Deputy Commissioner of Taxation v State Bank of New South Wales

[1991] HCATrans 113

_i/i,r	--!J, AtJST!l.Ll.lA,,.r
-~»$~--~

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S22 of 1987

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION

Plaintiff

and

STATE BANK OF NEW SOUTH WALES

Defendant

Demurrer

MASON CJ
BRENNAN J
DEANE J

DAWSON J

TOOHEY J
GAUDRON J

McHUGH J

State 43 3/5/91

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 3 MAY 1991, AT 10.16 AM

(Continued from 2/5/91)

Copyright in the High Court of Australia

MASON CJ: Yes, Mr Bennett.

MR BENNETT: 

I handed to Your Honours at 4.15 pm yesterday

the decision of the Supreme Court of Canada in
Canadian Pacific Railway v Attorney-General for

Saskatchewan. The purpose of taking Your Honours

to this case is to show the precise nature of the

decision of the Privy Council, which was approved

by this Court in First Fringe Benefits. If

Your Honours go first to page 215 in the judgment

of Mr Justice Kellock Your Honours will see at

about point 4 the statute is set out or summarized.
Section 441 provides:

that the assessor shall each year assess -

two things:

(1) the owner or occupant "in respect to

every parcel of land" in the city,

(2) every person "who is engaged in

business."

"Business" is broadly defined.

Under that section the assessor shall fix a

rate per square foot of the floor space of
each building or part thereof used for
business purposes -

Over the page at page 216 in the last six lines of the paragraph continuing over the page at

about point 2:

Section 504 deals with the tax roll and by

subsection (2) it is provided that this roll

shall contain "(a) the name of every person
assessed,""(c) the nature and description of

the property in respect of which he is

assessed."

His Honour then says:

It is plain in my view that the

"business" assessment provided for by these
taxing provisions is the assessment (and
taxation) of a person in respect of land or
building occupied by him for the purposes of a

business, and that, apart from any question of

a statutory lien or charge, such taxation does

not differ from that of a person in respect of

ownership of land and building.

State 44 3/5/91

In other words, the business was nothing more than the description of the land which was being assessed. It was not a tax on doing business.

In each case, the liability imposed is with

respect to, in the one case, the value of land

owned, and in the other, with respect to the value fixed by the statute of land occupied. In nature, therefore, there is no essential

difference. In the case of the land tax, the
tax is not simply imposed upon and payable out

of the land, nor in the case of the business

tax is it simply imposed upon and payable out

of assets apart from the land ..... In each case the tax is imposed upon a person in respect of land owned or occupied.

His Honour's judgment was substantially approved by

the Privy Council. The decision was affirmed.

Passages from that judgment were actually set out
in the Privy Council decision, and in my respectful

submission, that makes it quite clear that the

decision cannot be regarded as authority for some
general proposition that a tax on the use of
property is a tax on property. If anything it is

the opposite.

May I now return to First Fringe Benefits to

support it, 162 CLR, and before interrupting myself

to go to the Canadian case I was reading the

passage on page 98. I had got yesterday to the

reference at the middle of page 98 to the Canadian

Pacific Railway case. Your Honours go on:

This is because an exemption from taxation on ownership of pr.operty naturally extends to an

exemption from taxation on the use of it. And

a tax on the proceeds of sale of property is

likewise a tax on the ownership of property or

on property because it is an indirect means of

taxing the ownership of property.

Your Honours do not specifically say there,

although Justice Dawson does in his judgment, that

there is a distinction in this regard between a

sales tax and a tax on the proceeds of sale. We

would respectfully submit that that is implicit in

this judgment as well and that the distinction has

been drawn between a tax on the proceeds of sale as

such and a tax on the transaction of sale.

Such a tax would necessarily fall within the

constitutional immunity; if it did not, the

constitutional immunity would amount to

nothing but a formal prohibition.

State 45 3/5/91

Once this interpretation of s 114 is

accepted, it is apparent that the car and

housing fringe benefits tax stands outside the

constitutional immunity.

Your Honours then deal, in this paragraph, with a

slightly different point - but one which I still

need to make in this case and which I will come to

in a moment - which is the difference between what

one might call income and capital; the question of

taxing the income as opposed to the capital and the

question whether that is a tax on property. It

ties in, as Your Honours will see, with my learned

friend's submission in relation to Dalziel's case

and Your Honours say:

In the case of car fringe benefits the tax is imposed on the value of the private use of the car by the employee or his associate or on the value of the availability of the car. The tax is not imposed on the ownership or holding of the car by the State ..... or on its possession

or use of the car. Nor is it imposed on the

disposition by the State of any interest in

its property.

But that reference to disposition does not carry

with it any implication, we would submit, that if

it were a tax on the disposition it would be on the

other side of the line. It is simply, without

deciding that question, pointing out that it is not

a tax on disposition either.

The tax is imposed because the employer

provides the employee with a benefit in

connexion with his employment. Likewise with

housing fringe benefits .... the value of a

benefit, a housing right, which may be an disposition as such. Nor is it imposed on the
interest in property in the form of a lease.

proceeds of sale.

And we would submit, that passage leaves unanswered

the question about disposition as such.

There is only one sentence in Justice Wilson's judgment I want to remind the Court of, that is the

passage at the top of page 101 which my learned

friend has already taken Your Honours to. We

simply remind Your Honours that it again refers to

use in the context where it is use of land, where

it is in every sense of the word use of land over a
period and, therefore, a land tax.

Now, Justice Dawson's judgment requires separate analysis. Might I take Your Honours,

State 46 3/5/91

first, to page 103. At about point 6, the

paragraph beginning just after the quotation,

Your Honour says:

the tax which section 114 prohibits is a tax

on property belonging to the Commonwealth or a

State and, whatever the correct description of

a tax on property, it is clear enough that a

tax which in its application does not require

as an essential some relationship between the

taxpayer and property is hardly likely to be,

if it ever can be, a tax on property.

Now, it was for that reason that I pointed out to

Your Honours, when I was dealing with the nature of

this particular tax, that it does not require that

the person own the goods. One can manufacture

goods and apply them to one's own use without

owning them and the Kodak case is an example of

that. And, of course, the reference in Stewart to

the fact that the hospital, although it did not own

the goods, used them, within the meaning of the

sales tax legislation.

Over the page, at page 104, His Honour makes

the second point which we rely on.	His Honour says
at point 3, the new paragraph:

The point is well illustrated by the

elliptical phrase "any tax on property".

Property does not pay taxes; individual taxpayers do.

That will become relevant when I get to the very

last submission which I deal with, the one in

paragraph 11 of the learned Solicitor-General for

New South Wales' submissions, which the learned

Solicitor-General for South Australia did not adopt. That is the argument that the State Bank itself is property of a State and therefore a tax

payable by it is in some way a tax on property.

"Property does not pay taxes"; that is not what is

meant by a tax on property, where the property

happens to be a person or body having corporate

personality - one is not talking about a tax

payable by it when one talks of a tax on property.

His Honour goes on, if I can return to the

present point:

But an individual may be liable to pay tax because of some relationship between himself

and property and if the relationship between

the tax and the property is sufficiently

direct and substantial then the tax may be

said to be a tax on property. Clearly enough,

a tax upon the holding or ownership of

State 47 3/5/91

property will be a tax upon property, whether
or not the tax is actually charged upon the

property. Thus municipal rates, whether or

not a charge upon the land, are a tax on

property. On the other hand, a tax upon a

transaction, even if it involves the use of

property, is not ordinarily a tax upon

property

that is Steel Rails, of course, and also, as

Your Honour says:

a pay-roll tax is not a tax on property. In

one sense every tax involves property since it

involves the payment of money which is a form
of property, but clearly it is not the funds

used to pay the tax, or the source of those funds, which determines what kind of tax it

is. Sales taxes and income taxes are taxes

imposed upon transactions or activities -

and we stress that passage, and we respectfully

submit it is not inconsistent with the majority

judgment -

and there is no direct relationship between

them and any property held or owned by the

taxpayer in the sense that he is liable to tax

because he is the holder or owner of property.
On the other hand, a tax with is tantamount to
a tax upon the holding or ownership of

property, such as a tax upon the proceeds of

sale -

and the distinction again between sales tax and tax

on the proceeds of sale, the transactional tax and

the property tax -

may provide a sufficiently direct relationship

between the tax and the property itself to

constitute the tax a tax on property.	It was
reasoning of this kind which led the Privy
Council in CPR to hold that a "business
tax" ..... was a tax on property.

And we respectfully adopt the whole of that passage

and put that as being the law which should be

applied and, as I say, we submit, it is not

inconsistent with the majority judgment. It makes

the distinction, which is the essential distinction

in this area, between a tax and a transaction and a

tax on property.

Now, it is true that there are cases where

there is economic equivalents. It is true, as I

must concede, that there are cases where one can

create the same tax in substance, or a tax with

State 48 3/5/91

economic equivalents, which, with one wording it
can be a tax on a disposition or on a transaction

and with another wording can be a tax on property

but that, in my respectful submission, is the

necessary consequence in this area of law because,

however one draws the distinction, it cannot

ultimately come down to any distinction in

substance. Even the distinction - and this arises

perhaps more in the SASFIT case than this case -

but even the distinction between personal exertion

and tax on property, may be a very fine line.

If one charges income tax on a taxi driver who

drives his own taxi, there may be a very fine

distinction as to whether he is being taxed on his

property or on his exertions. If one divides it

and one thinks of the taxi owner who lets someone

else drive his cab, there may be two separate

components of the income. If the one person has

both and they are roughly equal, it may be very

difficult to determine, as a matter of economic
equivalents, whether one is taxing property or

labour, and ultimately the distinction must come

down to the question of whether the tax is imposed

on the transaction or the property, and the passage

in Justice Dawson's judgment, in my respectful

submission, correctly sets out the distinction.

The only other case to which I want to take

Your Honours on this aspect, and I will do so very

briefly, is the decision of this Court in the State

of Western Australia v Chamberlain Industries,

(1970) 121 CLR 1 and there is simply one paragraph

in the judgment of Sir Garfield Barwick at page 17

of which I wish to remind you Your Honours.

His Honour was a member of the majority in that

case and in the first full paragraph on page 17

His Honour said this:

I have no doubt that to tax the receipt

of the purchase price or any part of the

purchase price of the sale of goods is to tax

a step in the movement of goods into

consumption.

This, of course, is an excise case, but it is the

use of language which I am concerned with.

It is, as I said in the earlier case, a tax

upon the transaction of sale itself and, to my

mind, is clearly of the essential nature of a

duty of excise. The relationship of the tax

to the goods within the intention and

operation of the Act is sufficient, in my

opinion, to satisfy any of the formulae which

have been used in an endeavour to find a

definition of an excise duty.

State 3/5/91

An excise, of course, is not a tax on property as

such, and as His Honour points out in that case it

may well be a transactional tax.

The final matter I want to put is that if one were to interpret the majority judgment in The

First Fringe Benefits contrary to what was said by

Justice Dawson as meaning that a sales tax or

transactional tax is a tax on property, one would

need to overrule Steel Rails and, of course, that

was not what was done in that case.

BRENNAN J:  Mr Bennett, allowing for the distinction for

which you argue between property and transactions,

is there a problem in respect of the imposition by the Commonwealth of a tax upon an application by a State of its own property for its own use, arising not perhaps from section 114 but from more general considerations in the Constitution?

MR BENNETT:  Your Honour, they have not been raised in this

case. That argument has not been put. There

certainly are cases where there are discussions as

to the extent to which States may be directly

liable for taxation. We would simply put at the

moment that if anything, there is an expressio

unius in section 114 itself, and once one takes

away section 114 in relation to tax on property,
one takes away the immunity of instrumentalities to
find in what remains a general doctrine which would

prevent the taxation of States in that context, is

one which, in my respectful submission, cannot be

found.

But Your Honours would not need to decide that

in this case. Your Honours would simply be

entitled, in my respectful submission, to say,

"That point is not raised by the States. Therefore

it is not necessary to consider whether that would

be an objection if it were raised."

BRENNAN J: Is that an adequate answer to a question of

constitutional power?

MR BENNETT:  Your Honour, in my submission - I should say

this:  if that matter were to be raised we would

wish to have an opportunity of considering it and

preparing submissions on it and, in our respectful

submission, it is not a matter we ought to be

required to answer today, it not having been raised

in the case. If Your Honour were concerned about

that aspect the appropriate course would be to deal

with the other questions in the case and reserve

that question for further consideration.

BRENNAN J: Speaking for myself, as at present, I am

concerned by that aspect.

State 50 3/5/91

MR BENNETT:  Your Honours, that is the course I would submit

would be appropriate. There certainly are cases

which refer to the general doctrine Your Honour has

referred to and there are, of course, limits upon

it but, in my respectful submission, it simply has

not been raised in this case and, if raised, should

be dealt with on a separate occasion.

MASON CJ: It would require a 78B notice.

MR BENNETT: It would, Your Honour, yes. It is not a matter

which can be determined today, in my respectful

submission.

BRENNAN J:  Then would you give me the benefit of your

submissions as to what course should be followed if

the problem to which I have referred is, as it

appears to me, a real problem?

MR BENNETT:  The appropriate course, in my respectful

submission, would be to deliver judgment on the

matters which have been argued and stand the matter

over for further argument and submissions on that

question. The more difficult question - and I say

this with respect but it is perhaps something I

ought to refer to - is how it should be dealt with

if that matter were considered to be a problem by a

minority of the Court but it was a minority which,

if it decided the case on that issue, might make a

difference to whether there was a majority as to

the result. But that is a matter which perhaps I

can leave with the Court rather than make

submissions on it.

There are three matters referred to by my

learned friend, Mr Mason, which I wish to answer

specifically: the first is his reference to the

South Australian decision.

MASON CJ: Yes, Mr Bennett?

MR BENNETT:  Yes, if the Court pleases. The first of those

matters concerns the decision in the Superannuation

Fund v Commissioner of Stamps in South Australia.

This is the decision after the High Court decision

and the litigation between the same parties, (1980)

25 SASR 35. I do not think Your Honours have it, it is a case Mr Mason referred to. All I want to

say about this case is that it concerned the

taxation or stamp duty on a certificate of title

and the judgment of Chief Justice King, at page 37,

stresses that it was a duty on the instrument.	The
ratio of that case is that it was a duty on the instrument which was, of course, property of the
State.

State 51 3/5/91

Your Honour Justice McHugh, yesterday, at

page 40 of the transcript, asked me a question in

relation to that matter and I want to simply refer

to the question and the answer because the wording
of it is a matter of some importance, in view of

the distinction between that case and Your Honour's

question. Your Honour asked me at page 40:

Supposing the Commonwealth attempted to tax

the issue of a certificate of title in respect

of State property?

I said:

If it taxed the issue of it?

Your Honour -

Yes, the issue of it.

MR BENNETT: That, Your Honour, would not be a

tax on goods or a tax on property.

I would adhere to that answer but draw the distinction between a tax on the instrument and a

tax on the issue of the instrument and that, in my
respectful submission, explains the reference in

that case.

The second matter, in my learned friend's

submissions, is the reference to the Essendon Corporation case. All that case decides, for

present purposes, in my respectful submission, is

that the occupation of property is a matter which
falls within section 114. That fits squarely with
the reference to holding property in First Fringe

Benefits. It does not, in any way, contradict the

submissions which I have put. The third matter is

that he referred to Dalziel's case and

section 51(xxxi). The point of that case was that

the occupation of property was regarded as property

and was an asset. If in the Canadian Pacific

Railway case it had been the occupation of property

rather than the ownership of property which was
subject to the tax the result would have been the

same, but again that does not contradict the

distinction between a transaction and a state of

affairs.

There is only one matter I wanted to refer to in the submissions of my learned friend, Mr Davies,

and that concerns the Sydney Municipal

Council case. Your Honours do not need to go to

it, it is in 1 CLR. Indeed, it was the first writ

issued in the High Court. The importance of that

case, we would submit, is that it dealt with a

corporation and the relationship between the

State 3/5/91

corporation and government, not in the context of whether the Sydney City Council was the State for the purpose of section 114 because that was not

involved at all, the question was whether delegated

legislation enacted by it was State legislation

and, of course, it was. But the case does not say

anything at all about the question of whether if,

for example, the property of the city council had

been taxed by the Commonwealth, that would have
been tax on property of the State. That issue and

touched by that case and of course delegated

the whole issue of the meaning of property of a

legislation being legislation of the principle is

something which is well established.

There is one matter I omitted in the first

part of my submissions, and that is a very brief

reference to the Australian Coastal Shipping case.

Might I simply remind Your Honours that in that

case, 107 CLR 46, at page 61 there was a concession
which the Court accepted. It is a small straw in

the wind, because it is a concession, but it is

referred to at page 61 and in the last seven lines

from the bottom of that page, Justice Menzies says:

Furthermore, it is common ground that the

Commission is not part of the Crown but is a

corporation separate from the Commonwealth, so

that it is not entitled to any constitutional

immunity from State taxation under s. 114.

He adds:

or otherwise -

which, perhaps is a reference to what Your Honour

Justice Brennan put to me a few moments ago. It

does not appear to us that the acceptance of a

concession justifies a detailed analysis of the

status of the Australian Coastal Shipping

concession was accepted without comment, without	Commission, but it is noteworthy that the
criticism.

My learned friend, Mr Mason, has indicated to

me he proposes to put some material to the Court in

reply, dealing with the status of savings banks in

Australia in the 1890s. Rather than be in a

position where I am forced to seek leave to have a
further reply, may I simply, as it were, in reply

to that material, hand to Your Honours one page of

the convention debates, being page 1075 of the

Sydney Convention Debates. The point I understand

that my learned friend wishes to make i.n reply is
this, that section 51 refers to State banking; the

State banks at the time were not significantly

State 53 3/5/91

different in their structure from the Bank involved in the present case, and therefore if State banking

was used as a phrase to describe banking through

corporations and through this sort of corporation,

the word "State" in section 114, should be

similarly construed.

Our answer to that is that the draftsman of the Constitution expressly recognized that "State

banking" was a loose, inaccurate and colloquial
phrase, and that appears in a discussion by

Mr Glynn in the page I have given Your Honours. It

is in the first column at point 7, where he says:

Unless we have a definition of the words

"state bank" there will be a great deal of

trouble.

Those words, of course, were prophetic:

In no country in the world is there a real

state bank.	The Bank of France is not a real
state bank.	The directorate, whose

appointment is partly controlled by the

government, exercise certain rights under

charter.	They can issue notes, and they have
other privileges.	The German bank is not a

state bank. It has certain privileges -

et cetera.

We know the Bank of England is not a state

bank. It has the exclusive right to issue

notes ..... the issue being regulated by

charter. It has certain other rights

including the transaction of government

business. I examined the constitution of all

the banks in 1891 in connection with the

establishment of a state bank, and I found

that there was not in he world an institution

that could be called purely a state bank.	The
bank in South Australia is not a state bank.

It is simply established under an act of

parliament, for the purpose of acting as a

medium between borrowers and lenders. The

government has some control over the board,

and eventually the mortgage bonds are

guaranteed by the Government. It is not a

state bank, because the state receives no

profit. Considering that there has been no
purely state bank established, if we put these

words, a "state bank," into the constitution, it will be inferred that we intend to include

these imperfect government banks, which are a

cross between an ordinary bank and a. state

bank. If we leave the clause as it stands, we

State 54 3/5/91

shall be led into all sorts of difficulties

and possible litigation.

Mr Symon says:

The difficulty might be got over by leaving

out the words proposed to be inserted, and by

adding at the end of the sub clause the words

that it shall not apply to any banking

operations carried on by the state.

And that seems to be left to a committee and

ultimately the alteration was not made. But, in my

respectful submission, while it is, of course, only

the views of one person, it does show that one

cannot read too much into the phrase "State

banking". It was recognized that the phrase was

inappropriate, but it was used, no doubt, as a

colloquial phrase, and a convenient phrase for

covering the concept.

The final matter I need to cover is the

submission numbered C, the final page of my

submissions and this is the paragraph 11 point.	I
think it is the only point in which I have any friends at the bar table. We submit that it would
be quite heretical to suggest that in any sense of
the words, the State Bank is itself the corporate embodiment or the disembodied spirit or whatever

phrase one wishes to use, is itself the property of

the State or that, as my learned friend suggests,

its property is the property of the State. To say

that would set company law back 100 years. There

is no doubt, we submit, that the assets of a

company are not the assets of its shareholders nor,
we submit, is the company itself the property of

its shareholders. It is the company - - -

GAUDRON J: But is that not just the problem that was

adverted to earlier; it has no corporators; it has

no shareholders.

MR BENNETT:  And Your Honour, it is a disembodied spirit; it

has legal personality. That legal personality owns

its assets. Under a statute there are certain

things it is required to do with those assets; it

pays dividends to the State; it is, to some extent
controlled by the State; to some extend not, and

its relationships are laid down, but neither its

assets nor it is owned by the State. A corporation

is not owned by its shareholders, even if it has

shareholders. The legal personality of the

corporation is something which exists independently

of its shareholders.	The significance of
corporators is a little bit different.	When two

people, or for that matter one person, forms a

company, in one sense one may say that a little bit

State 55 3/5/91

of themselves goes into it. The words used in the

forming ourselves into a company" and in that sense a little bit of their personality, perhaps,

standard form of Memorandum and Articles of of

in the metaphorical sense, may go into the company.

Perhaps the analogy is childbirth.

The important point for our purposes is that,

once the company is formed, it is something that is

separate from its corporators; they have statutory

rights and liabilities in relation to it, they own

the shares in it, but they do not own it. "It" is

something with legal personality of its own.	Once
it has legal personality of its own, it is not
something as to which one needs to attribute
ownership. Where one has a corporation - - -

GAUDRON J: It is not whether one needs to, it is whether

one may not.

MR BENNETT: Well, Your Honour, in my submission there is

no - we have not found any authority discussing

this - but there is simply no basis for saying that

the corporate embodiment is owned by anyone.

GAUDRON J: Well, in one sense it is a matter of ordinary

language. The whole privatization debate in the

political arena assumes really quite to the

contrary that things like the Commonwealth Bank are

owned by the Commonwealth.

MR BENNETT:  Your Honour, colloquially there is no doubt

that one says that. Economically there is no doubt
that one says that. Economically, as long as the

company is solvent, its shareholders own it.

Indeed, insolvency in a sense is the example which proves the correctness of what I am saying, because

if a company is insolvent, for practical purposes

the shareholders do not own it. They certainly do

not, in an economic sense, own its assets.

Now, does one therefore say that they still

own the disembodied spirit? And in my respectful

submission, once one attributes legal personality,

the fiction of human personality if you like, to a

company, one by saying that negates the proposition

that that spirit is owned by anybody.

DAWSON J: But why can you not say it acts as agent for the

State, and if you do that it is a bare agent, and

when you are interpreting section 114 you do not

adopt a narrow interpretation, a legalistic

interpretation. And if it is a bare agent, then

its property is, in effect, the property of the

State.

State 56 3/5/91

MR BENNETT:  If it were a bare agent that would be so,

Your Honour, but it is not. It is not a bare agent for a number of reasons. First of all, one could

not sue the State instead of suing it. There is a

guarantee, but one would sue on the guarantee.

Secondly, it has as I have said a legal

personality, and indeed, that is recognized by the

fact that there is a guarantee. It could sue the

State and vice versa. It is a body separate from

it. Thirdly, as we have shown, it is not fully

controlled by the State. There is a strong measure

of independence in relation to the powers of the

board, and indeed, that was the distinction relied

on by Justice Wilcox in Bourke v State Bank and

relied on by this Court many years ago in Rural

Bank v Hayes.

So, Your Honours, we would submit it is quite

inappropriate to regard it as a bare agent. It is

not in any real sense of the word like the

Commissioners for Railways, simply put there for

convenience so the State can own its assets and be

sued in relation to the business of banking it is

carrying on.

It is rather the more modern conception of

setting up an independent body which will exercise

its own control and which will be separate from the

State itself. And the way we put it, the States

having elected to do that, it has taken it outside

section 114.

GAUDRON J:	Some of the States have things called Treasury corporations.
MR BENNETT:	Yes.
GAUDRON J:	Would you suggest that they do not own the

Treasury corporation even though it is

incorporated?

MR BENNETT:  Your Honour, I am not sure of the precise way

that legislation is set up. My recollection is

that it may have provisions that the assets of the

Treasury corporation are assets of the State. If

there is such a provision, of course, that is the

end of it so far as its property is concerned. If

there is no such provision one would have to look

at the question of: are they shares, does it own

the shares, does it control and so on? But,

ultimately, if a separate body is set up, if

control is divested and if that body has its own

legal personality then, although the State may well

own something corresponding to shares, in the case
of the State Bank it owns statutory rights in

relation to the assets of the State Bank but it

only has those assets. It could not, for example,

State 57 3/5/91

without legislation, simply use the assets of the

State Bank to discharge liabilities of consolidated

revenue. That would be a breach of its own

statute.

So it is not, in my respectful submission,

correct to say that it is its own property. And,

indeed, one sees something of that in Commonwealth

v Bogle. I have not given Your Honours a reference

to that but it is 89 CLR 229, at 267, where, in

giving the judgment which most of the Court agreed

with, Justice Fullagar referred to the fact that

where a statutory corporation is formed one cannot

treat its assets as Commonwealth assets. I might

just read Your Honours that. It is page 267 where

His Honour says:

I do not think it necessary to discuss at

any length the question raised by the

company's contention, because it seems to me

impossible to say that the company is the

Commonwealth, or is entitled, by reason of any

relation which it has with the Commonwealth, to claim immunity from the provisions of the

Victorian Act.

Now, this was Commonwealth Hostels Limited.

In such cases as Grain Elevators Board .... . a

statutory corporation is involved, and the
question must turn partly on the effect of the
incorporating statute and party on the

construction of the statute from which

exemption is claimed, though other matters may

also be material.

He refers to Marks v Forests Commission and so on.

Then, two-thirds of the way down the page, against the words "The company" in the left-hand margin, he

says:

The company is not the Crown in right of the

Commonwealth. It has no right to sue on

behalf of the Crown in right of the

Commonwealth. It seems to me sufficient to

paraphrase what I said in Rural Bank of New
South Wales v Hayes, and to say that the Act

does not affect rights of the Commonwealth,
but the rights asserted by the company in
these proceedings are simply not rights of the

Commonwealth. It is said that the company was

formed at the instance of the Commonwealth,

that the Commonwealth through the Minister is

in a position under the articles to control

the company, and that the ultimate financial

interest is that of the Commonwealth. But

none of these things can affect the legal

State 58 3/5/91

character of the company as a person suing in

the courts.

Et cetera.

McHUGH J:	What about over the page at 268, at the top of the page?
MR BENNETT:	It is said (with perhaps more force) that the
company is in possession and control of
property of the Commonwealth.

But I am not sure what that statute said. I think

there may have been a provision in relation to its

property, I would need to check that. My

recollection is that the land was, in fact, vested

in the Commonwealth but I will have to find the
reference to that in the case. Perhaps I can find

the reference and let Your Honours have it later in

the day. But my recollection is that His Honour

was not there suggesting that the assets of the

company were, because of the Commonwealth ownership

of shares, property of the Commonwealth. Of

course, that was a company incorporated under the

Companies Act, it was an example rather like Qantas

but, in our respectful submission, the case shows

that one does have to draw the distinction.

DAWSON J:  Why does not the answer to the question, whether

the corporation is the State or is the agent of the State or its property is the property of the State,

depend upon purpose for which the question is

asked. I mean in the law, not in only this area,

one can regard that company as the alter ego of,

for instance, the sole shareholder for certain

purposes, ..... for instance, but for other purposes

one maintains the clear distinction and here we are

looking to the reality of the situation in relation
to section 114, and whilst you could quite

correctly say there is a different legal

personality, nevertheless, for the purposes of

section 114, the business is the business of the

State, the company is the agency which carries it

on for the State and the property is the property

of the State?

MR BENNETT:  Your Honour, my submission is that when looking

at section 114 one takes into account these

matters. First, that it is always open to a State
to set up a corporation in such a way that it is

within or without section 114. If one adopts the shield of the Crown test, for example, it is open

to the State to say that this body will or will not

have the shield of the Crown, and it is

correspondingly open to the Commonwealth to say

that when it seeks the protection of the section.

State 59 3/5/91

In our respectful submission, it would not be

appropriate to extend the limited immunity given by

section 114 to bodies having some economic

equivalents with the State or the Commonwealth in
cases where it is applied against the Commonwealth
where the Constitution itself has not given an

absolute immunity. It has not given an immunity

from transactional taxes, from income taxes, from

matters of that sort, taxes relating to personal

exertion, why should one say that in giving the

immunity in relation to property, that should be

given a very wide interpretation and extended to

all areas of economic equivalents. It is a

limitation on power, in relation to both the

Commonwealth and the States and, in my respectful

submission, it should be strictly construed as

such.

MCHUGH J:  Mr Bennett, that reference 268 is probably a

reference to what appears on 257, the last line in

the first full paragraph, where Mr Justice Fullagar

said:

All furniture, furnishings, fittings and

equipment in the hostel have at all times been

the property of the Commonwealth.

That is probably what he is referring to?

MR BENNETT:	Yes, I respectfully so submit, Your Honour. So, for those reasons, we would submit, that
neither aspect of paragraph 11 of my friend's
submissions should be accepted, neither the
submission that the State Bank's property is
property of the State, nor the submission that the
State Bank itself is the property of the State.
The appropriate question is simply, "Is the
relationship between the State Bank and the State
such that whatever test is adopted under
section 114, it falls within it or falls outside
it".  May it please the Court.
MASON CJ: Thank you, Mr Bennett. Yes, Mr Solicitor?
MR MASON:	Your Honours, my learned friend propounds in

paragraph 1 of his outline a submission that

section 114 should be construed narrowly, because

it operates as a restriction on power and cites the

DOGS case. We would submit that in relation to

section 114 this Court has already held that
section 114 is to be given a broad interpretation.

I will not quote again The Fringe Benefits Tax

cases. May I simply add one reference to the

Municipal Council of Sydney case, 1 CLR at

pages 241 and 242 in the judgment of

Mr Justice O'Connor. Section 114 is, in our

submission, mutual in its operation, unlike

State 60 3/5/91

section 116, and it is in its effect an exemption

rather than a qualification on power and the

analogy with section 92 is not an apt one, having

regard to the obvious problems of reconciliation of
section 51(i) and section 92, which are absent

here.

Secondly, my learned friend argues that

State Railways should be put in a class on their

own and he relies upon two matters: the reference

in the Constitution, sections 98 and 102, to railways, the property of the State, and the provision in the railway statutes that

incorporation is as a matter for convenience. In
reply we would say that the cases do not, in our
reading, in any way turn upon those provisions of
the Constitution. The essential question was the

perception in 1900 of the activity and we refer in

particular to the Federated Amalgamated case,

4 CLR, at pages 538 and 539.

In relation to State banking, we have a clear constitutional hallmark of a State activity in

section 5l(xiii) and, in our submission, State

banking was seen in the 19th century as a

governmental function, perhaps very much more so

than it is now and therefore we would embrace so

much of my friend's submission as said that one

must look at the matter through 1900 eyes.

Not all of the State banks were incorporated

in the 19th century. Much of the State banking

activity was conducted through post offices, very

much a traditional government department and they

were very much carried on, particularly as the bank

crashes of the 1890s were in everyone's mind, for a

governmental function of providing aid and

assistance.

Your Honours, in the Bourke v State Bank case,

our learned friend from South Australia as is want

was very helpful in providing the court with some

material relating to convention debates and other
material. We have had that reproduced and I have

had flagged the particular portions of that

material upon which we would ask the Court to have

some regard. I gave a copy this morning to my

friend, with those flags, and he is aware of the

parts we wish to rely upon. Could that be handed

in perhaps at the end of the case.

MASON CJ: Yes.

MR MASON: Thirdly, the reference to Heiner v Scott in the

passage in 19 CLR at 393 and 394, does not really
provide my friend with the assistance which he

seeks to draw from it because that was dealing with

State 61 3/5/91

the Commonwealth Bank; here we are concerned with

State banking which does have a constitutional

recognition and an historical function perceived in

the framers of the Constitution. Then my friend

said that the test for what is the State should be

that stated by Mr Justice Stephen, as being equated

to the Crown in right of the Commonwealth. we

would submit that that was not a statement of a
test, but a statement of a conclusion, the

reasoning of which His Honour developed in his own

way and other Justices have developed in their own

way, and we, in our submissions in-chief, suggested

how the matter should be applied in point of

principle.

Mr Justice Stephen was not, with respect to my

friend, stating a test of virtual identity. We

would simply refer the Court, on that particular

point, to the Municipal Council of Sydney case

at 230 and 240 and 241, the passages there which

held that the imposition of tax by a municipal
council, albeit acting under statutory authority,

infringed section 114 because that was the

imposition of tax by the State. Now, we would

submit that "State" cannot have different meanings

within section 114 itself. We would also, in

contradistinction to Mr Justice Stephen's supposed

test, refer the Court to passages in the

Superannuation Fund case itself in 145 CLR at 335

point 7, 351 point 7 and 359 point 6.

My friend then suggested that the cases

dealing with section 75 and taking an attitude that the State Bank is the State for that purpose can be

set on one side and do not provide any assistance for section 114 purpo9es, and he argued at 26 and

27 of the transcript that there were policy reasons

implicit in Chapter III that were absent in

Chapter V. He cited Mr Justice Dixon in the Bank

Nationalization case.

With respect, my learned friend's submission

totally inverts the process of Mr Justice Dixon's

reasoning, and that reasoning is discussed in

Crouch's case in a passage which I have already and will not read again, at page 39. What His Honour said, and the process which this Court adopted, was

that, "From beginning to end", to use His Honour's

expression, the Constitution treats the State in a

particular way. Then he said, "From this point of

view I now turn to the interpretation of

section 7 5" •

My learned friend then submitted that a tax

within section 114 was confined to a tax on use

over a period and he sought to draw a distinction

between transactions tax and a property tax. We

State 62 3/5/91

would submit that there is no distinction in a

constitutional sense. It is not like the Canadian

Constitution where there are two categories and one

has to choose between two constitutionally

inconsistent categories. There is only one

category and that is the category in section 114

which is to be broadly and fairly interpreted.	And
there is nothing in that category which embodies this notion of use over a period.

Section 114 does not, as much of my learned

friend's submissions seems to imply, deal with tax

on ownership but tax on property and the statements

of this Court in The First Fringe Benefits Tax case

which speak about taxing the holding or ownership

of property draw that very distinction or recognize

that property is a wider concept than ownership.

We would submit that a tax which in form falls

upon application to own use is a tax on holding.

We, of course, also say it is a tax on property

because it strikes at anything that is worth having

in property.

My friend, in his reference to the octroi type of tax, the toll, suggested and argued that a tax

must in its characterization or its formal

criterion fall upon ownership. A toll is clearly

distinguishable because it is the very act of

passage which can occur frequently rather than

anything relating to the property in the goods

which is the factor upon which this tax falls.

I would remind Your Honours that in the

definition of "manufacturer" in section 3 of the

Sales Tax Act the very notion of ownership is

addressed albeit negatively in that it says that if

you are manufacturing with goods supplied by

somebody else you are not the owner. So that there

the impact of this tax upon the defendant Bank

falls, we submit, clearly and expressly within a

tax upon ownership if I have to go as far as

ownership, and I submit I do not have to.

We would submit that there is nothing which

requires the criterion of liability to be ownership

or, indeed, even holding and would refer, in
particular, to passages in The First Fringe

Benefits at 92 and 93, 101 and 103. In 103, in the

judgment of Your Honour Justice Dawson, Your Honour

referred near the top of the page to a submission

from the Commonwealth that a certain

matterestablishes that the character of the tax

was:

upon the provision of benefits rather than

upon property.

State 63 3/5/91

Your Honour replied:

That submission must be approached with

caution because s 114 contains a prohibition

and the question is not so much how the

legislation might be characterized as a whole,

but rather whether it does anything which is

prohibited by that section.

This tax does that, in our submission.

My learned friend at one stage today appeared

to be suggesting that the Steel Rails case stood in the way of the submissions that I have put because, as I perceived what he was saying, this tax is an

excise and that section 114 may not apply to

excises.

We would submit that the Steel Rails case is

authority only for the proposition that section 114

does not apply to a customs duty, it is not

authority for excises, and a case is not to be

taken as authority for what might arguably be said

to be logically flowing from it.

A range of factors were stressed in the Steel

Rails case which showed that it was dealing exclusively with customs. Indeed, at page 851

Mr Justice Isaacs expressly reserved the

application of section 114 to excise and said that

is for another day. Mr Justice Wilson in The First

Fringe Benefits Tax case at 100 made a similar

express reservation. But the factors there which showed that the case must be confined in point of determination to customs are the references to

section 5l(i) and the dual function of customs;
the fact that customs duty perform a dual operation
of raising revenue but also controlling the

importation of goods, particularly at pages 829 the

Chief Justice; 838 and 839 Justice Barton; 843

and 844 Justice O'Connor and 850 Justice Isaacs,

especially the last one.

The Court also referred in Steel Rails to the reference to property within the Commonwealth as

being referred to in section 114 and pointed out

that customs duty could not be characterized in

that way - pages 831 and 843. There was also a

distinction drawn with 112 which deals with customs

only, see at 838.

My learned friend referred to the Stewart case and the Kodak case. In our submission, those cases

require close attention as to the particular

context in which they were dealing. They were

dealing with an exemption from taxation and the

Stewart case and the remarks upon which my friend

State 64 3/5/91

relied were in the context of a manufacturer/owner

applying his goods for his own use by making them

available for use by the hospital. The Kodak case,

in our submission, is of no assistance because it

was there held that there was no application to own

use.

Finally, Your Honours, as to the proposition

that the State Bank is not the property of the

State, we ask, "Well, whose property is it if it

does not belong to the State?" My friend said that

to contend otherwise would set company law back

100 years. Section 114, in our submission, is not

drafted with the niceties of Salomon's case and the

McCora case in mind.

We are in any event not dealing with a company

with shareholders. Incorporation is said to be a

neutral factor in the cases, and as Your Honour statutory corporations which clearly must be the

State on any approach. In addition to the Treasury

corporation in New South Wales, for example, the

Environmental Planning and Assessment Act deems the department to be a corporation for the purposes of

the Act. If the Court pleases.

MASON CJ: Thank you, Mr Solicitor. The Court will consider

its decision in this matter.

AT 11.20 AM THE MATTER WAS ADJOURNED SINE DIE

State 65 3/5/91