TOTALIZATOR AGENCY BOARD v FC of T

Judges: Hill J

Tamberlin J
Sundberg J

Court:
Full Federal Court

Judgment date: Judgment handed down 19 August 1996

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Tamberlin J

I agree with the reasoning of Hill J and the orders which he proposes but wish to make a few additional observations.

The questions to be determined are:

• • whether the Totalizator Agency Board of New South Wales (``the TAB'') is a State for the purposes of Item 126, and
• • whether the expenditure of the TAB is exclusively borne by the State of New South Wales.

In DFC of T v State Bank (New South Wales) 92 ATC 4079; (1992) 174 CLR 219, a unanimous Full High Court adopted the explanation of Dixon J, in Bank of New South Wales v The Commonwealth (1948) 76 CLR 1 at 363, as to the constitutional concept of a ``State'' as used in s 114 of the Constitution , which was as follows:

``... From beginning to end it [ the Constitution ] treats the Commonwealth and the States as organizations or institutions of government possessing distinct individualities. Formally they may not be juristic persons, but they are conceived as politically organized bodies having mutual legal relations and amenable to the jurisdiction of courts upon which the responsibility of enforcing the Constitution rests.''

At ATC 4083; CLR 230, in the State Bank case (supra), the Court said:

``Once it is accepted that the Constitution refers to the Commonwealth and the States as organisations or institutions of government in accordance with the conceptions of ordinary life, it must follow that these references are wide enough to denote a corporation which is an agency or instrumentality of the Commonwealth or a State as the case may be.''

In the State Bank case, the Court held that the Bank was an agency or instrumentality of the State because it was discharging governmental functions for the State and was, in effect, the State carrying on banking through its statutory corporation. Other examples of instrumentalities which have been held to come within the constitutional expression ``the State'' are State Railways (s 102) and the Sydney Municipal Council (s 114). See
Federated Amalgamated Government Railway and Tramway Service Association v New South Wales Railway Traffic Employees Association (1906) 4 CLR 488 at 538-9 and
The Municipal Council of Sydney v The Commonwealth (1904) 1 CLR 208 at 231-232 and 241 .

In the instant case it is not suggested that the TAB is not within the description of ``a State'' for the purposes of s 114 of the Constitution .

However, it does not follow from this that the comprehensive constitutional concept of a State governs the construction of Item 126(1)(a) of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 (Cth).

Special considerations apply to constitutional interpretation. The federal constitution, unlike other statutes, is a broad charter of government which sets down general guidelines. Courts

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ATC 4794

should avoid pedantic and narrow constructions when dealing with such an instrument: see
James v The Commonwealth (1936) 55 CLR 1 at 43 . This is especially so in a federal system where powers are allocated as between States and the federal governments.

In his work on Statutory Interpretation (1990), Donald Gifford, observes that:

``It is... important to be aware of possible subtle differences in the area of constitutional interpretation, an area so complex and difficult, and so subject to change, as to require specialised treatment.''

The construction of Item 126 on the other hand, is a matter of statutory interpretation untrammelled by the overlay of special constitutional considerations which affect the construction of s 114.

Moreover, in s 114 the word ``State'' is not used in contrast to any other term or expression such as ``authority completely controlled'' by a State or government. The term State is used in s 114 in a wide general sense as illustrated by the Sydney Municipal Council case (supra). In normal usage one would not describe a local government council, such as the Sydney Municipal Council, incorporated under a State enactment, as being the State. However, because the Council had levied rates pursuant to powers conferred by State legislation the High Court held that those rates were a tax imposed by a State within the meaning of s 114 of the Constitution.

In my view, the words ``an Australian government'' in Item 126(1)(a) are used in contradistinction to an ``authority completely controlled by an Australian government,... whose expenditure is exclusively borne by that government''.

This approach is reinforced by the legislative history of the predecessor provisions to Item 126 wherein a contrast is drawn between goods for official use of a government department or of an authority . This history is fully set out in the judgment of Hill J and it indicates that the 1992 provisions were not intended to have any substantive effect insofar as the financial impact of the changes was expressed to be ``nil''. The Explanatory Memorandum refers to the objective of making the item ``easier to read'' and does not indicate any substantive alteration.

With respect to the second matter, the submissions focus on the question whether the expenditure of the TAB is exclusively borne by the State of New South Wales.

In FC of T v Bank of WA Ltd; FC of T v State Bank of NSW Ltd 96 ATC 4009 at 4029; (1995) 133 ALR 599 at 621, Hill J expressed the view that:

``... To limit the exemption to those authorities whose every item of expenditure is required to be appropriated from consolidated revenue is neither warranted as a matter of language nor could it reflect a sensible policy. In my view expenditure of an authority will be exclusively borne by a government where the government is liable for funding any loss which may arise after there is deducted from the income of that authority the actual payments which the authority is required to meet. This will be the case where the liabilities of a bank are, as here, guaranteed by the government.''

With respect, I am unable to agree with this observation. Full weight must be accorded to the language of Item 126(1)(b) when it refers to ``exclusively''. This means, in my view, that if any expenditure at all is not ``borne'' by the State then the requirements of the section are not met. It is not sufficient to satisfy the criterion of ``exclusivity'' that the State is obliged to, or in fact will, meet any shortfall in the funding of an authority's expenditure from its income in circumstances where any part of its expenditure is met by any person or body, other than the State. Whilst I fully appreciate the force of the observation that in practice virtually every statutory authority will impose charges, which will to some extent be used to defray its expenses, I consider that effect must be given to the requirement in the legislation namely, that the expenditure must be ``exclusively borne''. The qualitative expressions ``completely controlled'' and ``exclusively borne'' in paragraph (1)(b) of Item 126 evince an intention to narrowly delineate the scope of the exemption as opposed to provisions which use more open-ended and quantitative criteria such as ``substantially'' or ``predominantly''.

As Sundberg J has pointed out the word ``borne'' does not have the narrow meaning of ``paid''. In
Budd v Marshall (1880) 50 LJQB 24 at 29 , speaking of a covenant to ``bear, pay and discharge'' certain specified rates and taxes, Baggallay LJ observed that:

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ATC 4795

``... the word `duties', in addition to rates, taxes and assessments, in the enumeration of charges and impositions to which the covenant is made applicable; and the addition of the word `bear' to the words `pay and discharge', in the earlier part of the covenant, has, in my opinion, the effect of more distinctly developing its very comprehensive character.''

The expenses must be ``exclusively borne'' by the State in order to come within paragraph (1)(b). This expression conveys that although it is not necessary that all expenditure should be paid by the State, it is essential the liability for payment of all expenditure must be the ultimate responsibility of the State. If there is any expenditure which is not ``borne by the State'' then the requirements of the paragraph are not satisfied.

The words ``exclusively borne'' are capable of referring to either a factual situation wherein it is necessary to consider by whom, in fact , the expenditure is borne, or alternatively, they can be read as referring to a legal obligation to ultimately fund the expenditure. In the present case there is no evidence that the State government, as a matter of fact, exclusively bears all the expenditure of the TAB. Indeed, there is no evidence that the State has ever paid any money to the TAB to meet expenses. The evidence of Mr Windross, the General Manager of the TAB, was that it would not be possible for the TAB, in the ordinary course, to suffer significant financial difficulties. He said that if, due to some extraordinary event, the TAB found itself in financial difficulty, it would approach the State government for assistance, because the racing industry would otherwise come to a standstill if there were no surplus available to be distributed to the various authorities and racing clubs. This indicates that the question of State funding has, in fact, not previously arisen and that if it did, the TAB would not make a claim as a matter of right on the State government, but would rather approach the State government as a suppliant and seek ``assistance''.

Mr Windross also pointed out in his affidavit that the commission paid to the Board must be applied to pay the operating costs of the TAB. If this is done any surplus with the approval of the Minister, is to be used to meet the costs of establishing or improving additional TAB offices, branches, or agencies. Any surplus which then remains after the Board has paid those expenses, is to be distributed to the Greyhound Racing Control Board, the Harness Racing Authority, approved racing clubs and the Race Course Development Fund in accordance with a Scheme of Distribution approved by the Minister. Sub-section 14(3) of the Totalizator (Off-Course Betting) Act 1964 (NSW) contains provisions to this effect. It requires the TAB to apply amounts which it receives as commission, towards defraying its costs and expenses of other activities in relation to the establishment of additional offices, branches or agencies and then to pay any balance to the bodies nominated above.

It was submitted for the Commissioner that insofar as the TAB used the commissions received to meet its expenditure, such expenditure was borne by a fund which, although distinct from the consolidated revenue fund, was constituted by legislation and which was ``appropriated by the same legislation''. This, it is suggested could be practically regarded, in the ultimate result, as being equivalent to paying income earned by the TAB into consolidated revenue and then paying it back to the TAB to enable it to pay expenses. The circularity resulting from this process it is said, is avoided by using TAB income to directly meet expenses without first paying it into and then out of consolidated revenue.

In my view, it is necessary to examine the precise way in which the expenditure is to be met under the Act. The legislative machinery specifically provides for expenditure of the TAB to be met from its own funds without any payment into or from consolidated revenue. Both under the legislation and as a matter of practice, the costs and expenses of the TAB are defrayed from its income. Its expenditure is not in any sense paid by or otherwise exclusively borne or met by the State. Accordingly, the requirements of Item 126(1)(b) are not satisfied.

For the above reasons, I conclude that the goods in question are not for use by an Australian government and that although the TAB is an ``authority'', its expenditure is not exclusively borne by the Australian government.

For the above reasons, the appeal should be dismissed with costs.