Deputy Commissioner of Taxation v State Bank of New South Wales

[1991] HCATrans 111

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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 1 2/5/91

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 2 MAY 1991, AT 12.50 PM

Copyright in the High Court of Australia

MR D.M.J. BENNETT, OC:  May it please the Court, I appear

for the plaintiff with my learned friend,

MR J.R. WILSON. (instructed by the Australian

Government Solicitor)

MR K. MASON, QC:  I appear for the defendant with my learned

friends, MR D.H. BLOOM, QC and MR J.L.B. ALLSOP.

(instructed by P.W. Kearns)

MR J.J. DOYLE, QC, Solicitor-General for South Australia:

If the Court pleases, I appear with my learned friend, MR B.M. SELWAY, for the Attorney-General of the State of South Australia to intervene in

support of the defendant. (instructed by the Crown

Solicitor for South Australia)

MR G.L. DAVIES, QC, Solicitor-General for Queensland: May

it please the Court, I appear with my learned
friend, MR B.D. O'DONNELL, for the Attorney-General

for the State of Queensland to intervene also in

support of the defendant.	(instructed by the Crown
Solicitor for Queensland)

MASON CJ: Yes, Mr Solicitor?

MR MASON:  I was going to start and hand up my submissions,

thinking that was what the Court wished to happen.

MASON CJ: Yes, that is precisely what the Court wished to

occur. They can be handed in and the Court will

now adjourn, Mr Solicitor, and resume at 2.15.

AT 12.51 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.16 PM:

MASON CJ: Yes, Mr Solicitor.
MR MASON:	Your Honours, the demurrer in this case tenders the two issues that are referred to on page 11 of
the demurrer book.  I should ask the Court to note
that paragraphs 2(c) and 2(d) of the defence are no
longer being pressed in the proceedings. 2(c) has clearly been resolved, as we see it, by the
Totalizator case decided last year and 2(d) was
really another way of putting the constitutional issue which is raised in the two issues which we
seek to debate.

State 2 2/5/91

Your Honours, if I could take you briefly to the provisions of the Sales Tax Assessment Act No 1

or the relevant provisions. The first is the

definition of "manufacturer" in section 3(1), which

is defined to mean:

a person who engages, whether exclusively or

not, in the manufacture of goods, and includes

a printer, publisher, lithographer or

engraver, and a person (not being an employee)

who manufactures goods, whether or not the

materials out of which the goods are
manufactured are owned by him, but, where one

person manufactures goods for another, wholly

or in part out of materials supplied by that

other, and the goods are not for the use of,

but are for sale by, that other, the person

supplying the materials shall be deemed to be

the manufacturer, and the person who so

manufactures the goods shall be deemed not to

be the manufacturer.

MR MASON: Section 17(1) provides that:

Subject to, and in accordance with, the provisions of this Act, the sales tax imposed

by the Sales Tax Act (No.1) shall be levied

and paid upon the sale value of goods

manufactured in Australia by a taxpayer and

sold by him or treated by him as stock for

sale by retail or applied to his own use.

Section 17(2) gives an extended definition of the expression "application to own use", which I need not dwell upon, and section 3 of the Rating Act,

that is the Sales Tax Act (No. 1) 1930, imposes

sales tax:

at the rate specified in section 4, upon the

sale value of goods manufactured in Australia

by a taxpayer and ..... sold by the taxpayer or

treated by the taxpayer as stock for sale by retail or applied to the taxpayer's own use.

As the statement of claim reveals, the assessment

here was based upon section 17 and, in particular

upon application to own use. It is common ground,

appeal book 16, paragraph 5, that the printed

matter in respect of which the tax was assessed,

was:

used by the defendant in the course of and for

the purpose of -

its business, and -

State 2/5/91

at all material times after coming into

existence -

was -

the property ..... and remained the property of

the defendant; and -

was -

necessary and incidental to the carrying out

of the defendant's business.

And the description of the printed matter is in

paragraph 4 at the top of page 16.

Section 17 of the Act, which I have already read, provides in its criterion of liability, that

one needs to be a manufacturer as a prerequisite,

as it were, but then stipulates three taxing points

upon the happening of any one of which the sales

tax becomes payable. The taxing point, application

to own use, is a broad one and, without taking

Your Honours to the two cases referred to in

paragraph 3, the Taubman's case was a situation

where a wholesale paint distributor supplied colour

cards to retail shopkeepers for the use of

intending purchasers and the Max Factor case was

one in which cosmetics were freely distributed to

employees, retailers and the public for

demonstration and goodwill purposes, in each case

held to be application to the use of the taxpayer.

It is our submission that the tax in its

application to the defendant was a tax upon the use

of property by its owner and, for that reason, a tax on property within section 114. May I refer

the Court to some brief passages in the first

Fringe Benefits Tax case in 162 CLR 74. At

page 92, in the judgment of the Chief Justice,

point 4, His Honour said:

There is no warrant for restricting

s.114 ..... to make it refer to an exaction in

respect of the holding or ownership of
property. In the first place the section

contains no indication that it is intended to

be restricted in that way. Moreover, if the

section did not render State property immune

from taxation in respect of its use, the

protection given by the section would be quite

illusory. What advantage would it be to a

State if a tax could not be imposed in respect

of its ownership of property used for the

purposes of, say, State schools or police

stations, if a tax could validly be imposed in

respect of the use of that property for those

State 4 2/5/91

purposes? In my opinion a tax imposed in

respect of the use by a State of its property

will be struck down by s.114.

At page 98 in the joint judgment of Justices Mason,

Brennan and Deane, point 4:

It may be said that a tax on the exercise

of any of the rights giving content to the

concept of ownership is itself a tax on

ownership. This notion is rather more

extensive than the common understanding of

what is involved in the prohibition of a tax

on the property of a State, as we have

explained it, though we would accept that some
taxes on rights exercised by an owner with
respect to his property would amount to a tax

on property in the prohibited sense. Thus, in

the context of an exemption from taxation on

ownership of property, a tax on the possession
or use of property would constitute a tax on

the ownership of that property. This is

because an exemption from taxation on

ownership of property 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.	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.

And just a brief part of the next paragraph which

shows the application of that principle:

Once this interpretation of s.114 is

accepted, it is apparent that the car and

housing fringe benefits tax stands outside the

constitutional immunity. 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 as employer 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.

At 101, in the judgment of Justice Wilson, at

the top of the page:

Counsel for the plaintiff submitted that the prohibition contained ins .114 extends to

a tax imposed on a State in respect of the use

State 2/5/91

of its property. That may well be so in a

case where it can be seen that the tax is

imposed on the property by reason of the use

that the State makes of it. For example, a

Commonwealth law which imposed a tax on the

owner of land within the Commonwealth that is

used in a particular way, say for mining or

commercial purposes, would clearly be invalid,

in my opinion, in its purported application to

land belonging to a State.

Finally, at 105, in the judgment of Justice Dawson,

near the top of the page, three lines down - I am

sorry I should read from the bottom of the previous

page:

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

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 which is tantamount to a tax upon the holding or ownership of property,

such as a tax upon the proceeds of sale, may

provide a sufficiently direct relationship

between the tax and the property itself to

constitute the tax a tax on property.

We would submit that. Your Honour's reference to

sales taxes may well have been in the context of
the general application of sales taxes. This, I am

sure, will be a point that will be developed much

more in the next case to be heard but with

reference to sales tax imposed on this taxing point

against the manufacturer who has merely used the

goods for the purpose for which they were

manufactured, we would submit that even within

Your Honour's judgment it is what is said at the

top of 105 that is the applicable principle.

In our submission, by directly burdening the

goods at any of the three taxing points which

together amount to virtually the entire useful

enjoyment of the goods, the tax, in its application

to the defendant, is a tax on property and the

taxing point chosen here is at the heart of

ownership.

Can I give Your Honours one additional

reference to those referred to in paragraph 4 of

our submissions: it is the Superannuation Fund

State 6 2/5/91

Investment Trust v Commissioner of Stamps, amended in which a paragraph in the judgment of

(1980) 25 SASR 35. That was the case following the

Mr Justice Barwick was applied as the decision of the Court. It was there held that a stamp duty

which provided that upon non-payment the document
was effectively sterilized was a tax on the

property in that document. And that statement of

the Chief Justice was applied by the Full Court of

the Supreme Court of South Australia.

Your Honours, in paragraph 5 we have collected

- and I do not seek to read the passages - a number

of statements as to the importance of looking at

the substance rather than the form of an impost for

constitutional purposes. It may be that this is

not a question here because, in truth, the formal

application of the Act with respect to the taxing
point chosen and the definition of manufacture that

is applicable is sufficient to bring it within the

constitutional immunity as this Court has described

it.

The first case mentioned, Commonwealth v South

Australia, is, in one sense, the converse of our

present situation and in a different context. It

was an excise case where the taxing point was

chosen as the sale of the goods and it was argued

that this was not an excise because it was taxing
the sale and not the manufacture and the Court

said, "Well, nobody sells goods in the ordinary

course unless they have manufactured them,

therefore, in substance, it is an excise".

One passage I would read is from Essendon

Corporation, 74 CLR, at pages 13 and 14 in the

judgment of Chief Justice Latham. His Honour was

the only of the Justices to consider the
section 114 question and he really considered it in

a hypothetical context. So, the passage is clearly

obiter but it contains a statement of principle

which we would seek to embrace. About point 4 on
page 13:

If the words "every person" are construed so as to include the Commonwealth, the result is

that a tax is imposed upon the Commonwealth in

respect of its occupation of land -

And he sets out section 114 -

(I call attention to the words "of any kind.")

In Municipal Council of Sydney

v The Commonwealth, to which reference has

already been made, it was held that where

rates were levied by a municipal council under

State 7 2/5/91

a Local Government Act there was an imposition

of a tax by a State within the meaning of

section 114. It was further held that

municipal rates so levied primarily imposed a

personal liability upon individuals, but

imposed that liability in respect of property
to which those individuals bore a certain
relation and that the tax was in substance a

Minister of State for that the Commonwealth acquired property within the meaning of section 51(xxxi) ..... Thus the

"tax on property". In
the Army v Dalziel it was decided that when
the Minister for the Army took possession of

land under regulation 54 of the National

Commonwealth acquired a kind of property when

it entered into occupation of the land in respect of which occupation the plaintiff

council now seeks to recover rates. I can see

no escape from the proposition that property

which is acquired by the Commonwealth becomes

property of some kind belonging to the

Commonwealth.

Then His Honour, over the top of the page,

talks about how the rates are imposed, and about

five lines down:

Thus the rates are imposed in respect of what

is normally the value of the land to a tenant
occupier. In the present case, therefore,

they would be assessed in respect of the value

of the occupation by the Commonwealth. Even

where a tax is assessed by reference to a was imposed upon property belonging to the
percentage of the capital value, the tax may
still be a tax upon the interest of the
occupier ..... Accordingly, I am of the opinion
that, if the initial words of section 265 of
the Act were read as applying to the

Commonwealth, that such a provision would be

invalid by reason of section 114 of the

Constitution -

and therefore, one reads it down. We would submit

that the analogy which His Honour draws with

section 51(xxxi) is a helpful one and it is helpful

in two ways: section 51(xxxi) embraces a broad

concept of what is property, as is apparent in

Dalziel's case, but it also embraces a broad

concept of what is acquisition, for constitutional

purposes, and we would submit that one can draw an

analogy between the direct burdening of the

essentials of ownership, which is enough to bring a

tax within section 114, and the acquisition of the

essentials of ownership, which is enough to

State 2/5/91

constitute an acquisition of property within

section Sl(xxxi). If I may just read a couple of

passages from Dalziel's case, 68 CLR, at page 284

in the judgment of Mr Justice Rich. At the very

bottom of page 284 His Honour, speaking of the

Constitution said:

What we are concerned with is not a private

document creating rights inter partes, but a

Constitution containing a provision of a

fundamental character designed to protect

citizens from being deprived of their property

by the Sovereign State except upon just terms.

The meaning of property in such a connection

must be determined upon general principles of

jurisprudence, not by the artificial

refinements of any particular legal system or

by reference to Sheppard's Touchstone. The

language used is perfectly general. It says

the acquisition of property. It is not

restricted to acquisition by particular

methods or of particular types of interests,

or to particular types of property. It

extends to any acquisition of any interest in

any property.

And on page 286 point 2:

It would, in my opinion, be wholly

inconsistent with the language of the placitum

to hold that, whilst preventing the

legislature from authorizing the acquisition

of a citizen's full title except upon just
terms, it leaves it open to the legislature to
seize possession and enjoy the full fruits of

possession, indefinitely, on any terms it

chooses, or upon no terms at all. In the case

now before us, the Minister has seized and

taken away from Dalziel everything that made

his weekly tenancy worth having, and has left

him with the empty husk of tenancy.	In such
circumstances, he may well say:

"You take my house, when you do take the prop

That doth sustain my house; you take my life,

When you do take the means whereby I live."

We say, by analogy, you do tax my property

when you tax that which is at the heart of the very

purpose of manufacture and ownership of that

property.

In The Bank of New South Wales case referred to in paragraph 6, there is one passage only I

would seek to read, 76 CLR 1 at 349.

Mr Justice Dixon is characterizing, near the top of

the page, the operation of the Banking Act upon the

State 9 2/5/91

existing corporate structure of the banks and he

says, about three lines down:

In other words the undertaking is taken into

the hands of agents of the Commonwealth so

that it may be carried on, as it is conceived,

in the public interest. The company and its

shareholders are in a real sense, although not

formally, stripped of the possession and

control of the entire undertaking. The

profits which may arise from it in the hands

of the Commonwealth's agents are still to be

accounted for and in some form they will be

represented in what the shareholders receive. But the effective deprivation of the company and its shareholders of the reality of

proprietorship is the same. It must be
remembered that complete dispositive power

accompanies the control of the assets which

passes to the nominees.

Your Honours, the next proposition we would

seek to establish is that what has been taxed is

property that belongs to the State within

section 114. We refer Your Honours, just in effect

to put it aside, to item 74 of the Exemption and

Classifications Act which makes a faint and

inadequate obeisance to section 114 and is limited

in its exemption to goods for official use by

departments of Commonwealth and State, or

authorities which are completely controlled by

Commonwealth or State provided that in the case of

goods for the use of a department or authority an

arrangement has been made. So there is no

assistance to the defendant in that exemption.

May I take Your Honours briefly to the key sections of the State Bank Act, with which this

Court will be very familiar, having looked at it in

the Bank of New South Wales v Commonwealth Bank

case.	It is the State Bank Act of 1981 and this
is, of course, in the form in which it applied at

the time of the imposition of which complaint is

made.

Section 7 constitutes the corporation. It is

a corporation without corporators. Section 9

policy and control the affairs of the Bank subject to the Act. Section 9(3):

defines the functions of the board of the Bank.

It is the duty of the Board, within the limits
of its powers, to ensure that the policy of

the Bank is directed to the greatest advantage

of the people of New South Wales and has due

State 10 2/5/91

regard to the stability and balanced

development of the economy of the State.

Section 13 provides that:

The Bank shall carry on general banking

business ..... within -

or without -

New South Wales.

Section 16:

The payment of all moneys due by the Bank in

respect of its general banking business is

guaranteed by the Government of New South

Wales.

Section 25 - there is a further guarantee of the

due payment of any money borrowed by the Bank

providing that they were a charge on the moneys

secured and held by the Bank and -

are guaranteed by the Government of New South

Wales.

Section 25(2):

Any liability arising from the guarantee

referred to shall be discharged out of the

Consolidated Revenue Fund, without further

appropriation.

Section 30 provides for the disposition of the

Bank's profits and it will be seen it does so in a

way that really treats anything available subject

to a reserve as, in effect, part of consolidated

revenue. There are definitions of "capital-cost

contribution" in 30(1) which means -

in relation to the net profits of the

Bank ..... an amount equal to one-half of the

difference between the amount of those profits

and the amount of the taxation-equivalent

contribution calculated in respect of those

profits.

"Taxation-equivalent contribution" is defined over

the page as meaning -

the amount that would be payable as income tax

in respect of the income represented by those

profits if the Bank were a company to
which ..... the Income Tax (Companies and

Superannuation Funds) Act of the.Commonwealth

applied.

State 11 2/5/91

(2) From the net profits of the Bank in a

financial year there shall be payable by the

Bank to the Treasurer for payment into the

Consolidated Revenue Fund an amount equal to

the sum of the capital-cost contribution and

the taxation-equivalent contribution

calculated in respect of the profits.

Subsection (7) transfers:

The remainder of the Bank's profits in any

year ..... to a reserve Fund of the Bank -

and subsection (8):

Any deficiency in the Reserve Fund at the end

of a financial year shall be made good from

Consolidated Revenue .....

(9) The Reserve Fund may be used for the

general banking business of the Bank.

Section 36 and following provide for part of the business of the Bank being the "agency business"

and section 37 empowers the Governor to order the

Bank to undertake the exercise of any agency

functions and the rest of Part IV deals with
different agency functions, both general agency
functions and then, starting from section 49

onwards, specialized types of agency functions.

Section 48 provides that:

The Bank is hereby indemnified by the

government of New South Wales in respect of

any act done by it and of any

losses ..... incurred by it in the bona fide

exercise of ..... its agency business.

As Your Honours will remember, in the case of State

Bank v The Commonwealth Bank, 161 CLR, the question

of whether the Bank was the State for the purposes

of section 75 of the Constitution was in issue, and

there the Court engaged in a lengthy analysis of

the status of the Bank for constitutional purposes.

At the bottom of page 648 reference was made to a

submission of Mr Hulme, relying upon a passage in

the banking case of Mr Justice Dixon - four lines

up from the bottom - that, said the Court, led him,

Mr Hulme:

to draw more support than is warranted from

cases dealing with Crown immunity. The

constitutional conception is a broader one, as

Dixon J. himself recognizes later in his

judgment when his Honour says that

ins. 75(iii) the framers of the Constitution

State 12 2/5/91

were concerned with "amenability to the
jurisdiction of persons in whom causes of
action were vested, or against whom causes of

action lay, but in their official capacity

only and as agencies or emanations of the

Commonwealth".

And then the Court then examined the provisions of the Act and at the very end of the judgment, 652,

concluded that:

Having regard to all the circumstances,

we are satisfied that the State carries on

banking through its statutory corporation, the

Bank, and that it necessarily follows that the
Bank is for this purpose the State of New

South Wales.

In our submission there is no reason why the conclusion in the context of section 75 should be

any different in the context of section 114. In

paragraph 10 we submit that a statutory corporation

that carries on part of the functions of a State

is, nevertheless, the State for constitutional

purposes. If I may just read some short passages

in Crouch's case, 159 CLR 22. Your Honours will

recall that that involved a Queensland statutory

corporation the Commissioner for Railways, and the

question was when that corporation was sued by a

resident of Western Australia whether the High

Court's jurisdiction was invoked. It was held that the action involved a matter between a resident of

Western Australia and the State of Queensland within 75(iv), the distinction being drawn between

that and 75(iii) where one could be sued as the

State or on behalf of the State.

In the judgment of Chief Justice Gibbs, at

page 29, His Honour after quoting a passage from
the Banking case said - perhaps I should read that
passage at the bottom of 28, Mr Justice Dixon: "The Constitution sweeps aside the

difficulties which might be thought to arise

in a federation from the traditional

distinction between, on the one hand the

position of the Sovereign as the
representative of the State in a monarchy, and

the other hand the State as a legal person in

other forms of governrnent ... and goes directly

to the conceptions of ordinary life. From

beginning to end it treats the Commonwealth

and the States as organizations or

institutions of government possessing distinct

individualities. Formally they may not be

juristic persons, but they are conceived as

politically organized bodies having mutual

State 13 2/5/91

legal relations and amenable to the

jurisdiction of courts upon which the

responsibility of enforcing the Constitution

rests. It is from this point of view that the

interpretation of section 75 must be

approached. "

The Chief Justice continues:

According to ordinary conceptions, a person

who represents the Crown in the right of a

State represents the State regarded as an

organization or institution of government. represent the Crown - or the State - for all

purposes; it does so only for the purposes of

the Railways Act. The question, therefore, is
whether the words "a State" in section 75(iv)

include a corporation which is an agency of,

and represents, a State for certain purposes,

or whether a matter will be between a State and a resident of another State only if the

State sues or is sued as such - i.e., in its

own name.

Then His Honour drew attention to the contrast

between 75(iii) and 75(iv) and said that:

A comparison of these two provisions suggests that the words of s 75(iv) do not extend to the case where a corporation is sued in its official capacity as an agency of the State

for limited purposes. The judgment of

Dixon J ..... may be thought to support that

view.

He then, on page 30, referred to Inglis's case and

Maguire v Simpson. And at page 31, in dealing with

Maguire v Simpson, about point 7:

It establishes that the word "Commonwealth" in

s 64 -

of the Judiciary Act -

includes a statutory corporation which is an agency of the Commonwealth. Further, as the

judgment of Jacobs J shows, the decision also

provides authority for the view that

"Commonwealth" has a similar meaning ins 78

of the Constitution. That section provides:

"The Parliament may make laws conferring

rights to proceed against the Commonwealth or

a State in respect of matters within the

limits of the judicial power."

State 14 2/5/91

Then His Honour quotes from Mr Justice Jacobs and

then continues on 32:

The decision in Maguire v Simpson makes

it clear that the words "the Commonwealth"
will, in an appropriate context, be wide

enough to include a corporation which for

certain limited purposes is an agency or

instrumentality of the Commonwealth.

Logically it must follow that the words "a

State" could have a similarly wide meaning.

This conclusion is supported by the decision

in Sydney Municipal Council v The

Commonwealth. In that case it was held that

for a municipality to levy a rate upon

Commonwealth property is to impose a tax

within the meaning of s 114 of the

Constitution -

Going down to the next paragraph -

In the light of these authorities it

should be concluded that the words "a State"

in 75(iv) are wide enough to include an agency

or instrumentality of a State. Elsewhere in

the Constitution, when "State" is used to

refer to a polity, rather than to a

geographical area, it appears to be used in

that wide sense: see, eg, ss 78, 109 and 114.

In general, a constitutional provision

conferring jurisdiction should not be given a

narrow construction.

And at the top of page 33 he spoke about matters of

convenience and otherwise. In the joint judgment

of Justices Mason, Wilson, Brennan, Deane and

Dawson, at page 38, Your Honours said:

Examination of the provisions of the Act

discloses that the Commissioner is an

instrumentality of the State of Queensland

through which the executive government of the

State discharges an important part of its

governmental functions. It has long been

recognized in this Court, as indeed it was

recognized by the Constitution itself that the

conduct of railways is, as a matter of

history, an established and "very large and

important part" of government in this country.

Just pausing there, Your Honours, I would submit that section 5l(xiii) similarly recognizes the fact

of history, that State banking is and has been a
large and important part of government in this

country for constitutional purposes.

At page 39, about point 3:

State 15 2/5/91

To borrow from words used in judgments in this Court in Bank of NSW v The Commonwealth and in

Inglis v Commonwealth Trading Bank of

Australia, the intention of the Parliament of

Queensland as evidenced by the Act was "to

transmute a part" of the Government of the

State "into the outward form of a corporation

as a convenient means of carrying on" a

traditional government activity with the

result that when the Commissioner is sued, as

in the present case, he is "sued as being the

emanation by which" the State of Queensland

discharges its governmental activities in

relation to railways.

We submit that the same may be said with respect to

banking.

Your Honours, in paragraph 10 we have

collected some passages, which I will not take the

Court to, in the Superannuation Fund Investment

Trust case, in which it was stated that the mere

fact that the State chooses to act through a

corporation is a neutral factor.

The alternate way upon which we put this

proposition is really to look simply at questions

of ownership and in effect to take the broader

ground that would look at a State-owned corporation

that was involved in a non-constitutional function,

a function other than something like State banking.

Our submission is, nevertheless, that State

ownership of a controlling interest in the shares

of a company would satisfy section 114's

requirements in relation to the assets of the

company, given the reference to "property of any

kind" in section 114 and the absence of any notion
of State function within that section.

May I take Your Honours to the two passages in the Steel Rails case, 5 CLR, to which we make

mention. At page 828, point 3, in the judgment of

the Chief Justice, His Honour said that:

Reference was made on both sides to the case
of South Carolina v United States in which the

extent of the prohibition of taxation by

Congress of the property of the States, which

is held to be implied by the Constitution, was

much debated. Counsel for the Attorney-

General were disposed to concede that the

express prohibition of sec. 114 must be
limited as the majority of the Supreme Court

of the United States held in the case just

cited with regard to the implied prohibition,

to property employed in the ordinary affairs

of government as understood at the date of the

State 16 2/5/91

establishment of the Commonwealth. There are,

however, difficulties in the way of implying

any such limitation upon the terms of sec.114,

just as there are (as was pointed ou in the

Federated Amalgamated Government Railway and

Tramway Service Association v New South Wales

Railway Traffic Employes Association in the

way of saying that any function which a

Sovereign Government assumes to exercise

within the limits of its powers is not an

ordinary function of government.

And at page 837, in a more tentative way,

Mr Justice Barton, at point 2:

Now as to sec. 114 I must guard myself against

being supposed to agree with Mr Pilcher that

the prohibition applies only to property of

Commonwealth or State which is a means or

agency of Government as ordinarily understood.

That position may be correct. On the other

hand, it may be that the framers of the

Constitution intended to protect all such

property as either power might have or

acquire, whether used or not in the ordinary

essential functions of Government. There is

this difficulty in the way of that

construction. As their respective
Constitutions stand it is open to the States
to acquire and hold property for purposes
without number. That is not so in the case of

the Commonwealth, and in that aspect sec. 114

would scarcely seem to be a compact fair to

the Commonwealth.

Well, in our submission, fairness has never been a

touchstone of constitutional interpretation, in that sense, and if that was, as it were, the

deal that was struck and embodied in section 114,

the limitation upon excess is the natural political

limitation upon State socialism, to use the

19th century expression.

Your Honours, we, in paragraph 12, seek to

support both of the two alternative ways upon which

we put the submission as to property of the State,

by drawing support from the words "property of any

kind" in section 114, and again, in this different

context, we seek to draw the analogy of the

attitude to property in section Sl(xxxi).

Your Honours, it may be put against us that,

because the State Bank of New South Wales has been

held in certain State legislative contexts not to

be entitled to the shield of the Crown, that

therefore it is not entitled to the benefit of

section 114 immunity. And in paragraph 13 we have

endeavoured to state five reasons why the shield of

State 17 2/5/91

the Crown analysis is an inapt one for the scope of

section 114.

The first is that the modern test for

determining whether a body is entitled to the

shield of the Crown is ultimately a search for

legislative intent in the context of a sovereign

parliament and, as is well known, the, as it were,

relativities of shield of the Crown benefit may
operate at two levels. In the statute which
creates the corporation, which may state expressly

or implicitly an intention as to its shielding, and in the statute which is sought to be applied to the

corporation which may state, with respect, to some,

but not all, provisions, an intention to reach out

to the Crown.

We submit that this overriding search for the

intent of the Parliament which creates the body or enacts the statutes said not to bind the Crown, is inapt for a constitutional guarantee inserted for

the mutual protection of the two sovereigns created

by the Constitution.

The second proposition is really a development

of the first. It now would appear to be the

proposition that a clear statement of a legislative

intent to have a shield of the Crown will be given

effect to, at least so far as legislation of the

enacting Parliament is concerned. Yet this could

never be, we submit, the touchstone of immunity

under section 114, otherwise it would be very easy

for the Government of New South Wales, one would
think, to draw down the immunity upon anybody,

whether or not, in any sense, it owns property

which is the property of the Crown.

Thirdly, Your Honours, may I take you to a

very brief passage in 149 CLR 282, the Townsville

Hospitals Board case, at page 291 where at point 6

in the judgment of the Chief Justice, His Honour

said:  It has more than once been said in this

Court that "there is evidence of a strong

tendency to regard a statutory corporation

formed to carry on public functions as

distinct from the Crown unless parliament has

by express provision given it the character of

a servant of the Crown". All persons should

prima facie be regarded as equal before the

law, and no statutory body should be accorded

special privileges and immunities unless it

clearly appears that it was the intention of

the legislature to confer them.

State 18 2/5/91

One could perhaps put Bropho's case as a postscript

to that conception.

That, in our submission, could not have any

proper bearing upon the scope of application of

section 114 where there is no question of equality

as between the creature of the enacting Parliament

and other persons who are within the scope of

enacting Parliament's legislative jurisdiction.

Fourthly, Your Honours, we would respectfully

remind the Court that the shield of the Crown

analysis has really undergone something of a sea

change. In early days there was a very narrow

conception, a search which looked at the character

of the function being carried out by the body

claiming the shield. If it was part of the great

departments of State - and one can perhaps debate

whether the Horse Guards are a great department of

State in an Australian context - or a body which

was in consimili casu, then it was held to be

performing an inalienable government function,

ergo, entitled to the shield of the Crown. This,
of course, does not represent the present approach

to shield of the Crown analysis in our submission.

But if one takes that as being the approach

that was in vogue in 1900 it could not, we submit,

have been intended to apply in the context of

section 114 in view of the very factors I have

referred to in another context of the governments

of the colonies here being involved in all manner
of activities, and the impossibility of having any

conception of an essential governmental function, a

matter upon which this Court has remarked on a

number of occasions.

The final reason we advance, Your Honours, is

to draw attention to the fact that section 114

refers to State and not Crown. One may be able to

say that within a jurisdiction the Crown is one and

indivisible, but the State as a constitutional

entity, as Crouch's case itself illustrates, may

project itself in many parts and yet it is the

State which 114 fixes upon and not the Crown.

For these reasons we would submit that the

demurrer should be overruled and costs awarded to

the defendant.

MASON CJ:  Thank you, Mr Solicitor. Mr Solicitor for South

Australia?

MR DOYLE:  If the Court pleases, we adopt the submissions

put for the State of New South Wales and also the

submissions to be put for the State of Queensland.

Could I make just one very small qualification as

State 19 2/5/91

to paragraph 11 of my learned friend's outline of

submissions, the Solicitor for New South Wales.

The submissions we will put in the case to

follow might not, on that particular point, be

entirely consistent with that proposition and so I

should qualify my adoption in that respect. But as

the matter does not arise directly here, or in our

case, I do not propose to develop the

qualification. If the Court pleases.

MASON CJ: Thank you.

MR DAVIES:  Can I hand up some outlines, may it please the

Court.

MASON CJ: Yes, Mr Solicitor for Queensland.

MR DAVIES:  Your Honours, in paragraph 2 of our outline we

make the point that the test is the same for

section 114 as for section 75. If we are correct in that then, in our submission, there is no need on the first question to go past State Bank of New

South Wales. That, in our respectful submission, governs this case as it does section 75.

But, Your Honours, in paragraph 3 we really

take the matter a little further. Your Honours

will see that we have in the last sentence in

paragraph 3 attempted to paraphrase a statement

which appears in the judgment of Justice O'Connor

in Municipal Council of Sydney v The Commonwealth.

Your Honours, if that statement is a correct

statement, and we submit it is, then what

His Honour said is, in our respectful submission,

equally applicable in reverse to the Commonwealth

tax on the property of a State instrumentality. In

other words, we submit, with respect, that where a

Commonwealth tax on the property of a State

instrumentality is such that the burden of that tax

must fall on the State by the State statute which

sets up that instrumentality, then, in our

respectful submission, it is, in substance, a tax

on the property of the State, and the sections of

the State Bank Act, to which our learned friend,
the Solicitor-General for New South Wales, referred

Your Honours earlier, in particular sections 30, 25 and 26 show that, that the tax burden must fall on

the State.

The money of the Bank becomes paid into

consolidated revenue, the government is obliged to
pay the liabilities of the Bank and it also is

obliged to guarantee it. So, in our respectful

submission, section 114 is applicable, not only

where the tax falls on State property, but where it

State 20 2/5/91

falls on property of an instrumentality where the

liability will fall on the State.

Your Honours, in paragraph 4, the proposition

which we make there is supported by a statement

from Crouch in the judgment of the former

Chief Justice, which our learned friend, the

Solicitor-General, referred to earlier, and I do

not intend to cite that. In paragraph 5,

Your Honours, we make what we submit is the correct

distinction between Crown immunity on the one hand

and the constitutional conception on the other.

Can I take Your Honours to one short passage

from the Bank case, in the judgment of

Sir Owen Dixon, in which, in our respectful

submission, he makes that point. It is at page 359,

76 CLR, and His Honour, in the second full sentence

on that page said:

It is within the province of the legislature

to say whether the body it forms shall or

shall not be suable for the torts of the

persons employed in its work: to say whether

it is or is not to enjoy this or that immunity

or privilege of the Crown. It is true that
the text of an enactment seldom contains any

statement of intention, express or implied,

upon the matter and that the solution is, more

often than not, found in what the legislature

has done in erecting the body, furnishing it

with powers and subjecting it to control.	But
the question here -

that is the constitutional question -

depends upon the meaning and operation of an

unalterable constitutional provision which the

intention of the legislature cannot affect.

Once the meaning and scope of the

constitutional provision is ascertained its

application depends on the legal situation, as

it exists, of the corporate entity said to

form part of, or an agency of, the central

government.

And, Your Honours, that is also, in our

respectful submission, what Your Honours were

saying in the State Bank case in the passage at

page 648 which our learned friend the Solicitor-

General for New South Wales also cited. That was

the passage at which Your Honour said the

constitutional conception is broader than the Crown

immunity and, in our respectful submission,

although it was said, as this was, in the context

of section 75, it applies equally to section 114.

State 21 2/5/91

Your Honours, that is all we want to say about

the first question and the only point we really

want to make about the second question, tax on

property, is to emphasize that the tax in this case

is of course a tax imposed upon goods applied by

the Bank to its own use. So it is not simply a tax

on manufacture but also a tax on the retention and

application of the goods to its own use and, in

that sense, in our respectful submission, clearly a

tax on the property.

DAWSON J: It is not a sales tax at all, really, is it?

MR DAVIES:  No, it is not a sales tax at all, Your Honour.

DAWSON J: It is in the Sales Tax Act.

MR DAVIES: Yes, but it is not a sales tax. Your Honours,

there is nothing else that we can usefully add.

MASON CJ: Thank you, Mr Solicitor. Mr Bennett.

MR BENNETT:  Thank you, Your Honour. I hope my learned

friend, by that last remark, is not foreshadowing a

section 55 argument.	Your Honours, I have an
outline of submissions.	The first point is the

question which has not been expressly dealt with in this Court before, which is the extent to which the

words "the State and the Commonwealth" in section

114 extend to emanations, instrumentalities,

corporations and other bodies associated with those

polities, and there is no direct decision on which

test of degree of relationship to government that the courts have applied for other purposes should

be applied for the purpose of section 114.

Our starting point is, that section 114 is a

provision restricting rather than conferring power

and therefore it should not be construed broadly.

May I just take Your Honours briefly to a couple of

passages in the DOGS case, Attorney-General for
Victoria v the Commonwealth, 146 CLR 559.	Your
Honour the Chief Justice at pages 614 to 615

referred to this point and said at the bottom of

page 614:

Although in some circumstances it is

permissible to construe a grant of legislative
power so as to apply it to things and events
corning into existence and unforeseen at the
time of the making of the Constitution, so
that the operation of the relevant grant of

power in the Constitution enlarges or expands,

a constitutional prohibition must be applied

in accordance with the meaning which it had in

1900.       As a prohibition is a restriction on

the exercise of power there is no reason for

State 22 2/5/91

enlarging its scope of operation beyond the

mischief to which it was directed ascertained

in accordance with the meaning of the

prohibition at the time when the Constitution

was enacted.

And, Your Honour, it applies that to the establishment of religion. His Honour

Mr Justice Aickin concurred at page 635 with

Your Honour the Chief Justice. Mr Justice Wilson

at page 652 made the same point at the very bottom
of the page, about point 8, if Your Honours see the

words "as against the Commonwealth" in the left-

hand margin, about 8 lines from the bottom, His
Honour said:

The fact is that section 116 is a denial of legislative power to the Commonwealth, and

no more.	No similar constraint is imposed
upon the legislatures of the States.	The

provision therefore cannot answer the

description of a law which guarantees within

Australia the separation of church and state.

The plaintiffs' plea for a broad construction

overlooks the fact that we are dealing with a

clause which does not grant power, but denies

it. While it is true that a constitutional

grant of plenary legislative power should be

construed with all the generality which the

words used will admit, carrying with it

whatever is incidental to the subject-matter

of the power, the same is not true of a

provision which proscribes power.

I should tell Your Honour that the then

Chief Justice Sir Garfield Barwick expressed a

different view at page 577. His Honour was a

member of the majority in that case, but he did not

agree on this point and at page 577 point 3

His Honour says:

It was submitted for the Commonwealth

that section 116, not being a provision

granting legislative power but, on the
contrary, a provision denying it, ought not be

be read as largely as a facultative provision

should be read. This submission was based on

the view expressed by Sir Owen Dixon in Wragg v New South Wales. With the greatest respect
to an opinion of Sir Owen, I am unable to

accept this submission. I can find no reason

why the words of the Constitution should not

be given their full effect, whether they be

expressed in a facultative or prohibitory

provision. In particular, in this case, the

emphatic universality of the language of

State 23 2/5/91

section 116 seems to me to brook no restraint

sought to be imposed by any such doctrine -

Neither Mr Justice Gibbs nor Mr Justice Stephen

discussed the matter, although there are passing

references which might be thought to refer to it at

page 593 and page 609.	I will not take
Your Honours to those.	Mr Justice Murphy did not

refer to it. In any event His Honour dissented.

The passage in Wragg to which the

Chief Justice and Mr Justice Wilson referred is in

Wragg v State of New South Wales, 88 CLR 353,

at 386. His Honour very firmly there expresses the

view expressed by Your Honour the Chief Justice and

Justices Aickin and Wilson in the case to which I

have taken Your Honours.

At page 386, line 8, against the words ''thus

distinguishes" in the left-hand margin, the

Chief Justice there said:

A legislative power, however, with respect to

any subject matter contains within itself

authority over whatever is incidental -

he refers to the general principle about incidental

power -

But even in the application of this principle

to the grant of legislative power made by

s 5l(i) the distinction which the Constitution

makes between the two branches of trade and

commerce must be maintained. Its existence

makes impossible any operation of the

incidental power which would obliterate the

distinction. Section 92 does not confer power

but restricts it. It is commonly said that it

confers an immunity. For it denies power to

the legislatures to impair the freedom of
trade, commerce and intercourse among the

States. The argument for the plaintiffs

presents all the appearance of an attempt to

take the principles relating to the inclusion

in a grant of power of what is incidental or

ancillary to its fulfilment, and, by applying

such principles to the denial of power which

is involved bys 92, to extend the area of the

immunity.

So that seems to be the origin of this doctrine.

McHUGH J: That is really dealing with a very different

case, is it not? After all, that was - the attempt

in Wragg was to extend section 92 to intrastate

State 24 2/5/91

pricing legislation which was outside the concept

of interstate trade or commerce.

MR BENNETT:  I do not put it as a matter of ratio,

Your Honour. It is simply an approach which was raised by Sir Owen in that case and picked up by

three members of the Court in the DOGS case and it

is on that basis that I put it as a general

principle.

BRENNAN J:  What are you seeking to restrict the

interpretation of?

MR BENNETT:  The words "the Commonwealth" and "a State",

Your Honour, or "the States", I think, in

section 114 and to restrict them substantially to

the entities themselves and entities very closely

associated with them. I will give Your Honours in

a moment the test which we suggest ought to be

applied. But I am resisting an approach of saying

that one looks at the denotation of the words "the

States" and "Commonwealth" in 1900 and says, "Well,

that denotation has expanded because now there are

lots of quasi-governmental bodies which are really

treated in the same way." It is that approach

which I am resisting.

BRENNAN J:  To say that you treat quasi-governmental bodies

in the same way is not really to alter the

denotation of a term, is it; it is to determine

whether or not those are part of the State?

MR BENNETT: That is what we submit, Your Honour,

ultimately, but I resist a construction which says

that one extends it in the way one does in

section 75(iii) to a larger number of bodies which

have a lesser connection with the central polity

than bodies which may be said to be that central

polity itself.

BRENNAN J:  What then - if I could just ask you this, how do

you describe the central polity?

MR BENNETT:  The test we propose, Your Honour, is the one

only one where it is - it is the only dictum we

suggested by Mr Justice Stephen in the

found, in this Court, which discusses the precise

question and His Honour's test was whether the

relevant body is to be equated to the Crown in

regard to the Commonwealth. So, it is a test of

virtual identity and I will just take Your Honours

to that passage. It is volume 145 CLR 330, at

page 339. This case was rather a mirror image of
the case which, hopefully, will be dealt with by

the Court tomorrow, that was the Co~onwealth

Superannuation Trust and South Australian taxing

State 25 2/5/91

law. But in the middle of page 339, just below

half-way, His Honour said:

Each of these submissions involves, as

its first step, the proposition that the Trust

be equated to the Crown in right of the

Commonwealth. Each submission fails at the

outset unless this proposition be made good.

And then he agrees with the rejection. He refers

to that test again in the second paragraph:

it should be equated to the Crown in right of

the Commonwealth.

It is perhaps not laying down a test as such but it

is the closest we have found in any case.

The third matter we want to put is that one

should put aside the decisions under

section 75(iii). There are two recent decisions

apart from the Banking case itself. Those are the
State Bank v Commonwealth Bank and Inglis v

Commonwealth Bank, to both of which my learned

friend has referred. Each of those said that the

relevant bank - in one case the State Bank and the

other case the Commonwealth Trading Bank - was the

State within the meaning of section 75(iii).

The point we make about that is that there are

very good reasons of policy for having a very wide
interpretation of what is the Commonwealth and what
is the State for the purposes of section 75(iii).
That is a provision of the Constitution which

ensures that it is possible for any citizen to

implead the relevant body in this Court and, of

course, that disputes between them are dealt with

in this Court.

That is a matter of great importance. Its

importance is shown by the judgment of Sir Owen

Dixon in the Bank Nationalization case where

His Honour refers to the setting up of the court of

claims. What was done there, of course, was to

make the Commonwealth Bank, in effect, the

exappropriator of either the assets or the shares

of the various private banks and to set up a body

other than this Court, a court of claims, to assess

compensation. And it was that which the Court,

particularly Sir Owen Dixon, set its face firmly

against.

The judgment of Sir Owen Dixon at pages 355 to

368 - and I will not, of course, take Your Honours

to either passage - it is a long passage, but it

does show that there is high importance in

regarding bodies set up by States or the

State 26 2/5/91

Commonwealth as being the Commonwealth for purposes

of that section where it is sought to avoid the
effect of section 75(iii). It is very different to
the sort of consideration which is appropriate in

dealing with section 114.

McHUGH J:  The passage does not start at page 355 does it?

It starts more at 363.

MR BENNETT:  Yes, I gave Your Honours the earlier reference

because that was the area where the position of the
court of claims and its effect was discussed which
led up to the problem he refers to at 363. But the

particular reasoning, as Your Honour says,

commences at page 363 at about point 6. Perhaps in

the middle of 363 at point 5, five lines from the

end of the long paragraph:

The purpose of s.75(iii) obviously was to

ensure that the political organization called

into existence under the name of the

Commonwealth and armed with enumerated powers and authorities, limited by definition, fell

in every way -

and we stress those words -

within a jurisdiction in which it could be

impleaded and which it could invoke.

Clearly, one would expect that to extend far

further along the line of public corporations than

the reach of section 114.

McHUGH J: But His Honour's reasoning seems to be directed

simply to the position of the Commonwealth to

explain the distinction between 75(iii) and 75(iv).

MR BENNETT:  Yes, that is so, Your Honour, but the later

cases, particularly the State Bank case, seem to assume that the test is the same. Certainly the State Bank case makes that assumption. And there

is a certain balance within section 75 in that the

same phrases are used and the only difference, I

suppose, is that in relation to the Commonwealth

there are the words, "or persons suing or being

sued on behalf of".

McHUGH J: Yes, but that is the whole point of that

reasoning process of Sir Owen Dixon.

MR BENNETT: Well, except, Your Honour, that in Inglis, and

in State Bank as well, the relevant banks were held

not to be within the extended words but within the

initial words. The Commonwealth Trading Bank was

held to be the Commonwealth rather than a person

State 27 2/5/91

sued on its behalf, and the same in relation to the

State Bank.

Now, Your Honours, sections 98 and 102 of the

Constitution both refer to railways being the property of the States, and I do need to explain

that provision. The problem, of course, is, that

in relation to railways, as at 1900, the assets of
the railways were vested in commissioners. We have
prepared a schedule for Your Honours which sets out

some of the major provisions affecting railways and

might I also hand to Your Honours at the same time

two portions of early statutes. One is the New

South Wales Government Railways Act 1858, and the

other is the Queensland Railways and Tramways Act

1864.

These show a number of things. The schedule

shows, Your Honours, that the general structure of

government railways legislation in 1900, in

virtually all States there were incorporated

commissioners who were either corporation soles or

corporations aggregate. They were removable by the

Governor-in-Council in two States, only on an address, in two States at will. Their revenues were paid into consolidated revenue. Contracts

required the Governor's approval. Land was vested

in commissioners for and on behalf of Her Majesty

but disposal was subject to the Governor's approval

or regulations. There was a fairly substantial

degree of control by the Governor-in-Council and
by-laws required approval, as did regulations

concerning staff.

The significance of the two earlier Acts, I

have shown Your Honours, lies in section 7 of each

Act, because in each case section 7 began with a

rather unusual reason being given in a statute for

doing something. If Your Honours take the

Government Railways Act of New South Wales first,

the 1858 Act, Your Honours will see section 7: For greater convenience in respect of

suits and otherwise the Commissioner so to be

appointed as aforesaid and his
successors ..... are hereby constituted a

corporation sole -

et cetera. It is almost as if the legislature is

apologizing for setting up the corporation sole and

feels the need to give a reason for it. The

importance of that, of course, is that the
corporation sole was not being set up in order to
confer any degree of independence, or for any of
the reasons for which modern corporation sole or

corporations aggregate are set up by governments;

State 28 2/5/91

it was rather simply a convenience, perhaps to

avoid the shield of the Crown - - -

McHUGH J:  But you could not have sued the Crown

in 1858 -

MR BENNETT: That is the point, Your Honour. Because you

could not have sued the Crown, it was a convenient

way of avoiding that, rather than legislate for an

exception to say, "Well, you had better have a

commissioner and you can sue him". And the

Queensland Act, section 7 has exactly the same

preamble. That all rather suggests that the

railways, as at Federation, were in a special

position and that the draftsman of the Constitution

had no difficulty in seeing that property of the

railways was, for all practical purposes, although

vested in commissioners, the property of the State,

even though it was not intended, in other respects,

that sections such as section 114 should have a

wider reach.

In that regard, might I take Your Honours to the Railway Servants case, 4 CLR 488. There is a passage in the judgment of the Court at page 535.

It starts four lines from the end where this point about railways is made, and Their Honours there

say:

With regard to State railways it is a

matter of history that before 1890 all the six
colonies had established State railways, the
control of which formed a very large and

important part of State administration, and

that very large.financial obligations -

over 100,000,000 pounds -

had been incurred by the Colonies for their

construction, as is expressly recognized in sec. 102 of the Constitution. In each case

the actual administration of the railways was

entrusted to a body specially constituted

under State law for the purpose, but the

revenue from the railways was State revenue,

and the obligations incurred by their managers

were State obligations. It is a fact also
that the ability of the Colonies to meet their

financial obligations in respect of loans was

largely dependent upon the successful and

profitable employment of the railways. It

cannot, in our opinion, be disputed that the

State railways were in their inception instrumentalities of the colonial Governments,

and we do not know of any authority for saying

that this position was affected by the

incorporation of the Railway Commissioners,

State 29 2/5/91

which, in our opinion was a matter of purely

domestic legislation for the convenience -

the same word -

as well of management as of the assertion and

enforcement of contractual rights in respect
of the commercial transactions involved in the

transport of goods and passengers.

Reg v Mccann, ifI must just briefly refer

Your Honours to it, that is an English case which

refers to the Commissioners of Woods and Forrests,

(1868) LR 3 QB 677, and there is a passage which

runs from 679 point 4 to 680 point 2 which refers

to the same concept of convenience and says that
the Commissioners of Woods and Forrests are, for

all practical purposes, to be treated as the Crown

and it is merely for convenience that the body has

been used.

Our submission is that there is in this

State Bank which is more distant from the

respect a very great distinction between the the

railways which were expressly referred to in the

State.

Now, there is a phrase used in Repatriation

Commission v Kirkland - I will not take

Your Honours to the case - I have referred to it

sufficiently in the submissions, but Chief Justice
Knox and Justice Starke used the phrase in relation

to the Repatriation Commission, "in the strictest sense a department of government or at all events

so practically identified with it as to be

indistinguishable." That sort of language might

well have been appropriate to the Commissioners for

Railways. It would be quite inappropriate to a

government bank either at the time or now.

That brings me to the earliest case discussing

the status of government banks in this Court, and that is the well known decision in Heiner v Scott.

I apologize, I left the reference out of the

submissions. It is 19 CLR 381. Now, the question

in this case concerned Queensland stamp duty on a

cheque drawn by a private customer on the

Commonwealth Bank. Although section 114 is

referred to in argument it is hardly mentioned in
the judgments because the case was dealt with under
the old immunity of instrumentalities doctrine and
one of the questions was whether the Commonwealth

Bank fell within that. Of course, in a sense, it

was not necessary to decide that because, as is

fairly obvious, the cheque itself is not the

property of the bank, the stamp duty is imposed on

State 30 2/5/91

the customer and it is hard to see how, whatever

immunity the Commonwealth Bank had, it could affect

the ability to impose stamp duty on a customer.

But there is, nevertheless, a discussion in some of the judgments, particularly that of the

Chief Justice Sir Samuel Griffith, about the nature

of the Commonwealth Bank and this has been referred
to in a number of subsequent cases, particularly

the Banking case and the Inglis case.

May I first take Your Honour to page 392. At

the top of the page there is a reference to the

test to which my learned friend referred, the old
test of whether the function was strictly a

function of government, and there is some

discussion of that and I need not take Your Honours

to that. But then at about point 6 on page 393

His Honour says this - he refers to the

Commonwealth Bank Act, he says:

Section 5 declares or enacts that "a

Commonwealth Bank, to be called the
Commonwealth Bank of Australia, is hereby

established." ..... body corporate with

perpetual succession and a common seal, and

may hold land and may sue and be sued in its

corporate name. This is all. There are no

corporators.

He then says:

How there can be perpetual succession when

there are no persons to succeed one another I

do not quite understand. It is commonly said

that a corporation aggregate is "a mere

abstraction of law" "having a metaphysical

existence only". This is, of course, true in

one sense, but has always been said of a

fictitious entity composed of the aggregate of

several persons, and never of a mere

disembodied spirit. I pass by the question

whether in the nature of things it is

competent for the Commonwealth Parliament to

declare that such an abstraction dissociated

from any material persons shall be regarded as

a corporation, and will assume that it is, and

that the Bank is a real entity cognizable by

law.

And then there is a sentence which seems to stand

on its own, which has been picked up in later

cases, but which, in our submission, should not be

taken too far, where His Honour says:

Probably the true effect of the Act is a

declaration that the Commonwealt~ may itself

State 31

carry on the business of banking under the

name of the "Commonwealth Bank of Australia."

But that seems to be said in the context of

difficulty with the abstraction of the corporation

with no corporators. It would not be the view

taken today where there would be no difficulty at

all in assuming the existence of corporate

personality in a body without corporators.	He then
says:

The question then arises ..... Under what power conferred -

and he goes into that. We then come to the further

question:

"How far can such a bank be made an

instrumentality of the Government?"

and he refers to the incidental power and

ultimately comes to the conclusion on the following

page, at point 2,:

that the operations of the Commonwealth Bank,

as between itself and its customers, are not

the discharge of a function of the executive

Government of the Commonwealth, and that no

privileges can be claimed in respect of them.

And that, we submit, is a very useful indication of

the context of the time in relation to how far one

would expect the words "the State" or" a State" or

"the Commonwealth" to extend in the early years of

Federation. And there are similar remarks,

although not about the metaphysical nature of it,

in the joint judgment of Justices Isaacs, Gavan

Duffy and Rich at page 400, but I will not take

Your Honours to those.

So our first submission, then, is that when

one looks at section 114, it is a limited section.	It is not given an absolute freedom from taxation
by the other to the States and the Commonwealth; it has limited it to matters in respect of their property - and I will have more to say about that when I get to the second part of my submissions.

So it not in a laying down some sort of

immunity of instrumentalities principle of the type
that was applied in the first few years of

Federation. It is simply laying down a limited and

reciprocal restriction on the powers of the

Commonwealth and the powers of the States. And in

my respectful submission, there is simply no reason

for extending that or treating it as something to

which great width should be given, either as a

State 32 2/5/91

matter of policy or as a matter of the intention of

the drafters of the Constitution. It stands in a

quite different case, we would submit, to

section 75(iii), where there were quite different

reasons for coming to the opposite view. And we

submit that it should be limited, as suggested by
Mr Justice Stephen, to bodies which can be equated

to the Crown in right of the Commonwealth or the State and that although language of that type is used in Inglis and in the State Bank case, it is

language used very much in the context of

section 75(iii).

It is of importance to note that whenever that

type of phrase is used in one of those cases - and references in the judgments in both cases - but

Your Honours will find each time there is a phrase

like "the Commonwealth Trading Bank is an emanation

of the Commonwealth" or "the State Bank is the

State of New South Wales", each time the sentence

is qualified by words such as "for this purpose" or

"for the purposes of section 75(iii)", and in our

respectful submission, those cases must be limited

in that way and not treated as laying down any

broader proposition for the purposes of section

114.

Now, the alternative submission which we put

in paragraphs 5 to 7 on page 3, the fall-back

position if one likes, is that the appropriate test

is whether the body has the shield of the Crown.

That is a lower test than the one which we have put

thus far. The current test - although it is not so
much perhaps put so much as a test - for shield of
the Crown, the most recent statement of it, seems
to be the Townsville Hospital case. That

emphasizes control as the principal element,

although it does have some discussion about what

occurs if a statute does or does not expressly say

the shield of the Crown exists.

My learned friend read the passage to

Your Honours, and the passage shows that it is in

one sense within the ability of a State, in setting

up a body, to determine whether or not it has the

shield of the Crown. If it does not do that,

particularly after Bropho, there is a little bit of

a presumption against it, because of the current

presumption of equality in relation to quasi-

governmental corporations.

So the shield of the Crown test is a narrow

test and there is one case which came to this
Court, although on a different point, in which it

was held that the State Bank did not have the shield of the Crown. That is the decision of

State 33 2/5/91

Mr Justice Wilcox in Bourke v State Bank of New

South Wales, 85 ALR 61. The question in that case

was whether the Trade Practices Act applied to the

State Bank. His Honour held that the Trade

Practices Act did not apply to it. It is one of

the rare cases where a single judge of a court

other than this Court held legislation to be in

part invalid. His Honour was affirmed by this

Court on that question.

His Honour, in obiter against the possibility that that finding would be reversed by this Court,

considered a second question, which was whether the

State Bank had the shield of the Crown, and

His Honour held that it did not. He commences

dealing with that at page 72 point 6 where he

points out that what he is about to say is obiter.

He then, at page 73, deals with the State Bank v

Commonwealth Savings Bank case. At line 40 he

points out that it was not necessary for the

High Court in that case to deal with the shield of

the Crown question. He says:

it is apparent that the court regarded the

matter of immunity as a separate question -

and he refers to the passage at page 648 where it

was said that the "constitutional conception is a

broader one" .

That is a passage my learned friend took

Your Honours to. We would interpret the passage,

the words "constitutional conception", as referring

to other sections of the Constitution, and in

particular section 114. It is a broader conception

than the one with which Your Honours were concerned

in that case.

His Honour went on to refer to the early Rural

Bank cases, and Your Honours recall Rural Bank of

New South Wales v Bland Shire Council and Rural

Bank of New South Wales v Hayes which came to this

Court in 84 CLR 140. Both involved the question whether the Rural Bank had an immunity, and this Court held in Rural Bank v Hayes that it did not

have the shield of the Crown. And His Honour

points out, we respectfully submit correctly, that nothing in State Bank v Commonwealth Bank was said

to overrule Rural Bank v Hayes, although the

characteristics of the two bodies were

substantially similar. His Honour at the bottom of

page 74 and top of 75 demonstrates the degree of

resemblance between the State Bank and its

predecessor, the Rural Bank, and he comes to the

conclusion at page 76 that -

State 2/5/91

it would not be correct to treat the State

Bank of New South Wales as an emanation of the

Crown in right of New South Wales -

and he refers to a number of factors.

In relation to those factors, we simply say

this. In State Bank v Commonwealth Bank the Court

referred to the six factors which had been applied

by this Court in Inglis to hold that the

Commonwealth Bank was the Commonwealth for the

purposes of section 75(iii). Those six were:

first, the absence of corporators; second, the

duty of the bank to ensure that its policy was

directed to the greatest advantage of the people of

New South Wales or Australia; thirdly, the fact

that the bank did not have a final say as to

policy; fourthly, the members of the board being

appointed by the Government; fifthly, the profits

going to the Government; sixthly, the audit by the

Auditor-General. The seventh factor relied on in

the State Bank case was its power to make by-laws

which had the force of law.

It was pointed out in State Bank v

Commonwealth Bank that one of those factors was

significantly weaker in relation to the State Bank

than in relation to the Commonwealth Bank, and that
was the factor of control, because the extent to
which the State Bank was subject to the control of

the government on matters of policy was

significantly greater than it had been in relation

to the Commonwealth Bank. But at the end of the

day Their Honours who decided that case said that
one factor was not sufficient to make a difference

under 75(iii).

But, of course, as Mr Justice Wilcox held and

as this Court had held in Rural Bank of New South

Wales v Hayes, it may well have been a much more

important factor when looking at the question of

shield of the Crown. And we put the matter of

control as well as the absence of an express

immunity in the Act in accordance with the

Townsville case as going a long way towards showing

that the State Bank does not have the shield of the

Crown.

May I move to the second part of my

submissions which concerns the particular type of

sales tax. Your Honours have been taken to the

final words of section 17(1). It is on page 92214

of the black booklet Your Honours have.

Your Honours see that the sales tax imposed by

that subsection is:

State 35 2/5/91

levied and paid upon the sale value of goods

manufactured in Australia by a taxpayer -

and I leave out the irrelevant words, and -

applied to his own use.

The other two may well be something different and

we are not concerned with those for present

purposes.

The importance of looking at those words is

that what Your Honours will see is that

"manufactured" is not used as a verb but used as a

participle; it is part of an adjectival clause,

"manufactured in Australia by a taxpayer". The

taxing point is the point of application to a
taxpayer's own use and it is not, we stress, part

of a continuing process. It is not a tax imposed

on the use over some period of goods.	It is a tax
which is imposed at a point in time.

I have referred in paragraph 1 on page 4 to

the five best known cases on application to own

use. Your Honours will not need to go to at least

four of them but I will just briefly describe them:

Taubmans, my learned friend described, that was the

paint cards. They were applied to the
manufacturer's own use at the moment when they were
placed in the shops for the use of customers when

they were buying paint.

In Hornibrook, that concerned piers which were

used for making a bridge over the Brisbane River
and it was said that they were applied to its own

use by the subcontractor which manufactured them

when it put them in the ground, so that by

operation of law they became the property of the

owner of the ground which was the State Government

who had commissioned the work. And, of course, it

has got a fee from the head contractor for

performing that service. At that moment it applied
them to its own use;	a single taxing moment.

In John Fairfax and Sons, the first of those

reports, the judgment of Mr Justice Enderby, the
question there concerned inserts, glossy

advertising inserts, of which Your Honours are no

doubt familiar in newspapers. Although the case

ultimately went off on appeal on the question of

whether they were within an exemption for part of
the newspaper, Mr Justice Enderby had to deal with

a further question as to whether they were applied

by the newspaper companies to their own use. He

held that the newspaper companies acquired them

from the manufacturer, so the property was in the

newspaper company, and it applied them to its own

State 36 2/5/91

use when it inserted them in the newspapers and

delivered those newspapers to newsagents. Again,
there is a moment of application to own use. It
was a case, of course, where they are paid by an
advertiser for placing it in the newspaper which

they delivered to their newsagent or customer.

Max Factor, my friend has referred to.

Application to own use when the cosmetics are given

away for advertising purposes. Stewart's case is

slightly more important and I need to spend a

little longer on it. Stewart's case concerned

machines which sold lottery tickets automatically;
they dispensed lottery tickets, and these were,

appropriately enough, placed in the children's

hospital, and the children's hospital received some

benefit from lottery tickets which were dispensed

from the machine, but there was an exemption in

relation to goods used by hospitals such as the

children's hospital.

There were two questions: the first was

whether and when the machines were applied to its

own use by the manufacturer and, secondly, whether

they were used by the hospital. And the court said

two things: first it said - and this is relevant

to my taxing point submission - that the machines

were applied to the use of the manufacturer when

they were installed in the hospital and placed

there, ready for use. At that moment they were

applied to its own use.

They then said however, the machines were used

by the hospital and therefore were within the

exemption. That demonstrates, of course, that the

word "use" can relate to goods that are not one's

own property. It is a slightly different point.

But for present purposes, the importance of the

case is that, again, there is a fixed taxing point.

between. a tax on property and a transactional tax Now there is a distinction, we would submit,	on a particular event or transaction or momentary
use of property. When one draws that distinction,
one then has a difficult line in relation to
continuing use. That was the problem with which
the court had to wrestle in The First Fringe Benefits Tax case and I will take Your Honours in
some detail in a moment to the passages where that
is discussed. In particular, Your Honours referred to a Canadian decision, which is perhaps the
clearest example of the problem. And that was the
Canadian Pacific Railway case, where there was an
exemption in the property of the Canadian Pacific
Railway could not be taxed by the provinces and the
province of Saskatchewan imposed what was called a
business tax on premises used for business

State 2/5/91

purposes. And when one looks at the business tax -

and I will hand to Your Honours in a moment the

report below, which contains a discussion of this -
the business tax was for all practical purposes, a
land tax or a rating of land, but it was imposed on

land used for a particular purpose.

Now that raises squarely the distinction which

I am referring to. Does one say that is a

transactional tax, because it is on "use" or does

one say, well really this is a property tax and the

transaction, the business, is simply a description

of the property which is being taxed? And not

surprisingly, the court said the latter and this

Court, in First Fringe Benefits, approved the

decision. That is clearly on one side of the line.

On the other hand, however, if the province of

Saskatchewan had said, every time a railway engine

goes over a particular level crossing, it will be

charged a tax, that would have been a transactional

tax. That would not have been a tax on property,

as such. It is on the other side of the line. It

is analogous to the octroi tax, which was referred
to by Justice Higgins in the Collector of Customs

in the Steel Rails case. That was a tax rather

like the toll on the harbour bridge, which was

imposed on anyone who drove cattle through a

turnpike, and the importance of the point with the

octroi tax was, it did not matter who owned the

property. It was the person who drove it through

the turnpike who paid the tax. The same way, of

course, with a car going over the harbour bridge -

that is an octroi tax.

Now that is a transactional tax. When one

comes to apply that distinction to the Sales Tax

Act and to a tax on goods applied to one's own use,

at a taxing point, we submit that is on the

transactional side of the line rather than on the proprietary side of the, and we get our analogies

from that from the Steel Rails case and from a

close analysis of the judgment of this Court in the

First Fringe Benefits Tax case. Now with that

introduction, may I take Your Honours to the cases?

The Steel Rails case, 5 CLR 818, and the issue

there was, very simply, whether the Sate of New

South Wales was liable to pay customs duty on steel

rails that it imported, and it was held that it

was. We take Your Honours first to the judgment of

Sir Samuel Griffith at page 829. At 829 point 7,

against the word "imposition" in the left-hand

margin, His Honour said this:

Such duties are imposed in respect of

"goods" -

State 38 2/5/91

this is customs duties

and in one sense, no doubt, "upon" goods,

which is only another way of saying that the

word "upon" is sometimes used as synonymous
with "in respect of." In the same way the
word "upon" or "on" is used colloquially in
speaking of stamp duties, succession duties,

and other forms of indirect taxation, as taxes

on deeds, &c., or on real and personal

property. Yet it is recognized that these

forms of taxation are not really taxation upon

property but upon operations or movements of

property.

And that, we submit, is the difference. At

page 832 His Honour then expressed the conclusion,

at line 3:

For these reasons I am of opinion that

the levying of duties of customs on
importation is not the imposition of tax upon

property -

and -

therefore, sec. 114 does not apply to duties

of Customs.

Mr Justice Barton, at page 839, substantially

adopts what the Chief Justice said.

Mr Justice O'Connor, at page 844, more briefly

says, at the very top of the page, line 2:

But, used in relation to property and in the expression "tax on property," there is a

narrower meaning of the word well known and

recognized. A tax on property in the strict

and narrower meaning is an exaction made in

respect of the holding or ownership of

property.

And we interpolate that that can be the use.	If
you have a case such as the Canadian Pacific

Railway case, one can have a tax on use of land for

business purposes, which is for all practical
purposes, because it covers a period of ownership,

a tax on ownership, but it is still a tax

substantially in respect of the holding or

ownership of property. One cannot extend the use

of the word "use" in that context to apply to the

sort of momentary use involved in the present case.

Finally, Mr Justice Higgins at page 854 said

at point 4 against the word "persons" in the left-

hand margin:

State 39 2/5/91

A Customs tax is a tax not on property as such, but on persons in respect of the act of

importation. There is a fundamental

difference between taxing men for having

property, and taxing men for moving property -

and, in particular, for moving property into

the country from over seas. A turnpike toll,

or an octroi tax, is not, properly speaking,

taxation "imposed on property," although the

person who moves the animals or goods through

the gate or into the city has to make a

payment based on the number or character or

value of the things which enter.

And just stopping there, if the harbour bridge toll

was based on a percentage of the value of the

vehicle, that would not make it a tax on property.

McHUGH J: But the big difference is this is a tax on the

use of property. I mean, a case like Steel Rail is

a long way removed from this case surely?

MR BENNETT:  Yes, Your Honour, but the principle, we submit,

is to look at whether one is taxing a transaction

or an incident of that sort, on the one hand, or

whether one is taxing ownership or possession at a

point in time or of a continuum or use over a

continuum which is, in effect, a tax ownership or possession. In other words, if one imposes a tax

on a particular activity in relation to goods at a

point in time rather than over a continuum that, we

submit is not a tax on goods.

McHUGH J: Supposing the Commonwealth attempted to tax the

issue of a certificate of title in respect of State

property?

MR BENNETT: If it taxed the issue of it?

McHUGH J: Yes, the issue of it.

MR BENNETT: That, Your Honour, would not be a tax on goods

or a tax on property.

May I now take Your Honours to The First

Fringe Benefits Tax Case, 162 CLR 74. My purpose

in taking Your Honours to the passage I am about to

go to is to demonstrate the reason why use is

referred to in this case and to show that it is
referred to in the limited way to which I have

referred to it. May I take Your Honours straight

to page 98, and the judgment in the majority in
that case, Your Honours, in line 2 said this after

referring to the Steel Rails case:

State 2/5/91

The section protects the property of a State from a tax on the ownership or holding of property -

holding, of course, can be a continuous process and

one can well understand that use may, in some

cases, correspond to holding -

but it does not protect the State from a tax

on transactions which affect its property,

unless the tax can be truly characterized as a

tax on the ownership or holding of property.

Now, of course, one can manufacture goods and

apply them to one's own use without owning them.

One example of that is in a case in which Your

Honours have adjourned the question of special

leave at the moment, the Kodak case. One of the

matters which arises in one of the arguments in that case occurs where film, where exposed film

belonging to a customer is taken by Kodak,

manufactured into a negative, and the negative is

applied to Kodak's own use by having light shone

through it to make a film which is then sold to the

customer. That is a case where, on one view of it,

Kodak has been said to manufacture goods and apply

them to its own use, although it never owns them at

any stage in the process.

So, like the octroi tax, the tax referred to

here is one which can be incurred without

ownership. Your Honours go on, at page 98, line 6:

This interpretation gives effect to the

popular or common understanding of what is

involved in the prohibition of a tax of any

kind on property of a State, namely a tax on

the ownership or holding of property. And it gives a powerful measure of protection to the

financial integrity of a State without

preventing the Commonwealth from taxing every

form of transaction to which a State is a

party. No compelling reason has been advanced

for giving the constitutional immunity any

wider operation.

A hint back to the very first submission I made.

It may be said that a tax on the exercise of any of the rights giving content to the

concept of ownership is itself a tax on
ownership.

some of his submissions.

That is rather the way my learned friend the with

State 41 2/5/91

This notion is rather more extensive than the

common understanding of what is involved in

the prohibition of a tax on the property of a

State, as we have explained it, though we

would accept that some -

and we stress the word "some" -

taxes on rights exercised by an owner with
respect to his property would amount to a tax

on property in the prohibited sense.

And the example given is then CPR.

Thus, in the context of an exemption from

taxation on ownership of property, a tax on

the possession or use of property would

constitute a tax on the ownership of that

property. This is because -

and the reason is given -

an exemption from taxation on ownership of

property naturally extends to an exemption

from taxation ori the use of it.

May I stop there and interrupt my examination of

the case by handing Your Honours the report in the

court below of the Canadian Pacific Railway case.

I see, Your Honours, it is a quarter past four.	Do
Your Honours wish me to continue?

MASON CJ:  We will adjourn.

AT 4.16 PM THE MATTER WAS ADJOURNED

UNTIL FRIDAY, 3 MAY 1991

State 42 2/5/91