Heerey J

Federal Court

Judgment date: Judgment handed down 16 April 1992

Heerey J

These proceedings raise the question whether Commonwealth Sales Tax is payable on goods sold to the applicant, the Government Insurance Office of New South Wales (GIO), for its own use.

In proceeding G490 of 1991 GIO seeks review under the Administrative Decisions (Judicial Review) Act 1977 (the AD(JR) Act) of a decision of the respondents, or one or other of them, that such goods were not exempt under item 74 in the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1935 (the Exemption Act).

The grounds alleged are that in so deciding the respondents misconstrued item 74 and, alternatively, to the extent that item 74 does not apply, that the imposition of sales tax contravenes s. 114 of the Constitution and/or is beyond the legislative power conferred by s. 51(xiv). The same contentions were made by GIO in High Court action No. S12 of 1992 commenced on 14 January 1992. On 19 January 1992 Mason CJ ordered by consent that this action be remitted to the Federal Court. Subsequently that action (now proceeding G44 of 1992) was consolidated with the earlier proceeding G490 of 1991.

Although the proceedings raised the same question in respect of a variety of goods alleged to be assessable under different Sales Tax Assessment Acts, in the hearing before me the parties selected the case of motor vehicles purchased by GIO from a seller who was not a manufacturer of the goods or a purchaser of the goods from a manufacturer. Absent exemption under item 74 or constitutional impediment, sales tax would be payable by the vendor on the sale value of such goods under ss. 3 and 5 of the Sales Tax Assessment Act (No. 3) 1930 (Assessment Act (No 3)).


The GIO was established in 1926 and given a statutory footing in the following year by the Government Insurance Act 1927 (NSW) (the GIO Act). It was incorporated by an amendment to that Act in 1941.

It carries on the business of general and life insurance and reinsurance as well as funds administration and the provision of investment and financial services. Until 1990 its operations were confined to New South Wales and the Australian Capital Territory but subsequently it has expanded into other States.

The GIO is a body corporate (GIO Act, s. 3). It is deemed to be a statutory body representing the Crown (s. 3(3A)) and holds all real and personal property for and on behalf of the Government of New South Wales (s. 3(4)). It is governed by a Board (s. 3B(1)) which in the exercise of its functions is subject to the control and direction of the Minister (s. 3B(3)). It is to pay from its insurance business such dividends as are determined by the Treasurer after consultation with the Board (s. 7C(c)). Its insurance policies are guaranteed by the Government of New South Wales (s. 8).

Sales Tax Legislation

Sections 3 and 5 of Assessment Act (No 3) provide:

``3 Subject to, and in accordance with, the provisions of this Act, the sales tax imposed by the Sales Tax Act (No. 3) 1930 shall be levied and paid upon the sale value of goods manufactured in Australia and sold by a taxpayer, not being either the manufacturer

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of those goods or a purchaser of those goods from the manufacturer.

5 Where goods manufactured in Australia are sold to a person (being an unregistered person or a registered person who has not quoted his certificate in respect of the purchase of the goods) by a registered person, or by a person required to be registered, who was not the manufacturer of the goods and did not purchase the goods from the manufacturer of the goods, sales tax shall be paid by the vendor of the goods.''

However s. 5 and item 74 of the First Schedule to the Exemption Act have the effect that, relevantly for present purposes, sales tax is not payable upon the sale value of:

``Goods for official use... and not for sale, by a department of the Government of the Commonwealth, [or] a State,... or an authority which is completely controlled by, and the expenditure of which is exclusively borne by, the Government of the Commonwealth, [or] a State,... as the case may be, provided that, in the case of goods for the use of a department or an authority of the Government of a State,... an arrangement has been made between the Governor-General and the Governor-in- Council of the State,... for the collection and payment by the State,... of sales tax upon the sale value of goods sold by the Government of the State,... and by every such authority established under the law of the State,... in the conduct of an enterprise which, in the opinion of the Commissioner, is a trading enterprise.

In this item, `authority' does not include an authority as defined by subsection 20A(1) of the Sales Tax Assessment Act (No. 1) 1930.''

Goods for official use

The respondents accepted that motor vehicles used by GIO sales representatives and other employees in the course of their work were acquired for official use by the GIO within the meaning of item 74, notwithstanding that the employees were permitted to keep the vehicles at their homes and to have some private use of them. However, the evidence disclosed that some other vehicles were provided by GIO to more senior officers as part of stipulated salary packages. I agree with counsel for the respondents that these latter vehicles were not for the official use of the GIO. They were for the private use of the officers concerned and formed part of the remuneration or benefits provided in consideration for their services.

The proviso to item 74

Some documents were produced by the respondents and the Attorney-General's office in answer to subpoenas issued by GIO. Were any conclusion necessary, I would be inclined to find that such documents did not constitute, or otherwise suggest the existence of, an arrangement of the kind mentioned in the proviso to item 74.

However GIO's primary contention was that, in the circumstances of the present case, its claimed exemption was not dependent on the existence of such an arrangement.

I agree. The first part of item 74 is concerned with ``Goods for official use..., and not for sale, by a department etc''. If, as seems to be accepted in the present case, there is no question of sale of the goods by the department or authority then that is the end of the matter. If however goods are sold for the use of State departments or authorities (as distinct from Commonwealth departments or authorities) and the goods are subsequently sold by the Government of the State or an authority thereof, the exemption conferred by item 74 will still apply - as long as there has been an arrangement for the payment of sales tax on the sale value of goods sold in the course of a trading enterprise, the Commissioner's opinion to be determinative as to whether this last criterion is met in the particular case.

Is the GIO a department?

In my opinion the term ``department'', in the context of item 74 and especially in light of the distinction drawn there between departments and authorities, means a part of the public service of the Commonwealth or a State organised for the carrying out of particular governmental functions and for which a Minister of the Crown is responsible. A department in that sense does not have an identity in law separate from the persons who from time to time constitute it. For that reason a department, eo nomine, would not be an appropriate party to legal proceedings; in the case of a Commonwealth department for example it is the Commonwealth itself which is the repository of legal rights and obligations: cf

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Waterford v The Commonwealth of Australia (1986-1987) 163 CLR 54 at p 55.

I conclude therefore that the GIO is not a department of the Government of New South Wales.

Is the GIO an authority?

The respondents did not dispute that the GIO is completely controlled by, and its expenditure exclusively borne by, the Government of New South Wales. But they argued that the GIO was not an ``authority'' within the meaning of item 74.

In my opinion, whatever the precise ambit of the term ``authority'' in this context, it extends to the GIO as an entity incorporated under statute, not subject to any degree of private ownership, and controlled by the Government of New South Wales.

The first contention advanced by the respondents was that insurance is not a ``traditional function of government''. I find this dubious as a matter of Australian history and in any case of little relevance in ascertaining the meaning to be put on the term ``authority'' in the context of item 74.

At the time of Federation, the Australian Colonial governments did not carry on insurance business, but the New Zealand Government had done so since 1869. It was considered likely that State governments would follow suit and accordingly State insurance was excluded from the grant of Commonwealth legislative power over insurance by s. 51(xiv); see Debates, 17 April 1897 pp 779-782. Thereafter State insurance offices were established in Victoria (1914), Queensland (1916), Tasmania (1919), New South Wales (1926), Western Australia (1938) and South Australia (1970).

The State of Victoria v The Commonwealth of Australia (1970-1971) 122 CLR 353 at p 398 Windeyer J said:

``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.''

More recently the Full Court of the High Court in
DFC of T v State Bank of New South Wales 92 ATC 4079 at p 4084; (1992) 105 ALR 161 at p 168 noted:

``... the historical circumstance that colonial governments in Australia carried on a wide range of governmental functions which were not traditional and inalienable.''

The most obvious examples are the railway systems of Australia. In contrast to the experience of the United Kingdom and the United States, railways in Australia from the 19th century to the present time have been regarded as just as much a function of government as the postal service. Although the meaning of ``authority'' in item 74 must ultimately turn on the context, it is significant that in
General Steel Industries Inc v Commissioner for Railways (NSW) & Ors (1964) 112 CLR 125 at pp 132-134 Barwick CJ held that the Commissioner for Railways was an ``authority'' of the State of New South Wales for the purposes of ss. 125 and 132 of the Patents Act 1952. It is difficult to see any rational distinction for present purposes between railways and insurance. Both activities involve the provision of services for the private and commercial needs of citizens. By the time the Exemption Act was passed in 1935, both were functions which had for many years been carried on by State governments in Australia.

In any case the reference in item 74 to trading enterprises shows that the draftsman had in mind departments or authorities whose activities were not necessarily confined to the ``traditional functions of government'', however that concept be defined.

The second limb of the respondents' argument on this issue was based on the proposition that an ``authority'' must be a body which exercises power or command. At the outset, this argument strikes difficulties with General Steel. While a railway body may be given, in aid of its functions, statutory power to make by-laws which create offences, such as riding on a train without a ticket, it would not in

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any realistic sense be characterised as a body which regulates the activities of citizens or exercises power or command.

Moreover, the history of public administration in Australia lends no encouragement to such a restrictive use of the term. In an article ``Accountability of Commonwealth Statutory Authorities and `Responsible Government''' (1980) 11 Federal Law Review 355 at p 356, Professor John Goldring gives the following illuminating insight into the history of statutory authorities in Australia:

``Before the extensive reforms of the public service in Britain in the early and middle parts of the nineteenth century, much of the administration, which admittedly then had a smaller role than it does today, was in the hands of boards and commissions whose members were appointed by Ministers purely on the basis of patronage. To some extent the vestiges of this system survive in the United States today. It was justified on the ground that it protected Ministers against the growth of a powerful bureaucracy which might come to exercise real power. However, it was also criticised by the `democrats' for whom representative and responsible government was an article of faith, on the basis that the execution of policy, enacted into legislation by the Parliament, and the advice given to the Sovereign in respect of the exercise of prerogative powers should be in the hands of a Minister who sat in the Parliament and depended on the Parliament's support for his continuance in office. It followed that those responsible for the day-to-day execution of the laws and the business of government would be responsible to a Minister, they would form part of a department of state, for the whole of whose activities the Minister would answer to the Parliament. The ministerial department became the normal structure for government administration.

This was the model which was accepted in the United Kingdom at the time the Australian Colonies were achieving internal self-government; as with so much else of the machinery of government, the colonies accepted the British, particularly the English, model. In the Australian Colonies self-government was responsible government, and ministerial departments on the Westminster model flourished, but geographical differences led to modification of the model. The great distances led to the failure of the early projects for railways to be constructed and operated by private enterprise as in Britain. Railways were obviously desirable but, because they were unlikely to show an immediate profit, the intervention of the state was necessary to ensure that they were built. Yet if politicians were to determine where railways were to be built, and who was to obtain work on the railways, there were many opportunities for pork-barrelling and corruption, and especially for inefficiency. It was decided, first in Victoria, that it was desirable for the railways to be placed under the control of a Commission, which would be independent of political control, at least in its day-to-day operations. The arrangement survived, though with less independence than had been hoped; it was copied in most respects in New South Wales by the Government of Sir Henry Parkes, with a greater degree of independence of the Parliament, and a greater degree of efficiency. This type of statutory authority or Commission became the model for the organisation of other public utilities in the Australian Colonies.''

See also Finn Law and Government in Colonial Australia (Oxford University Press) pp 61-63 and Wettenhall ``The Quango Phenomenon'', Current Affairs Bulletin, March 1981, p 14.

The respondents relied on
The Western Australian Turf Club v FC of T 78 ATC 4133; (1977-1978) 139 CLR 288 and more particularly on
The Committee of Direction of Fruit Marketing v The Delegate of the Australian Postal Commission (1980) 144 CLR 577.

In COD the issue was whether the Committee, a body established by Queensland statute to regulate fruit growing in that State, was an ``authority of... a State'' within the meaning of a by-law of the Australian Postal Commission. If it was, the Committee was not entitled to have its publications registered for postage at concessional rate. The Committee argued that it was not an authority because it was not engaged in the work of government, notwithstanding that it was a body created by statute with a wide range of powers. Mason and Wilson JJ (with whom Barwick CJ agreed) pointed out (at p 593) that ``(i)t would have to

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be shown that the authority represented by those powers in reality is derived from the growers, not from the State''. Their Honours, after observing that the organisation of the marketing of fruit was ``as capable of being a governmental purpose as the maintenance of law and order and the administration of justice'' said (at p 594):

``The manner in which the Act pursues the objective of organized marketing of fruit is clearly, in our opinion, to impress the stamp of government upon the activities of the C.O.D. The concern of the legislature to ensure that the wishes of the growers are reflected in the decisions of the C.O.D. in the matter of directions as to how and when and where marketing should proceed, and in the imposition of certain levies, does not alter the fact that those decisions are essentially governmental decisions. In the words of Smithers J. in this case: `... government is still government albeit representative government, and even if dependent in some respects upon the will of the governed... The authority and effectiveness of the decisions of the C.O.D. are derived not from growers but from the State'.''

Gibbs J also emphasised this element. His Honour said (at p 580):

``The words `authority of a State' naturally mean a body which is given by the State the power to direct or control the affairs of others on behalf of the State - i.e., for the purposes of and in the interests of the community or some section of it.''

Thus the reason the Committee failed to establish it was not an authority of a State was that its statute gave it the right to direct and control citizens or, in the words of counsel for the respondents in the present case, power or command. It does not follow that in an appropriate context a body cannot be an authority of a State even though it does not in any significant sense exercise power or command; General Steel is a sufficient example.

In Western Australian Turf Club the Club had statutory powers to license horse races in Western Australia but otherwise had no function of a public or governmental nature and operated as a private racing club. Importantly, the Club had the entire control over disposition of its profits and its members were entitled to share in the division of its assets on dissolution (see 78 ATC at p 4138; 139 CLR at pp 298-299 per Stephen J). It was held not to be ``a public authority constituted under any... State Act'' within the meaning of s. 23(d) of the Income Tax Assessment Act 1936. The High Court was thus faced with the question whether a body with a variety of functions, some public and some private, was a public authority. There is a substantial body of authority dealing with this issue in various statutory contexts. Stephen J, with whom Barwick CJ and Jacobs J agreed, pointed out (at ATC p 4137; CLR p 296) that the question often turned upon ``a nice balance of considerations''. The present case however is very different. There is no suggestion of any private involvement in the ownership of GIO or the profits it might derive.

FC of T v Silverton Tramway Company Limited (1953) 10 ATD 295; (1953) 88 CLR 559 turned on the fact that the body in question was a trading company with private shareholders and hence not a public transport authority for the purpose of item 77 of the First Schedule to the Exemption Act.

Constitution s. 114

The questions involving s. 114 and s. 51(xiv) of the Constitution arise if my construction of item 74 is wrong, and in any event in relation to sales of those motor vehicles which I have held are not for the ``official use'' of GIO.

Section 114 relevantly provides that the Commonwealth shall not ``impose any tax on property of any kind belonging to a State''.

The operation of s. 114 has been the subject of very recent consideration by the High Court in
The State of South Australia & Anor v The Commonwealth of Australia & Anor 92 ATC 4066; (1992) 105 ALR 171. Mason CJ, Deane, Toohey and Gaudron JJ said (at ATC pp 4069-4070; ALR p 175):

``The immunity from the imposition of taxation which is conferred by s. 114 on the Commonwealth and the States, though confined to taxes on property, is expressed in wide terms. The immunity extends to `any tax on property of any kind' (emphasis added) belonging to the Commonwealth or to a State, as the case may be. The immunity thereby conferred might appear, on its face, to travel beyond a freedom from those forms or classes of taxation described as a `tax on property' or a `property tax' and to exempt

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the property of the Commonwealth or a State from any form of tax. No doubt there are policy reasons which would support that broad interpretation of s. 114. Such a broad interpretation would protect the operations of each government within the federal framework and in this way contribute to harmonious intergovernmental relationships. The Supreme Court of Canada has given just such an interpretation to the rather similar provisions of s. 125 of the British North America Act 1867.

However, in the course of judicial decisions beginning in 1904, this Court has not adopted that broad reading of the section. Instead, the Court has treated the section as conferring an immunity from a tax on property in its strict sense, that is, from `taxation imposed upon property qua property', that is to say, a tax imposed upon property `as such'.


It has often been pointed out that the description `tax on property' is elliptical in that property does not pay taxes; individuals do. The word `property' carries with it connotations of ownership or possession and the notion which expressions such as a tax on property `qua property' or `as such' are intended to convey is that of a tax to which a person is subjected by reason of his or her ownership or holding of property.

Recognising this, O'Connor J. in the Steel Rails Case said that the section conferred an immunity from a tax on property in its strict sense, that is, from `an exaction made in respect of the holding or ownership of property'. This formulation was accepted and applied by Mason, Brennan and Deane JJ. in The First Fringe Benefits Tax Case. So understood, the section protects a State from taxation imposed on it in virtue of or by reason of its ownership or holding of property.

Accordingly, a tax is properly characterised, for the purposes of s. 114, as a `tax on property' if, and only if, it is imposed upon a taxpayer by reference to a relationship between the taxpayer and the relevant property and the relationship is such that the tax represents a tax on the ownership or holding of the property in question. That was, in effect, the point being made by Higgins J. in the Steel Rails Case when he pointed to the `fundamental difference between taxing men for having property, and taxing men for moving property'.''

In another recent decision,
DFC of T v State Bank of New South Wales 92 ATC 4079; (1992) 105 ALR 161, in a joint judgment delivered by all members of the Court, it was said (at ATC p 4081; ALR p 164):

``The prohibition in s. 114 of the Constitution against the imposition of `any tax on property of any kind belonging to a State' protects the property of a State from a tax on the ownership or holding of property.''

In that case it was held that the State Bank of New South Wales was within the protection given to a State by s. 114. Doubtless as a consequence, it was accepted by the respondents in the present case that GIO was in a like position. But counsel argued that the sales tax in question was not a tax imposed on property belonging to GIO.

In my opinion s. 114 does not apply. The tax in question is not imposed on GIO, it is imposed on the vendor of the goods: see Assessment Act (No. 3) s. 5. If the vendor does not pay, the taxing authority cannot recover the tax from GIO. Nor does the taxing authority have any legal remedy against the goods once title in them has passed to GIO.

The argument on both sides proceeded on the assumption that title to the goods passed at the moment of sale and that this was the point when the liability to pay tax upon the sale value arose. The vendor became liable to pay the tax because it sold property belonging to it; therefore insofar as the tax was a tax on property it was a tax on property of the vendor. The GIO as purchaser took the goods unencumbered by any liability to pay tax arising from the acquisition of the goods or the rights of ownership which followed as a consequence.

As a matter of commercial practice, a vendor of goods will usually add on the amount of sales tax to the price it would otherwise charge for the goods in order to recover its costs and make a profit. Often it might show the amount of sales tax as a separate item on the invoice. But the purchaser does not thereby become a payer of sales tax. A purchaser of goods for $100 on which the vendor paid $10 sales tax

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would be regarded as outlaying $110 as the cost of the goods. The transaction would not be treated in the purchaser's books as $100 cost of goods and $10 tax paid.

Counsel for GIO relied on a passage in the judgment of the High Court in State Bank of NSW 92 ATC at p 4081; 105 ALR at p 163 where their Honours said:

``Under s. 17(1), a manufacturer's application to his or her own use of goods manufactured in Australia is one of three ways in which goods manufactured in Australia attract liability to sales tax on the part of a taxpayer, the other ways being a manufacturer's sale of the goods or treatment of the goods as stock for sale by retail. In the context of s. 17(1), the expression `applied to his own use' is one of broad import and is equivalent in meaning to `employed for his own purposes'. Although the tax is not expressly imposed upon property or by reference to the manufacturer's ownership of, or property in, the goods, sales tax has generally been regarded as an excise, that is to say, it is a tax upon goods, the fundamental concern being the commodity on which the tax is imposed rather than with the particular person from whom it is exacted. That view of sales tax has been based no doubt on a consideration of the central element in sales tax legislation - the imposition of the tax in respect of some dealing with goods by way of sale or distribution in the expectation, or with the intention, that the taxpayer will not bear the incidence of the tax but will indemnify himself or herself by passing it on to a purchaser or consumer. This characteristic of the tax enables one to say of it that its fundamental concern is with the goods rather than with the person from whom it is exacted.''

However the Court in that case was concerned with goods (stationery and other printed material) manufactured by the Bank for its own use. The sales tax provision said to be applicable was s. 17(1) of the Assessment Act (No. 1) which imposed tax on the sale value of goods ``manufactured in Australia by a taxpayer and sold by him or treated by him as such for sale by retail or applied to his own use'', the third category being relevant. Thus the Bank in using goods it had manufactured was dealing with its own goods just as it would if it had sold them, in which case the first category would be relevant. Section 17(1) deals with a person who sells goods of his own manufacture or otherwise exercises rights of ownership with respect to such goods. Thus if sales tax were payable it would be, as the High Court held, payable on property belonging to the Bank.

The present case is quite different because it is not ownership or holding of the goods by GIO which triggers any liability to pay sales tax.

Constitution s. 51(xiv)

Section 51(xiv) confers power on the Commonwealth Parliament to make laws with respect to:

``Insurance, other than State insurance, also State insurance extending beyond the limits of the State concerned.''

This head of power is expressed in the same terms as the immediately preceding s. 51(xiii) in relation to banking. Parliament's powers extend to ``Banking, other than State banking''. In
Bourke & Ors v State Bank of New South Wales (1990) 170 CLR 276 at pp 288-289 the Full Court discussed the State banking exclusion and came to this conclusion:

``The only satisfactory solution to this problem is to accept that there is no exclusive State power to make laws with respect to State banking. But the words of s. 51(xiii) still require that, when the Commonwealth enacts a law which can be characterized as a law with respect to banking, that law does not touch or concern State banking, except to the extent that any interference with State banking is so incidental as not to affect the character of the law as one with respect to banking other than State banking: see
Fairfax v. Federal Commissioner of Taxation (1965) 114 C.L.R. 1 at p. 7. Put another way, the connexion with State banking must be `so insubstantial, tenuous or distant' that the law cannot be regarded as one with respect to State banking:
Melbourne Corporation v. The Commonwealth (1947) 74 C.L.R. 31 at p. 79. Of course, these are the tests used in the familiar process of characterization. But they are employed in the context of an embracing Commonwealth power expressed as one to make laws with respect to banking other than State banking. They are not

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employed in the context of an exclusive State legislative power with respect to State banking. So, if a law is not one with respect to banking, it is not subject to a restriction that it must not touch or concern State banking.''

The Assessment Act (No. 3) and the rest of the Sales Tax legislation are self-evidently not laws with respect to insurance. The challenge to their validity insofar as they affect GIO should in my opinion be rejected.


In proceeding G490 of 1991 an order was sought quashing the respondents' decision of 20 June 1991. This decision was evidenced in a letter of that date from the first respondent to GIO expressed in quite general terms. It stated that ``... GIO, trading under various business names, is not exempt from sales tax under item 74''. As I have noted, the hearing proceeded only in relation to a limited category of goods, viz motor vehicles, and some of those I have held not to be within item 74. I think the most practical course will be to exercise the power conferred by s. 16(1)(c) of the AD(JR) Act to grant declaratory relief limited to the issues which were actually argued. Accordingly I make the following order:

  • Declare that motor vehicles
    • (a) manufactured in Australia,
    • (b) sold by a person who was not the manufacturer and did not purchase from the manufacturer,
    • (c) to Government Insurance Office of New South Wales,
    • (d) for its official use, and
    • (e) not acquired by GIO for provision to employees as part remuneration for employment,

    are, within the meaning of s. 5(1) of the Sales Tax (Exemptions and Classifications) Act 1935, goods covered by item 74 of the First Schedule to that Act.

In proceeding G44 of 1992 there will be a declaration in identical terms, with the action otherwise dismissed.

GIO has failed in part on the item 74 issue and completely on the constitutional issues. The order for costs should I think reflect that result. I order that in both proceedings the respondents pay three-quarters of GIO's costs, including reserved costs.

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