a necessary step in the argument?

MS PRITCHARD:   Perhaps not a necessary step, your Honour.  It is simply an indicia of the fact that there is a function of a State Government essential to its capacity to carry out its functions which is being affected, and that function is about the ability of the State Government to determine its workforce and to control its workforce and to attract a workforce in the first place, to secure its continued independence and so forth.  So, the status or the centrality ‑ ‑ ‑

HAYNE J:   Because framed in that way the argument would fasten upon the fact of singling out of the constitutionally protected funds and stop the argument at that point.  Now, this is territory into which we may not have to go.  It may be that you wish to make no submission about it, but is there a submission you would wish to make or is it simply one to leave over for another day?

MS PRITCHARD:   Yes, the latter, your Honour.  Perhaps I might complete the ‑ ‑ ‑

HEYDON J:   We are going to page 232 down the bottom.

MS PRITCHARD:   Yes, I was, your Honour.  Thank you, Justice Heydon.  The analysis there at the bottom of 232 to 233 in summary is consistent with the staged approach that we have suggested needs to be taken focusing on, firstly, what are the functions essential to the State’s capacity to carry out a function, have those functions been interfered with, if so, there is an inference which is going to render the Commonwealth law invalid.

HEYDON J:   In your submission should that be read as assuming that the award under discussion is in some sense discriminatory or which treats State employees differently from others?  The Solicitor for South Australia seems to rely on this as a discussion about an absolutely uniform federal award and says that if it impacts upon certain State officers it is bad qua them.  I am not sure it is to be read in that way.

MS PRITCHARD:   We do not read it in that way, your Honour.  Insofar as it expressly refers to the fact that the making of a federal award determining the terms and conditions of employment of ordinary public servants “would not infringe the implied limitation” but with one qualification that the Court refers to, at least if it took into account “any special functions or responsibilities which attach to the employees in question”.  So their Honours were there again thinking of rational considerations, how would this law apply?  How would this award be framed?  On an assumption that there would be a taking into account of some of these special functions or responsibilities of the employees in question, they did not think there would be a difficulty.  An award which failed to do that, conversely, might be in problematic territory. 

The second reason why we refer to this passage in Re AEU is to illustrate the point that in the Court’s reasoning process there is no reference to any requirement of any quantitative assessment or any magnitude being required of the interference effected by the Commonwealth law in question.

Your Honours, can I deal with a small matter in conclusion and that is to respond to a matter referred to in the submissions in reply filed on behalf of the Commonwealth.  In footnote 60 on page 8 of its submissions in reply the Commonwealth responds to Western Australia’s submission that the WA Salaries and Allowances Tribunal made a determination in response to the surcharge laws in 2001.  That was at footnote 66 of our written submissions on page 17.  The point of our submission was to direct the Court’s attention to the fact that there were responses to the surcharge laws in a way other than the making of legislation by the State Parliament, simply a matter of the factual context in which these laws can be considered.

The Commonwealth seems to draw something from the fact that the determination was not made until more than four years after the surcharge laws were passed.  I have given to the court officers a copy of the determination which may be of assistance to your Honours.  If I could have that handed up now or perhaps it is already with your associates.  Thank you.  We note, your Honours, that the determination on its face dated 23 August 2001 at about a third of the way down the page indicated that:

Advice has been received from the Government Employees Superannuation Board indicating that arrangements need to be made to enable members of the Parliamentary Superannuation Scheme to meet liabilities in respect to their superannuation contributions surcharge payment.

The determination went on to set out what those arrangements were to be in relation to members of the Parliamentary Superannuation Scheme entitled

to a pension.  There was an additional provision for commutation to be made on market rate terms determined by the actuary from time to time.

The point we make in response to the Commonwealth submissions is that nothing can be drawn from the fact that the determination was not made until 2001.  We recollect that there was an election for the Western Australian Parliament in 2001.  That was the first State election after the introduction of the surcharge laws.  The retirement of some Members of the Parliament at that election, in our submission, would have given rise, probably for the first time, to the practical issue of how those members were to pay their surcharge debt because it was upon their retirement from the Parliament, when some of them may have been eligible for the pension, that the issue would have actually arisen in practical financial terms. 

In our submission, what the Commonwealth seems to imply some delay is in fact no more than the tribunal dealing with the problem created by the surcharge debt for recipients of the pension on the earliest occasion when that problem arose in practice.  My learned senior counsel refers to the fact that that is referred to in the determination itself.  It is all in the first page, over for the last couple of paragraphs, your Honour.  May it please the Court, those are the submissions for Western Australia.

FRENCH CJ:   Thank you, Ms Pritchard.  Solicitor for Victoria.

MS TATE:   May it please the Court.  We seek to address your Honours on two points.  The first is the question of the significance for the government of the State of its legislative choice for the making of provision for parliamentary remuneration, including superannuation.  The second is the practical question, identified by Justice Starke in Melbourne Corporation 74 CLR 31 at 75 of whether, looking at the substance and operation of the Commonwealth law, there has been in a significant manner a curtailment or interference with the exercise of State constitutional power.

In relation to the second question we will address your Honours on the question of the importance that can be attached to the discriminatory operation of a Commonwealth law. We will also seek to address your Honours on the issue raised by Justice Gummow as to whether one of the errors committed by the Full Federal Court was to treat the case as raising a question of inconsistency under section 109 of the Constitution, rather than a question of an absence of power.

The aim of separating the two questions in the way in which we have done is to reflect the analysis adopted in Austin 215 CLR 185 in the joint reasons of Justices Gaudron, Gummow and Hayne. Might I first refer your Honours to paragraph 165 of the joint reasons. At 165 your Honours say, firstly in referring to the terms of the protected funds legislation in the question of invalidity, in the second sentence the joint reasons say that:

That issue –

the issue of invalidity –

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 respecting the remuneration of the judges of the courts of the State.  That requires consideration of the significance for the government of the State of its legislative choice for the making of provision for judicial remuneration.

Then, your Honours say, having referred to:

decisions of the Supreme Court of the United States and the Supreme Court of Canada . . . that significance is to be taken as considerable.

We submit that here, too, the significance of the State’s legislative freedom in determining the appropriate remuneration for parliamentarians, including superannuation, is considerable and we will seek to make good that proposition.  The second stage of the analysis is to be found in the joint reasons at paragraph 168 in the practical question that I have already identified by Justice Starke. 

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.

An answer to that second question then turns on an examination of the operation of the legislation and includes a comparison between the Protected Funds Acts and the generic superannuation surcharge legislation.

FRENCH CJ:   Do you read the words “significant manner” there as importing a qualitative rather than a quantitative judgement?

MS TATE:   Indeed, your Honour.  One of the key propositions which we submit formed the background to our submissions is that the question of assessing the invalidity of a law with respect to the Melbourne Corporation doctrine is an evaluative task.  It is not a task which can be reduced to a question of quantification.

FRENCH CJ:   The problem is when you use the term “evaluative task” in conjunction with the term “significant” that may relate to an underlying quantitative assessment – in other words, to take from an entirely different area, let us say the area of competition law, you might talk about a significant lessening of competition and that may be based upon a quantitative judgment, and then you decide whether in all the circumstances it is commercially relevant or meaningful and is significant or substantial, or whatever the word that is used.

MS TATE:   Yes, your Honour.

FRENCH CJ:   Here do you say that the words “significant manner” could import a judgment of a purely qualitative nature or that can never depend upon quantitative considerations or should not be limited by quantitative considerations?

MS TATE:   We would say, your Honour, that it is not reducible to quantitative considerations.  We do not disavow the relevance of some quantitative considerations in some relevant cases.  What we say is that the task that is before the Court in assessing the validity of the law with respect to the Melbourne Corporation doctrine is not a task in which the adverse financial consequences for the State, let alone for an individual, can be the determinative factor.

In support of that we refer to Chief Justice Gleeson in Austin at paragraph 24, and I will not take your Honours to that, but there his Honour stated that it is apparent that this question is not simply a question about a quantitative assessment of adverse financial consequences and he says that this is apparent by the upholding of the validity of the payroll tax as applicable to State Governments for wages paid to their employees in the Pay‑roll Tax Case, Victoria v Commonwealth 122 CLR 353. Indeed, the same point is supported by the validity of the fringe benefits taxes on the State in the Second Fringe Benefits Tax Case (1987) 163 CLR 329.

Now, with respect to the legislation in both of those cases there was considerably more adverse financial impact upon the States than the laws struck down in either Melbourne Corporation or Queensland Electricity Commission.  Indeed, a similar point is made by Justice Dawson in Re Australian Education Union 184 CLR 118 at pages 249 to 250.

Indeed, Chief Justice Gleeson says also in Austin at paragraph 27 that in Melbourne Corporation the prohibition that was imposed and the offence that was thereby created might or might not have been to the State’s financial disadvantage.  He also says that the arrangements for the remuneration of judges in Austin or the subject matter in Austin was a matter of comparative minor magnitude in the State budget.

But we say more than simply saying that it is not a question of being reducible to quantitative analysis.  We say that the very task of assessing the validity is a question of evaluation as stated by Justice Brennan in the Second Fringe Benefits Tax Case at 359 to 360 referring to the judgment of Justice Frankfurter in New York v United States 326 US 572 at 581, which has already been mentioned this morning, to the effect that the assessment will involve a relative weighing of factors which are relevant to the implied immunity and that will involve a difficult task of evaluation that does not easily lend itself to standard curial methods or criteria. So we submit that it is inherently a task of evaluation.

We say that there are two other key propositions which form the background to our submissions.  The first of these is that the essence of invalidity under the Melbourne Corporation doctrine is upon the disabling effect of a law upon the authority of a State, and thus upon its constitutional status as an independent government.  This proposition is variously expressed in the authorities.  Again, I can simply refer your Honour to passages.

In the joint judgments in Austin at paragraph 166 it is expressed by way of approval of what Justice Brennan said in the Second Fringe Benefits Tax Case at 362 to 363.  It is reflected in an observation in the joint reasons in Re AEU 184 CLR 188 at page 233 to the effect that the foundation of the implied immunity is the preservation of the States as separate governments with the essential organs of government – the legislature, the Executive and the Supreme Court – upon which the independent functioning of that body politic depends. The same sentiment is expressed by Sir Owen Dixon in Melbourne Corporation – as adverted to by Justice Hayne this morning – at pages 83 to 84 in a passage upon which Justice Brennan relies.

The foundation of the immunity is expressed in similar terms by Justice Dawson in Queensland Electricity CommissionvThe Commonwealth 159 CLR 192 at page 262 as an immunity which is infringed by laws which disable or impair the authority of the States as constituent and independent elements of the Federation, reducing their capacity to make their own decisions in the exercise of their governmental functions.

To the same effect are the words of Justice Mason in the same case, Queensland Electricity Commission, at page 218, and also in the judgment of Chief Justice Gleeson in Austin at paragraph 24, page 217.

FRENCH CJ:   I take from that that the notion of authority is to be equated to the capacity of the State to make its own decisions in the exercise of its governmental functions.

MS TATE:   Yes, indeed.

FRENCH CJ:   It does bring in any additional notion.

MS TATE:   No additional notion, your Honour.  If a law affects the liberty of choice of the State or it detracts from or impairs the authority of the State to make its own decisions with respect to those essential functions of government and those who carry out the essential functions of government then that law is, in our submission, invalid by reason of its infringement of the Melbourne Corporation doctrine.

HAYNE J:   Is it essential functions of government or essential structures and institutions?

MS TATE:   Your Honour, it is expressed as essential organs of government ‑ ‑ ‑

HAYNE J:   Just so.

MS TATE:   ‑ ‑ ‑ by Justice Brennan in the Second Fringe Benefits Tax Case – essential organs of government and the thereby associated importance of those officers who comprise those essential organs.

HAYNE J:   It is just that essential functions of government starts to take you down paths of police powers and other such marshy paths on which one disappears without trace.

MS TATE:   Yes.  We are not seeking to draw a distinction between essential and inessential functions of government.  We are rather emphasising the nature of the body politic and the essential organs of government that make up that body politic. 

But the third key proposition which forms part of the background to our submissions is that the test for invalidity does not turn on whether the law threatens the State’s very existence.  This is a negative proposition.  This is the manner in which the Commonwealth expresses the test in its reply at paragraph 8.  It is also the manner in which Justice Kirby in dissent expressed the test in Austin at paragraph 283, page 302 when he accepted the guidance of Justice Windeyer in the Pay‑roll Tax Case at page 398 to the effect that the threshold is only reached when the subject State is sterilised. 

In our submission, this is to place the threshold for invalidity too high and it is not the test that has been accepted by this Court.  Neither the laws invalidated in Melbourne Corporation nor the laws in Queensland Electricity Commission were laws which could in themselves threaten the very existence of the States, nor was the law such in Re AEU.  The test, in our submission, is rather whether a Commonwealth law has a disabling effect on the authority of a State as an independent government.  That is a body politic with authority to decide on the arrangements it makes with those who comprise the essential organs of government.

Against that background, might I turn then to our first submission and address the question of the significance for the government of a State of its legislative choice for the making of provision for secure remuneration for parliamentarians.  Might I refer your Honours to case of Theophanous v Commonwealth 225 CLR 101 at paragraph 7, page 113. Might I refer your Honours to the judgment of Chief Justice Gleeson in paragraph 7 where Chief Justice Gleeson in the third sentence of the paragraph says that:

Although opinions may differ about the reasonableness of various forms and levels of remuneration, it is now generally accepted that parliamentarians should commit themselves to their duties on a substantially full‑time basis, and that the corollary is that they should be remunerated (or, as the Americans would say, compensated) for doing so.  If it were otherwise, political activity would be the preserve of the independently wealthy, or parliamentarians would need financial support and assistance of a potentially unhealthy kind.

The use of secure remuneration to protect against the risk of corruption is elaborated further in the joint reasons in Theophanous at paragraph 33, page 119 where in the joint reasons there is a reference to an extract from Quick and Garran who states in the third sentence that:

It has been the subject of prolonged controversy in British colonies –

that is, remuneration of any kind for parliamentarians –

during the last forty years, and it is now generally regarded as an essential condition of democratic government, especially in young communities.

The passages that follow the extract from Quick and Garran are critical to a degree of that extract or of the conclusions drawn in the extract as being somewhat historically inaccurate.  But the joint reasons then at paragraph 34 state:

The principal reasons for the adoption of the provisions made by the United States Constitution –

for parliamentary remuneration –

were treated by Story as the public advantage in commanding the services of those “who, though favoured by nature, might not be favoured by fortune”.  Story added (53):

“It could hardly be expected that such men would make the necessary sacrifices in order to gratify their ambition for a public station; and if they did, there was a corresponding danger that they might be compelled by their necessities, or tempted by their wants, to yield up their independence, and perhaps their integrity, to the allurements of the corrupt or the opulent.”

There is an account given in the further passages of the history of parliamentary remuneration and we have provided to the Court a small bundle of those historical materials.  I will not take your Honours to them,  I simply note that we have provided some materials, including the extracts from Story, the extract from Quick and Garran and an extract from John Stuart Mill, who was rather critical of remuneration being provided to parliamentarians and so on.

It is our submission that those same considerations are applicable here and, indeed, it is our submission that these reasons, namely, the need to ensure that those who are favoured by nature but are not favoured by fortune are given secure remuneration so as to ensure that political life is not the preserve of the independently wealthy and to protect against the risk of corruption, that those reasons apply here to the South Australian context and the decision by the South Australian State to provide secure parliamentary remuneration, including a pension for life, to its parliamentarians.

Indeed, we say that the submission is reinforced by considerations within the Constitution Act (SA) which is to be found behind tab 4 of the South Australian materials which is in the bundle of materials provided by the Commonwealth. Here we point to certain sections of the Constitution Act which jointly have the effect of providing for representative government.

The sections we point to are: section 11, first of all, the composition of the legislative council to be elected by the inhabitants of the State legally qualified to vote; section 27, which is a comparable provision in relation to the House of Assembly; section 77, which provides for electoral redistribution; section 83, which provides that where an electoral distribution takes place it must ensure as far as practicable that the electoral redistribution is fair to prospective candidates and groups of candidates. So if candidates of a particular group attract more than 50 per cent of the popular vote, then they will be elected in sufficient numbers to enable a government to be formed, and it might be that that provision could form the basis of a one vote one value form of guarantee, although that is not my submission here, and clearly we are not seeking to draw any implication from the Commonwealth Constitution that there is a guarantee of representative governments in all of the States. We would not do that in the face clearly of the judgment in McGinty, but what we say is that the State Constitution Act itself provides for representative government.

The last section to which I wish to draw your Honours’ attention is section 88, which provides for effectively the entrenchment of the electoral redistribution provisions.  We say that as the State Constitution Act provides for representative government this further supports the justification and the rationale for secure parliamentary remuneration decided upon as part of the liberty of choice of the State.

FRENCH CJ:   That might be a convenient time.

MS TATE:   Yes, your Honour.

FRENCH CJ:   We will adjourn until 2.15 pm.

AT 12.47 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.17 PM:

FRENCH CJ:   Yes, Ms Tate.

MS TATE:   Your Honours, for the reasons we have given, we submit that the significance that is to be attached to the issue of secure parliamentary remuneration is considerable, just as it was for the judges in Austin and so, too, is the degree of legislative choice that must attach to it.  It is our submission that the court below failed to appreciate the significance of the issue of parliamentary remuneration to the independent functioning of the government of a State.

Indeed, we identify a flaw in their Honours’ reasoning as consisting in the assumption that the provision of a pension for life can only be explained as compensation for loss of a professional salary.  The Full Federal Court then considered that as parliamentarians are not exclusively drawn from the professions, but rather from all walks of life, that explanation was not applicable to them. 

May I take your Honours to appeal book page 225, paragraph 117 and the reasons of the Full Federal Court.  There their Honours say at the bottom of page 224:

Further, the judges in Austin had long experience in the legal profession and on the bench which enabled them to speak with authority about the likely effects of the legislation on recruitment and retention of judges.  In the present case there is no evidence that the legislation is likely to deter people from standing for Parliament.  Unlike the position in Austin, which in terms of recruitment involved a small group of senior members of the legal profession, those interested in standing for Parliament come from all walks of life, with different backgrounds, occupations, financial circumstances and levels of remuneration.  In the absence of evidence here of the type provided in Austin, we have no basis upon which to decide whether the disincentive to which the State refers, or the discouragement to which the applicant refers, are well founded. 

HEYDON J:   What is that evidence they are talking about in that last sentence, “In the absence of evidence here of the type provided in Austin”?  Do you know what that is?

MS TATE:   No, your Honour.  There was a discussion this morning as to the type of material that was provided in Austin, the special case being a volume of substantial materials, but as we understand it, materials largely related to the methodology of calculating actuarial assessments.  It was not evidence in the sense that it was provided and purported to be probative and for which there was an opportunity for cross‑examination, so it was not evidence in that sense in any event, your Honour, it was rather of the nature of rational considerations that this Court relied upon.

It is our submission that it is this paragraph which really encapsulates the flaw because if the historical purpose is, as we have sought to demonstrate, that secure parliamentary remuneration is there to ensure that parliamentarians comprise people from all walks of life, that is those without independent wealth, in particular, then the inference, in our submission, is open that any legislation that has a special adverse impact upon that secure remuneration will have a consequential adverse effect upon recruitment and retention.

We say that inference is both open and ought to be drawn and that the flaw in the Full Federal Court’s reasoning was to see parliamentary remuneration as of the nature of a compensation foregoing or the loss of a professional salary which of course could then not be universally applicable.

We would say, even in relation to Austin, it was not the case that the rationale or the justification for secure parliamentary remuneration was of the nature exclusively of the loss of a professional salary.  Rather, this Court took great pains to consider the manner in which that secure remuneration reinforced the independence and integrity of State judges.

Might I turn then to the second of our submissions.  This is the practical question identified by Justice Starke in Melbourne Corporation.  We begin here by pointing to the differential operation between the Protection Acts and the generic legislation.  That differential operation consists on the one hand of the imposition of the liability for the surcharge under the generic legislation upon the superannuation provider and that is to be found in section 10(2) of the generic legislation.  I will not take your Honours to it, but it is tab 3 in the Commonwealth bundle of Commonwealth legislation.

That liability as imposed on the superannuation provider is then to be compared, in the case of the Protection Acts, with an imposition of personal liability for the surcharge on South Australian parliamentarians under section 11 of the Protection Assessment Act, and your Honours have already been taken to that Act.  It is our submission that the court below also ignored this difference in concluding that parliamentarians and other high income earners were on a level playing field.

That expression is to be found at paragraph 112 of the appeal book at page 223.  At paragraph 112 their Honours consider the starting point to be the fact that under the generic legislation and under the Protection Acts the contribution is assessed notionally.  They say that it is necessary for the contribution to be paid in the case of the parliamentarians regardless of any benefits which may actually be received.  However, they go on to say that that does not single those high income earners out because the income earners under other superannuation funds also are subject to a regime where there is an actuarial calculation of the degree to which that year of service has contributed to the ultimate benefit that the member of the superannuation scheme will receive.  They say at the end of paragraph 112 that while there was an undisputed starting point in Austin, that undisputed starting point being:

that the Commonwealth legislation treated a Supreme Court judge differently from other high income earners.  There is no comparable starting point in the present case.  So far as defined benefit schemes are concerned, to which alone the notional contribution submission relates, there is a level playing field.

It is our submission that the Full Federal Court began with quite the wrong starting point.  The starting point for the analysis ought to have been a comparison between the entity which is subject to the liability under the generic legislation and the entity which is subject to the liability under the Protection Acts.  Your Honours will see that there is a quotation from Chief Justice Gleeson extracted at paragraph 104 of their Honours reasons where they state under the umbrella of an explanation as to what the differential form of treatment is.  They quote from Chief Justice Gleeson, who states there that in relation to:

Federal judges in respect of whom the surcharge applies have their pensions, when they ultimately become payable, reduced, at the time of each pension payment, by a certain amount.  No personal liability is incurred –

with respect to federal judges –

no accumulated debt is payable by the judge; and there is no possibility that surcharge liability could exceed benefits.  As to other high income earners, in their case the tax is imposed on the superannuation provider, no doubt in the expectation that it will be passed on to the member in the form of reduced benefits.

In relation to that last point, Mr Heywood‑Smith submitted this morning that the ruling SRC 97/1 indicated that there was an expectation that the superannuation provider would absorb the liability and it would not or not necessarily be passed on in the form of a reduced benefit to the member.

But the point we wish to make is that Chief Justice Gleeson took as the starting point the difference in the entity in respect of whom the liability was imposed, not a starting point relating to whether or not the contributions surcharge was assessed on the basis of an actuarial or notional contribution.  So it is our submission that the Full Federal Court simply started with the wrong parameter in characterising that as the starting point for its own analysis and we say that that led them into error.

FRENCH CJ:   How do you formulate the non‑level playing field position for which you contend as reflecting an affirmative answer to the practical question put by Justice Starke in Melbourne Corporation?

MS TATE:   Your Honour, we do that in a series of steps.  The first step is to establish that there is a differential operation between the generic legislation and the Protection Acts regime.  We then say that not only is there a differential operation; that that differential operation places South Australian State parliamentarians at a practical disadvantage and I will seek to make good that proposition.

HAYNE J:   Does not that step invite or invoke notions of economic equivalence that were expressly disclaimed in the joint reasons in Austin?  I have in mind especially paragraph 41.

MS TATE:   Yes, your Honour.  We rely on the fact that economic equivalence was rejected in Austin and that is why, your Honour, even if it was the case that the superannuation provider passed on the liability that had been discharged by the provider to the recipient of the benefits so that there was a reduction in the amount of pension that was paid periodically we would say that that has no relevance here.  It is not a question of economic equivalence.  It is rather a question of differential operation and then a question of practical disadvantage, but perhaps if I could just foreshadow what the steps are in our submission.

If we establish that there is a differential operation, as I submit we have done, and that it leads to a practical disadvantage, our submission is then that this comprises a form of discriminatory operation by the Protection Acts.  The question we then seek to address is whether or not the discriminatory operation of that Act has any relevance to the test in relation to the Melbourne Corporation doctrine.

FRENCH CJ:   You are not putting this as a test of discrimination against the State but rather a special burden imposed upon this class of high office holder and therefore reflecting upon the practical operation of the legislation in relation to the functions of the State, that is, attracting and retaining parliamentarians and so forth?

MS TATE:   Yes, your Honour.  Perhaps if I could seek to expound on the question of whether the differential operation leads to a practical disadvantage for South Australian MPs in the way that it did for State judges in Austin, perhaps if I could do that in this way.  The Protected Funds Acts, we submit, operate to the detriment of a South Australian MP because the choice to defer liability and thus accept that compound interest will accrue and thus accept that there will be a liability for a lump sum which has accumulated by reason of the compound interest over a period of years is, we submit, almost an inevitable decision for a parliamentarian.

We say it is almost inevitable and, indeed, is the most rational decision for a State parliamentarian to make because a parliamentarian will not know whether he or she will ever satisfy the statutory preconditions to the entitlement of the benefits.  In this respect we rely on the chance and fortune argument that was accepted within the joint reasons in Austin.

But here the example proceeds in this way.  If one were to consider a parliamentarian in the first term of his or her parliamentary life, then for the whole of that term he or she will not know whether they are likely to have future electoral success and we would say that even in a so‑called “safe seat” there is a risk of electoral failure and this notion was indeed relied upon by Mr Dunks, a Member of Parliament in the South Australian Parliament in 1948 in debating the Parliamentary Superannuation Bill 1948, which was the precursor to the 1974 Act which is the subject of these proceedings.

Your Honours, there is an extract from those parliamentary debates at tab 12 of the bundle of materials that we have provided to the Court.  It is not the historical materials; it is the materials that involve some legislation and then two second reading speeches at the end of the bundle.  If I could just refer to page 779 at tab 12, where it stated:

Elections are peculiar things.  In nearly every election we have to contest our seats and it is a fickle sort of business. When an election is pending one may think he is on top of the world and be well supported, only to find later that he made a mistake.  I am reminded of a story I heard years ago of Peter Reidy.  Just prior to one election he said “I can’t miss Penola.  Everyone in the town told me he would vote for me.”  That did not turn out to be the case.  Later when he was in the town someone inquired of him how many people there were in it.  Peter Reidy replied, “I can’t tell you how many people there are, but I can tell you how many liars there are.”  Some of us have had that experience and probably will have it again.  With a State election not two years off we do not know who may fall by the wayside.

I refer to that passage, your Honour, simply to emphasise that a parliamentarian, even in a so‑called “safe seat” has to assume the risk that there may be electoral failure.  In the first term of a parliamentarian’s life, the most rational decision, in our submission, would be to defer liability to pay the surcharge.  If we consider then the second term of a parliamentarian’s life, again he or she will not know whether they might be successful in the next election.

If they are unsuccessful and they have served six years, then under the South Australian legislation they will become entitled to a pension, but if they are successful, which one would imagine they are putting all their efforts into being and intend to be successful, if at possible, then they could continue to be in Parliament without knowing whether they will receive a pension until they have served 15 years. Your Honour, the provision for this is, I think, in section 16 of the Parliamentary Superannuation Act (SA).

It is our submission that to pay the liability annually would continue to place the Member of Parliament in the position of chancing fortune until perhaps in the last term before the 15 years by which time there would already be a sizeable debt and it may seem sensible to let it accrue.  In our submission, deferral is both rational and perhaps inevitable so that the sum of the total debt payable continues to grow as a lump sum based upon compound interest increasing annually.

By comparison under the generic legislation, at least where there is a fund, that fund has no right to defer, so it is not placed in a position of having a lump sum debt accruing over a period of years.  More significantly, a fund would have the capacity to spread the liability across the group of members.  There will be some members who will ultimately receive either no or few benefits, for example, because of premature mortality, and, as it were, the savings that are made in relation to those members can then be used to pay the liability of another.

So, your Honours, might I turn then not only to the position of high income earners who fall under the generic legislation but, more specifically, to the question of the position of federal parliamentarians and turn to the initial question of whether federal parliamentarians are an appropriate comparator in the circumstances of this case.

On the question of comparators we say this.  Firstly, that Chief Justice Gleeson in Austin at paragraph 11, if I could take your Honours to that paragraph, looked both at the comparative position of high income earners under the generic legislation when comparing them with State judges and also the position of federal judges. He stated at the bottom of page 208 in paragraph 11:

That the Acts treat the first plaintiff, and other State judges, differently from the manner in which other “high‑income earners” generally are treated for the purpose of taxing the value of the annual increases in the liability of their superannuation providers, and differently again from the manner in which federal judges are treated, is not in dispute.

So his Honour takes the broad and general comparison to be one with high income earners under the generic legislation and a more narrow comparison is drawn with the position of federal judges.

His Honour of course concluded that the differential operation of the legislation there led to a practical disadvantage to State judges regardless of which comparator was used.  It is our submission that the same applies here.  We submit that Commonwealth parliamentarians are an appropriate comparator because parliamentarians at both federal and State level are engaged in serving the public interest in the same way and the same considerations must apply to each of them on the issues of retention and recruitment.  We say that this forms the basis on which federal parliamentarians can be considered to be an appropriate comparator to State parliamentarians.

If Commonwealth parliamentarians are so taken as appropriate comparators, we submit that there remains both the differential operation of the surcharge legislation, namely the difference between the liability imposed personally on members against the liability imposed on superannuation providers and also the practical disadvantage that flows from that.  Might I seek to explain both of these points.

With respect to Commonwealth parliamentarians there was until 2004 a superannuation scheme that was an unfunded non‑contributory defined benefits scheme.  There were two principal pieces of Commonwealth legislation which governed that scheme, and these have been handed to the Court.  I believe the associates have that legislation.  There are two pieces of legislation:  the Superannuation Contributions Tax (Application to the Commonwealth) Act 1997 and the Superannuation Contributions Tax (Application to the Commonwealth—Reduction of Benefits) Act 1997.

If I could take your Honours first to the application to the Commonwealth Act, the Commonwealth parliamentarians did not fall under the generic superannuation surcharge legislation so this Act, the Application to the Commonwealth Act, created in effect a notional liability for the surcharge by reference to that generic legislation.  Your Honours will see that from section 4 of the Act, whereby it is provided that the Act is to apply to a trustee of an unfunded defined benefits superannuation scheme such as the parliamentary scheme.  It applies to the trustee of such a scheme where the trustee is in effect an officer of the Commonwealth and under section 4(b):

were the trustee not such an officer, authority or agent, the trustee would be liable to pay superannuation contributions surcharge on superannuation contributions for a financial year of a member of the scheme -

Section 5 then says that such a trustee, namely an officer of the Commonwealth, is to be taken, for the purposes of the generic legislation, not to be an officer of the Commonwealth.  So in effect this creates a notional liability for the surcharge.  In those circumstances the trustee under section 6 can discharge a liability pursuant to written directions from the Minister for Finance, who can give those directions to make payment and transfer of money from the public account.

The Reduction of Benefits Act, which is the second piece of legislation before your Honours, under section 4 provides that, if such a trustee, that is, somebody subject to section 5 of the Application to the Commonwealth Act, if their liability is discharged, then the trustee is empowered to reduce any benefits to the member with a cap on the reduction of benefits at 15 per cent.

Your Honours, we rely on both of those pieces of legislation.  There are, of course, other pieces of Commonwealth legislation which are tangential to this, but these are the principal pieces of legislation which govern the position of a federal parliamentarian and a federal parliamentarian is, therefore, as it were, excused from personal liability.  So there is a differential operation between a State parliamentarian and a federal parliamentarian and, we say, that difference leads to a practical disadvantage because the State parliamentarian will rationally and inevitably defer the liability, so there will be a lump sum liability which has accrued over a number of years at the date of retirement, whereas the federal parliamentarian will not be in the same position.  There will be the possibility of a reduction of benefits.  We know economic equivalence is not the key.  There may be a reduction of benefits and, in any event, there is a cap on that reduction of benefits.

This leads to the question, then, that if there is that differential operation and it does act to the practical disadvantage of State parliamentarians, does that amount to a form of discriminatory operation?  Our submission is that it does and that that is what discrimination, in essence, is comprised of.  The question becomes, what importance does the fact of that discrimination have in the circumstances of this case and in the circumstances more generally in the operation of the Melbourne Corporation doctrine?

If I could turn then to that submission.  Our submission is that the importance that should be ascribed to the discriminatory operation of legislation in this context is that it may have an evidentiary significance in the determination of validity.  Our submission is that discrimination “may point to breach” – to use the words of Justice Dawson in Queensland Electricity Commission at page 260 – or may be indicative of invalidity, to use the words of the joint reasons in Austin.

If I could take your Honours to Austin, at paragraph 125, which is at page 249. In the joint judgment at paragraph 125 their Honours refer to Queensland Electricity and they state that there is a passage with which they respectfully agree.  They say in Queensland Electricity Justice Dawson referred to these difficulties, that is, the difficulties of enunciating the foundation of the immunity:

as inherent in any attempt to formalise the Melbourne Corporation doctrine and added:

“These difficulties explain why there has been a preference to speak in terms of those aspects of legislation which may evidence breach of the doctrine rather than to generalise in terms of the doctrine itself.  Discrimination against the States or their agencies may point to breach as may a special burden placed upon the States by a law of general application.” 

The reasoning in the foundation decisions, and that in the contemporary United States cases, bears out the view later taken by Dawson J in this passage.

Then at page 264 of the joint reasons at paragraph 164 their Honours go on to say in the second sentence that:

It may be conceded, as indicated earlier . . . that, though differential treatment may be indicative of infringement of the limitation upon legislative power with which the doctrine is concerned, it is not, of itself, sufficient to imperil validity.

That same observation that it may be indicative of infringement yet not sufficient in itself to imperil validity is the same sentiment as expressed by Justice Dawson again in Re AEU at page 249. It is our submission that these observations gathered from those cases should found a presumption that a law that is discriminatory is invalid unless the Commonwealth can satisfy the Court that the law does not interfere in any substantial manner with the performance of State functions.

Alternatively, we submit that the fact that a Commonwealth law is discriminatory can lower the threshold of impairment that those challenging validity would need to demonstrate in order to answer the practical question of Justice Starke, namely, whether there has been in a significant manner a curtailment or interference with the exercise of State constitutional power.  Encapsulated, our submission is that the discriminatory operation of the Commonwealth law may point to breach.

HAYNE J:   The answer the Commonwealth makes is at paragraph 26 of its submissions read with paragraph 39.  How do you engage with that submission?

MS TATE:   Your Honour, I have the Commonwealth’s reply submission and I will look to the principal submissions ‑ ‑ ‑

HAYNE J:   No, the principal submission, paragraph 26 I think needs to be read, as footnote 49 suggests, with paragraph 39.

MS TATE:   Your Honour, we are not seeking to establish the proposition that the discriminatory operation of a Commonwealth law alone will be a stand‑alone ground for the invalidity of that law.  Our submission is more narrow and more modest.  Our submission is that the discriminatory operation of a Commonwealth law can have an evidentiary significance and our submission is that in the cases to which I have referred your Honours there has been an acceptance and an observation that discrimination can play precisely that role.

Your Honours, if I could turn then to the question of whether one of the errors committed by the court below was to treat the case as raising a section 109 inconsistency problem rather than the question of the absence of power. Your Honour Justice Gummow raised this question yesterday in transcript at page 29, lines 1250 to 1253 and I will not take your Honours to that now. But we see that question as consisting in this, namely, did the court below treat this case as involving an exercise of concurrent legislative power by the Commonwealth and the States requiring a determination of pre‑eminence by the Commonwealth in the event of an inconsistency. Might I take your Honours first to appeal book paragraph 134 at page 229 in the reasons of their Honours. Their Honours there say that:

For the foregoing reasons, we do not consider that either of the amendments –

that is the State amendments –

evidences any significant interference with the exercise of the State’s constitutional power to determine the method of the remuneration of its parliamentarians.  There has been no substantial or significant alternation in the design of the pension scheme:  cf Austin at [29] per Gleeson CJ.

In effect, the court asked itself the question did the Commonwealth legislation cause there to be a substantial alteration to the existing State pension scheme? Answer: no, therefore no invalidity. We submit that this reflects the test of inconsistency under section 109 of whether a State law would alter, impair or detract from the operation of a law of the Commonwealth Parliament as enunciated in Worthing v Telstra 197 CLR 61 at paragraph 28.

Here the Full Federal Court, in effect, asked that question in reverse by asking whether the Commonwealth law caused a substantial alteration to the State’s scheme.  That is, in effect, to ask the question whether the

Commonwealth law altered, impaired, or detracted from the operation of a law of the State.  We submit that in doing so the Full Federal Court asked itself the wrong question and we submit this was one of the errors committed by that court.  Your Honours, they are the submission for the Attorney‑General for Victoria.

FRENCH CJ:   Thank you.  Yes, Mr Sofronoff.

MR SOFRONOFF:   Your Honours, we are content to rely upon our written submissions.  We also respectfully adopt the submissions made on behalf of the Attorney‑General for Western Australia and the Attorney‑General for Victoria.  There is one matter of detail that I wanted to point out in case it was useful to the Court.  Yesterday, Justice Gummow raised the question what was the position of federal parliamentarians, and to a degree, my learned friend, the Solicitor‑General for Victoria, has dealt with that.  Could I just complete that picture?

As your Honours are aware, in 1997 the Assessment and Collection Act was passed, which imposed the general obligation upon high income earners and others, and that was assented to on 5 June 1997. On that date then, pursuant to section 10, in general the provider was obliged to pay the surcharge when it became assessed and under section 16(3) and section 16(6), in the case of unfunded defined benefit schemes, the provider again had to keep an account and debit that account and then in due course pay. At that point – that is to say, on 5 June 1997 – there was no change to the position of Commonwealth parliamentarians or, indeed, State parliamentarians because no provision of that Act had any effect upon them personally.

On 7 December 1997, Pearl Harbour Day, the constitutionally Protected Funds Act was passed and it had the immediate effect of creating an actual or potential liability in members of those funds by section 11. By section 15(6), when the pension became payable in due course to a member the member then became actually liable to pay the tax. By section 15(7), the Commissioner of Taxation had to give a notice; section 15(8), there were then three months within which the member had to pay.

As a corollary to that obligation upon the member, the trustee of the superannuation fund – whoever that might be; the superannuation provider – was obliged to keep a running account, to supply information to the Commissioner of Taxation from time to time and, finally, upon the retirement of the member, to inform the Commissioner of Taxation of that retirement and as to certain particulars, amounts and so on, to enable the Commissioner then to assess tax.

In the case of the South Australian scheme, the trustee of the scheme was in fact a board created by section 8 which consisted of the President, for the time being, of the Legislative Council, the Speaker of the House of Assembly and a person appointed by the Governor on the nomination of the Treasurer.  Those persons constituted the board and had imposed upon them those reporting obligations.  That was the position with respect to South Australian State members.

With respect to Commonwealth parliamentarians, on the other hand, on the same day assent was given to the Superannuation Legislation Amendment (Superannuation Contributions Tax) Act 1997. That Act had the effect of reducing the benefits that would otherwise be payable to Commonwealth parliamentarians and, as it happens, federal judges and I think the Governor‑General as well. Relevantly, however, your Honours, the effect of it was to insert a provision into section 18 of the Commonwealth Contributory Superannuation Act 1948, a new section 18(8A) and other sections, which provided that if the surcharge account, which had to be kept the superannuation provider under the principal Act, was in debit then the pension payable to Commonwealth parliamentarians would be reduced.

There were also provisions for commutation to have it dealt with as a lump sum but we need not deal with that for the purposes of this submission.  Consequently, the sequence of events is that in June 1997 the Surcharge Act is passed, the principal Act.  Nothing relevantly happens to parliamentarians in South Australia or the Commonwealth.  In December 1997 the two Acts are passed; one which affects State members in South Australia by imposing a liability upon them and upon their board, potentially, but inevitably if they serve their relevant time and get the pension, and on the other hand with respect to Commonwealth parliamentarians by effecting a reduction in their pension but effecting no personal liability upon them. 

Consequently, to the extent that it is relevant for your Honours in due course to consider the difference in treatment of Commonwealth parliamentarians on the one hand and State parliamentarians on the other, that is the legislative framework.  Your Honours, we have cause to be delivered to your Honours’ associates copies of those statutes for your convenience.  Those are our submissions, your Honours.

FRENCH CJ:   Thank you, Mr Sofronoff.  Yes, Mr Leeming?

MR LEEMING:   May it please the Court.  The two topics I wish to address, first of all Justice Starke’s practical operation question working out the practical operation of the law, assuming that it is valid, and in so doing I will amplify what my learned friend, Ms Tate, has said and also take up something your Honour Justice Gummow observed yesterday that has not been addressed either by the court below or in any of the written submissions so far, section 20 of the South Australian Act.  The second and larger topic is the qualified autonomy recognised by this Court in the Australian Education Union Case and in Austin’s Case. 

We take a slightly different stance from that developed by the Solicitor‑General for South Australia.  The end may be the same, the basis is quite different though.  We obtain support from it not merely from Justice Dixon but from all members of the Court in Melbourne Corporation. A smaller point is that we do not say that the qualified autonomy derives merely from the structure of the Constitution, there are textual matters, 106, 107 and 108, in particular. Thirdly, it is no part of my submission that acceptance of it will lead to the consequence that income tax or payroll tax or fringe benefits tax in invalid in its operation or application to senior office holders of the States.

To deal first of all with the practical operation, and I can short circuit that to reference to paragraphs 2 and 7 of the written submissions.  The point of paragraph 2, as your Honour indicated yesterday, was in a neutral and, as I understand it, wholly uncontroversial way to summarise how it is that the particular appellant, Mr Clarke, faces what on the face seems to be a rather small surcharge.  That is a consequence primarily of – compared to Justice Austin – the smaller salary, the fact that his life pension was a smaller percentage of that smaller salary and, most importantly, that of the years that counted, the first six years, most of them pre‑dated the Commonwealth surcharge legislation.

Of course, the particular outcome of the Commonwealth legislation to the circumstances of Mr Clarke has rather little to do with the constitutional questions this Court is called to resolve.  It does not depend upon his individual circumstances, just as Justice Austin’s individual circumstances were determinative in the previous case.  The question, as the Court has observed, is one of power.  That leads one to Justice Starke’s practical operation of the working out of this impugned legislation.

The starting point, we say, is let it be assumed that the impugned legislation is valid, what will its consequences at a practical rather than merely formal or legal level be?  Paragraph 7 was an attempt to summarise those.  It is largely but not wholly uncontroversial.  The Commonwealth takes issue in relation to some of them.  There is no doubt this is an unusual Act.  The thing taxed is something expressly and properly described in the legislation as notional, the outcome of an actuarial estimation across a class rather than upon an individual and that leads to what I described as the vice in paragraph 7(ii) that the amount of the tax need bear no relation to the benefit.

To make it very concrete, the actual amounts that Mr Clarke was assessed pursuant to this actuarial driven process presupposed, first of all, that on exit he would commit 15 per cent of his entitlements and he chose not to do so.  He had also proceeded on the basis, expressly, that he had an 85 per cent chance of having a spouse at the time of exit.  In fact, he had a 100 per cent chance so the pension was therefore more valuable in their collective hands.

I say all of that because perhaps unusually the Commonwealth in its submissions in response to the interveners disputes the proposition in (iii) that there is a chance that the actuarial calculations will have been conducted on a basis which is greater than the amount received at the end of the day.  To that I say, first of all, it is obvious as a matter of actuarial approach, if you are looking at a group and average outcomes across a group, with these assumptions driving it, then there will be winners and losers, depending upon whether you are married or not married, whether your mortality is greater or less than the assumptions that lead into the actuarial calculations.

But to make it very precise and to take up what your Honour Justice Gummow mentioned yesterday, take yet one more example in addition to those proposed by Ms Tate - the South Australian parliamentarian who serves two terms and then is voted out has got his or her six years up and then exits the fund.  Throughout those six or seven years that parliamentarian has paid the after tax 11½ per cent of contributions.  At the end of seven years there is involuntary cessation from the fund and that has these consequences.  First of all, section 22 of the South Australian Act means they cannot go back and reclaim the 11½ per cent contributions.

Secondly, that parliamentarian is entitled to a life pension of about 43 per cent of final salary.  Thirdly, the parliamentarian is entitled to commute at a disadvantageous basis, not fair value, and only within three months, a limited proportion of that life pension.  Fourthly, that parliamentarian, some time in the future, on the basis of the materials before the Court, probably not in the three months when he or she has to make his  commutation decision, that parliamentarian will receive a surcharge notice. 

On that point I should take the Court, please, to appeal book page 30 where there is mention of the time delays.  It is put in the expert witness report by the Commissioner of Taxation that this works as a windfall gain to the parliamentarian, but it is part of the vice that was necessary for South Australia to address.  At page 30, between lines 10 and 20 in the second bullet point, there is reference to the “delays in submitting tax returns and processing lags” so that “the assessment”, it is said, “can be made some years later”. 

Your Honours will recall that one of the changes introduced by 21AA was to extend the time within which the right of commutation could be made till three months after receipt of the notice rather than three months after cessation from the fund.  The two‑term serving parliamentarian is faced with those consequences at the end of their term.  The notice comes in, they have to make a decision, an important decision, whether to commute, once and for all, a proportion of their life pension.  What if the parliamentarian stands again, having been voted out for term three, at the next election?  Then section 20 comes into play. 

Section 20 of the South Australian Act says the life pension ceases and determines.  That is found in a variety of places; behind 3.1 in the appellant’s written submissions is as good as anywhere. 

HEYDON J:   Except that we are supposed to be working off the Commonwealth’s index of South Australia’s legislative material, so we are all marking the same pieces of paper.

MR LEEMING:   I am grateful to your Honour.  The content is the same, I hope.  Thank you, your Honour.  If he or she again becomes a member of either chamber, the pension payable to that pensioner shall cease and determine.  The reason I say all of this is that in those circumstances he or she will have paid the actuarially computed amount of the value of the life pension upon exit after seven years and will not get that life pension; will not because while he or she continues in office section 20 stands in its way.  That is a very clear example of when the actuarially calculated value of the tax exceeds the benefits received by the parliamentarian. 

In (iv) in paragraph 7 of the submissions we say, echoing what Ms Tate has said about lack of incentive to pay upfront.  I think even the Commonwealth agrees in relation to the principal scheme that that is the rational working out of the application of the scheme.  The point of explaining how the Commonwealth tax works its way out in operation is not to say that this is harsh or unreasonable or unfair or capricious. 

Those are not attacks on validity.  The point, however, is to say that South Australia, before the imposition of this tax, had come up with what might be thought to be a moderately sensible form of providing remuneration to its senior office holders.  To put it in a nutshell, life pension after at least six years’ service with limited rights of commutation.  As it happens, that is a legislative choice and the qualified autonomy is not confined to legislative choices but that legislative choice is curtailed or restricted by the Commonwealth Act because it no longer works, because of those outcomes in the practical working out of the Act.

That as we see it is the short answer to the case.  In other words, if one proceeds on the basis that the Commonwealth tax is valid and will have, if valid, if it is within power, the force given to it by covering clause 5 and 109, then the State’s power to choose a particular, not capricious, artificial or contrived, form of remuneration of senior office holders – six years’ service, life pension, limited commutation – is denied it and that is a curtailment or restriction.

The facts that South Australia went one stage further, just as New South Wales did in Justice Austin’s case, and made the legislative changes driven by this to extend the period for commutation and to introduce what was not there before, fair value computation rather than devalued commutation is merely evidence of the curtailment or restriction of legislative choice.  As I said, the immunity is not confined to legislative choice - Melbourne Corporation is about banking, the right to go to a bank - it extends to executive powers of the State as well.

Secondly, and more substantively, I wanted to say just a little bit about how the qualified autonomy recognised by this Court in the joint judgment in Austin’s Case of the ultimate question being a restriction or burdening one of the States in the exercise of their constitutional powers, how it derives.  It is not derived merely from the very familiar passage in Justice Dixon’s reasons in Melbourne Corporation, which goes on in terms to refer to sections 107, 108 and 109 of the Constitution. The same is there, we say, in all of the majority reasons in Melbourne Corporation Case.  Can I give your Honours the references to where those are to be found in 74 CLR.

First of all, in Chief Justice Latham’s reasons one needs to look at two passages.  His Honour frames the question at page 50 at about point 8 on the page.  Having disposed of the State banking point, about 15 lines from the bottom of the page his Honour says that it:

still leaves open for consideration the question of the validity of such a provision under a constitution establishing not only a federal Government with specified and limited powers, but also State Governments which, in respect of such powers as they possess under the Constitution, are not subordinate to the federal Parliament or Government.

They are expressly preserved by 106 and 107.  That is his Honour framing the question and in the course of answering it at page 58, point 4, about 12 lines down, his Honour says:

The subordination of either –

federal or State –

to the other is inconsistent with a federal system.

He goes on to deal with taxation laws of general application.  Justice Starke, likewise, expressly, we say, contemplates more than merely the avoidance of destruction of the States.  Perhaps most clearly, as well as at page 75, also at page 69, in the second full paragraph at point 5, dealing with the implications that flow from the Australian Constitution, and his Honour there repeats what had earlier been said:

Australia is a dual system based upon a separation of organs and of powers.  The maintenance of the States –

and we emphasise “and their powers” – those powers that are expressly preserved by 106 and 107:

is as much the object of the Constitution as the maintenance of the Commonwealth and its powers.

GUMMOW J:   You said page 69.  I am not picking that up.

MR LEEMING:   I am sorry; if I said 69, I apologise.  It is page 70, at about point 4, the paragraph beginning “The federal character of the Australian Constitution”.

HEYDON J:   Does he refer to 106?

MR LEEMING:   His Honour Justice Starke does not. His Honour Justice Dixon refers to 107 and 108 in the passage at page 82 that the Court is very familiar with: “The Constitution predicates their continued existence as independent entities”. Again it is not merely, of course, predication of existence but existence at a certain level of functionality. Justice Williams expresses the same idea in slightly different language at pages 100 and 101, at the bottom of page 100 and the top of 101. There is reference to the “sovereign powers” of the States. His Honour says at line 3 of 101:

The extent to which the legislation encroaches upon such sovereign powers is well illustrated by the provision –

and so on. It is true that Justice Rich is less express than any other member of the majority and his Honour does express himself at page 66 simply in terms of an implication for the Constitution providing for the continued existence of the States, but it must be the case that that is to be read in the same way having regard to the outcome. The States’ existence was going to continue whether or not section 48 of the Banking Act was valid and at page 67, just before his Honour’s conclusion at about point 6 in the middle of a long paragraph, his Honour says:

I think while power in a State and in its essential agencies to carry on the business of banking cannot be impaired –

so State banking is preserved –

the power freely to use the facilities provided by banks, under modern conditions, must be regarded as essential to the efficient working of the business of government, and that power also cannot be impaired.

That I say necessarily goes beyond mere predication of continued existence.  In short, it is qualified autonomy.  There were, to use Justice Williams’ words, sovereign colonial polities before Federation.  That continues.  Those powers are preserved.  Just as their Constitutions are preserved under 106, the powers are preserved under 107 and, of course, it is qualified.  Of course it is qualified by 109 and covering clause 5, but subject to that, there is, we say, a textual basis.

I say again this is a small point but we would not want the Melbourne Corporation principle to be confined to one deriving from the structure of the Constitution. If one goes to the part of the Constitution that deals with the States, 109 is the tail after a whole lot of provisions that are protective or enhancing of the powers of the States. The question that arises, does that formulation of Melbourne Corporation, going well beyond destruction, have any consequences for decisions of this Court in relation to payroll tax, fringe benefits tax and income tax and we say, no, the question is one of power.

When a State, in the exercise of its constitutional powers, chooses to employ senior office holders that power is not affected in any significant way by a general law imposing income tax upon the office holders.  That is terribly clear.  We go further and say, where the tax imposes a burden directly on the employer such as payroll tax or fringe benefits tax, so too – putting to one side extreme laws which have not arisen for 99 per cent tax – there again the State power to retain senior officer holders is not impaired by such a law of general application, but, this case, this very unusual tax imposed by the Commonwealth we say is quite different.

Here South Australia made a legislative choice to have a defined benefits scheme, six year service, life pension, limited commutation and that power is impaired, restricted, curtailed by the Commonwealth Act in its natural practical operation, evidenced by the fact that South Australia needed to change its law after the Commonwealth Act was enacted and that is why it is outside of Commonwealth power.

The last thing I wish to do was to turn to what we see as the key errors in the decision of the court below.  They are all in one paragraph.  It is paragraph 131 on appeal book pages 228 and 229.  The reasoning here flows down to the conclusion paragraphs immediately following.  We say the Full Court correctly rejected an argument that was put below about the existing commutation right in 21 being inadequate to cover member surcharge liabilities and that must be right on the facts agreed, but at the very bottom of 228 they say:

It remains true that the State was not compelled by the surcharge legislation to make the amendment.

We say that is the wrong question.  The question is that identified in the joint judgment in Austin’s Case, does the law restrict or burden South Australia in the exercise of its constitutional powers? To then say, as they do, that section 21, the limited commutation, already in place substantially dealt with the problem and 21AA was a piece of finetuning to achieve the object described in paragraph 31 discloses, respectfully, at least three errors.

First of all, 21AA was not designed merely to deal with the object described in paragraph 31.  Paragraph 31 is reproduced within paragraph 129 of the reasons.  That is what I have been labelling as fair value commutation rather than the $10 for every $1 of pension instead which, it is agreed, it is biased, to use the language of the materials, it is disadvantageous to the exiting member, instead have a commutation assessed on the actual actuarial equivalent of the amount of pension foregone.  That is part of the object, but a very important other part of the object of 21AA was to extend the three month period within which the exiting member had to make that important choice about commutation of his or her life pension.

Secondly, to say, as it is said, that 21AA was a piece of finetuning to achieve the object mistakes the question. Section 21AA clearly evidences the fact that there was, by the operation of the Commonwealth Act, an curtailment or restriction on South Australia’s legislative choice. There was a need for legislative change to deal with that. To characterise 21AA as finetuning is not to engage with any of the constitutional norms that arise in this context, unless perhaps it is an attempt to say it is de minimus and therefore within the significant impairment, restriction or curtailment that

matters.  But it is not that on a proper analysis of what 21AA does once you take into account all of the aspects that are involved; the extension of time as well as the change of rate. 

As a working rule of thumb, we would say that it is not necessary or sufficient for there to be legislative change to demonstrate the operation of the qualified autonomy principle in Melbourne Corporation, but where one does, as here, have legislative change, that is very strong evidence of the sort of significant or substantial impairment that one needs to find in order to say that the law is beyond power.  May it please the Court, those are the submissions on behalf of the Attorney‑General of New South Wales.

FRENCH CJ:   Thank you, Mr Leeming.  Yes, Ms Perry?

MS PERRY:   If the Court pleases, the first respondent adopts the submissions for the Attorney‑General for the Commonwealth.  Thank you.

FRENCH CJ:   Thank you.  Yes, Mr Solicitor?

MR GAGELER:   Your Honours, I need to say something first about the nature and the scope of the Melbourne Corporation doctrine and in that context to say something specifically about Queensland Electricity, about AEU and about the pre‑Austin tax cases in this Court.  A number of strands in the arguments that have been raised against us are not entirely orthodox.  Indeed, some of the things that have been said from the Bar table today have not been heard in this Court for nearly 90 years and it is necessary that they be put in their proper conceptual and historical perspective.  That is the first thing I want to do and that will take me a little while and probably see out the day.

The second thing I want to do then is to say something about the particular application of the Melbourne Corporation doctrine in Austin itself.  Third, rather than seeking to distinguish Austin, I want to focus specifically on the schemes.  I want to look at the SBS and SSS schemes together and to point out the lack of application of the Melbourne Corporation doctrine to strike down the imposition of superannuation surcharge on the lump sum benefits payable under those schemes.

Now, your Honours have heard almost nothing about the SBS and SSS schemes in the submissions that have been made against us.  I will seek to point out fairly quickly that the position in relation to those schemes is really quite clear.  They are in almost no different position from any other accumulation scheme applicable to any employer anywhere in the country who is subject to the obligation to pay superannuation surcharge.

Finally, I need to look at the application of Melbourne Corporation to the imposition of superannuation surcharge in respect of the pension payable under the PSS scheme which, by reason of some similarities – there are only some similarities with the situation in Austin – we accept is more contestable and that is in truth where the weight of the argument against us has been directed.  So, your Honours, that is the course I propose to take.

Melbourne Corporation:  let me start by saying something conceptually and historically at a pretty high level and then I want to go to a couple of the main cases.  Your Honours, the Melbourne Corporation doctrine has been conceptualised in different ways.  If you look at Melbourne Corporation itself, what the doctrine was was seen quite differently by Justice Dixon, on the one hand, and Chief Justice Latham on the other.  Chief Justice Latham saw it as an exercise in characterisation, as did Chief Justice Barwick in a later case.

Justice Dixon and Justice Starke, on the other hand, most clearly saw the Melbourne Corporation doctrine as an implied constitutional prohibition.  It is that view of the doctrine as an implied constitutional prohibition that has become the orthodox approach of the Court.  You do not see it in every judgment in every case, but it is the orthodox approach that has come down to us.

Now, approaches to constitutional prohibitions and approaches to constitutional implications have varied considerably over the years but the modern approach is pretty clear and is pretty consistent.  A constitutional prohibition, it is said, and was said most clearly in 1997 in Ha’s Case but repeated many times since 1997, is inherently a matter of substance which looks to the practical operation of law.  A constitutional implication, it is now well established but was not so well established until McGinty’s Case in 1996, taken up and endorsed in the unanimous judgment in Lange in 1997, is necessarily one that conforms to, because it inheres in the text and structure of the Constitution.

It is fundamental, in our respectful submission, to distinguish between the modern understanding, the modern orthodox understanding, of the Melbourne Corporation doctrine as an implied constitutional prohibition with those necessary characteristics and the old immunity of instrumentalities doctrine which one hears echoes of in the submissions that have been put by a number of the interveners before the Court today.  The old immunity of instrumentalities doctrine, as your Honours well know, existed in the United States between pretty precise dates; between 1870 with Collector v Day and 1939 with Graves v New York.  It got picked up and applied in the High Court again between a very precise range of dates; between D’Emden v Pedder in 1903 and the Engineers’ Case in 1920.

That old immunity of instrumentalities doctrine lacked those two basic constitutional characteristics.  It was founded on what Justice Frankfurter colourfully described in Graves v New York 306 US 466 at 490 as a pernicious abstraction – I will come back to that in a moment – and as it was applied in Australia during that 17 year period of the early High Court and as pointed out in the Engineers’ Case, it was disembodied from the constitutional structure.

The pernicious abstraction which is really pretty well explained by Justice Frankfurter came down to this.  You take the aphorism, which is really a truism, that was stated by Chief Justice Marshall in McCulloch v Maryland that the power to tax is the power to destroy.  Your Honours will see that little aphorism in the US cases and you will see it in the cases in the early High Court; the power to tax is the power to destroy.  Then you use that truism to say that the national government must not tax, indeed, it must not impose any burden on the agents or functionaries of a State Government or vice versa at all, lest the one destroy the other.

That was the pernicious abstraction to which Justice Frankfurter was referring.  That was what took hold in the United States for nearly 60 years, in our Court for 17‑odd years.  The answer given to it by Justice Frankfurter was, to use the words of Justice Holmes, “No, the power to tax does not amount to the power to destroy while this court sits, that is, we will treat it as a matter of substance and we are here to deal with matters of that kind.”  There is no bright line.  There can be in a particular case a point where the interference with governmental functions goes too far.

That is the pernicious abstraction problem of that old doctrine resurrected, I am afraid to say, in some of the submissions made to your Honours today.  The constitutional structure as it emerges from Chapters I and V, as it is given emphasis by covering clause 5 and as it was explained at some length in the Engineers’ Case, which is a case more referred to than actually read, but it is there explained at some length, comes down to this – and it can be summarised in essentially two points. The specific and enumerated power in sections 51 and 52 of the Constitution is, in the language of covering clause 5, when exercised, binding on the people of every State. Translated in the Engineers’ Case, that means the people of Australia whether considered nationally or sectionally.  That is the language of the Engineers’ Case.

That is the first point. The second point is that while State Constitutions under which the people of Australia are organised sectionally are, we now understand, created and sustained by section 106 and State legislative power is created and sustained by section 107, the actual exercise of State legislative power in a particular case is expressly subordinated to the actual exercise of Commonwealth legislative power in a particular case by section 109.

Now, when you turn to the Melbourne Corporation Case itself and the cases in which Melbourne Corporation has been applied or considered subsequently, with the single aberration of Queensland Electricity and perhaps with the benefit of hindsight, as one looks back on them with a modern approach to constitutional implications and constitutional prohibitions, one can see that modern approach reflected.  One, the doctrine is treated as an implied prohibition, not as a matter of abstraction but as a matter of substance with the validity of the Commonwealth law being assessed not by reference to its presumed tendency or possibility, but by reference to demonstrated or otherwise self‑evident practical operation.

As a matter of substance, what is being protected by the doctrine from substantial impairment or interference is the capacity of a State within the general system of law, of which the Constitution and Commonwealth laws form part, to set up and maintain institutions of its choice which are able to exercise legislative, executive and judicial powers. That is often shortened to a reference to the capacity of a State to function as a government. That is what the Melbourne Corporation doctrine is all about, in our submission – that is the absolutely orthodox view of it.  What it is not protecting, other than incidentally, and perhaps indirectly in a particular case, is the ability of a State to have freedom of choice as to how legislative, executive or judicial powers are to be exercised.  There is a passage in the judgment of Justice Dawson in Queensland Electricity which is contrary to that, but nothing else in the long history of consideration ‑ ‑ ‑

GUMMOW J:   Queensland Electricity as I remember it was decided in haste and emotion.

MR GAGELER:   159 CLR 192 at page 262, last full paragraph, second sentence. Your Honours, I will come to the principal cases - I did not want to come to that case – in a moment.

GUMMOW J:   I suppose implicit in that in a way may be the notion that governmental functions are part of the constitution of the States, spoken of in section 106.

MR GAGELER:   That may be implicit, and it would be a wrong understanding now, in our submission.  I will point that out by reference to Melbourne Corporation itself in a series of cases.  It is a pretty fundamental point, and it is a point that has been blurred significantly in the submissions. 

FRENCH CJ:   There is a history in some of the Constitutions – I think in the State Constitution in Western Australia everything was bundled up together and then you got statutory split-offs.

MR GAGELER:   Yes.

FRENCH CJ:   One wonders whether, in a generic sense, provision for parliamentary salaries may not be seen as part of the Constitution of the State or whether that is the big “C” Constitution contemplated by section 106. I am not suggesting that brings in a kind of section 106‑based protection – that is a different argument – but it might assist in characterisation and the sensitivity of interference with those functions that is necessary to attract Melbourne Corporation.

MR GAGELER:   Certainly, I accept that, your Honour, and indeed, in the way that I stated it – which I did not make up, it is drawn from other cases that I will be taking your Honours to - I sought to make clear that the doctrine is concerned with protecting the establishment, which necessarily involves some element of choice and maintenance, which again, necessarily involves some element of choice of the institutions.  But it is the establishment of maintenance of the institutions rather than what the institutions do that is the critical thing.

Just to illustrate the general proposition before coming to the cases; as your Honours recall, it was no answer to the validity of the Bank Nationalisation Act which was an enacted the very year after the Melbourne Corporation Case, assuming that it was otherwise valid to create a banking monopoly to point out that it would have deprived the States of the ability to choose their own banking arrangements.

That was something that Sir Owen Dixon foreshadowed in the passage your Honour Justice Hayne noted in Melbourne Corporation itself.  But he said as much in the Bank Nationalisation Case itself, 76 CLR 1, pages 337 to 338, and Justice Starke - the other member of the court in Melbourne Corporation to whom reference is ordinarily made - said in the Bank Nationalisation Case at pages 325 to 326 that the argument for invalidity on this basis was untenable. That was his word, “untenable”. It would have been no answer to the application of section 9 of the Racial Discrimination Act to Premier Bjelke‑Petersen in Koowarta’s Case.

The argument was not put, but it certainly could not have been put to say that section 9 of the Racial Discrimination Act constrained the choices that were available to him in the exercise of his State executive power and it was no answer to the application of the Racial Discrimination Act to strike down the Queensland legislation in Mabo (No 1), or the application of the Native Title Act to strike down the Western Australian legislation in the Native Title Act Case, to say that it constrained the choices that were open to the Parliaments of the States in those cases from legislating with respect to a vast resource of the State which was Crown land.

Your Honours, to come to the cases which, in our submission, really fully establish those propositions, can I start with Melbourne Corporation itself.  I just want to go to a couple of the key passages in the judgments of the two judges whose views have come to be reflected most prominently in the later cases.

Justice Dixon – this is 74 CLR 31 at page 82, just picking out key sentences, page 82, point 2:

The framers of the Constitution do not appear to have considered that power itself forms part of the conception of a government. They appear rather to have conceived the States as bodies politic whose existence and nature are independent of the powers allocated to them.

Page 83, point 4, after the reference to section 107:

Accordingly the considerations upon which the States’ title to protection from Commonwealth control depends arise not from the character of the powers retained by the States but from their position as separate governments in the system exercising independent functions.

Page 84, point 6 – I think your Honour Justice Hayne has already pointed this out – in the second last full paragraph, the second sentence:

Except in so far as under its legislative power it may be able to alter the legal system, a State must accept the general legal system as it is established.

Back at page 81, about point 2, there is a reference to New York v United States which reflected the new understanding, post Graves, in the United States where Justice Dixon says that the various opinions in that case will repay study, and study them Justice Starke did, because if you turn back to page 75 you see the much repeated practical question.  They are Justice Starke’s words but they are almost taken word for word from New York v United States, which he cites at the top of that page. 

It is clear enough in context what his Honour is saying and certainly what the court in New York v United States was saying was that the focus is upon interference in a substantial manner with the functioning of government, not with what government might do in the exercise of its functions.  That is quite an important distinction.

HAYNE J:   Do I understand the argument advanced by Mr Barwick, as he then was, to have been an argument confined to characterisation?

MR GAGELER:   In the Melbourne Corporation ‑ ‑ ‑

HAYNE J:   In Melbourne Corporation and, indeed, an argument confined to characterisation in a way that depended upon a notion of singular characterisation.

MR GAGELER:   I confess that I have not looked at the argument here, but that reflects his Honour’s view that he then expressed in the Pay‑roll Tax Case.

HAYNE J:   But it is perhaps necessary to understand the argument that was advanced in order to appreciate at least some of what appears in the judgment, in the separate sets of reasons, as responding to a particular form of argument which sought to apply a singular characterisation to the law that was impugned as not a law with respect to banking.

MR GAGELER:   Yes, your Honour is doubtless right.  Certainly an argument in those terms is basically that which was accepted by Chief Justice Latham it appears in this case, that is, he accepted the characterisation approach, but as I pointed out, that has not prevailed.

GUMMOW J:   It appears perhaps at page 35 about point 7:

It singles out the States . . . it is rather a law “with respect to” the States and their domestic activities.

HAYNE J:   See also page 37 beneath the interjection of Chief Justice Latham where Mr Barwick said:

It is not essential to the validity of this argument that those discriminated against are States –

It would be so if they were brewers.

MR GAGELER:   Perhaps.  Your Honours, the next case that I wanted to go to very briefly, and again just picking up a couple of small passages, the Tasmanian Dams Case 158 CLR 1, page 139, responding to an argument of Mr Ellicott, at about point 6 of the page, this is paraphrasing and rejecting Mr Ellicott’s argument:

It is then suggested that the prohibition –

this the is Melbourne Corporation prohibition –

strikes down a Commonwealth law which inhibits, impairs or curtails any governmental function of a State in a material way.  But this it to rewrite the principle.  What it does is to prohibit impairment of the capacity of the State to function as a government, rather than to prohibit interference with or impairment of any function which a State government undertakes.

Then there is a quotation from Justice Stephen in Koowarta that:

the implication is derived from the federal nature of the Constitution an it is designed “to protect the structural integrity of the State components of the federal framework, State legislatures and State executives”.

GUMMOW J:   I understand all that, but what would be an example on the one hand of a law impairing capacity to function as a government and, on the other hand, a law which merely impaired a function?

MR GAGELER:   Page 214.  An example, pretty extreme example, of a law controlling the use of land that impairs the functions of government is given by Justice Brennan at about point 6 of that page.  There is a reference to Bank of NSW v The Commonwealth, and his Honour in the next three sentences or so, in expressing really the same principle as Justice Mason, gives an example.

GUMMOW J:   Whereabouts?  Where is the example?

MR GAGELER:   I am sorry.  This is not a case of a Commonwealth law purporting to restrict the use by the central departments of government or by Parliament or by the Supreme Court of the buildings appointed for their use in performing their respective functions.  The Melbourne Corporation Case ‑ ‑ ‑

GUMMOW J:   Suppose there was a law of the Commonwealth passed under the defence power which made it an offence for any Member of the State Parliament in Parliament to repeat certain classified information which was highly prejudicial for repetition in public, it was highly prejudicial to national security, now, is that valid?  They are in Parliament and they are on the feet and there is a law of the Commonwealth that says they cannot say it?

MR GAGELER:   Yes.  Your Honours, that is an extremely hard question.

HAYNE J:   I think it was designed to be so, Mr Solicitor.

MR GAGELER:   I do not want to give a glib answer to it. It is a difficult question and I am prepared to admit the possibility of section 106 itself being a difficulty in such a case, that is, parliamentary privilege is ‑ ‑ ‑

GUMMOW J:   But it is the fact from time to time, in the past any way, there have been some eccentric members of some State legislatures.

MR GAGELER:   Indeed.  If it were a law of general application applicable within the Commonwealth Parliament as well as within State Parliaments, then it would probably pass muster, but it is a difficult case, your Honour.

GUMMOW J:   I am just rather mystified by this distinction that Justice Mason draws.  I can read the words, but how it all works out I am not sure.

MR GAGELER:   It is worked out to some extent in the next case that I am coming to, your Honour.  It is the Native Title Act Case.

HEYDON J:   Mr Solicitor, is Austin consistent with that sentence beginning, “What it does is to prohibit impairment of the capacity of a State to function as a government”?

MR GAGELER:   Yes, I believe so.  I will certainly be coming to Austin in due course, but I believe it is.  Post‑Austin there is a one line statement in Bayside City Council v TelstraCorporation 216 CLR 595 referring to Austin.  Your Honours might turn to it now in answer to your Honour’s question.  At page 626, paragraph 31, the first sentence, citing Austin, puts the principle in a nutshell in a way that is entirely consistent with Justice Mason.  But it is teased out a little more in the Native Title Act Case 183 CLR 373.

At page 476 there is a section of the judgment which deals with the argument of Western Australia that the Native Title Act regime governing the validity of future Acts which, as your Honours know, is extremely restrictive in a number of respects, infringed the Melbourne Corporation doctrine.  The discussion of that argument and the Court’s answer to it continues over a number of pages.  The passages that I just wanted to highlight are at pages 480 and 481.  At the top of 480 it is said, at line 3:

Accepting for the purposes of determining constitutional validity that the Act will complicate government administration in Western Australia and delay the making of administrative decisions, the question is whether those effects constitute an impermissible interference with the capacity of the Government to function as such.

There is then a reference to the passage in Justice Dixon’s judgment in the Melbourne Corporation Case drawing a distinction between powers and government.  Then it is said after that:

For constitutional purposes, the relevant question is not whether State powers are effectively restricted or their exercise made more complex or subjected to delaying procedures by the Commonwealth law.  The relevant question is whether the Commonwealth law affects what Dixon J called the “existence and nature” of the State body politic.  As the Melbourne Corporation Case illustrates, this conception relates to the machinery of government and to the capacity of its respective organs to exercise such powers as are conferred upon them by the general law which includes the Constitution and the laws of the Commonwealth.

GUMMOW J:   The next sentence may be problematic, cannot “burden the State in the acquisition of” goods or services which it requires to exercise its powers.  It pays GST and ‑ ‑ ‑

MR GAGELER:   That last sentence cannot be disembodied from the sentence that precedes it.  It is about Commonwealth laws which involve some serious impairment of the ability of a State to function as government.  That is what is being referred to and that is emphasised by the passage then at 481, which I will not read in full, but after the quotation from Justice Brennan in the Tasmanian Dam Case there is a paragraph that begins, “The Act”.  The last sentence of that paragraph:

The Act does not impair –

that is the Native Title Act –

what Dawson J described as “the capacity to exercise”, constitutional functions though it may affect the ease with which those functions are exercised.

FRENCH CJ:   Are constitutional functions a different class from essential functions?  How do we identify a constitutional function?

MR GAGELER:   What I think is being referred to there is simply the functioning of the constitutional organs of the State, nothing more than that, doing what legislatures do, doing what executives do.  What the doctrine is all about is the capacity to do rather than the ability to do a particular thing, the ability to exercise choice to do a particular thing.

FRENCH CJ:   Those two terms appear in the same paragraph, essential functions and constitutional functions, and perhaps in a way it tends to equate them.

MR GAGELER:   Yes.

FRENCH CJ:   So essential functions is not everything that the State does.

MR GAGELER:   It is governments being able to govern.

GUMMOW J:   Yes, but what does govern mean?

MR GAGELER:   It is governing, governance.

GUMMOW J:   I know, what does govern mean?  Running hospitals, trains, schools, what does it mean?

MR GAGELER:   No, of course not.  No.

GUMMOW J:   Or just conducting executive council meetings?

MR GAGELER:   It means being able to legislate and being able to act as an executive and it means being able to administer the courts; that is essentially what it means.

HAYNE J:   It seems to invite attention to the nature of a body politic.

MR GAGELER:   Indeed.

HAYNE J:   That is, it invites attention to the nature of the bodies politic whose continued existence is presupposed.

MR GAGELER:   More than that.  More than presupposed.  They are, according to the modern post‑McGinty understanding, created and sustained by section 106. Indeed, that is exactly it. So, your Honours, whether there is – that is the essential distinction and is the essential nature of the doctrine and what it is concerned with is preventing what as a matter of fact and degree - there is no bright line - the matter of fact and degree is a substantial impairment of the ability of that polity to behave as a polity. That is it.

HEYDON J:   Was Austin a substantial impairment with the ability of New South Wales to behave as a polity.  The courts of New South Wales operated just the same after the Act was introduced right up to the time that it was held invalid and thereafter.

MR GAGELER:   I do not want to reargue Austin.

HEYDON J:   No, but what you are saying is not consistent with Austin, I put it to you.

MR GAGELER:   No, what I am saying is entirely consistent with Austin.  Your Honour, the outcome in Austin is not something I want to quibble with but the outcome in Austin, applying that test, could well have been different but I will come to Austin in a moment.  I will deal with Austin.

HEYDON J:   That test was not applied in Austin.

MR GAGELER:   It was, your Honour.

HEYDON J:   I thought you just said the outcome would be different if that test were applied in Austin.

MR GAGELER:   If I said that I did not mean that.  The test was, in our submission, applied in Austin.  Because it is always a question of fact and degree the actual application of the test in Austin ‑ ‑ ‑

HEYDON J:   Was wrong as a matter of fact and degree.

MR GAGELER:   Your Honour, I pause before making that submission and I am not making that submission.  I am not making that submission.  I can live with Austin and I can explain it entirely consistently with the general operation of the doctrine.

GUMMOW J:   I am sure you can live with the Queensland Electricity Case, though.

MR GAGELER:   Yes, I am going to deal with Queensland Electricity in a moment.  But as a question of fact and degree can I just say a couple of things.  If it is a question of fact and degree, as we say it necessarily is, not a question of principle and not a bright line as many against us would have it, then it ought in principle be for those who seek to rely upon the constitutional facts that show the impairment to demonstrate those facts to demonstrate a constitutional fact of impairment.  Obviously rules of evidence are inapplicable, as your Honour Justice Heydon pointed out in Thomas v Mowbray, but there must be some material which the Court is able to treat as “sufficiently convincing”.  That is your Honour’s language in Thomas v Mowbray 233 CLR 307 paragraph 639.

Another point to make is the point made generally in Vetter v Lake Macquarie City Council in a joint judgment, 202 CLR 439 at 454. That is the point that goes back to a statement of Lord Mansfield that all evidence – and we would extrapolate all material – is to be weighed according to the proof which it is within the power of one side to have produced and the power of the other to have contradicted.

HEYDON J:   It is not constitutional facts.  Those are matters of controversy in evidence about ‑ ‑ ‑

MR GAGELER:   Indeed.  But the point can be extrapolated, your Honour, in this way.  If there is a substantial interference with a capacity of a State to function as a government then one would expect a State to be able to bring forward material to substantiate it.  Your Honour Justice Heydon asked about the evidence in Austin and, indeed, whether that was the appropriate terminology.

The references in Austin to actuarial evidence, and there appears to have been a volume of it before the Court, are at paragraph 8, paragraphs 88 to 89, 91, 169 and 231 to 232. Paragraph 231 actually begins, I think, with the words, “The evidence in this case shows”. That material before the Court in Austin is to be contrasted with the paucity of material in the present case and the detail of the argument based upon that material in Austin is to be contrasted with the highly abstract and theoretical way in which South Australia, the party that one would expect to be able to demonstrate actual substantial interference if it existed, has put its case.

HEYDON J:   We will look at all these references no doubt in due course, but paragraph 231 is part of Justice Kirby’s dissenting judgment and what it does is establish Justice Austin’s advantages and burdens would be at particular times.

MR GAGELER:   Yes.

HEYDON J:   A similar analysis can be done here, can it not, for Mr Clarke?

MR GAGELER:   It certainly can.  I am going to do that, your Honour, yes.  With the material that is available I am going to do that with some precision, I hope.

HEYDON J:   Well, others have done it already, maybe your conclusions will differ, but it has been done.

MR GAGELER:   Yes.

HEYDON J:   Counsel for Mr Clarke did it.

MR GAGELER:   Yes, 231 is in Justice McHugh’s judgment, your Honour, so it is part of the majority.  Justice Kirby, I think, is on the next page.

HEYDON J:   Yes, it starts on the next page.  Yes, that is right.  The point is that that is not of a different order from what is involved here.

MR GAGELER:   There was a different intensity and the conclusions that were drawn from it are different from the conclusions which ought be drawn in the present case, it will be my submission when I come to it.

HEYDON J:   But in this case can we not work out what the pension will be at different times, what the accumulated debt will be at different times without having to predict the future, but we know what it will be for past years and things will vary with bond rates and things like that in the future.

MR GAGELER:   That is right.  What the actuarial evidence showed in that case, amongst other things, was that Justice Austin, or a judge in a similar position, could find himself retiring with a very substantial debt immediately upon retirement and on an expectation of a pension into the future, so when he retires he has the huge debt and ‑ ‑ ‑

HEYDON J:   And rather a large pension.

MR GAGELER:   The debt, I think, was shown to cover a couple years of pension, so he would have a debt that exceeded the pension he would expect for the next couple of years.  Not this case.  That is one point that I will be making when I come to it.

The evidence in that case also showed that because of the minimum retiring age and the accumulation of interest, there was a disincentive, a financial disincentive, actuarially demonstrated to staying in office past a certain point.  You will not find that in the material before the Court here.  They are two quite different factual points.

HEYDON J:   I agree, the facts are different.  I am just questioning whether your complaints about the paucity of evidence in this case are not perhaps somewhat exaggerated, to use a word that I do not think you like?

MR GAGELER:   Your Honour, I am happy enough to say, except this.  This is the totality of the evidence and on the totality of the evidence the substantial interference is not demonstrated; perhaps it is a happier way for me to put it.

HEYDON J:   Can we not take into account inferences to be drawn from the enactments themselves and from general knowledge and experience of

Australian affairs and, indeed, from statements at the Bar table which have an inherent rationality?

MR GAGELER:   Not the latter, your Honour, but the other two, yes.

HEYDON J:   Justices Dixon, McTiernan and Fullagar said you could in Wilcox, Mofflin Ltd v State of New South Wales 85 CLR 507.

MR GAGELER:   If they said it, I will accept it, your Honour.  If the Court pleases.

FRENCH CJ:   The Court will adjourn until 9.15 am tomorrow.

AT 4.17 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 12 MARCH 2009