Victoria v Commonwealth
[1971] HCA 16(1971) 122 CLR 353
(1971) 45 ALJR 251
[1971] ALR 449
(1971) 2 ATR 249
(Decision by: Windeyer J)
Victoria
v Commonwealth
Judges:
Barwick CJ
McTiernan J
Menzies J
Windeyer JOwen J
Walsh J
Gibbs J
Judgment date: 14 May 1971
Decision by:
Windeyer J
The arguments in this case aroused questions that lie, ordinarily dormant, behind the words of the Constitution.
How is the scope of a power expressly granted to the Commonwealth Parliament to be measured? Are the words of the grant to be qualified in any way by tacit assumptions? Is the Parliament, in its exercise of a power expressly given, controlled by any tacit limitations? Varying judicial decisions and dicta bearing on these questions can be assembled, and with them can be put criticism and commentary, some of it distinctly polemic. As the questions are important in themselves, and bear directly upon the arguments that were advanced in this case, I shall presume and venture to state my own view of them, rather than merely repeat or adopt what has been said heretofore by others.
Pay-roll tax, levied by the Commonwealth in accordance with the Pay-roll Tax Act 1941 (Cth) and the Pay-roll Tax Assessment Act 1941-1969 (Cth), is expressly levied upon the Crown in right of a State along with other employers. For thirty years State governments accepted the obligation thus imposed. Now the validity of the tax is challenged so far as it affects the States. It is said that it is beyond the power of the Commonwealth Parliament to subject the States to a tax calculated by reference to wages paid from a State treasury to State servants. The question, thus belatedly raised, is an offshoot of recent disagreements between State and Commonwealth governments as to the way in which revenue should be raised by, and apportioned between them. The matter comes to the Court as a purely legal question of the extent of the power of the Commonwealth Parliament under s 51(ii) of the Constitution "to make laws for the peace, order, and good government of the Commonwealth with respect to. . . Taxation; but so as not to discriminate between States or parts of States". Nevertheless there were in the arguments for the States some distant echoes and muffled undertones of a conflict, of politics and policy, between assertions of State "sovereignty" and so-called "State rights" on one side and federal power and Commonwealth supremacy on the other -- a controversy that is sometimes described as an issue between "federalists" and "centralists", each term being used as praise or abuse according to taste and persuasion. In federations of all kinds this has been a perennial controversy. That is well brought out in a passage from the paper "The Tyranny of Doctrine" that Professor Helen Shirley Thomas contributed to Essays in Legal History in Honour of Felix Frankfurter (1966), p 531:
It is common knowledge that federalism is a central feature of the American system of government. It is well known that the system is one of divided powers, and that the power distribution is made in a special way. The historical record of federalism the world over also makes it perfectly clear that where powers are divided according to the federal formula, conflicts over the exercise of power are absolutely inevitable. Anguished cries about the alarming growth of national power were heard throughout the land during the first administration of President George Washington, and they have been filling the air ever since. There has never been a time when serious claims were not being made regarding the alleged undue or dangerous expansion of national power at the expense of the states. Nor has there ever been a time when charges were not being made to the effect that the states were invading the legitimate sphere of national activity. Where two power systems exist side by side, disputes over jurisdiction are bound to arise.
All branches of government, state and national, have a hand in resolving these disputes. Since we have a written constitution, however, and judicial review, the Supreme Court is not only involved in dealing with these disputes over power, but plays a prominent part in acting as an umpire of the system.
But, unlike the Supreme Court of the United States, this Court, the Federal Supreme Court as the Constitution calls it, is not the umpire in conflicts arising from the terms of an agreement or treaty. Our task is simply to interpret and apply the provisions of the Constitution as a statute of the Imperial Parliament. That does not mean that it is not a statute of a special kind. It is. It is the instrument of government for Australia. It was enacted because, as the preamble to the Constitution Act states, the peoples of the Australian Colonies had agreed to unite in one indissoluble Federal Commonwealth under the British Crown and under the Constitution that the Act established. In 1908 Higgins J used words that have not withered or grown sterile with the years. Nor is their vitality diminished by their having been said in the course of a dissenting judgment. His Honour said -- in the Brewery Labels Case (Attorney-General (NSW) v Brewery Employ'es Union of NSW) (1908) 6 CLR 469, at pp 611, 612: ". . . although we are to interpret the words of the Constitution on the same principles of interpretation as we apply to any ordinary law, these very principles of interpretation compel us to take into account the nature and scope of the Act that we are interpreting -- to remember that it is a Constitution, a mechanism under which laws are to be made, and not a mere Act which declares what the law is to be."
I have on other occasions adverted to differing legal consequences that flow from the different origins, historically and juristically, of our Constitution from that of the United States. I shall allude to that again here. I do so because to my mind the phrase "dual sovereignty", which we sometimes hear, is for law a misleading misnomer when applied to the Commonwealth of Australia. There is dual authority but only one sovereignty. The Commonwealth Constitution was enacted at Westminster in 1900 as a product of the assent and agreement of the peoples of the Australian Colonies. It was sought by Australians, not imposed upon them. The Constitution Act itself was carefully worded so as not to be coercive. S 3 provided that Western Australia should not become part of the new Commonwealth unless Her Majesty was satisfied that the people of that Colony had agreed thereto. As an agreement of peoples, British subjects in British Colonies, and the enactment thereafter by the sovereign legislature of the British Empire of a law to give effect to their wishes, the Australian federation can be described as springing from an agreement or compact. But agreement became merged in law. The word "compact" is still appropriate but strictly only if used in a different sense -- not as meaning a pact between independent parties, but as describing a compaction, a putting of separate things firmly together by force of law. The Colonies which in 1901 became States in the new Commonwealth were not before then sovereign bodies in any strict legal sense; and certainly the Constitution did not make them so. They were self-governing colonies which, when the Commonwealth came into existence as a new Dominion of the Crown, lost some of their former powers and gained no new powers. They became components of a federation, the Commonwealth of Australia. It became a nation. Its nationhood was in the course of time to be consolidated in war, by economic and commercial integration, by the unifying influence of federal law, by the decline of dependence upon British naval and military power and by a recognition and acceptance of external interests and obligations. With these developments the position of the Commonwealth, the federal government, has waxed; and that of the States has waned. In law that is a result of the paramount position of the Commonwealth Parliament in matters of concurrent power. And this legal supremacy has been reinforced in fact by financial dominance. That the Commonwealth would, as time went on, enter progressively, directly or indirectly, into fields that had formerly been occupied by the States, was from an early date seen as likely to occur. This was greatly aided after the decision in the Engineers' Case (1920) 28 CLR 129, which diverted the flow of constitutional law into new channels. I have never thought it right to regard the discarding of the doctrine of the implied immunity of the States and other results of the Engineers' Case (1920) 28 CLR 129 as the correction of antecedent errors or as the uprooting of heresy. To return today to the discarded theories would indeed be an error and the adoption of a heresy. But that is because in 1920 the Constitution was read in a new light, a light reflected from events that had, over twenty years, led to a growing realization that Australians were now one people and Australia one country and that national laws might meet national needs. For lawyers the abandonment of old interpretations of the limits of constitutional powers was readily acceptable. It meant only insistence on rules of statutory interpretation to which they were well accustomed. But reading the instrument in this light does not to my mind mean that the original judges of the High Court were wrong in their understanding of what at the time of federation was believed to be the effect of the Constitution and in reading it accordingly. As I see it the Engineers' Case (1), looked at as an event in legal and constitutional history, was a consequence of developments that had occurred outside the law courts as well as a cause of further developments there. That is not surprising for the Constitution is not an ordinary statute: it is a fundamental law. In any country where the spirit of the common law holds sway the enunciation by courts of constitutional principles based on the interpretation of a written constitution may vary and develop in response to changing circumstances. This does not mean that courts have transgressed lawful boundaries: or that they may do so.
The course of constitutional interpretation in Canada has been different from here. There provincial powers have, by decisions of the Privy Council, tended to increase and federal powers to be restricted: see Halsbury's Laws of England, 3rd ed, Vol 5, pp 499, 500; and I add to the cases there mentioned Attorney-General (Ontario) v Winner (1954) AC 541, a judgment that is indirectly illuminating for us. The different courses that the constitutional law of Australia and Canada have taken is not only the result of differing philosophies of a federal system reflected in the predilections of particular individuals. That may have had an influence, as, for Canada, is pointed out in an interesting article: Robinson, "Lord Haldane and the British North America Act", University of Toronto Law Journal, Vol 20, pp 55-69 (1970). But the different consequences of judicial interpretation flow mainly from radical differences in the terms of the two instruments to be interpreted, our Constitution and the British North America Act.
Clearly the Constitution assumes the continued existence of the States as constituent elements in a federation. Rhetorical assertions that the Commonwealth Parliament cannot destroy the States can thus stand without question. But that does not justify, as legal propositions, some unqualified and question begging, assertions that were made in the course of the argument in this case -- such as that one government does not tax another government, that any Commonwealth taxation law is invalid which unduly as it was said affects State governments.
The apophthegm, "the power to tax involves the power to destroy" is not a valid criterion for measuring the scope of a power of taxation that is expressly conferred by statute. In saying that I do not mean to underrate, in its own context, the eloquent judgment of John Marshall CJ in M'Culloch v Maryland (1819) 4 Wheat 316 (4 Law Ed 579). It can always be read with undiminished pleasure. But constitutional doctrine in the United States has come a long way since that case and since Collector v Day (1871) 11 Wall 113 (20 Law Ed 122). If I felt that any sure guidance for us in the case that is now before us could be found in the law of the United States, I would be more inclined to seek it today in the judgment of Stone J, later Chief Justice of the Supreme Court of the United States, in Helvering v Gerhardt (1938) 304 US 405 (82 Law Ed 1427).
As to the proposition that a Commonwealth law cannot impede or frustrate the exercise by a State government of its governmental functions: this seems an expression, in reverse, of the Canadian doctrine which forbids a Province to control completely a corporation created by the Dominion. In Attorney-General (Ontario) v Winner (1954) AC 541 that was stated by the Privy Council (1954) AC, at p 578 as follows: ". . . legislation (scil. of a Province) will be invalid if a Dominion company is sterilized in all its functions and activities or its status and essential capacities are impaired in a substantial degree. What provisions have the effect of sterilizing all the functions and activities of a company or impair its status and capacities in an essential degree will, of course, depend on the circumstances of each case." I would find no difficulty in applying those words to a Commonwealth tax in its impact upon a State government in some hypothetical case. But they certainly cannot apply to the present case. The payment by the States of pay-roll tax for many years past has not destroyed them or sterilized them.
I am not satisfied that there is, for present purposes, any sure line of distinction between what were called in the argument essential functions of government, or "those things which only a government can do", and commercial activities which governments today commonly undertake. Moreover, I am not sure whether, in the postulated distinction, commercial activities were to be confined to trading undertakings conducted in competition with private enterprise as distinct from government monopolies, or whether they extended from undertakings which might produce a commercial profit, such as transport services, to those which ordinarily would not do so but for the enjoyment of which the subject must pay a fee, as for example to enter a government-controlled art gallery. I considered the validity of the distinction between various functions that governments in fact undertake in what I wrote in Ex parte Professional Engineers' Association (1959) 107 CLR 208, at pp 272-276. I shall not repeat that. The difficulties that beset the topic are not for me alleviated by the Saratoga Springs Case (New York v United States of America (1946) 326 US 572 (90 Law Ed 326)), although I acknowledge that the judgments in that case are incidentally relevant to the present case.
I turn now from exotic doctrines from America to the provisions of our Constitution. We must always remember that the Constitution was, as this Court has said, intended to endure and to be applied in changing circumstances. Doubtless, like all statutes, it must be read "naturally in the light of the circumstances in which it was made" (the Engineers' Case (1920) 28 CLR 129, at p 152). But it is necessary to remember too that, as Higgins J said in the Brewery Labels Case (1908) 6 CLR 469, at p 610 -- he was speaking there of trade marks -- "The usage in 1900 gives us the central type; it does not give us the circumference of the power". In other words, the subjects on which the Commonwealth Parliament may legislate are generically described. Their denotation is not fixed. When the validity of a law made by the Parliament is questioned, the first consideration is always whether it is a law with respect to one of the subject-matters expressly listed in s 51, or is a matter incidental within the meaning of s 51(xxxix).
The power to make laws with respect to a particular subject matter means that the validity of any questioned law depends on what it commands and to whom its command is addressed. "With respect to" is a compound preposition. It does not differ in effect from the corresponding phrase "in relation to" in the British North America Act 1867. Each is a periphrasis for such single words as "of", "about", "on", "concerning", "touching". I may say that I have not chosen those just at random. They, with the phrases "referring to", "relating to" and "treating of", happen to be the headings under which the laws of Athens on various topics were mentioned in Potter's Antiquities of Greece, Ch 26. I do not think that much is to be gained by either elaboration or paraphrase of the phrase "with respect to". "Characterization" is the now common jargon. And in some cases it may for some people be helpful to translate this by asking what is the pith and substance of a law. That phrase, "pith and substance", became common currency in the Privy Council in cases under the British North America Act. Examples are Attorney-General (British Columbia) v Attorney-General (Canada) (1937) AC 368, at p 389; and Canadian Federation of Agriculture v Attorney-General (Quebec) (1951) AC 179, at p 195. In that context the expression was first used, so far as I have noticed, by Lord Watson in Union Colliery Co of British Columbia Ltd v Bryden (1899) AC 580, at p 587. It was perhaps then a modification of "pith and marrow", a natural old English metaphor, which became well known in patent law. It was there commonly used to describe the essence, or quintessence, of an invention from the time Bowen LJ so used it in Wenham Gas Co Ltd v Champion Gas Lamp Co (1891) 9 RPC 49, at p 56. It can be readily understood and applied as the test of infringement of a patented invention. And it has been useful in cases under the Canadian Constitution for determining whether a law of the Dominion or a Province encroaches upon a field reserved for the other. That too is readily understandable. But, unless we were to revert again to the discarded view of mutual immunities, no question of encroachment upon a forbidden State field, or of infringement of State rights, can arise in the same way under our Constitution. The question under s 51 is always whether a particular enactment is within Commonwealth power. It is never whether it invades a State's domain. The question is one of subsumption under a particular description. It is not one of classification into categories mutually exclusive; for a law may be quite properly described as with respect to more than one subject, one perhaps within and another without Commonwealth power. I shall return later to this aspect.
That the Pay-roll Tax Act and the Assessment Act are laws with respect to taxation imposed on employers generally is beyond question. The only question is whether the express inclusion of the Crown in right of a State among the employers liable to tax is for some reason beyond Commonwealth legislative power. Every power mentioned in s 51 is by the terms of the section exercisable "subject to this Constitution". That was pointed out in the course of the argument. But the phrase, I consider, means subject to any express general provision of the Constitution, such as s 92 or s 116, or to any express special provision relating to one of the listed subject matters. The only relevant provision relating to the power of taxation is s 114. I go again to Canada to notice what was said in Abbott v City of St. John (1908) 40 SCR 597, at pp 609, 613, and approved by the Privy Council in Caron v R (1924) AC 999, of the effect of a provision of the British North America Act similar to s 114 of our Constitution. I am unable to see that the pay-roll tax involves any contravention of s 114. If it is invalid in its application to State government pay-rolls, this must arise from some implied exemption.
On some great occasions in history taxes have provoked great questions. A kind of race-memory of this may have lingered -- especially in the United States because of the place that the Stamp Act of 1765 had as midwife of American independence. Lecky wrote, in his History of England in the Eighteenth Century, Ch IX, that: "The Stamp Act, when its ultimate consequences are considered, must be deemed one of the most momentous legislative Acts in the history of mankind." And he said: "The principle which led Hampden to refuse twenty shillings of ship money was substantially the same as that which inspired the resistance to the Stamp Act. It might be impossible to show by the letter of the law that there was any generical distinction between taxing and other legislative Acts; but in the constitutional traditions of the English people a broad line did undoubtedly exist." A tax law is thus peculiarly likely to attract suppositions of inherent reservations and limitations. Yet one result of the Engineers' Case (1920) 28 CLR 129 is often said to be a denial of any room for implications in the Constitution. But that I think is too sweeping a statement.
The word "implication" is sometimes loosely used. It is not now an acceptable view that the rule in The Moorcock (1889) 14 PD 64 can govern the interpretation of the Constitution, notwithstanding that in Attorney-General (Q) v Attorney-General (Cth) (1915) 20 CLR 148, at pp 162, 163, Griffith CJ so used it. Nevertheless I do not think that in reading the Constitution we must shy away from the word "implication" and disavow every concept that it connotes. Implications of The Moorcock kind give content and consequences to written contracts. Implications of a different kind may aid the interpretation of statutory provisions. That is because these must always be read as parts of a whole and with due regard to the subject with which the statute deals. In each case an implication means that something not expressed is to be understood. But in the one case this involves an addition to what is expressed: in the other it explains, perhaps limits, the effect of what is expressed. It is in the latter sense that, in my view of the matter, implications have a place in the interpretation of the Constitution: and I consider it is the sense that Dixon J intended when in Australian National Airways Pty Ltd v The Commonwealth (1945) 71 CLR 29, at p 85 he said: "We should avoid pedantic and narrow constructions in dealing with an instrument of government and I do not see why we should be fearful about making implications." His Honour, when Chief Justice, repeated this observation in Lamshed v Lake (1958) 99 CLR 132, at p 144. I said, in Spratt v Hermes (1965) 114 CLR 226, at p 272, that it is well to remember it. I still think so. The only emendation that I would venture is that I would prefer not to say "making implications", because our avowed task is simply the revealing or uncovering of implications that are already there.
In Melbourne Corporation v The Commonwealth (1947) 74 CLR, at p 70 Starke J said: "The federal character of the Australian Constitution carries implications of its own." That I respectfully endorse. I think that it is the firm ground on which the judgments in that case must stand. The decision might I think have been put in another way: that, eschewing any kind of implication, the enactment in question, although couched as a command to bankers, could be regarded as in substance not a law with respect to banking, but simply as a command to States and State authorities as to the way they must carry on their affairs. It might therefore perhaps have been treated as being with respect to a subject not within the competence of the Commonwealth Parliament, and not with respect to one that was. Latham CJ got close to deciding the case in that way. But when his judgment is read as a whole I think he did not. He said that legislation by the Commonwealth would be invalid if it were "really with respect to a State or State functions as such and not with respect to the subject in respect of which it is sought to bind the State" (1947) 74 CLR, at p 61. But he had already rejected the argument that the enactment in question was not a law with respect to banking (1947) 74 CLR, at p 50. He had, however, left open the question of its validity having regard to its impact on the governmental functions of the States: and that I take it was the dominant influence in his conclusion. As I read the judgments of other members of the Court it seems to me that they too did not say that the law was not with respect to banking. Rather they said that it was: but in varying terms they condemned it because it was directed against the States. Latham CJ acknowledged in Uther's Case (re Richard Foreman & Sons Pty Ltd; Uther v Federal Commissioner of Taxation) (1947) 74 CLR 508, at p 519 that this was the basis of the decision. The law thus contravened assumptions or implications arising from the federal nature of the Constitution and the position of the States. I shall not set out passages in the judgments, the verbiage of which had so much detailed scrutiny in the arguments that we heard. I accept the decision and the ground on which I think it stands. But to suppose that the words used in judgments must be taken as binding pronouncements of received doctrine is I think to take a path that can lead one astray. I have said elsewhere, especially in Damjanovic's Case (Damjanovic & Sons Pty Ltd v The Commonwealth) (1968) 117 CLR 390, at pp 407-409, that I distrust taking the words of judicial exposition of the language of the Constitution as if they were themselves the language that they seek to explain and expound. Exegesis must not be substituted for the text. I can now add, to what I have previously said of this, a respectful reference to Lord Upjohn's pertinent remarks when delivering the judgment of the Privy Council in Ogden Industries Pty Ltd v Lucas (1968) 118 CLR 32, at p 39: (1970) AC 113, at p 127.
The position that I take is this: The several subject matters with respect to which the Commonwealth is empowered by the Constitution to make laws for the peace, order and good government of the Commonwealth are not to be narrowed or limited by implications. Their scope and amplitude depend simply on the words by which they are expressed. But implications arising from the existence of the States as parts of the Commonwealth and as constituents of the federation may restrict the manner in which the Parliament can lawfully exercise its power to make laws with respect to a particular subject matter. These implications, or perhaps it were better to say underlying assumptions of the Constitution, relate to the use of a power not to the inherent nature of the subject matter of the law. Of course whether or not a law promotes peace, order and good government is for the Parliament, not for a court, to decide. But a law, although it be with respect to a designated subject matter, cannot be for the peace, order and good government of the Commonwealth if it be directed to the States to prevent their carrying out their functions as parts of the Commonwealth.
Applying that to the present case, I cannot see that the pay-roll tax is invalid in its incidence upon the States. It is not aimed at them otherwise than as employers along with other employers. We cannot say that the Crown in right of the States is exempt from the operation of Commonwealth law. Since 1908 it has been established that this is not so, and in respect of taxation no less than of other matters: R v Sutton (1908) 5 CLR 789; Attorney-General (NSW) v Collector of Customs (NSW) (1908) 5 CLR 818.
A Commonwealth Act that levied a tax upon the States alone would, I consider, be beyond Commonwealth power; but not because it was not a law with respect to taxation. I cannot conceive of a law imposing a tax, or regulating the assessment and collection of a tax, that would not be properly called a law with respect to taxation. It might be equally well called a law with respect to some other subject: but, as I have said, the Constitution does not require that every law be catalogued under one heading only. A law may be with respect to more than one subject matter. To take two or three examples: A law imposing land tax is properly called a law with respect to taxation and landowners. The wool tax considered by this Court in Logan Downs Pty Ltd v Federal Commissioner of Taxation (1965) 112 CLR 177 was a law with respect to taxation and not the less so because it could also be properly called a law with respect to wool, wool marketing, wool brokers and wool growers. Gift duty is imposed by a law with respect to taxation which is also a law with respect to gifts. A Commonwealth law simply imposing a tax upon the revenues of the States would be a law with respect to taxation. But I consider that it would be an illegitimate use by Parliament of its power to make laws because of the principles and limitations, call them implications or what you will, recognized in the Melbourne Corporation Case (1947) 74 CLR 31. However, the pay-roll tax is far removed from that. There is in it no "discrimination against" the States, to use that awkward but much used phrase, which I take it connotes an adverse distinction with regard to something or somebody. The pay-roll tax applies without any discriminations between employers generally including the States. Some reference was made to the exemption that the Act allows to independent schools, as distinct from government schools, in respect of salaries and wages paid. This, it was said, was a discrimination against the States. But it seems to me a far-fetched proposition that a special exoneration of some persons within a State from a general obligation results in the exoneration of the State itself from the liability expressly imposed on it and otherwise valid.
In conclusion I would say that the financial relations between the Commonwealth and the States do, I have no doubt, create serious problems for governments. But they are political not legal problems They are better resolved I feel by co-operation in council and conference than by conflicts in court. I cannot forbear from quoting two sentences of Edmund Burke that I recently came across in his Observations on a Late Publication intituled The Present State of the Nation, written in 1769: "It is easy to parade with an high talk of parliamentary rights, of the universality of legislative powers, and of uniform taxation. Men of sense when new projects come before them, always think a discourse proving the mere right or mere power of acting in the manner proposed, to be no more than a very unpleasant way of mis-spending time."
That may well be the conclusion of any man of sense who reads this lengthy discourse. It only comes to this, that I would allow the demurrer.