Hornsby Shire Council v Commonwealth of Australia & Anor

[2023] HCATrans 45

[2023] HCATrans 045

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S202 of 2021

B e t w e e n -

HORNSBY SHIRE COUNCIL

Plaintiff

and

COMMONWEALTH OF AUSTRALIA

First Defendant

THE STATE OF NEW SOUTH WALES

Second Defendant

KIEFEL CJ
GAGELER J
GORDON J
EDELMAN J
STEWARD J
GLEESON J
JAGOT J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 19 APRIL 2023, AT 10.00 AM

(Continued from 18/4/23)

Copyright in the High Court of Australia

KIEFEL CJ:   Yes, Mr Solicitor.

MR THOMSON:   May it please the Court.  Before I commence with my substantial submissions, I have spoken with the Solicitor-General for South Australia, who apologises to the Court for not being present.

KIEFEL CJ:   Yes, we have received a message that he is not well.

MR THOMSON:   I am not sure if I need to say anything more.

KIEFEL CJ:   Yes, thank you.

MR THOMSON:   The starting point in our submission is that there is a flaw in the plaintiff’s case, and the flaw is this, that it assumes that at some point the plaintiff is as entitled to receive the full amount of grant money annually, including an amount equal to the notional GST, year‑in and year‑out.  But that is not correct.  The plaintiff never has a presumptive entitlement or a legal right in a subsequent year to be paid grant money without accounting for notional GST in previous years.  We say that is plain because of the terms of section 15(aa).

The reference has been made to the old Financial Relations Act as somehow creating a presumptive right, but with respect, we would say, that that is entirely irrelevant in the situation as it now exists.  So, in those circumstances, there is no choice that is available to keep the notional GST amounts in each and every year.  But there is a choice about how you pay the notional GST amounts or account for the notional GST amounts, and that choice is between immediate payment, pursuant to the terms of the taxation regime that is established by the provisions set out in question (2) or by deferral and deduction by the State from a subsequent amount that is to be granted.

That choice is a real choice, because there is the time value of money and, in any event, even if there was not, the choice is one that is allowed to the Councils to make.  And it is not the case that there is only one “rational economic choice” that can be made in the circumstance, which is to adopt the words that were used by Chief Justice Keane as he then was, in the ACT v Queanbeyan City Council Case.  And we have quoted those words here.  That is one “rational economic choice”, and by that we mean no other option was rationally available.

And so, they have not demonstrated that there was no other option rationally available than to pay the GST immediately.  It was a reasonable choice to allow deferral of the GST for the reasons that have already been developed; or it would be such a choice.

The plaintiff claims that section 15(aa) effectively imposes taxation upon it by one of three means:  by a compulsory exaction, forced benevolence or circuitous device.  However, if you analyse it in the terms of the two points that I have just made, the scheme for notional GST does not compulsorily exact or practically compel payment of any money which was the plaintiff’s property or to which the plaintiff was presumptively entitled.

The plaintiff, as we have said, never had any entitlement to the notional GST amounts in each and every year, and the plaintiff may voluntarily choose to pay notional GST or it may rationally choose not to pay notional GST and the effect of that will be the equivalent deduction in a subsequent period.  It is for the same reason that there is no forced benevolence or circuitous device.  Both of those ideas hang off section 15(aa), just as the idea of a practical compulsion or legal compulsion does.

There is an error, we say, that permeates the submissions that have been made by the plaintiff in respect of there existing a regime for taxation and the error is the one that we have identified in paragraph 5 of our outline of submissions, and that is the regime that has been established by the provisions that are under challenge in question (2) may appear to have a similar effect overall to a taxation regime by requiring the payment of what has been described as “notional GST”, but it does not follow that an alternative means of achieving the same result as a taxation regime is unconstitutional.

It is backwards reasoning, or teleological reasoning, to start from a result which would be unconstitutional because of its effect and say that if the actual legal mechanism which was adopted – to say that such a mechanism is unconstitutional without looking at the mechanism and how it works by itself.  So, we say that that is an error that seems to have infected the submissions because what has happened is that the plaintiff has only looked at the effect of the regime, rather than the mechanism of the regime, and whether that is constitutionally valid.

What we have just said we hope is consistent with authority.  The only case where practical compulsion to pay an amount was held to have constituted a tax is the Homebush Case, so it is quite an unusual circumstance.  And in that case there was no other “rational economic choice”, to use the words of Chief Justice Keane, or there was no other rationally available alternative available to pay the legislative charge.  There is no forced benevolence in the same way as the cases referred to in the submissions of the plaintiff outline, where there is a gift that is apparently made to the Commonwealth to avoid a substantial detriment.  There is no detriment here, and none has been identified in the submissions made by the plaintiff that is of relevance.

In relation to the idea of a circuitous device, the basic starting proposition is that there is no tax here, and in that sense it is similar to the ICM Case where there was no unjust acquisition of property in the first place and therefore there is no circuitous device.

Those are our submissions.

KIEFEL CJ:   Thank you, Mr Solicitor.  The Solicitor‑General for Victoria.

MS ORR:   If the Court pleases, the Attorney‑General for Victoria is content to rely on her written submissions.

KIEFEL CJ:   Thank you, Ms Solicitor.

MR DEL VILLAR:   May it please the Court, the Attorney‑General for Queensland is content to rely on her written submissions.

KIEFEL CJ:   Thank you, Mr Solicitor.  Ms Seiden, do you have anything by way of reply?

MS SEIDEN:   Thank you, your Honour, just briefly.

GORDON J:   Would you mind speaking up?

MS SEIDEN:   Yes, I will try.  I apologise.

GORDON J:   Thank you.

MS SEIDEN:   Yesterday our learned friends from the Commonwealth and New South Wales submitted that the breach, if there was a breach, was of clause 17 of an Agreement and, in effect, not justiciable.  An example of that is found in the transcript at page 60, beginning at 2680, and that the agreement is simply a political agreement.   In response to that, we say that here the relevant agreement is picked up and enforced by legislation and we rely on Magennis and distinguish Pye v Renshaw.

Our learned friends for the Commonwealth contended that sections 116 and 51(xxxi) as they interact with 96 are very distinct from the interaction between 114 and 96 and, in particular, 114 and 96 involve payments in opposite directions, and an example of that is at page 72, line 3200.

With respect to that submission, we apprehended that our learned friend Mr Solicitor for the Commonwealth accepted that there may indeed be a scenario where the conditions of section 96 in fact imposed a tax. If that is the position, then it must be accepted that sections 96 and 114 do not of their nature or character necessarily deal with mutually exclusive topics to 114. If that is correct, then it must be right to say that 114 and 96 are not wholly inconsistent and therefore they may interact, and the plaintiff relies on section 114 as it applies to the terms and conditions.

Also, our learned friend sought to distinguish anything that could happen here that might be a tax as being a State tax and not a Commonwealth tax.  An example is at page 72, line 3211.  State actions in complying with the conditions are also not decoupled from the Intergovernmental Agreements and the Commonwealth legislation which gives them force.  The funds ultimately go into consolidated revenue of the Commonwealth, and the New South Wales Act is facilitative.  With regard to those matters, then, if there is a tax, it is a Commonwealth tax.

Our learned friends have characterised the withholding as merely akin to withholding an offset that the Council would be entitled to if they paid the notional GST in the first place, rather than a derogation from what it would otherwise be entitled to, and an example is at page 57, 2525.  The plaintiff submits that the regime cannot be described as a topping up of councils if they choose to pay the notional GST.  After the States accept the grants, the Act provides for allocation to councils in accordance with section 6 and 11.

The grant is not an amount plus GST – that characterisation ought not be accepted.  To say that the allocation is net of GST is an incorrect characterisation.  If the local council does not pay the notional GST, the amount will be reduced; that is the derogation from the grant, and even as between the Commonwealth and the State, the amount is repaid.

To the submission that neither the States nor councils are entitled to anything under the Financial – any grant, the Financial Assistance Act in fact provides a mechanism for there to be grants every year, and we rely on that, even accepting that the underlying purpose of the arrangements includes – might be to include – to stop leakage from the tax system, and to bring fairness to the system.  If, in truth, there is an exaction of a new tax called a “notional” or a “voluntary” GST, then that is contrary to the Constitution.

Otherwise, with respect to the ability of the States to refuse the grants, that does not submit it changed the effect on councils.  Any lack of legal coercion on the State does not affect whether it is a relevant coercion on the Council once the grant is accepted.  Existence of steps in the regime in which States have no reason to refuse the grants, and for all practical purposes, will always accept the grant, there is no practical reality that the State would refuse such a grant, it is not realistic to expect the States to refuse the entitlement, and then the conditions bite.

With respect to the First and Second Uniform Tax Cases, the ability of the States to reject the grant in those cases was the very reason that the Court was able to reject the argument about the undue restriction on State sovereignty.  So, it was necessary for the Court to construe the conditions, and they did so as an inducement rather than as a command, and they did that for particular purposes in those cases, which are not engaged here, and it is submitted that the terms of the grant here in fact convey a command.

In any event, consent of the State is not a release from section 114 of the Constitution and we refer to SGH, for example, at paragraph 89.  Our learned friends – yesterday the Solicitor‑General for the Commonwealth identified that at page 61, transcript line 2700, that – and I will just read it so that I do not get it:

We, of course, have not agreed that the local councils are a State, but we have agreed that they are part of a State, or relevantly, that their property is property of the State.

With respect, the plaintiff relies on what is said in the special case at paragraph 49(c), which is that the agreed position that the plaintiff is included in the meaning of the State for the purposes of 114 of the Constitution, in case there was any difference between those two positions, and we refer to the decision in Re Lambie (2018) 263 CLR 601 at page 621, paragraph 41. To the extent that Air Caledonie and Woodhams have been sought to be distinguished on the basis that in those cases there was an express liability, it is submitted that the principles are the same if the liability is implied, even if those words are not there.  And our learned friend the Solicitor General for the Commonwealth said at page 81, commencing at line 3620, with respect to 15(aa):

In fact, in 15(aa) what you see is a provision that expressly contemplates non-payment.  So, rather than there being a legal obligation to pay, this provision only bites when the local council has chosen not to pay –

And I will not read the rest of the passage, but in reply the plaintiff maintains that the choice in 15(aa) relates to payment methods, not to whether there can, in reality, be a non-payment.  This circumstance that 15(aa) refers to non-payment supports the plaintiff’s position that if one payment mechanism is not availed of, the notional GST will be paid through the withholding regime.

With respect to Mallinson’s Case, the particular passage that the plaintiffs rely on is found at page 70, point 7 of the report.  It is broadly that wherever an Act creates a duty or liability to pay money, an action will lie for recovery unless the contrary intention appears.  And, it is submitted, this is a clearer case than the case in Mallinson to apply that principle – that concerned the entitlements of an employee under an award from his employer.  And to similar effect, we would give your Honours the reference to Papev Commissioner of Taxation (2009) 238 CLR 1 at paragraphs 38, 140, and 452.

Your Honours, they are the points in reply.

KIEFEL CJ:   Thank you.  The Court reserves its decision in this matter and adjourns to 9.30 am tomorrow for pronouncement of orders and otherwise to 9.45 am.

AT 10.19 AM THE MATTER WAS ADJOURNED