Fortescue Metals Group Limited and Ors v The Commonwealth of Australia
[2013] HCATrans 42
[2013] HCATrans 042
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S163 of 2012
B e t w e e n -
FORTESCUE METALS GROUP LIMITED ACN 002 594 872
First Plaintiff
CHICHESTER METALS PTY LIMITED ACN 109 264 262
Second Plaintiff
FMG PILBARA PTY LIMITED ACN 106 943 828
Third Plaintiff
FMG MAGNETITE PTY LIMITED ACN 125 124 405
Fourth Plaintiff
FMG NORTH PILBARA PTY LIMITED ACN 125 154 243
Fifth Plaintiff
and
THE COMMONWEALTH OF AUSTRALIA
Defendant
FRENCH CJ
HAYNE J
CRENNAN J
KIEFEL J
BELL J
KEANE J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 7 MARCH 2013, AT 10.14 AM
(Continued from 6/03/13)
Copyright in the High Court of Australia
____________________
FRENCH CJ: Please call the part‑heard matter. Yes, Mr Jackson.
MR JACKSON: Thank you, your Honours. Your Honours, may I before continuing with the questions relating to section 91 go back to deal with four matters raised by the Court yesterday? I want to refer to the particular passages in the transcript where the issue was raised. The first of them, your Honours, is a question raised at page 28, lines 1177 to 1185, and your Honour Justice Crennan was asking about the effect of the other expenditure allowances. Your Honours, the other allowances referred to in section 10‑10, if one leaves aside royalty allowance and transferred royalty allowance, are pre‑mining loss allowance, mining loss allowance, starting base allowance and other transferred loss allowances, they may or may not be different in different States.
The allowances depend upon the particular mining project interest and the miner’s contributions in developing that interest, and the Commonwealth law does not differentiate between States with respect to those allowances, and unlike those allowances the royalty allowance is the only allowance that is grossed up. The second aspect, your Honours, concerns again the other allowances and it relates again to a question by your Honour Justice Crennan at page 60, line 2626. I will not read out what your Honour put to me.
Could we just say this? Assuming your Honour’s concern was that a reduction in State royalties which would lead to a reduced royalty credit and royalty allowance, I suppose in a sense the question was could that be offset by an increase in some other allowances and, your Honours, that will not be the case because the other allowances give a credit for losses. If, by reason of the State granting a concession, it costs less to build a road, then if the miner made a loss, its loss might be less than it otherwise would have been. That reduced loss would simply mean that the miner had a reduced other allowance and there would not be a compensation or offset for the reduction in royalty allowance, and that could only happen really if the other allowances were increased.
Your Honours, the third matter is a question your Honour Justice Hayne asked me at pages 50 to 51, commencing line 2196. Your Honours, we submit that there is not a difference between the case when a different rate of tax is applied in each State and when a different amount is extracted from otherwise similar taxpayers as your Honours will have seen. If the position were otherwise, we would say that section 51(ii) would only operate as a matter of form, not substance. Our complaint about the imposition of the MRRT liability is not the different amounts of tax that may happen to be paid in different States; rather, this result arises because of the structure of the MRRT Act and because the State laws are expressly picked up and applied in the equation.
Your Honours, the final matter arising from the pre‑section 91 matters was a question your Honour Justice Keane asked concerning Melbourne Corporation, page 63 and lines 2761 to 2766. Your Honours, there are cases where the Melbourne Corporation principle has been held applicable, even where the State’s ability to actually engage in transactions has only been curtailed, but not fully impeded, if I can put it that way, and Austin and Clarke are examples of that. Both cases stand for the proposition that it is no answer to say that the State could fix the problem by other means. Could I refer in that regard to Austin 215 CLR at page 220, paragraphs 29 to 30? Your Honours, the Melbourne Corporation principle, we would submit, turns upon capacity to act.
BELL J: Could I ask one question, Mr Jackson, arising out of some of the considerations to which you have just taken us? If one looks at the definition of a mining profit in 25‑5 one sees that a:
Mining profit = Mining revenue – Mining expenditure
If one then goes back to 10‑5 one sees that the liability is the:
MRRT rate x (Mining profit – MRRT allowances)
So one has in the structure of the tax mining profit and mining profit is subject to reduction for mining expenditure, and mining expenditure would include considerations such as varying State payroll taxes.
MR JACKSON: Yes, your Honour.
BELL J: So do I understand that the same structural problem applies with respect to the tax in light of differing regimes respecting payroll tax?
MR JACKSON: Not really, your Honour. Your Honour, whilst I appreciate that the distinction may be fine and so on, but could I just say this? One sees in 10‑5 the concept of mining profit. Mining profit is not, as I submitted earlier, quite what an accounting mining profit might be because it is the product of taking away A from B, as it were, or B from A, each of those being a defined term.
In the definitions ‑ and your Honours I went, albeit somewhat briefly, to the two groups of provisions that deal with those ‑ they allow various amounts to be taken into account as the mining income, as it were, and mining expenditure on the other hand. Each of those – they are defined terms and, of course, they are artificial in the sense that they have a cut‑off point. Having said that, one sees that in respects presently relevant there is not a determination – I am sorry, the Act does not use, as it were, particular State differences and particular State bases as an essential element of the calculation, it lies where it falls, but, when one is talking about MRRT allowances, which is the aspect to be taken into account specifically in section 10‑5, one sees two things.
The first is that MRRT allowances includes specifically and, as the first order, royalty allowance – that is section 10‑10 – and it does not just take royalty allowance as one would in the case of, say, section 8 of the Income Tax Assessment Act by deducting the amount of the royalty from it – including it as an expenditure. It then uses it as an integer which is multiplied up so that one gets the ultimate amount and the 22½ per cent cancels itself out in each case.
So, your Honour, there are differences. It is not a case where the statute is saying, you take into account this, this, this, whatever it might be, under the statutes of the States. What it is saying is there is one element that of its nature will change and is regarded as important and this is the way we use it. We bring it up by multiplication and take it specifically, and the result is inevitably, on the assumption that there are different rates of royalty as there were at the time when the legislation came into force, that there must be different results arrived at.
Your Honour, it is a distinction. One does not want to get rid of allowances that otherwise might be taken into account but at the same time the statute in its structure goes beyond what is permissible, we would submit. May I come back – I am sorry, your Honour.
CRENNAN J: In that answer, Mr Jackson, there was a return to that grossing‑up idea, as you explained again. I might have misunderstood you yesterday so perhaps I should clarify this. I thought in some discussion with Justice Hayne you disavowed the idea that grossing up was essential to your argument, as it were.
MR JACKSON: Well, your Honour, perhaps it was in dealing with the way in which the issue was being put to me at that point because, your Honour, the effect of grossing up means that the deduction – if I can call it that, that is referred to in the formula ‑ is to take away from the tax that otherwise is payable, the whole amount of the royalty, as distinct from if one had a case where 22½ per cent was applied to mining profit minus royalty.
CRENNAN J: Yes, I do understand the different ways that the two exercises work.
MR JACKSON: Thank you, your Honour.
HAYNE J: The passage was at 1745 to 1755 of the transcript, page 41. Is there some addition to be made to what is said there?
MR JACKSON: Your Honour, the argument would remain identical, if I could use the expression I used yesterday I think I would have to say that because the position would be that one would have, again, an item specified as a necessary part of the calculation. The reason why one says that, in agreement with your Honour, is that as a matter of theory perhaps one could not say the fact that the deduction is allowed at the full amount rather than a percentage is absolutely critical to it, but, your Honour, what it does do is to highlight the fact that the royalty plays a very significant and, indeed, determinative part in the calculation of the tax.
KIEFEL J: Are you returning to section 91 then, Mr Jackson?
MR JACKSON: I am, your Honour.
KIEFEL J: Could I ask you in that respect to go back to the Seaman’s Union Case? I noticed that Mr McPherson, QC, in his submissions at page 125 is reported to have said that:
Aid traditionally and historically meant parliamentary aid – a synonym for certain parliamentary taxes –
This appears to be taken up by Justice Stephen at page 140 at about point 4 where, referring to Palgrave, he says that the historically understood “aid” was a term which was defined as:
“an aid, tax or tribute granted by parliament to the king”.
His Honour seems to be saying that in its understood and its historical sense parliamentary aid would have a narrower meaning. It would be limited to financial aid made by the Parliament expressly.
MR JACKSON: Well, your Honour, we would have, I think, accepted that proposition for present purposes and I think I was trying to say yesterday that the contention in Seaman’s Union was that “aid” was a broader concept than that. Then the Seaman’s Union decides that aid is a form of monetary aid, financial aid and, in the ordinary course of events, leaving aside what in a sense are rather bizarre examples, aid would be given by a State by or pursuant to statutory provision.
KIEFEL J: I am sorry, I think his Honour is really referring to parliamentary aid by way of aid in grant by the Parliament.
MR JACKSON: Yes, your Honour.
KIEFEL J: Not a statute which contains some form of incentive or encouragement; that is the distinction. That may not have been expressed by any of the other Justices in Seamen’s Union but it seems to have been taken up quite strongly by Justice Stephen. It may have underlain some of the other Justices’ understanding of why aid was restricted to a financial sense.
MR JACKSON: Yes, your Honour, at the time of Federation it would be very surprising, with respect, to find any Australian colonial government having given aids by way of simply parliamentary grant without there being something that amounted to a statutory authority.
HAYNE J: The expression “grant in aid” was a recognised parliamentary expression at that time, was it not? See Durell on Appropriations.
MR JACKSON: Well, your Honour, in the sense in which it was being used by Justice Stephen, picking up those things, it was an aid – I am looking halfway down page 140:
“an aid, tax or tribute granted by parliament to the king”.
HAYNE J: Yes.
MR JACKSON: Now, it is difficult to translate that meaning to a grant in aid of mining, for example.
KIEFEL J: I do not think Justice Stephen had that difficulty. At page 141 he said:
Palgrave’s work . . . was closely contemporaneous with the drafting of the Constitution.
MR JACKSON: Your Honour, accepting that for the moment, could I just say that it is very difficult though to convert that concept to what is spoken of in section 91 because in both limbs of section 91 it is speaking of any aid to or bounty on mining, on the one hand, or the grant of – or production or export – with how one translates a concept of that kind which deals with grants to the King or to ‑ ‑ ‑
HAYNE J: The distinction being drawn is between appropriation for the ordinary annual services of the government – one class of appropriation – and grants in aid which are another class of appropriation. How else does a State grant aid save by – or how does a State grant financial aid save by engagement of the appropriation mechanism? It must do so, and if grant in aid was, as I think it was, a recognised and recognisable form of appropriation at the time of Federation, why would one not read the composite expression in section 91 – grants aid – as engaging with that kind of idea?
MR JACKSON: Well, your Honour, and why would not also ‑ if I might so submit – why would not one also treat it as applicable to any aid which might be granted by a State, one of the means of granting which is by or pursuant to statute? In the ordinary course of events one would expect there to be provisions of State laws which allowed for bounties, which certainly is covered by it, and bounties provided for by a statute and, your Honour, the second paragraph of section 90 seems to contemplate that bounties would be granted by laws. Your Honours, also one has a situation where it would be perfectly appropriate and normal for a State to have laws which permitted there to be rewards given for discovery of goldfields, things of that kind. It does not have to be simply by a form of appropriation absent statute.
HAYNE J: Bounties would be supported financially by an appropriation for the ordinary annual services of the Crown, would it not, as distinct from the one‑off, the otherwise distinct grant in aid made as a distinct form of appropriation.
MR JACKSON: Well, maybe, maybe not, your Honour. Could I just say that one was looking at the time of Federation to a nation that was thought to be in the end one would get rather bigger and utilise some of the resources of the nation in various parts, and that not every form of aid that would be given would be done absent the statutory provision. In any event, your Honour, one of the ways of granting aid is by statutory provision and then to satisfy that ‑ to provide the funds for it there needs to be an appropriation made by the Parliament.
Your Honour, one is not really talking in terms of section 91, in our submission, of grants that are made absent statutory provision. They may or may not be, but in the ordinary course of events they would be made pursuant to it. Your Honour will recall that the terms of section 91 speak of the grant of any aid, any aid or bounty. Your Honours, could I come then to a question that your Honour Justice Hayne was asking yesterday, and that is at line 3307 on page 75? That is, if I could put it shortly, your Honour – and I hope I am paraphrasing it appropriately – what, in effect, is the theory of or the theory behind section 91.
Your Honours, could we say these things about it? Section 91 is part of Chapter IV dealing with finance and trade. Laws which fall within that general description are laws made under the powers conferred by at least sections 51(i), 51(ii) and 51(iii) and section 91 speaks of mining for metals and “production or export of goods”. Laws which might deal with those topics might also be made pursuant to section 51(xx) and perhaps 51(xxix) and 51(xxx).
Now, your Honours, the power to grant bounties on the production or export of goods became exclusive to the Commonwealth on the imposition of uniform duties of customs in section 90, and as the second paragraph of section 90 indicates, your Honours will see “all laws of the several States . . . offering bounties on the production or export of goods”, ceased then to have effect, with the exception referred to in that paragraph of some pre‑existing laws.
So, your Honours, if I could just pause at that point? When one is speaking about grants in section 91, one thing that is obvious enough is that both parts of section 91 created an exception to the exclusivity of the power to grant bounties on the production or export of goods. Your Honours, if I could just say that what was contemplated was at least that there were laws of the States offering bounties on production or export of goods.
Now, your Honours, I said a moment ago that both parts of section 91 created an exception to the exclusivity of the power to grant bounties, but there were two other features which needed to be borne in mind. One, your Honours, was that there were forms of aid which might not amount to bounties and thus would not fall within the exclusivity referred to in section 90 and the second feature was that because forms of aid – the expression “any aid” I think I have said more than once – any aid went beyond bounties, it was not just the operation of section 90 which had to be qualified. There also had to be taken into account laws which might be made under – to take the most obvious examples – section 51(i) and section 51(ii).
Your Honours, they are laws which, by the operation of section 109, might otherwise render invalid in the sense of inoperative, State provisions allowing the grant of forms of aid other than bounties. Those were the aspects with which the framers of the Constitution were concerned and more particularly the drafting committee.
The reason why I mention that drafting committee, your Honours, is that in the Seamen’s Union 144 CLR 142 point 6 to 144 point 1, Justice Stephen emphasised that it was the work of the drafting committee which brought about the change in section 91 to its present form. If one goes, your Honours, to page 143 at the bottom of that page, your Honours will see that he says in the third‑last line:
apparently effected as a matter of drafting only –
Your Honours, could we just say that the drafting committee was hardly politically or legally naïve with Mr Barton and Mr O’Connor, and also Mr Downer on it. As a political matter, they, in our submission, obviously had appreciated the sense of the Convention, that sense being that nothing in the Constitution – and that necessarily included the exercise of the Commonwealth’s legislative powers – was to prevent the grant, not just of bounties too, but other forms of pecuniary aid to mining for gold, silver or other metals. Also, your Honours, there was the reference in the second part of section 91 again to “any aid”.
Your Honours, that was a political matter. The legal matter was that the drafting committee understood that the resolution of the issue was not quite as simple as just saying section 91 is an exception to section 90. The manner of resolution which they adopted, your Honours, was to utilise the words “Nothing in this Constitution” and to say that the resolution of the selection of those words was a matter of drafting only, as Justice Stephen’s observations suggest really, with respect, diminishes the work of those involved in doing so.
Your Honours, their work and the result that they arrived at indicates that they had identified the potential problems and had taken account of them in their drafting. The adoption of their drafting by the Melbourne convention demonstrated our submission that their appreciation of the sense, if I can put it that way, of the Convention had been correct.
Now, your Honours, could I also say if one goes to Justice Gibbs’ remarks at page 135 about point 3 you will see that he relied on some passages in Quick and Garran and those passages do not, with respect, bear out what his Honour said. I am not sure if your Honours have those. Could I give your Honours the relevant pages from Quick and Garran dealing with this issue? Your Honours, the relevant page of Quick and Garran is page 558 first of all.
Your Honours, it is apparent from page 558 if one goes to the paragraph commencing at about point 4 on the page you will see it was said in the fifth line:
Thus the Victorian Parliament had been in the habit of granting prospecting votes for the encouragement of gold mining. New South Wales might see the advisability of granting a similar assistance for the production of iron.
Your Honours will see some discussion about considerations that were urged, but the point I am making about it is that things that were not obviously bounties were being contemplated. If one goes then to page 839 it is said:
And, lastly, an exception is made, by sec. 91, to both the exclusiveness of the federal power and the annulment of State laws.
Your Honours, that is a reference, of course, to section 109:
What, then, are “grants of and agreements for bounties,” and how does the Constitution affect them?
Your Honours will see a discussion of the term “Grant” and the difficulty of it to construe a little further down the page. If I could go then to page 841 you will see under the heading “386. Nothing in this Constitution Prohibits a State from Granting.”:
These words qualify the provisions of sec. 90, which otherwise would prohibit a State from granting any aid or bounty –
to. That treats section 90 as applying to both and it is said:
If the State is not prohibited from granting certain bounties, it must follow that it is not prohibited from legislating for that purpose, and therefore that to that extent an exception is made to the exclusive nature of the power of the Federal Parliament.
The view is then expressed that it is just an exception to section 90. It is a little difficult, your Honour, to reconcile that with two things. One is the reference earlier to some things being aid, in effect, but not bounties, but then when one comes to page 842 in the first paragraph under the heading, “Any Aid to or Bounty on Mining for . . . Metals.” your Honours will see the last sentence of that ‑ ‑ ‑
HAYNE J: I do not think we have 842.
KEANE J: No, we do not.
MR JACKSON: Your Honour, I am sorry, I thought you did. Your Honour, may I just read it out? It is very short.
The chief reason for inserting this provision seems to have been to remove doubts on this point; though of course –
that is the section 90 issue –
the words have, and were intended to have, a wider scope.
So that Delphic observation, your Honour – the point I am seeking to make about it is that one does not really see that what is said in Quick and Garran, although there is some, if I may say so with great respect, vacillation in the views support the view that the only object of section 91 was to provide a qualification to section 90.
FRENCH CJ: What content do you give to the word “prohibits”?
MR JACKSON: Well, it means what it says, your Honour, and one has to take it with the earlier words and the following words. When it says prohibits it means there is nothing in the Constitution that prohibits, meaning prohibits, prevents or renders unlawful or unconstitutional, if I can put it that way, the grant of aid. It is a term which covers any of the means in which the grant of aid or bounty in the two circumstances referred to might otherwise not be permitted by the Constitution.
HAYNE J: In the passages you gave us at 558, at point 5 of the page, in the passage I think you read out:
Thus the Victorian parliament had been in the habit of granting prospecting votes –
What exact parliamentary procedure is there adverted to?
MR JACKSON: Your Honour, I think it is what your Honour was adverting to earlier, that was the grant of a sum of money. I have not been able to ascertain whether that was pursuant to a more general statutory provision or not. Your Honour, we will endeavour to do so - can I let your Honour know about that?
HAYNE J: I would be glad of it if you would. Thank you.
MR JACKSON: Now, your Honours, could I just say also that the approach taken by Justice Stephen and Justice Gibbs to the drafting history does not, with respect, sit very well with the approach discussed much later in this Court in the Work Choices Case (2006) 229 CLR 1 at 97, where five Justices dealt with the issue in paragraphs 120 through to 123. That was a case where the Court was concerned of course with the ambit o the power under section 51(xx).
Now, your Honours, could we just say – I will not read it out, but your Honours will see the reference to pursuit of the mirage at the start of paragraph 20 and the fact that in the end one looks to see the words used in the Constitution, not bound by observations in passing in the debates and so on. Your Honours, could we go to our written submissions for a moment – in chief in paragraphs 149 and 153?
Can I make a couple of points arising from what we have there? The first, your Honours, is that we submit that the opening words of section 91 are appropriate to limit exercises of Commonwealth legislative power. Your Honours, we have given an example in paragraph 150 of a law which said that a corporation, to which section 51(xx) of the Constitution applies, shall not accept the grant by a State of aid within the meaning of section 91 of the Constitution to mining for metals.
In our submission, a law of that kind would plainly be invalid as challenging the very basis on which the aid was granted and, your Honours, we would submit – as we say in the last sentence of paragraph 150 - so, too, would a provision which imposed a federal tax equal to the amount of the reduction of royalties.
FRENCH CJ: So your application of section 91 would read, not as a general interpretation of it but specific to this case: “No law made under this Constitution may prevent or impede a State from”, et cetera.
MR JACKSON: Yes, your Honour, yes. The example we have got in paragraph 150 of these submissions – if I could use a word I used yesterday – it is a crude example in a way but it reflects a provision of the Constitution other than section 90. It reflects a legislative power under 51(xx) and we would say equally 51(i), 51(ii) and such a law would seem to collide with section 91.
Your Honours, if I could go to paragraph 153 of those submissions? We would submit there is no provision of the Constitution which expressly takes away from a State the power to grant aid, other than bounties, to mining for gold, silver or other metals. The words “Nothing in this Constitution”, we would submit, should not be regarded as otiose and they are likely to be speaking of provisions which would allow laws to have such an effect, such as section 52.
Your Honours, I said such an effect and this case, as we would submit, is simply one where the Commonwealth law would say to a State “You have given a miner financial aid to mining by reducing the royalty otherwise payable, we will take the amount of the reduction as tax” and I refer to paragraph 154 of our submissions. Our learned friends in their submissions – paragraph 112 – have said that:
Nowhere does [the MRRT legislation] purport to affect the ability of any State to reduce or alter its royalties in respect of metals.
Your Honours, that is a view which, in our submission, gives a dominance to form over substance. Your Honours, could we refer also to paragraph 107, where it is said that:
It would be strange to construe s 91 as limiting the heads of legislative power in s 51 when those heads of power do not impose any prohibition on the States granting bounties or aid.
Your Honours, that is, in our submission, a very narrow view of the Constitution. It leaves out of account that, to put the matter at its very narrowest, for there to be a bounty there has to be legislation pursuant to section 51 under section 51(iii), and I have referred to other provisions of section 51. Our submission is that the term “Nothing in this Constitution” should be given their natural meaning.
Your Honours, our learned friends also submit in paragraph 110 that a reduction in royalty rates or an exemption from paying royalty is no different, in effect, from the exemption from stamp duty which is referred to by Justice Mason in Seamen’s Union – may I take your Honours to that for a moment – at page 150. Your Honours will see at page 149 in the paragraph commencing that page, his Honour said in the fourth line that:
The provisions in the Agreement which are said to constitute aid –
were then listed and one of those was -
(1)The exemption by cl. 4 of Pt I from liability to stamp duty of the agreement and certain other documents on which stamp duty would otherwise be payable by the parties -
Then your Honours will see the remainder of the provisions there referred to right over to two‑thirds of the way down the next page. But then following that, your Honour, on page 150, the first new paragraph, he said:
Neither these provisions of the Agreement nor their implementation constituted an infringement of s. 91 for the reason that they did not involve or result in the provision of pecuniary aid.
Could we say, your Honours, that his Honour was there speaking first of all in the context of a contention about aid to a matter referred to in the second limb of section 91, but also in the context of a liability to stamp duty of the agreement and some other documents. Section 91 speaks of a closer connection because one is after all speaking of, in section 91, aid to mining for metals as distinct from a larger aspect.
Your Honours, those are I think the submissions we want to make on section 91. Could I say, your Honours, that pending the appropriate orders that we would seek if we are correct are those which are set out in our written submissions at paragraph 157. Your Honours would appreciate that if we were to succeed on the section 91 issue that it would affect the Act so far as they apply to mining for iron ore but not for coal because it is not a metal and, your Honours, the position if it is sought to say that the Acts would yet be valid would be something our learned friends would have to raise. Those are our submissions.
FRENCH CJ: Thank you, Mr Jackson. Solicitor‑General for Queensland.
MR SOFRONOFF: Your Honours, in our submission, in order to determine whether this law discriminates between the States, contrary to the prohibition contained in section 51(ii), a central question that must be answered before reaching the conclusion is that which was asked by your Honour Justice Crennan yesterday, which is this. How is the treatment of this deduction different from the ordinary treatment of deductions of expenses from revenue, in order to arrive at a sum that is the taxable sum and why is it different from the case of such a deduction, which happens to be an expense incurred by way of payment of local taxes?
That is not the only question but, in our submission, it is a fundamental question in solving this issue and we would seek to endeavour to answer that question before moving on to other things. The first reason why it is different, why the treatment of royalty is different, is that the treatment of royalty under the Act is unique in a number of respects. Could I ask your Honours to go to section 10‑5? Step 3 in section 10‑5, the subtraction of “MRRT allowances from the mining profit”, makes that process look like common or garden deduction of expenses. Indeed, some of these allowances, mining loss allowance and so on, are simple deduction of common or garden expenses.
If your Honours would go to section 60‑25 royalty is not treated as a simple subtraction. Uniquely royalties are subjected to a division operation, not simply a subtraction, a division operation, and then the product of the division is subtracted. The reason for this is in the statute and it is in section 60‑1 in the second sentence, the second paragraph in the box:
To work out the royalty allowance, the amount of the royalty is grossed‑up using the MRRT rate, in effect reducing the MRRT liability by the amount of the royalty.
That is to say, the aim of the exercise is although the treatment of the royalty is by subtraction of it in its derived sum as an allowance, in truth what is being achieved is a subtraction of the State royalty paid from the actual tax that would otherwise be due. That is, in our submission, a significant difference. Whether it matters constitutionally I will endeavour to come to, but we have here an Act which provides for something akin to a double tax agreement arrangement.
So the question could be posed in this case, could the Commonwealth legislature impose income taxes, the sum payable which will allow credit for State taxes paid because that is the effect, and it is the overt reason why the royalty allowances but no other allowances are grossed up. It is overt because of section 60‑1 and it is also referred to in the explanatory memorandum at paragraph 6.34. I will not take your Honours to it.
CRENNAN J: How is it double taxation in the sense that another way of looking at it is that the subject matter of taxation, namely, the above normal profits, is subject matter in relation to which one could say there are parallel rights to exact money for government purposes, the State has a power and the Commonwealth has a power to do so?
MR SOFRONOFF: Your Honour, what I mean is this; we are here dealing not with a tax which has been imposed by the Commonwealth upon income or land ownership or something of that kind. There is a very specific economic rationale for this tax. I do not make any criticism of that. The idea, of course, as we know from the Tax Act – from the Act itself and the explanatory memorandum, is an idea that the people of Australia should recover a consideration for the privilege that is accorded to some to take our resources.
The Commonwealth has formed the view – the Commonwealth Parliament has formed the view that that economic rent should be 22.5 per cent or, I should say, at least 22.5 per cent of a figure calculated according to the deductions allowed and so on. That is an idiosyncratic figure, but 22.5 per cent of that. It does not want to charge itself any more than that. Of course, it would not preclude a State from imposing a royalty of 30 per cent, in which case no tax would be payable to the Commonwealth, but at least 22.5 per cent. And, because it does not want to charge more, it must take into account in its law any economic rent already paid for the benefit of the people of Australia.
CRENNAN J: That is the idea, is it not?
MR SOFRONOFF: That is the idea, and I do not debate the merit of that at all. That economic rent might be paid as an economic idea by tax or by royalty or by other things, hence the discussion in the explanatory memorandum about the various models and hence the treatment of it in our written submissions informs this. So we are dealing with tax and royalty, not tax and tax, but relevantly, if this is permissible, then an Income Tax Act or any other Tax Act could be passed by the Commonwealth which would permit as a rebate against Commonwealth liability any particular taxes identified in the Commonwealth Act that have been paid to a State or local authority or, indeed, a foreign country. That is why I say it like a double tax agreement. So we are not dealing with tax and tax, we are dealing with tax and royalty, but the model is the same. So the question is, is that permitted by virtue of the prohibition in section 51(ii)?
KIEFEL J: Just to go back to the point you made before, I think you said what is being achieved is the reduction of the royalty from the tax otherwise paid. The point is, though, regardless of how complicated the determination of royalty allowances is, it reduces to the fact, as you point out, that the royalty is deducted from the equation, the royalty paid is taken out of it, but is it not important that it is taken out at a point before the rate of tax is applied?
MR SOFRONOFF: No, for two reasons, your Honour. One is that, if your Honours would accept just for the moment for the purposes of argument that a statute which credits State tax against Commonwealth liability is impermissible, then a statute that said tax equals Commonwealth rate times assessable income less State tax paid would be impermissible. To cloak that exercise by virtue of a different formula would not assist. It would still be the same thing.
KIEFEL J: But if you look at steps 3 and 4 in section 10‑5 it seems to be a fairly common garden variety method of taking away what is allowable (as a deduction) from earnings, that is here are the earnings to which you will be assessed for tax. You then apply the rate of taxation. What is unusual about that?
MR SOFRONOFF: Nothing is unusual about the form, the form that has been adopted looks like the common form. In respect of allowances 3, 4, 5, 6 and 7 it is the same as a common or garden deduction system. In respect of 1 and 2 it is not because of the presence of what the statute calls “grossing up” and it means that what is deducted is not the royalty paid, but a product of the operation upon an operand. The royalty then paid is the operand. There is the operation by division by the tax rate and then what is attracted is not the amount paid, but is the product of the operation.
The effect of that is, overtly it is not – it is asserted in the Act, not admitted, it is asserted in the Act – is to ensure that the royalty paid is in truth in that sum deducted from the tax payable and not treated as a deduction before the application of the rate. Your Honour is putting to me why is it not the same? The rates do not apply. It is not the same because it is designed to ensure that it is not the same, but rather operates as a deduction from actual tax payable.
CRENNAN J: The effect is illustrated, is it not when royalty rates are reduced?
MR SOFRONOFF: Yes.
CRENNAN J: The liability for taxation, if one takes the royalty plus the mining tax as taxation, is greater on this formula than it would be if it had a traditional deduction as in the income tax context?
MR SOFRONOFF: That is right. Could I ask your Honours to ‑ ‑ ‑
BELL J: Is the submission that ‑ ‑ ‑
MR SOFRONOFF: I am sorry, your Honour.
BELL J: ‑ ‑ ‑ you are developing at the moment different to the contention that because of the grossing up and the structure of the tax there is an inverse proportion between the liability to tax and the royalty?
MR SOFRONOFF: No, I think it is the same, your Honour.
BELL J: Yes, thank you.
MR SOFRONOFF: Your Honours, could I ask you to look at ‑ ‑ ‑
HAYNE J: Before you go on, does your argument accept or challenge the proposition that the Commonwealth may enact a taxing law that allows, as a deduction, not as an allowance against tax, but as a deduction, an amount paid as a compulsory exaction to a State?
MR SOFRONOFF: Do I understand your Honour to be asking me, in the usual way in which State taxes might be allowable deductions do I challenge that? No, I do not.
HAYNE J: That is the question.
MR SOFRONOFF: No, I do not, your Honour.
HAYNE J: What then is the distinction upon which the argument is founded to say that taking it to account as an allowance against the final tax bill is discriminatory, but allowing it to be taken to account as deduction is not.
MR SOFRONOFF: That is what I am going to develop, your Honour. I wanted first to establish ‑ ‑ ‑
HAYNE J: You will let me into the secret at some time, Mr Sofronoff?
MR SOFRONOFF: That is what I need to put this morning, your Honour.
HAYNE J: Yes, it is.
MR SOFRONOFF: What I wanted to do first was to demonstrate that it is not a simple deduction. The grossing up has the effect of a rebate. I will call it a rebate, if I may, without engaging in any technical use of the term. Could I ask your Honours to look at paragraphs 13 and 14 of our oral written outline?
KEANE J: Mr Sofronoff, is not the point about calling it a rebate that it obscures the nature of the royalty? It is not a rebate of tax.
MR SOFRONOFF: No, no. It is not a rebate of tax. It is a reduction in liability to common law tax by the subtraction of a sum of money that has been paid. I will try to be careful not to use expressions that elide and might confuse.
CRENNAN J: Well, it is a deduction, is it not, to enable the net above normal profits to be elicited?
MR SOFRONOFF: No, your Honour. The deduction is to enable the tax on net profits payable to the Commonwealth only to be the balance to render the total economic rent extracted – 22.5 per cent.
KIEFEL J: Well, that is the ultimate effect. But, that is not the method that is employed. What we are talking about here is the difference between method of coming to a point of assessable income and the rate that is then applied. But are you saying that the payment made by the taxpayer of the royalty loses its character as a deduction in the process? It becomes something else?
MR SOFRONOFF: No, your Honour, I am not seeking to characterise it.
KIEFEL J: Right.
MR SOFRONOFF: I am seeking to expose the essence of the operation of the Act first and then move to argue why, in our submission, that would offend?
KIEFEL J: You are referring to really an ultimate objective of ‑ ‑ ‑
MR SOFRONOFF: No, no, your Honour, not at all.
KIEFEL J: You adhere to the structure argument that we have heard? You adhere to the argument of the structure of the Act?
MR SOFRONOFF: Yes, your Honour, I do. I want to seek to point to some other parts of the structure, but I do not differ from anything our learned friend submitted. Could I, your Honours, ask you then to look at paragraphs 13 and 14 of our written oral outline? One can take the ‑ ‑ ‑
HAYNE J: It comes in paragraph 15, does it not, Mr Solicitor, “This is entirely different”?
MR SOFRONOFF: Yes, yes, that is it, yes. But I just wanted to reinforce this, that if you take the formula in section 10‑5 and apply the royalty of allowance treatment in section 60 and you can add any numbers you like, and on the other hand if you take the process for calculating mining profit and use the same figure for mining profit and the same figure for royalty paid and instead ignore royalty allowance entirely in the calculation, but instead simply subtract the actual amount of State royalty paid that you have assumed, the result is going to be the same in each case. It is meant to be the same. The Act says so in section – the one I took your Honours to a little while ago with the box in it.
BELL J: Section 61.
MR SOFRONOFF: Yes, your Honour. It is meant to be the same, you can test it. It is the same. Now, the question then is, well, that has not demonstrated anything in terms of the prohibition yet by pointing that feature out which, in our submission, is unarguable, but where we would wish to go is this, that first one can see that the allowance as a credit for royalty paid State by State against the tax liability to the Commonwealth means that the amount of Commonwealth tax payable will vary from State to State. That is just an obvious feature. Could I ask your Honours though to go to the set of quadratic equations that our learned friends handed up yesterday?
FRENCH CJ: This is the effective rate calculation?
MR SOFRONOFF: Yes, your Honour. The first equation comes at the top of the second page, part of paragraph 3. The first equation is simply the statutory equation that comes from section 10‑5. The second equation is a restatement of the first equation in a different form. It takes the royalty allowance in the first equation and breaks it into its component parts. The component parts have been taken from section 60‑25(1). So there is no difference between the first equation and the second equation except that we have broken up royalty allowance into its component parts, the parts being royalty credit divided by tax rate, by the MRRT rate.
The third equation cancels out the 22.5 per cent multiplier in each set of brackets by dividing it, and one can then see the result in the fourth equation which is that algebraically what we set out in paragraphs 13 and 14 of our written oral outline. The tax then, one can see, is itself reduced by the amount of State royalty, the same as if section 10‑5 had provided mining profit times 22.5 per cent equals tax. If you have paid royalty you may claim credit for that royalty against the tax. Now, one can show that this alters the rate of tax by the succeeding equations in paragraph ‑ ‑ ‑
HAYNE J: Rate of tax on what base?
MR SOFRONOFF: I am sorry, the basic course is mining profit as defined in the Commonwealth statute.
HAYNE J: So you take part of the Commonwealth Act and you apply a rate derived by reference to part of the operation of the Act?
MR SOFRONOFF: No, no, your Honour.
HAYNE J: I think that is what you are doing, Mr Solicitor.
MR SOFRONOFF: No, no, all I have done at the moment is to seek to show that the statutory formula which is set out at the top of page 2 is equivalent to the third formula – simply another way of stating it. We restate it only to make a point and that point is that the liability for tax is simply the mining profit, ignoring royalties, by the tax rate and then subtract the actual royalty paid. It is the same.
FRENCH CJ: Could you notionally do a similar exercise to convert the allowable deduction for payroll tax from State to State into different effective tax rates?
MR SOFRONOFF: You might be able to, but you certainly could not do the first three steps on this page.
FRENCH CJ: The concept is the same.
MR SOFRONOFF: But you could do an exercise involving it and then end up with – to show that the amount of tax varies and if expressed as the product of a rate, the rate will vary. One can.
CRENNAN J: Why is this not about netting the profits for the purposes of applying the 22.5 per cent rate?
MR SOFRONOFF: It is not, your Honour, because netting the profits would involve subtracting the royalty paid because it is an expense.
KIEFEL J: Your point is that it is applied at two points. The MRRT rate is applied both where you would say the deduction occurs from profits, and it is also applied in relation to the ascertainment for taxation liability?
MR SOFRONOFF: Yes, that is right, it is on both sides.
KIEFEL J: But even if it is for the purpose of, on one view, identifying the true deduction that is true to the taxpayer, even if that is the case, where is the discrimination, because the MRRT rate is applied at both points at the same rate.
MR SOFRONOFF: Yes. With respect, your Honours, I have been asked relevant questions, but may I develop it? It may be that those concerns that your Honours are expressing by way of questions are answered – maybe not. I do not want to duck any question but may I just develop it because it is true first that, as your Honour Justice Hayne puts to me, or as the Chief Justice put to me, you could do an effective rate equation on anything and because the amount of tax actually varies depending upon circumstances including the application of State laws to expenses that are deductions, you are going to get a variable rate. But there is more to it than that. So may I go step by step, even though it might be a little tedious?
Could I try to move quickly through the next set, your Honours? One can then see that if the effect of the formula in the Act for the treatment of royalty allowances alone is to permit the actual raw figure of royalty paid, the actual figure, the real figure of royalty paid to be subtracted from the tax otherwise payable, then the equation, as expressed at the top of paragraph 5, can then be developed in the second equation in paragraph 5 in order to obtain the true rate of tax payable in each case.
Without complicating matters, all that is been done there is you take X as the actual rate of tax being applied times mining profit, what is X if you apply the statutory formula? One comes to the conclusion in this way. The effective rate will be the rate which, when multiplied by the mining profit, gives you the amount equal to the application of the statutory formula.
The second equation under the subparagraph, ER = 22.5 per cent by mining profit divided by mining profit, simply involves dividing each quantum by mining profit with the object of cancelling out that from the left side of the equation, and it cancels out the multiplier in the first bracketed function, leaving it only in one place, so tidying it up in the third equation the effective rate of tax is 22.5 per cent minus royalty credit divided by mining profit and that means that mining tax liability, when expressed in terms employed by the Act, is in fact 22.5 per cent minus royalty credit over mining profit times mining profit. In short, I should say 22.5 per cent minus royalty credit over mining profit expressed as a percentage, multiplied by mining profit. In short, one can see that a factor which will give rise to the MMRT liability itself is the royalty, credit over mining profit, in short, the allowance.
BELL J: For those not drawn to algebra, is any of this to tell us more than the second paragraph in the box at section 60‑1?
MR SOFRONOFF: It does tell you this much more, your Honour, that paragraph 7 of the second page, your Honour - it shows that from the formula in the Act itself the effective rate necessarily varies from State to State.
HAYNE J: Well, is that capable of expression in this form, that a miner who conducted an identical operation in a State different from the actual State of operation would pay a different amount of MRRT?
MR SOFRONOFF: I am sorry, could your Honour put that to me again?
HAYNE J: A miner who conducted an identical operation to that in fact conducted, but did so in a State different from the actual State of operation would pay a different amount of MMRT?
MR SOFRONOFF: Yes, that is what it says.
HAYNE J: Where you then go with the argument though is to turn that statement about amount of tax into rate.
MR SOFRONOFF: Yes.
HAYNE J: It is the movement from amount to rate which is at the moment the move which I find difficult.
MR SOFRONOFF: Yes, I understand, your Honour. No, I understand. I have to make that connection and I have not done that yet.
HAYNE J: Yes.
MR SOFRONOFF: But we would say two things. Assuming it is true to say, as our argument has it, and I will seek to make it good, assuming is true to say that a variation in Commonwealth rate of tax from State to State offends the prohibition, assuming that to be so, the first we do is to say it does vary in the ‑ ‑ ‑
HAYNE J: Because the analogy you seek to draw is with a federal Act which said Queenslanders will pay income tax at the rate of 20 per cent, Western Australians at the rate of 15 per cent.
MR SOFRONOFF: That is right. Yes, your Honour.
HAYNE J: That is the analogy that is at the core of the argument.
MR SOFRONOFF: That is right. But the second thing that we say, leaving aside rates which involve multipliers, leaving that aside we also contend that a Commonwealth statute which provides that the tax as defined -and we are concerned with the law here, not the operation of facts upon a law but we are concerned with the law, a law with respect to taxation but so as not to discriminate, et cetera - if the effect of the law is that the tax as defined, the tax being the liability, is defined so that it will permit a taxpayer in one State to pay the Commonwealth less tax than an identically placed taxpayer in another State by allowing credit for royalty against the defined tax - and I am here concerned with the very definition of the tax - not the outcome of the process of looking at the total revenue and deducting expenses and arriving at the idiosyncratic statutory figure for mining profit, but the very tax itself, that that, in our submission, offends the prohibition. So we have two, not just the rate with the deduction, but what are called the double tax.
HAYNE J: The point just last developed is that there is no discrimination in the Commonwealth allowing a deduction for State taxes. There is discrimination if the Commonwealth allows against the liability to Commonwealth tax the amount that has been paid as State tax. That is the area for debate.
MR SOFRONOFF: Yes, that is it.
FRENCH CJ: Is the effective rate argument saying anything of constitutional significance that differs from the hypothesis of an invalid law in Barger, that is the inverse proportion, even though that term is used rather loosely, I think.
MR SOFRONOFF: No. It is the proposition inherent in the dicta in Barger would be equally applicable whichever way you looked at it, either as a credit question or as a variation of rate question.
FRENCH CJ: That is why I wonder whether this more than a rhetorical flourish, in a sense.
MR SOFRONOFF: I hope it is not, your Honour, because – the reason it is not, your Honour, is this. It may be right – we submit not, but it may be right to equate the variation in the effective rate which arises by variable deductions with the variation in effective rate here. It may be right to do that. If it is right to equate that then the effective rate propositions disappear but one is still left with the credit proposition as raising a question of discrimination.
So, in our submission, it makes no difference in the circumstances of this case because it is nothing like it, the subtraction of a deduction, and that you can do these equations with that will not have the same constitutional significance, for reasons I will try now to develop. Could I mention these things, your Honours, that it is important, in our submission, to bear in mind when considering the argument? First, State royalty is to be treated in this way even if it is not an expenditure. Now, one would expect that royalties paid in respect of a mining project would always be an expenditure referable to that mining project, but that is not so because royalties which may be the treatment of allowances may not be expenditure.
So that is a big distinction from ordinary deductions because ordinary deductions – I will show why that is so in a moment, your Honours, but if it is so ordinary deductions vary as a matter of fact the state of the law in a jurisdiction being a matter of fact for that purpose, just as the cost of trucking services is a fact, the cost of obtaining a licence is a fact because you actually pay it. The treatment of royalty here is not the treatment of an expense, it is a treatment of a sum by reason of its status as a royalty, whether or not it is an expenditure. That is point one and I will take your Honour to this – I am sorry, your Honour?
CRENNAN J: It may not be a revenue expense, but I suppose it is conceived of as some kind of outlay, in relation to the above normal profits.
MR SOFRONOFF: No, it is not that, your Honour. May I come to it? The second thing is this. Royalties, of course, are commonly understood to be the payment by a person for the privilege of mining a mineral, in respect of which another person has the right to offer the privilege or grant the privilege or to withhold the grant of a privilege. It does not matter for the definition of “royalty” whether the person who demands the royalty is a polity or is a private individual or a company. In each case it is a royalty. The only royalties that can be the subject of this treatment here are royalties paid to States.
FRENCH CJ: Is this a kind of singling out argument?
MR SOFRONOFF: No, no, your Honour, nothing to do with Melbourne Corporation.
FRENCH CJ: No, I know, but I am just wondering whether you are transporting it from that as just ‑ ‑ ‑
MR SOFRONOFF: No, no, your Honour, I mention that only because ‑ ‑ ‑
FRENCH CJ: As an element of discrimination?
MR SOFRONOFF: May I think about that, your Honour? What I mean at the moment is royalty payments have been singled out for this treatment, not because they are expenses. They may be expenses, usually will be, but might not be, and expenses which are royalties, private royalties, are not permitted either as deductions or as part of the allowance system. Could I just point to the sections of the statute that show that? If your Honours would go to section 35‑5.
Section 35‑5 defines “A miner’s mining expenditure”, and 35‑5(2) excludes mining expenditure if it is defined to be excluded. Section 35‑10 is the relevant provision, the most relevant provision.
An amount of expenditure is included in a miner’s mining expenditure for a mining project interest for an MTTT year to the extent that the miner necessarily incurring the amount –
That is the usual taxing phrase. So, one would expect – absent the exclusion provisions – that the royalty, whether to a State or a private person, would fall within general expenditure if it was necessarily incurred and would not fall within it if it was not necessarily incurred. One then turns to 35‑40 which deals with a mining royalty and private royalty if it is an expenditure. Well, it is excluded. It does not deal with royalties which are not expenses. It does not have to because they would not fall within the definition of an expenditure, anyway.
Now, section 10‑10, as your Honours have seen, contains a list of allowances that can be deducted. One of those is royalties paid in respect of the mining project. Could I mention something that your Honours would be aware of but it is necessary to bear in mind. The tax is applied project by project, and so a miner who has a number of projects will not aggregate the returns from each project – aggregate the expenses of all the projects, subtract one from the other to arrive at mining profit.
A miner will aggregate the revenue of a single project, aggregate the expenses referable to that project, subtract one from the other, arrive at the mining profit and if the miner has a number of projects the total of all of those liabilities will be the tax liability. One can see that the royalty, for example, in respect of mining project A as an expense would have been referable only to that project, and the same would be in C and D. So this is not a taxing Act which imposes a tax upon an individual qua individual. It imposes it upon an individual qua mining projects. It is expressly said. There is probably an economic reason for it.
Then when one comes to what is permitted to be major treatment of royalty allowances, not only are royalties paid to States in respect of the mining project in question able to be treated as an allowance, but one can also transfer available royalty allowances from another project in which one has an interest and use it as an allowance in the first. That is the meaning of transferred royalty allowance. Could I tell your Honours the sections and then give your Honours a summary of them? It is not necessary to study them closely now. Section 65‑5 allows royalty credits – that is amounts paid as royalty – to be deducted from one project when paid in respect of another.
The conditions for that are contained in section 65‑20. That is, the projects must be what are called “integrated”. Relevantly, integrated means first, you have to have the same owner, but second and also, the downstream treatment of the produce has to be integrated. There is a diagram of it, your Honours, in the explanatory memorandum. In paragraph 2.51 the diagram is 2.5 but it is as though two separate mining projects put their product into a single funnel for treatment, for example.
Now, the consequence of satisfying those conditions is that a mining royalty in a Tax Act dealing with taxes on a project‑by‑project basis allows the treatment of royalties as an allowance when the royalty is an expense relating to that project and, also, when it is not an expense. It does not permit the treatment of private royalties at all, although, they are expenses.
KIEFEL J: But that confuses, does it not, the notion of expense in relation to a particular project and expense to the taxpayer. In principle, there is nothing unusual in a revenue sense about allowing a taxpayer to spread expenses or do that ‑ ‑ ‑
MR SOFRONOFF: No, of course not, your Honour. It is not surprising.
KIEFEL J: ‑ ‑ ‑ in the sense of groups of companies, or whatever.
MR SOFRONOFF: It is not surprising and it applies, to some extent I think, also in cases of losses under the Act. But the point we wish to draw is that in seeking to identify differences between the deduction of expenses and the treatment of royalty allowances here, it is necessary to have regard to all of the differences between the treatment of expenses in this Act and the treatment of royalty allowances. These are some of the differences that first expenses can generally be deducted, but some expenses cannot; royalties to States and to private individuals. Although a particular State royalty may not be an expense attaching to the project, in respect of which the tax is levied, it may be used because of the transfer provisions and although a private royalty is an expense, it may not be used because this Act is not concerned with royalties as expenses it is concerned with economic rent. That is the reason.
Could I then move then to having sought to extract features of the statute which, in our submission, are relevant to be considered as significant to consideration of the application of the prohibition? Could I move then to that aspect? Royalty then, in our submission, is used as a central factor – an integer – in the definition of the tax. It is the discrimen because of its status as a State royalty, not because of its status as an expense, but as its status as a State royalty. It is used as part of the statutory definition of the tax, not because it is an expense, but whether it is an expense or not, and it is used in a way ‑ ‑ ‑
HAYNE J: This proposition – whether it is an expense or not ‑ ‑ ‑
MR SOFRONOFF: I am referring to the transfer, your Honour.
HAYNE J: Whether it is an expense or not, related to the specific ‑ ‑ ‑
MR SOFRONOFF: That project, yes.
HAYNE J: Which in turn takes you to particular mining tenements, does it not?
MR SOFRONOFF: Yes.
HAYNE J: I do not think we need evidence, do we, to recognise that these operations commonly extend over more than one tenement.
MR SOFRONOFF: Yes, quite. But I am speaking here of something wider than that where I have a project in the south of Western Australia and another one in the north that is what I mean, your Honour. Yes, of course, it might be an expenditure ‑ ‑ ‑
HAYNE J: Well, I am not sure the integration ‑ ‑ ‑
MR SOFRONOFF: As your Honour puts to me in that example, it might be in an accounting sense a real expense of the project.
HAYNE J: Yes.
MR SOFRONOFF: Could I then summarise it, first by saying what I have already said and, secondly, that the way that the royalties are used is to affect the quantum of tax as defined and to affect in the way that has sought to be demonstrated in the equations, the rate of tax by using it as an integer so that the amount of tax payable to the Commonwealth is directly proportional to the impost paid to a State and will vary from State to State.
KIEFEL J: Is it relevant for the purposes of your argument that in the example given earlier where one mining company has projects in more than one State and the transferability that you have referred to is engaged, one would never know from time to time in terms of taxation whether or not the low rate or the high rate of royalty is going to have the required result?
MR SOFRONOFF: One would not know, and I hope I am responding to what your Honour is putting to me, but the statute assumes that State rates will vary in its text. It must do because it permits State royalties to be deducted. Rather than simply applying a 17 per cent tax rate which takes into account a uniform royalty rate across the country, it recognises that royalty rates will vary and therefore applies a 22½ per cent rate to mining profit and then subtracts the State royalty, so the statute assumes variations.
KIEFEL J: This might point up a question about whether or not difference is enough – whether or not it amounts to a discrimination, if you do not know which way it is going to go at any point.
MR SOFRONOFF: Well, your Honour, what is an advantageous discrimination for me will be a disadvantageous one to you.
KIEFEL J: Yes, I understand that.
HAYNE J: Again on this transfer, you make much of this transfer ‑ ‑ ‑
MR SOFRONOFF: I am sorry, your Honour, I do not want to make much of it, but if it is a bad point ‑ ‑ ‑
HAYNE J: No, but it depends more on integration, does it not?
MR SOFRONOFF: It does, yes. The point of that ‑ whether that aspect of our argument has any appeal or not ‑ the point of that is to seek to demonstrate that State royalties are chosen because of their status as State royalties, not because they are expenses against mining, and indeed royalties are not treated; it is State royalties that are in issue here for a particular reason, and that is significant, in our respectful submission, for the consequences of an argument about discrimination. Could I turn directly ‑ ‑ ‑
HAYNE J: Some at least of those propositions are propositions against which I am putting the point that integration defeats some of the points that you have just made.
MR SOFRONOFF: Well, no, in that one takes – a Tax Act is an artificial thing, of course. Income as defined in the Act is idiosyncratic and the income derived by the calculations in the Act will be unique, so I accept that. The Act does not tax people, it taxes mining interests, and it taxes expenses in respect of those interests, so we take an Act that impinges upon mining projects, not upon people, or upon businesses. Taking that, therefore, we note – we observe and put up for consideration that, whereas in general expenses are the subject of deduction and treatment, here status as a royalty is the important thing, not that it is an expense or not an expense; that is all.
May I, your Honours, move on to this then? Quick and Garran said at page 550 of their work these two things:
To discriminate obviously means to make differences in the nature, burden, incidence and enforcement of taxing law; to impose a high tax on commodities or persons in one State and a low tax on the same class of commodities or persons in another State, would be to discriminate.
Then the authors went on to advert to US experience and the US phrase which uses the term “uniform” and they said:
It has been held in that country –
that is the United States –
that “uniform” means at the same rate on the same article wherever found.
We would put that the analysis could be developed in this way. An Act imposes a tax upon the money earned from mining but only in such a State as is named in the Act. It names some but it does not name others. That would be plainly discriminatory, in our submission. An Act imposes a tax in respect of mining but only in such States as satisfy a description in the Act or a test in the Act. That, too, in our submission, would be discriminatory. We would assert that that is discriminatory.
An Act imposes a tax upon a mine but the rate varies from named State to named State. In our submission, that would be discriminatory. An Act imposes tax on a mining business but so that the rate varies from State to State. The States are not named in the Act but they are there implicitly by reference to a characteristic nominated by reference to States in the Act. In our submission, that would be discriminatory because it would be an Act which expressly imposes tax by reference to State variations.
In our submission, it would be discriminatory to impose a tax upon businesses in one State, named State, and provide that the tax is not imposed upon an identical business in another State. If that is prohibited, as it must be, then a tax which seeks to vary not by reason of facts that might affect the quantum of expenses which are general expenses but by reference to the statutory definition of the tax itself by reference to, say, a formula, would equally be discriminatory because it would be an instance of that which Justice Dixon referred to and the Latin phrase that we put into our written outline that when something is prohibited so too are all other ways to achieve the same thing prohibited.
Here, in our submission, the State variant is contained in the text of the legislation itself. It is contained in the very definition of MRRT which is picked up then by section 3 of the Imposition Act, as our learned friend, Mr Jackson, explained yesterday. Royalty is part of that definition, not an incidental part of the quantification of the tax because it happens to be an expense that comes within the general class of expenses or even as an expressly mentioned expense, but because it is a royalty and a particular kind of royalty.
In our submission, that part of the Act, the terms of the Act, satisfy the words that Justice Isaacs used in Barger. The variation, the discrimination, arises from something done by Parliament itself. That is the distinction, in our submission. It comes from the text of the Act and not by reason of factual circumstances that arise when the Act is worked out. It also conforms, in our submission, to what Justice Higgins said in the same case at the foot of 130:
Now, there is certainly nothing on the face of this Act which makes any such discrimination. There is not one rate of Excise for Queensland and another for West Australia. Nor is there one set of conditions of exemption for Tasmania and another for Victoria.
This, in our submission, is an Act which does have on its face not in the mere working out as a matter of fact, fact for that purpose including law, the state of the law in a State, but by reason of the definition itself. All but this royalty allowance and the transfer of royalty allowance are simple deductions of actual expenses incurred. They do not require any grossing up to vary their amount and that is because it is not sought to reduce the actual incidence of tax by their amount it is simply sought to reduce the quantum upon which the rate then operates.
That is why we do not complain about them because they are just deductible sums in the usual way. They vary as a matter of fact, even if part of that fact involves the application of a State law. They are subtracted as a consequence of actually spending the amount. The Act here, in our submission, by its text, works upon the textual assumption that royalty rates will be different and it defines the tax by reference to that variable royalty. Could I ask your Honours to look at page 70 of Barger at about point 3:
Lest, however, the Parliament should desire to bring about equality in the incidence of the burden of taxation, or what has been called an equality of sacrifice, by discriminating between such different portions, they were expressly prohibited from doing so.
Then two lines from the foot of the page –
E converso, if the Excise duty had been made to vary in inverse proportion to the Customs duties in the several States so as to make the actual incidence of the burden practically equal, that would have been a violation of the rule of –
equality. The reason this Act applies in the way it does, the reason the Act is not of general application upon facts as they are found in different jurisdictions is that the amount of the Commonwealth impost itself, the tax itself, is determined by applying a State levy. The reason, of course, as we know, is the purpose of the Act, which might be a good purpose, is that miners should pay at least 22.5 per cent, as an economic rent upon a certain figure mining profit, but only to the extent that they have not already paid that economic rent.
Uniformity is, therefore, the aim and the aim is to establish uniformity of effect, equality in the burden of economic rent and the total amount of Commonwealth and State levies, State by State wherever the mine is located and, in our submission, if the aim of an act is to achieve – leaving aside factors relevant, racial discrimination cases and other cases – but if the aim of an Act is to achieve equality, a final treatment of unequal subjects that necessarily involves the unequal treatment of those subjects.
That is precisely what the prohibition is directed towards and although it is, in our submission, often necessary to only give due weight to the dicta of the actual drafters of the Constitution because the document is written forever and circumstances change, in this case, in our submission, what was said by the plurality in Barger is extremely poignant because they, better than we now, were aware that in certain respects the Constitution required equality of treatment notwithstanding that there would be perhaps gross inequality in effect and it was not within the power of the Parliament to equalise the ultimate effect by passing an Act which would, as a matter of logic, have to be discriminatory to achieve that.
Could I ask your Honours to look briefly at the submissions of the Commonwealth at paragraph 34? That paragraph, in our submission, rather draws attention to the discriminatory problem that – the problem of discrimination that such a law gives rise to. Our learned friends say:
That the royalty and the tax may overlap in attaching to aspects of the same activity is unsurprising.
We would accept that:
The potential for overlap simply calls for a rule of reconciliation in the tax structure.
Well, it does not. It only requires that if you want to reconcile so that the effect is equal upon unequal subjects:
No rule of reconciliation is going to be perfect from every perspective.
In our submission, a rule of reconciliation, insofar as its imperfection constitutes a transgression of the prohibition, has to be perfect. It has to be perfectly drafted so that it does not, in any respect, offend the prohibition:
The plaintiffs do not identify how the Commonwealth tax could have adopted a rule of reconciliation that they would regard as permissible.
Well, nor do we.
CRENNAN J: What about paragraph 69?
MR SOFRONOFF: Paragraph 69 of theirs, your Honour? Yes, exactly, your Honour. and that is exactly what is prohibited. It was articulated in Barger in a way that defies criticism, in our respectful submission, and this Act offends against it. Those are our submissions, your Honours.
FRENCH CJ: Thank you, Mr Solicitor. Solicitor‑General for Western Australia.
MR DONALDSON: If your Honours please. Your Honours, we advance one proposition - and that is the Melbourne Corporation contention - essential to our argument, your Honour, and our argument is premised upon the grossing‑up nature of the tax as it relates to the royalties. It is really in answer to Justice Hayne’s question earlier today, we would accept that the situation would be different were this tax not to operate in the grossed‑up manner in which it does.
Your Honours, we have set out in our outline and in our written submissions what we contend to be the relevant articulation of the Melbourne Corporation principle. It is found now, in our respectful submission, in Clarke v Federal Commissioner of Taxation (2009) 240 CLR 272. In the joint judgment of Justices Gummow, Heydon, Kiefel and Bell at the page there referred to, 307, their Honours refer to the joint judgment of Justices Gaudron, Gummow and your Honour Justice Hayne in Austin and rely upon the articulation of the test there stated.
It is not necessary – and we say that with respect – for our purposes to delve into the argument of the difference, as it were, between the articulation of the test and the joint judgment in Clarke and what your Honour the Chief Justice had to say in Clarke in respect of the multifactorial nature of the inquiry. Your Honours were taken to those passages in Clarke and in Austin yesterday and I will not repeat what my learned friend said in that respect.
Before I move onto our precise submission in this respect, could I deal, your Honours, with one or two matters that arose yesterday during the course of submissions in this respect? There was a reference to the Government Agreements Act (WA) during the course of submissions. That was an Act introduced in 1979 during the course of substantial amendments. In fact, it was a repeal of the Mining Act 1904 and its replacement by the Mining Act 1978. We have copies of the Government Agreements Act. It is not essential for our argument, but reference was made to it yesterday. Its effect was, relevantly, to essentially confirm the validity of State agreements entered into prior to that time.
Again, your Honours, in the papers that have been prepared for the Court, there are references to the way in which these large iron ore projects are provided for under Western Australian law. If your Honours could have volume 2 and volume 1 of the parties’ relevant documents? If your Honours in volume 1 turned to page 318, your Honours will see there that that is the Iron Ore (Hamersley Range) Agreement Act.
So that is the Act of Parliament which is passed, and scheduled to it is what is referred to as the State agreements and that commences, as your Honours will see, at page 327, and your Honours have been provided with a vast number of the various State agreements, in relation to iron ore projects in Western Australia. That is the standard form in which those arrangements are entered into. That is a detailed as it were commercial instrument which is annexed to legislation such as that.
I will not take your Honours to the other examples of that, but the Goldsworthy Agreement is in volume 2 of the papers at page 480, the Mount Newman Agreement in volume 2 at page 511 and the Robe River Agreement in volume 2 at page 561. As I have said, your Honours, each of those take the form of legislation with an annexed State agreement. Can I move then, your Honours, to our ‑ ‑ ‑
FRENCH CJ: So the proposition you get from those relevant to your argument is what?
MR DONALDSON: Well, it was more by way of explanation of an issue that arose yesterday, your Honour, from Justice Hayne.
FRENCH CJ: But that royalty variations are embedded in these agreements?
MR DONALDSON: We will come to see, your Honour, when I go to the agreements themselves that the royalty rate which is set is part of a complex commercial arrangement in which companies are required to pay for and to fund various other parts of these projects and infrastructure.
FRENCH CJ: Infrastructure provisions and so forth?
MR DONALDSON: Yes. It is perhaps easiest, your Honour, while those matters are before your Honour, if I go to them now. Your Honour, in relation to the Mount Goldsworthy Agreement which is the 1964 agreement - that is in volume 2 commencing at page 495 - I am going to refer to four of these agreements, your Honour. They are the four, as it were, bedrock agreements to the iron ore industry in the Pilbara, that is, the Iron Ore (Mount Goldsworthy) Agreement Act 1964, the Hamersley Range Agreement Act 1963, the Mount Newman Agreement of 1964 and the Robe River Agreement of 1964. The relevant provisions of the Mount Goldsworthy Agreement for this purpose, your Honour, commence at page 495 of the bundle.
Again, your Honour, could I make this observation by way of explanation, because your Honours will have seen in the written submissions that have been filed there is reference to the Iron Ore (Mount Goldsworthy) Agreement Act 1962, 1963 and 1964. The short history of that, your Honours, is that the Mount Goldsworthy Agreement Act was the first of these large State agreements. It was entered into in 1962, it was varied in 1963 to change one obligation which was in relation to the port, and then it was amended again, your Honours, in 1964 to bring the royalty provision in line with the royalty arrangements in the Hamersley Range, Mount Newman and Robe River Agreements.
Could I ask your Honours to look at page 495 of the book? Your Honours will see there that it is set out what the obligations of the joint venturers to construct are. Your Honours will see in clause 9(1) the obligation was that:
The Joint Venturers shall within three (3) years next following the commencement date . . . at a cost of not less than twenty million pounds . . . construct install provide and do all things necessary to enable them to mine from the mineral lease to transport by rail to the Joint Venturers’ wharf and to commence shipment therefrom ‑ ‑ ‑
Your Honours, without limiting the generality – so just pausing there, your Honours, to observe the scheme of this agreement is that there was a very substantial upfront funding requirement imposed upon the mining proponent, in this case to expend not less than £20 million, which no doubt in 1964 was a very large sum of money.
The specific obligations, your Honours, are set out further on in clause 9, and if I could ask your Honours to turn over the page to page 496, your Honours will see that one of the specific obligations imposed upon the proponent was to construct a railway and lands were to be made available and the railway was to be constructed on a route from mining area A to the wharf, which was ultimately at Port Hedland, in (d) an obligation to make roads, and in (e) to construct a wharf, and could I ask your Honours, importantly for our argument, to look at clause (f) on page 497. Your Honours will see there that there is an obligation to carry out proposals, and those proposals, your Honour, are described as:
(i)dredge the berth at the Joint Venturers’ wharf . . .
(ii)lay out and develop the townsites and provide adequate and suitable housing recreational and other facilities and services;
(iii)construct and provide roads housing school water and power supplies and other amenities and services; and
(iv)construct and provide other works (if any) including an airstrip.
So, this agreement imposed, your Honours, an obligation upon the proponent to undertake the development and building of a town along with the provision of, as it stated, recreational services, housing, schools, power supplies and the like. Your Honours, in relation to the operation of the railway, and I referred your Honours a moment ago to subclause (c), your Honours will see – it was 9(1)(c) I should say – 9(2)(a) refers to the actual operation of the railway which the proponents were obliged to construct. Your Honours will see that that obligation is to operate it in a safe way, and then dropping down four lines your Honours will see:
and also transport the passengers and carry the freight of the State and of third parties on the railway subject to and in accordance with by‑laws (which shall include provision for reasonable charges) from time to time to be made –
These were railways that were obliged to be constructed which had third party access rights attaching to them. The provision in relation to the use of roads, your Honours, which is in clause 9(2)(b), was similar, that is, that the public had use – I am sorry, your Honours, I am turning over from page 497 to 498 – they are obliged to:
allow the public to use free of charge any roads –
subject to a proviso –
constructed or upgrade under this clause PROVIDED THAT such use shall not unduly prejudice or interfere with the Joint Venturers’ ‑ ‑ ‑
FRENCH CJ: So the royalties provisions, which we will get to in due course, are in aid of governmental purposes advanced by this agreement?
MR DONALDSON: Yes. I am taking your Honours – and I was only going to further to that take your Honours to clause 9(2)(f) in relation to third party use and access of the wharf and to clause 9(2)(h), which provided for the use of certain of these facilities which were required to be constructed by the proponents to inhabitants of relevant areas. The purpose of taking your Honours to these provisions is to demonstrate to your Honours that State agreements of this nature were entered into by the State government for a purpose of requiring mining proponents of these large scale mines to undertake work such as the building of towns, the building and construction of schools, the building of these massive infrastructure projects such as rail, port and the like.
It was done on the basis that the proponents were required to pay for it up front and, again, your Honour, it could only be understood that the royalty rate which was set had regard to the obligations which were imposed upon the proponents to undertake this massive upfront expenditure. Your Honours, without taking the Court to each of the other three agreements that I was going to refer to – or that I referred to earlier – could I say to your Honours that the Hammersley ‑ ‑ ‑
HAYNE J: Is the proposition any more sophisticated than the fact that these are large commercial enterprises, the development of which and the agreements for the development of which, reflect commercial considerations, including tax take.
MR DONALDSON: No, your Honour.
HAYNE J: Tax take by States, by the Federal authorities, and the like. What more are we getting out of it, Mr Solicitor?
MR DONALDSON: What more you are getting of it, your Honour, is that these agreements are a means by which State governments obtained third party financing – to put it in those terms – of public infrastructure such as the massive rail that has occurred in the – or services in the Pilbara region, schools, towns, recreational facilities and the like.
KIEFEL J: Do we assume that it has affected the rate of royalty? Is that an assumption, or an inference, we draw as likely to have occurred?
MR DONALDSON: Yes, your Honour.
KIEFEL J: Is that is?
MR DONALDSON: Yes.
HAYNE J: It was a commercial deal.
MR DONALDSON: Yes.
HAYNE J: Yes.
MR DONALDSON: Well, it is a commercial deal to require a third party to undertake this form of expenditure.
HAYNE J: Yes, and it is very large expenditure.
MR DONALDSON: Quite.
HAYNE J: I understand that.
MR DONALDSON: Yes.
HAYNE J: Yes.
MR DONALDSON: I am sorry, your Honour. I think I misunderstood your Honour’s earlier question to me.
FRENCH CJ: Your Melbourne Corporation point reduces, does it, to the proposition that a Commonwealth tax which by its variable grossing‑up provision nullifies the benefit of concessions which may be made in the context of such agreements ‑ impermissibly burdens the capacity of the State to govern it.
MR DONALDSON: Exactly that.
CRENNAN J: You have used the word “neuter”, I think, in relation – “neuters” your capacity to send pricing, for argument’s sake, to potential investors.
MR DONALDSON: Yes.
KIEFEL J: Is that ‑ I am sorry.
MR DONALDSON: I am sorry, if I could just come back to your Honour Justice Kiefel in a moment. Your Honour, to deal with a question that your Honour asked earlier today, it only works with a reduction.
CRENNAN J: Yes.
MR DONALDSON: It does not work with an increase in royalties because the way that the tax operates is those royalties go directly to the State. So, the Melbourne Corporation argument operates because this tax, by its design, having the – and Justice Bell used the term “direct inverse proportionate effect” which is, I might say with respect, an entirely ‑ ‑ ‑
CRENNAN J: It explains why your argument is narrowly confined to the grossing‑up aspect of the calculation.
MR DONALDSON: Only to grossing up and only in relation to a reduction of royalty and the effect that a reduction of royalty would have because, putting it in these terms, your Honour, of course the State would not be able to enter into an agreement such as this, imposing these obligations at the same price – that is, the same royalty rate – if for every dollar that is was not charging in royalty that sum was going to be paid in Commonwealth mining tax, in any event.
HAYNE J: It could not enter the same deal if the Government altered the mining provisions of the Income Tax Assessment Act either.
MR DONALDSON: Well, your Honour, it does not gross up under the Income Tax Assessment Act.
HAYNE J: I understand that. These are commercial transactions, driven by commercial considerations; that I can well understand, Mr Solicitor.
MR DONALDSON: Quite. Your Honour, our argument relates solely to, and is premised upon, the grossing‑up nature of this tax. Your Honour asked my friend, Mr Jackson, the question as to whether it applied more broadly in relation to – or if the royalty were a deduction only ‑ and we do not put our argument on that basis.
HAYNE J: I understand that, and the Melbourne Corporation point you make depends upon reading Melbourne Corporation as directed generally to what you described as capacity to govern, does it?
MR DONALDSON: It does, your Honour, and I know your Honour ‑ ‑ ‑
HAYNE J: As distinct from existence as a separate polity.
MR DONALDSON: Or existence of institutions of government, your Honour.
HAYNE J: Yes.
MR DONALDSON: In our outline of written submissions ‑ ‑ ‑
HAYNE J: Because Federation and the intersection of federal and State laws necessarily affects capacity to govern, does it not?
MR DONALDSON: Necessarily, your Honour.
HAYNE J: Yes.
MR DONALDSON: That is why we do not dispute for a moment, your Honour, that these are all questions of degree.
FRENCH CJ: Do you accept the equation I put to Mr Jackson yesterday in this context of the impact of the MRRT Act with royalty grossing‑up provisions on the capacity of the State to govern to an MRRT Act without the grossing‑up provisions but struck at such a level that certain major projects within the State of Western Australia would be not economically viable or projected projects would not be viable?
MR DONALDSON: Your Honour, I do not wish to be accused of being a coward but can I make this observation in response to your Honour’s question? There has been, as your Honour knows, an issue in this case as to what constitutional facts can be assumed and the like. That particular example or hypothesis that your Honour has given would be one of greater complexity than this, I think it would be fair to say, your Honour. The peculiarity of this particular taxation arrangement for the purpose of the Melbourne Corporation Case is that it denudes the capacity to reduce a royalty to enable public expenditure to be undertaken by third parties.
KIEFEL J: Is that entirely accurate? The State’s ability to alter its rates of royalty is not affected by the Commonwealth Act.
MR DONALDSON: Yes.
KIEFEL J: The effect, really, for which you contend is that the State of Western Australia might perceive that its bargaining power has been lessened, is that correct?
MR DONALDSON: No, your Honour, I think the point of it is more this, and if I could perhaps answer your Honour’s question by asking your Honours to turn to point 5 of our outline of oral submissions? What is really, your Honours, at the core and central to our contention in relation to Melbourne Corporation and what we say in response to what the Commonwealth has put in response is that what lies at the core of the Melbourne Corporation Case is, of course, the notion of choice that the State has in relation to undertaking its governmental functions.
KIEFEL J: Choice in what areas though?
MR DONALDSON: Again, your Honour, that is a question you might say of some imprecision and degree ‑ and I will come back to trying to give your Honour an articulation of it ‑ but can I say, your Honour, there are examples. For instance, one of them is the choice of a State in relation to how it remunerates State judges. Austin, of course, is an important case in that respect because the particular evil of the Commonwealth taxing legislation in Austin was actually overcome prior to the matter coming to this Court. It was the fact that the States were denied the opportunity of choosing to remunerate judges in the manner that they chose which was central to the proposition there.
HAYNE J: No, it was not. What was central to the proposition in Austin was that this was one of the arms of government of the State. That was the critical observation in Austin.
MR DONALDSON: Your Honour, in both Austin and Clarke there were of course institutions of the State government which were at issue. So the judiciary obviously in Austin and parliamentarians in Clarke, and no doubt, your Honour, it was central in both decisions that what was being dealt with there in each of these cases was, as it were, a direct effect upon an institution of government. The Melbourne Corporation, your Honour, is not limited to that.
HAYNE J: What is the best authority you have for that larger proposition?
MR DONALDSON: The Melbourne Corporation Case, your Honour. That was not an institution of the government there.
KEANE J: No, but the Act operated to prevent State governments conducting their affairs in terms of their banking, save at the say‑so of the Commonwealth.
MR DONALDSON: Your Honour, it operated to prevent them choosing where to put their banking.
KEANE J: Absolutely, subject to the Commonwealth’s approval.
MR DONALDSON: Yes, and I know your Honour asked the question about prevention and deterioration or amelioration but ‑ ‑ ‑
KEANE J: But looking at capacity to govern, to do the things in which government subsists as opposed to the consequences of Commonwealth legislation which is within Commonwealth power.
MR DONALDSON: Your Honour, I do not wish to be impolite but your Honour’s question would be answered rhetorically as where does it particularly matter where State bank accounts are?
KEANE J: I suppose it is the idea that governments get to choose where they keep their money.
MR DONALDSON: Governments get to choose how they finance the – and again, your Honour, governments get to choose ‑ ‑ ‑
HAYNE J: The Commonwealth cannot dictate to the States. The Commonwealth cannot legislate for the States about where the States put their money.
MR DONALDSON: Our argument in this case, your Honour, is no more than the Commonwealth cannot dictate how the State chooses to finance large infrastructure projects, schools and the like, and we go on to say in remote communities, your Honour, because all of these are in remote communities. The effect of this Act ‑ ‑ ‑
CRENNAN J: So this choice point translates, does it, into a proposition that the fact that the State could decide to have theoretically a royalty rate of 22.5 to meet its functions and so forth, government requirement is irrelevant.
MR DONALDSON: It is irrelevant. The Commonwealth is quite right, your Honour, when they say well, there are other ways that the State could have achieved what it has achieved in these various State agreements. No doubt that is right.
KIEFEL J: But does that come down to saying that the Commonwealth cannot influence how the State might exercise its choice in relation to royalties?
MR DONALDSON: Your Honour, the key to this or central to this argument is not really the dictation of how the State deals with royalties. We do not say that essential to the existence of a State is an untrammelled right to set royalty rates. The key to it is that what the State has been denied by the design of this tax is the ability to reduce royalties, to use that reduced royalties to require proponents of mining projects to undertake these various forms of expenditure and, your Honours, the ‑ ‑ ‑
KIEFEL J: Taken away a bargaining point, that is what is happened.
MR DONALDSON: Again, this gets back to a question that Justice Hayne asked yesterday. The right to impose a royalty, your Honour, is a bit more than, as it were, a sort of a bargaining position. The State has an untrammelled right, on our contention, to impose a royalty and of course royalty rates become part of commercial bargains and negotiations that have taken place in relation to this. All of them, your Honour, in the four 1964 agreements - which were the first agreements - all required for upfront payments of between £20 million and £35 million in 1964, or within three years of 1964. So that was the method which was chosen by the State to finance railways, towns and the like. Now, the way this tax operates of course, every dollar that is not charged by royalty, every dollar, goes directly as a payment to the mining tax over the minimum profit threshold.
KIEFEL J: How long has the rate been at the rate it presently is?
MR DONALDSON: Well, there is no standard rate in relation to the iron ore royalties, your Honour. If your Honour wants to know I can give your Honour a ‑ ‑ ‑
KIEFEL J: But there is a band within which one can discern a rate, no? Well, I will put it another way: have there been any major changes to the royalty which have been applied over the last 20 years?
MR DONALDSON: Yes, your Honour.
KIEFEL J: In a downward movement?
MR DONALDSON: There is an example which is referred to in our written submissions, your Honour, the Tallering Peak State Agreement, where there was a reduction in the royalty and it stated for a particular purpose ‑ ‑ ‑
KIEFEL J: Is that the only example of an evident desire of the State of Western Australia to wish to apply a lower rate?
MR DONALDSON: Well, it is the only one that we have come up with for these purposes, your Honour. I do not want that to be used against me, your Honour, for this reason. That is not particularly surprising because all of this very substantial infrastructure was constructed some time ago.
KIEFEL J: The royalty is but one aspect of a rather complex commercial arrangement.
MR DONALDSON: No doubt, your Honour. Payroll tax – and my friend, Mr Gleeson, is going to be talking about payroll tax and land tax and various other State taxes later, royalty is only one of them. But our contention, your Honour, is premised upon the differential way in which royalties are dealt with and the way in which royalties have historically been used in Western Australia as demonstrated by these particular State agreements.
Your Honours, I did refer to paragraph 5 of our outline of oral submission. I am not sure that I need to make the proposition good, but it is well to look, in my respectful submission, at the way in which this issue of choice or capacity has been dealt with from time to time. If your Honours could have Austin available, so that is Austin v The Commonwealth (2003) 215 CLR 185, in the judgment of the Chief Justice, your Honour, at page 219 your Honours will see at the top of the page in paragraph 27 his Honour is there dealing with the Melbourne Corporation Case itself and really dealing with the point that Justice Keane made a moment ago:
Legislating to the deprive States and State agencies of the capacity to bank with any bank other than the Commonwealth Bank might or might not have been to their financial disadvantage. That was not the point.
That is our contention. It is not the point that we could have entered into these sorts of arrangements in a different way. The point was, your Honour, that it substantially impaired their capacity to decide where to place their funds, and in that respect it impaired their capacity to act as governments. That requires, of course, an assumption that a decision of where to place funds is a capacity of government, but nobody has had too much difficulty with that. Could I also ask your Honours to turn to page 220, again, still in the Chief Justice’s judgment in paragraph 29. Your Honours will see there the third sentence:
the Commonwealth argues that any burden on the State of New South Wales, in consequence of the fiscal imposition on its judges, could be, and was, ameliorated by legislation of the kind that was subsequently enacted by the State.
If I could ask your Honours to drop down to the final sentence:
The issue is one of interference; of impairment of the constitutional integrity of a State government. Such interference is not denied by pointing out that a State could and did make a substantial alteration to the design of its judicial pension scheme; on the contrary, the need to make such alteration demonstrates the interference.
Our contention, your Honour, is the Commonwealth may be able to point to different ways in which Western Australia in 1964 could have structured these matters, but that is not the point, and that to use the Chief Justice’s term. That comes back to a point that I was seeking to develop earlier with Justice Hayne, a central aspect of what a government is is that a government has a choice on how to implement particular policies. Then it becomes, your Honour, a question of practical ‑ ‑ ‑
HAYNE J: Well, where in any of the Melbourne Corporation Cases do you find such a proposition?
MR DONALDSON: Well, here, your Honour. It is not only in the Chief Justice’s judgment, but if I could ask your Honours to turn to page 265 to the joint judgment of Justice Gaudron, Justice Gummow and your Honour Justice Hayne at paragraph 170? Again, of course, this is in the context of the facts of that particular case, but your Honours will see there at the bottom of page 265:
The Commonwealth, in its submissions, urges against speculation upon what it says are the indirect effects of its laws upon the government of the State. However, one tendency of the federal laws readily apparent from their legal operation is to induce the State to vary the method of its judicial remuneration. The liberty of action of the State in these matters, that being an element of the working of its governmental structure, thereby is impaired.
HAYNE J: Well, that is to be read in the light of 166.
MR DONALDSON: Yes, and it is clearly, your Honour, to be read in the light of the facts of that case; that what was being affected was an actual institution of government, if I could put it that way. We have, again, referred to it in our outline. The Commonwealth in Clarke’s Case sought to limit the Melbourne Corporation in that way. If your Honours could have Clarke available? That is Clarke v Federal Commissioner of Taxation (2009) 240 CLR 272. If your Honours look to page 282 of the Commonwealth Law Report where there is set out the argument of the then Commonwealth Solicitor and about six lines from the bottom after the reference to footnote (35):
What is protected from substantial impairment or interference is the capacity of a State to establish and maintain institutions of its choice –
and limit it to “legislative, executive and judicial powers”.
FRENCH CJ: Why are we being taken to this argument?
MR DONALDSON: I am trying to deal with Justice Hayne’s – I apprehend Justice Hayne to be contending that Melbourne Corporation is limited to, as it were, an impact upon the actual institutions of the State government other than upon capacities of the State government, particularly, if I might say, your Honours, executive capacities of the State government. These issues become complex, your Honour, beyond the legislature and the Executive when we are dealing with executive action, as we are in large part in this case, being the scheme devised by the State to deal with these infrastructure matters.
Then, your Honours, in relation to this choice issue, we have set it out, the reference there to where this issue is dealt with in the judgments. In the Chief Justice’s judgment it is at page 297 where in paragraph 31 – perhaps I could leave your Honours to read that. It is over onto the balance of paragraph 31. Then, your Honours, in the joint judgment, if I might, at page 308 at paragraph 72, and this is at the bottom of page 308 where the joint judgment actually refers to Justice Hayne’s judgment where it said there:
As Hayne J explains in his reasons, the State was left with no real choice but to provide retirement benefits by a method which enabled parliamentarians to meet the burden imposed by the surcharge legislation.
For completeness, your Honour Justice Hayne dealt with that in paragraph 101 at page 315. What your Honour said there is:
What is important is that the laws now in issue, by their effect on how States may choose to remunerate their parliamentarians, place a special disability or burden upon the exercise of powers and the fulfilment of functions of the States. It is for a State to decide how and in what amount its parliamentarians are to be remunerated.
Now that, with the greatest respect, the passage and reasoning cannot be limited simply to the idea of remuneration of parliamentarians or judges.
BELL J: Can I get that paragraph number again, I am sorry?
MR DONALDSON: Sorry, your Honour, it is paragraph 101.
BELL J: Thank you.
MR DONALDSON: It is at the bottom of page 315.
HAYNE J: Yes, well, paragraph 97 might have to be read. There again, perhaps, it might be useful to read the whole of the reasons in Clarke.
MR DONALDSON: I am sorry, your Honour. I was not trying to cherry pick out of your Honour’s judgment in Clarke, but the principle, your Honour, of the effect of the legislation in Austin and Clarke, having the consequence that it did, that is, that it denied the State the opportunity, or the choice, as to how it was to be able to remunerate officers is, in our respectful submission, not a mode of reasoning which can be limited simply to those two circumstances. It is certainly not, your Honour, the way in which the Chief Justice in Austin dealt with that particular issue in the passages to which I have taken your Honours.
KEANE J: Once you go outside the State organising its organs of government and how it goes about doing that ‑ ‑ ‑
MR DONALDSON: Then it is complex.
KEANE J: ‑ ‑ ‑ once you go outside that and you are talking about restrictions on choice that are not concerned with how the Government organises institutions and its capacity to govern, once you go outside that you come to cases like the Native Title Act Case.
MR DONALDSON: Yes, and Tasmanian Dams.
KEANE J: And Tasmanian Dams, which would seem to suggest that an adverse effect on the availability of choices, or an adverse effect upon the desired consequences of choices made by State legislatures or executive governments, is not an objection to an otherwise valid Commonwealth law.
MR DONALDSON: Yes. Can I say this, your Honours, in relation to – and we have dealt with it in our written submission in as much detail as we could – that is, what was said in particular in the Native Title Act Case in that respect. The particular passage to which your Honour refers I think has to be understood in the context of the circumstances of that particular case. Because, your Honour, on one view what occurred in the Melbourne Corporation Case itself was simply limiting or diminishing the capacity of the State to make a choice, in relation to a particular exercise of executive power. That is why I said earlier, your Honour with executive power the doctrine is particularly problematic.
Where the line is to be drawn is best answered probably by saying, well, there is no line to be drawn. What has to be done is a matter of evaluation and judgment in each case, as has been said on many occasions. That is why, your Honour, in this particular case we point to the centrality and importance of these sorts of State agreements that have been entered into and to the importance of the sort of infrastructure that has been constructed. But, your Honour, I am not trying to avoid your question, but we deal with the Tasmanian Dams dicta and what was said in the Native Title Act Case in our written submissions. If read literally, your Honour, the Melbourne Corporation doctrine would likely not operate in relation to the executive other than in a circumstance of what the Chief Justice referred to as a gubernatorial privileges tax.
That, with the greatest respect, cannot be right because of Melbourne Corporation itself, and AEU, your Honour. The AEU Case dealt with State government employees, all State government employees, and so that is a further example, and I think another example that Mr Jackson gave your Honour this morning to deal with that particular proposition.
Finally, if I might, your Honours, Justice Hayne has not asked me but asked my learned friend, Mr Jackson, yesterday if we could articulate – or asked my friend Mr Jackson to articulate what the actual State government power that was being impacted was in this particular case for the purpose of the Melbourne Corporation doctrine and, your Honours, our articulation of it is at paragraph 8 of our written submissions.
FRENCH CJ: Thank you, Mr Solicitor.
CRENNAN J: May I just ask you a question? Is there anything in the mining resources tax which would stop the State of Western Australia from making direct grant of aid or in some other way exercising its power to create an incentive in relation to potential investors?
MR DONALDSON: No, it deals only with royalty, your Honour. Well, can I say, your Honour, as I have understood the Act and in the way in which it has been put for the purposes of these proceedings. But again, your Honour, we answer that question by saying, well, it is the wrong question to ask.
The question is this is the way in which the State has chosen to deal with this issue and that means is denied the State by the design and operation of this tax. Finally, your Honours, can I say, the other thing to be understood ‑ ‑ ‑
CRENNAN J: In a sense it is a question to ask because your argument depends on the proposition that the State’s constitutional functions are impaired by the grossed‑up royalties.
MR DONALDSON: Yes, the constitutional function being the power to enter into an agreement such as this which provide for upfront payment by third parties of massive infrastructure which is beneficial to all, yes.
CRENNAN J: Is there anything – and if this is complicated, do not worry, but ‑ ‑ ‑
MR DONALDSON: I think it is all complicated.
CRENNAN J: ‑ ‑ ‑ there were other allowances. I think I asked this question yesterday, one of which seemed to address investment that had already been made. I will just get the name of it.
MR DONALDSON: Yes. I think that is in the tables, your Honour.
CRENNAN J: It is a particular allowance.
MR DONALDSON: Yes.
CRENNAN J: Just pardon me one moment.
MR DONALDSON: Is it the starting base allowance, your Honour?
CRENNAN J: It is the starting base allowance, yes. Does that have some relationship to this argument about the reduction of royalties?
MR DONALDSON: Well, can I say this, your Honour. I would not want to try and answer that question in a way which was inconsistent with the way in which Mr Jackson dealt with it this morning and, for what it is worth, your Honour, our understanding of how it operates is as was stated by Mr Jackson. Can I also say, your Honour, however, how some of these provisions or how this particular provision will actually operate in practice is – well, we do not know, you know, and particularly as we are not the taxpayer so we have not gone through the particular exercise. I am sorry not to be able to assist your Honour.
FRENCH CJ: Thank you, Mr Solicitor. Solicitor‑General for the Commonwealth, you might like to give us your opening gambit.
MR GLEESON: If your Honours please. Your Honours, there are some features ‑ ‑ ‑
HAYNE J: I thought you might finish in time, Mr Solicitor.
MR GLEESON: Are you inviting me to finish by lunch, your Honour? Even my hard work last night to reduce this argument to three propositions is not that effective. Your Honours, there are some key propositions about the operation of the Act where we differ from the other parties at the Bar table and I would like to deal with them first, and they provide a foundation for both section 51(ii) and Melbourne Corporation. Your Honours, the first matter which the other parties gloss over but cannot be escaped is that this Act applies a uniform rate to a legal construct or classification of above normal profits, as set out in section 10-5 and then further explained.
That classification or subject matter of the tax is made up obviously of a number of integers. Each integer is defined in a uniform manner. The application of that classification to differing projects may produce differing amounts in different cases depending upon the elements or circumstances which each project faces. The result may be that for two projects comparable in terms of – or size, for example, the ultimate outcome of tax burden may differ. Differ because of differences in the localities in Australia or differ because of decisions made by various polities in taxing and charging.
Where we differ from Mr Jackson is that there is nothing in this Act which requires or authorises that a difference in the amount of tax arise because a project is located in one locality or State rather than another. There is nothing in the Act which requires that to occur and there is nothing in the Act that authorises or mandates that there will be a difference in tax because of locality or State of the project.
If differences arise, they arise only because of the application of the uniform criteria to differing conditions which are outside the Act. Royalty is no different to any other element in the classification in relation to that proposition. There is nothing in this Act that requires or authorises or mandates that States adopt varying royalty rates. It simply accepts the outcome of such decisions as States choose to make.
Your Honours, that is our first proposition about the Act and, if it is correct, it will be the end of the section 51(ii) argument because it will mean that there is no difference in principle between a deduction under the Income Tax Act or a deduction if the Mining Act were redrafted tomorrow and a gross up; no difference in principle between those two cases. It simply depends on matters outside the Act as to whether such differences will emerge. I notice the time, your Honour.
FRENCH CJ: Mr Gleeson, roughly how long do you think you will take?
MR GLEESON: I do not think I will have finished by the end of today, but would hope by early tomorrow morning.
FRENCH CJ: We will adjourn until 2.15.
AT 12.46 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.14 PM:
FRENCH CJ: Yes, Mr Solicitor.
MR GLEESON: Your Honours, in this opening section on the effect of the Act there were four matters I was seeking to cover. The first I have mentioned was the uniform identification of each of the integers of the formula and how that may produce differing results for differing projects depending upon local circumstances. Your Honours, to complete that, there has been some discussion about how this plays out in relation to mining expenditure in section 35‑1, which uses language reminiscent of the Income Tax Assessment Act.
The generality of that language would pick up State taxes and charges such as payroll tax, land tax, workers compensation levies and, indeed, charges by local government which are creatures of the States. Those charges and taxes may vary, and if they vary there will then be some consequential effect on the amount of federal tax payable.
We have provided your Honours with a bundle of supplementary legislation which has three materials attached. The third of those materials is a summary of the pre‑existing payroll tax and land tax position between two States, Queensland and Western Australia, as of 2012. Unsurprisingly, there were variations between the States. Western Australia was a higher taxer in relation to payroll. Queensland was a higher taxer in relation to land tax. Those variations between the States will naturally, under 35(1), produce some mathematical effect on the ultimate federal tax payable.
The plaintiff’s submission that there is some difference between the generality of 35(1) and the specificity of the royalty allowance provisions, we would submit, is formalism at its worst and this Court would reject it. The final aspect of this first point is the allowances. Your Honour, Justice Crennan, amongst other judges, have asked some questions about the allowances.
Of the seven allowances – again, variations between localities of projects are likely to produce variations in the amounts. Starting base allowance is one area where that is particularly so. Again, if, for example, a State sought to fund or assist a miner in relation to its start‑up costs, that might reduce the starting base allowance and increase the MRRT payable – the same sort of effect that is complained of with the royalty allowance. That, we submit, is just the application of the uniform set of integers.
Your Honours, can I go to the second of the four features which is to focus more precisely than the plaintiff has on the role of there being seven allowances, not one, namely, the royalty allowance. A central difference between the parties is that the plaintiffs and the interveners urge the Court to focus on royalty allowance – ignore the others as irrelevant – and then, lo and behold, having applied the microscope, they say we have discrimination.
That of course is an error because under the basic formula in section 10‑5 it is the whole of the mining allowances that must be deducted from the profit before one applies the rate, and that is clear in step 3 where indicated, and the allowances have an interrelationship between them by reason of the order in which they are to be applied. That interrelationship between them and the order is one of the critical reasons why the direct inverse relationship proposition is wrong.
A project in its first year might make a mining profit, for example, because ore prices are high and it might pay royalty and that might generate a royalty credit. Whether that translates into any effect in terms of the MRRT will depend upon the other allowances. If, for example, the project is in its early years or, I might add, the tax is in its early years where the other allowances, particularly the starting base allowance, are significant, it will not be until those allowances have been used up that there will then be a net profit to which the 22.5 per cent is paid.
No doubt – and we have made this concession in our submissions – the more royalty paid, there will be a likelihood or a potential for some impact on the end result on the amount of tax paid. More royalty would tend to see more allowance and therefore less tax, and vice versa. No doubt as a tendency that is there, but to focus the microscope on that and say, “Lo and behold, one for one effect”, is a significant error.
If your Honours were to ask – and none of this is explored in evidence because the plaintiffs have joined a case just on the Act - but if one were to ask what are the factors arising from the Act which will determine the relationship for a particular project between amounts of royalty and amount of tax one can identify what the types of factors will be. The factors will be, firstly, how big are your other allowances; secondly, how many years does it take to use up your allowances; thirdly, when you have used up your allowances are you in the happy position of making mining profits which will depend heavily on global oil prices; and, fourthly, for how many years after you have reached the happy stage of using up your allowances and, as it were, drawing on the effect of the royalty credit do you continue to make mining profits against which one can see the credit at work. So that will depend on the lifecycle of the project.
If I could ask your Honours to go to the plaintiff’s submissions, to their tables that we have taken some trouble to criticise in our submissions, which are table 1 and table 2. The plaintiff’s case in terms of the effect of this Act rests on two key assertions. The first is in paragraph 24 that – if one compares a miner in what is called a “higher royalty State” and a “lower royalty State” one can detect “an automatic and proportionate increase in MRRT”. The second proposition, of course, is in 27(a) and (b) that “if a State reduced its royalties” the miner will “obtain no financial benefit”. The Melbourne Corporation point factually hinges off paragraph 27.
Once one accepts the way in which the allowances work and one starts to consider how this Act would apply to any project, one can see that those two propositions, automatic and proportionate increase and no benefit, do not emerge from the face of the Act and they do not emerge from any evidence that the plaintiffs have sought to lead outside the Act. So, your Honours, that is the second of the four points, the allowances. The third, can I deal with the suggestion ‑ ‑ ‑
HAYNE J: Are not the tables founded on the hypothesis that you take an existing project in a particular State and compare the position it finds itself in under the MRRT Act as applied to it and the position that would have obtained had the identical project in identical condition been in another State?
MR GLEESON: No, in the sense that it is not applying the Act. It is applying the Act minus critical elements of the Act.
HAYNE J: How, when the hypothesis is you simply pick up, lock, stock and barrel existing operation with existing characteristics and hypothesise that same operation, same characteristics transported to another State?
MR GLEESON: Well, one thing it has done is to ignore any allowances other than royalty so that it could only ‑ ‑ ‑
HAYNE J: Well, it is taken them to account as much or as little in the one case as it has in the other case, has it not?
MR GLEESON: No, your Honour, it has taken them into account not at all.
HAYNE J: Well, be it so.
MR GLEESON: What that means is that this is not the effect of “the Act views it as a whole”. This might be the position which emerges in a particular year, presumably somewhere down the track of the lifecycle of the project where the allowances have been used up. That is the first way in which it has not captured the Act as a whole. The second is when it says let us assume the project is otherwise the same in every feature, for example, the cost that is built into this assumption is $40 a tonne and it is assuming that any other differences in locality which might bear upon cost have been neutralised out of the equation as well. Revenue, it is assumed identical revenue whereas the ore might be a different quality.
So if one says “I only want to focus on that integer within the larger formula and ceteris paribus I will hold everything else equal” what it tells you though at the end is not something about discrimination between States or parts of States, but it shows you what happens if different royalty rates are applied to an otherwise similar project. The reason I say that, your Honour, is that instead of calling them miner A and miner B in WA and Queensland, one could equally say miner A in some part of the Pilbara, miner B in some part of the Pilbara who has done a different royalty deal and has a different royalty rate.
So is it actually telling you something about discrimination between States and parts of States, or is it merely saying to the extent projects face differing royalty rates, wherever that occurs and for whatever reason, if you simplify the analysis and eliminate a whole series of other assumptions you will get to see at the end a mathematical difference. It is telling you that.
HAYNE J: Yes, and you, I can well understand, may say the utility of that comparison is limited, but it is a comparison which is made in which the only variable is location. Now, you may say that is unworldly, you may make a number of criticisms of that which may or may not be valid, but what is the legal flaw in saying, as the plaintiff does, if the only thing I vary is place, from State A to State B, a different result obtains and that is a factor relevant to the question of discrimination. What is the legal flaw that you are identifying, or seeking to?
MR GLEESON: There are at least two legal flaws. The first is that, to the extent the difference is emerging, it is not by reason of anything required by the federal Act or authorised or mandated under the federal Act. It arises only by reason of the application of the uniformly defined rule to different circumstances where States may have chosen to exercise their powers differently. That is the Conroy point.
The second, which is perhaps related, is that if this were bad the deduction provision to the extent it accommodates movements in State taxes is also bad and the Income Tax Assessment Act also falls because the type of mathematical calculation this is seeking to illustrate, put broadly as your Honour says, if everything else is held equal, if one variable moves in a particular direction, say down, does the federal tax move up, that is equally true in principle for each of the other charges and, therefore, legally one comes back to saying in the federal compact where there is provision for exercise of federal power and provision for exercise of State power there will be points at which exercise of one power will produce consequences for the exercise of other power.
In this case, the States are left completely free to decide what the royalty is and the result of their exercise of power is picked up, acted upon by the federal law to produce an outcome which may be different to what it otherwise would be. So that is my attempt at answering the legal flaw, your Honour.
In terms of our particular criticism of paragraph 27, the proposition you “would obtain no financial benefit from a royalty reduction”, that proposition cannot be true once one accommodates the full effect of the Act, and not to accommodate the full effect of the Act is to produce a proposition of no assistance in the further legal inquiry.
Your Honours, the other two documents in the bundle we handed up at tabs 1 and 2 are these. At tab 1, the Court has the Estate Duty Act, particularly, section 17, in the form in which Justice Evatt considered it in W.R. Moran 61 CLR 735 at 804. To the extent anything is to be made of specifically identifying and requiring State taxes which may vary between States to be taken into account in the federal calculation which the plaintiff says matters, that was done by section 17. It was that form of legislation at the time that Justice Evatt, in dissent in W.R. Moran but not in dissent on this principle – he was a person who held there was discrimination in that case, whereas the majority did not – said:
For instance, in estimating the Commonwealth estate duty, deductions from the value of the estate of the amount of probate or succession duties payable in any State have always been allowed an authorized by Commonwealth law. The fact that the quantum of such duties may vary in the several States and that in one or more States they may not be imposed at all would not make the Commonwealth law discriminate as a law.
Then, CSR v Irving in the Privy Council is picked up. What we draw from that legally is that the distinction Mr Jackson urges, as a matter of formalism, that you cannot do it by identifying the State tax and requiring it to be taken into account, but you might be able to do it by an Income Tax Assessment Act type formula, should not be accepted by this Court and was clearly not accepted by Justice Evatt.
The document we provided at tab 2 is the Income Tax Assessment Act, section 72, in the form in which Justice Taylor considered it in Conroyv Carter 118 CLR 90 at 101 point 5. Again, when his Honour made the general statement that the federal law does not discriminate merely because in its operation it will pick up the results of varying State laws, that was again made in the context of a federal law which specifically identified and required if it mattered, which it does not, that very process to occur.
Your Honours, the third introductory matter was the proposition of differing effective rate. Could I ask your Honours to go to three documents that are relevant to this: the plaintiff’s quadratic equation note ‑ ‑ ‑
FRENCH CJ: Linear equations, I think.
MR GLEESON: I am sorry, your Honour?
FRENCH CJ: Linear.
MR GLEESON: Linear, yes.
FRENCH CJ: Linear, I think. There would be two answers if they were quadratic.
MR GLEESON: It did not seem quadratic to me but I accepted the word of counsel who claimed to understand the document. Then the outline of oral submissions of Queensland which pick up the note, and thirdly, I would seek to hand to your Honours a document which shows that there is nothing in the effective rate point.
HAYNE J: Is this in a graph, a spreadsheet, an equation?
MR GLEESON: It is in a handsome table, your Honour. If your Honours could go first to our table, it covers three situations. The first is the Act in its current form with the simplification of eliminating allowances and it illustrates, perhaps similarly to the plaintiff’s tables and the plaintiff’s documents they have handed up, that of course if you have a lower rate of royalty, if you ignore everything else, you will pay more MRRT and if you want to you can turn that into an “effective” rate.
The second part of the document deals with the questions raised from the Court, what would have happened if the MRRT had simply allowed a deduction for royalties rather than a gross up? Again, if you eliminate everything else and you want to speak of it as an effective rate, you can detect that a lower royalty leads to a higher rate of MRRT.
The third is if we were in a world of no MRRT, but we just had income tax applied to miners and we gave them a deduction for royalties, or the government did at, say, 30 per cent tax rate, make that assumption, again if you want to talk about effective rates, lower rate of royalty produces more MRRT. Conclusion: there is nothing in the effective rate point which adds to the legal analysis in this case. There are various ways in which you could allow for the overlapping effect of royalties. Different ways of doing it may have different effects as a matter of quantum.
HAYNE J: Well, I think the table may illustrate quite graphically the importance of identifying the relevant base for in your third block taxable income is taken in both examples as 100, whereas a possible point of view is that the taxable income in block 1 is 90 and the taxable income in block 2 is 80. It all depends on your choice of base, Mr Solicitor.
MR GLEESON: The point we seek to make is only in rebuttal to a point that there is something about the grossing up which creates a differential effect in terms of effective rates, which is different to if it were done as a mere deduction, that being the point raised against us, that there is nothing in that point. If your Honours were to go to Mr Jackson’s note, it is the plaintiff’s note on effective rate under the Act, paragraph 3 contains the first simplifying assumption that all other allowances are going to be ignored, and that is obviously going to have an impact on what happens thereafter. In paragraph 8 the conclusion is said to be:
If MRRT had been expressed to be imposed in the above way, there would a facially different rate of tax applicable for each State, indistinguishable from Cameron and overtly discriminating . . .
Because the same result is achieved . . . the MRRT liability is, in substance, imposed at different effective rates.
Could I just give our answers to those two paragraphs, 8 and 9? Firstly, there is a fundamental difference between Cameron and the MRRT. In Cameron the federal Act, on its face, fixed a different rate or amount referable solely to State locality. The MRRT does not do that. It creates a formula where whether there will be different amounts depends upon decisions which States are free to take or not take. The second answer is that the formula that has been rewritten in paragraph 6 is not the Act. It is the Act eliminating all other allowances. The third answer is that the reasoning in this document could be applied to all of the other categories of deductions where there may be variants at State level and one would reach the same conclusion.
Your Honours, in Mr Sofronoff’s outline, the same errors emerge in paragraphs 14 and 15. Paragraph 14 ignores critical parts of the Act, namely the allowances. Paragraph 15 asserts a difference occurs if there is deduction when it does not. Could I just deal with 16, it is the only other matter I wish to deal with orally in response to the Queensland submissions? Your Honours will see in 16 a flavour of the Queensland written submissions, a flavour which wrongly conflates royalty and the tax. The MRRT does not impose a uniform cumulative rate of mineral rent upon miners. It imposes the uniform rate on the defined category of above normal profits if and to the extent they exist. Royalty is payable at a given rate on usually a value derived from the sale of the goods or the product. Royalty may be payable without any MRRT payable.
Your Honours, the final of the four matters was in terms of the royalty allowance itself. Your Honours have heard enough about how it works. I want to deal simply with the question of why there is the gross up. The reason for the gross up is that which we explain in paragraph 69 of our written submissions and we would submit that defining the subject matter of the tax in that manner in order to allow for the fact that the royalty, although coming from a different source of power, has already extracted money from the miner is to do taxing without discrimination. It is part of the identification of the uniform classification of the tax. In effect, it is saying that part of what would otherwise be a profit which has been subjected to royalty is not an above normal profit that we need to bring to tax.
Your Honour Justice Kiefel asked whether in a sense there are two times that the 22.5 per cent rate comes in, if one were to approach it in that way. The federal Act says for every $22.5 million you have paid in royalty we will treat that as $100 million of otherwise available mining profit that we do not subject to tax because it is not part of the above normal profit.
Your Honours, could I then come to the cases on section 51(ii) and I attempt only to go to the parts which either are important and have not been gone to or whether we place a significantly different view on them by way of submission. Could I ask your Honours to go first to Conroy v Carter 118 CLR 90 and start with Justice Menzies as that judgment is concurred in by the Chief Justice and Justice McTiernan. In the passage on page 103 in the middle paragraph his Honour says that:
What the more elaborate provisions of s. 51(ii.) forbid is a taxation law which would impose a taxation burden upon a person because of some connexion with a State or a part of a State, which would not fall upon other persons not having that connexion. Furthermore, in determining whether a law imposes such a discriminatory burden, it is to the law itself that attention must be paid, not to the laws of any State or States.
Now, we would submit this case can be resolved on that proposition that the entirety of the plaintiff’s argument, which is not improved by references such as structural and the like depends upon paying attention to differences which may emerge in the laws of different States, not to differences which are mandated by or authorised by the Commonwealth law.
In terms of where the Court differed in the case it was in relation to whether section 6(1)(b) was discriminatory. Your Honours will see that provision at the foot of page 97 and the top of page 98. The reason that provision may be discriminatory is that the Commonwealth law authorises some further action to be taken, namely the entry of arrangements between the Commonwealth and one or more States.
Under the federal law the Commonwealth has it entirely within its unreviewable discretion to either enter or not enter an arrangement with a State, otherwise willing to enter an arrangement, and depending upon that action the disadvantage that is identified in paragraph 6(1)(b) will come into play, namely that where there is an arrangement:
the State Egg Board for that State may retain out of any moneys payable by the Board to any person an amount not exceeding the amount of any levy –
So the discrimination arises because the federal law has authorised the entry of further arrangements under the Act, which are capable of creating that discriminating character. Whether that is in truth a disadvantage that should be called discriminatory is where the Court differed. Justice Menzies regarded that as “a disadvantage at law” at the foot of page 103. Justice Taylor’s view, page 102, point 8 was that this was merely providing for a different:
manner in which a liability for the levy may be discharged.
Leaving that difference aside, to the extent there may have been discrimination it was for the reason that I mentioned, in respect to the law. Subject to that difference between Justice Taylor and Justice Menzies, the Chief Justice agreed with the conclusions and reasons of Justice Taylor. That is at page 96 point 1. For that reason we would submit that there are four out of five Judges of the Court agreeing with the reasoning of Justice Taylor on everything in this case except for page 102, from about point 4 to the end, which is the 6(1)(b) point.
In terms of our argument in this case, Conroy is the closest and the best case for our proposition. Accordingly, within Justice Taylor’s reasons, we would advance this. On page 99, in the second full paragraph, his Honour adopted what had been said earlier by Justice Isaacs in Barger, including the important passage:
‘Discrimination between localities in the wider sense means that, because one man or his property is in one locality, then, regardless of any other circumstance, he or it is to be treated differently from the man or similar property in another locality.’
That is from page 110 of Justice Isaacs in Barger, and we would advance that as being a relevant statement of the principle that resolves this case. We would submit the MRRT Act does not, in its terms or by what it authorises or mandates, provide that merely because your project is located in one State, regardless of anything else, you will be treated differently from a person with a similar project in another locality.
His Honour then referred to DCT v Brown, and then a little further down came to Cameron’s Case and his Honour’s discussion of Cameron’s Case is the distinction that we would advance, that in Cameron’s Case the regulations themselves in the federal Act purported to prescribe the differential values to be taken into account for the purpose of ascertaining taxable incomes. That is the first difference. The difference is there in the federal Act.
The second difference is that the only line of demarcation provided by the regulations for the application of differential values was State boundaries. So Cameron is seen to be an application of what Justice Isaacs said in Barger. Then on page 100 at the top what Justice Starke said is to similar effect in Cameron. Then at the foot of the page his Honour found assistance from the US authority of Knowlton v Moore, where it was said:
speaking of an inheritance tax, “The tax is hence uniform throughout the United States, despite the fact that different conditions among the States may obtain as to the objects upon which the tax is levied. The proposition in substance assumes that the objects . . . must be found in uniform quantities . . . But what the Constitution commands is the imposition of a tax by the rule of geographical uniformity, not that in order to level such a tax objects must be selected which exist uniformly in the several States”.
At that point on page 101, his Honour referred to and adopted Florida v Mellon and Gottlieb v White. Florida v Mellon is the closest US case to our situation, (1927) 273 US 12. Florida v Mellon held that an 80 per cent credit for a State tax did not offend the US rule of geographical uniformity. In Florida v Mellon at page 15, the provision is set out at about point 5, it was a credit for tax paid to an amount of 80 per cent. The matter was regarded as, almost, self‑evident. On page 17, it is the last full paragraph:
Congress cannot accommodate its legislation to the conflicting or dissimilar laws of the several states nor control the diverse conditions to be found in the various states . . . All that the Constitution . . . requires is that the law be uniform in the sense that by its provisions the rule of liability shall be the same in all parts of the United States.
Mr Jackson said yesterday, well, perhaps you could have done this differently and perhaps not, being discriminatory. He said maybe pick the lowest royalty you find in Australia. Pick the highest royalty. Pick something in the middle. Justice Bell asked, well, if you are doing that, are you still taxing above normal profits? We would submit that it is the very issue identified in a sensible and practical way in Florida v Mellon, that you cannot accommodate your laws to the conflicting or dissimilar laws which allows for this sort of mechanism which says, whatever you face, you may claim.
Your Honours, in relation to the US authorities, that is all I wish to say. Mr Jackson’s written submissions had referred you to an article. We do not commend that article to you. It is by an academic who disagrees with 100 years of US Supreme Court decisions and urges a different view to be taken in America. The most recent view we have found in America on it – we have given the reference – is the United States v Ptasynski (1983) 462 US 74. That is from 1982. That is the Alaska oil case.
What that case does is – at page 84 – it reaffirms the position in the US, going back to Knowlton v Moore and it goes one step further, which is that it accepts that in certain circumstances Congress could actually use geographic terms provided it was identifying the same subject and do that without offending the uniformity clause. In that case, what was said to be a discrimination in favour of Alaska was found not to be discrimination because your Honours will see from page 74, at about point 6, what Congress was responding to was neutral factors – ample evidence of disproportionate costs and difficulties, fragile ecology, and so on which led to the particular tax treatment for that part of America.
Now that, we would submit, sits comfortably with Justice Isaacs in Barger and Justice Taylor, namely, the discrimination is where, not only does it have to come from the Act itself, but you are choosing locality and nothing else as the reason for erecting a different rule of liability. If you are choosing something else, a neutral factor, then you will be in the territory of, in our Court, Permanent Trustee in the Mirror Taxes Case where, provided the distinction you are drawing is appropriate and the measure is adapted to that distinction, then you will not be discriminatory.
HAYNE J: Do you say it fits with what the plurality said in Barger at 69 to 70?
MR GLEESON: It goes one step further because it is dealing with a case, unlike Barger, where on the face of the law a geographical distinction has been drawn, and it is then saying, however, the mere fact that that is drawn is not end of the game discrimination all over but, if that classification is in fact capturing a neutral factor as opposed to merely treating locality as the reason and the only reason for the difference, then it will not be discrimination. Now, that extra step is not in page 69 to 70 of Barger. It is in Justice Isaacs, I would submit, and that is what I want to come to now. So can I offer your Honour my submissions on Barger 6 CLR 41? Could I start with at page 63 what was the provision in dispute?
The excise tariff imposed the excise and then created a carve‑out that the Act would not apply if the goods were manufactured under, put broadly, reasonable conditions of pay but with four mechanisms to decide what were reasonable conditions of pay. The point where the difference emerged between the Court was this ‑ given that under some of these mechanisms such as the industrial award there was an ability to take into account different conditions in particular areas in deciding what was fair pay, did that mean that in effect the Industrial Arbitration Acts themselves were authorising action which would be or could be discriminatory, such that the Excise Act itself had the character of discrimination?
Now, when it came to that question of whether the fact that there could be attention to varying industrial conditions in setting the particular award, the split between the Court can be seen by comparing page 79 where Chief Justice Griffith goes through the four mechanisms, and in relation to the second category (b) observes that under the industrial system the court could have “due regard to local circumstances” and the result of that is that, having regard to those circumstances, one might get a decision that in one place certain conditions were fair, in another place the same conditions were not fair, and therefore differing results as to tax. That was held to be discriminatory because the federal Act was authorising – this is page 80:
the prescribing of conditions reasonable according to the circumstances of locality –
and in that sense discrimination might occur. On that proposition the difference then with Justice Isaacs was rather stark and in Justice Isaacs’ – your Honours have had attention drawn to pages 106 to 108, can I pick it up at page 109 where Justice Isaacs, conceding that his first view may not be correct, and that is the issue the Court does not need to resolve in this case, whether it must be discrimination between States as opposed to between localities, went on to adopt his propositions, which are those which Justice Evatt then referred to in Moran, and at about point 4 he asked the question:
Does the Commonwealth Conciliation and Arbitration Act show partiality for some localities as against other localities?
His Honour was astonished to hear that it does, and at the foot of the page said that the Court under that industrial system was:
empowered to have regard to “local circumstances,” not to the mere fact of locality, much less any particular locality –
Over the page at about point 2 the locality was, as it were, accidental and had no relationship to States as such:
The area is marked out by the circumstances, not the circumstances by the area. The area is merely a convenient label to indicate similar industrial circumstances –
Now, that reasoning there is the reasoning adopted in the US Supreme Court, namely, the fact that there may be a difference drawn, it is not the end of the matter; one must ask whether you were drawing differences solely because of locality or whether there is a neutral factor, to use the language of the US Supreme Court, which has justified the situation. So, to come back to offer my answer to your Honour’s question, there is a difference in the reasoning here between Justice Isaacs and between the approach taken by the other judges, and we submit that the correct law, including, as it has been pointed out in subsequent cases, is that the Justice Isaacs view of what is discrimination is to be preferred.
Justice Evatt put it in Moran that Barger had never been formally overruled as to decision, but in effect the view of Justice Isaacs had come to be accepted as the view of discrimination. So, it is the passage at the end of that first paragraph on page 110 which I read indirectly through Justice Evatt in Moran that we submit is the law. In the next paragraph, when CSR v Irving is referred to, that general principle taken from CSR v Irving, we submit, is also the law, and applying those principles to this case the Act is valid.
Now, can I then come back more specifically to pages 69 to 70? Page 69 contains the reserve powers heresy at two places. It is at the end of the second full paragraph and it is at the end of the last full paragraph. Mr Jackson says, well, that does not matter, what is then said is completely independent of it. It may not be that easy to disentangle a view which says we are going to construe the limits of the taxation power against an assumption of State power, and what the Court then goes on to do which is to draw distinctions between tax which produces indirect consequences and direct consequences. Whether that is so – when the Court comes to page 70 there is no dispute between the parties about the early propositions that:
The varying conditions of climate – tropical, sub‑tropical and temperate – and of locality – near or at great distances from the seaboard ‑ make an effectual discrimination for many purposes between the several portions of the Commonwealth.
There is no dispute between the parties that it is not for the Federal Parliament to attempt to reverse or equalise or neutralise such conditions as might exist, and as it is colourfully put, if nature has already discriminated it is not for Parliament “to alter the effect of that natural discrimination”. When CSR v Irving is picked up at about point 7 the Court notes the objection was:
the Act offended against the prohibition of discrimination because in some States the rate of Customs duty on sugar had been higher than in others, from which it followed that the actual burden of the new Excise duty was unequal in its incidence. This contention was rejected by the Judicial Committee, who said that the discrimination, if any, was not effected by the Act imposing the Excise duty, but by the operation of the State laws previously existing.
That is important because the plaintiffs offer to you that CSR should be treated as a special case about transitional schemes where one can understand why you needed the law that was there. What this judgment and I think every judgment since have taken up from Irving is that the transitional nature of it was the particulars. The more general proposition was the one we here find, that you must find the discrimination in the Act imposing the excise duty, not simply in the operation of State laws previously existing. That is identical to Justice Taylor in Conroy. It is correct and it is why the plaintiff fails in this case. What then did the Court mean by the e converso?
E converso, if the Excise duty had been made to vary in inverse proportion to the Customs duties in the several States so as to make the actual incidence of the burden practically equal, that would –
bad. The critical words there are “made to vary” and what we would offer is that the Court had in mind a Cameron situation where one finds in the federal Act a fixed and invariable difference drawn between States, a difference referable only to locality, and if that were not so, if it means what Mr Jackson has suggested, it means in effect that you can put the federal Act together with variations between State laws which happen to exist and find discrimination then the e converso would contradict the sentence which went before it.
KEANE J: Is he not also speaking about when he says “the actual incidence of the burden practically equal” he is talking about tax.
MR GLEESON: Yes.
KEANE J: He is talking about the cumulative taxation under State and federal law, offending the spirit of 51(ii) which is against altering the state of play between the States to spread self‑sacrifice. He is talking about cumulative taxation.
CRENNAN J: To add to what Justice Keane just said, if you have a new tax against a background of cumulative taxation, you are almost inevitably going to have some sort of inequality. It is not the way to assess it for the discrimination prohibition.
MR GLEESON: Yes, we would embrace that, and then that is another reason why these comments are a step apart from where we are in this case where something different is occurring in terms of a tax, in defining its tax base, recognising in a way it considers appropriate a charge which the taxpayer has paid for something which is referable to the same activity, and the federal Act ‑ ‑ ‑
CRENNAN J: Is it a charge that has already been outlaid in respect of the subject matter of the tax; that is to say, the greater than normal profits?
MR GLEESON: Yes, the answer to that is yes. The royalty and the tax are not exactly the same thing and we have made a criticism of Queensland for assimilating economic rent with rent, to the extent those terms matter. The tax is about what it calls above normal profits and what it calls economic rent, but it recognises that the charge for royalty might reasonably be viewed as having already made a contribution to that same subject matter, therefore it is allowed for.
CRENNAN J: It is a sort of Irving analysis.
MR GLEESON: Yes. So our ultimate submission on Barger is that page 70 does not mean that this Act is invalid. To the extent there is a difference between the judges on the particular provision in Barger, Justice Evatt is correct that probably if the case had to be formally overruled it would be overruled because too narrow a view was taken of what constitutes discrimination.
Your Honours, we had provided on our list CSR v Irving in the Full Court in Queensland [1903] St R Qd 261. The reason for that was that – and it is Chief Justice Griffith at pages 276 to 277 – in perhaps more detail than either the Privy Council in Irving and perhaps in more detail than on page 70 of Barger, outlined his understanding of discrimination and why Irving did not offend.
Your Honours will see at about point 4 he started from the proposition that there was an inequality between individuals and that is because it would depend on the State laws:
That inequality arises whenever an Excise duty is imposed for the first time. But it is not a discrimination between States. The difference is accidental. It is not a discrimination made by the statute.
Now, there is the same proposition as in Barger that some differences will be identified as accidental, whereas not made by the statute itself. A bit further on his Honour says:
As has been pointed out in argument, uniformity in that sense is hopeless‑a baseless dream . . . It seems to me that the words “but so as not to discriminate between States or parts of States” . . . mean State qua State or part of a State, that is to say, the discrimination must depend upon the geographical position, and not upon the accident of whether things happen to be found in one State or in another.
Then the pearl‑shell example is given. Then a little further on at 277 point 3 his Honour says:
In my opinion, you cannot look to extrinsic facts‑i.e., facts requiring to be proved by evidence as distinguished from facts of which Courts take judicial notice . . . I do not think that we can have regard to the fact that, owing to the operation of the laws of the States, the incidence of taxation may be unequal in different States. If that were so, the power of the Federal Parliament would be limited by the laws of the States, and by the mode in which the States had exercised their power of legislation. If the imposition of these duties leads to an inequality, it is not a defect in the Federal law ; it arises from the fact that the laws of the States were different –
Now, that, we would submit, is this case. Then next if I could go to Moran 63 CLR 338 at page 348, the Privy Council at about point 6 picked up what Justice Isaacs had said in Barger and observed it was a statement approved in Cameron and this is Justice Isaacs from page 108, not 110, so this has got the extra element in it. It must be discrimination “because it is a particular part of a particular State”. Leave that aside; the more general point is here:
differentiation based on other considerations which are dependent on natural business circumstances, and may operate with more or less force in different localities –
do not create discrimination. Your Honours, I can conclude the section 51 analysis of the cases by referring to Austin v Commonwealth (2003) 215 CLR 185. The paragraphs are at 117 to 118. The footnote at 145 takes us back to Moran and to Conroy v Carter, and we would submit that that as law is the end of the plaintiff’s case.
Finally, on section 51(ii), could I ask your Honours to go to the questions reserved book to the defence, to page 104? This is the alternative way in which the defence is put. I hardly need to go to it because the case could be decided on the primary view I have put. Could I ask, your Honours, in that paragraph, xxvi of the defence, to observe that we do not press paragraph D because it is not established on the materials.
We do submit that if your Honours were to consider the defence in A, B and C by reference to the reasoning in Permanent Trustee – the Mirror Tax Case 220 CLR 388, at paragraph 91 if, contrary to our primary position, one sees some differential treatment – and we hasten to submit there is not such treatment in the Act – and applying the language of paragraph 91, it is the product of distinctions that were appropriate and adapted to a proper objective, the objective in the Mirror Taxes Case, of course, was to assimilate the tax payable in the Commonwealth location with the tax regime of the surrounding State. In the present case, the objectives are those set out in paragraphs A, B and C.
HAYNE J: Are those objectives any more than that the Commonwealth thought this to be a good thing?
MR GLEESON: Yes, they are that. The design in the statute of the classification of above normal profit required the elimination of normal, or below normal profit in identification of that which was the above normal profit, to be subject to the tax.
HAYNE J: The Commonwealth thought this was a good policy design.
MR GLEESON: No, because that would not be a good defence, your Honour.
HAYNE J: No, it would not, would it?
MR GLEESON: No. Let me take the Mirror Taxes Case. In that situation - and Justice McHugh dissented of course - it all depends where you start. If you start with two Commonwealth locations in different States and there are different tax rates applicable to each you say that is a difference. Justice McHugh said that is discrimination. The majority said if you start from the uniformity which the Act is seeking to adopt, the uniformity which comes from the very terms of the Act, the uniformity was that a Commonwealth location should face the same tax as the surrounding geographical area.
Now, that is the manner in which we have to put this argument for it to work and the way we put it is that the uniformity in the tax is, wherever your project might be located in Australia, wherever it might be located you are able to bring to a credit in the appropriate way such royalty as you face. In that sense it is a rule of uniformity which applies to all projects wherever located.
FRENCH CJ: Is it a necessary condition of a proper objective, in the sense that that term is used in the joint judgment, that it be a non‑discriminatory objective?
MR GLEESON: Yes.
KIEFEL J: But the joint judgment refers to differential treatment and unequal outcome. Where is the warrant for that in the text of the Constitution?
MR GLEESON: Your Honour, that is why I said it depends a little on where you start looking at the inquiry. In one sense, on the argument I have put today, the same result could have been reached in Permanent Trustee by using language of Conroy v Carter.
KIEFEL J: Yes, I see what you mean.
MR GLEESON: But if one takes, as it were, the plaintiff’s case at its highest and says you tell me what the difference is you assert, the plaintiff says, here is my difference, my difference is a miner in one State, depending on State laws, will pay less MMRT than a miner in another State because of the application of the royalty credit. If I start with that difference I then say from this very Act you find it is a rule of uniformity, a desire to treat everyone the same, namely you all get a credit on the same principle basis if you face that cost, the same as you face any other cost.
KIEFEL J: Yes, I see the ‑ ‑ ‑
MR GLEESON: Picking up your Honour’s earlier point, to the extent there is grossing up, it is grossed up at the same rate for everyone then that is the objective which has led to what you claim to be a differential outcome.
KIEFEL J: You take the majority’s reasons at paragraph 91 to be talking about a non‑discriminatory approach, so the differential treatment and unequal outcome?
MR GLEESON: Yes. So, we disagree with Mr Jackson’s suggestion that – and he criticises this case, he criticises this paragraph – that this is somehow adding an extra element on that you have something that discriminatory and then you can sit back and say, because it is a good thing we can tolerate it. With respect, that is not what we would submit this judgment stands for.
KIEFEL J: You are reading that paragraph to say that this is the reason it is not discriminatory?
MR GLEESON: Yes. It is no different to paragraph 118 of Austin in that sense of saying if there is something which may appear to be equal treatment of unequals or unequal treatment of equals you still need to ask the why question.
FRENCH CJ: So the existence of mechanisms which have differential effects do not necessarily lead to characterisation of the law as discriminatory, one has to look at the proper objective?
MR GLEESON: Yes. Your Honours, I do not propose to address section 99 orally for the reason Mr Jackson indicated. It is not necessary for the Court to reach it in this case on either view. Can I move to Melbourne Corporation and could I attempt to frame Melbourne Corporation by the old fashioned step of going to the pleading, which is on page 36?
HAYNE J: Which page?
MR GLEESON: Page 36. There are three paragraphs that matter. They are paragraphs 56, 66 and 67. Paragraph 56 answers the question your Honour Justice Hayne asked of what is the alleged protected constitutional function and it is a function defined at two levels. At the narrower level it is said to be the capacity of the States to apply differential royalty rates. That is the precise capacity that is said to be protected, but it is protected not simply as a freestanding matter, but because it is an aspect of what is a more generalised capacity, which the pleading asserts is also protected. The more generalised capacity is:
the capacity of a State to function as a government –
then it is the next bit that matters ‑
with sovereign control over its territory, the economic development of its natural resources, and utilisation of those natural resources to promote economic development in the State.
Our primary submission is that that last two and a half lines of paragraph 56 does not, under our Constitution, identify a constitutionally protected State function and I can elaborate that for the obvious reasons. That is the basic flaw in the Melbourne Corporation argument, and then the more specifically defined function, the ability to vary royalty rates for the reasons in the particulars a fortiori is not a constitutionally protected function.
Then if your Honour goes to the burden, which is in paragraph 66, and the pleading is very carefully drawn and the case has been decided on the pleading. The burden is at the level of the specific function. It is said under this Act that a State – presumably every State – is impeded in adopting differential royalty rates and the particulars 1 and 2 – this is the no benefit proposition that if you reduce royalty there will be “an automatic increase in MRRT” and there is one qualification allowed for, “or the MRRT which would . . . be payable” but for the offsets in 42A, that is the low tax threshold.
Then the next particular is, therefore, the reduction is “negated by an increase in the MRRT”, and your Honours will see that some broader propositions in the earlier case which would have given a richer factual base to the argument have been deleted from the argument being run. So the second basis upon which the Melbourne Corporation argument fails is that the particular of the burden, as alleged, simply has not been established on the face of the Act or through any evidence, and it is at this point to not recognise that the royalty allowance is but one of a series of allowances is critical because the burden has been identified without looking at how the Act operates.
Your Honours then see in 67 the conclusion is that the impairment is at the level of the higher order constitutional function pleaded in paragraph 56. That is our broad response to the Melbourne Corporation. Could I then just briefly elaborate on the two limbs of our response and for the first go back to paragraph 56 and look at the higher level function and then the more specific function? If the States had sovereign control over all the matters in paragraph 56, one would have to first ignore a number of provisions of the Constitution. At an earlier directions hearing, Mr Jackson said this part of our defence was trite, but I would submit it is correct and I do wish to deal with it.
First of all, section 90 cannot sit together with the States having an unimpeded constitutional function of the breadth alleged, and to the extent that section 91 provides a limited carve‑out but otherwise preserves section 90, that also does not sit with the breadth of the constitutional function alleged. Section 109, which will give predominance to valid federal laws, will lead to a range of federal laws which will enter the territory said to be protected.
Your Honours only need to think as far as the Trade Practices Act, Murphyores and the prohibition of export of uranium, for many years in this country the customs regulations prohibiting the export of iron ore, Mabo (No. 1), the Native Title Act Case and indeed the Income Tax Assessment Act in its application and the Uniform Tax Cases. For those reasons, the breadth of the claimed constitutional function your Honours would reject.
Can I then move to the narrower function which is said to be protected that a State can differentiate royalty rates? Taking up some matters raised by the Court, we would submit that that notion, setting differential royalty rates, is simply far removed from the types of functions that Melbourne Corporation protects which relate to the functioning of government in the three arms of government, the machinery to carry out its powers, and one can hardly assimilate a commercial decision by a State whether to put royalties up or down with the matters which have been found to be protected functions in the cases, appointment of judges, election of members of Parliament, conditions for senior employees, banking.
The second specific response to this one is that this does appear to constitutionalise a power which a State may have really as an owner, or a quasi‑owner, rather than a power it has under the constitutional compact. Thirdly, it seems to have within it an assumption that States have an unimpeded ability in the business world to do this anyway.
In the real world, one might think if a State tries to reduce royalty as a competitive measure, there may be responses from other States also reducing royalties as a competitive response. There will be a raft of business circumstances which will effect whether this desire by the State is going to be efficacious. If a federal law, incidentally, might have an effect upon a State’s attempt to engage in this endeavour, that is not invading a constitutionally protected function.
Your Honours, in terms of the authorities, in the Tasmanian Dams Case 158 CLR 1, one had, one might think, a very large impact upon an activity which a State desired to engage in in order to exploit its resources in a way it thought appropriate. At page 139, that impact under the federal law did not offend this principle because it did not impair the capacity of the State to function as a government - that is 139, point 7 to the end - and it could not be said to threaten the continued functioning of Tasmania as an essential element in the system. In Justice Brennan at pages 214 to 215, the point was made powerfully.
Mabo (No 1), of course, held that by reason of the RacialDiscrimination Act, Queensland could not simply extinguish wholesale native title. Could I come to the Native Title Act Case because the plaintiff has submitted two things about it? One is, it is opaque and the second is that it is limited to a very particular circumstance. It is 183 CLR 373, pages 478 and following. At the bottom of 478, the pleaded constitutional function is in similar terms to the high level pleaded function here. The Court did not accept that as a constitutionally protected function.
The significance of the mining industry to Western Australia was proven – page 479. Then the Act was seen to have two possible impacts on mining in Western Australia. The first was at the top of page 480 which was the right to negotiate would complicate and delay matters. That was held not to touch upon the machinery of government, not to touch the existence and fabric of the State body politic, citing Justice Dixon.
On page 481, the observations there, picking up Justice Brennan and then assessing the effect of the Act, we would submit, are far from opaque. Then the second burden is at the foot of 481 and it is significant by analogy. The burden was that of course the statute attached an obligation to make compensation if acquisition was to occur. Now, that was a burden which had not been recognised under the common law in Mabo, and a burden placed on the State in, one might think, the exercise of the type of constitutional function alleged here, yet held not to infringe Melbourne Corp and the Court said:
The Act does place this burden on the exercise of an essential State power but it does so as an incident of the protection of native title.
One might say here equally, if and to the extent that the MRRT Act might, depending on the circumstances, result in some extra tax being payable if royalties are reduced, that is no more than an incident of the working out of its taxing of the above normal profits. Finally, if I could go to Clarke at 240 CLR 272 at paragraphs 96 to 97, none of the vice that is there identified is remotely present in this case. Mr Donaldson went to paragraph 101 and tried to assimilate that to this case and said, well look, this is really the same thing, a State has no real choice anymore to reduce royalty rates.
Leaving aside factually whether that is the effect of the Act, one cannot assimilate decisions about royalty rates to the matters regarded as a constitutionally protected function in this case. Now, your Honours, can I just then move to the second side of it, which is the burden, or lack of burden one might say?
HAYNE J: Just before you pass from this, the references in the pleading to sovereign control over its territory may need to be compared with what Justice Dixon said in Boilermakers I think, about independent governments exercising power in the one area, where the governments have their own realms of power.
MR GLEESON: Yes, and intersection is the very thing contemplated.
HAYNE J: Inevitable, just so. The notion of sovereign control over its territory may be doing a lot of work in the propositions that have been advanced in this respect.
MR GLEESON: Yes. Now, your Honours, can I move just to the perhaps less illuminating but the factual side of it, whether this no benefit proposition is one that can be accepted? Could I start with one point? Your Honour Justice Kiefel asked Mr Donaldson when did Western Australia last engage in this activity and he said perhaps there was an agreement that – that was about what his answer is. We should start with an element of reality that in the materials produced by Western Australia what we see in the last decade or so is the exact opposite of this exercise. One sees increasing royalty rates, unsurprisingly, to cash in on high iron ore resources.
Your Honours can see that from the very pleading itself at page 76, Western Australia has increased the rates on iron ore. So that is the general increase in rates. In the specific agreements with various miners, including those that he has referenced in his submissions, Western Australia is amending them to increase the royalty rates.
CRENNAN J: What page are you at, Mr Gleeson?
MR GLEESON: I am sorry, in the questions reserved book at page 76.
CRENNAN J: Thank you.
MR GLEESON: I will just give your Honours an example where in the particular agreements they are increasing rates.
HAYNE J: What is the point, other than the forensic joy that this may bring you, Mr Solicitor?
MR GLEESON: Substantiality. We are looking at one of a raft of possible ways in which a State might try to exploit the resources. The State is left free to decide who the counterparty is, what the terms are and what the royalty rate is. The State says there is a possibility we might engage in some activity which we may have engaged in back in the 60s when we were busy developing the State in a particular fashion. So far as we know, at present, it is very contrary to the behaviour they are engaging in, so the one reference I wanted to give your Honours was in volume 2 of the relevant documents at page 483.
The agreement is being amended to alter clause 9 which you would take into a form of clause 9 basically to increase all the royalties so one compares that with, say, page 499. The most recent agreement we found with the plaintiffs – and this is referred to in our written submissions at footnotes 24 and 25 – has no royalty concession at all. Let me put that point there. Then, if your Honours could go to our written submissions, please, to paragraphs 43 and 44.
If a State was tempted to engage in the self‑denying activity of reducing royalty in order to attract an investor, whether that would be commercially attractive to an investor would of course depend upon the investor factoring in a whole raft of assumptions as to how it would play out over the life of the project, including having regard to the allowances, the likely mining profit, the likely ore rates, and so on.
FRENCH CJ: Well, the quid pro quo would obviously play a role.
MR GLEESON: It would be in there as well. It would all be in there of, to what extent does something you are offering me by way of a discount attract me to a deal that I may not otherwise enter and, in taking that into account, you would take into account, well, will I be paying more tax as a result of it, how much and how does that all bear in? Now, it is just simply not possible is the submission on the pleadings for a sensible finding to be made of the no benefit proposition which is essential to this part of the case.
HAYNE J: I think Justice Kiefel may have asked the Solicitor for Western Australia whether it did not amount to removing a bargaining counter, perhaps one of many counters available. What significance, if any, does it have that a bargaining counter is taken away from the State?
MR GLEESON: None. Your Honours, in relation to section 91, could we do a couple of things? Firstly, we provided your Honours with a bundle dealing with the question of aid. It includes commentary from two texts and a form of statute in 1899 exemplifying aid. It is the 1899 Victorian Appropriation of Revenue Act. At page 135 there is a form of aid for prospecting ‑ ‑ ‑
HAYNE J: Sorry, where are you, Mr Solicitor? I am lost.
MR GLEESON: In the bundle the Court has, after the early Redlich view, one has Durell discussing grants in aid which your Honour referred to, and then one has the Victorian Appropriation Act of 1899.
HAYNE J: 1889.
MR GLEESON: 1889, I am sorry, and then the appropriation. There is the general appropriation in the first schedule and then there are appropriation of grants in the second schedule and then prospecting for gold and coal is a form of grant in aid, and as that is explained in the previous text in grants in aid, the essential feature of it being there was not the same degree of accountability and so it might be granted to a prospecting authority who would then distribute the money to individuals without the same tight degree of parliamentary control.
We then have the annual report for the New South Wales Department of Mines for 2001 which on page 69 is evidence of an amount voted by Parliament to promote the prospecting of gold. Then again we see the concept of a board and the board allocating the money to particular miners, and similarly in 1926.
HAYNE J: Does it come to this; that a grant in aid does not then engage the audit process?
MR GLEESON: Yes.
HAYNE J: That you do not need the acquittal that you would need for other appropriations and go through the audit system.
MR GLEESON: Yes, and that it is an available and preferred meaning of section 91 when it speaks of granting of aid in respect to these matters, that it is referring to this particular form of vote from Parliament consistent with what Justice Stephen said in the Seamen’s Case.
HAYNE J: Would bounties be subject to the audit system? I think they would, but would they, because it be paid out by government officer who would have to acquit the payment through the audit system, I would have thought?
MR GLEESON: The answer is yes.
KIEFEL J: Whereas an aid in grant – I mean, there is a fine distinction between the two, I suppose. An aid in grant is where Parliament does not intend to follow the expenditure through.
MR GLEESON: Yes, and mining being a particular area where it was regarded as suitable because it was a means of placing money in the hands of a prospecting board who would make the decisions.
KIEFEL J: Not appropriate to an auditing process.
MR GLEESON: Yes.
HAYNE J: They keep very elaborated records, I would have thought.
MR GLEESON: So our first submission on section 91 is that that is the concept of grant in aid and that the judgments in Seamen’s Union, which picked up that concept, were correct. So we are looking at not only a positive paying over of money, but a paying over of money through this system and therefore a mere reduction in an impost or an exemption from an impost is not the sort of aid referred to in section 91, and that is the end of the section 91 case.
Your Honours, the second argument is the textual one, and your Honour the Chief Justice asked how does Mr Jackson put it. What he seems to put is that although the section in terms says nothing in this Constitution prohibits the State from doing things, what it conveys is an implication that no power otherwise available under this Constitution may be exercised in a manner which interferes with, impedes, prohibits the area of liberty reserved by section 91.
Now, that further implication into section 91, our short submission is one just does not find it there. The reasoning which the Court in Seamen’s adopted to find that it did not contain any prohibition upon a State and was rather facultative would, we submit, apply a fortiori to any attempt to read into this a prohibition on a Commonwealth law. Mr Jackson says, well, but what about a case where you had a law purportedly under 51(xx) which purported to say corporations cannot engage in the activity reserved to them under section 91.
The answer to that would be if that law were problematical, the problem would be addressed with whether it was a valid law under section 51(xx), whether that was beyond the scope of the corporations power to use that power to deny one class of citizens benefits where States have this liberty under section 91.
Our primary submission is that whether one looks at the debates or whether one looks at the textual interrelationship it is fairly easy to see what section 91 is about. Section 90 has imposed the rule, prima facie, Federal Parliament has the exclusive power to deal with customs, excise and bounties. There was then a desire to reserve two forms of liberties for the States. The broader liberty was that if they were dealing with bounties on particular mining they could do so at will. If they were dealing with bounties or aid more generally they needed the consent of both Houses of Parliament.
Why was the distinction drawn? Very clear from Quick and Garran a view was taken that with gold, silver and other metals one was not dealing with objects of commerce where the granting of the bounty could interfere with the free trade referred to under section 92. Therefore, a view was taken, rightly or wrongly, that the States could be left to make their own decisions on those aid and bounty without offending the free trade principle whereas it was thought if they were granting aids or bounties on production or export of goods outside that territory there was a real potential to interfere with section 92 and, therefore, the control was that the resolution of both Houses of Parliament was needed.
So when one puts that together one can see fairly clearly what the purpose of section 91 is. It is to create a carve‑out to section 90. Why does it use the words “Nothing in this Constitution”? Perhaps for emphasis, perhaps for avoidance of doubt, perhaps if an implication arose from somewhere else that a State could not engage in this behaviour that implication has been negatived, the whole purpose in the end being facultative to make sure that the States can exercise the powers in section 91.
So our answer to section 91 has three limbs. Firstly, it is not a grant of aid. Secondly, there is no prohibition here on the Commonwealth and the final limb is the factual one. This law does not prohibit any State from moving royalty rates as it wishes.
Your Honours, I should perhaps with my pleading hat on when I was dealing with Melbourne Corporation I asked you to look at the plaintiff’s pleading and I made some observations on it. The Commonwealth’s response, which has the same numbered paragraphs, 56, 66 and 67, adequately captures each of the matters which we have put in answer to Melbourne Corporation. In a sense, your Honours, I might respectfully suggest those competing paragraphs really focus the Melbourne Corporation argument in this case. Unless your Honours have questions that is what I propose to put.
FRENCH CJ: Thank you, Mr Solicitor. Yes, Mr Jackson.
MR JACKSON: Your Honours, may I deal first with something in relation to section 91 and the provisions dealing with grants in aid to which reference has been made? Your Honours will have seen our learned friends refer to the Appropriation Act, to put it shortly, in Victoria, but it seems to have been the Act which appropriated to each Minister – or to each ministerial department, to put it shortly – the amount which might be expended by each department and one of the departments was that of the Ministry of Mines and there were some sums referred to in that.
Now, there was legislation in Victoria which specifically dealt with the question of subsidies for gold mining and so on. That legislation, your Honours – I have a bundle of – can I give your Honours copies of some legislation from parts of Australia? I wanted to refer first to the Act described as the Mining Development Act 1896 (Vic).
Your Honours will see that it was an Act which, from section 3, you will see is divided up into various parts. You will see, amongst other things, in the definition section, section 2, there are definitions of “mining operations” which one might expect and the definition of “pioneer mining” means carrying on mining operations, et cetera. Then, your Honours will see in section 4 that:
All moneys advanced granted or expended –
were to be taken from the £140,000 –
to be raised by the issue of Treasury Bonds and appropriated by the Treasury Bonds Act 1896 for the purpose of mining enterprise.
I think your Honours should have been given also, a copy of the Treasury Bonds Act and your Honours will see that that refers to, in section 3 – it is the Treasury Bonds Act (1896):
moneys raised by the issue of Treasury Bonds . . . shall be placed to the credit of an account to be kept in the Treasury –
and to be used for the purposes set out in the first schedule to the Act. The first schedule to the Act has:
Mining enterprise as may be authorized by Parliament –
That is the first entry. Your Honours will then see – if I could go back the Mining Development Act that it referred to their being, in section 5, at the commencement of Part I, advances which might be made to companies for the development of mining and your Honours will see in section 6 the circumstance in which it might be lawful to do so. Section 7 provided the way in which there might be an advance applied for under that Act. That is set out various requirements. Then section 8 dealing with the application; section 9 there could be a recommendation, subsection (1), (2) for the grant that was applied for.
Then your Honours will see that there had to be, in section 9(4), “vouchers” produced before an instalment could be granted; interest to be paid, section 9(5) and an agreement, your Honours, and a mortgage and charge, section 10, and section 11 also. Your Honours, the power for inspection, section 14; and section 15, information could be required; section 16, insurance; section 17, there are various notices to be given and your Honours will see then, if I could go onto Part II, section 20, total amount for construction of roads and tracks for mining and then there is really a similar approach taken.
Part III, commencing in section 27 - the total amount which may be expended for the establishment of plant for testing metal metalliferous metals; Part IV, your Honours, commencing in section 32 - construction of races and dams, et cetera, and again there are various requirements. Then section 38 advances to miners for prospecting and setting out various requirements for that and, your Honours, miscellaneous matters for advertising in Great Britain and elsewhere the mining resources and capabilities of Victoria. Your Honours will then see in section 43 that:
In the month of August in each and every year the Treasurer shall cause to be published in the Government Gazette a statement of all moneys advanced, granted or expended for all or any of the purposes of this Act and particularizing –
them, and in subsection (2):
In the same month of August . . . shall also prepare a detailed statement of his accounts with any company and lay the same before both Houses of Parliament -
Now, true it is, your Honours, that that does not provide directly for the accounts to be audited but what one does see is that something that pretty clearly, if I may say so, with respect, would constitute aid to mining for at least gold and for other minerals as one sees was something that was provided for by statute and was something that one could not describe as being a bounty.
That is one of the aspects to which we would refer in connection with section 91 and that is that it is very easy to say of course “aid” and “bounty” are much the same things - just to get rid of the possible operation of section 90, but if one looks at the position in relation to Victoria, and I will come to the other States in a moment, if one looks at the position in relation to Victoria as at Federation it was clear that there were provisions amounting to allowing by statute the provision of something that on any view would be regarded as an aid to mining which, your Honours, was something that fell outside the concept of “bounty” and in those circumstances section 91 was dealing with it.
KIEFEL J: Do any of the statutes which you have found refer to non‑financial aid or assistance?
MR JACKSON: Well, I suppose, your Honour, the provision for non‑financial assistance – I am sorry, I am putting it badly. What I am seeking to say is that if one is looking say, at section 42(2), it relates to the expenditure of money certainly, but it is not money which itself would go to any particular miner. It is money for publicity. Now, whether that would directly fall within concept of aid to mining might be a debatable question. It would depend how good it was. Your Honours, having said that, it was a form of aid that in its execution might not be itself the provision of money.
Your Honours, Western Australia in 1902, brought into being a Mining Development Act 1902 (WA). You will see that it dealt with in the definition, paragraph 3, “pioneer mining” again was defined. “Mining operations” defined, et cetera. Then Part IV dealt with moneys advanced - they were to be provided out of moneys authorised by Parliament to be applied for that purpose. So there had to be a parliamentary authorisation.
Then, your Honours, anyone – section 5 - could apply for an advance by way of loan for the purposes there set out. Section 6, the requirements of it; section 7, the investigation of the application; section 8, the power to grant an application; and, your Honours, first mortgage, section 9 and I think the remainder of the provisions of the Act have their similarities with those of Victoria, although you will see, for example, section 19 deals with a particular aspect of dealing with the gold mining view of the references to cyaniding.
Your Honours, Part V, section 22, provision for assistance for boring and then miscellaneous matters, section 26, and so on. In section 28, your Honours, there was to be a report in August in every year laid before the Houses of Parliament and provision for regulation, section 29.
In Queensland, your Honour, a little later, the Mining Machinery Advances Act of 1906 and that, again, referred to there being in section 3, moneys advanced or expended to be provided out of moneys appropriated by Parliament. Provision for application, section 4; section 5, the information; again, section 6, the report; provision for an advance, section 7; annual reports, section 9.
HAYNE J: Do the provisions like section 9, which we have observed are common in these provisions, bespeak the distinction which Colonel Durell was speaking of in, what I think Justice Isaacs always referred to as his admirable work, at page 201 at about point 3:
Generally speaking, the making of a grant in aid implies a waiving of parliamentary control over the expenditure in detail.
That is, is the use of the expression – the point to which I want to get is does the use of the expression “granting aid” evoke the parliamentary process that is adverted to by Durell as a distinct class of parliamentary monetary provision?
MR JACKSON: Your Honour, the answer, in our submission, is no. The reason why I say that is that Colonel Durell’s discussion of the matter is dealing with the position in the United Kingdom.
HAYNE J: Yes.
MR JACKSON: In dealing with that your Honour will have seen that he discusses first of all the relative position of the House of Commons and the House of Lords and the primacy of the House of Commons developing, I think, at that point. Now, the point that he makes is that in that context, if one goes to page 201 to the passage to which your Honour was referring, and your Honours will see the commencing words “Generally speaking”:
the making of a grant in aid implies a waiving of parliamentary control over the expenditure in detail.
That is really a consequence of the concept of a grant in aid in that context. What your Honours will see in the statutes to which I have taken your Honours is that there was not a complete waiving of parliamentary control over the matter. The first thing was that the grants were grants pursuant to statute. The second feature was that the conduct of the Executive in the execution of the statute had to be laid before Parliament each year, so that one does have a kind of halfway house, if I can put it that way.
But, your Honours, if one goes from the language used to describe a United Kingdom parliamentary procedure to the conduct that was involved in the Australian States in relation to the grant of aid to the thing dealt with in the first part of section 91, then one sees, your Honours, if one moves from that to the constitutional language, it would be difficult not to
describe, we would submit with respect, the grants of aid that were discussed in those statutes as being something other than the grant of any aid in terms of section 91.
HAYNE J: I am not for a moment suggesting to the contrary, Mr Jackson. What I am putting to you is whether grants of any aid or bounty as a composite phrase, though it can obviously be divided in the fashion and, I suspect, must be divided between grants of any aid and grants of any bounty, may not be disclosing a universe which is a universe of parliamentarily‑authorised provision of money and that that is the boundary of the universe.
MR JACKSON: I was not sure whether your Honour said “may not” or “may”?
HAYNE J: By this hour of the day, Mr Jackson, I am probably not certain, but the point I want you to consider is whether grant of any aid or bounty may be describing a universe, the boundaries of which are fixed by parliamentary‑authorised provision of money.
MR JACKSON: In the sense, your Honour, of giving money as distinct from outlay?
HAYNE J: Outlay.
MR JACKSON: Yes, your Honour. Well, your Honour, perhaps I could deal with that question, if this be a convenient time, tomorrow.
FRENCH CJ: Yes.
MR JACKSON: I expect to be about three quarters of an hour, your Honour.
FRENCH CJ: Thank you, Mr Jackson. The Court will adjourn until 10 o’clock tomorrow morning.
AT 4.16 PM THE MATTER WAS ADJOURNED
UNTIL FRIDAY, 8 MARCH 2013
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