Clarke v Commissioner of Taxation & Anor

[2008] HCATrans 375

[2008] HCATrans 375

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A16 of 2008

B e t w e e n -

RALPH DESMOND CLARKE

Applicant

and

COMMISSIONER OF TAXATION

First Respondent

ATTORNEY-GENERAL FOR SOUTH AUSTRALIA

Second Respondent

Application for special leave to appeal

FRENCH CJ
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON THURSDAY, 13 NOVEMBER 2008, AT 11.08 AM

Copyright in the High Court of Australia

MR P.A. HEYWOOD‑SMITH, QC:   If the Court pleases, I appear with MR A.L. TOKLEY for the applicant.  (instructed by Johnston Withers)

MS M.A. PERRY, QC:   If the Court pleases, I appear with my learned friend, MS M.C. WALL, for the first respondent.  (instructed by Australian Government Solicitor)

MR M.G. HINTON, QC (Solicitor-General for the State of South Australia):   If the Court pleases, I appear with my learned friend, MR M.J. WAIT, for the second respondent.  (instructed by Crown Solicitor for the State of South Australia)

FRENCH CJ:   The Court would be assisted, I think, Ms Perry, by hearing from you as to why special leave should not be granted in this case.

MS PERRY:    Thank you, your Honour.  The primary reason why the first respondent submits that special leave should be refused is on the basis that the general principles have been explained in Austin and there is no need for them to be the subject of further elucidation by this Court.  The present case, in our submission, simply involves the application of those principles to the circumstances of one category of a range of employees and officers at the higher levels of State Government.  The Full Court’s decision is, in our submission, for reasons that I will develop, consistent, we say, with the decision in Austin. 

In this regard, and again it is a point I will develop in due course, the critical point that we, with respect, submit the applicant and the State have missed is that this is not a case where the federal law regulates or has a direct impact on the terms and conditions on which the State engages employees and officers at the higher levels of government, nor as in Melbourne Corporation is it a case where the federal law has an indirect operation which is effectively equivalent to a direct impact, but it is a case of an indirect fiscal burden.  As such, as I will demonstrate, the question to be asked here, as it was asked in Austin, is whether that means that the burden is speculative and uncertain and whether it simply affects the ease of the working of the Parliament or has a greater significance.

The point of that is that it leaves the issue now as essentially one of fact and degree, the matters of principle having been settled, as I have said, already by this Court in Austin.  That, we say, is how the Full Court correctly approached the matter.  That having been said, of course, that if the Court considered, contrary to the submissions that I will develop, that there is a real question of constitutional principle raised, then clearly the Commissioner accepts that it would be appropriate for there to be a grant of special leave. 

CRENNAN J:   And a question of public importance to explore the limits of Austin given the difference between the Austin result and this result.

MS PERRY:   Your Honour, in our submission, it was a factual issue which the Full Court determined appropriately and in accordance with the matters of principle enunciated in Austin and we would say, with respect, that there is not a separate and distinct issue of principle that is involved.  However, one cannot deny and, in fact, we did not seek to deny in our written submissions that there was a question of public importance involved, albeit that we did make the point that it was limited in certain respects. 

Ultimately, in our submission, when the submissions for the State and the applicant are boiled down, what they effectively say in different ways is that once it is accepted that State parliamentarians are engaged at the higher levels of government, then the principles enunciated in Austin have left nothing further to be decided here.  In the case of the State, this is put as a proposition that the Full Court ought to have found a significant impairment from the very fact that a federal law intruded onto a field of State immunity, being of course the State’s freedom to determine the terms and conditions of its officers and employees holding office at the higher levels of government. 

They say that it can be inferred from the very nature of the tax that it created a disincentive to stand for election and an incentive for parliamentarians to retire early.  That would also seem to correspond with the applicant’s approach and, in particular, would seem to be raised by the second special leave question which has been posed by the applicant as to the significance of the agreed fact that the applicant was, as a member of State Parliament, engaged at the higher levels of government, albeit that the applicant does not suggest that that alone would suffice to establish invalidity.  But with respect, that approach, for which the State and the applicant contend, does not reflect the approach that has been adopted by the Court in Austin. 

I might ask your Honours to turn to that decision, and first to paragraph 174. It is reported in 215 CLR 185, and it appears, I think, in the applicant’s bundle of materials. At paragraph 174 of their reasons, the Court makes it clear that the reasons why they held the surcharge legislation, or perhaps one might call it perhaps more accurately the Protected Funds Assessment and Imposition Acts, to be invalid insofar as they imposed a burden on the operations of the State of New South Wales with respect to remuneration of judges. They say:

would apply also to the application of the legislation to the judges of other State courts as members of unfunded non‑contributory pension schemes resembling ‑ ‑ ‑

FRENCH CJ:   I am sorry.  I have the wrong paragraph number, I think, Ms Perry.

MS PERRY:   I am sorry, your Honour.  It is at paragraph 174 of the joint judgment of their Honours Justices Gaudron, Gummow and Hayne.

FRENCH CJ:   Yes, I have it.  Thank you.

MS PERRY:   They confine, in other words, the reasons that they have given for the decision to the circumstances affecting judges of other State courts in unfunded non‑contributory pension schemes and then make it clear that nothing said in these reasons indicates any conclusion respecting the position of other members of constitutionally protected superannuation funds to which the federal legislation applies. 

Secondly, as I mentioned at the outset, the applicant and the State’s approach does not take into account the characterisation by the Court at paragraph 158 of the joint reasons of the federal law as one which imposes no direct fiscal burden on the State and the consequences of that for the questions which the Court must consider, and that was whether the absence of that immediate fiscal burden on the State compels the conclusion that there has been a speculative and uncertain impairment and whether the federal law merely affects the ease of the workings of the judicial branch. 

So this is not, in other words, a case like Melbourne Corporation where the indirect impact was the same as a direct impact.  There is no material difference, as the Court held in that case, between a law that prohibits the banks from dealing with the States and a law that prohibits the States from dealing with the banks, nor is it a case like the United States Supreme Court decision in the National League of Cities Case, which again  was a case of direct discrimination.

CRENNAN J:   Can I ask you about the point put against you in this context which, as I understand it, is this, that the Melbourne Corporation doctrine does not require evidence of compulsion for a change to the legislation before a particular law would be held to be invalid, but what is required is evidence of an impermissible interference with the capacity of the States to function as governments.  So that, as I understand it, is the applicant’s point urging a grant of special leave on the basis that that squarely raises quite a serious question of public importance, absent any debates about how the evidence was precisely treated.

MS PERRY:   Yes, your Honour.  In that regard, it is our submission that the applicant’s question has in it an assumption which is not borne out by the reasons of the Full Court, that in fact the Full Court did not require evidence that the State was compelled to amend because of the protected funds legislation.  As it is clear, and if I might ask your Honours to turn in this regard to the judgment of the Full Court ‑ ‑ ‑

CRENNAN J:   I think their discussion begins at application book 45 at about paragraph 127.

MS PERRY:   Thank you, your Honour.  Yes, it commences at ‑ ‑ ‑

CRENNAN J:   It commences there.

MS PERRY:   Yes.  If I might direct your Honours to page 45, point 5, where their Honours make it clear that they were responding to the argument, as it was being put by the applicant and the State.  They relied on amendments as evidence of impermissible interference and, more particularly, at paragraph 127, the contention by the State that:

The existence of s 21 makes it difficult to see the addition of s 21AA –

of the Parliamentary Superannuation Act –

as something the State was compelled to do as a result of the surcharge legislation.  The State contends that s 21AA was enacted because the existing right of commutation was inadequate to cover members’ surcharge liabilities.

But that was, on the material before the Full Court, simply incorrect.  The Full Court then found, as your Honours will see in the passages that follow, first that it was not borne out by the agreed actuarial calculations which demonstrated that the pre‑existing right of commutation which existed in the Parliamentary Superannuation Act would have been sufficient to meet any actual or potential surcharge liability of any member at any time even if the surcharge had not been repealed.

CRENNAN J:   I think the applicant’s point, though, is that the legislative change would not have happened because that position would not have existed had it not been for the Commonwealth legislation.

MS PERRY:   Your Honour is correct. 

CRENNAN J:   So it does not meet the point to point to these bullet points, if I can put it that way.

MS PERRY:   Your Honours, as I understand the point, it is said that the difficulty with the Full Court’s – there is no doubt that there was a link between the amendments and the protected funds legislation and the impetus for making the change at State level was the existence of the protected funds legislation.  What the Full Court did, though, which we say was appropriate in light of the approach adopted in Austin, was to look at why it was that the State had made that change and to look at the significance of the change that was being made, because that was indicative of the significance of the impact that the Commonwealth law had on the arrangements that the State had in place.  It was intended to be evidence, in other words, of a substantial interference.

If, as the Full Court found in this case, the change was effectively no more than a matter of fine tuning, it simply enabled the lump sum benefit to be calculated on the basis of more favourable commutation factors to the extent that the lump sum was to be applied in payment of the superannuation surcharge.  So if that was the case, as the Full Court found, it was a matter of fine tuning.  It was not, as it was in Austin, the case that ‑ ‑ ‑

CRENNAN J:   Impermissible interference.

MS PERRY:   Substantial interference.  I think Justice McHugh in Austin put the point at paragraph 233 of his judgment that the amendments in that case were essential to provide judges with a mechanism to pay the surcharge from the benefit, so that the position as it was in Austin stands in very stark contrast to the position here, where the amendments were not in any sense essential.  So as such, yes, there was a link and they demonstrated a response to a degree of impact, but they did not demonstrate a substantial impact. 

CRENNAN J:   You draw from that not a significant interference or not a serious interference, to use Justice McHugh’s words?

MS PERRY:    Yes, your Honour.  Perhaps I put it slightly differently, your Honour, to say that at least the fact that the amendment was made did not evidence the existence of a substantial interference.  It did not mean, of course, that there might not have been other material before the Court which demonstrated that, but at least the amendments ‑ ‑ ‑

CRENNAN J:   Without more, is your point.

MS PERRY:   Without more – did not indicate a substantial interference.  In that regard, we say that the Full Court did not misunderstand at all the task that was entrusted to it and it did not misunderstand the approach adopted in Austin, but took an appropriate approach.  In fact, I suppose that point illustrates the point I made at the outset that these are issues of fact and degree rather than matters of principle. 

But returning more broadly to that issue, the fact that the working out of Austin ultimately involves matters of fact rather than principle is indicative, we say, from the way in which the Court in Austin then addressed a determination or a consideration of the question of whether there was, in fact, a substantial interference.  Just briefly, your Honours will see that, at paragraph 165 of the joint judgment in Austin, the members of the joint judgment looked first, in determining impact, at the significance of the State’s choices about the arrangements that it might make for judicial remuneration from the perspective of the State and it found that that significance was considerable having regard to the findings, in effect, of constitutional fact that it had made earlier at paragraphs 159 to 160, drawing in particular on the United States and Canadian Supreme Court identification of the significance of providing secure judicial remuneration. 

They then found, at paragraph 167, that that importance was also indicated by the fact that judicial pensions did not require contributions but, rather, they are fixed as a proportion of remuneration at retirement.  That showed, in effect, the relevance of particular arrangements to the constitutional issue.  In the present case, the Court also looked at those constitutional factual issues, but found that the same considerations did not apply.  An illustration of that is in the findings of the Full Court at page 43 of the application book where the point is made that unlike the position of Supreme Court judges who are drawn from –

a small group of senior members of the legal profession, those interested in standing for Parliament comes from all walks of life –

So that one could not assume, in other words, that the surcharge legislation would necessarily act as a disincentive to people to stand for election at State Parliament level in the same way that that legislation is found to provide a disincentive for members of the legal profession to accept judicial appointment. 

The second constitutional factual issue that needed to be addressed in Austin concerned the significance of the impact of the federal laws on the State’s interests.  In that case, at paragraph 168, their Honours identified the practical questions of whether there has been in a significant manner a curtailment or impairment of the exercise by the State of its constitutional power.  In Austin, the Court found that there was no need to speculate about that because of the nature of the amendment that had been made to the State law following the federal law.  That amendment was evidence about the capacity of the federal law to affect recruitment and retention of judges, as

his Honour Chief Justice Gleeson said, for example, at paragraph 8 of his reasons.

The Court also had detailed actuarial evidence before it in Austin which demonstrated that the Commonwealth surcharge legislation provided a significant incentive to judges to retire early, and some of the detail of that is perhaps most clearly illustrated in the reasons of his Honour Justice McHugh at paragraphs 231 to 232.  But in this case, the Court found that the position was different and that, as I have explained, the nature of the amendment did not evidence any significant interference, and there was not the same material before the Court which might have demonstrated in a practical way that there was an impact by reason of the federal legislation.

FRENCH CJ:   Even though there may be questions of fact and degree involved in the Full Court’s decision, that does not take it out of the category of raising an issue of general importance, does it?

MS PERRY:   Not necessarily, your Honour, no.  As I explained at the outset of my submissions, we accept that there is a question of public importance even though we say it is limited by certain factors.

FRENCH CJ:   Yes.

CRENNAN J:   You would accept, I except, that it is a suitable vehicle in the sense that there are no disagreements about the facts?

MS PERRY:   No, your Honour.  The facts which might have been strictly so proved have, of course, been the subject of agreed facts.

CRENNAN J:   Agreed facts, yes.

MS PERRY:    Yes, your Honour.

FRENCH CJ:    Yes.  Thank you, Ms Perry.

MS PERRY:   Thank you, your Honour. 

FRENCH CJ:   Mr Heywood‑Smith, the Court is of the view that a question of general importance is raised which warrants the grant of special leave in this case, and we propose to grant special leave, but we think you will need to pay some attention to your grounds of appeal, the relationship between which and your special leave question seems to be glancing.  So, subject to that, you will have the grant of special leave.

MR HEYWOOD‑SMITH:   If the Court pleases.

FRENCH CJ:   Yes, all right.  Thank you.

AT 11.32 AM THE MATTER WAS ADJOURNED